UNITED STATES OF AMERICA
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 For the fiscal year ended December 31, 2000
                                       OR

[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from __________  to ____________

Commission File Number:      333-58059
                              Cluett American Corp.
             (Exact Name of Registrant as Specified in Its Charter)
Delaware                                                              22-2397044
(State or Other Jurisdiction of                                 (I.R.S. Employer
Incorporation or Organization)                               Identification No.)

                     48 West 38th Street New York, NY 10018
               (Address of Principal Executive Offices) (Zip Code)

         Registrant's Telephone Number, Including Area Code 212-984-8900

Securities registered pursuant to Section 12(b) of the Act:

Title of Each class                   Name of each exchange on which registered
None                                  None
-----------------------               ----------------------------------------

Securities registered pursuant to Section 12(g) of the Act:

                                      None
                     --------------------------------------
                                (Title of Class)

     Indicate  by check  mark  whether  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.
Yes  X    No

     Indicate by check mark if disclosure of delinquent  filers pursuant to Item
405 of Regulation S-K (section 229.405 of this chapter) is not contained herein,
and will not be contained,  to the best of registrant's knowledge, in definitive
proxy or information  statements  incorporated  by reference in Part III of this
form 10-K or any amendment to this Form 10-K. [ ]

     Indicate by check mark whether the  registrant  has filed all documents and
reports  required  to be filed by  Sections  12, 13 or 15 (d) of the  Securities
Exchange Act of 1934 subsequent to the  distribution of securities  under a plan
confirmed by a court. Yes X No

     The aggregate  market value of the voting stock held by any  non-affiliates
of the  registrant  is zero as of December  31,  2000.  All common  stock of the
registrant is owned by Cluett  American  Group,  Inc.,  which is a  wholly-owned
subsidiary of Cluett American Investment Corp.


<PAGE>


                                TABLE OF CONTENTS


PART I

Item 1.         Business

Item 2.         Properties

Item 3.         Legal Proceedings

Item 4.         Submission of Matters to a Vote of Security Holders


PART II

Item 5.         Market for Registrant's Common Equity and Related Stockholder
                Matters

Item 6.         Selected Financial Data

Item 7.         Management's Discussion and Analysis of Financial Condition
                and Results of Operation

Item 7A.        Quantitative and Qualitative Disclosures about Market Risk

Item 8.         Financial Statements and Supplementary Data

Item 9.         Changes in and Disagreements with Accountants on Accounting
                and Financial Disclosures


PART III

Item 10.        Directors and Executive Officers of the Registrant

Item 11.        Executive Compensation

Item 12.        Security Ownership of Certain Beneficial Owners and Management

Item 13.        Certain Relationships and Related Transactions


PART IV

Item 14.        Exhibits, Financial Statement Schedules, and Reports on Form 8-K


SIGNATURES

EXHIBIT INDEX








<PAGE>



                                     PART I

Item 1.  Business

     Cluett American Corp. and its subsidiaries (the "Company") are wholly-owned
subsidiaries of Cluett American Investment Corp.  ("Holdings").  The Company was
organized in 1982 and primarily  designs,  manufactures and markets socks in the
United States,  as well as licenses its  proprietary  trademarks and trade names
domestically  and  internationally.  The Company filed  voluntary  petitions for
relief under the provisions of Chapter 11 of the Federal Bankruptcy Code on July
17, 1995. The Company's recapitalization and refinancing were consummated on May
18, 1998.

Recent Events and Discontinued Operations

     On June 13, 2000, Phillips-Van Heusen Corporation, ("PVH"), and the Company
announced an agreement (the  "Agreement") for PVH to license the Arrow brand for
men's and boys' dress shirts, sports shirts (including knit, woven and all forms
of  fleece),  pants,  shorts and  sweaters  ("Licensed  Product")  in the United
States. In addition,  PVH and the Company agreed in principle for PVH to acquire
the stock of Cluett Designer Group, Inc. ("CDG"),  the licensee for Kenneth Cole
dress shirts. In conjunction with the Agreement,  the Company approved a plan to
discontinue the Company's shirt group segment's  manufacturing  and distribution
operations.

     On July 24, 2000, the transactions contemplated by the Agreement, including
the  Purchase and Sale  Agreement  among  Cluett,  Peabody & Co.,  Inc.  ("CP"),
Cluett,  Peabody Canada, Inc. ("CP Canada"),  Arrow Factory Stores Inc. ("AFS"),
CDG,  Consumer  Direct  Corporation  ("CDC"),   Cluett,  Peabody  Holding  Corp.
("Holding"), and PVH, (the "Purchase and Sale Agreement") and the Share Purchase
Agreement among CP, CDG, Bidermann Tailored Clothing Inc. ("BTC"),  and PVH (the
"Share Purchase Agreement") were closed. Each of the parties to the Purchase and
Sale Agreement and the Share Purchase  Agreement  other than PVH and CDG is, and
prior to the closing CDG was, a wholly-owned subsidiary of the Company.

     Pursuant to the Purchase  and Sale  Agreement,  (i) all of the  outstanding
shares  of  capital  stock  of  C.A.T.  Industrial  S.A.  de C.V.,  ("C.A.T")  a
corporation  organized under the laws of Honduras,  were sold to PVH by CP, AFS,
CDG, CDC and Holding,  (ii) PVH purchased all of CP's and AFS's right, title and
interest in and to certain of the other assets (principally inventory) of CP and
AFS used  primarily  by CP and AFS in their Arrow label and private  label men's
and boys'  dress and sport  shirt  businesses  and their  Arrow  factory  outlet
operations  in the United  States  and (iii) PVH  purchased  all of CP  Canada's
right,  title and interest in and to Arrow label dress and sport shirt inventory
used in CP Canada's  United States "Career  Apparel"  business.  Pursuant to the
Share Purchase Agreement,  all of the outstanding shares of capital stock of CDG
were sold by CP and BTC to PVH.

     The aggregate  purchase price paid by PVH pursuant to the Purchase and Sale
Agreement and the Share Purchase  Agreement for the stock and assets referred to
above  was  approximately  $51.2  million  in cash plus the  assumption  of $2.1
million of debt  related to C.A.T.,  calculated  as set forth in, and subject to
adjustment pursuant to, Article 3 of each of the Purchase and Sale Agreement and
the Share Purchase  Agreement.  The Company has irrevocably and  unconditionally
guaranteed  the  payment  of any  amount  payable by CP or BTC to PVH under each
Agreement  which is not paid by CP or BTC when due,  including  pursuant  to the
purchase price adjustment and indemnification provisions of the Agreements.

     Pursuant  to  the  Purchase  and  Sale  Agreement,  the  Trademark  License
Agreement  ("PVH  Trademark  License  Agreement"),  dated July 24, 2000,  by and
between Cluett Peabody Resources Corporation ("CPR"), a Delaware corporation and
a wholly-owned subsidiary of the Company, CP and PVH was executed and delivered.
Pursuant to the PVH Trademark License Agreement,  CP granted to PVH an exclusive
license to use  trademarks  related to CP's "Arrow"  clothing line in the United
States and its territories  and possessions in connection with its  manufacture,
advertising,  marketing, promotion,  distribution, offer to sell and the sale of
men's and  boys'  Licensed  Product  in  certain  specified  channels  of trade,
including the Internet.  CP also granted to PVH the right to operate most of the
websites that use URLs that incorporate the ARROW trademarks.  The PVH Trademark
License Agreement  provides for a $5.0 million minimum guaranteed annual royalty
fee to be paid to CP, subject to cost of living adjustments. The initial term of
the license expires on June 30, 2007;  however,  PVH has the option to renew the
PVH Trademark License Agreement for two additional five-year terms,  provided it
meets certain conditions.

     The Company used $39.3  million of the net  proceeds  from the Purchase and
Sale  Agreement,  the Share  Purchase  Agreement and the PVH  Trademark  License
Agreement  (collectively referred to as the "Transactions") to repay outstanding
borrowings under its Senior Credit Facility and CP Canada's Credit Facility.

     On January 29, 2001, and pursuant to an Asset Purchase Agreement, CP Canada
sold certain assets (principally inventory, personal property, and manufacturing
equipment)  used primarily by CP Canada's Arrow labeled apparel bearing the name
or logo of other Corporate  entities or other  organizations  ("Career Apparel")
businesses in Canada,  apparel sold in specialty  golf stores and golf pro shops
("Golf Apparel") and FRIDAY'S BY CLUETT businesses in Canada,  the United States
and Puerto Rico, to The John Forsyth Shirt Company, LTD. ("Forsyth").

     Pursuant to a  Trademark  License  Agreement  ("Forsyth  Trademark  License
Agreement"),  dated as of January 29, 2001, CP and CP Canada  granted to Forsyth
an exclusive  license to use trademarks  related to the Arrow business in Canada
and the  Friday's  By Cluett and golf  apparel  business  in Canada,  the United
States and Puerto Rico.  The terms of the license  expires on December 31, 2005;
however,  Forsyth  has the option to renew for two  additional  five year terms,
provided it meets certain conditions.

     The aggregate purchase price paid by Forsyth pursuant to the Asset Purchase
Agreement was approximately $8.0 million,  and subject to adjustment pursuant to
Section 4 of the Asset Purchase Agreement.

     The Company used $5.4 million of the net proceeds  from the Asset  Purchase
Agreement to repay outstanding borrowings under CP Canada's loan facility.

     The Company has  completed  the  majority of the  disposition  of the shirt
group segment's  manufacturing  and distribution  operations.  Accordingly,  the
Company's  consolidated  financial  statements  reflect  the shirt  segment as a
discontinued operation. Consequently, the Company's remaining businesses include
primarily the Sock and Licensing Groups.


Description of Business

    Based on net sales, the Company believes it is one of the leading designers,
manufacturers  and  marketers  of men's  socks in the  United  States  and has a
significant  market presence in women's and children's socks.  While the Company
serves most channels of  distribution,  its primary  focus is on department  and
national chain store retailers.  The Company believes its core product offering,
GOLD  TOE  socks,  provides  classic  styles  at  price  points  that  represent
exceptional value and appeal to a broad consumer base.

    The Company markets its socks using widely recognized  Company-owned  brands
such as GOLD TOE and SILVER TOE.  The Company  primarily  sells its  products to
department  and national chain stores to maintain its brand image and to achieve
the relatively  higher selling prices and higher margins  characterized by sales
to these retail  channels.  Approximately  69.4% of the  Company's net sales are
derived from these core offerings, the demand for which is believed to be stable
and resistant to changing fashion trends.

    Within  certain  territories,  the Company also has  licensed the  exclusive
rights to manufacture and market socks under such widely  recognized brand names
as Kenneth Cole,  Nautica,  Jockey and The North Face. This diverse portfolio of
Company-owned  and licensed  brand names enables the Company to offer  different
brands with unique value propositions to different channels of distribution.

    The Company owns numerous trademarks,  including ARROW and its related trade
names such as DOVER, TOURNAMENT,  LADY ARROW, FAIRFIELD BY ARROW and FRIDAY'S BY
CLUETT,  which  it  regards  as  valuable  assets.  Because  of the  high  brand
recognition,  the Company is able to license the various  trademarks  to apparel
manufacturers and distributors  worldwide.  The Company has over 30 licensees in
various  countries,  which  market,  manufacture  and sell Arrow  trademarks  in
apparel and non-apparel products in various channels of distribution.

     The Company conducted its business through two principal segments: the Sock
Group and the Licensing Group.

     The Sock  Group-  For the year  ended  December  31,  2000,  the Sock Group
accounted  for 94.2% of the  Company's  net  sales.  The Sock  Group is a market
leader in department store sales of socks. The Sock Group's leading brand,  GOLD
TOE,  was  established  in 1934 and  generates  approximately  67.3% of the Sock
Group's  net sales with the  remaining  sales  generated  through  complementary
private labels and through  licensed brands such as Nautica,  Jockey and Kenneth
Cole. The Sock Group offers a  comprehensive  line of products  across  multiple
price  points,  ages,  genders and styles,  enabling it to provide its customers
with a full range of their sock requirements. For the fiscal year ended December
31, 2000,  the Sock Group  realized  net sales and EBITDA of $169.0  million and
$30.1 million, respectively. EBITDA, as defined ("EBITDA As Defined") is defined
as operating income before  depreciation  and  amortization,  interest  expense,
taxes and restructuring and impairment charges.  EBITDA As Defined should not be
considered  in isolation or as a substitute  for net income,  certain cash flows
from operating  activities and other income or cash flow statement data prepared
in accordance with accounting principles generally accepted in the United States
of America or as a measure of profitability  or liquidity.  EBITDA As Defined is
not necessarily comparable to other similarly titled captions of other companies
due to differences in methods of calculation.

     The Licensing  Group- For the year ended  December 31, 2000,  the Licensing
Group accounted for approximately 5.1% of the Company's net sales. The Licensing
Group owns various  trademarks,  including  ARROW,  and its related trade names,
DOVER,  KENT,  COLLARMAN,  ARROW  "1851,"  KHAKI'S by ARROW and ARROW  AMERICA'S
SPORT. Because of the name recognition of its ARROW brand, which was established
in 1851,  the  Company is able to license  the  trademark  for  various  apparel
products  both  domestically  and  internationally.  For the  fiscal  year ended
December 31, 2000, the Licensing  Group  realized  licensing fee revenue of $9.0
million and EBITDA As Defined of $7.0 million.

    For  additional  information  about the  Company's  product  categories  and
reportable  segments,  see  "Note  17 -  Segment  Data"  of  the  Notes  to  the
Consolidated Financial Statements.

Marketing, Sales & Distribution

    The Sock Group is a  significant  supplier to many  leading  department  and
national  chain store  retailers.  In addition,  the Sock Group is a supplier to
specialty stores, mass merchants and discount retailers.  The Sock Group segment
uses brand names by distribution channel to solidify the perceived value of such
brands and to maintain their integrity.  Consistent with industry practice,  the
Sock Group does not operate under long-term  written supply  agreements with its
customers.  The Sock Group's top ten customers  accounted for 79.0% of its total
net sales in the fiscal year ended December 31, 2000.

    To better serve its  customers,  the Sock Group  installed a vendor  managed
inventory  system ("VMI") in 1998.  The VMI system  provides the Sock Group with
real  time  information  on  the  sales  of the  Sock  Group's  products  by its
customers.  This allows the Sock Group to monitor inventory levels at a customer
and initiate  replenishment  orders  without  having to wait for the  customer's
direct request.

    In an effort to maximize  the Sock  Group's  product  exposure  and increase
sales,  the Sock Group works closely with its major  customers to assist them in
managing their entire sock category and to promote the Sock Group's  products to
the consumer.  In addition to frequent personal  consultation with the employees
of these customers, the Sock Group periodically meets with its customers' senior
managers to jointly develop merchandise  assortments and plan promotional events
specifically  tailored to that customer.  The Sock Group provides  merchandising
assistance with store layouts,  fixture  designs,  advertising and point of sale
displays.  In  addition,  the Sock Group  provides  customers  with  preprinted,
customized advertising materials designed to increase sales. The Sock Group does
not use  national  brand  advertising  because it has found the  above-described
advertising techniques to be more cost effective.

    As a  supplement  to the Sock Group's  primary  distribution  channels,  the
Company operates five outlet stores that sell the Sock Group's products directly
to consumers;  these operations are referred to as the US Retail division. These
stores generally sell  irregulars,  discontinued and off-price goods. The stores
are located in factory outlet malls and average  approximately 1,200 square feet
per store. For financial  reporting  purposes,  the financial  results of the US
Retail division are consolidated  into the All Other segment.  During the fiscal
year ended  December  31,  2000,  no GOLD TOE outlet  stores  were closed and no
stores were opened.

    The Sock Group  employs  sales people who  generally  have several  years of
industry  experience.  Because the turnover of buyers at retail  stores is high,
many  retailers  rely on the  experience  of their key  vendors to manage  their
business for them.  The Sock Group has developed a  well-respected  expertise in
managing such businesses for its key accounts.  Most sales and sales  management
personnel are compensated with a combination of salary and  discretionary  bonus
based on established goals and objectives.

Raw Materials

    The Sock Group relies on outside  suppliers to meet its raw material  needs.
The Sock Group has  developed  key  relationships  with each of the largest yarn
suppliers in the industry.  Due to its size,  management believes the Sock Group
has developed solid supplier  relationships  and  historically  has been able to
obtain competitive pricing.

    The Sock Group  minimizes the effects of seasonal  variations in yarn prices
by securing annual  contracts for yarn based on its  anticipated  needs for each
year. Sock manufacturers in the industry  typically  negotiate yarn contracts in
the third  quarter  of the year for the  following  year.  Selling  prices  with
retailers  are then  negotiated  in  January  and  February  based on those yarn
prices.  Historically,  this process has acted as a natural hedge against rising
yarn  prices.  The Sock  Group has no  long-term  purchase  commitments  for raw
materials.

Manufacturing

    The  Sock  Group   produces  its  sock  products   through  owned   domestic
manufacturing facilities, imports and subcontracting through domestic suppliers.
Approximately  75.0% of all production is done at Sock  Group-owned  facilities,
15.0% is  contracted  in the United  States  with other  suppliers  and 10.0% is
imported.  The Sock Group operates  three  manufacturing  facilities  located in
Newton and Burlington,  North Carolina and Bally,  Pennsylvania.  Strategically,
the Sock Group has begun a process to move its finishing capacity offshore where
it realizes  substantial  savings.  This operation is located in Tepiji Del Rio,
Mexico, near Mexico City. Socks are primarily made from cotton, nylon or acrylic
yarns. These yarns are knit on a circular knitting machine in a tube-like manner
with  additional  courses  placed in the  construction  to form a pocket for the
wearer's heel and toe. The sock is seamed to close the toe end of the tube, dyed
to the proper color and packaged for retail store presentation.

    The Sock  Group's  quality  control  program is  designed to assure that its
products  meet  predetermined  quality  standards.  The Sock  Group has  devoted
significant   resources  to  support  its  quality  improvement  efforts.   Each
manufacturing  facility is staffed with a quality  control team that  identifies
and resolves quality issues.

Trademarks and License Agreements

The Sock Group

    The Sock Group markets its products  under its own  proprietary  trademarks,
trade  names and  customer-owned  private  labels,  as well as certain  licensed
trademarks  and trade  names.  The Sock Group uses  trademarks,  trade names and
private  labels  as  merchandising  tools to  assist  its  retail  customers  in
coordinating  their product  offerings and  differentiating  their products from
those of other retailers.

    The Sock Group owns various  trademarks  and trade names  including GOLD TOE
and SILVER TOE.  These  trademarks  and trade names  represent  value in product
quality and design.  The Sock Group  regards its  trademarks  and trade names as
valuable assets and rigorously protects them against infringement.

    The Sock Group holds, with the exception of Kenneth Cole, the exclusive sock
licenses for the following  trademarks (the Kenneth Cole sock license is held by
the  Licensing   Group;   product  sales  under  the  Kenneth  Cole  license  is
consolidated into the Sock Group for financial reporting purposes only):


TRADEMARK                       TERRITORY                         EXPIRATION
---------------       -----------------------------               ----------

The North Face        U.S., Canada, Europe and Asia               12/31/2004 (1)

Kenneth Cole          U.S.                                        12/31/2003 (2)

Nautica               U.S. and Canada                             12/31/2001 (3)

Jockey                U.S.                                        12/31/2002 (4)

Union Bay             U.S.                                        12/31/2004


(1)  Option to renew.
(2)  License held by Licensing Group. The Company has a good  relationship  with
     the  licensor  and  is  currently  having  discussions   regarding  license
     extension.
(3)  The original license  provided,  and was renewed,  for one additional three
     year  term,  which  expires  December  31,  2001.  The  Company  has a good
     relationship  with the  licensor and is  currently  in  negotiation  for an
     additional renewal of the license for three to five years.
(4)  The Company has a good  relationship  with the licensor and has ongoing
     discussions regarding renewal.

    The Sock Group is not dependent on any one of these  licensed  product lines
(for the year ended December 31, 2000,  16.0% of the Sock Group's net sales were
derived from licensed  products),  and the loss of any individual  license would
not have a material adverse effect on the Sock Group's overall profitability.

    The Sock Group has  licensed  the GOLD TOE  trademark  to two  licensees  in
Mexico and The  Philippines,  which provide for minimum  royalty  payments to be
paid to the Sock Group.

The Licensing Group

    The  Licensing  Group owns various  trademarks  and trade  names,  including
ARROW.  The ARROW trademark is widely  recognized in the industry and represents
excellence and value in product quality, fashion and design. Because of the name
recognition  of its ARROW brand,  which was  established in 1851, the company is
able to license the ARROW brand and related trademarks for apparel products both
domestically and internationally. The Licensing Group regards its trademarks and
trade  names  as  valuable   assets  and   rigorously   protects   them  against
infringement.

    The  Licensing  Group  licenses  the  ARROW  and  related  trademarks  to 30
licensees for use in territories  within and outside the United States.  Through
licensing  alliances,  the  Licensing  Group  combines its consumer  insight and
design,  marketing  and imaging  skills with the specific  product or geographic
competencies of its licensing  partners to create and build new businesses.  The
Licensing Group's licensing partners,  who are often leaders in their respective
markets, generally contribute the majority of product development costs, provide
the  operational  infrastructure  required to support the  business  and own the
inventory.  The Licensing Group works in close  collaboration with its licensing
partners to ensure that  products are  developed,  marketed and  distributed  to
address the  intended  market  opportunities  and present the  Licensed  Group's
products  consistently.  While  product-licensing  partners may employ their own
designers,  the Licensing Group oversees the design of all their  products.  The
Licensing  Group  also works  closely  with  licensing  partners  to  coordinate
marketing and  distribution  strategies.  For the fiscal year ended December 31,
2000,  the Licensing  Group had  licensing  fee revenue of $9.0  million,  which
includes six months of the PVH license fee revenue.

    Most of the ARROW license  agreements  provide for a minimum royalty payment
and require the licensee to spend a percentage of net sales on  advertising  and
marketing of products  bearing the ARROW  trademark . The licenses are for three
or five-year  terms which,  in most cases,  have provisions for renewal terms if
the licensee has not breached the agreement and has met certain sales goals. The
Licensing  Group also has the right to  supervise  the  quality of the  licensed
products.  The  Licensing  Group  licenses the ARROW  trademark to United States
licensees  for use on apparel and  non-apparel  products  such as men's  fashion
eyewear.

Seasonality

    The  industries  in which the Company  operates are  cyclical.  Purchases of
apparel  tend to decline  during  recessionary  periods  and also may decline at
other  times.  A recession  in the general  economy or  uncertainties  regarding
future economic prospects could affect  consumer-spending  habits and could have
an  adverse  effect on the  Company's  results  of  operations.  Weak  sales and
resulting  markdown  requests from customers could also have a material  adverse
effect on the Company's business, results of operations and financial condition.

    The Company's business is seasonal,  with higher sales and income during its
third and fourth  quarters.  The third and  fourth  quarters  coincide  with the
Company's two peak retail  selling  seasons:  (i) the first season runs from the
start of the  back-to-school  and fall selling seasons,  beginning in August and
continuing through September;  and (ii) the second season runs from the start of
the Christmas selling season beginning with the weekend  following  Thanksgiving
and continuing through the week after Christmas.


Working Capital

     Working  capital  needs  are  affected   primarily  by  inventory   levels,
outstanding  receivables and trade  payables.  At December 31, 2000, the Company
had  available  for its use with its  syndicate of lenders,  a revolving  credit
facility of $50.0  million and a Tranche C Loan of $19.2  million.  These credit
facilities  are used by the  Company to cover  fluctuations  in working  capital
needs.  At December 31, 2000,  the Company had  outstanding  borrowings of $21.2
million  under  the  revolver  plus  $17.5  million  under  the  Tranche C Loan.
Borrowings  under the Tranche C Loan are due and payable on December  31,  2002,
and are guaranteed by Vestar Capital Partners III, L.P. ("Vestar").  The Company
had no open  trade  letters  of credit  reserved  against  these  facilities  at
December 31, 2000. At December 31, 2000, the Company had additional availability
of $29.5  million under these credit  facilities,  after  consideration  of $1.0
million of standby  letters of credit.  The Company had cash of $1.3  million at
December 31, 2000.

       Inventory  levels are affected by  anticipated  sales.  It is the general
practice of the Company to offer payment terms of net 30 days to the majority of
its customers from the date of shipment.

Reliance on Certain Customers

The Sock Group

    The Sock Group's ten largest customers  accounted for approximately 79.0% of
its  net  sales  in  2000.  The  Sock  Group  has  four  customers,  which  each
individually,  accounted  for  greater  than  10.0% of net sales.  Although  the
Company has long-standing relationships with these customers, the Company has no
long-term  contracts  with any of these  customers.  A substantial  reduction in
sales to these customers  could have a material  adverse effect on the financial
condition and results of operations of the Company.

The Licensing Group

         The  Licensing   Group's  revenues  from  its  five  largest  licensees
accounted for  approximately  56.0% of its net license fee revenue in 2000.  The
Licensing  Group has one  customer  that  accounted  for more than  10.0% of its
license fee revenue.  Exposure regarding the revenue  concentration is mitigated
by license fee revenues being generated by various  product  categories and from
different geographic  locations  throughout the world.  Although the loss of any
one licensee would impact the financial results of the Licensing Group, it would
not likely have a material adverse effect on the financial condition and results
of operations of the Company.

Employees

     As of December 31, 2000, the Company  employed 1,423 persons on a full-time
basis and 39 persons on a part-time basis. Of the total number of persons, 1,422
are in the Sock Group, 25 are in the US Retail division,  seven are in corporate
administrative  functions,  five are in the  Licensing  Group  and  three are in
Apparel On-Line LLC. Of the total employees, 1,206 were engaged in manufacturing
and  distribution  operations,  and the  remainder  was  employed in  executive,
marketing,  sales  and  purchasing  activities,  and  in  the  operation  of the
Company's retail outlet stores.

Competition and Industry Risks

    The sock  industry is highly  competitive  due to its mix of large and small
producers,  the flow of domestic and imported merchandise and the wide diversity
of  retailing   methods.   The  Company   competes  with  numerous   brands  and
manufacturers  of socks,  some of which  may be  significantly  larger  and more
diversified  and have greater  financial and other  resources  than the Company.
Increased  competition from these and future  competitors could reduce sales and
prices, adversely affecting the Company's results of operations.

    The sock industry is cyclical.  Purchases of apparel tend to decline  during
recessionary  periods and also may decline at other  times.  A recession  in the
general  economy or  uncertainties  regarding  future  economic  prospects could
affect  consumer-spending  habits  and  could  have  an  adverse  effect  on the
Company's results of operations. Weak sales and resulting markdown requests from
customers could also have a material  adverse effect on the Company's  business,
results of operations and financial condition.

    The Sock  Group's  primary  sock  competitors  are:  Sara Lee  ('Hanes'  and
'Champion'  brands);  Renfro ('Gitano' and  'Fruit-of-the-Loom'  brands);  Royce
Hosiery Mills, Inc.  ('Dockers' and 'Levi' brands);  Kayser-Roth  ('Burlington,'
'Hue'  and 'No  Nonsense'  brands);  American  Essentials  ('Calvin  Klein'  and
'American Essentials' brands) and Hot Sox ('Polo,' 'Hot Sox,' 'Chaps' and 'Ralph
Lauren'  brands).  The Company  believes;  however,  that it manufactures a more
extensive  line of socks for both genders and  children  and in a broader  price
range than any of its competitors.

     The Company has historically  benefited from import restrictions imposed on
foreign  competitors in the apparel  industry.  The extent of import  protection
afforded to domestic  manufacturers such as the Company;  however, has been, and
is likely to remain,  subject to considerable  political  deliberation.  General
Agreements on Trade and Tariffs ("GATT") will eliminate, over a number of years,
restrictions on imports of apparel.  In addition,  on January 1, 1994, the North
American  Free  Trade  Agreement  ("NAFTA")  became  effective.  Each  of  these
agreements  will reduce  import  constraints  previously  imposed on some of the
Company's  competitors  and will increase the  likelihood of  competition on the
basis of price.

Environmental Matters

    The  Company is subject to various  federal,  state and local  environmental
laws and  regulations  concerning,  among other things,  wastewater  discharges,
storm water flows, air emissions, ozone depletion and solid waste disposal.

    Environmental  regulation applicable to the Company's operations is becoming
increasingly  more stringent.  The Company  continues to incur capital and other
expenditures  each year in order to comply with  current  and future  regulatory
standards.  The  Company  does not  expect;  however,  that the  amount  of such
expenditures in the future will have a material  adverse effect on its financial
condition,  results  of  operations  or  competitive  position.  There can be no
assurance;  however, that future changes in federal, state or local regulations,
interpretations of existing  regulations,  or the discovery of currently unknown
problems or conditions  will not require  substantial  additional  expenditures.
Similarly,  the extent of the Company's liability,  if any, for past failures to
comply with laws, regulations and permits applicable to its operations cannot be
determined.


<PAGE>


Item 2.   Properties

Facilities

     The  Company's  principal  executive  offices  are  located at 48 West 38th
Street, New York, NY 10018. The following table summarizes  certain  information
concerning certain of the Company's facilities:

                                                       APPROX.
LOCATION                         USE                 SQUARE FEET    OWNED/LEASED
--------               -------------------------     -----------    ------------
Sock Group:
  Bally, PA............Manufacturing                    155,000          Owned
  Newton, NC...........Manufacturing                     81,600          Owned
  Burlington, NC.......Manufacturing                    251,400          Owned
  Mebane, NC...........Distribution                     300,000         Leased
  New York, NY.........Showrooms                         11,000         Leased
  Burlington, NC.......Office Space                       8,300         Leased

Licensing Group:
 New York, NY..........Showroom/Administrative           10,000         Leased

Discontinued Operations:
  Enterprise, AL.......Manufacturing (1)                 50,000          Owned
  Kitchener, Ontario...Manufacturing (1)                145,000          Owned
  Kitchener, Ontario...Distribution  (2)                125,000         Leased
  Austell, GA..........Manufacturing/Distribution (1)   593,000          Owned
  Toronto, Ontario.....Showroom (2)                       8,100         Leased
  Smyrna, GA...........Administrative (2)                28,486         Leased
  New York, NY.........Showroom/Administrative           20,000         Leased





(1)      Property held for sale as of December 31, 2000.
(2)      Property held for sub-leasing as of December 31, 2000.


    In addition,  the Company operates 5 outlet stores on leased  premises.  The
Company  believes that its existing  facilities  are  adequately  insured,  well
maintained  and in good operating  condition and are otherwise  adequate for its
current and foreseeable level of operations for the next few years.




<PAGE>





Item 3.   Legal Proceedings

    From time to time,  the  Company is involved  in various  legal  proceedings
arising from the ordinary  course of its business  operations,  such as personal
injury claims, employment matters and contractual disputes. The Company believes
that its potential  liability with respect to proceedings  currently  pending is
not material in the aggregate to the Company's  consolidated  financial position
or results of operations.

    In  connection  with  the  bankruptcy  proceedings,   the  Company  incurred
bankruptcy  reorganization  costs of $2.5 million in 1998 for professional fees.
In 1999, the Company recognized  bankruptcy  credits of $573,000.  For 2000, the
Company did not incur any costs or recognize any bankruptcy credits.



Item 4.   Submission of Matters to a Vote of Security Holders

      During the fourth  quarter of 2000,  no matter was  submitted to a vote of
security  holders  of the  Company  by means of the  solicitation  of proxies or
otherwise.



                                     PART II


Item 5.  Market for Registrant's Common Equity and Related Stockholder Matters

            All of the  Company's  outstanding  common  stock is held by  Cluett
American  Group ("CAG") and there is no  established  public  trading market for
such stock.  The  Company has paid no  dividends  to common  stockholders  since
inception  and does not have any present  intention  to commence  payment of any
cash  dividends.  The Company's  ability to pay such dividends is limited by the
terms of its Senior Credit Facility  agreement and the Indenture relating to its
10 1/8% Senior  Subordinated Notes due 2008 and its 12 1/2% Senior  Exchangeable
Preferred  Stock due 2010.  The  Company  intends to retain  earnings to provide
funds for  operation  and  expansion of the  Company's  businesses  and to repay
outstanding indebtedness.



<PAGE>


Item 6.   Selected Financial Data

     The following  table sets forth summary  historical  financial  data of the
Company for each of the five years in the period ended  December  31, 2000.  The
following statement of operations data set forth below with respect to the years
ended  December  31,  1998,  1999 and 2000,  and the  balance  sheet  data as of
December 31, 1999 and 2000, are derived from, and are referenced to, the audited
consolidated  financial  statements  of the Company  included  elsewhere in this
annual report on Form 10-K.  The  statement of  operations  data set forth below
with  respect to the years ended  December  31,  1996 and 1997,  and the balance
sheet data as of December 31, 1996,  1997 and 1998,  are derived from  financial
statements not included in this Annual Report on Form 10-K.
<TABLE>
<S>                                                       <C>           <C>           <C>           <C>           <C>
                                                          1996          1997          1998          1999          2000
                                                          ----          ----          ----          ----          ----


                                                                              (DOLLARS IN MILLIONS)

Statement of Operations Data: (1)
Net sales                                                  $150.6         $157.1       $169.3        $172.6        $177.9
Operating income                                             18.6           27.0         27.1          34.2          29.1

Balance Sheet Data:  (1)
Total assets                                                181.6          187.0        193.5         197.2         153.6
Total long-term debt, net of current portion (2)              5.2             --        235.5         257.0         227.9
Debt subject to compromise  (2)                             146.0          145.6           --            --            --
Redeemable Preferred Stock  (3)                                --             --         51.3          58.3          66.2
Preferred stock   (3)                                        18.7           20.0           --            --            --


</TABLE>

(1)       Statement of Operations Data and Balance Sheet Data have been restated
          to reflect the  Company's  continuing  operations  including  the Sock
          Group,  the  Licensing  Group and all other  (Latin  America,  Apparel
          On-Line LLC, Cluett American  Receivables  LLC, US Retail division and
          unallocated  corporate  overhead  charges) and excludes the  Company's
          discontinued  Shirt Group  operation.  See Item 1. -Business,  "Recent
          Events  and  Discontinued   Operations"  and  Note  2.   -Discontinued
          Operations of the Notes to the Consolidated Financial Statements.

(2)       The Company filed voluntary  petitions for relief under the provisions
          of Chapter 11 of the Federal  Bankruptcy  Code on July 17,  1995.  The
          Company's recapitalization and refinancing were consummated on May 18,
          1998.

(3)       In connection with the recapitalization  and refinancing,  the Company
          issued 500,000 shares of 12-1/2% senior  exchangeable  preferred stock
          due 2010 and  received  $48.1  million.  Each  preferred  share  has a
          liquidation value of $100. See Note 4. -Redeemable  Preferred Stock of
          the Notes to the Consolidated Financial Statements.





<PAGE>


Item 7.  Management's  Discussion  and Analysis of Financial  Condition and
         Results of Operations

Recent Events and Discontinued Operations

      On June  13,  2000,  PVH and  the  Company  announced  an  agreement  (the
"Agreement")  for PVH to license  the Arrow  brand for men's and boys'  licensed
product  in the  United  States.  In  addition,  PVH and the  Company  agreed in
principle  for  PVH to  acquire  the  stock  of CDG.  In  conjunction  with  the
Agreement,  the Company approved a plan to discontinue the Shirt Group segment's
manufacturing and distribution operations.

      On  July  24,  2000,  the  transactions  contemplated  by  the  Agreement,
including the Purchase and Sale  Agreement  among CP, CP Canada,  AFS, CDG, CDC,
Holding,  and PVH, (the  "Purchase and Sale  Agreement")  and the Share Purchase
Agreement  among CP, CDG,  BTC, and PVH (the "Share  Purchase  Agreement")  were
closed.  Each of the parties to the  Purchase and Sale  Agreement  and the Share
Purchase  Agreement other than PVH and CDG is, and prior to the closing CDG was,
a wholly owned subsidiary of the Company.

      Pursuant to the Purchase and Sale  Agreement,  (i) all of the  outstanding
shares of capital  stock of C.A.T.  were sold to PVH by CP,  AFS,  CDG,  CDC and
Holding,  (ii) PVH purchased all of CP's and AFS's right,  title and interest in
and to certain of the other assets  (principally  inventory)  of CP and AFS used
primarily  by CP and AFS in their Arrow label and private  label men's and boys'
dress and sport shirt  businesses and their Arrow factory  outlet  operations in
the United States and (iii) PVH purchased  all of CP Canada's  right,  title and
interest  in and to Arrow  label  dress and  sport  shirt  inventory  used in CP
Canada's United States "Career Apparel" business. Pursuant to the Share Purchase
Agreement, all of the outstanding shares of capital stock of CDG were sold by CP
and BTC to PVH.

      The aggregate purchase price paid by PVH pursuant to the Purchase and Sale
Agreement and the Share Purchase  Agreement for the stock and assets referred to
above  was  approximately  $51.2  million  in cash plus the  assumption  of $2.1
million of debt  related to C.A.T.,  calculated  as set forth in, and subject to
adjustment pursuant to, Article 3 of each of the Purchase and Sale Agreement and
the Share Purchase  Agreement.  The Company has irrevocably and  unconditionally
guaranteed  the  payment  of any  amount  payable by CP or BTC to PVH under each
Agreement  which is not paid by CP or BTC when due,  including  pursuant  to the
purchase price adjustment and indemnification provisions of the Agreements.

      Pursuant to the Purchase and Sale  Agreement,  the PVH  Trademark  License
Agreement,  dated July 24, 2000, by and between CPR, CP and PVH was executed and
delivered. Pursuant to the PVH Trademark License Agreement, CP granted to PVH an
exclusive license to use trademarks related to CP's "Arrow" clothing line in the
United  States  and its  territories  and  possessions  in  connection  with its
manufacture,  advertising, marketing, promotion, distribution, offer to sell and
the sale of men's and boys' Licensed  Product in certain  specified  channels of
trade,  including the Internet. CP also granted to PVH the right to operate most
of the websites that use URLs that  incorporate  the ARROW  trademarks.  The PVH
Trademark  License  Agreement  provides  for a $5.0 million  minimum  guaranteed
annual royalty fee to be paid to CP, subject to cost of living adjustments.  The
initial  term of the  license  expires on June 30,  2007;  however,  PVH has the
option to renew the PVH Trademark License Agreement for two additional five-year
terms, provided it meets certain conditions.

      The Company used $39.3  million of the net proceeds  from the Purchase and
Sale  Agreement,  the Share  Purchase  Agreement and the PVH  Trademark  License
Agreement  (collectively referred to as the "Transactions") to repay outstanding
borrowings under its Senior Credit Facility and CP Canada's Credit Facility.

     On January 29, 2001, and pursuant to an Asset Purchase Agreement, CP Canada
sold certain assets (principally inventory, personal property, and manufacturing
equipment) used primarily by CP Canada's Arrow labeled apparel, "Career Apparel"
businesses  in Canada,  "Golf  Apparel"  and  FRIDAY'S BY CLUETT  businesses  in
Canada,  the United States and Puerto Rico,  to The John Forsyth Shirt  Company,
LTD. ("Forsyth").

     Pursuant to a Forsyth Trademark License Agreement,  dated as of January 29,
2001, CP and CP Canada granted to Forsyth an exclusive license to use trademarks
related  to the Arrow  business  in Canada and the  Friday's  By Cluett and golf
apparel business in Canada,  the United States and Puerto Rico. The terms of the
license expires on December 31, 2005;  however,  Forsyth has the option to renew
for two additional five year terms, provided it meets certain conditions.


      The  aggregate  purchase  price  paid by  Forsyth  pursuant  to the  Asset
Purchase  Agreement  was  approximately  $8.0 million and subject to  adjustment
pursuant to Section 4 of the Asset Purchase Agreement.

      The Company used $5.4 million of the net proceeds from the Asset  Purchase
Agreement to repay outstanding borrowings under CP Canada's loan facility.

      The Company has  completed  the majority of the  disposition  of the shirt
group segment's  manufacturing  and distribution  operations.  Accordingly,  the
Company's  consolidated  financial  statements  reflect  the shirt  segment as a
discontinued operation. Consequently, the Company's remaining businesses include
primarily the Sock and Licensing Groups.

     At December 31, 2000,  the net assets of the  Discontinued  Operations  are
classified as held for sale in the accompanying  balance sheet and are comprised
of the following (Dollars in Thousands):


                                                       December  31
                                               --------------- --------------
                                                     1999            2000
                                               --------------- --------------
       Assets:
         Cash                                     $   191         $   316
         Accounts receivable                       16,149           7,985
         Inventories, net                          53,185           9,606
         Prepaid expenses                           1,134             685
         Property, plant & equipment, net          18,521          14,602
         Goodwill                                   4,740              --
         Other assets                                 950             475
                                                   ------          ------
           Total assets                            94,870          33,669

       Liabilities:
         Accounts payable & accrued expenses       23,765           6,137
         C.A.T. debt                                2,507              --
         Canadian revolving facility                7,788           5,447
         Canadian capital lease                       247             224
                                                   ------          ------
           Total liabilities                       34,307          11,808
                                                   ------          ------

           Net assets of discontinued operations  $60,563         $21,861
                                                  =======         =======

     In 2000, included as a component of the loss on disposition of discontinued
segment  in  the   accompanying   consolidated   statements  of  operations  are
restructuring  and  impairment  charges  of $25.0  million.  These  charges  are
comprised of $13.1 million in severance for approximately  1,250 employees ($7.6
million was paid  directly from the pension plan - See Note 11), $1.5 million in
facility closing costs,  $4.2 in professional  fees, $1.2 million  write-down of
inventory  and  property,  plant and  equipment,  and $5.0  million  other costs
directly   associated  with  the  restructuring.   The  $21.1  million  loss  on
disposition  of  discontinued  segment for the year ending  December  31,  2000,
consists of $9.9 million in losses from  operations  through the commitment date
(June 13, 2000) and $11.2  million in losses during the  phase-out  period.  The
$11.2 million loss on the disposition of discontinued segment consists of a $2.7
million loss on disposition and an $8.5 million reserve for estimated  operating
losses during the remainder of the phase-out period.


YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999

         The following table sets forth, for the periods indicated, statement of
operations data in dollars and as a percentage of net sales.  This data has been
restated to reflect  the  Company's  continuing  operations  including  the Sock
Group,  the Licensing Group and all other (Latin  America,  Apparel On-Line LLC,
Cluett American  Receivables  LLC, US Retail division and unallocated  corporate
overhead charges) and excludes the Company's discontinued Shirt Group operation.

                                                1999                 2000
                                        ------------------    ------------------
                                                      (DOLLARS IN
                                                        MILLIONS)

 Net sales                               $172.6     100.0%    $177.9      100.0%
 Cost of sales                            107.5      62.3      113.4       63.7
                                         ------     ------     -----      ------
 Gross profit                              65.1      37.7       64.5       36.3
 Selling, general and administrative
   expense                                 30.8      17.8       35.0       19.7
 Restructuring and impairment charges       0.1       0.1        0.4        0.2
                                         ------     ------    ------      ------
 Operating income                          34.2      19.8       29.1      16.4
 Interest expense, net                     25.7      14.9       27.7      15.6
 Other expense, net                         0.2       0.1        0.1       0.1
 Bankruptcy reorganization credits        (0.6)     (0.3)         --        --
 Income taxes                               1.1       0.6        1.1       0.6
                                         ------     ------    ------      -----
 Income from continuing operations       $  7.8       4.5%    $  0.2       0.1%
                                         ======     ======    ======      =====


     Net Sales.  Net sales in 2000  increased  $5.3  million  to $177.9  million
compared to $172.6  million in 1999.  Revenue in the Licensing  Group  increased
$2.7 million to $9.0 million in 2000 from $6.3  million in 1999.  This  increase
resulted primarily from the $2.5 million PVH license revenue increase. Net sales
in the Sock Group  increased  $1.5 million to $167.6 million in 2000 from $166.1
million in 1999 due to volume.

     Gross  Profit.  Gross profit in 2000  decreased  $600,000 to $64.5  million
compared to $65.1 million in 1999. The Company's  gross profit margin  decreased
to 36.3% in 2000  compared  to 37.7% in  1999.  The  increase  in the  Licensing
Group's net revenue of $2.7 million, as a result of the PVH license for which no
related cost of sales was  incurred,  is offset by the Sock Group's gross profit
decrease of $3.8 million to $54.9  million in 2000  compared to $58.7 million in
1999.  The decrease in the Sock Group's  gross profit is primarily due to higher
sales volumes of lower margin product, which is known as mix deterioration.

     Selling,  General  and  Administrative   Expenses.   Selling,  general  and
administrative  ("SG&A")  expenses  for 2000  increased  $4.2  million  to $35.0
million in 2000  compared  with $30.8  million in 1999.  The Sock  Group's  SG&A
expenses  increased  $2.9 million to $30.7 million in 2000 from $27.8 million in
1999.  The  increase  is due to  selling  expenses  of $1.2  million  related to
additional  headcount  expenses  for expanded  product  lines and an increase in
promotion  and publicity  costs of $1.6  million.  The increase in promotion and
publicity  costs  was  primarily  attributable  to the new  Gold  Toe  packaging
initiative,  launched  in 2000.  Continuing  operations  from the Retail  Stores
contributed  approximately  $500,000 of the  increase  and the  Licensing  Group
expenses increased $424,000.

     Restructuring and Impairment charges.  Restructuring and impairment charges
in 2000  increased  $300,000 to $400,000  compared to $100,000 in 1999. In 1999,
the Company's Sock Group  approved a  restructuring  plan to cease  distribution
operations  at an owned  facility  located  in  Bally,  Pennsylvania,  which was
completed  in 1999,  and to  close a leased  dye-house  facility  in  Pottstown,
Pennsylvania in 2000. In 2000, the Company's Sock Group completed the closing of
the Pottstown, Pennsylvania facility in which it paid additional severance costs
of  approximately  $232,000  relating to 73 employees  and  additional  facility
closing costs of $210,000.  In 1999, the Company's Sock Group accrued  severance
of  $276,000  and  $90,000 of facility  closing  costs,  which was offset by the
reversal of $271,000 related to facility closing costs previously accrued.

     Operating Income.  Operating income decreased $5.1 million to $29.1 million
in 2000 from $34.2 million in 1999, due to the factors discussed above.

     Interest  Expense,  net.  Interest expense  increased $2.0 million to $27.7
million  in 2000,  as  compared  to $25.7  million  in 1999,  due  primarily  to
prevailing interest rates during the 2000 period.

     Other Expense,  net. Other expense,  net remained relatively flat ($115,000
in 2000 as compared to $184,000 in 1999).

     Bankruptcy   Reorganization   Credits.   The  Company  had  no   Bankruptcy
reorganization  costs  or  credits  during  the  fiscal  year  2000.  Bankruptcy
reorganization credits were $573,000 in 1999.

     Income  Taxes.  The  provision  for  income  taxes  remained  flat  for the
year-to-year  comparison  ($1.1  million).  Income  taxes are  recorded net of a
valuation  allowance  to  provide  for  operating  loss  carryforwards  based on
estimated future earnings and for temporary differences based on expected timing
of reversals.  Consequently,  income tax expense  represents  primarily  certain
state and local taxes and foreign taxes (including foreign withholding taxes).

     Income  from  Continuing  Operations.  Income  from  continuing  operations
decreased $7.6 million to approximately $200,000 in 2000 compared to income from
continuing  operations  of $7.8  million in 1999,  due to the factors  discussed
above.






<PAGE>


YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998

     The following  table sets forth,  for the periods  indicated,  statement of
operations data in dollars and as a percentage of net sales.  This data has been
restated to reflect  the  Company's  continuing  operations  including  the Sock
Group,  the Licensing Group and all other (Latin  America,  Apparel On-Line LLC,
Cluett American  Receivables  LLC, US Retail division and unallocated  corporate
overhead charges) and excludes the Company's discontinued Shirt Group operation.

                                                 1998                 1999
                                           ----------------     ----------------
                                                    (DOLLARS IN
                                                     MILLIONS)

 Net sales                                 $169.3     100.0%    $172.6    100.0%
 Cost of sales                              110.5      65.3      107.5     62.3
                                            -----      ----      -----    -----
 Gross profit                                58.8      34.7       65.1     37.7
 Selling, general and administrative
   expense                                   30.7      18.1       30.8     17.8
 Restructuring and impairment charges         1.0       0.6        0.1      0.1
                                            -----      ----       ----     ----
 Operating income (loss)                     27.1      16.0       34.2     19.8
 Interest expense, net                       19.3      11.4       25.7     14.9
 Other expense                                2.1       1.2        0.2      0.1
 Bankruptcy reorganization costs (credits)   37.5      22.2      (0.6)    (0.3)
 Income taxes                                 0.9       0.5        1.1      0.6
                                            -----     -----      -----    -----
 Income (loss) from continuing operations $(32.7)    (19.3)%    $  7.8      4.5%
                                          =======    ======     ======    =====


     Net Sales.  Net sales in 1999  increased  $3.3  million  to $172.6  million
compared to $169.3 million in 1998.  Net sales in the Sock Group  increased $3.2
million to $166.1  million in 1999 from $162.9  million in 1998.  This  increase
resulted primarily from the Company's expanded branded product offerings.

     Gross Profit.  Gross profit in 1999 increased $6.3 million to $65.1 million
compared to $58.8 million in 1998. The Company's  gross profit margin  increased
to 37.7% in 1999  compared  to 34.7% in  1998.  The Sock  Group's  gross  profit
increased  $6.2 million to $58.7 million 1999 compared to $52.5 million in 1998.
This increase is due to increased  sales and improved  efficiencies.  Sock Group
gross  margin  increased to 34.9% in 1999 from 31.9% in 1998,  primarily  due to
productivity  and  overhead  absorption  improvements  as well as material  cost
reductions.

     Selling,  General  and  Administrative  Expenses.  SG&A  expenses  for 1999
increased  $100,000 to $30.8 million  compared  with $30.7 million in 1998.  The
Sock Group's SG&A expenses  increased $1.3 million to $27.8 million  compared to
$26.5  million  in 1998.  This  increase  related  to  increased  promotion  and
publicity due primarily to contractual advertising.

     Restructuring and Impairment Charges.  Restructuring and impairment charges
decreased  $900,000  to $100,000 in 1999  compared to $1.0  million in 1998.  In
1999,  the  Company's  Sock  Group  approved  a  restructuring   plan  to  cease
distribution  operations at an owned  facility  located in Bally,  Pennsylvania,
which  was  completed  in  1999,  and to close a leased  dye-house  facility  in
Pottstown,  Pennsylvania  in 2000.  In 1999,  the  Company's  Sock Group accrued
severance of $276,000 and $90,000 of facility  closing  costs offset by the turn
of a $271,000 prior facility closing costs accrual related to this restructuring
plan. During 1998, the Company's Sock Group  consolidated  certain  distribution
facilities  and  closed  a  sock  knitting   facility.   The  Company   recorded
restructuring charges of $1.0 million related to this closure.

     Operating Income.  Operating income increased $7.1 million to $34.2 million
in 1999 from $27.1 million in 1998 due to the factors noted above.

     Interest Expense, net. Interest expense increased $6.4 million to $25.7
million in 1999 compared to $19.3 million in 1998,  due primarily to higher debt
levels.

     Other Expense,  net. Other expense,  net decreased $1.9 million to $200,000
in 1999  compared  to $2.1  million  in  1998,  due  primarily  to the  Connelly
Litigation.  In March  2000,  the  Company  and a  former  employee  reached  an
agreement in principle  to settle all matters  relating to an action  brought by
the employee for the sum of $1.75  million,  for which $1.6 million was reserved
at December 31, 1998,  and an  additional  $150,000 was reserved at December 31,
1999.

     Bankruptcy Reorganization Costs (Credits).  Bankruptcy reorganization costs
decreased   $38.1   million  to   $(600,000)  in  1999  compared  to  bankruptcy
reorganization  expense  of $37.5  million in 1998.  During  1998,  the  Company
incurred  bankruptcy   reorganization   costs  resulting  from  the  payment  of
post-petition  interest,  default interest,  and fees to creditors in accordance
with the terms of the Plan, with no corresponding costs incurred in 1999.

     Income Taxes. Provision for income taxes increased $200,000 to $1.1 million
in 1999  compared  to  $900,000  in 1998.  Income  taxes are  recorded  net of a
valuation  allowance  to  provide  for  operating  loss  carryforwards  based on
estimated future earnings and for temporary differences based on expected timing
of reversals.  Consequently,  income tax expense  represents  primarily  certain
state and local taxes and foreign taxes (including foreign withholding taxes).

     Income (Loss) from Continuing Operations. Income from continuing operations
increased  $40.5  million to $7.8  million in 1999  compared  to a net loss from
continuing  operations of $(32.7)  million in 1998, due primarily to the factors
noted above.

Liquidity and Capital Resources

     The Company broadly defines liquidity as its ability to generate sufficient
cash flow from operating activities to meet its obligations and commitments.  In
addition,  liquidity  includes the ability to obtain appropriate debt and equity
financing  and to convert into cash those assets that are no longer  required to
meet existing strategic and financial objectives. Therefore, liquidity cannot be
considered  separately  from  capital  resources  that  consist  of  current  or
potentially  available funds for use in achieving long range business objectives
and meeting debt service commitments.

Cash Flows

     Cash and cash  equivalents  decreased  $5.7 million to $1.3 million in 2000
from  $7.0  million  in 1999  primarily  as a result of $2.5  million  and $47.4
million  in  net  cash   provided  in  operating   and   investing   activities,
respectively,  offset by $29.2  million  and $26.4  million  in net cash used in
financing activities and net cash used in discontinued operations, respectively.
Net cash provided by operating activities resulted from $8.1 million in non-cash
depreciation and  amortization  charges plus the Company's $21.1 million loss on
discontinued operations offset by the Company's net loss of $21.0 million plus a
net decrease in working capital of $6.1 million.  Net cash provided by investing
activities  resulted  primarily from $51.2 million in proceeds received from the
Transactions offset against $3.8 million in capital expenditures.  Net cash used
by  financing  activities  resulted  primarily  from net  repayments  under  the
Company's  line of credit  agreement of $11.2  million and payments on long-term
debt of $45.4 million, offset by proceeds from the issuance of long-term debt of
$28.2 million

Liquidity and Capital Resources

     The Company's  liquidity  needs arise  primarily  from debt service and the
funding of working  capital and capital  expenditures.  As of December 31, 2000,
the Company had outstanding  $234.2 million of debt consisting of $125.0 million
in senior  subordinated  notes  (including  the Parity  Notes),  a Senior Credit
Facility consisting of a $26.7 million term A loan, a $43.8 million term B loan,
$17.5 million  Tranche C loan and $21.2 million in revolving  credit  facilities
borrowings.  During 2000,  the Company had net  repayments  in revolving  credit
facilities of $11.2  million,  proceeds  from the issuance of long-term  debt of
$28.2 million and repaid $45.4 million in term loans and notes payable.

     Net availability under the revolver at December 31, 2000, was $29.5 million
in addition to cash and cash equivalents of $1.3 million.

Debt Service

     Principal  and  interest  payments  under  the  Company's  debt  agreements
represent  significant  liquidity   requirements  for  the  Company.   Aggregate
principal  payments  on the  Company's  indebtedness  are  $6.3  million,  $25.3
million,  $9.6 million,  $46.9 million and $21.1 million,  for each of the years
2001 through 2005, respectively, with $125.0 million thereafter through 2008.

     The  Company's  senior  subordinated  notes  mature  in  2008  and  require
semi-annual  interest  payments at an annual  rate of 10 1/8%.  The term A and B
loans mature in 2004 and 2005,  respectively,  and require  quarterly  principal
payments  and  quarterly  interest  payments  at  floating  rates based upon the
interest rate option  elected by the Company.  The revolving  credit  facilities
expire at May 2004, and require  quarterly  interest  payments at floating rates
based upon the interest  rate option  elected by the Company.  Borrowings  under
Tranche C Loan mature on 12/31/02 and are  guaranteed  by Vestar.  Cash paid for
interest in 2000 was $24.9 million.  Interest expense for 2001 is expected to be
$24.2 million,  including $1.8 million of non-cash amortization of deferred debt
issuance costs.

Covenant Restrictions

     The Senior Credit Facility contains a number of covenants that, among other
things,  restrict  the ability of the Company and its  subsidiaries,  other than
pursuant  to  specified  exceptions,  to  dispose of  assets,  incur  additional
indebtedness,   incur  guarantee  obligations,  repay  other  indebtedness,  pay
dividends, create liens on assets, enter into leases, make investments, loans or
advances, make acquisitions,  engage in mergers or consolidations,  make capital
expenditures,  enter into sale and leaseback transactions,  change the nature of
their  business  or  engage  in  certain   transactions  with  subsidiaries  and
affiliates and otherwise restrict corporate activities.  In addition,  under the
Senior  Credit  Facility  the  Company  is  required  to comply  with  specified
financial ratios and tests, including minimum fixed charge coverage and interest
coverage ratios and maximum leverage  ratios,  including a senior leverage ratio
and a total leverage ratio and a minimum EBITDA test, each of which is tested as
of the last day of each fiscal quarter of the Company and its subsidiaries.  The
amendments in May 1998,  December 1998, March 1999,  September 1999, March 2000,
June 2000 and March 2001 revised the original covenants.

     In conjunction  with the  disposition of certain  segments of the Company's
business,  (Note 2) in March 2001, the Company revised on-going covenants and at
December  31,  2000,  the Company was in  compliance  with its  financial  ratio
covenants.

     The Senior Credit Facility  includes a cross-default  provision which makes
it a default  under  the  Senior  Credit  Facility  if,  with  respect  to other
indebtedness  in excess of $2.5  million of  Holdings  and the  Company  and its
subsidiaries,  any such  party  defaults  in any  payment  with  respect to such
indebtedness  or defaults  in a manner  that  permits  such  indebtedness  to be
accelerated or such indebtedness is in fact accelerated.

     The consequences of a default under the Senior Credit Facility are that the
lender may terminate the commitments, accelerate the Company's obligations under
the Senior Credit Facility,  declaring them immediately due and payable, require
the credit  parties to  establish  a cash  collateral  account as  security  for
outstanding letters of credit and enforce any and all other rights and interests
existing under the credit documents.

Capital Expenditures

     Capital expenditures during 2000 were $3.8 million and related primarily to
general improvements to the Company's  manufacturing  facilities.  Total capital
spending for 2001 is expected to be $5.9  million and also relates  primarily to
general improvements to the Company's manufacturing facilities.

Financing Sources and Cash Flows

     At December 31, 2000,  the Company had $1.3 million in cash and  additional
availability of $29.6 million under the revolving credit facilities  included in
the Senior  Credit  facility,  after  consideration  of $1.0  million of standby
letters of credit.

    The Company has a substantial amount of indebtedness.  The Company relies on
internally generated funds and, to the extent necessary, on borrowings under the
revolving credit  facilities to meet its liquidity needs. The Company's  ability
to incur  additional  indebtedness  is  limited  under  its  existing  borrowing
arrangements.

Income Taxes

     See Note 10  "Income  Taxes"  of the  Notes to the  Consolidated  Financial
Statements  included on pages F-8  through  F-38 of the  Consolidated  Financial
Statements.

New Accounting Pronouncements

     See Note 3 "New Accounting Pronouncements" of the Notes to the Consolidated
Financial  Statements  included  on pages F-8 through  F-38 of the  Consolidated
Financial Statements.

Inflation

     General  CPI  increased  3.4%  during  fiscal  2000 and  apparel,  which is
indicative  of our  inventory,  decreased  1.8%.  We  make  no  assurances  that
continued  inflation or deflation will not have a material adverse effect on our
sales and gross profit dollars.

Cautionary Statement Regarding Forward-Looking Statements

     This Annual Report on Form 10-K contains  certain  statements that describe
the Company's beliefs concerning future business  conditions and the outlook for
the Company based on currently available information. The preceding Management's
Discussion  and  Analysis  contains  forward-looking  statements  regarding  the
Company's  performance,  liquidity  and the  adequacy of its capital  resources.
These forward looking  statements are subject to risks,  uncertainties and other
factors  which  could  cause  the  Company's  actual  results,   performance  or
achievement to differ  materially  from those  expressed in, or implied by these
statements.  These risks,  uncertainties  and other factors  include but are not
limited to, the following: (i) the financial strength of the retail industry and
the level of  consumer  spending  for  apparel,  (ii) the  Company's  ability to
develop,  market and sell its products,  (iii) increased  competition from other
manufacturers  of socks,  (iv)  general  economic  conditions,  (v)  hiring  and
retaining  effective team members,  and (vi) sourcing  merchandise from domestic
and international vendors.  Therefore, while management believes that there is a
reasonable basis for the forward-looking  statements,  undue reliance should not
be placed on those statements.

Item 7A. Quantitative and Qualitative disclosures about Market Risk

Market Risk Factors

     The Company has market risk  exposure  from  changes in interest  rates and
foreign  currency  exchange  rates.  The Company  operates under a senior credit
facility at variable interest rates.  Interest expense is primarily  affected by
the  general  level of U.S.  interest  rates,  LIBOR and  European  base  rates.
Currently,  the Company does not engage in any  derivative  type  instruments in
order to hedge  against  interest  rates  and  foreign  currency  exchange  rate
fluctuations.  However,  the  Company  feels it is  limited in its  exposure  to
foreign  currency  exchange  rate changes as inventory  purchase  contracts  are
denominated in US Dollars.

Floating Interest Rate Risk
     In order to  assess  the  impact of  changes  in  interest  rates on future
earnings  and  cash  flow,  the  Company  assumed  a  1.0%  (100  basis  points)
unfavorable  shift in the  underlying  interest  rate would result in additional
interest expense of $1.1 million.

Fixed  Interest Rate Risk
     The fair value of long-term  fixed  interest  rate debt and fixed  interest
rate preferred stock is also subject to interest rate risk. Generally,  the fair
value of fixed interest rate debt and preferred  stock will increase as interest
rates fall and decrease as interest rates rise. A  hypothetical  100 basis point
increase in the prevailing  interest rates at December 31, 2000, would result in
a  decrease  in fair  value of total  long-term  debt and  preferred  stock,  by
approximately $ 1.3 million.


<PAGE>





Item 8. Consolidated Financial Statements and Supplementary Data


                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS



PAGE
---------
Report of Independent Auditors' as of and for the years ended
December 31, 2000 and 1999                                                 F-2

Report of Independent Auditors' as of December 31, 1998 and for
the year ended December 31, 1998                                           F-3

Consolidated Financial Statements:

    Consolidated Balance Sheets as of December 31, 1999 and 2000           F-4

    Consolidated Statements of Operations for the years ended
    December 31, 1998, 1999 and 2000                                       F-5

    Consolidated Statements of Stockholder's Deficit for the years
    ended December 31, 1998, 1999 and 2000                                 F-6

    Consolidated Statements of Cash Flows for the years ended
    December 31, 1998, 1999 and 2000                                       F-7

Notes to Consolidated Financial Statements                                 F-8

Financial Statement Schedule:

Schedule II - Valuation and Qualifying Accounts for each of the
           years in the three-year period ended December 31, 2000           39



All other  schedules are omitted because they are not applicable or the required
information  is provided in the  Consolidated  Financial  Statements  or related
notes thereto.










                                       F-1

<PAGE>







             REPORT OF DELOITTE & TOUCHE LLP, INDEPENDENT AUDITORS'


Board of Directors
Cluett American Corp. and Subsidiaries
New York, New York

We have audited the accompanying  consolidated balance sheets of Cluett American
Corp. and  subsidiaries  (the  "Company"),  a wholly-owned  subsidiary of Cluett
American  Investment  Corp.,  as of December 31, 2000 and 1999,  and the related
consolidated statements of operations, stockholder's deficit, and cash flows for
the years then ended. Our audit also included the financial  statement  schedule
listed in the Index at Item  14(a) for the years  ended  December  31,  2000 and
1999.  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 auditing standards generally accepted
in the  United  States of  America.  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 referred to above present
fairly,  in all material  respects,  the financial  position of Cluett  American
Corp.  and  subsidiaries  as of December  31, 2000 and 1999,  and the results of
their  operations  and their cash  flows for the years then ended in  conformity
with accounting  principles  generally accepted in the United States of America.
Also,  in our opinion,  such  financial  statement  schedule for the years ended
December  31,  2000  and  1999,   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.


                                                       /s/ Deloitte & Touche LLP

Raleigh, North Carolina
March 23, 2001











                                       F-2

<PAGE>







               REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS'


Board of Directors
Cluett American Corp. and Subsidiaries

We  have  audited  the  accompanying   consolidated   statement  of  operations,
stockholder's  deficit and cash flows of Cluett American Corp. and subsidiaries,
a wholly owned subsidiary of Cluett American Investment Corp. ("Holdings"),  for
the year  ended  December  31,  1998.  Our audit  also  included  the  financial
statement schedule listed in the Index at Item 14(a) for the year ended December
31, 1998. 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 audit.

We conducted our audit in accordance with auditing standards  generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable  assurance about whether the financial  statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting  the amounts and  disclosures in the financial  statements.  An audit
also includes assessing the accounting principles used and significant estimates
made by  management,  as well as  evaluating  the  overall  financial  statement
presentation.  We believe  that our audit  provides a  reasonable  basis for our
opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all material  respects,  the consolidated  results of operations and
cash flows of Cluett American Corp. and subsidiaries for year ended December 31,
1998 in conformity with accounting  principles  generally accepted in the United
States.  Also, in our opinion the related  financial  statement  schedule,  when
considered  in  relation  to the basic  financial  statements  taken as a whole,
present fairly in all material respects the information set forth therein.


                                                           /s/ Ernst & Young LLP


Atlanta, Georgia
March 19, 1999
















                                       F-3
<PAGE>




                     CLUETT AMERICAN CORP. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS

                                                              DECEMBER 31,
                                                        1999               2000

ASSETS                                                  (DOLLARS IN  THOUSANDS)
Current assets:
  Cash and cash equivalents                           $  7,048         $   1,268
  Accounts receivable, net                              29,370            33,442
   Inventories, net                                     24,920            30,434
   Prepaid expenses and other current assets             1,995             1,176
   Net assets of discontinued operations                60,563            21,861
                                                     ---------          --------
Total current assets                                   123,896            88,181

Property, plant and equipment, net                      29,273            26,930
Deferred financing costs                                10,842             9,966
Pension assets                                          32,187            27,545
Other noncurrent assets                                  1,001               946
                                                     ---------          --------
Total assets                                          $197,199          $153,568
                                                     =========          ========

LIABILITIES AND STOCKHOLDER'S DEFICIT
Current liabilities:
  Accounts payable and accrued expenses               $ 16,510          $ 13,709
  Accrued interest payable                               3,861             5,362
  Restructuring reserve                                    421             8,380
  Short-term debt and current portion of
    long-term debt                                       5,600             6,258
  Income taxes payable                                   1,970             1,942
                                                     ---------          --------
Total current liabilities                               28,362            35,651

Long-term debt                                         256,950           227,931
Other noncurrent liabilities                               147                59
Redeemable preferred stock dividends payable               637               718

Commitments and Contingencies

Senior Exchangeable Preferred Stock Due 2010,
 cumulative, $.01 par value:authorized
 4,950,000 shares, issued and outstanding
 599,145 shares in 1999 and 676,379 shares
 in 2000 (liquidation preference of $59,915
 in 1999 and $63,659 in 2000)                           58,329            66,214
Stockholder's deficit:
  Common stock, $1 par value: authorized,
  issued and outstanding 1,000 shares                        1                 1
  Additional paid-in capital                           135,100           127,134
  Accumulated deficit                                (282,046)         (303,036)
  Accumulated other comprehensive loss                   (281)           (1,104)
                                                     ---------         ---------
Total stockholder's deficit                          (147,226)         (177,005)
                                                     ---------         ---------
Total liabilities and stockholder's deficit          $ 197,199         $ 153,568
                                                     =========         =========

                             See accompanying notes.




                                       F-4


<PAGE>


                     CLUETT AMERICAN CORP. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS




                                                    YEAR ENDED DECEMBER 31,
                                                  1998        1999        2000
                                                    (DOLLARS IN THOUSANDS)

Net sales                                       $169,347    $172,562    $177,886
Cost of goods sold                               110,580     107,445     113,375
                                                --------    --------    --------
Gross profit                                      58,767      65,117      64,511
Selling, general and administrative expenses      30,616      30,842      34,982
Restructuring and impairment charges               1,022          95         442
                                                --------    --------    --------
Operating income                                  27,129      34,180      29,087
Interest expense, net                             19,279      25,700      27,721
Other expense, net                                 2,131         184         115
                                                --------    --------    --------
Income from continuing operations before
 bankruptcy reorganization costs(credits)
 and income taxes                                  5,719       8,296       1,251

Bankruptcy reorganization costs (credits)         37,528       (573)          --
                                                --------    --------    --------
Income (loss) from continuing operations
 before income taxes                            (31,809)       8,869       1,251

Income taxes                                         868       1,051       1,094
                                                --------    --------    --------
Income (loss) from continuing operations        (32,677)       7,818         157

Discontinued operations:

 Loss from operations of discontinued segment    (4,157)    (24,931)     (9,937)

 Loss on disposition of business segment,
 including provision of $8.5 million for
 phase-out period operating losses                    --          --    (11,210)
                                               ---------   ---------   ---------
Net loss                                       $(36,834)   $(17,113)   $(20,990)
                                               =========   =========   =========






                             See accompanying notes.




                                       F-5
<PAGE>



                     CLUETT AMERICAN CORP. AND SUBSIDIARIES
                CONSOLIDATED STATEMENTS OF STOCKHOLDER'S DEFICIT
                             (DOLLARS IN THOUSANDS)
<TABLE>
<S>                                                     <C>      <C>          <C>           <C>              <C>           <C>
                                                       COMMON STOCK           ADDITIONAL                   OTHER

                                                                              PAID-IN            ACCUMULATED   COMPREHENSIVE

                                                      SHARES    AMOUNT        CAPITAL       DEFICIT            LOSS        TOTAL

Balance at December 31, 1997                           2,000     $   2      $ 173,592    $ (228,099)       $ (2,303)    $ (56,808)
Net loss                                                  --        --             --       (36,834)              --      (36,834)
Foreign currency translation adjustment                   --        --             --            --            1,270         1,270
                                                                                                                        ----------
Comprehensive loss                                                                                                        (35,564)
                                                                                                                        ----------
Accretion of dividend on redeemable preferred stock       --        --        (2,078)            --               --       (2,078)
Distribution to Parent                                    --        --       (87,522)            --               --      (87,522)
Contribution of intercompany debt due to Parent           --        --         27,609            --               --        27,609
Distribution to Parent for debt purchase                  --        --       (13,000)            --               --      (13,000)
Contribution of preferred stock from Parent               --        --         22,086            --               --        22,086
Contribution of common stock from Parent             (1,000)       (1)            --             --               --           (1)
Accretion of dividend on senior exchangeable
    preferred stock                                       --        --        (3,678)            --               --       (3,678)
Accretion of fees on senior exchangeable                  --        --           (90)            --               --          (90)
    preferred stock
                                                      -------     -----       -------      ---------       ---------    ----------
Balance at December 31, 1998                           1,000         1        116,919      (264,933)         (1,033)     (149,046)

Net loss                                                                                    (17,113)                      (17,113)
Foreign currency translation adjustment                                                                         752            752
                                                                                                                        ----------
Comprehensive loss                                                                                                        (16,361)
                                                                                                                        ----------
Capital contribution from Parent                                               25,255                                       25,255
Accretion of dividend on senior exchangeable
  preferred stock                                                             (6,920)                                      (6,920)
Accretion of fees on senior exchangeable
  preferred stock                                                               (154)                                        (154)
                                                      -------      -----      -------      ---------       ---------    ----------

Balance at December 31, 1999                           1,000          1       135,100      (282,046)           (281)     (147,226)

Net loss                                                                                    (20,990)                      (20,990)
Foreign currency translation adjustment                                                                        (823)         (823)
                                                                                                                        ----------
Comprehensive loss                                                                                                        (21,813)
                                                                                                                        ----------
Accretion of dividend on senior exchangeable
  preferred stock                                                             (7,812)                                      (7,812)
Accretion of fees on senior exchangeable                                        (154)                                        (154)
  preferred stock
                                                      -------      -----      --------     ----------      ----------    ----------
Balance at December 31, 2000                           1,000         $1       $127,134     $(303,036)        $(1,104)    $(177,005)
                                                      =======      =====      ========     ==========      ==========    ==========
</TABLE>


                             See accompanying notes.






                                       F-6


<PAGE>


                     CLUETT AMERICAN CORP. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS


                                                    YEAR ENDED DECEMBER 31,
                                               1998          1999         2000
                                                    (DOLLARS IN THOUSANDS)
OPERATING ACTIVITIES
Net loss                                    $ (36,834)    $ (17,113)   $(20,990)
Adjustments to reconcile net loss
to net cash and cash equivalents
provided by (used in) operating
activities:
  Loss from discontinued operations              4,157        24,931       9,937
  (Gain)loss on sale of discontinued
    operations                                      --            --      11,210
  Write-down of property, plant and
    equipment                                    1,094           360          54
  Write-off of deferred acquisition costs          489            --          --
  Depreciation and amortization                  6,452         7,599       8,073
  (Gain)loss on sale of property, plant
    and equipment                                 (33)         (202)         299
  Adjustments of liabilities subject to
    compromise                                (22,442)            --          --

Changes in operating assets and liabilities,
excluding the effect of acquisition:
  Accounts receivable                            (134)       (3,837)     (4,072)
  Inventories                                  (3,252)         2,242     (5,514)
  Prepaid expenses and other current assets         17         (189)         819
  Pension and other non-current assets        (13,053)       (1,567)       4,697
  Accounts payable and accrued expenses        (2,866)         (980)     (1,300)
  Restructuring                                     --            --       (421)
  Income taxes payable                           (678)           495        (28)
  Other liabilities                                835         (234)        (74)
  Due to parent                                 25,520         8,645          --
  Effect of changes in foreign currency          3,190       (2,683)       (240)
                                              --------      --------    --------
Net cash and cash equivalents provided by
  (used in) operating activities of
  continuing operations                       (37,538)        17,467       2,450
                                              --------      --------    --------
INVESTING ACTIVITIES
Purchase of property, plant and equipment      (8,091)       (6,416)     (3,827)
Proceeds on disposal of property, plant and
  equipment                                        156         1,262          34
Proceeds from sale of discontinued operations       --            --      51,180
                                              --------      --------    --------
Net cash and cash equivalents used in
  investing activities of continuing
  operations                                   (7,935)       (5,154)      47,387

FINANCING ACTIVITIES
Issuance of preferred stock                     48,125            --          --
Distribution to parent                        (87,522)            --          --
Net borrowings (repayments) under
  line-of-credit agreement                       4,287        24,100    (11,204)
Proceeds from issuance of long term debt       222,000            --      28,200
Principal payments on long term debt           (1,300)       (3,600)    (45,357)
Financing costs paid                                --            --       (866)
Payments on pre-petition liabilities         (146,490)            --          --
Principal payments on capital leases           (2,377)            --          --
                                             ---------      --------    --------
Net cash and cash equivalents (used in)
  provided by financing activities of
  continuing operations                         36,723        20,500    (29,227)
                                             ---------      --------    --------
Cash provided by (used in)  discontinued
  operations                                     2,537      (28,339)    (26,390)
                                             ---------      --------    --------
Net change in cash and cash equivalents        (6,213)         4,474     (5,780)
Cash and cash equivalents at beginning of
  year                                           8,787         2,574       7,048
                                             ---------      --------    --------
Cash and cash equivalents at end of year     $   2,574      $  7,048    $  1,268
                                             =========      ========    ========
SUPPLEMENTAL DISCLOSURES
Cash paid during the year:
 Interest                                    $  17,073      $ 23,341    $ 24,924
 Income taxes                                $   1,236      $    648    $  1,196
                             See accompanying notes.

                                       F-7
<PAGE>


                     CLUETT AMERICAN CORP. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1. Background

         Cluett American Corp. and its subsidiaries (the "Company") are a wholly
owned subsidiary of Cluett American  Investment Corp  ("Holdings").  The Company
was organized in 1982 and primarily  designs,  manufactures and markets socks in
the United  States,  as well as licenses its  proprietary  trademarks  and trade
names  domestically  and  internationally.   Formerly,   the  Company  designed,
manufactured  and marketed dress shirts and men's and women's  sportswear in the
United States and Canada (see Note 2 - Discontinued Operations).

         The Company filed  voluntary  petitions for relief under the provisions
of Chapter 11 of the  Federal  Bankruptcy  Code on July 17,  1995.  The  Company
emerged from bankruptcy on May 18, 1998. As part of the approved  reorganization
plan, Vestar Capital Partners III, L.P. ("Vestar") and co-investors made a $61.3
million equity investment and Alvarez & Marsal, Inc. ("A&M") and certain members
of management made a $6.7 million equity investment in Holdings.

     The Company and Holdings used the equity  investments in  conjunction  with
borrowings under a new $160.0 million senior credit facility,  $112.0 million in
proceeds from the Company's  issuance of Senior  Subordinated Notes due 2008 and
$48.1 million in net proceeds from the issuance of Senior Exchangeable Preferred
Stock due 2010, to complete its recapitalization (the "Recapitalization")  under
which all of Holdings' and the Company's existing  pre-petition  obligations and
all borrowings under the Company's  debtor-in-possession  facility, were paid in
full. In addition, the Company issued $13.0 million in Senior Subordinated Notes
due 2008 (the "Parity Notes") to Holdings  shareholders  that were  shareholders
prior  to the  bankruptcy  as  part of the  Recapitalization.  These  notes  are
identical in, and rank in parity with, the $112.0  million  Senior  Subordinated
Notes due 2008.  As of December 31, 2000,  approximately  $2.0 million of Parity
Notes had been converted to Senior Subordinated Notes.

2. Discontinued Operations

         On June 13, 2000,  Phillips-Van  Heusen Corporation,  ("PVH"),  and the
Company  announced an agreement (the  "Agreement")  for PVH to license the Arrow
brand for men's and boys' dress shirts and sportswear in the United  States.  In
addition,  PVH and the Company  agreed in principle for PVH to acquire the stock
of the Company's wholly-owned  subsidiary,  Cluett Designer Group, Inc. ("CDG"),
the licensee for Kenneth Cole dress shirts.  In conjunction  with the Agreement,
the  Company   approved  a  plan  to  discontinue   the  shirt  group  segment's
manufacturing and distribution operations.

         On July 24,  2000,  the  transactions  contemplated  by the  Agreement,
including  the Purchase and Sale  Agreement  among  Cluett,  Peabody & Co., Inc.
("CP"),  Cluett,  Peabody Canada, Inc. ("CP Canada"),  Arrow Factory Stores Inc.
("AFS"), CDG, Consumer Direct Corporation ("CDC"), Cluett, Peabody Holding Corp.
("Holding"), and PVH, (the "Purchase and Sale Agreement") and the Share Purchase
Agreement among CP, CDG, Bidermann Tailored Clothing Inc. ("BTC"),  and PVH (the
"Share Purchase Agreement") were closed. Each of the parties to the Purchase and
Sale Agreement and the Share Purchase  Agreement  other than PVH and CDG is, and
prior to the closing CDG was, a wholly-owned subsidiary of the Company.

         Pursuant to the Purchase and Sale Agreement, (i) all of the outstanding
shares  of  capital  stock  of  C.A.T.  Industrial  S.A.  de C.V.,  ("C.A.T")  a
corporation  organized under the laws of Honduras,  were sold to PVH by CP, AFS,
CDG, CDC and Holding,  (ii) PVH purchased all of CP's and AFS's right, title and
interest in and to certain of the other assets (principally inventory) of CP and
AFS used  primarily  by CP and AFS in their Arrow label and private  label men's
and boys'  dress and sport  shirt  businesses  and their  Arrow  factory  outlet
operations  in the United  States  and (iii) PVH  purchased  all of CP  Canada's
right,  title and interest in and to Arrow label dress and sport shirt inventory
used in CP Canada's  United States "Career  Apparel"  business.  Pursuant to the
Share Purchase Agreement,  all of the outstanding shares of capital stock of CDG
were sold by CP and BTC to PVH.

                                    F-8
<PAGE>
                     CLUETT AMERICAN CORP. AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. Discontinued Operations (Continued)

         The aggregate  purchase  price paid by PVH pursuant to the Purchase and
Sale  Agreement  and the Share  Purchase  Agreement  for the  stock  and  assets
referred to above was approximately $51.2 million in cash plus the assumption of
$2.1 million of debt related to C.A.T.,  calculated as set forth in, and subject
to adjustment  pursuant to, Article 3 of each of the Purchase and Sale Agreement
and the Share  Purchase  Agreement.  The  Company has  deposited  in escrow $2.0
million  of the  above  noted  cash  consideration,  which is  subject  to final
inventory adjustment. The Company has irrevocably and unconditionally guaranteed
the payment of any amount payable by CP or BTC to PVH under each Agreement which
is not paid by CP or BTC when due,  including  pursuant  to the  purchase  price
adjustment and indemnification provisions of the Agreements.

         Pursuant to the Purchase and Sale Agreement,  the PVH Trademark License
Agreement,  dated  July  24,  2000,  by and  between  Cluett  Peabody  Resources
Corporation ("CPR), a Delaware corporation and a wholly-owned  subsidiary of the
Company , CP and PVH was executed and  delivered.  Pursuant to the PVH Trademark
License  Agreement,  CP granted to PVH an  exclusive  license to use  trademarks
related to CP's "Arrow"  clothing line in the United States and its  territories
and  possessions in connection  with its  manufacture,  advertising,  marketing,
promotion,  distribution,  offer to sell and sale of men's  and  boys'  Licensed
Product in certain specified channels of trade,  including the Internet. CP also
granted  to PVH the right to  operate  most of the  websites  that use URLs that
incorporate the ARROW trademarks.  The PVH Trademark License Agreement  provides
for a $5.0  million  minimum  guaranteed  annual  royalty  fee to be paid to CP,
subject to cost of living  adjustments.  The initial term of the license expires
on June 30, 2007; however, PVH has the option to renew the PVH Trademark License
Agreement  for  two  additional  five-year  terms,  provided  it  meets  certain
conditions.

      The Company used $39.3  million of the net proceeds  from the Purchase and
Sale  Agreement,  the Share  Purchase  Agreement and the PVH  Trademark  License
Agreement  (collectively referred to as the "Transactions") to repay outstanding
borrowings under its Senior Credit Facility and CP Canada's Credit Facility.

     On January 29, 2001,  and pursuant to an Asset Purchase  Agreement,  the CP
Canada  sold  certain  assets  (principally  inventory,  personal  property  and
manufacturing  equipment)  used primarily by CP Canada's Arrow labeled  apparel,
"Career  Apparel"  businesses in Canada,  "Golf  Apparel" and FRIDAY'S BY CLUETT
businesses  in Canada,  the United  States and Puerto Rico,  to The John Forsyth
Shirt Company, LTD. ("Forsyth").

     Pursuant to a Forsyth Trademark License Agreement,  dated as of January 29,
2001, CP and CP Canada granted to Forsyth an exclusive license to use trademarks
related  to the Arrow  business  in Canada and the  Friday's  By Cluett and golf
apparel business in Canada,  the United States and Puerto Rico. The terms of the
license expires on December 31, 2005;  however,  Forsyth has the option to renew
for two additional five year terms, provided it meets certain conditions.

      The  aggregate  purchase  price  paid by  Forsyth  pursuant  to the  Asset
Purchase  Agreement  was  approximately  $8.0 million and subject to  adjustment
pursuant to Section 4 of the Asset Purchase Agreement.

     The Company used $5.4 million of the net proceeds  from the Asset  Purchase
Agreement to repay outstanding borrowings under CP Canada's loan facility.


                                       F-9
<PAGE>






                       CLUETT AMERICAN CORP. AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. Discontinued Operations (Continued)

         The Company has completed the majority of the  disposition of the shirt
group segment's  manufacturing  and distribution  operations.  Accordingly,  the
Company's  consolidated  financial  statements  reflect  the shirt  segment as a
discontinued operation. Consequently, the Company's remaining businesses include
primarily the Sock and Licensing Groups.

         The Company has  reflected  the trade  assets,  trade  liabilities  and
credit facility paid off, and operations of the shirt segment as discontinued in
the accompanying consolidated financial statements.  The net assets of the shirt
segment classified as discontinued operations in the accompanying balance sheets
and are comprised of the following (in thousands):

                                                         December  31
                                                    --------       --------
                                                       1999           2000
                                                    --------       --------
       Assets:
         Cash                                          $ 191          $ 316
         Accounts receivable                          16,149          7,985
         Inventories, net                             53,185          9,606
         Prepaid expenses                              1,134            685
         Property, plant & equipment, net             18,521         14,602
         Goodwill                                      4,740             --
         Other assets                                    950            475
                                                    --------       --------
            Total assets                              94,870         33,669
                                                    --------       --------

       Liabilities:
         Accounts payable & accrued expenses          23,765          6,137
         C.A.T. debt                                   2,507             --
         Canadian revolving facility                   7,788          5,447
         Canadian capital lease obligation               247            224
                                                    --------       --------
            Total liabilities                         34,307         11,808
                                                    --------       --------
            Net assets of discontinued operations    $60,563        $21,861
                                                    ========       ========


         In  2000,  included  as a  component  of the  loss  on  disposition  of
discontinued segment in the accompanying  consolidated  statements of operations
are  restructuring  and impairment  charges of $25.0 million.  These charges are
comprised of $13.1 million in severance for approximately  1,250 employees ($7.6
million was paid  directly from the pension plan - See Note 11), $1.5 million in
facility  closing  costs,  $4.2  million  in  professional  fees,  $1.2  million
write-down  of inventory  and property,  plant and  equipment,  and $5.0 million
other costs directly  associated with the restructuring.  The $21.1 million loss
on disposition  of  discontinued  segment for the year ending  December 31, 2000
consist of $9.9 million in losses from  operations  through the commitment  date
(June 13, 2000) and $11.2  million in losses during the  phase-out  period.  The
$11.2 million loss on the disposition of discontinued segment consists of a $2.7
million loss on disposition and an $8.5 million reserve for estimated  operating
losses during the remainder of the phase-out period.

Net sales related to  discontinued  operations  for the years ended December 31,
1998,  1999 and 2000 were $209.8  million,  $176.9  million and $117.2  million,
respectively.



                                      F-10
<PAGE>

                   CLUETT AMERICAN CORP. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

3. Significant Accounting Policies

Principles of Consolidation

     The consolidated  financial  statements include all subsidiary companies of
the Company.  All significant  intercompany  balances and transactions have been
eliminated in consolidation.

Cash Equivalents

    The Company  considers all highly liquid  investments with maturity of three
months or less when purchased to be cash equivalents.

Accounts Receivable

    The Company's  principal  customers  are retail stores and chains  primarily
located in the United  States.  Royalty  and  licensing  income is earned from a
worldwide base of licensees  engaged in the sale and manufacture of textiles and
apparel.   The  Company  generally  does  not  require  collateral  on  accounts
receivable.

Inventory Valuation

    Inventories are stated at the lower of cost (first-in, first-out) or market.
Inventories  are  stated  net of an  allowance  for  obsolete  and  slow  moving
inventory.

Property, Plant and Equipment

    Property,  plant  and  equipment  are  stated  at cost  and are  depreciated
principally by the  straight-line  method over the estimated useful lives of the
assets as follows:


         Buildings...............................32-39 years
         Site improvements.......................15-39 years
         Machinery, equipment and other..........3-10 years
         Leasehold improvements..................The lesser of the lease term or
                                                 estimated useful life
Impairment

     The  Company  reviews   long-lived  assets  and  certain   intangibles  for
impairment  when events or changes in  circumstances  indicate that the carrying
amount  of these  assets  may not be  recoverable.  Any  impairment  losses  are
reported in the period in which the recognition criteria are first applied based
on the fair value of the  assets.  Assets held for sale are carried at the lower
of carrying amount or fair value, less estimated costs to sell such assets.  The
Company discontinues depreciating or amortizing assets held for sale at the time
the decision to sell the assets is made.




                                      F-11

<PAGE>



                     CLUETT AMERICAN CORP. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

3. Significant Accounting Policies (Continued)

Deferred Financing Costs

    Deferred  financing  costs  represent  expenses  related to  issuance of the
Company's senior credit facilities and Senior  Subordinated  Notes.  These costs
are being amortized to interest expense using the effective interest method over
the lives of the related debt agreements.

Income Taxes

    Deferred  income  taxes are  provided at the enacted  marginal  rates on the
differences  between the financial  statement and income tax basis of assets and
liabilities.  Valuation  allowances  are  established  when  necessary to reduce
deferred tax assets to the amounts expected to be realized.  The Company files a
consolidated federal income tax return with Holdings and separate,  consolidated
or unitary  state and local  income tax  returns in  accordance  with the filing
requirements  and options  applicable  in the  jurisdiction  in which income tax
returns are  required.  Income tax expense for the Company is  presented  in the
accompanying  consolidated  financial statements calculated on a separate return
basis.

Use of Estimates

     The  preparation  of financial  statements  in conformity  with  accounting
principles   generally  accepted  in  the  United  States  of  America  requires
management to make 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 be different from
those estimates.

Revenue Recognition

     The Company recognizes revenue when the apparel is shipped.  At this point,
persuasive  evidence of a sale arrangement  exists,  delivery has occurred,  the
Company's  price to the  buyer is fixed  and  collectibility  of the  associated
receivable is reasonably  assured.  Customer  returns and  allowances  have been
provided based on estimated  returns.  Fees from the licensing of trademarks and
processes  relating to the textile and apparel  industry are recognized  ratably
over the period of time for fixed license fees and based on estimated  sales for
variable  royalty fees. The Company  recognized  licensing fees of $6.4 million,
$6.4 million and $9.1 million in 1998,  1999 and 2000,  respectively,  which are
included in net sales in the accompanying consolidated statements of operations.

Interest Expense, net

     The Company  includes  interest  income from  overnight  investment  in net
interest expense. The Company recorded interest income of $179,000, $244,000 and
$128,000 in 1998, 1999 and 2000 respectively.

New Accounting Pronouncements

     In June 1998, the Financial  Accounting Standard Board issued Statement No.
133,  "Accounting For Derivative  Instruments And Hedging Activities" ("SFAS No.
133").  This  statement  (as amended by SFAS No.137) is effective  January 2001.
This statement  establishes  accounting  and reporting  standards for derivative
instruments   including  certain  derivative   instruments   embedded  in  other
contracts, and for hedging activities.  It requires that an entity recognize all
derivatives  as either assets or  liabilities  in the balance sheet  measured at
fair at fair  value.  The  Company  will  adopt SFAS No. 133 on January 1, 2001.
Management  does not believe  the  adoption of SFAS No. 133 will have a material
impact on the Company's results of operations or financial position.
                                      F-12
<PAGE>
                     CLUETT AMERICAN CORP. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

4. Redeemable Preferred Stock

     In connection with the Recapitalization,  the Company issued 500,000 shares
of 12 1/2% Senior Exchangeable  Preferred Stock ("Preferred Stock") due 2010 and
received net proceeds of $48.1 million.  Each preferred  share has a liquidation
preference  of $100.  The  holders of the  Preferred  Stock will be  entitled to
receive, as and if dividends are declared by the Board of Directors out of funds
the Company has legally available,  cumulative  preferential  dividends from the
date of issuance of the Preferred Stock accruing at the rate per share of 12 1/2
% per  annum.  Dividends  are  payable  semiannually  in  arrears  on May 15 and
November 15 of each year,  commencing  on November 15,  1998,  to the holders of
record as of the  preceding  May 1 and  November 1. On or prior to May 15, 2003,
the Company may, at its option,  pay dividends in cash or in additionally  fully
paid  and   non-assessable   shares  of  Preferred  Stock  having  an  aggregate
liquidation preference equal to the amount of such dividends. The carrying value
of Senior  Exchangeable  Preferred  Stock at December 31, 1999 and 2000 reflects
accretion of $244,000 and $398,000,  respectively,  in transaction fees. Through
December 31, 2000,  the Company  declared and paid stock  dividends  aggregating
176,379 shares on its Preferred  Stock. As of December 31, 2000, the Company had
issued and outstanding 676,379 cumulative shares.

5. Restructuring and Impairment Charges

Continuing Operations
     During 1998, the Company's  Sock Group  consolidated  certain  distribution
facilities  and  closed  a  sock  knitting   facility.   The  Company   recorded
restructuring charges of $1.0 million related to this closure.

     In 1999, the Company's Sock Group  approved a  restructuring  plan to cease
distribution  operations at an owned  facility  located in Bally,  Pennsylvania,
which  was  completed  in  1999,  and to close a leased  dye-house  facility  in
Pottstown,  Pennsylvania  in 2000.  In 1999,  the  Company's  Sock Group accrued
severance of $276,000 and $90,000 of facility closing costs, which was offset by
a reversal of $271,000 related to facility closing costs previously accrued.

      In 2000, the Company's Sock Group  completed the closing of the Pottstown,
Pennsylvania   facility  in  which  it  paid   additional   severance  costs  of
approximately  $232,000 relating to 73 employees and additional facility closing
costs of $210,000.

Discontinued Operations
      During 1998, the Company  recorded $1.3 million in facility  closure costs
for distribution center  consolidation and lease termination.  These charges are
included as a component of the loss from operations of  discontinued  segment in
the consolidated statements of operations.

     During 1998, the Company's  qualified  defined  benefit plan was amended to
provide an Early Retirement  Program.  The total charge in 1998 and 1999 related
to the program was  $877,000 and  $1,443,000,  respectively.  These  charges are
included as a component of the loss from operations of  discontinued  segment in
the consolidated statements of operations.

     During 1999, the Company  approved a plan to close its owned  manufacturing
facility located in Enterprise,  Alabama and consolidate certain  administrative
functions within the Company's corporate group.  Special termination benefits of
$1.7 million  related to 280 employees of the Enterprise  facility were provided
through  the  company's  pension  plan  (see  Note 11).  All  terminations  were
completed by December 31, 1999.  The Company also recorded an impairment  charge
of  $383,000 to adjust the  carrying  value of the  Enterprise  facility to fair
market value based upon the  consideration to be received.  The Company recorded
$737,000  of other  costs  directly  associated  with the  restructuring.  These
charges are included as a component of the loss from  operations of discontinued
segment in the consolidated statements of operations.

                                      F-13

<PAGE>
                     CLUETT AMERICAN CORP. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

5. Restructuring and Impairment Charges (Continuing)

     As a  result  of the  Transactions,  described  in  Note  2.  -Discontinued
Operations,  the Company  recorded a $4.5  million  C.A.T.  goodwill  impairment
charge in June 2000 to adjust the carrying  value of these assets to fair market
value based upon the actual  consideration  to be  received.  The  Company  also
recorded a $50,000 write-down of property,  plant, and equipment.  These charges
are  included  as a  component  of the loss from  operations  of a  discontinued
segment in the accompanying consolidated statements of operations.

     In 2000, included as a component of the loss on disposition of discontinued
segment  in  the   accompanying   consolidated   statements  of  operations  are
restructuring  and  impairment  charges  of $25.0  million.  These  charges  are
comprised of $13.1 million in severance for approximately  1,250 employees ($7.6
million was paid  directly from the pension plan - See Note 11), $1.5 million in
facility closing costs,  $4.2 in professional  fees, $1.2 million  write-down of
inventory  and  property,  plant and  equipment,  and $5.0  million  other costs
directly associated with the restructuring.

Restructuring and impairment charges are summarized as follows (in thousands):
                                                    1998       1999       2000
                                                    ----       ----       ----
  Continuing Operations:
    Severance costs                               $  266     $  276    $   232
    Facility closure costs                           674      (181)        210
    Other                                             82         --         --
                                                   -----      -----       ----
  Restructuring and impairment charges from
    continuing operations                          1,022         95        442
                                                   -----      -----       ----
  Discontinued Operations:
    Severance costs                                  929      3,178     13,110
    Facility closure costs                         1,292        383      1,530
    Other                                             --        737     10,400
                                                   -----      -----     ------
  Restructuring and impairment charges from
    discontinuing operations                       2,221      4,298     25,040
                                                   -----      -----     ------
  Total                                           $3,243     $4,393    $25,482
                                                  ======     ======    =======

The restructuring reserve at December 31, 1998, 1999 and 2000, is summarized as
follows (in thousands):
                              Severance      Facility Closure    Other     Total
                                Costs
Balance, January 1, 1998        $ 25               $ 727         $ 427    $1,179
Additions                        318               1,966            82     2,366
Payments                        (68)             (2,071)         (446)   (2,585)
                              ---------      -----------------   ------  -------
Balance, December 31, 1998       275                 622            63       960
Additions, net of $534
reversed from prior accruals     276               (444)           737       569
Payments                       (275)                (33)         (800)   (1,108)
                              ---------      -----------------   ------  -------
Balance, December 31, 1999       276                 145            --       421
Additions                      7,106               1,803         10,311   19,220
Payments                     (4,423)             (1,138)        (5,700) (11,261)
                              ---------      -----------------  ------- --------
Balance, December 31, 2000    $2,959                $810         $4,611  $ 8,380
                              =========      =================  ======= ========
                                          F-14

<PAGE>
                     CLUETT AMERICAN CORP. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

6. Accounts Receivable

    Allowances provided for accounts receivable are as follows:
                                                                December 31,
                                                            1999            2000
                                                          (DOLLARS IN THOUSANDS)
                   Doubtful accounts                     $   834          $  909
                   Customer allowances                     3,414           4,037
                                                        -------           ------
                                                         $ 4,248          $4,946
                                                         =======          ======

7. Inventories, Net

    Inventories consist of the following:
                                                                December 31,
                                                          1999              2000
                                                          (DOLLARS IN THOUSANDS)
Finished goods                                           $18,261         $25,055
Work in process                                            3,014           2,092
Raw material and supplies                                  4,655           3,871
                                                         -------         -------
                                                          25,930          31,018
Less: allowance for obsolete and slow moving inventory   (1,010)           (584)
                                                         -------         -------
                                                         $24,920         $30,434
                                                         =======         =======



8. Property, Plant and Equipment, Net

    Property, plant and equipment, net consist of the following:

                                                                 December 31,
                                                            1999            2000
                                                          (DOLLARS IN THOUSANDS)

Land                                                    $    425         $   425
Buildings and site improvements                           14,590          15,050
Machinery, equipment and other                            51,583          54,194
Construction in progress                                     399              33
                                                        --------         -------
                                                          66,997          69,702
Less accumulated depreciation                           (37,724)        (42,772)
                                                        --------         -------
                                                        $ 29,273        $ 26,930
                                                        ========        ========


                                      F-15
<PAGE>


                     CLUETT AMERICAN CORP. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


9. Long-Term Obligations and Financing Arrangements

     The  classification  of the Company's  long-term  obligations and financing
arrangements, including accrued interest, is as follows:

                                                             December 31,
                                                       1999               2000
                                                     ---------          --------
                                                         (DOLLARS IN THOUSANDS)
Short-term debt and current portion of long-term debt:

Senior Credit Facility:
     Swing Line                                      $      --           $   600
     Revolving Credit Facility                              --                --
     Term Loan A                                         5,000             5,209
     Term Loan B                                           600               449
                                                      --------          --------
Total short-term                                         5,600             6,258

Long-term debt:
  Senior Credit Facility:
     Revolving Credit Facility                          32,450            20,646
     Term Loan A                                        41,000            21,486
     Term Loan B                                        58,500            43,350
     Tranche Loan C                                         --            17,449
Senior subordinated notes (includes the Parity Notes)  125,000           125,000
                                                      --------          --------
Total long-term                                        256,950           227,931
                                                      --------          --------
Total debt                                            $262,550          $234,189
                                                      ========          ========

Senior Credit Facility

    On May 18, 1998,  the Company  entered into a $160.0  million  Senior Credit
Facility (the "Senior Credit  Facility")  which is comprised of three  different
loans: a $50.0 million revolving credit facility (the "Revolver"),  a $50.0 term
loan ("Term A"), and a $60.0  million  term loan ("Term B").  The Senior  Credit
Facility  was  amended on May 27,  1998,  December  18,  1998,  March 19,  1999,
September 30, 1999,  March 29, 2000,  June 30, 2000 and March 23, 2001. In 1999,
the Company obtained a revolving credit facility ("Additional Revolver") that is
guaranteed  by Vestar.  On March 29, 2000,  the Senior  Credit  Facility and the
Investment and Deposit  Agreement  were amended and the Additional  Revolver was
increased and incorporated into the Senior Credit Facility as Tranche C Loan.


     As of December 31, 2000, approximately $21.2 million was outstanding on the
Revolver and the Company had no open trade letters of credit outstanding for the
purchase of finished goods inventory from foreign  vendors.  In addition,  there
were $1.0 million in standby  letters of credit  outstanding.  Net  availability
under the Revolver was $29.5  million at December 31, 2000,  in addition to cash
and cash equivalents of $1.3 million.


                                      F-16

<PAGE>

                     CLUETT AMERICAN CORP. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

9. Long-Term Obligations and Financing Arrangements (Continued)

     The Revolver and the Term A loan mature in 2004 and the Term B loan matures
in 2005.  Borrowings  under the Tranche C Loan mature on December 31, 2002,  and
are  guaranteed  by Vestar.  As a result of the  Purchases  and Sale  Agreement,
during the year ended  December 31, 2000,  the Company  permanently  reduced the
Term A Loan,  the Term B Loan and the  Tranche  C Loans  by $6.8  million,  $9.4
million and $8.7 million, respectively. Term Loan A requires quarterly principal
payments of $976,656 through June 2001, $1,627,760 through June 2002, $2,116,088
through June 2003 and four additional  quarterly  payments of $2,441,640 through
maturity in 2004. Term Loan B requires quarterly  principal payments of $112,306
through  June 2004 and four  quarterly  payments  of  $10,556,722  beginning  in
September 30, 2004.  Repayments  under the Tranche C Loan are  restricted by (i)
the Company meeting certain leverage tests and (ii) no prepayments are permitted
on or  before  January  1,  2002.  In the event of a  default  under the  Credit
Agreement,  the Tranche C Loans will be paid only after  payments of Term Loan A
and Term Loan B.

     Interest  for  borrowings  under the  Revolver  and Term A loan is based on
either, at the Company's option,  LIBOR plus 3.0% at December 31, 1999 and 2000,
or the  Alternative  Base Rate  plus 2.0% at  December  31,  1999 and 2000.  The
Alternative  Base Rate is the  greater of the Bank of America  prime rate or the
Fed Funds rate plus 0.5%.  Interest rates on the Revolver and Term Loan A ranged
between  9.19% to  10.25%,  and 9.44% to 11.5% at  December  31,  1999 and 2000,
respectively.  Term Loan B interest  rate is based on either  LIBOR plus 3.5% at
December 31, 1999 and 2000 or, at the Company's  option,  the  Alternative  Base
Rate plus 2.5% at December 31, 1999 and 2000. Interest rates on Term Loan B were
9.69% and 9.55% at  December  31, 1999 and 2000,  respectively.  Tranche C Loans
bear interest,  at the Company's option, at either the Eurodollar rate plus 1.5%
or the Prime rate plus 0.5%.  Interest rates on the Tranche C borrowings  ranged
between 8.08% and 10.0% at December 31, 2000. At December 31, 1999 and 2000, the
weighted  average  interest rate on short-term  borrowings was 9.56% and 10.12%,
respectively.

     The  obligations  of the  Company  under the  Senior  Credit  Facility  are
unconditionally   and   irrevocably   guaranteed  by  the   Company's   domestic
subsidiaries  (the  "Guarantors"),  see Note 18. In addition,  the Senior Credit
Facility  is secured by first  priority  or  equivalent  security  interests  in
substantially  all  tangible  and  intangible  assets  of the  Company  and  the
Guarantors,  including all the capital  stock of, or other equity  interests in,
each  direct or  indirect  domestic  subsidiary  of the Company and 65.0% of the
capital stock of, or other equity  interests in, each direct foreign  subsidiary
of the  Company  or  any  Guarantor  (to  the  extent  permitted  by  applicable
contractual and legal provisions).

     The Term A and  Term B loans  (and in the case of (i),  the  Revolver)  are
subject to mandatory  prepayment  (i) with the proceeds of certain  asset sales,
(ii) on an annual basis with 50.0% of the Company's excess cash flow (as defined
in the Senior  Credit  Facility),  (iii)  with the  proceeds  of certain  equity
offerings and (iv) with the proceeds from debt issuance.

     The Senior Credit Facility contains a number of covenants that, among other
things,  restrict  the ability of the Company and its  subsidiaries,  other than
pursuant  to  specified  exceptions,  to  dispose of  assets,  incur  additional
indebtedness,   incur  guarantee  obligations,  repay  other  indebtedness,  pay
dividends, create liens on assets, enter into leases, make investments, loans or
advances, make acquisitions,  engage in mergers or consolidations,  make capital
expenditures,  enter into sale and leaseback transactions,  change the nature of
their  business  or  engage  in  certain   transactions  with  subsidiaries  and
affiliates and otherwise restrict corporate activities.  In addition,  under the
Senior  Credit  Facility  the  Company  is  required  to comply  with  specified
financial ratios and tests, including minimum fixed charge coverage and interest
coverage ratios and maximum leverage  ratios,  including a senior leverage ratio
and a total leverage ratio and a minimum EBITDA test, each of which is tested as
of the last day of each fiscal quarter of the Company and its subsidiaries.  The
amendments in May 1998,  December 1998, March 1999,  September 1999, March 2000,
June 2000 and March 2001 revised the original covenants.



                                      F-17
<PAGE>

                     CLUETT AMERICAN CORP. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

9. Long-Term Obligations and Financing Arrangements (Continued)

     In conjunction  with the  disposition of certain  segments of the Company's
business,  in March 2001, the Company reset  on-going  covenants and at December
31,  2000,  the  Company was in  compliance  with its  revised  financial  ratio
covenants as per the seventh amendment.

     The Senior Credit Facility  includes a cross-default  provision which makes
it a default  under  the  Senior  Credit  Facility  if,  with  respect  to other
indebtedness  in excess of $2.5  million of  Holdings  and the  Company  and its
subsidiaries,  any such  party  defaults  in any  payment  with  respect to such
indebtedness  or defaults  in a manner  that  permits  such  indebtedness  to be
accelerated or such indebtedness is in fact accelerated.

     The consequences of a default under the Senior Credit Facility are that the
lender may terminate the commitments, accelerate the Company's obligations under
the Senior Credit Facility,  declaring them immediately due and payable, require
the credit  parties to  establish  a cash  collateral  account as  security  for
outstanding letters of credit and enforce any and all other rights and interests
existing under the credit documents.

Senior Subordinated Notes

     In connection with the Recapitalization,  the Company issued $112.0 million
of 10 1/8% Senior  Subordinated Notes due 2008 and $13.0 million in Parity Notes
(collectively,  the "Notes").  The Parity Notes, which are convertible to senior
subordinated  notes, have the same terms as the Senior  Subordinated  Notes with
the exception that accumulated  interest is paid to each Parity Note holder upon
the  conversion  to Senior  Subordinated  Notes.  As of December 31, 2000,  $2.0
million of the initial $13.0 million  Parity Notes have been converted to Senior
Subordinated Notes. No mandatory  redeemable dates exist for the Parity Notes to
be  converted  to Senior  Subordination  Notes.  Commencing  November  15, 1998,
interest  is paid  semiannually  on May 15 and  November  15 of each  year.  The
Company is not required to make any mandatory redemption or sinking fund payment
with respect to the Notes prior to  maturity.  The Notes are  redeemable  at the
option  of the  Company,  in whole or in part,  at any time on or after  May 15,
2003,  at the  redemption  prices set forth in the  agreement  plus  accrued and
unpaid  interest.  The Notes are  subordinate  in priority to the Senior  Credit
Facility,  are  senior  in right  of  payment  to the  Preferred  Stock  and are
guaranteed by the Company's domestic subsidiaries.

The  aggregate  maturities  of  long-term  debt as of  December  31, 2000 are as
follows:

                                   2001                    $  6,258
                                   2002                      25,386
                                   2003                       9,565
                                   2004                      46,867
                                   2005                      21,113
                                   Thereafter               125,000
                                                            -------
                                                           $234,189









                                      F-18
<PAGE>

                     CLUETT AMERICAN CORP. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

10. Income Taxes

The provision for income taxes is summarized as follows:
                                                     YEAR ENDED DECEMBER 31,
                                                    1998       1999        2000
                                                      (DOLLARS IN THOUSANDS)
Current:
Continuing Operations:
 Federal                                          $ (146)    $   --       $   --
 State and local                                      550       600          600
 Foreign (1)                                          464       451          494
 Benefit of net operating loss carryforward            --        --           --
                                                  -------     -----        -----
                                                      868     1,051        1,094
 Discontinued Operations-Foreign                     (58)        92           69
                                                  -------     -----        -----
                                                  $   810    $1,143       $1,163
                                                  =======    ======       ======

(1) Includes approximately $400,000,  $500,000, and $500,000 relating to foreign
withholding taxes for 1998, 1999 and 2000, respectively.

A reconciliation of the statutory federal income tax benefit to the Company's
provision for income taxes is as follows:

                                                   YEAR ENDED DECEMBER 31,
                                                   1998        1999       2000
                                                   (DOLLARS IN THOUSANDS)

Computed at statutory rate                       $(12,248)   $(5,430)   $(6,741)
Foreign subsidiaries loss (income)                 (2,256)      2,659      3,660
State and local income taxes, net of federal
  income tax benefit                                   363        396        396
Deductions relating to foreign taxes                   268        361        395
Changes in valuation allowance for deferred tax
  assets                                            14,812      2,953      3,114
Other, net                                            (71)        112        270
                                                  --------   --------   --------
                                                       868      1,051      1,094

Discontinued operations-foreign subsidiaries          (58)         92         69
                                                  --------   --------   --------
                                                  $    810   $  1,143   $  1,163
                                                  ========   ========   ========

     Deferred   income  taxes   represent  the  net  tax  effects  of  temporary
differences  between the carrying amount of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes.




                                      F-19

<PAGE>




                     CLUETT AMERICAN CORP. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

10. Income Taxes (Continued)

    The significant components of the Company's domestic deferred tax assets and
liabilities are as follows:

                                                         DECEMBER 31,
                                                    1999             2000
                                                   -----             ----
                                                  (DOLLARS IN THOUSANDS)
Deferred tax liabilities:
Workers compensation                            $    893         $    833
Depreciation                                       4,180            1,618
Pension income                                     4,847            3,468
Other                                                354              604
                                               ---------        ---------
Total deferred tax liabilities                    10,274            6,523
Deferred tax assets:
Net operating loss carryforwards                  83,821           81,834
AMT credits                                          119              119
Restructuring reserves                               861              875
Bankruptcy reorganization                          1,094               --
Interest to parent                                    --              484
Allowance for bad debts                              473              253
Inventory overhead cost adjustment, net            1,056              463
Reserves                                           1,128               --
Other                                              5,043              980
                                               ---------        ---------
Total deferred tax assets                         93,595           85,008
Valuation allowance for deferred tax assets     (83,321)         (78,485)
                                               ---------        ---------
Net deferred taxes                             $      --        $      --
                                               =========        =========


    As of December 31, 2000,  the Company had federal net operating loss ("NOL")
carryforwards  of  approximately  $240.7 million.  These NOL  carryforwards  are
scheduled to expire from the year 2005 through 2020.  The Internal  Revenue Code
and Treasury Regulations  prescribe a limitation on the use of NOL carryforwards
following an ownership change. The Company  experienced such an ownership change
as a result of its Plan of  Reorganization  following  the  Company's  exit from
Chapter 11 of the United  States  Bankruptcy  Code on May 18,  1998.  Therefore,
approximately  $201.0 million of the Company's NOL  carryforwards are subject to
an annual usage  limitation of  approximately  $6.0 million plus any  additional
amounts  related to any  realized  built in gains.  The sale of CDG stock during
2000 eliminated the NOL  attributable to that business.  The approximate NOL for
CDG was $11.8 million.

     Based on the Company's history of earnings and the limitation on the use of
its NOL carryforwards, the Company's entire balance of net domestic deferred tax
assets have been  reduced by a valuation  allowance  of $83.3  million and $78.5
million at December 31, 1999 and 2000, respectively,  as it was not assured that
such assets would be realized in the future. The Company increased its valuation
allowance by $3.0 million to $83.3  million in 1999 and  decreased its valuation
allowance by $4.8 million to $78.5 million in 2000.




                                      F-20


<PAGE>


                     CLUETT AMERICAN CORP. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


11. Employee Benefit Plan

    The  Company  has  a  qualified   defined   benefit  pension  plan  covering
essentially all employees of the Company in the United States.  The pension plan
employs a cash  balance form of benefit  that  provides  for  benefits  based on
salary,  age and  service.  The  Company's  practice is to fund amounts that are
required by statute and  applicable  regulations  and which are tax  deductible.
Assets of the plan are investments in cash  equivalents,  publicly-traded  fixed
income and equity securities,  and real estate. Assets are valued using a method
which recognizes the difference between actual and expected market values over a
period of five years.

     At December 31, 1999 and 2000, the funded status of the Company's qualified
defined benefit pension plan was as follows:
                                                              DECEMBER 31,
                                                         1999             2000
                                                         (DOLLARS IN THOUSANDS)
Benefit Obligation Information
Benefit obligation at beginning of year               $  77,582        $  67,270
Service cost                                              2,086            1,819
Interest cost                                             5,034            5,412
Actuarial loss/(gain)                                  (10,093)            4,314
Benefits paid                                          (11,703)         (14,855)
Amendments                                                1,186            1,267
Curtailments                                                 --              (1)
Settlements                                                  --          (8,730)
Special termination benefits                              3,178            7,390
                                                      ---------        ---------
Benefit obligation at end of year                     $  67,270        $  63,886
                                                      =========        =========

Fair Value of Plan Assets
Fair value of plan assets at beginning of year         $113,244         $112,911
Actual return on plan assets                             11,370              986
Benefits paid                                          (11,703)         (14,855)
Settlements                                                  --          (8,730)
                                                      ---------       ----------
Fair value of plan assets at end of year               $112,911        $  90,312
                                                      =========       ==========


Reconciliation of Funded Status, Amounts Not
Recognized, and Amounts Recognized
Funded status                                         $  45,641        $  26,426
Unrecognized prior service cost                           4,037            2,021
Unrecognized loss/(gain)                               (10,455)            3,348
Unrecognized reversion value discount                   (7,036)          (4,250)
                                                      ---------       ----------
Prepaid benefit costs                                 $  32,187        $  27,545
                                                      =========       ==========


                                      F-21

<PAGE>

                     CLUETT AMERICAN CORP. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


11. Employee Benefit Plan (Continued)

    Net pension benefit of the Company's  qualified defined benefit plan for the
years ended December 31, 1998, 1999 and 2000 include the following components:



                                                          1998     1999     2000
                                                      --------------------------
                                                            (IN THOUSANDS)

Service cost                                          $  1,724   $2,086   $1,819
Interest cost                                            5,346    5,034    5,412
Actual return on plan assets                          (12,347) (11,370)    (986)
Amortization of unrecognized reversion value discount  (1,230)  (1,230)  (1,120)
Asset gain deferred for later recognition                4,474    1,496  (8,539)
                                                      --------  -------  -------
                                                       (2,033)  (3,984)  (3,414)
Other benefit charges:
Early retirement program/special retirement benefits       877    3,178    8,056
                                                      --------  -------   ------
Net pension expense (benefit)                         $(1,156)  $( 806)   $4,642
                                                      ========  =======   ======

     The  assumptions  used in  determining  the funded  status of the Company's
defined  benefit  pension plan for the years ended  December 31, 1998,  1999 and
2000 were discount rates of 7.0%, 8.25% and 7.75%, respectively,  and an average
rate of increase in compensation  levels ranging from 3.25% to 13.25%  depending
on the  participant's  age at the  valuation  date.  In  addition,  the expected
long-term rate of return on plan assets was 9.5% for all periods.  The change in
assumptions  between  periods is reflected as an  actuarial  loss/(gain)  and is
reflected as a component of benefit obligation.

    During 1990, in connection with the acquisition of certain  businesses,  the
Company adjusted the actuarial  valuation of certain estimated pension assets to
reflect  their  net  realizable  value  based  upon a planned  reversion  to the
Company.  In August  1991,  the Company  decided not to revert the assets.  As a
result of this change,  the excess pension assets are being  recognized over the
Average  Future  Working  Lifetime of the plan  participants,  estimated to be a
period  of 14  years.  Amortization  of this  amount  was  $1,230,000  in  1998,
$1,230,000 in 1999 and  $1,120,000 in 2000,  and is included in pension  benefit
for each  respective  year.  The  Company  periodically  performs  an  actuarial
valuation of these pension  assets and adjusts the amount of the pension  assets
and the annual amortization based on the results of the valuation.

     During 1998, the Company's  qualified  defined  benefit plan was amended to
provide an Early Retirement  Program.  The total charge in 1998 and 1999 related
to the program was  $877,000 and  $1,443,000,  respectively.  These  charges are
included as a component of the loss from operations of  discontinued  segment in
the consolidated statements of operations.

     During 1999, the Company's  qualified  defined  benefit plan was amended to
provide special  termination  benefits to those employees severed as a result of
the  Enterprise  facility  closing.  The total  charge in 1999  related  to this
program  was  $1,735,000,  which is  included  as a  component  of the loss from
operations of discontinued segment in the consolidated  statements of operation.
In 2000,  the plan  provided  special  termination  benefits to those  employees
associated with the closing of the Pottstown facility in the Sock Group and with
the discontinued operations.  The total charge in 2000 related to these benefits
was $8,056,000,  of which $7,548,000 were related termination  benefits directly
attributable to discontinued operations.

                                      F-22


<PAGE>



                     CLUETT AMERICAN CORP. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

12. Commitments and Contingencies

     The Company  and certain of its  subsidiaries  are party to  litigation  in
connection  with the  normal  conduct  of their  businesses.  In the  opinion of
management, these matters are immaterial to the Company's financial position and
results of operations.

    The Company leases certain land, buildings and equipment under noncancelable
operating  leases  that expire in various  years  through  2013.  Certain of the
operating leases contain rent escalation  clauses and require the Company to pay
maintenance  costs,  property  taxes and  insurance  obligations  on the  leased
property.  Future minimum lease payments under noncancelable operating leases as
of December 31, 2000 are as follows:

                                       OPERATING
                                         LEASES
                                       ---------
Year payable:
  2001                                 $   1,532
  2002                                     1,411
  2003                                     1,423
  2004                                     1,450
  2005                                     1,445
  Thereafter                               4,344
                                       ---------
Total minimum lease payments           $  11,605
                                       =========

    Rent expense  totaled  approximately  $1.2 million in 1998,  $1.2 million in
1999, and $1.8 million in 2000.

    The Company  has  standby  letters of credit in the amount of $976,000 as of
December 31, 2000.


















                                      F-23


<PAGE>


                     CLUETT AMERICAN CORP. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


13. Licensing Agreements

    Certain of the Company's  subsidiaries have licensing  agreements which give
them the  exclusive  rights to use certain  trademarks,  logos and related trade
names in connection  with the  manufacture and sale of certain men's and women's
apparel  and  socks  in  specified  territories.   License  fees  are  based  on
percentages  of net sales,  as defined,  for the various  products sold, but not
less than  specified  minimum  amounts.  The licensing  agreements  have various
renewal dates.  Certain of the license agreements contain automatic renewals and
are  noncancelable.  The renewal terms range to five years and expire in various
years through 2004.

    Future  minimum  license  fees  payable in the  remaining  years  succeeding
December 31, 2000 are as follows (in thousands):


Year payable:

 2001                                                     $556
 2002                                                      855
 2003                                                      958
 2004                                                      766


14. Related Party Transactions

    Subsequent to the emergence from  bankruptcy,  Holdings  allocated  interest
expense  of $24.3  million  related to  post-petition  interest  on  prepetition
obligations to the Company. This amount is included in bankruptcy reorganization
costs in 1998.  This amount was  contributed  by Holdings to the Company in 1999
and is reflected as a component of Stockholder's  Deficit.  In addition,  a $1.5
million and $2.1 million liability related to an employee stock plan was assumed
by the Company and the pension plan, respectively.  The liability assumed by the
pension plan is reflected  as a component  of the benefit  obligation  (see Note
11).

    Pursuant to a management  advisory  agreement (the  "Management  Agreement")
entered  into in  connection  with the  reorganization  of the  Company in 1998,
Vestar receives an annual advisory fee equal to $500,000.  The Company  expensed
$250,000 in 1998,  $500,000 in 1999 and  $500,000 in 2000 in  consideration  for
certain advisory and consulting services (excluding  investment banking or other
financial advisory services and full- or part-time employment by Holdings or any
of its subsidiaries of any employee or partner of Vestar and its affiliates,  in
each case for which  Vestar  and its  affiliates  shall be  entitled  to receive
additional  compensation).  Holdings has agreed to reimburse Vestar for expenses
incurred in connection  with, and to indemnify Vestar and its affiliates for any
liabilities arising from, such advisory and consulting  services.  In connection
with the  Recapitalization,  Vestar received a one-time transaction fee of $3.25
million in 1998.

    During 1995 Mr.  Marsal  (founding  Managing  Director of A&M) was appointed
Chief Executive Officer of the Company. In connection with this appointment, the
Company paid A&M  $957,000,  $963,000 and  $900,000  for 1998,  1999,  and 2000,
respectively for compensations and other related expenses.





                                      F-24


<PAGE>


                     CLUETT AMERICAN CORP. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

15. Risks, Uncertainties and Significant Concentrations

     The  Company  manufactures  and sources a portion of its  products  and raw
materials from foreign  subsidiaries or vendors.  The Company  attempts to limit
the concentration  with any one manufacturer or vendor.  The Company believes it
has alternative  manufacturing  and raw material  sources  available to meet its
current and future production  requirements in the event the Company is required
to change  current  manufacturers  or vendors  are  unavailable  to fulfill  the
Company's needs.

     The Company's principal customer base, the retail industry, has experienced
significant  changes and  difficulties  over the past several  years,  including
consolidation  of ownership,  increased  centralization  of buying decisions and
restructurings.  The Company  cannot  predict  what  effect,  if any,  continued
changes within this industry will have on the Company's operations.

16. Fair Value of Financial Instruments

     The  carrying  amount of cash and cash  equivalents,  accounts  receivable,
short-term borrowings, accounts payable and accrued liabilities approximate fair
value  due to the  short  maturities  of these  instruments.  The fair  value of
long-term debt was approximately  $222.1 million at December 31, 1999 and $209.5
million  (book value of $234.2  million) at December  31, 2000 based on interest
rates that are  believed to be  available  to the Company for debt with  similar
provisions  provided for in the existing debt agreements.  The fair value of the
senior exchangeable  Preferred Stock was approximately $20.0 million at December
31, 1999 and $20.0  million  (book value of $66.2  million) at December 31, 2000
based on a market value analysis.

17. Segment Data

     The Company  identifies  its  reportable  segments  based on the  segments'
product  offerings.  As a result of the  Company's  June 13,  2000,  decision to
discontinue  the shirt group  operations  and license the Arrow  tradename,  the
composition of the Company's  reportable segments changed.  The licensing of the
Arrow  brand will  result in minimum  annual  license  revenue of $5.0  million.
Subsequent  to June 13, 2000,  the Company  conducted  its business  through two
principle  segments:  the Sock  Group and the  Licensing  Group.  The  financial
results  associated with Latin America,  Apparel  On-Line,  LLC, Cluett American
Receivables, LLC, Arrow Factory Stores, Inc., and unallocated corporate overhead
charges are referred to  collectively as "All Other".  Segment data  disclosures
for the three years ended December 31, 1998,  December 31, 1999 and December 31,
2000 have been restated to reflect the above noted change.









                                      F-25










<PAGE>


                     CLUETT AMERICAN CORP. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

17. Segment Data (Continued)

                                       1998            1999               2000
                                               (Dollars in Thousands)
Net Sales
         Sock                        $164,760        $168,366           $168,971
         Licensing                      6,273           6,346              9,045
         All other                        143              51              1,212
         Intercompany                 (1,829)         (2,201)            (1,342)
                                     --------        --------           --------
                                     $169,347        $172,562           $177,886
                                     ========        ========           ========

Gross Profit
         Sock                        $ 52,497        $ 58,735           $ 54,877
         Licensing                      6,273           6,346              9,045
         All other                        (3)              36                589
                                     --------        --------           --------
                                     $ 58,767        $ 65,117           $ 64,511
                                     ========        ========           ========

Selling, General and Administrative
         Sock                        $ 26,454        $ 27,750           $ 30,732
         Licensing                      1,981           1,662              2,086
         All other                      2,181           1,430              2,164
                                     --------        --------           --------
                                     $ 30,616        $ 30,842           $ 34,982
                                     ========        ========           ========

Operating Income
  excluding restructuring and
  impairment and charges
         Sock                        $ 26,043        $ 30,985           $ 24,145
         Licensing                      4,292           4,684              6,959
         All other                    (2,184)         (1,394)            (1,575)
                                     --------        --------           --------
                                     $ 28,151        $ 34,275           $ 29,529
                                     ========        ========           ========

Identifiable Assets
         Sock                        $ 80,766        $ 82,562           $ 81,767
         Licensing                      1,927           1,984              3,107
         All other                        558           1,861              1,508
                                     --------        --------           --------
                                     $ 83,251        $ 86,407           $ 86,382
                                     ========        ========           ========

Depreciation
         Sock                        $  5,403        $  5,815           $  5,969
         Licensing                         57              84                 79
         All other                         --             108                283
                                     --------        --------           --------
                                     $  5,460        $  6,007           $  6,331
                                     ========        ========           ========

Capital expenditures
         Sock                        $  7,987         $ 5,745           $  3,727
         Licensing                        104              23                 --
         All other                         --             648                100
                                     --------        --------           --------
                                     $  8,091         $ 6,416            $ 3,827
                                     ========        ========           ========
                                      F-26


<PAGE>


                     CLUETT AMERICAN CORP. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

17. Segment Data (Continued)
     Interest  expense,  interest  income and  income  taxes are  excluded  from
reportable segment data as such amounts are not included in segment  information
reviewed by the chief operating decision maker.

Reconciliation of Reportable Segments Net sales, Operating Income and
Identifiable Assets

                                                 1998         1999        2000
                                                   (Dollars in Thousands)
Net Sales
Total net sales for reportable segments      $  171,033    $ 174,712   $ 178,016
Other net sales                                     143           51       1,212
Eliminations of intersegment net sales          (1,829)      (2,201)     (1,342)
                                             ----------    ---------   ---------
Total consolidated net sales                 $  169,347    $ 172,562   $ 177,886
                                             ==========    =========   =========

Operating Income (Loss)
Total operating income for reportable
  segments                                   $   30,335    $  35,669   $  31,104
Other operating (loss)                            (628)        (573)       (752)
Eliminations of intersegment operating
  profit(loss)                                       --           --          --
Unallocated amounts:
     Other corporate (expense)                  (1,556)        (821)       (823)
     Restructuring and impairment charges       (1,022)         (95)       (442)
                                             ----------    ---------   ---------
Total operating income                       $   27,129    $  34,180   $  29,087
                                             ==========    =========   =========

Assets
Total assets for reportable segments         $   82,693    $  84,546   $  84,874
Other assets                                        558        1,861       1,508
Net assets of discontinued operations            64,515       60,563      21,861
Unallocated amounts:
     Deferred finance costs                      11,198       10,842       9,966
     Pension assets                              31,383       32,187      27,545
     Other unallocated amounts                    3,185        7,200       7,814
                                             ----------    ---------   ---------
Consolidated total                           $  193,532    $ 197,199   $ 153,568
                                             ==========    =========   =========

Capital Expenditures
Total capital expenditures for reportable
  segments                                   $    8,091    $   5,768   $   3,727
Adjustments                                          --          648         100
                                             ----------    ---------   ---------
Consolidated total                           $    8,091    $   6,416   $   3,827
                                             ==========    =========   =========

                                      F-27

<PAGE>


                     CLUETT AMERICAN CORP. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


17. Segment Data (Continued)


                                                 1998           1999       2000
                                                    (Dollars in Thousands)
Depreciation & Amortization
Total depreciation for reportable segments   $   5,460     $   6,007    $  6,331
Amortization                                       992         1,592       1,742
                                             ---------     ---------    --------
Consolidated total                           $   6,452     $   7,599    $  8,073
                                             =========     =========    ========





































                                      F-28

<PAGE>



                     CLUETT AMERICAN CORP. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


18. Guarantor Subsidiaries

     The Company's payment  obligations under the Senior Credit Facility and the
Senior Subordinated Notes (the "Notes") are fully and unconditionally guaranteed
on a joint and several basis by its current domestic subsidiaries,  principally:
Cluett  Peabody & Co.,  Inc.,  Great  American  Knitting  Mills,  Inc.,  Apparel
On-Line,  LLC,  Consumer  Direct  Corporation  and  Arrow  Factory  Stores  Inc.
(collectively the "Guarantor Subsidiaries").  Each of the Guarantor Subsidiaries
is a direct or indirect  wholly-owned  subsidiary of the Company.  The Company's
payment  obligations  under  the  Notes  are  not  guaranteed  by the  remaining
subsidiaries:  Bidermann  Womenswear  Corp.  (formerly  Ralph Lauren  Womenswear
Inc.),  Cluett  Peabody  Canada  Inc.,  Arrow de  Mexico  S.A.  de  C.V.,  Arrow
Inter-America & Co., Ltd. and Cluett American Receivables, LLC (collectively the
"Non-Guarantor  Subsidiaries").  The  obligations of each  Guarantor  Subsidiary
under  its  guarantee  of  the  Notes  are  subordinated  to  such  subsidiary's
obligations under its guarantee of the Senior Credit Facility.

     Presented below is condensed consolidating financial information for Cluett
American  Corp.   ("Parent  Company"),   the  Guarantor   Subsidiaries  and  the
Non-Guarantor  Subsidiaries.   In  the  Company's  opinion,  separate  financial
statements and other disclosures  concerning each of the Guarantor  Subsidiaries
would  not  provide  additional  information  that  is  material  to  investors.
Therefore,  the Guarantor  Subsidiaries  are  consolidated  in the  presentation
below.  Investments in  subsidiaries  are accounted for by Cluett American Corp.
using the equity method of accounting.  Earnings of subsidiaries are, therefore,
reflected  in  the  Parent   Company's   investments  in  and  advances  to/from
subsidiaries  account and earnings (losses).  The elimination  entries eliminate
investments  in  subsidiaries,  the  related  stockholder's  deficit  and  other
intercompany balances and transactions.

     In 1998, 1999 and 2000, the Company allocated  external interest expense to
its subsidiaries, based on a percentage of net sales.




















                                      F-29


<PAGE>



                     CLUETT AMERICAN CORP. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

18. Guarantor Subsidiaries (Continued)

                              SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
                                                 DECEMBER 31, 1999

<TABLE>                                       (DOLLARS IN THOUSANDS)
<S>                                         <C>             <C>             <C>             <C>            <C>
                                            PARENT          GUARANTOR       NON-GUARANTOR
                                            COMPANY         SUBSIDIARIES    SUBSIDARIES     ELIMINATIONS   CONSOLIDATED
                                            -------         -----------     -------------   ------------   ------------
ASSETS
Current assets:
Cash and cash equivalents ...................$      --      $   6,916        $     132        $      --     $   7,048
Accounts receivable, net ....................       --         29,370               --               --        29,370
Inventories, net ............................       --         24,920               --               --        24,920
Prepaid expenses and other current assets ...       --          1,995               --               --         1,995
Net assets of discontinued operations .......       --         49,268           11,295               --        60,563
                                             ---------      ---------        ---------         ---------    ---------
Total current assets ........................       --        112,469           11,427               --       123,896

Investment in subsidiaries .................. (103,443)            --               --          103,443        --
Property, plant and equipment, net ..........       --         29,265                8               --        29,273
Deferred financing costs ....................       --         10,842               --               --        10,842
Pension assets ..............................       --         32,187               --               --        32,187
Other noncurrent assets .....................       --            994                7               --         1,001
                                             ----------     ---------        ---------         ---------    ---------
Total assets ............................... $(103,443)     $ 185,757        $  11,442        $ 103,443     $ 197,199
                                             ==========     =========        =========         =========    =========

LIABILITIES AND STOCKHOLDER'S DEFICIT
Current liabilities:
Accounts payable and accrued expenses         $     --      $  16,502        $       8        $      --     $  16,510
Accrued interest payable ....................       --          3,861               --               --         3,861
Restructuring reserve .......................       --            407               14               --           421
Short-term debt and current portion of
  long-term debt ............................       --          5,600               --               --         5,600
Income taxes payable ........................       --          1,763              207               --         1,970
                                             ----------     ---------        ---------         ---------   ---------
Total current liabilities ...................       --         28,133              229               --        28,362

Long-term debt ..............................       --        256,950               --               --       256,950
Other noncurrent liabilities ................       --            147               --               --           147
Redeemable preferred stock dividends payable        637            --               --               --           637
Senior exchangeable preferred stock,
cumulative, $.01 par value: authorized
4,950,000, issued and outstanding 599,145
shares (liquidation preference of $59,915)      58,329             --               --               --        58,329

Stockholder's deficit ....................... (162,409)      (99,473)           11,213          103,443     (147,226)
                                             ----------     ---------        ---------        ---------   -----------
Total liabilities and stockholder's deficit  $(103,443)     $ 185,757        $  11,442        $ 103,443    $ 197,199
                                             ==========     =========        =========        =========   ===========
</TABLE>
                                       F-30



<PAGE>


                     CLUETT AMERICAN CORP. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

18. Guarantor Subsidiaries (Continued)

                              SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
                                               DECEMBER 31, 2000

<TABLE>                                       (DOLLARS IN THOUSANDS)
<S>                                            <C>         <C>            <C>              <C>             <C>
                                              PARENT       GUARANTOR      NON-GUARANTOR
                                              COMPANY      SUBSIDIARIES   SUBSIDARIES       ELIMINATIONS   CONSOLIDATED
                                              -------      -----------    -------------     ------------   ------------
ASSETS
Current assets:
Cash and cash equivalents ..................  $    --      $   1,136        $     132          $    --       $   1,268
Accounts receivable, net ...................       --         33,442               --               --          33,442
Inventories, net ...........................       --         30,434               --               --          30,434
Prepaid expenses and other current assets ..       --          1,176               --               --           1,176
Net assets of discontinued operations ......       --         13,719            8,142               --          21,861
                                            ---------      ---------        ---------         ---------      ---------
Total current assets .......................       --         79,907            8,274               --          88,181

Investment in subsidiaries ................. (124,433)            --               --          124,433              --
Property, plant and equipment, net .........       --         26,922                8               --          26,930
Deferred financing costs ...................       --          9,966               --               --           9,966
Pension assets .............................       --         27,545               --               --          27,545
Other noncurrent assets ....................       --            939                7               --             946
                                            ---------      ---------        ---------         ---------      ---------
Total assets ...............................$(124,433)     $ 145,279        $   8,289         $ 124,433      $ 153,568
                                            =========      =========        =========         =========      =========

LIABILITIES AND STOCKHOLDER'S DEFICIT
Current liabilities:
Accounts payable and accrued expenses...... $      --      $  13,701        $       8         $     --       $  13,709
Accrued interest expense ..................        --          5,362               --               --           5,362
Restructuring reserve .....................        --          2,575            5,805               --           8,380
Short-term debt and current portion of
  long-term debt ..........................        --          6,258               --               --           6,258
Income taxes payable ......................        --          1,735              207               --           1,942
                                            ---------      ---------        ---------         ---------      ---------
Total current liabilities .................        --         29,631            6,020               --          35,651

Long-term debt ............................        --        227,931               --               --         227,931
Other noncurrent liabilities ..............        --             59               --               --              59
Redeemable preferred stock dividends payable      718             --               --               --             718
Senior exchangeable preferred stock,
cumulative, $.01 par value: authorized
4,950,000, issued and outstanding 676,379
shares (liquidation preference of $ 63,659)    66,214             --               --               --          66,214

Stockholder's deficit ....................   (191,365)     (112,342)            2,269          124,433       (177,005)
                                            ----------     ---------        ---------        ---------       ---------
Total liabilities and stockholder's deficit $(124,433)     $ 145,279        $   8,289        $ 124,433       $ 153,568
                                            ==========     =========        =========        =========       =========

</TABLE>



                                                                      F-31


<PAGE>


                     CLUETT AMERICAN CORP. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

18. Guarantor Subsidiaries (Continued)

                    SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
                                YEAR ENDED DECEMBER 31, 1998

<TABLE>                             (DOLLARS IN THOUSANDS)
<S>                                             <C>         <C>            <C>             <C>           <C>
                                                 PARENT      GUARANTOR     NON-GUARANTOR
                                                 COMPANY    SUBSIDIARIES    SUBSIDARIES    ELIMINATIONS  CONSOLIDATED
                                               ----------   -----------    ------------    ------------  ------------

Net sales ..................................   $    --      $ 169,204       $     143        $     --      $ 169,347
Cost of goods sold .........................        --        110,434             146              --        110,580
                                               ---------    ---------       ---------        ---------     ---------
Gross profit ...............................        --         58,770             (3)              --         58,767
Selling, general and administrative expenses        --         29,991             625              --         30,616
Restructuring and impairment charges .......        --          1,022              --              --          1,022
                                               ---------    ---------       ---------        ---------     ---------
Operating income (loss) ....................        --         27,757           (628)              --         27,129

Loss on investments in subsidiaries ........      36,834           --              --        (36,834)             --
Interest expense, net ......................        --         19,287             (8)              --         19,279
Other expense, net .........................        --          2,131              --              --          2,131
                                               ---------    ---------       ---------        ---------     ---------
Income (loss) from continuing operations
  before reorganization costs and
  income taxes .............................     (36,834)       6,339           (620)          36,834          5,719
Bankruptcy reorganization costs ............        --         37,528              --              --         37,528
                                               ---------    ---------       ---------        ---------     ---------
Loss from continuing operations
  before income taxes ......................     (36,834)     (31,189)          (620)          36,834       (31,809)
Income taxes ...............................        --            851              17              --            868
                                               ---------    ---------       ---------        ---------     ---------
Loss from continuing operations ............     (36,834)     (32,040)          (637)          36,834       (32,677)

Discontinued operations:
  Loss from operations of discontinued
  segment ..................................        --         (3,100)        (1,057)              --        (4,157)
                                               ---------    ---------       ---------       ---------      ---------

Net income (loss) ..........................   $ (36,834)   $ (35,140)      $ (1,694)       $  36,834     $ (36,834)
                                               =========    =========       =========       =========      =========
</TABLE>













                                                                      F-32



<PAGE>


                     CLUETT AMERICAN CORP. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

18. Guarantor Subsidiaries (Continued)

                    SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
                                    YEAR ENDED DECEMBER 31, 1999

<TABLE>                                 (DOLLARS IN THOUSANDS)
<S>                                          <C>             <C>             <C>            <C>            <C>
                                              PARENT        GUARANTOR      NON-GUARANTOR
                                             COMPANY        SUBSIDIARIES    SUBSIDARIES     ELIMINATIONS   CONSOLIDATED
                                             -------        -----------    --------------   ------------   ----------


Net sales ................................   $    --         $ 172,562       $      --         $    --      $ 172,562
Cost of goods sold .......................        --           107,445              --              --        107,445
                                            ---------        ---------        ---------       ---------     ---------
Gross profit .............................        --            65,117              --              --         65,117
Selling, general and administrative
  expenses ...............................        --            30,842              --              --         30,842
Restructuring and impairment charges .....        --                95              --              --             95
                                            ---------        ---------        ---------       ---------     ---------
Operating income .........................        --            34,180              --              --         34,180

Loss on investments in subsidiaries ......    17,113                --              --        (17,113)             --
Interest expense, net ....................        --            25,700              --              --         25,700
Other expense, net .......................        --               184              --              --            184
                                            ---------        ---------        ---------      ---------      ---------
Income (loss) from continuing operations
  before reorganization costs(credits) and
  income taxes ...........................   (17,113)            8,296              --         17,113           8,296
Bankruptcy reorganization credits ........        --             (573)              --           --             (573)
                                            ---------        ---------        ---------    ----------       ---------
Loss from continuing operations
  before income taxes ....................   (17,113)            8,869              --         17,113           8,869
Income taxes .............................        --             1,051              --           --             1,051
                                            ---------        ---------        ---------    ---------        ---------
Income (loss) from continuing operations .   (17,113)            7,818              --         17,113           7,818

Discontinued operations:
  Loss from operations of discontinued
  segment ................................        --          (20,760)         (4,171)            --         (24,931)
                                            ---------        ---------       ---------      ---------       ---------
Net income (loss) ........................  $(17,113)       $ (12,942)      $  (4,171)      $  17,113      $ (17,113)
                                            =========        =========       =========      =========      ==========
</TABLE>












                                      F-33


<PAGE>


                     CLUETT AMERICAN CORP. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

18. Guarantor Subsidiaries (Continued)

                    SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
                                      YEAR ENDED DECEMBER 31, 2000

<TABLE>                                  (DOLLARS IN THOUSANDS)
<S>                                                   <C>          <C>             <C>               <C>             <C>
                                                      PARENT       GUARANTOR       NON-GUARANTOR
                                                      COMPANY      SUBSIDIARIES    SUBSIDARIES       ELIMINATIONS    CONSOLIDATED
                                                      ----------   -----------     --------------    ------------    ----------


Net sales .........................................   $    --      $ 177,886         $     --          $    --       $ 177,886
Cost of goods sold ................................        --        113,375               --               --         113,375
                                                      ---------    ---------         ---------        ---------      ---------
Gross profit ......................................        --         64,511               --               --          64,511
Selling, general and administrative
  expenses ........................................        --         34,934               48               --          34,982
Restructuring and impairment charges ..............        --            442               --               --             442
                                                      ---------    ---------         ---------        ---------      ---------
Operating income (loss) ...........................        --         29,135             (48)               --          29,087

Loss on investments in subsidiaries................       20,990          --               --           (20,990)            --
Interest expense, net .............................        --         27,656               65               --          27,721
Other expense, net ................................        --            115               --               --             115
                                                      ---------    ---------         ---------        ---------      ---------
Income (loss) from continuing operations
  before income taxes .............................     (20,990)       1,364            (113)            20,990          1,251
Income taxes ......................................        --          1,094               --               --           1,094
                                                      ---------    ---------         ---------        ---------      ---------
 Income (loss) from continuing operations .........     (20,990)         270            (113)            20,990            157


Discontinued operations:
  Income (loss) from operations of discontinued
     segment ......................................          --     (10,634)             697                --         (9,937)
  Income (loss) on disposition of business segment,
     including phase-out period operating losses ..          --      (3,032)         (8,178)                --        (11,210)
                                                      ---------    ---------        ---------          --------      ---------
Net income (loss) .................................   $ (20,990)   $(13,396)       $ (7,594)           $ 20,990      $(20,990)
                                                      =========    =========        =========          ========      =========
</TABLE>














                                                                      F-34


<PAGE>


                     CLUETT AMERICAN CORP. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

18. Guarantor Subsidiaries (Continued)

          SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
                           YEAR-END DECEMBER 31, 1998

<TABLE>                             (DOLLARS IN THOUSANDS)
<S>                                                  <C>        <C>            <C>               <C>             <C>
                                                     PARENT      GUARANTOR     NON-GUARANTOR
                                                     COMPANY    SUBSIDIARIES    SUBSIDARIES      ELIMINATIONS    CONSOLIDATED
                                                     --------   -----------    -------------     ------------    ------------
OPERATING ACTIVITIES
Net loss .......................................   $ (36,834)   $ (35,140)      $  (1,694)         $  36,834       $ (36,834)
Adjustment to reconcile net loss to
net cash and cash equivalents used in
operating activities:
Loss from discontinued operations ..............          --        3,100            1,057                --           4,157
Loss on investments in
    subsidiaries ...............................      36,834           --               --          (36,834)              --
Write-down of deferred acquisition costs .......          --          489               --                --             489
Write-down of property, plant and equipment ....          --        1,094               --                --           1,094
 Depreciation and amortization .................          --        6,452               --                --           6,452
 Gain on sale of property, plant and equipment .          --         (33)               --                --            (33)
 Adjustments of liabilities subject to
    compromise .................................          --     (22,442)               --                --        (22,442)
Changes in operating assets and liabilities ....          --        8,829              750                --           9,579
                                                   ---------    ---------        ---------         ---------       ---------
Net cash and cash equivalents provided by
(used in) operating activities of continuing
operations .....................................          --     (37,651)              113                --        (37,538)
                                                   ---------    ---------        ---------         ---------       ---------

INVESTING ACTIVITIES
Purchase of property, plant and equipment ......          --      (8,091)               --                --         (8,091)
Proceeds from disposal of property, plant and
   equipment ...................................          --          156               --                --            156
                                                   ---------    ---------        ---------         ---------      ---------
Net cash and cash equivalents used in
investing activities of continuing operations ..          --      (7,935)               --                --         (7,935)
                                                   ---------    ---------        ---------         ---------      ---------
FINANCING ACTIVITIES
Issuance of preferred stock ....................          --       48,125               --                --         48,125
Distribution to parent .........................          --     (87,522)               --                --        (87,522)
Net proceeds from DIP credit facility ..........          --        4,287               --                --          4,287
Proceeds from issuance of long term debt .......          --      222,000               --                --        222,000
Principal payments on long term debt ...........          --      (1,300)               --                --         (1,300)
Principal payments on pre-petition liabilities            --    (146,490)               --                --       (146,490)
Principal payments on capital leases ...........          --      (2,377)               --                --         (2,377)
                                                   ---------    ---------        ---------         ---------      ----------
Net cash and cash equivalents provided by
financing activities of continuing operations ..          --       36,723               --                --          36,723
                                                   ---------    ---------        ---------         ---------       ---------
Cash from discontinued operations ..............          --        2,824            (287)                --           2,537
                                                   ---------    ---------        ---------         ---------       ---------
Net change in cash and cash equivalents ........          --      (6,039)            (174)                --         (6,213)
Cash and cash equivalents at beginning of
 year ..........................................          --        8,319              468                --           8,787
                                                   ---------    ---------        ---------         ---------       ---------
Cash and cash equivalents at end of year .......   $      --    $   2,280        $     294          $     --       $   2,574
                                                   =========    =========        =========         =========       =========
</TABLE>

                                                                      F-35


<PAGE>


                     CLUETT AMERICAN CORP. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

18. Guarantor Subsidiaries (Continued)

                   SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
                                   YEAR ENDED DECEMBER 31, 1999

<TABLE>                                 (DOLLARS IN THOUSANDS)
<S>                                                  <C>        <C>            <C>              <C>             <C>
                                                     PARENT      GUARANTOR     NON-GUARANTOR
                                                     COMPANY    SUBSIDIARIES    SUBSIDARIES     ELIMINATIONS    CONSOLIDATED
                                                    ---------   -----------    --------------   ------------    ------------
OPERATING ACTIVITIES
Net loss .......................................    $(17,113)     $(12,942)       $  (4,171)       $ 17,113      $ (17,113)
Adjustment to reconcile net loss
 to net cash and cash equivalents
 provided by (used in) operating activities:
Loss from discontinued operations ..............           --        20,760            4,171             --          24,931
Loss on investments in subsidiaries ............       17,113            --               --       (17,113)              --
Write-down of property, plant and equipment ....           --           360               --             --             360
Depreciation  and amortization .................           --         7,599               --             --           7,599
Gain on sale of property, plant and equipment...           --         (202)               --             --           (202)
Changes in operating assets and liabilities ....           --         2,054            (162)             --           1,892
                                                     --------     ---------         --------       --------        --------
Net cash and cash equivalents provided by
(used in) operating activities of continuing
operations .....................................           --        17,629            (162)             --          17,467

INVESTING ACTIVITIES
Purchase of property, plant and equipment ......           --       (6,416)              --              --         (6,416)
Proceeds from disposal of property, plant and
equipment ......................................           --         1,262              --              --           1,262
                                                     --------     ---------        --------        --------        --------
Net cash and cash equivalents used in
investing activities of continuing operations ..           --       (5,154)              --              --         (5,154)

FINANCING ACTIVITIES
Net borrowing under line-of-credit agreement ...           --        24,100              --          24,100
Principal payments on long term debt ...........           --       (3,600)              --              --        (3,600)
                                                     --------      --------        --------        --------       --------
Net cash and cash equivalents provided by
  financing activities of continuing operations            --        20,500              --              --         20,500
                                                     --------      --------        --------        --------       --------
Cash from discontinued operations ..............           --      (28,339)              --              --       (28,339)
                                                     --------      --------        --------        --------       --------
Net change in cash and cash equivalents ........           --         4,636           (162)              --          4,474
Cash and cash equivalents at beginning of year .           --         2,280             294              --          2,574
                                                     --------      --------        --------        --------       --------
Cash and cash equivalents at end of year.......      $     --      $  6,916        $    132          $   --       $  7,048
                                                     =========     ========        ========        ========       ========
</TABLE>




                                      F-36



<PAGE>


                     CLUETT AMERICAN CORP. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

18. Guarantor Subsidiaries (Continued)

                    SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
                                    YEAR ENDED DECEMBER 31, 2000

<TABLE>                                  (DOLLARS IN THOUSANDS)
<S>                                                <C>          <C>            <C>                <C>              <C>
                                                    PARENT      GUARANTOR      NON-GUARANTOR
                                                    COMPANY    SUBSIDIARIES     SUBSIDARIES       ELIMINATIONS     CONSOLIDATED
                                                   ---------   ------------    --------------     ------------     ------------
OPERATING ACTIVITIES
Net loss .......................................   $(20,990)     $(13,396)        $ (7,594)          $ 20,990        $(20,990)
Adjustment to reconcile net loss
 to net cash and cash equivalents
 provided by (used in) operating activities:
  Loss on investments in subsidiaries ..........     20,990             --              --           (20,990)               --
  Loss from discontinued operations ............         --         10,634           (697)                 --            9,937
  Loss on sale of discontinued operation .......         --          3,032           8,178                 --           11,210
  Impairment of property, plant and equipment...         --             54              --                 --               54
  Depreciation and amortization ................         --          8,073              --                 --            8,073
  Goodwill and license fee amortization ........         --             --              --                 --               --
  Loss on sale of property, plant and
      equipment ................................         --            299              --                 --              299
Changes in operating assets and liabilities ....         --        (6,246)             113                 --          (6,133)
                                                   --------       --------        --------           --------         --------
Net cash and cash equivalents provided by
operating activities of continuing operations ..         --          2,450              --                 --            2,450
                                                   --------       --------        --------           --------         --------

INVESTING ACTIVITIES
Purchase of property, plant and equipment ......         --        (3,827)              --                 --          (3,827)
Proceeds from disposal of property, plant and
  equipment ....................................         --            34               --                 --               34
Proceeds form sale of discontinued operations            --        51,180               --                 --           51,180
                                                   --------      --------         --------           --------         --------
Net cash and cash equivalents provided by
investing activities of continuing operations ..         --        47,387               --                 --           47,387
                                                   --------      --------         --------           --------         --------

FINANCING ACTIVITIES
Repayments under line-of-credit agreement ......         --       (11,204)              --                 --         (11,204)
Proceeds from issuance of long term debt .......         --         28,200              --                 --           28,200
Principal payments on long term debt ...........         --       (45,357)              --                 --         (45,357)
Financing costs paid ...........................         --          (866)              --                 --            (866)
                                                   --------       --------        --------           --------         --------
Net cash and cash equivalents used in
  financing activities of continuing operations          --       (29,227)              --                 --         (29,227)
                                                   --------       --------        --------           --------         --------
Cash from discontinued operations ..............         --       (26,390)              --                 --         (26,390)
                                                   --------       --------        --------           --------         --------

Net change in cash and cash equivalents ........         --        (5,780)              --                 --          (5,780)
Cash and cash equivalents at beginning of year .         --          6,916             132                 --            7,048
                                                   --------       --------        --------           --------         --------
Cash and cash equivalents at end of year .......   $     --       $  1,136        $    132             $   --         $  1,268
                                                   ========       ========        ========           ========         ========
</TABLE>


                                      F-37


<PAGE>


                     CLUETT AMERICAN CORP. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


19.      UNAUDITED QUARTERLY FINANCIAL INFORMATION
      (Dollars in thousands)

Quarterly financial information for 1999 and 2000 is summarized as follows:

Year Ended                              Quarter
December 31,        First           Second            Third           Fourth

1999 (1)
Net Sales          $35,626         $39,809           $43,389          $53,738
Gross Profit        13,647          15,173            15,441           20,856
Net Loss           (2,164)         (4,525)           (4,939)          (5,485)

2000 (1)
Net Sales          $40,276         $38,406           $47,427          $51,777
Gross Profit        14,969          13,735            17,214           18,593
Net Loss           (6,726)         (3,258)           (9,652)          (1,354)


(1) Amounts for each quarter have been adjusted to reflect the reclassifications
of discontinued operations.






















                                      F-38

<PAGE>




Item  9.  Changes  in and  disagreements  with  Accountants  on  Accounting  and
Financial Disclosures

     None other than  previously  reported on Cluett  American  Corp.'s Form 8-K
dated January 3, 2000 and filed January 10, 2000.


                                    PART III

Item 10.  Directors and Executive Officers of the Registrant

    Set forth below are the names and  positions of the  directors and executive
officers of the Parent and the Company. All directors hold office until the next
annual meeting of  stockholders  of the Parent and the Company,  and until their
successors are duly elected and qualified. All officers serve at the pleasure of
the Board of Directors.


NAME                 AGE      POSITION(S)
---------------      ---      --------------------------------------------------
Bryan P. Marsal      50       Director and Chief Executive Officer of Holdings,
                              CAG and the Company

James A. Williams    58       Director of Holdings, CAG and the Company;
                              President and Chief Executive Officer of the Sock
                              Group

Joseph A. Rosato     42       President and Chief Operating Officer of the
                              Licensing Group

William S. Sheely    42       Executive Vice President-Operations of the Sock
                              Group


Kathy D. Wilson      41       Vice President and Chief Financial and Accounting
                              Officer of Holdings, CAG and the Company and
                              Senior Vice President and Chief Financial Officer
                              of the Sock Group

Dean G. Norman       44       Executive Vice President - Sales of the Sock Group

Scott R. Coleman     40       Vice President, General Counsel and Secretary of
                              Holdings, CAG and the Company

Norman W. Alpert     42       Director of Holdings, CAG and the Company

Neil P. DeFeo        54       Director of Holdings, CAG and the Company

Sander M. Levy       39       Director of Holdings, CAG and the Company

Michael A. McLain    50       Director of Holdings, CAG and the Company

Daniel S. O'Connell  47       Director of Holdings, CAG and the Company

Steven M. Silver     32       Director of Holdings, CAG and the Company


<PAGE>


     BRYAN P.  MARSAL is a founding  Managing  Director  of A&M, a firm that was
formed in 1983. Mr. Marsal has been Chief Executive Officer of the Company since
1995. Mr. Marsal is a director of Timex Corporation and Aearo  Corporation.  Mr.
Marsal received both a B.B.A. and a M.B.A. from the University of Michigan.

     JAMES A.  WILLIAMS is  President  and Chief  Executive  Officer of the Sock
Group.  Mr.  Williams  joined  the  Sock  Group  in  July  1986 as  Senior  Vice
President--Sales  and  Marketing  and was  promoted to his  current  position as
President in August 1991.  Mr.  Williams is a director of Esprit de Corp. and is
the Chairman and a director of Maidenform  Worldwide  Inc.  Prior to joining the
Company,  he worked for 15 years for  Adams-Millis  Corporation,  where his last
position was Senior Vice  President-Sales  and Marketing.  Mr. Williams earned a
B.S. in chemistry from the University of Southern Mississippi.

     JOSEPH.  A.  ROSATO is the  President  and Chief  Operating  Officer of the
Licensing Group. Mr. Rosato joined the Company in September 1999. Mr. Rosato has
16 years of experience in the apparel  industry.  He has worked for Phillips-Van
Heusen Corporation, Tommy Hilfiger, Inc., and most recently Warnaco Group, Inc.,
and has held various  positions in sourcing and production  related  areas.  Mr.
Rosato  earned  a B.A.  from  New  York  University  and  an  M.B.A.  from  Pace
University.

     WILLIAM S. SHEELY is the Executive Vice  President--Operations  of the Sock
Group. Mr. Sheely joined the Company as Vice President of Finance and Controller
of the Sock Group in February  1993 and was promoted to his current  position of
Executive Vice  President-Operations in April 1994. Prior to his tenure with the
Company,  Mr. Sheely was controller at Kayser-Roth's  sock division where he was
employed for seven years, and with Springs  Industries for five years in various
financial  positions.  Mr.  Sheely  is a  graduate  of the  University  of South
Carolina where he received a B.S. in Business Administration - Accounting and is
also a C.P.A.

    KATHY D. WILSON joined the Company as Vice  President of Finance of the Sock
Division  in 1994 and  became  Chief  Financial  Officer  of the  Parent and the
Company in December  2000.  Prior to joining the  Company,  Ms.  Wilson had five
years experience with international  accounting firms and also worked five years
in various  financial  positions in the hotel and leisure  industry.  Ms. Wilson
earned a B.S. in Business  Administration  - Accounting  from the  University of
North Carolina and is also a C.P.A.

     DEAN G. NORMAN joined the Sock  Division in May 1996.  Prior to joining the
Company, his 16 years in the hosiery industry included various senior management
positions in addition to owning his own sales and marketing company.  Mr. Norman
earned a B.S. degree from North Carolina State University and a M.B.A. from Wake
Forest University.

     SCOTT R. COLEMAN is Vice  President,  General  Counsel and Secretary of the
Parent and the Company effective  September 2000. Mr. Coleman joined the Company
in July 1998 as Assistant  General  Counsel and became Acting General Counsel in
August 1999. Prior to joining the Company,  Mr. Coleman worked for four years as
corporate associate at Paul, Weiss, Rifkind,  Wharton & Garrison, and five years
as an attorney for the City of New York. Mr. Coleman earned a J.D. from New York
University School of Law and a B.A. from Columbia College.

     NORMAN W. ALPERT is a Managing  Director of Vestar Capital Partners and was
a founding partner of Vestar at its inception in 1988. Mr. Alpert is Chairman of
the Board of Directors of Aearo Corporation and Advanced  Organics,  Inc., and a
director of Russell-Stanley Holdings, Inc., Siegelgale Holdings, Inc., Remington
Products Company, LLC, MCG Capital Corporation, and Internet Venture Works, LLC,
all  companies  in which Vestar or, its  affiliates  have a  significant  equity
interest. Mr. Alpert received an A.B. degree from Brown University.

     NEIL P.  DEFEO has  served as  President,  Chief  Executive  Officer  and a
Director of Remington  Products Company,  LLC since January 1997. Mr. DeFeo is a
director of Driscoll Strawberry  Associates,  Inc.. From 1993 to 1996, Mr. DeFeo
was Group Vice President,  U.S. Operations for The Clorox Company.  For 25 years
prior to 1993,  Mr.  DeFeo  worked  for  Procter & Gamble in  various  executive
positions,  including Vice President and Managing Director,  Worldwide Strategic
Planning,  Laundry  and  Cleaning  Products.  Mr.  DeFeo  holds a B.S.E.E.  from
Manhattan College.

     SANDER M. LEVY is a Managing  Director of Vestar and was a founding partner
of  Vestar  at its  inception  in  1988.  Mr.  Levy  is a  director  of  Gleason
Corporation  and  St.  John  Knits,  Inc.,  companies  in  which  Vestar  or its
affiliates have a significant  equity interest.  Mr. Levy received a B.S. degree
from The Wharton School of the University of Pennsylvania  and an M.B.A.  degree
from Columbia University.

     MICHAEL  A.  MCLAIN  has been  President,  Chief  Executive  Officer  and a
Director of the Aearo Company since February 1998. Prior to joining the Company,
he was  President  and Chief  Executive  Officer  of  DowBrands,  Inc.,  a large
manufacturer of household  consumer  products.  Mr. McLain is a Director of Park
Tudor School, Purcell Industries and Little Rapids Corporation.

     DANIEL S.  O'CONNELL is the founder and Chief  Executive  Officer of Vestar
Capital  Partners.  Mr.  O'Connell is a director of Aearo  Corporation,  Insight
Communications  Company, L.P., Remington Products Company, LLC,  Russell-Stanley
Holdings,  Inc.,  Siegelgale  Holdings,  Inc., St. John Knits,  Inc. and Sunrise
Medical Inc., all companies in which Vestar or its affiliates have a significant
equity interest. Mr. O'Connell received an A.B. degree from Brown University and
an M.P.P.M. degree from Yale University School of Management.

     STEVEN M. SILVER is a Managing  Director of Vestar  Capital  Partners.  Mr.
Silver joined Vestar in May of 1995. Between July 1990 and July 1993, Mr. Silver
was an analyst in Wasserstein Perella & Co.'s mergers and acquisitions groups in
New York and  London.  Mr.  Silver is a director  of Sunrise  Medical  Inc.  and
Remington  Products  Company,  LLC,  both are  companies  in which Vestar or its
affiliiates have a significant  equity interest.  Mr. Silver holds a B.A. degree
from Yale College and a M.B.A. degree from Harvard University.





<PAGE>


Compliance with Section 16(a) of the Exchange Act

     Each of the executive officers of the Company filed an Initial Statement of
Beneficial  Ownership of  Securities  on Form 3 to report his or her  beneficial
ownership  of  equity  securities  of the  Company.  None of such  directors  or
officers reported beneficial ownership of any equity securities of the Company.

Item 11. Executive Compensation

    The following table sets forth the cash and noncash  compensation  earned by
the Chief Executive Officer and the four other most highly compensated executive
officers of the Parent and the Company.

                           SUMMARY COMPENSATION TABLE
                                                                      LONG-TERM
                                                                    COMPENSATION
                                                                        AWARDS
                                                                     -----------
                                       ANNUAL COMPENSATION
                                   ----------------------------
<TABLE>
<S>                                 <C>    <C>           <C>         <C>                <C>
                                                                     SECURITIES
                                                                     UNDERLYING         ALL OTHER
                                    YEAR   SALARY ($)    BONUS       OPTIONS (#)       COMPENSATION
Bryan P. Marsal(1) ..............   2000   $ 700,000          0             0                  0
  Holdings and the Company          1998     700,000          0             0                  0

James A.Williams ................   2000     450,000          0             0                  0
  President of the Sock Group       1999     432,600   $343,029             0           $107,485 (2)
                                    1998     412,000    412,000             0                  0

Joseph A. Rosato ................   2000     275,000     39,557             0                  0
  President and Chief Operating .   1999           0          0             0                  0
  Officer of the Licensing Group    1998           0          0             0                  0

Dean  G. Norman .................   2000     200,000          0             0                  0
  Executive Vice President--Sales   1999     165,000    115,500             0             59,400 (2)
  of the Sock Group                 1998     150,000    135,000             0                  0

William S. Sheely ...............   2000     200,000          0             0              6,000 (3)
  Executive Vice President          1999     170,000     119,000            0             67,200 (2,3)
  Operations of the Sock Group      1998     162,000     162,500            0              6,000 (3)
</TABLE>

(1)  For 2001,  A&M reduced their annual fee to $315,000.  A&M was paid $200,000
     and  $158,000  for  services of a  corporate  Chief  Financial  Officer and
     $112,000 and $105,000 for  out-of-pocket  travel  expenses  during 2000 and
     1999,  respectively.  During 1998,  A&M was paid  $245,000  for  consulting
     services  related to the  discontinued  shirt  operations  and  $18,000 for
     travel related expenses.
(2)  Contribution to Company's qualified defined benefit pension plan.
(3)  Car Allowance.


Employment and Severance Agreements

    Mr.  Williams  entered  into an  employment  agreement  with the Sock  Group
effective  as of March 7, 1997,  pursuant  to which he serves as  President  and
Chief Executive  Officer of the Sock Group. Such employment  agreement  provides
for Mr.  Williams to receive an annual base salary of $400,000.  Mr. Williams is
also  entitled to annual  incentive  bonuses  under the Sock  Group's  executive
management  incentive  plan,  with  no  guaranteed  minimum  bonus  amount.  The
employment  agreement  continues until  terminated (a) by the Sock Group with or
without cause or (b) by Mr.  Williams with cause or upon 90 days notice.  In the
event that Mr.  Williams'  employment  is  terminated  without cause by the Sock
Group or with cause by Mr. Williams,  Mr. Williams will be entitled to severance
pay in an amount equal to two times the sum of $400,000 plus his average  annual
bonus calculated from prior years, up to a maximum severance of $1,200,000.

     Each of Mr.  Rosato,  Mr. Sheely,  Mr.  Norman,  Ms. Wilson and Mr. Coleman
(each an "Employee")  have entered into severance  agreements.  Each Employee is
entitled to  severance  pay equal to his or her current base salary for a period
of  one  year  (excluding  bonus   compensation)  upon  the  occurrence  of  the
termination of his or her employment  without cause.  These  severance  payments
cease upon the Employee  becoming a full-time  employee or full-time  consultant
(including self-employment) of another entity. Bonus Plans

    Executive  officers along with certain other employees (the  "Participants")
of each of the  Licensing  Group and the Sock  Group  participate  in  incentive
compensation  plans pursuant to which the  Participants  are eligible to receive
bonus  compensation  based  upon  annual  minimum  EBITDA  targets  and upon the
weighing  of  certain  other  performance  criteria  by Bryan P.  Marsal and the
Compensation Committee of the Board of Directors.  Yearly bonus awards under the
incentive  plans are  limited  to 100% of the  respective  Participant's  annual
salary.

Management Equity Participation

    In  connection  with  the  Recapitalization,   Holdings  (i)  permitted  the
Management  Investors  to  subscribe  in the  aggregate  for up to  5.1%  of the
outstanding  Holdings  Common Stock (the  "Purchased  Stock") and (ii) adopted a
stock option plan (the "Option Plan")  providing for options to purchase  shares
of Holdings Common Stock  ("Options") to be granted to the Management  Investors
at the  consummation of the  Recapitalization  and to certain other employees of
Holdings  and its  subsidiaries  from time to time  thereafter,  in each case in
order to provide additional  compensation and financial incentives to Management
Investors and such other employees. The Option Plan may be amended, suspended or
terminated by the Holdings' Board of Directors at any time.

    Purchased Stock. On May 18, 1998 (the "the Recapitalization  closing date"),
the  Management  Investors  became  holders of an  aggregate  of $1.8 million of
Purchased Stock,  representing 5.1% of the outstanding  Holdings Common Stock on
the  Recapitalization  closing date.  All Purchased  Stock is subject to certain
forfeiture  provisions  referred to in the paragraph  entitled  "Puts and Calls"
below.

    Stock Options.  On the  Recapitalization  closing date,  Holdings  agreed to
grant  nonqualified  Options to purchase 5% of Holdings Common Stock (on a fully
diluted  basis).  Such  Options  will (i) vest and become  exercisable  in equal
installments in each of the five years following the grant date, (ii) expire ten
years from the grant date,  or earlier in certain  instances of  termination  of
employment and upon certain change of control events, and (iii) have an exercise
price  equal  to  $98.01  (the  per  share  price  at  which  Vestar,  A&M,  the
Co-Investors  and the Management  Investors  acquired  shares of Holdings Common
Stock   in  the   Recapitalization).   From   time   to   time   following   the
Recapitalization,  the  Board  of  Directors  of  Holdings,  or  a  compensation
committee  thereof,  may grant these or additional Options under the Option Plan
to various employees of Holdings,  the Company and their  subsidiaries on terms,
including vesting schedule,  term and exercise price, determined by the Board of
Directors or such committee in accordance  with the Option Plan. No options have
been granted under the Option Plan through December 31, 2000.

    Puts And Calls. Purchased Stock, Options and Holdings Common Stock purchased
upon the exercise of Options will be subject to certain put and call  provisions
relating to the death,  disability,  retirement and termination of employment of
the holder. Put and call prices will vary depending on the number of years since
grant or purchase,  the reason the put or call became exercisable,  and the fair
market value and initial  purchase price of Holdings Common Stock subject to the
put or call.  Under  certain  circumstances,  Holdings is permitted (i) to defer
exercise of the put or call to the extent prohibited by financing  agreements or
other  instruments,  and (ii) to pay the purchase price under the put or call in
prime-rate junior subordinated notes with maturities up to five years.

Compensation of Directors

     Directors  of the  Company  who are  neither  employees  of the Company nor
affiliated with Vestar receive annual  compensation of $20,000 payable quarterly
for services in such capacity.  Other directors do not receive any  compensation
for services in such capacity.

Compensation Committee Interlocks and Insider Participation

     Directors Alpert and Levy, each of whom is affiliated with Vestar,  are the
members of the Compensation  Committee which reviews the future compensation and
benefits of the Company's executive officers and key employees.

     Since the  Recapitalization,  each of these individuals has had an interest
in  transactions  or  business  relationships  involving  the  Company.  See the
information   contained  in  Item  13,   "Certain   Relationships   and  Related
Transactions", which is incorporated herein by reference.

Report on Executive Compensation

     This report sets forth the  compensation  policies that guide  decisions of
the  Compensation  committee with respect to the  compensation  of the Company's
executive  officers.  This report also reviews the  rationale  for pay decisions
that  affected  Mr.  Marsal  during the 2000 fiscal  year,  and, in that regard,
offers  additional  insight  into the figures  that  appear in the  compensation
tables  which are an  integral  part of the  overall  disclosures  of  executive
compensation. Any consideration to pay-related actions that may become effective
in future fiscal years are not reported in this statement.

     The central  responsibility  of the  Compensation  Committee  is to oversee
compensation  practices of the Company's executive offices. In this capacity, it
reviews  salaries,  benefits,  and  other  compensation  paid  to the  Company's
executive  officers and  recommends  actions to the full Board of Directors with
respect to those matters.

     The  Compensation  Committee is dedicated  to ensuring  that the  Company's
financial  resources  are used  effectively  to support the  achievement  of its
short-term and long-term business  objectives.  In general,  it is the policy of
the Company that executive  compensation  reflect  relevant market standards for
individuals  with  superior  capabilities  and be  driven  substantially  by the
Company's  performance as measured by the  achievement  of internally  generated
earnings targets.  The members of the Compensation  committee  believes that the
Company's  executive  compensation  program is well  structured  to achieve  its
objectives.

Item 12.  Security Ownership of Certain Beneficial Owners and Management

    All of the issued and outstanding  shares of common stock of the Company are
held by Cluett  American  Group ("CAG"),  which is a wholly-owned  subsidiary of
Cluett American Investment Corp.  ("Holdings").  The following table sets forth,
as of March 1, 2001, certain information  regarding the beneficial  ownership of
the voting securities of Holdings by each person who beneficially owns more than
5% of any class of Holdings  voting  securities and by the directors and certain
executive officers of Holdings, individually, and by the directors and executive
officers of Holdings as a group. Except as indicated below, the address for each
of the persons listed below is c/o Cluett American Corp., 48 W 38th Street,  New
York, NY 10018.
                                                     HOLDINGS COMMON STOCK
                                                     ---------------------
                                                     SHARES BENEFICIALLY OWNED
                                                     -------------------------
                                                     NUMBER OF        PERCENT OF
                                                     SHARES           COMMON
5% STOCKHOLDERS:
  Vestar Capital Partners  III, L.P.................217,285             62.1%(1)
    245 Park Avenue, 41st Floor
    New York, New York 10167
  A&M................................................49,995             14.3%(1)
    599 Lexington Avenue
    Suite 2700
    New York, New York 10022
  Societe Anonyme D'Etudes et de Participation Industrielles
    et Commerciales..................................24,699              7.1%(1)
    114 rue de Turenne
    75003 Paris
  Cerberus Partners, L.P.............................20,622              5.9%(1)
    450 Park Avenue
    New York, New York 10022
OFFICERS AND DIRECTORS:

  Norman W. Alpert(3)...............................217,285             62.1%
  Sander M. Levy(3).................................217,285             62.1%
  Daniel S. O'Connell(3)............................217,285             62.1%
  Steven M. Silver(3)...............................217,285             62.1%
  Bryan P. Marsal(2).................................49,995             14.3%
  James A. Williams...................................4,388              1.3%
  Kathy D. Wilson.....................................2,041               (4)
  William S. Sheely...................................1,633               (4)
  Dean G. Norman......................................1,123               (4)
  Neil P. DeFeo.......................................1,020               (4)
  Michael A. McLain.......................................0               (4)
  All executive officers and directors as a group
  (11 persons)(2)(3)................................277,485             79.3%

(1)  For a discussion  of certain  voting  arrangements  among these holders see
     Item 13. "Certain  Relationship and Related  Transactions--Stock  Ownership
     and Stockholder's Agreement". Each of Vestar, A&M, Societe Anonyme D'Etudes
     et de Participation  Industrielles et Commerciales  ("SAEPIC") and Cerberus
     Partners,  L.P.disclaims the existence of a group and disclaims  beneficial
     ownership of Holdings Common Stock not owned of record by them.

(2)  Includes shares owned by A&M. Mr. Marsal disclaims the existence of a group
     and disclaims beneficial ownership of the Holdings Common Stock not held by
     him.

(3)  Includes shares owned by Vestar.  Each of Mr. Alpert,  Mr.  O'Connell,  Mr.
     Levy and Mr.  Silver  disclaims  the  existence  of a group  and  disclaims
     beneficial ownership of Holdings Common Stock not held by him.

(4)  Less than 1%.


Item 13.  Certain Relationships and Related Transactions

Issuance Of Shares Pursuant To Recapitalization

     In connection with the Plan and pursuant to the Subscription Agreement, the
Equity  Investors made the Equity  Investment in Holdings.  Approximately  $52.7
million of the Equity  Investment  was provided by Vestar in the form of a $21.3
million  common equity  investment in Holdings  Common Stock and a $31.4 million
investment  in  Holdings  Class C Junior  Preferred  Stock.  Approximately  $8.6
million of the Equity Investment was provided by the Co-Investors in the form of
a $3.5 million investment in Holdings Common Stock and a $5.1 million investment
in Holdings Class C Junior  Preferred  Stock.  A&M and the Management  Investors
provided the remaining Equity  Investment in the form of a $4.9 million and $1.8
million  investment  in  Holdings  Common  Stock,  respectively.  Each of  these
issuances of securities  were made in reliance on Section 4(2) of the Securities
Act of 1993,  as amended  (the  "Securities  Act").  The balance of the Holdings
Common Stock is held by former stockholders of Holdings.

Stock Ownership And Stockholders' Agreement

     In the  Recapitalization:  (i)  Vestar  acquired  60.8% of the  outstanding
Holdings  Common  Stock,  (ii) A&M acquired  14.0% of the  outstanding  Holdings
Common Stock,  (iii) the Management  Investors acquired in the aggregate 5.1% of
the outstanding Holdings Common Stock, and (iv) the Co-Investors  acquired 10.0%
of the outstanding Holdings Common Stock.  Following the  Recapitalization,  the
former  stockholders of Holdings (the "Original Equity Holders") retained in the
aggregate  10.1% of the  outstanding  Holdings  Common  Stock.  There  can be no
assurance  as to how long any of Vestar,  A&M,  the  Management  Investors,  the
Co-Investors  or the Original  Equity Holders will hold their shares of Holdings
Common Stock,  although certain transfers by them may be restricted as described
below.

     Vestar, A&M, the Co-Investors and the Management  Investors  (including any
employees of Holdings and its  subsidiaries  who purchase  Holdings Common Stock
from, or are granted options by, Holdings following the  Recapitalization)  (the
foregoing parties, collectively, the "Initial Investors") and SAEPIC and certain
other Original  Equity Holders  (SAEPIC and such other Original  Equity Holders,
the  "Participating   Original  Equity  Holders";   together  with  the  Initial
Investors, the "Participating Stockholders"),  have entered into a Stockholders'
Agreement  (the  "Stockholders'  Agreement")  which  provides  for,  among other
things, the matters described below.

     Transfers Of Holdings Common Stock And Holdings Preferred Stock. Subject to
certain  limitations,  transfers of Holdings  securities by A&M, the  Management
Investors,  the Co-Investors and the Participating  Original Equity Holders will
be restricted  unless the  transferee  agrees to become a party to, and be bound
by, the Stockholders'  Agreement.  In addition,  subject to certain limitations,
A&M, the Management Investors,  the Co-Investors and the Participating  Original
Equity Holders will agree that, unless a public offering of Holdings  securities
(a "Holdings Public Offering") has occurred, they will not transfer any Holdings
securities  for a period of five years  other  than as  described  below.  Under
certain  circumstances,  the transfer of Holdings  securities  by  Participating
Stockholders to their respective affiliates will be permitted.

     Election Of Directors. Subject to certain requirements and exceptions, each
Participating  Stockholder  will vote all of the Holdings  Common Stock owned or
held of record by such Participating  Stockholder so as to elect to the Board of
Directors  of  Holdings  and each of its  subsidiaries:  (i) four  designees  of
Vestar, (ii) three additional  designees of Vestar who are not affiliates of any
Participating  Stockholder or employees of Holdings or any of its affiliates and
(iii)  three  designees  of A&M and the  Management  Investors.  The  number  of
designees  to which  Vestar and A&M and the  Management  Investors  are entitled
decrease  according to a formula based on the number of shares owned as compared
to the number acquired in the Recapitalization.  Mr. Marsal shall be Chairman of
the Board of  Directors  and a designee of A&M and the  Management  Investors so
long as he remains Chief Executive Officer of Holdings.  See Item 10. "Directors
and  Executive  Officers  of the  Registrant"  for a  discussion  of the present
officers and directors and their relationship to Vestar and A&M.

     Other Voting Matters.  So long as Vestar and its affiliates continue to own
at least one-half of the shares of Holdings Common Stock acquired by them in the
Recapitalization,  each Participating Stockholder (excluding the Original Equity
Holders)  will vote all of its  Holdings  Common  Stock in favor of adopting and
approving any action adopted and approved by the Holdings Board of Directors.

     Tag-Along  Rights.  So long  as no  Holdings  Public  Offering  shall  have
occurred and Vestar and its affiliates continue to own at least one-third of the
shares  of  Holdings  Common  Stock  acquired  by them in the  Recapitalization,
subject to certain exceptions, with respect to any proposed transfer of Holdings
Common Stock or Holdings Class C Junior  Preferred  Stock by Vestar,  other than
transfers to  affiliates,  each other  Participating  Stockholder  will have the
right  to  require  that  the  proposed   transferee  purchase  a  corresponding
percentage  of any shares of Holdings  Common  Stock or Holdings  Class C Junior
Preferred Stock, as the case may be, owned by such Participating  Stockholder at
the same price and upon the same terms and conditions.

     Drag-Along  Rights.  So long as no  Holdings  Public  Offering  shall  have
occurred and Vestar and its affiliates continue to own at least one-third of the
shares  of  Holdings  Common  Stock  acquired  by them in the  Recapitalization,
subject  to  certain  limitations,   each  Participating   Stockholder  will  be
obligated,  in  connection  with an offer by a third party to Vestar to purchase
(pursuant  to a sale of stock,  a merger or  otherwise)  all of the  outstanding
shares of Holdings Common Stock or Holdings Class C Junior  Preferred Stock held
by the Participating  Stockholders  (other than shares not purchased in order to
reserve availability of recapitalization  accounting treatment), to transfer all
of its shares of  Holdings  Common  Stock or Holdings  Class C Junior  Preferred
Stock to such third party on the terms of the offer accepted by Vestar.

     Participation  Rights.  So long as no Holdings  Public  Offering shall have
occurred and Vestar and its affiliates continue to own at least one-third of the
shares of Holdings Common Stock acquired by them in the Recapitalization,  under
certain  circumstances,  if  Holdings or its  subsidiaries  propose to issue any
common stock to an Initial Investor or  Participating  Original Equity Holder or
to an affiliate thereof,  each other Initial Investor or Participating  Original
Equity Holder shall have the  opportunity to purchase such Holdings Common Stock
on a pro rata basis.

     Right Of First  Refusal.  After five  years and prior to a Holdings  Public
Offering,  if A&M, a Management  Investor,  the  Co-Investors or a Participating
Original Equity Holder or any of their transferees receives an offer to purchase
any  Holdings  securities  held by it, other than from its  affiliate,  and such
Participating  Stockholder or transferee  wishes to accept such offer, then such
Participating  Stockholder  or  transferee  shall  be  required  to  offer  such
securities  first to Holdings (or its designee) on the same terms and conditions
(provided  that Holdings may pay cash  consideration  equivalent to any non-cash
consideration offered) before accepting such third-party offer.

     Registration Rights. Subject to certain limitations, upon a written request
by Vestar, its affiliates or its transferees, Holdings will use its best efforts
to effect the  registration of all or part of the Holdings Common Stock owned by
Vestar or such affiliate or  transferee,  provided that (i) Holdings will not be
required to effect more than one registration within any 360-day period and (ii)
no more than six such  registrations  may be  requested,  unless the  requesting
party agrees to pay all costs and expenses thereof.

     Incidental Registration.  Under certain circumstances, if Holdings proposes
to register  shares of Holdings  Common Stock, it will, upon the written request
of any  Participating  Stockholder,  use all  reasonable  efforts  to effect the
registration of such Participating Stockholder's common stock.

     Termination.  The Stockholders' Agreement will terminate (i) in full on the
earliest of (A) the Initial Investors and their affiliates owning less than 5.0%
of the  outstanding  Holdings Common Stock (on a fully diluted basis) or (B) the
Participating Stockholders,  including their affiliates and transferees,  owning
less than 50.0% of the  outstanding  Holdings  Common Stock (on a fully  diluted
basis) and (C) ten years after the  Recapitalization and (ii) as to any Holdings
securities,  on the  date  such  securities  are sold in a  public  offering  or
pursuant to Rule 144.

Other Relationships

     Management  Advisory  Agreement.  For 2000, Holdings paid a $500,000 annual
management fee to Vestar in  consideration  for certain  advisory and consulting
services  provided by Vestar  (excluding  investment  banking or other financial
advisory  services and full- or part-time  employment  by Holdings or any of its
subsidiaries of any employee or partner of any of Vestar and its affiliates,  in
each case for which  Vestar  and its  affiliates  shall be  entitled  to receive
additional compensation). For 2001, Vestar has reduced the annual management fee
to $225,000.  Holdings has agreed to reimburse  Vestar for expenses  incurred in
connection  with, and to indemnify Vestar and its affiliates for any liabilities
arising from, such advisory and consulting services.

     Management Loans. At the closing of the  Recapitalization,  Holdings loaned
$1.35  million to A&M, and  $900,000 to the  Management  Investors,  in order to
provide A&M and such Management  Investors with funds to be applied to a portion
of the purchase price of the Holdings  Common Stock to be issued to A&M and such
Management  Investors in  connection  with the  Recapitalization.  Such recourse
loans (i) are secured by pledges of the Holdings  common stock  purchased by the
respective borrowers, (ii) have a term of seven years, (iii) bear interest at an
annual rate of 5.69%, and (iv) are subject to mandatory  prepayment (a) with the
net  proceeds of any sales of Holdings  Common  Stock and (b) in full in certain
other  events  including,  in the  case  of  the  Management  Investors,  if the
employment  by  Holdings  and  its  subsidiaries  of  such  Management  Investor
terminates other than as a result of death, disability or retirement.  The terms
of  these  loans  may be more  favorable  to  Management  Investors  than  terms
obtainable from an unrelated third-party.

Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.

(a)(1) Financial Statements

       Included in Part II, Item 8

       Consolidated Balance Sheets as of December 31, 1999 and December 31, 2000

       Consolidated  Statements  of  Operations  for the years ended  December
       31, 1998, December 31, 1999 and December 31, 2000

       Consolidated  Statements of  Stockholder's  Deficit for the years ended
       December 31, 1998, December 31, 1999 and December 31, 2000

       Consolidated  Statements  of Cash  Flows  for the  years ended  December
       31,  1998,  December 31, 1999 and December 31, 2000

       Notes to Consolidated Financial Statements

   (2) Financial Statement Schedule

       Schedule II - Valuation and Qualifying Accounts


       All  other  schedules  for which  provision  is made in the applicable
       accounting  regulation  of the  Securities  and Exchange Commission are
       not  required  under the  related instructions  or are  inapplicable  and
       therefore have been omitted.

   (3) List of Exhibits



<PAGE>



 EXHIBIT
   NO.                       DESCRIPTION OF EXHIBIT
------------
--------------------------------------------------------------------------------

2.1  Third Amended plan of  Reorganization  of Cluett  American Corp. and Cluett
     American Investment Corp.  (incorporated by reference to Exhibit 2.1 to the
     Company's  Registration Statement on Form S-4 (Reg. No. 333-58059) filed on
     June 30, 1998).

2.2  Subscription  Agreement  dated  as  of  March  30,  1998,  among  Bidermann
     Industries  U.S.A.,  Inc.,  Vestar Capital Partners III, L.P. and Alvarez &
     Marsal,  Inc.  (incorporated  by reference to Exhibit 2.2 to the  Company's
     Registration  Statement on Form S-4 (Reg. No.  333-58059) filed on June 30,
     1998).

2.3  Stockholders'  Agreement  dated as of May 18, 1998,  among Cluett  American
     Investment  Corp.,  Vestar  Capital  Partners  III,  L.P.,  A&M  Investment
     Associates #7, LLC, the  Co-Investors  named therein,  the Original  Equity
     Holders  named  therein  and  the   Management   Investors   named  therein
     (incorporated  by  reference to Exhibit 2.3 to the  Company's  Registration
     Statement on Form S-4 (Reg. No. 333-58059) filed on June 30, 1998).

2.4  Joinder  Agreement  dated  as of  June  30,  1998,  among  Cluett  American
     Investment  Corp.,  Vestar  Capital  Partners  III,  L.P.  and  each  other
     signatory thereto (an "Additional Stockholder")  (incorporated by reference
     to Exhibit 2.4 to the  Company's  Registration  Statement on Form S-4 (Reg.
     No. 333-58059) filed on June 30, 1998).

3.1  Restated   Certificate   of   Incorporation   of  Cluett   American   Corp.
     (incorporated  by  reference to Exhibit 3.1 to the  Company's  Registration
     Statement on Form S-4 (Reg. No. 333-58059) filed on June 30, 1998).

3.2  Bylaws of Cluett American Corp.  (incorporated  by reference to Exhibit 3.2
     to the Company's  Registration  Statement on Form S-4 (Reg. No.  333-58059)
     filed on June 30, 1998).

4.1  Indenture  between  Cluett  American  Corp.  and The Bank of New  York,  as
     Trustee  (incorporated  by  reference  to  Exhibit  4.1  to  the  Company's
     Registration  Statement on Form S-4 (Reg. No.  333-58059) filed on June 30,
     1998).

4.2  Exchange Debenture  Indenture between Cluett American Corp. and The Bank of
     New York,  as Trustee  (incorporated  by  reference  to Exhibit  4.2 to the
     Company's  Registration Statement on Form S-4 (Reg. No. 333-58059) filed on
     June 30, 1998).

4.3  Certificate of  Designations  of the 121/2% Senior  Exchangeable  Preferred
     Stock Due 2010  (incorporated  by reference to Exhibit 4.3 to the Company's
     Registration  Statement on Form S-4 (Reg. No.  333-58059) filed on June 30,
     1998).

4.4  Form of 10  1/8%  Senior  Subordinated  Notes  Due  2008  (incorporated  by
     reference to Exhibit 4.4 to the  Company's  Registration  Statement on Form
     S-4 (Reg. No. 333-58059) filed on June 30, 1998).

4.5  Form of 10 1/8% Series B Senior  Subordinated  Notes Due 2008 (incorporated
     by reference to Exhibit 4.5 to the Company's Registration Statement on Form
     S-4 (Reg. No. 333-58059) filed on June 30, 1998).

4.6  Form of 12 1/2% Senior Exchangeable  Preferred Stock Due 2010 (incorporated
     by reference to Exhibit 4.6 to the Company's Registration Statement on Form
     S-4 (Reg. No. 333-58059) filed on June 30, 1998).

4.7  Form of 12 1/2%  Series  B Senior  Exchangeable  Preferred  Stock  Due 2010
     (incorporated  by  reference to Exhibit 4.7 to the  Company's  Registration
     Statement on Form S-4 (Reg. No. 333-58059) filed on June 30, 1998).

4.8  Note  Registration  Rights  Agreement  dated  May 18,  1998,  among  Cluett
     American Corp.,  NationsBanc Montgomery Securities LLC, and NatWest Capital
     Markets Limited  (incorporated by reference to Exhibit 4.8 to the Company's
     Registration  Statement on Form S-4 (Reg. No.  333-58059) filed on June 30,
     1998).

4.9  Preferred Stock  Registration  Rights  Agreement dated May 18, 1998,  among
     Cluett American Corp.,  NationsBanc  Montgomery Securities LLC, and NatWest
     Capital  Markets Limited  (incorporated  by reference to Exhibit 4.9 to the
     Company's  Registration Statement on Form S-4 (Reg. No. 333-58059) filed on
     June 30, 1998).

10.1 $160,000,000  Credit  Agreement  dated  as of May 18,  1998,  among  Cluett
     American Corp., as the Borrower, NationsBank, N.A., as Administrative Agent
     and Collateral Agent,  NationsBanc  Montgomery  Securities LLC, as Arranger
     and Syndication  Agent,  and lenders  (incorporated by reference to Exhibit
     10.1  to the  Company's  Registration  Statement  on  Form  S-4  (Reg.  No.
     333-58059) filed on June 30, 1998).

10.2 First Amendment to the Credit  Agreement and Assignment dated May 27, 1998,
     by and among Cluett  American  Corp.,  Cluett  American  Investment  Corp.,
     Cluett American Group, Inc. and certain subsidiaries, the Existing Lenders,
     New Lenders,  and agents  (incorporated by reference to Exhibit 10.2 to the
     Company's  Registration Statement on Form S-4 (Reg. No. 333-58059) filed on
     June 30, 1998).

10.2.1 Second Amendment to the Credit Agreement and Assignment dated as December
     18, 1998, by and among Cluett  American Corp.,  Cluett American  Investment
     Corp., Cluett American Group, Inc. and certain  subsidiaries,  the Existing
     Lenders,  New  Lenders,  and agents  (incorporated  by reference to Exhibit
     10.2.1 to the  Company's  Annual Report on Form 10-K (Reg.  No.  333-58059)
     filed on March 29, 1999).

10.2.2 Third Amendment to the Credit  Agreement and Assignment dated as of March
     19, 1999 by an among Cluett  American  Corp.,  Cluett  American  Investment
     Corp., Cluett American Group, Inc. and certain  subsidiaries,  the Existing
     Lenders,  New  Lenders,  and agents  (incorporated  by reference to Exhibit
     10.2.2 to the  Company's  Annual Report on Form 10-K (Reg.  No.  333-58059)
     filed on March 29, 1999).

10.2.3 Waiver to the Credit Agreement and Assignment dated July 28, 1999, by and
     among Cluett  American  Corp.,  Cluett American  Investment  Corp.,  Cluett
     American Group, Inc. and certain  subsidiaries,  the Existing Lenders,  New
     Lenders,  and agents  (incorporated  by reference to Exhibit  10.2.3 to the
     Company's Annual Report on Form 10-K (Reg No. 333-58059) filed on March 29,
     1999).

10.2.4 Fourth  Amendment to the Credit  Agreement and Assignment dated September
     30, 1999, by and among Cluett  American Corp.,  Cluett American  Investment
     Corp., Cluett American Group, Inc. and certain  subsidiaries,  the Existing
     Lender, New Lender, and agents (incorporated by reference to Exhibit 10.2.4
     to the Company's Quarterly Report on Form 10-Q (Reg No. 333-58059) filed on
     November 16, 1999).

10.2.5 Investment and Deposit Agreement between Vestar Capital Partners and Bank
     of America dated September 30, 1999  (incorporated  by reference to Exhibit
     10.2.5 to the Company's  Quarterly Report on Form 10-Q (Reg No.  333-58059)
     filed on November 16, 1999).

10.2.6 $3.0 million Credit  Agreement dated as of November 9, 1999, among Cluett
     American  Corp, as the borrower,  Bank of America,  N.A. and Vestar Capital
     Partners  III,  L.P.,  as guarantor  (incorporated  by reference to Exhibit
     10.2.6 to the Company's  Quarterly Report on Form 10-Q (Reg No.  333-58059)
     filed on November 16, 1999).

10.2.7 $7.5 million Amended and Restated  Credit  Agreement dated as of February
     17, 2000,  among Cluett  American  Corp, as the borrower,  Bank of America,
     N.A. and Vestar Capital Partners III, L.P., as guarantor.

10.2.8 Fifth  Amendment to Credit  Agreement and Waiver dated March 29, 2000, by
     and among Cluett American Corp.,  Cluett American  Investment Corp., Cluett
     American Group,  Inc. and certain  subsidiaries,  the Existing Lender,  New
     Lender, and agents.

10.2.9 Amended and Restated  Investment  and Deposit  Agreement  between  Vestar
     Capital  Partners III, L.P. and Bank of America dated March 29, 2000.

10.2.9.1 Six  Amendment to Credit  Agreement  and Waiver dated June 30, 2000, by
     and among Cluett American Corp.,  Cluett American  Investment Corp., Cluett
     American Group,  Inc. and certain  subsidiaries,  the Existing Lender,  New
     Lender, and agent.

*10.2.9.2 Seventh Amendment to Credit Agreement and Waiver dated March 22, 2001,
     by and among Cluett  American  Corp.,  Cluett  American  Investment  Corp.,
     Cluett American Group, Inc. and certain subsidiaries,  the Existing Lender,
     Agents and Documentation Agents (filed herewith as Exhibit 10.2.9.2)

10.3 Security Agreement dated as of May 18, 1998, made by Cluett American Corp.,
     Cluett American  Investment Corp.,  Cluett American Group, Inc. and certain
     Subsidiaries of Cluett American  Investment  Corp. in favor of NationsBank,
     N.A. as agent  (incorporated  by reference to Exhibit 10.3 to the Company's
     Registration  Statement on Form S-4 (Reg. No.  333-58059) filed on June 30,
     1998).

10.4 Pledge  Agreement  dated as of May 18, 1998, made by Cluett American Corp.,
     Cluett American  Investment Corp.,  Cluett American Group, Inc. and certain
     Subsidiaries of Cluett American  Investment  Corp. in favor of NationsBank,
     N.A., as agent  (incorporated by reference to Exhibit 10.4 to the Company's
     Registration  Statement on Form S-4 (Reg. No.  333-58059) filed on June 30,
     1998).

10.5 Joinder  Agreement  dated  as of May 18,  1998,  by and  between  Bidermann
     Tailored  Clothing,  Inc., and NationsBank,  N.A., in its capacity as Agent
     under that certain Credit Agreement dated as of May 18, 1998  (incorporated
     by  reference to Exhibit 10.5 to the  Company's  Registration  Statement on
     Form S-4/A (Reg. No. 333-58059) filed on September 3, 1998).

10.6 CDN $15,000,000 Loan Agreement dated as of August 8, 1997,  between Cluett,
     Peabody Canada Inc., as the Borrower,  and Congress  Financial  Corporation
     (Canada),  as Lender  (incorporated  by  reference  to Exhibit  10.6 to the
     Company's  Registration Statement on Form S-4 (Reg. No. 333-58059) filed on
     June 30, 1998).

+10.7Employment  Agreement  dated March 7, 1997, by and between  Great  American
     Knitting Mills,  Inc. and James A. Williams  (incorporated  by reference to
     Exhibit 10.7 to the  Company's  Registration  Statement on Form S-4/A (Reg.
     No. 333-58059) filed on September 3, 1998).

+10.8Severance  Agreement  dated as of August 8, 1997,  by and  between  Cluett,
     Peabody & Co., Inc. and Phil Molinari (incorporated by reference to Exhibit
     10.8 to the  Company's  Registration  Statement  on Form  S-4/A  (Reg.  No.
     333-58059) filed on September 3, 1998).

+10.9Severance  Agreement  dated as of May 5, 1997 by and between Great American
     Knitting  Mills,  Inc.  and William  Sheely  (incorporated  by reference to
     Exhibit 10.9 to the  Company's  Registration  Statement on Form S-4/A (Reg.
     No. 333-58059) filed on September 3, 1998).

+10.10  Severance  Agreement  dated  as of May 5,  1997,  by and  between  Great
     American Knitting Mills,  Inc. and Kathy Wilson  (incorporated by reference
     to Exhibit  10.10 to the  Company's  Registration  Statement  on Form S-4/A
     (Reg. No. 333-58059) filed on September 3, 1998).

+10.11 Advisory  Agreement dated May 18, 1998, among Cluett American  Investment
     Corp.,  Cluett American Corp. and Vestar Capital Partners  (incorporated by
     reference to Exhibit 10.11 to the Company's  Registration Statement on Form
     S-4/A (Reg. No. 333-58059) filed on September 3, 1998).

10.12Secured  Promissory  Note  dated  May  18,  1998,  made  by A&M  Investment
     Associates  #7,  LLC  in  favor  of  Cluett   American   Investment   Corp.
     (incorporated  by reference to Exhibit 10.12 to the Company's  Registration
     Statement on Form S-4/A (Reg. No. 333-58059) filed on September 3, 1998).

10.13Form of Secured  Promissory Note made by the Management  Investors in favor
     of Cluett American  Investment Corp.  (incorporated by reference to Exhibit
     10.13 to the  Company's  Registration  Statement  on Form S-4/A  (Reg.  No.
     333-58059) filed on September 3, 1998).

+10.14 Severance  Agreement  dated as of August 8, 1997, by and between  Cluett,
     Peabody & Co.,  Inc.  and Robert  Riesbeck  (incorporated  by  reference to
     Exhibit 10.14 to the Company's  Registration  Statement on Form S-4/A (Reg.
     No. 333-58059) filed on October 15, 1998).

10.16Limited Liability Company  Agreement of Cluett American  Receivables,  LLC,
     entered  into by Great  American  Knitting  Mills,  Inc. as the sole equity
     member  and  Dwight   Jenkins  and  Lori  Rezza  as  the  special   members
     (incorporate  by  reference  to Exhibit  10.16 to the  Company's  Quarterly
     Report of Form 10-Q (Reg No. 333.58059) filed on May 16, 2000).

10.16.1 Receivable Transfer Agreement dated May 12, 2000, between Great American
     Knitting Mills, Inc. and Cluett American  Receivables,  LLC (incorporate by
     reference to Exhibit 10.16.1 to the Company's Quarterly Report on Form 10-Q
     (Reg No. 333-58059) filed on May 16, 2000).

10.16.2  Receivable  Purchase  Agreement  entered into between  Cluett  American
     Receivable,  LLC and Banc of America  Commercial  Corp.  dated May 12, 2000
     (incorporate  by reference to Exhibit  10.16.2 to the  Company's  Quarterly
     Report on Form 10-Q (Reg No. 333-58059) filed on May 16, 2000).

10.16.3  Partial  Release  Agreement  dated May 12,  2000,  by and among Bank of
     America,  N.A. f/k/a/ Nationsbank,  N.A. as agent for the Lenders under the
     Credit  Agreement,  Great American Knitting Mills, Inc. and Cluett American
     Corp.  (incorporate  by  reference  to  Exhibit  10.16.3  to the  Company's
     Quarterly Report on Form 10-Q (Reg No. 333-58059) filed on May 16, 2000).

10.16.4 Guarantee  Agreement  dated May 12, 2000,  made by Cluett American Corp.
     (incorporate  by reference to Exhibit  10.16.4 to the  Company's  Quarterly
     Report on Form 10-Q (Reg No. 333-58059) filed on May 16, 2000).

10.16.5 Repurchase  Agreement dated May 12, 2000 made by Vestar Capital Partners
     III, L.P. in favor of Banc of America Commercial  Corporation  (incorporate
     by reference to Exhibit 10.16.5 to the Company's  Quarterly  Report on Form
     10-Q (Reg No. 333-58059) filed on May 16, 2000).

16.1 Letter from Ernst & Young LLP, former Certifying Accountants  (incorporated
     by reference to Exhibit 16.1 to the Company's  Current Report filed on Form
     8-K (Reg. No. 333-58059) filed on January 10, 2000).

21   List of  Subsidiaries  (incorporated  by  reference  to Exhibit 10.6 to the
     Company's  Registration Statement on Form S-4 (Reg. No. 333-58059) filed on
     June 30, 1998).

23.1 Consent of Ernst & Young LLP, independent certified public accountants

24   Powers  of  Attorney  (included  on  pages  II-5--II-11)  (incorporated  by
     reference to Exhibit 24 to the Company's Registration Statement on Form S-4
     (Reg. No. 333-58059) filed on June 30, 1998).

*27  Financial Data Schedule (filed herewith as Exhibit 27)

99.1 Form of Note Letter of  Transmittal  (incorporated  by reference to Exhibit
     99.1  to the  Company's  Registration  Statement  on  Form  S-4  (Reg.  No.
     333-58059) filed on June 30, 1998).

99.2 Form of Preferred Stock Letter of Transmittal (incorporated by reference to
     Exhibit 99.2 to the Company's  Registration Statement on Form S-4 (Reg. No.
     333-58059) filed on June 30, 1998).

99.3 Form of Note Notice of Guaranteed  Delivery  (incorporated  by reference to
     Exhibit 99.3 to the Company's  Registration Statement on Form S-4 (Reg. No.
     333-58059) filed on June 30, 1998).

99.4 Form of Preferred  Stock Notice of  Guaranteed  Delivery  (incorporated  by
     reference to Exhibit 99.4 to the Company's  Registration  Statement on Form
     S-4 (Reg. No. 333-58059) filed on June 30, 1998).

+    This is a management contract or compensatory plan or arrangement

*    Filed herewith

(b)  No report was filed on Form 8-K during the three months ended  December 31,
     2000.

(c)  Exhibits:  See (a)(3) above for a listing of the exhibits  included as part
     of this report.

(d)  Financial Statement Schedules: See (a)(1) and (a)(2) above for a listing of
     the financial statements and schedules submitted as part of this report.


<PAGE>



                                   Signatures

    Pursuant  to the  requirements  of  Section  13 or 15(d)  of the  Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                        CLUETT AMERICAN CORP.
                               (Registrant)

         By:  /s/   Bryan P. Marsal
              ------------------------------------------------------------------
              Name: Bryan P. Marsal
              Title:   DIRECTOR AND CHIEF EXECUTIVE OFFICER


              Date:   March 29, 2001
              ------------------------------------------------------------------

    Pursuant to the  requirements  of the Securities  Exchange Act of 1934, this
report  has  been  signed  below  by the  following  persons  on  behalf  of the
registrant and in the capacities and on the dates indicated.


              /s/   Bryan P. Marsal
              ------------------------------------------------------------------
              Name:    Bryan P. Marsal
              Title:   Director and Chief Executive Officer

              Date:    March 29, 2001
              ------------------------------------------------------------------


              /s/   Kathy D. Wilson
              ------------------------------------------------------------------
              Name:    Kathy D. Wilson
              Title:   Vice President and Chief Financial and Accounting Officer

              Date:    March 29, 2001
              ------------------------------------------------------------------


              /s/     James A. Williams
              ------------------------------------------------------------------
              Name:    James A. Williams
              Title:   Director

              Date:    March 29, 2001
              ------------------------------------------------------------------

              /s/   Norman W. Alpert
              ------------------------------------------------------------------
              Name:    Norman W. Alpert
              Title:   Director

              Date:    March 29, 2001
              ------------------------------------------------------------------


              /s/   Steven M. Silver
              ------------------------------------------------------------------
              Name:    Steven  M. Silver
              Title:   Director

              Date:    March 29, 2001
              ------------------------------------------------------------------


              /s/   Sander M. Levy
              ------------------------------------------------------------------
              Name:    Sander M. Levy
              Title:   Director

              Date:    March 29, 2001
              ------------------------------------------------------------------


              /s/   Daniel S. O' Connell
              ------------------------------------------------------------------
              Name:    Daniel S. O'Connell
              Title:   Director

              Date:    March 29, 2001
              ------------------------------------------------------------------





                                  EXHIBIT INDEX

10.2.9.2 Seventh Amendment to Credit Agreement and Waiver dated March 23, 2001.

27       Financial Data Schedule


<PAGE>


 Item 14 (d).  Financial Statement Schedules



                                   SCHEDULE II

                              CLUETT AMERICAN CORP.

                        VALUATION AND QUALIFYING ACCOUNTS

                                 (IN THOUSANDS)

<TABLE>
<S>                                <C>               <C>              <C>        <C>             <C>
COLUMN A                           COLUMN B            COLUMN C                  COLUMN D        COLUMN E
------------------------------    --------------     -----------                 ---------       --------
                                                              ADDITIONS
                                                     ------------------------
                                     BALANCE AT      CHARGED TO       CHARGED                    BALANCE
                                     BEGINNING       COSTS AND        TO OTHER                   AT END
DESCRIPTION                          OF YEAR         EXPENSES         ACCOUNTS   DEDUCTIONS      OF YEAR
-------------------------------    -------------     -----------     ---------   ----------     ---------

PERIOD ENDED DECEMBER 31, 1998:
 Deduction from asset account:
    Allowance for doubtful accounts    $1,004        $    548              --     $  380 (1)     $  1,172
    Customer allowances                 2,593             836              --         24 (1)        3,405
    Inventory reserves                    922           1,235              --         --            2,157
                                   ----------------------------------------------------------------------
        Total                          $4,519        $  2,619              --     $  404 (1)     $  6,734
                                   ======================================================================


PERIOD ENDED DECEMBER 31, 1999:
 Deduction from asset account:
    Allowance for doubtful accounts    $1,172        $     87              --     $  425 (1)     $    834
    Customer allowances                 3,405             680              --        671 (1)        3,414
    Inventory reserves                  2,157              --              --      1,147 (1)        1,010
                                    ---------------------------------------------------------------------
        Total                         $ 6,734        $    767              --     $2,243 (1)     $  5,258
                                    =====================================================================

PERIOD ENDED DECEMBER 31, 2000:
 Deduction from asset account:
    Allowance for doubtful accounts  $    834        $    246              --     $  171 (1)     $    909
    Customer allowances                 3,414           1,205              --        582 (1)        4,037
    Inventory reserves                  1,010              24              --        450 (1)          584
                                    ---------------------------------------------------------------------
        Total                        $  5,258        $  1,475              --     $1,203         $  5,530
                                    =====================================================================

</TABLE>

(1)       Write offs, net of recoveries



<PAGE>



                                                                Exhibit 10.2.9.2

                 SEVENTH AMENDMENT TO CREDIT AGREEMENT & WAIVER

     THIS  SEVENTH  AMENDMENT TO CREDIT  AGREEMENT & WAIVER (this  "Amendment"),
dated  as of  March  23,  2001,  is by and  among  Cluett  American  Corp.  (the
"Borrower"),  Cluett American  Investment Corp. (the "Parent"),  Cluett American
Group, Inc. ("Interco") and the certain subsidiaries of the Parent identified on
the  signature  pages  hereto  (together  with  the  Parent  and  Interco,   the
"Guarantors"),  the  lenders  identified  on the  signature  pages  hereto  (the
"Lenders"),  Bank of America,  N.A.  (formerly known as  NationsBank,  N.A.), as
agent for the Lenders (in such  capacity,  the  "Agent"),  and Gleacher  NatWest
Inc., as documentation agent (the "Documentation Agent").

                               W I T N E S S E T H

         WHEREAS, the Borrower,  the Guarantors,  the Lenders, the Agent and the
Documentation  Agent have entered into that certain Credit Agreement dated as of
May 18, 1998, as amended as of May 27, 1998,  December 18, 1998, March 19, 1999,
September  30,  1999,  March  29,  2000,  May 2,  2000 and June 30,  2000 (as so
previously amended the "Existing Credit Agreement"); and

         WHEREAS,  the parties to the Existing  Credit  Agreement have agreed to
amend the Existing  Credit  Agreement  and waive certain  provisions  thereof as
provided herein.

         NOW,  THEREFORE,  in  consideration  of the agreements  hereinafter set
forth, and for other good and valuable  consideration,  the receipt and adequacy
of which are hereby acknowledged, the parties hereto agree as follows:


                                     PART 1
                                   DEFINITIONS

         SUBPART 1.1 Certain Definitions. Unless otherwise defined herein or the
context  otherwise  requires,  the  following  terms  used  in  this  Amendment,
including its preamble and recitals, have the following meanings:

"Amended  Credit  Agreement"  means the  Existing  Credit  Agreement  as amended
hereby.

"Amendment No. 7 Effective Date" is defined in Subpart 3.1.


         SUBPART 1.2 Other  Definitions.  Unless otherwise defined herein or the
context otherwise requires, terms used in this Amendment, including its preamble
and recitals, have the meanings provided in the Amended Credit Agreement.


                                     PART 2
                AMENDMENTS TO EXISTING CREDIT AGREEMENT & WAIVER

         Effective on (and subject to the  occurrence  of) the  Amendment  No. 7
Effective  Date, the Existing  Credit  Agreement is hereby amended in accordance
with this Part 2. Except as so amended,  the Existing  Credit  Agreement and all
other Credit Documents shall continue in full force and effect.


<PAGE>



         SUBPART 2.1  Amendments  to Section  1.1. The  definition  of "Maturity
Date" appearing in Section 1.1 of the Existing Credit  Agreement are amended and
restated in its entirety to read as follows:

                  "Maturity Date" means (i) as to the Revolving  Loans,  Letters
         of  Credit  (and the  related  LOC  Obligations),  Swingline  Loans and
         Tranche A Term Loan, May 18, 2004,  (ii) as to the Tranche B Term Loan,
         May 18,  2005 and (iii) as to the  Tranche  C Loans  and the  Tranche C
         Letters of Credit (and the related Tranche C LOC Obligations), December
         31, 2002.

         SUBPART 2.2 Amendments to Section 2.6.

                  (a) The first  sentence  of  Section  2.6(a)  of the  Existing
         Credit  Agreement  is amended and  restated in its  entirety to read as
         follows:

                           2.6      Tranche C Loans.

                           (a)  Tranche C  Commitment.  Subject to the terms and
                  conditions  of this  Credit  Agreement,  the  Tranche C Lender
                  agrees to make  available  to the  Borrower  revolving  credit
                  loans requested by the Borrower in Dollars ("Tranche C Loans")
                  from  time to time from the  Amendment  No. 5  Effective  Date
                  until the Maturity Date, or such earlier date as the Tranche C
                  Commitment  shall have been  terminated  as  provided  herein;
                  provided,  however,  that the sum of the  aggregate  principal
                  amount  of  outstanding  Tranche  C  Loans  shall  not  exceed
                  NINETEEN  MILLION  TWO  HUNDRED  THIRTY-THREE  THOUSAND  EIGHT
                  HUNDRED  THIRTY-SEVEN AND 17/100 DOLLARS  ($19,233,837.17) (as
                  such aggregate maximum amount may be reduced from time to time
                  as  provided  in Section  2.6(d),  the  "Tranche  C  Committed
                  Amount").

(b)      Section 2.6(d)(v) of the Existing Credit Agreement is deleted.

         SUBPART 2.2  Amendments to Section  7.11.  Section 7.11 of the Existing
Credit Agreement is amended and restated in its entirety to read as follows:

         7.11     Financial Covenants.

         The Credit Parties shall cause:

     (a) Fixed Charge Coverage Ratio. The Fixed Charge Coverage Ratio, as of the
last day of each fiscal quarter of the Consolidated  Parties, to be greater than
or equal to:

 -------------------------------------------------------------------------------
              March 31        June 30        September 30           December 31
 -------------------------------------------------------------------------------
 2000                                                              1.00 to 1.00
 -------------------------------------------------------------------------------
 2001       0.80 to 1.00    0.90 to 1.00     1.00 to 1.00          1.00 to 1.00
 -------------------------------------------------------------------------------
 thereafter 1.00 to 1.00    1.00 to 1.00     1.00 to 1.00          1.00 to 1.00
 -------------------------------------------------------------------------------



<PAGE>



     (b) Interest  Coverage Ratio.  The Interest  Coverage Ratio, as of the last
day of each fiscal quarter of the  Consolidated  Parties,  to be greater than or
equal to:

 -------------------------------------------------------------------------------
               March 31        June 30        September 30          December 31
 -------------------------------------------------------------------------------
 2000                                                              1.30 to 1.00
 -------------------------------------------------------------------------------
 2001        1.30 to 1.00    1.30 to 1.00      1.50 to 1.00        1.50 to 1.00
 -------------------------------------------------------------------------------
 2002        1.85 to 1.00    1.85 to 1.00      1.85 to 1.00        1.85 to 1.00
 -------------------------------------------------------------------------------
 2003        2.00 to 1.00    2.00 to 1.00      2.00 to 1.00        2.00 to 1.00
 -------------------------------------------------------------------------------
 2004        2.25 to 1.00    2.25 to 1.00      2.25 to 1.00        2.25 to 1.00
 -------------------------------------------------------------------------------
 thereafter  2.50 to 1.00    2.50 to 1.00      2.50 to 1.00
 -------------------------------------------------------------------------------

     (c) Senior Leverage Ratio. The Senior Leverage Ratio, as of the last day of
each fiscal quarter of the Consolidated Parties, to be less than or equal to:

 -------------------------------------------------------------------------------
                March 31         June 30        September 30        December 31
 -------------------------------------------------------------------------------
 2000                                                              3.10 to 1.00
 -------------------------------------------------------------------------------
 2001        2.80 to 1.00     2.60 to 1.00       2.40 to 1.00      2.10 to 1.00
 -------------------------------------------------------------------------------
 thereafter  2.00 to 1.00     2.00 to 1.00       2.00 to 1.00      2.00 to 1.00
 -------------------------------------------------------------------------------

     (d) Total Leverage  Ratio.  The Total Leverage Ratio, as of the last day of
each fiscal quarter of the Consolidated Parties, to be less than or equal to:

 -------------------------------------------------------------------------------
                March 31         June 30       September 30         December 31
 -------------------------------------------------------------------------------
 2000                                                              7.10 to 1.00
 -------------------------------------------------------------------------------
 2001          7.10 to 1.00    6.60 to 1.00    6.00 to 1.00        5.60 to 1.00
 -------------------------------------------------------------------------------
 2002          5.50 to 1.00    5.50 to 1.00    5.50 to 1.00        5.50 to 1.00
 -------------------------------------------------------------------------------
 2003          4.75 to 1.00    4.75 to 1.00    4.75 to 1.00        4.75 to 1.00
 -------------------------------------------------------------------------------
 thereafter    4.00 to 1.00    4.00 to 1.00    4.00 to 1.00        4.00 to 1.00
 -------------------------------------------------------------------------------


     (e) Minimum Consolidated EBITDA.  Commencing with the fiscal quarter ending
December 31, 2001, Consolidated EBITDA as of the last day of each fiscal quarter
of the Consolidated  Parties for the twelve month period ending on such date, to
be greater than or equal to $35,000,000.

     (f) Fiscal Quarter  Computations.  For purposes of this Section 7.11,  each
reference to March 31, June 30,  September 30 and December 31 shall refer to the
fiscal quarter of the Consolidated Parties ending on or about such dates.

         SUBPART 2.3 Amendments to Exhibit  2.1(b)(i).  Exhibit 2.1(b)(i) to the
Existing Credit Agreement is hereby replaced with Exhibit 2.1(b)(i) hereto.

         SUBPART 2.4 Waiver.  Subject to the  occurrence  of the Amendment No. 7
Effective  Date,  the Required  Lenders hereby waive the  requirements  that the
Credit Parties comply with Section 7.11(e) of the Existing Credit  Agreement for
the fiscal  quarter ended  December 31, 2000.  This is a one-time  waiver and is
granted  only for the limited  purposes  set forth herein and shall be effective
only in the specific  circumstances  provided for above and only for the purpose
for which given.  The waiver  pursuant to this Subpart 2.4 shall be deemed to be
effective as of December 31, 2000.


<PAGE>



     SUBPART 2.5 No Prepayments of Tranche C Loans.  Notwithstanding anything to
the contrary  contained in the Amended  Credit  Agreement to the  contrary,  the
Borrower shall not make any voluntary  prepayment of the  outstanding  Tranche C
Loans prior to January 1, 2002,  unless all other Credit Party  Obligations have
been paid in full and the Commitments (other than the Tranche C Commitment) have
been terminated.



                                     PART 3
                                  EFFECTIVENESS

     SUBPART 3.1 Amendment No. 7 Effective  Date.  This  Amendment  shall be and
become  effective as of the date hereof (the  "Amendment No. 7 Effective  Date")
when all of the conditions  set forth in this Part 3 shall have been  satisfied,
and  thereafter  this  Amendment  shall be  known,  and may be  referred  to, as
"Amendment No. 7."

     SUBPART 3.1.1 Execution of Counterparts of Amendment.  The Agent shall have
received  counterparts of this Amendment which collectively shall have been duly
executed on behalf of each of the  Borrower,  the  Guarantors  and the  Required
Lenders.

     SUBPART 3.1.2 Amendment Fee; Payment of Fees and Expenses.  The Agent shall
have  received,  for the account of each Lender that has  delivered  an executed
counterpart  of this  Amendment  to the Agent on or before  March 23,  2001,  an
amendment  fee equal to 0.125% of the  Commitment  of each such Lender under the
Existing Credit Agreement.


                                     PART 4
                                  MISCELLANEOUS

         SUBPART 4.1. Cross-References. References in this Amendment to any Part
or Subpart  are,  unless  otherwise  specified,  to such Part or Subpart of this
Amendment.

         SUBPART 4.2  Instrument  Pursuant to Existing  Credit  Agreement.  This
Amendment  is a  Credit  Document  executed  pursuant  to  the  Existing  Credit
Agreement and shall (unless otherwise expressly indicated therein) be construed,
administered  and applied in  accordance  with the terms and  provisions  of the
Existing Credit Agreement.

         SUBPART 4.3 References in Other Credit Documents.  At such time as this
Amendment No. 7 shall become effective pursuant to the terms of Subpart 3.1, all
references in the Credit Documents to the "Credit  Agreement" shall be deemed to
refer to the Amended Credit Agreement.

         SUBPART 4.4  Counterparts/Telecopy.  This  Amendment may be executed by
the parties hereto in several counterparts,  each of which shall be deemed to be
an original  and all of which  shall  constitute  together  but one and the same
agreement. Delivery of executed counterparts of this Amendment by telecopy shall
be  effective  as an original  and shall  constitute  a  representation  that an
original shall be delivered.

         SUBPART 4.5  Attorney's  Fees. The Credit Parties hereby promise to pay
all  costs  and  expenses  of the  Agent  in  connection  with  this  Amendment,
including,  without limitation,  the reasonable fees and expenses of Moore & Van
Allen PLLC.

         SUBPART  4.6  Governing  Law.  THIS  AMENDMENT  SHALL BE DEEMED TO BE A
CONTRACT MADE UNDER AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK.

         SUBPART 4.7  Successors and Assigns.  This  Amendment  shall be binding
upon and  inure to the  benefit  of the  parties  hereto  and  their  respective
successors and assigns.


<PAGE>



         IN WITNESS  WHEREOF  the  Borrower,  the  Guarantors  and the  Required
Lenders have caused this  Amendment to be duly  executed on the date first above
written.

CREDIT PARTIES:                     CLUETT AMERICAN Corp.
--------------
                                            Cluett American Investment Corp.
                                            Cluett American Group, Inc.
                                            CONSUMER DIRECT CORPORATION
                                            ARROW FACTORY STORES, INC.
                                            GAKM RESOURCES CORPORATION
                                            CLUETT PEABODY RESOURCES CORPORATION
                                            CLUETT PEABODY HOLDING CORP.
                                            CLUETT, PEABODY & CO., INC.
                                            BIDERTEX SERVICES INC.
                                            GREAT AMERICAN KNITTING MILLS, INC.
                                            BIDERMANN TAILORED CLOTHING, INC.

                                            By:
                                               ---------------------------------
                                            Name:
                                                 -------------------------------
                                            Title:
                                                  ------------------------------
























                             [Signatures Continued]


<PAGE>


AGENT:                  BANK OF AMERICA, N.A.
-----
                        (formerly known as NationsBank, N. A.), as Agent

                        By:
                        ---------------------------------
                        Name:
                        ---------------------------------
                        Title:
                        ---------------------------------

LENDERS:                BANK OF AMERICA, N.A.
-------
                        (formerly known as NationsBank, N. A.)

                        By:
                        ---------------------------------
                        Name:
                        ---------------------------------
                        Title:
                        ---------------------------------

                        BANK OF AMERICA, N.A.
                        (formerly known as NationsBank, N. A.), solely in its
                         capacity as the Tranche C Lender

                        By:
                        ---------------------------------
                        Name:
                        ---------------------------------
                        Title:
                        ---------------------------------

                        NATIONAL WESTMINSTER BANK PLC

                        By:
                        ---------------------------------
                        Name:
                        ---------------------------------
                        Title:
                        ---------------------------------

                        FLEET BANK, N.A.

                        By:
                        ---------------------------------
                        Name:
                        ---------------------------------
                        Title:

                        BANKBOSTON, N.A.

                        By:
                        ---------------------------------
                        Name:
                        ---------------------------------
                        Title:
                        ---------------------------------

                        FLEET BUSINESS CREDIT CORPORATION
                        (successor in interest to Sanwa Business Credit
                         Corporation)

                        By:
                        ---------------------------------
                        Name:
                        ---------------------------------
                        Title:
                        ---------------------------------


<PAGE>



                        BANK AUSTRIA CREDITANSTALT
                        CORPORATE FINANCE, INC.

                        By:
                        ---------------------------------
                        Name:
                        ---------------------------------
                        Title:
                        ---------------------------------

                        By:
                        ---------------------------------
                        Name:
                        ---------------------------------
                        Title:
                        ---------------------------------

                        FIRST SOURCE FINANCIAL LLP,
                        By: First Source Financial Inc., its manager

                        By:
                        ---------------------------------
                        Name:
                        ---------------------------------
                        Title:
                        ---------------------------------

                        GENERAL ELECTRIC CAPITAL
                        CORPORATION

                        By:
                        ---------------------------------
                        Name:
                        ---------------------------------
                        Title:
                        ---------------------------------

                        FLEET NATIONAL BANK

                        By:
                        ---------------------------------
                        Name:
                        ---------------------------------
                        Title:
                        ---------------------------------

                        HSBC BANK USA

                        By:
                        ---------------------------------
                        Name:
                        ---------------------------------
                        Title:
                        ---------------------------------

                        AG CAPITAL FUNDING PARTNERS, L.P.
                        By: Angelo Gordon & Co., L.P. as Investment Advisor

                        By:
                        ---------------------------------
                        Name:
                        ---------------------------------
                        Title:
                        ---------------------------------



<PAGE>



                        NORTHWOODS CAPITAL LIMITED
                        By: Angelo Gordon & Co., L.P. as Collateral Manager

                        By:
                        ---------------------------------
                        Name:
                        ---------------------------------
                        Title:
                        ---------------------------------

                        NEW YORK LIFE INSURANCE COMPANY

                        By:
                        ---------------------------------
                        Name:
                        ---------------------------------
                        Title:
                        ---------------------------------

                        SENIOR DEBT PORTFOLIO
                        By:  Boston Management and Research,
                             as Investment Advisor

                        By:
                        ---------------------------------
                        Name:
                        ---------------------------------
                        Title:
                        ---------------------------------

                        ML CLO XX PILGRIM AMERICA (CAYMAN) LTD.

                        By:
                        ---------------------------------
                        Name:
                        ---------------------------------
                        Title:
                        ---------------------------------

                        TORONTO DOMINION (TEXAS), INC.

                        By:
                        ---------------------------------
                        Name:
                        ---------------------------------
                        Title:
                        ---------------------------------

                        GREAT POINT CLO 1999-1 LTD.

                        By:      Sankaty Advisors, Inc., as
                                 Collateral Managers

                        By:
                        --------------------------------
                        Name:
                        --------------------------------
                        Title:
                        --------------------------------

                        EATON VANCE SENIOR INCOME TRUST

                        By:
                        ---------------------------------
                        Name:
                        ---------------------------------
                        Title:
                        ---------------------------------

<PAGE>


                                Exhibit 2.1(b)(i)

                                             FORM OF NOTICE OF BORROWING

Bank of America, N. A.,
  as Agent for the Lenders
101 North Tryon Street
Independence Center, 15th Floor
NC1-001-15-04
Charlotte, North Carolina  28255
Attention:  Agency Services

Ladies and Gentlemen:

         The undersigned,  Cluett American Corp. (the "Borrower"), refers to the
Credit  Agreement  dated as of May 18, 1998 (as amended,  modified,  restated or
supplemented from time to time, the "Credit Agreement"), among the Borrower, the
Guarantors, the Lenders, Bank of America, N.A., formerly NationsBank,  N. A., as
Agent and Gleacher Natwest Inc., as Documentation Agent.  Capitalized terms used
herein and not otherwise defined herein shall have the meanings assigned to such
terms in the Credit  Agreement.  [The Borrower  hereby gives notice  pursuant to
Section 2.1 of the Credit  Agreement  that it requests a Revolving  Loan advance
under the Credit  Agreement,  and in connection  therewith  sets forth below the
terms on which such Loan advance is requested to be made:]* [The Borrower hereby
gives notice pursuant to Section 2.6 of the Credit  Agreement that it requests a
Tranche C Loan advance under the Credit Agreement,  and in connection  therewith
sets  forth  below  the terms on which  such Loan  advance  is  requested  to be
made:]**

(A)      Date of Borrowing (which is a Business Day)     _______________________

(B)      Principal Amount of Borrowing                   _______________________

(C)      Interest rate basis                             _______________________

(D)      Interest Period and the  last day thereof       _______________________

         [In  accordance  with the  requirements  of Section  5.2,  the Borrower
hereby  reaffirms the  representations  and  warranties  set forth in the Credit
Agreement as provided in subsection  (b) of such Section,  and confirms that the
matters referenced in subsections (c), (d) and (e) of such Section, are true and
correct.]*

         [In  accordance  with  the  requirements  of  Section  2.7(g),  (1) the
Borrower (with respect to itself only) and the Sponsor,  as  applicable,  hereby
reaffirm the  representations and warranties set forth in Sections 6.3, 6.4, 6.5
and 6.6 of the Credit  Agreement  or Section 11 of the  Tranche C  Guaranty,  as
applicable,  as provided in subsection  (ii) of such Section  2.7(g) and (2) the
Borrower (with respect to itself only) and the Sponsor  confirm that the matters
referenced in  subsections  (iii),  (iv) and (v) of such Section 2.7(g) are true
and correct.]**

                              [Signatures follow.]


<PAGE>


         This Notice of Borrowing may be executed in counterparts, each of which
when so executed  and  delivered  shall be an  original,  but all of which shall
constitute one and the same instrument.

                                                     Cluett American Corp.

                               By:
                                  -----------------------------------------
                               Name:
                                  ---------------------------------------
                               Title:
                                  --------------------------------------


[Acknowledged and consented to this __ day of ________, ____:**

Vestar Capital Partners III, L.P.,
a Delaware limited partnership

By:      Vestar Associates III, L.P.,
         its General Partner

         By:      Vestar Associates corporation III,
                  its General Partner

                  By:
                     --------------------------------------------------
                  Name: Norman W. Alpert
                  Title: Vice President]

*For all Revolving Loans
**For all Tranche C Loans