** **

**SECURITIES AND EXCHANGECOMMISSION**

** **

**WASHINGTON, DC 20549**

 

**FORM 10-K**

 

**Annual Report Pursuant to Section 13 or 15(d)of the Securities Exchange Act of 1934**

 

**For the Fiscal Year Ended January 29, 2005**

 

**Commission File Number 333-26999**

 

**ANVIL HOLDINGS, INC.**

(Exact name of registrant as specified in its charter)

 
| **Delaware**                                                                | ** ** | **13-3801705**      |
|-----------------------------------------------------------------------------|------------|---------------------|
| (State or other jurisdiction of                                             |       | (I.R.S. Employer    |
| incorporation or organization)                                              |       | Identification No.) |
|                                                                        |       |                |
| **228 East 45th Street**                                                    |       |                |
| **New York, New York**                                                      | ** ** | **10017**           |
| (address of principal                                                       |       | (Zip Code)          |
| executive office)                                                           |       |                |
|                                                                        |       |                |
| Registrant’s telephone number (including area code) **(212) 476-0300** |

 

**Securities Registered Pursuant to Section 12(b) or12(g) of the Act:**

**None**

 

Indicate by check markwhether the registrant (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding 12months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements for thepast 90 days.

ý   Yes      o   No

 

Indicate by check mark ifdisclosure of delinquent filers pursuant to Item 405 of Regulation S-K is notcontained herein, and will not be contained, to the best of the registrant’sknowledge, in definitive proxy or information statements incorporated byreference in Part III of this Form 10-K or any amendment to this Form 10-K   ý

 

Indicate by check markwhether the registrant is an accelerated filer o Yes     ý  No

 

At April 15, 2005there were 390,000 of the registrant’s Class B Common Stock, $0.01 pershare par value (the “Class B Common”) held by non-affiliates.  At such date, there was no establishedtrading market for these shares.

 

At April 15, 2005,there were 290,000 shares of the registrant’s Class A Common Stock, $0.01per share par value (the “Class A Common”) and 3,600,000 shares of Class BCommon outstanding.

 

**Documents Incorporated by Reference:**

 

Thoseportions of the Combined Information Statement for the Company’s 2005 AnnualMeetings of Stockholders (the “Information Statement”) are incorporated hereinby reference in Part III, Items 11, 12, 13 and 14.

 

 

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**PART I**

 

***Item 1. Business.***

 

**CorporateStructure**

 

As used herein, the “Company”refers to Anvil Holdings, Inc. (“Holdings”), including, in some instances,  its wholly-owned subsidiary, Anvil Knitwear, Inc.,a Delaware corporation (“Anvil”), and its other subsidiaries, as appropriate tothe context.

 

The Company’s currentcapital structure is the result of a 1997 recapitalization (the “Recapitalization”)pursuant to which: (i) the Company redeemed or repurchased a substantialportion of its outstanding shares of capital stock; (ii) Bruckmann,Rosser, Sherrill & Co., L.P. and certain of its employees andaffiliates (collectively, “BRS”) purchased new common stock; (iii) 399Venture Partners, Inc. and certain of its employees and affiliates(collectively, “399 Venture”) and certain members of Management of the Company(the “Management Investors”) reinvested a portion of their shares of capitalstock of the Company in exchange for newly issued common stock; and (iv) 399Venture exchanged a portion of its capital stock for Senior ExchangeablePreferred Stock and new common stock.  Duringfiscal 2003, 399 Venture transferred its holdings in the Company to an affiliate,Court Square Capital, Ltd (“Court Square”).

 

Concurrentlywith the Recapitalization, the Company sold 30,000 Units consisting of (i) $30,000,000, 13% Senior Exchangeable Preferred Stock, due2009 and (ii) 390,000 shares of Class B common stock (the “UnitsOffering”).  Additionally, Anvil sold$130,000,000 of 10-7/8% Senior Notesdue 2007 (“Senior Notes”) in connection with the Recapitalization.

 

TheCompany’s fiscal years end on the Saturday closest to January 31.  Accordingly, when referring to the Company’sfiscal years in this report, “fiscal 2004” refers to the year ended January 29,2005, “fiscal 2003” refers to the year ended January 31, 2004, etc.

 

## **General**

## ** **

The Company is a leadingdesigner, manufacturer and marketer of high quality activewear for saleprincipally into the “imprinted” or “decorated” segment of the U.S. apparelindustry.  The Company offers anextensive line of activewear products designed for men, women and children, includingshort and long sleeve T-shirts, sport shirts and niche products, all in avariety of styles and fabrications. These activewear products are supplemented with caps, towels, robes andbags.  The Company markets and sells itsproducts primarily to distributors, screen printers and private label brandowners. The Company’s brands include the *Anvil,* C*otton Deluxe, chromaZONE*and *TowelsPlus*brand names and the *Anvil*logo.  Prior to their ultimate resale to theconsumer, the Company’s products typically are printed or embroidered withlogos, designs or characters.  The Companybelieves that successful marketing of its products is accomplished by:  (i) maintaining a broad range of highquality goods; (ii) strong relationships with customers and suppliers; (iii) flexible,vertically integrated manufacturing operations; (iv) commitment tocontrolling costs and improving manufacturing processes; and (v)  takingadvantage of the continuing growth of the activewear market.

 

The Company offershigh quality activewear in a variety of styles, colors, fabric weights and blends,enabling it to serve a number of market niches effectively as well as to servethe traditional T-shirt market segment. The Company works closely with its customers to meet their needs forstyle and color requirements. The Company continues to compete successfully by:(i) targeting niche products; (ii) responding quickly to marketdevelopments; (iii) regularly introducing new products; and (iv) providinga broad range of products. In addition, the Company continues to makesignificant 

 

1

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investments tomaintain and modernize its manufacturing and distribution facilities and toseek methods to improve quality, increase efficiency, reduce costs, manageinventories and shorten production cycles.

 

# **BusinessStrategy**

#  

The Company’sobjective is to increase net sales and improve results of operations byimplementing the following key elements of its business strategy:

 

*Offer aBroad Range of High Quality Products*.  The Companywill continue to offer high quality activewear in a variety of styles, colors,fabric weights and blends, enabling it to serve a broad number of market nicheseffectively.  The Company will continueto expand its product offerings and to broaden its position in the imprinted/decoratedproduct market by offering products to supplement its traditional activewearbusiness.

 

*Enhanceand Expand Customer Relationships*. The Company continuallyseeks to strengthen and expand its customer relationships by promoting theCompany’s: (i) broad product offerings; (ii) ability to designcustomized products; (iii) quick, reliable delivery; and (iv) abilityto accommodate modifications to customer orders. The Company’s directsalesforce focuses on developing strong relationships with distributors, andenhancing “pull through” with the distributors’ customers.  In fiscal 2004, sales to domesticdistributors accounted for approximately 77% of the Company’s net sales.  In the Company’s experience, distributorstypically place larger orders, purchase a broader product mix, maintain higherinventory levels and develop more predictable order and re-order patterns thancertain of its other customers.  Nevertheless, the Company continues toactively seek to broaden its customer base. The Company estimates that distributors resell products to more than30,000 smaller screen printers, embroiderers and other customers.  The Company’s broad product offerings haveenabled it to more effectively service its customers and satisfy theirdisparate preferences.

 

*Maintain Flexible, Vertically IntegratedManufacturing Operations*. The Company is a vertically integrated manufacturer (i.e., performingsubstantially all of the manufacturing processes required to produce most ofits products) which knits (exclusively from purchased yarn), bleaches, dyes,finishes, cuts and sews its activewear products at its manufacturingfacilities.  The Company believes thatbeing vertically integrated allows it to maintain a competitive cost structure,minimize delivery time and provide consistent, high quality products.  The Company’s manufacturing efficiencyenables it to provide its customers with low cost, quality products.

 

*Continueto Control Costs and Improve Manufacturing*. The Companycontinues to make capital expenditures to maintain and modernize itsmanufacturing and distribution facilities and explore methods to improvequality, increase efficiency, reduce costs, manage inventories and shortenproduction cycles.  The Company believesit can improve its operating results by maximizing the use of offshoreoperations and continually improving its manufacturing processes.  Through a subsidiary, the Company has recently occupied a new leased cut and sewfacility in Nicaragua and plans are underway for the leasing of a newHonduran textile facility.

 

*Capitalizeon the Growth of the Activewear Market*.  The Company believes that sales of activewearproducts have been, and will continue to be driven by consumer preference forcomfortable apparel selections and the continuing emphasis on physical fitness.  In addition, continuing general economicgrowth is expected to enhance the corporate promotional business, a significantsegment of the Company’s ultimate customer base.

 

2

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## **Products**

## ** **

The Company’s activewearproducts, which are designed for men, women and children, include short andlong sleeve T-shirts, sport shirts and niche products, all in a variety ofstyles and fabrications.  Theseactivewear products are supplemented with caps, towels, robes and bags.  This broad array of products is marketed andsold by the Company under its*Anvil,* C*otton Deluxe, chromaZONE*and *TowelsPlus*brand names and the *Anvil* logo.Prior to their ultimate resale to the consumer, the Company’s productstypically are imprinted or embroidered with logos, designs or characters.

 

## **Major Product Categories**

## ** **

The Company reports itsoperations in one segment in accordance with Statement of Financial AccountingStandards No. 131, *Disclosures About Segmentsof an Enterprise and Related Information.*This one segment consistsof several major product categories as follows:

 

*BasicT-shirts*comprise the Company’s principal source of revenues,accounting for approximately 55% of net sales in fiscal 2004.  *Ladies Apparel*includes fashion T-shirts and tank tops for women*.  Sport Shirts*include short and longsleeve collared shirts for men.  *Niche Products*represent the Company’s specialty items suchas baseball shirts, “ringers,” sleeveless T-shirts, athletic shorts andcollarless shirts*.  Accessories*are caps, towels, robes and bags, all of which the Company sources as finishedproducts.

 

## **Sales and Marketing**

## ** **

The Company sells itsproducts primarily through a direct salesforce aided by a sales support staffand the Company’s marketing department.

 

The Company seeksto differentiate itself from other activewear manufacturers by also marketingniche products to its customers and encouraging its customers to purchase abroader product mix.  However, over thepast few years, demand for low-priced basic T-shirts has increased, which hascaused the T-shirt category to grow as a percentage of the Company’s sales.

 

Managementcontinues to believe that offering higher priced products with more styleelements to its customers has helped the Company to compete more effectivelyand to service the large and middle-tier wholesale T-shirt distributor market.  Nevertheless, in order to keep up withchanging market dynamics, Management continues to expand and diversify itscustomer base.

 

## **Customers**

## ** **

The Company markets itsproducts primarily to distributors, a wide range of screen printers and privatelabel customers.  The Company also sellsa small percentage of its products directly to retailers.  The Company currently services over 200customers, 20 of which account for approximately 83% of the Company’s netsales.  As a result of the recentcombination of three distributors (Broder Brothers, Alpha Shirt Company and NESClothing Company) into a single entity, Broder Bros., Co., now accounts forapproximately 41% of the Company’s business, based upon net sales for fiscal2004.  No other individual customeraccounted for more than 10% of the Company’s net sales during fiscal 2004.

 

## **Raw Materials**

## ** **

The Company’s primary rawmaterial is cotton yarn. The Company does not spin its own yarn.  Instead, the Company purchases substantiallyall of its yarn pursuant to purchase orders from a number of domesticspinners.  One individual spinneraccounted for approximately 42%****of the Company’s

 

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purchased yarn in fiscal2004.  The vast majority of the yarn usedby the Company is readily available and can be purchased from a number ofsources.  Management believes that marketconcentration by spinners may have a long-term impact on the availability andpricing of domestic yarn.  To date, despitesome concentration, there has been no adverse effect on the Company’s abilityto obtain yarn.

 

The Company determinesthe size of its purchase orders for yarn based on its estimate of future yarnprices and levels of supply.  Purchaseorders can be for quantities of yarn ranging from 30 days’ to a six-monthsupply.

 

## **Otherraw materials purchased by the Company include dyes and chemicals used in thedyeing and bleaching of fabrics.**

## ** **

## **Competition**

## ** **

The imprintedactivewear segment of the apparel market includes a number of significantcompetitors and the activewear segment of the industry overall is extremelycompetitive. Competition in this segment of the apparel industry is generallybased upon price, quality, customer service and breadth of product offerings.In response to market conditions and industry-wide adjustments in price, theCompany reviews and adjusts its product offerings and pricing structure on anongoing basis.

 

The Company’s principalcompetitors include several domestic and foreign manufacturers of activewear,some of which are larger and have greater financial and other resources thanthe Company.  Increased competition hascaused many domestic apparel manufacturers to move their manufacturingoperations offshore to lower costs.  TheCompany currently performs all of its cutting and sewing activities offshoreand, as mentioned above, has plans to begin textile operations offshore.

 

TheCompany provides its customers with a broad array of branded and private labelniche products at competitive prices on a timely basis.  The Company believes that its overallturnaround time is well-regarded in the industry and provides a competitiveadvantage.  The Company also believesthat its strategy of offering a broader product mix including higher quality,niche products, and use of lower-cost offshore manufacturing operations, shouldenable it to continue to compete effectively in its industry market segment.  At the same time, emphasis continues tobe placed on finding reliable lower-cost sources of finished products fromoutside manufacturers.

 

Historically, the Companyhas benefited from quotas and tariffs imposed by the United States on theimportation of apparel. The Uruguay Round of GATT, which became effective on January 1,1995, requires a complete phase-out of all existing quotas over a ten-yearperiod.  Accordingly, all quotas were phasedout at the beginning of 2005 for World Trade Organization member states.  The Company is still assessing the effects ofGATT implementation, including any actions the U.S. Government might take toameliorate the impact of a possible influx of textile products from China.  In addition, the Company continues its own explorationof sources for its products in the Far East and elsewhere.

 

Under the UnitedStates-Caribbean Basin Trade Partnership Act (the “Act”), effective October 1,2000,  quotas and duties were eliminatedon apparel imported from certain Caribbean basin countries, provided suchapparel is made from U.S. fabric (made from U.S. yarn) formed and cut in theUnited States.  The same exemption fromquotas and duties applies to apparel made from U.S. fabric (made from U.S.yarn) cut in a Caribbean basin country if U.S. thread is used.  This Act also exempts a limited amount ofknit apparel (other than outerwear T-shirts) made from regional fabric (madefrom U.S. yarn), and T-shirts  (other thanunderwear T-shirts) using fabric (made from U.S. yarn) formed in a Caribbeanbasin country.

 

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## **Employees**

## ** **

At January 29, 2005,the Company, including its offshore subsidiaries, employed a total of 3,832****people (168 full-time salaried employees and 3,664 full-timeand part-time hourly employees) in the following areas:  manufacturing and distribution: 3,711;finance and administration: 74;****and sales andmarketing: 47.  Of the Company’s 3,832****employees, 923****are employedin the United States and 2,909 at offshore locations.

 

None of theCompany’s employees is covered by a collective bargaining agreement. TheCompany has not experienced any work stoppages and considers its relationswith its employees to be good.

 

## **Intellectual Property**

## ** **

The Company generallyapplies for registration of its material trademarks and trade names in theUnited States and certain foreign countries. The Company believes that it has developed strong brand awareness amongits targeted customer base and as a result regards its brand names as valuableassets.

 

## **Environmental Matters**

## ** **

The Company, like otherapparel manufacturers, is subject to federal, state and local environmental andoccupational health and safety laws and regulations. While there can be noassurance that the Company is at all times in complete compliance with all suchrequirements, the Company believes that any noncompliance is unlikely to have amaterial adverse effect on the financial condition or results of operations ofthe Company. The Company has made, and will continue to make, expenditures tocomply with environmental and occupational health and safety requirements. TheCompany currently does not anticipate material capital expenditures forenvironmental control equipment in fiscal 2005 or beyond.  As is the case with manufacturers in general,if a release of hazardous substances occurs on or from the Company’s propertiesor any associated offsite disposal location, or if contamination from prioractivities is discovered at any of the Company’s properties, the Company may beheld liable. While the amount of such liability could be material, the Companyendeavors to conduct its operations in a manner that reduces such risks.

 

In 1990, Winston Mills, Inc.,a subsidiary of McGregor Corporation (“McGregor”) and a predecessor of theCompany, entered into an Administrative Order on Consent (“AOC”) with the NorthCarolina Department of Environment, Health and Natural Resources (“DEHNR”)concerning certain groundwater contamination discovered at its Asheville, NorthCarolina facility. Since that time, McGregor, through Culligan InternationalCompany (“Culligan”), a former affiliate, has been conducting investigative andcorrective action under DEHNR oversight and has remained responsible to DEHNRwith respect to contamination that is subject to the AOC. While the total costof the cleanup at the facility will depend upon the extent of contamination andthe corrective action approved by the DEHNR, preliminary cleanup cost estimatesrange from $1.0 to $4.0 million. McGregor continues to be a party to theAsheville, North Carolina facility’s hazardous waste permit and Culligan hasguaranteed McGregor’s obligations under the AOC. McGregor also contractuallyagreed to fully indemnify the Company with respect to the contamination as partof the terms of the acquisition of the Anvil business (the “Acquisition”).  This indemnity is guaranteed by Culligan andby Astrum International Corp. (now known as Samsonite Corporation), anaffiliate of McGregor, in the event Culligan is unable to perform its guarantorobligations. The Company could be held responsible for the cleanup of thiscontamination if McGregor, Culligan and Samsonite were all to become unable tofulfill their obligations to DEHNR. McGregor also agreed to fully indemnify the Company for any costsassociated with certain other environmental matters identified at the time ofthe Acquisition.  The Company believesthat, even if McGregor were unable to fulfill its indemnification obligations,these

 

5

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other matters would nothave a material adverse effect on the financial condition or results ofoperations of the Company.  McGregor alsoagreed to indemnify the Company, subject to certain limitations, with respectto environmental liabilities that arise from events that occurred or conditionsin existence prior to the Acquisition. Culligan and Samsonite have also guaranteed McGregor’s obligations underthese indemnities.

 

## ***Item 2. Properties.***

## ** **

The Companyconducts its operations principally through four manufacturing facilities and acentralized distribution center.  TheCompany utilizes a vertically integrated manufacturing process (i.e.,performing substantially all of the manufacturing processes required to produceits products) with fabric being knit, bleached or dyed, from purchased yarn, atits domestic textile facility, and then cutting and sewing such fabric at itsoffshore facilities.  The Companyutilizes offshore and domestic contractors as it deems necessary.  Cottontops operates a garment dye house inNorth Carolina.

 

*TextileFacility Operations*.  TheCompany conducts textile operations at its owned facility located in Asheville,North Carolina.  Yarn is received at thetextile facility, where circular knitting machines knit the yarn into tubes ofbasic fabric constructions, while flat and circular knitting machines are usedto knit collars.  The tubes of fabriccorrespond in weight and diameter to the various styles and sizes required tomake the Company’s activewear products. The knitted fabric is then batched for bleaching or dyeing.Substantially all of the Company’s activewear products are either bleached toremove the color of natural cotton or dyed for colored products.  The Company’s textile facility containscomputerized controls, dye simulators and spectrometers and modern jet vesselsto assist the Company in maintaining an efficient and quality controlledenvironment for the dyeing and bleaching process.  The Company’s textile facility operated atapproximately 87% of capacity during fiscal 2004.

 

*Cuttingand Sewing Facilities*. Cutting and sewing is conducted at leased facilities located in Honduras,El Salvador and Nicaragua and at offshore contractors.  Fabric produced at the Company’s textile facilityis shipped to cutting facilities where it is cut and then transferred to thesewing facilities for assembly.  Duringfiscal 2004, cutting and sewing facilities operated near capacity.

 

*DistributionOperations*.  TheCompany performs substantially all of its distribution functions at its ownedcentralized distribution facility located in Dillon, South Carolina.  This centralized distribution facilityenables the Company to provide efficient and responsive customer service and toefficiently manage inventory.

 

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The following table setsforth certain information regarding the Company’s facilities:

 
| ** **     | ** ** | ** **                      | ** ** | **APPROX. SQ.** |       |             |
|----------------|------------|---------------------------------|------------|-----------------|------------|------------------|
| **LOCATION**   | ** ** | **PRINCIPAL USE**               | ** ** | **FT.**         | ** ** | **OWNED/LEASED** |
| New York, NY   |       | Executive  Offices              |       | 19,000          |       |             | Leased(1) |
| Asheville,  NC |       | Textile  Facility               |       | 225,000         |       |             | Owned |
| Farmville, NC  |       | Office & Warehouse     |       | 83,000          |       |             | Leased(2) |
| Farmville, NC  |       | Dye House                       |       | 43,000          |       |             | Leased(2) |
| Dillon,  SC    |       | Distribution                    |       | 660,000         |       |             | Owned |
| Honduras       |       | Sewing                          |       | 63,000          |       |             | Leased(3) |
|           |       | Cutting                         |       | 82,000          |       |             | Leased(4) |
| El Salvador    |       | Cutting &  Sewing      |       | 143,000         |       |             | Leased(4) |
| Nicaragua      |       | Cutting &  Sewing      |       | 87,000          |       |             | Leased(5) |
| Germany        |       | Office &  Distribution |       | 14,000          |       |             | Leased(2) |

#  

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(1) The lease forthe Company’s executive office space expires in 2008.

(2) The lease forthis facility expires in 2007.

(3) The lease forthis facility expires in 2005

(4) The lease forthis facility expires in 2006

(5) The lease forthis facility expires in 2010

 

As a result of the 2003 consolidationof its textile operations into its Asheville facility, a Company-owned 225,000square foot former textile facility in Kings Mountain, North Carolina is notbeing utilized and the Company is attempting to dispose of it.

 

Managementestimates that capital expenditures in the next two fiscal years will aggregateapproximately $6,000,000 annually, exclusive of the planned textile facility inHonduras.  The Company considers itsowned and leased facilities and equipment to be in good condition and suitableand adequate for the Company’s current operations.

 

Periodically, asnecessary, the Company contracts certain manufacturing operations tooutsiders.  Management considers thisordinary industry practice and foresees no material risks in continuing thispolicy as necessary.

 

*Information Technology.*  The Company continues itscommitment to the growth and modernization of its information technologysystems through the upgrading of both its purchased and in-house developedsystems and equipment.  This fiscal year’sactivities include major upgrades to several of the Company’s purchased systemswhich support distribution, planning and textiles.  The Company has completed installation of the“High Availability” project in Honduras. “High Availability” is a backup system for both equipment and softwarethat ensures constant data and processing access for all Companyoperations.  Implementation of similarbackup systems in Dillon, Asheville, and Nicaragua are scheduled for completionduring fiscal 2005.  In the first quarterof fiscal 2005, the Company completed the automation of its cutting facilitiesusing radio frequency to track production from receipt of roll goods to sewing.

 

TheCompany will continue expanding its internet technology and, to date, hasestablished three new websites.  Two ofthe websites were created for large customers to track such information as theirinventory position, order status and invoicing. The third website was developedfor the Company’s sales force to check order status, request pricing informationand submit call reports.  The Company hasinstalled hardware and contracted satellite communications service between itsoffshore and domestic locations.

 

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TheCompany’s advance order entry, allocation and customer service systems tie intoits warehouse management system using radio frequency and its customers’ ARS(Automatic Replenishment System) and EDI (Electronic Data Interchange) systems.

 

TheCompany’s planning and scheduling system has allowed it to optimize availablemanufacturing resources (textile and garment) which has helped to reduce leadtimes and inventories and has improved the timeliness of deliveries. The systemis driven by the Company’s in-house forecasting system as well as by customerorders.  Cottontops’ garment dye businesshas been integrated into the Company’s Information Technology system.

 

The Company upgraded its security level, as part ofthe “High Availability” project, on all AS/400 equipment, which should providethe Company with significantly more protection against external and internalsecurity threats.

 

## ***Item 3. Legal Proceedings.***

## ** **

The Company is a party tovarious litigation matters incidental to the conduct of its business.  The Company does not believe that the outcomeof any of the matters in which it is currently involved will have a materialadverse effect on the financial condition, liquidity, business or results ofoperations of the Company.  See *Item 1. “Business**3⁄4EnvironmentalMatters,”* above.

 

***Item4.  Submission of Matters to a Vote ofSecurity Holders.***

 

# None.

#  

**PART II**

 

***Item5.  Market for Registrant’s Common Equity,Related Stockholder Matters and Issuer Purchases of Equity Securities.***

 

There is no establishedpublic trading market for any of the Company’s common equity securities.  At April 15, 2005 there were 36 recordholders of the Class A Common and 36 record holders of the Class BCommon.  All of Anvil’s issued and outstanding capital stock is owned by Holdings.

 

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#### ***Item 6.  Selected Financial Data.***

#### *** ***

**SELECTED HISTORICAL FINANCIALDATA**

**(In Thousands, Except Per ShareData)**

 

Set forth below are the selected historical financial data of the Companyas of the dates and for the periods shown. The selected historical statement of operations data of the Company forfiscal years 2002 through 2004 and the balance sheet data for fiscal years 2003and 2004  have been derived from theconsolidated financial statements of the Company which have been audited byDeloitte & Touche LLP, whose report thereon appears under “Item 8.Financial Statements and Supplementary Data.” The selected historical statement of operations data of the Company forfiscal years 2000 and 2001 and the balance sheet data for fiscal years 2000 through2002 have been derived from audited consolidated financial statements which arenot included herein.  Holdings has noindependent operations apart from its wholly owned subsidiary, Anvil, and itssole asset is the capital stock of Anvil. The selected consolidated financialdata should be read in conjunction with “Management’s Discussion and Analysisof Financial Condition and Results of Operations” and with the consolidatedfinancial statements and related notes thereto included elsewhere herein.

 
| ** **                                                                            | ** ** | **Fiscal  Year Ended** | ** ** |
|---------------------------------------------------------------------------------------|------------|------------------------|------------|
| ** **                                                                            | ** ** | **February 3,**   | ** ** | **February 2,** | ** ** | **February 1,** | ** ** | **January 31,** | ** ** | **January 29,** | ** ** |
| ** **                                                                            | ** ** | **2001**               | ** ** | **2002** | ** ** | **2003** | ** ** | **2004** | ** ** | **2005** | ** ** |
| ** **                                                                            | ** ** | **[Fiscal  2000]**     | ** ** | **[Fiscal  2001]** | ** ** | **[Fiscal  2002]** | ** ** | **[Fiscal  2003]** | ** ** | **[Fiscal  2004]** | ** ** |
| ** **                                                                            | ** ** | **(53  Weeks)**        | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Statement Of Operations Data:**                                                     |       |                   |       |   |   |   |   |   |   |   |   |
|                                                                                  |       |                   |       |   |   |   |   |   |   |   |   |
| Net sales                                                                             |       | $                      | 216,537    |   | $ | 199,661 |   | $ | 224,329 |   | $ | 191,222 |   | $ | 192,358 |   |
| Cost of goods sold                                                                    |       | 153,805                |       | 152,557 |   | 168,168 |   | 163,267 |   | 153,869 |   |
|                                                                                  |       |                   |       |   |   |   |   |   |   |   |   |
| Gross profit                                                                          |       | 62,732                 |       | 47,104 |   | 56,161 |   | 27,955 |   | 38,489 |   |
| Selling, general and administrative  expenses                                         |       | 23,939                 |       | 23,520 |   | 24,117 |   | 24,444 |   | 24,927 |   |
| Amortization of intangible assets                                                     |       | 1,306                  |       | 1,338 |   | 619 |   | 313 |   | 286 |   |
| Goodwill impairment                                                                   |       | —                 |       | — |   | — |   | 19,416 |   | — |   |
| Operating income (loss)                                                               |       | 37,487                 |       | 22,246 |   | 31,425 |   | (16,218 | ) | 13,276 |   |
| Other expense:                                                                        |       |                   |       |   |   |   |   |   |   |   |   |
| Interest expense(1)                                                                   |       | 14,903                 |       | 14,636 |   | 14,165 |   | 14,431 |   | 21,627 |   |
| Other expense - net,  principally amortization of debt expense                        |       | 1,189                  |       | 759 |   | 534 |   | 972 |   | 1,081 |   |
| Income (loss) before provision  (benefit) for income taxes                            |       | 21,395                 |       | 6,851 |   | 16,726 |   | (31,621 | ) | (9,432 | ) |
| Provision (benefit) for income  taxes                                                 |       | 9,050                  |       | 2,404 |   | 6,089 |   | (13,297 | ) | (803 | ) |
| Net income (loss)                                                                     |       | $                      | 12,345     |   | $ | 4,447 |   | $ | 10,637 |   | $ | (18,324 | ) | $ | (8,629 | ) |
| Pro forma net income (loss)  assuming retroactive application of SFAS No. 150(1) |       | $                      | 6,169      |   | $ | (663 | ) | $ | 7,163 |   | $ | (24,415 | ) | $ | (8,629 | ) |
|                                                                                  |       |                   |       |   |   |   |   |   |   |   |   |
| EBITDA(2)                                                                             |       | $                      | 45,340     |   | $ | 30,652 |   | $ | 41,663 |   | $ | 11,772 |   | $ | 20,141 |   |
|                                                                                  |       |                   |       |   |   |   |   |   |   |   |   |
| **Balance Sheet Data (at end of  period):**                                           |       |                   |       |   |   |   |   |   |   |   |   |
| Cash and cash equivalents                                                             |       | $                      | 6,838      |   | $ | 11,931 |   | $ | 9,933 |   | $ | 1,451 |   | $ | 4,682 |   |
| Total assets                                                                          |       | 153,324                |       | 145,725 |   | 148,850 |   | 131,340 |   | 126,132 |   |
| Total debt (including  preferred Stock in fiscal 2004)  (1)                      |       | 135,236                |       | 133,281 |   | 131,326 |   | 146,057 |   | 195,483 |   |
| Preferred stock (liquidation  value)                                                  |       | 48,486                 |       | 51,436 |   | 43,033 |   | 49,124 |   | — |   |
| Total stockholders’ deficiency                                                   |       | (67,739                | )          | (68,402 | ) | (61,236 | ) | (85,639 | ) | (94,273 | ) |

 

9

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**Earnings (loss) per share data:**

 
| ** **                                                                                 | ** ** | **Fiscal  Year Ended** | ** ** |
|--------------------------------------------------------------------------------------------|------------|------------------------|------------|
| ** **                                                                                 | ** ** | **February 3,**   | ** ** | **February 2,** | ** ** | **February 1,** | ** ** | **January 31,** | ** ** | **January 29,** | ** ** |
| ** **                                                                                 | ** ** | **2001**               | ** ** | **2002** | ** ** | **2003** | ** ** | **2004** | ** ** | **2005** | ** ** |
|                                                                                       |       |                   |       |   |   |   |   |   |   |   |   |
| Basic and Diluted Income  (Loss) Per Common Share: (3)                                     |       |                   |       |   |   |   |   |   |   |   |   |
| Class A Common Stock                                                                  |       | $                      | 19.14      |   | $ | 19.34 |   | $ | 23.90 |   | $ | 18.64 |   | $ | 25.94 |   |
| Class B Common Stock                                                                  |       | $                      | 0.17       |   | $ | (1.75 | ) | $ | 0.06 |   | $ | (8.27 | ) | $ | (4.48 | ) |
| Weighted average shares used  in computation of basic and diluted income (loss) per share: |       |                   |       |   |   |   |   |   |   |   |   |
| Class A Common                                                                        |       | 290,000                |       | 290,000 |   | 290,000 |   | 290,000 |   | 290,000 |   |
| Class B Common                                                                        |       | 3,590,000              |       | 3,590,000 |   | 3,592,000 |   | 3,604,000 |   | 3,602,000 |   |

 

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(1)  Pursuant to SFAS No. 150, effective atthe beginning of fiscal 2004, the Company began classifying its mandatorilyredeemable preferred stock (the “Preferred Stock”) as a liability and therelated dividends and accretion as interest expense.  Prior thereto, the Company classifiedthe Preferred Stock on its balance sheet between liabilities and equity and therelated dividends and accretion as a reduction in equity not included as anelement of interest expense.  Restatement of prior periods is not permittedwhen applying SFAS No. 150.  The proforma amounts represent what the reported net income would have been if SFAS No. 150had been in effect for all the periods presented; i.e., reporting the dividendsand accretion on the Preferred Stock as interest expense as well as includinggains on the purchase of the Preferred Stock as an element of the Company’sresults of operations.  There was noeffect on the Company’s report earnings (loss) per common share as the resultof the adoption of SFAS No 150.

 

(2) EBITDA is defined as operating income plus depreciation and amortization andcertain other non-cash charges.  EBITDAshould not be considered in isolation or as a substitute for net income, cashflows from operating activities and other income or cash flow statement data,or as a measure of profitability or liquidity. Management believes, however,that EBITDA represents a useful measure of assessing the performance of theCompany’s ongoing operating activities as it reflects earnings trends of theCompany.  In addition, Management believesEBITDA is a widely accepted financial indicator of a company’s ability toservice and/or incur indebtedness. EBITDA does not take into account the Company’s debt servicerequirements and other commitments and, accordingly, is not necessarily indicativeof amounts that may be available for discretionary uses. The EBITDA measurepresented herein may not be comparable to other similarly titled measures ofother companies.  EBITDA has been computed as follows:

 
| ** **                               | ** ** | **Fiscal  2000** | ** ** | **Fiscal  2001** | ** ** | **Fiscal  2002** | ** ** | **Fiscal  2003** | ** ** | **Fiscal  2004** | ** ** |
|------------------------------------------|------------|------------------|------------|------------------|------------|------------------|------------|------------------|------------|------------------|------------|
| Net income (loss)                        |       | $                | 12,345     |             | $          | 4,447            |       | $                | 10,637     |             | $          | (18,324 | ) | $ | (8,629 | ) |
| Add back:                                |       |             |       |             |       |             |       |             |       |             |       |
| Provision (benefit) for income  taxes    |       | 9,050            |       | 2,404            |       | 6,089            |       | (13,297          | )          | (803             | )          |
| Interest expense                         |       | 14,903           |       | 14,636           |       | 14,165           |       | 14,431           |       | 21,627           |       |
| Other expenses (non-operating)           |       | 1,189            |       | 759              |       | 534              |       | 972              |       | 1,081            |       |
| Operating income (loss)                  |       | 37,487           |       | 22,246           |       | 31,425           |       | (16,218          | )          | 13,276           |       |
| Add: Depreciation of fixed  assets       |       | 6,547            |       | 7,068            |       | 9,619            |       | 8,261            |       | 6,579            |       |
|  Amortization of intangible  assets |       | 1,306            |       | 1,338            |       | 619              |       | 313              |       | 286              |       |
|  Goodwill impairment                |       | —           |       | —           |       | —           |       | 19,416           |       | —           |       |
| EBITDA                                   |       | $                | 45,340     |             | $          | 30,652           |       | $                | 41,663     |             | $          | 11,772 |   | $ | 20,141 |   |

 

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(3)  See Note 11 to Financial Statements, includedelsewhere herein.

 

10

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***Item 7.  Management’s Discussionand Analysis of Financial Condition and******Results of Operations***

 

The following discussion provides information with respect to the resultsof operations of the Company for each of the three fiscal years in the periodended January 29, 2005.  Thefollowing information should be read in conjunction with *Item 6. “SelectedFinancial Data”* and the consolidated financial statements and thenotes thereto included elsewhere herein.

 

**Critical Accounting Policies AndEstimates**

** **

The Company’s significantaccounting policies are more fully described in Note 3 to the consolidatedfinancial statements, included elsewhere herein.  The application of accounting policiesrequire judgement by Management in selecting the appropriate assumptions forcalculating financial estimates.  Bytheir nature, these judgements are subject to an inherent degree of uncertaintyand are based upon historical experience*,*trends in theindustry, and information available from outside sources. The preparation of financial statements inconformity with accounting principles generally accepted in the United Statesof America, requires Management to make certain estimates and assumptions thataffect the reported amounts of assets and liabilities and disclosure ofcontingent assets and liabilities at the date of the financial statements andthe reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.  The Company’s significant critical accountingpolicies include:

 

***Revenue Recognition and Allowances—***Revenue is recognized at the time merchandise isshipped and title has passed.  Allowancesfor sales returns, discounts and for estimated uncollectible accounts are provided when sales are recorded, basedupon historical experience and current trends, and periodically updated, asappropriate.  While the actual amounts havebeen within the range of the Company’s projections, there can be no assurancesthat this will continue in the future.

 

***Inventories—***Inventoriesare stated at the lower of cost or market, with cost being determined by thefirst-in, first-out (FIFO) method.  Ifrequired, based upon Management’s judgement, reserves for slow movinginventory and markdowns of inventory which has declined significantly in valueare provided.  Although lower in fiscal2004 than fiscal 2003, the Company’s markdowns reflect an increase during thelast three fiscal years as the result of industry-wide lower selling prices forbasic goods. While such markdowns have been within the range of Management’s projections,the Company cannot guarantee that it will continue to experience the same levelof markdowns, or that markdowns taken will be adequately representative of anyfuture declines in selling prices.

 

***Evaluation of Long-Lived Assets—***Long-lived assets are assessed for recoverabilitywhenever events or changes in circumstances indicate that an asset may havebeen impaired.  In evaluating an assetfor recoverability, the Company estimates the future cash flows expected toresult from the use of the asset and eventual disposition.  If the sum of the expected future cash flows(undiscounted and without interest charges) is less than the carrying amount ofthe asset, an impairment loss, equal to the excess of the carrying amount overthe fair value of the asset, is recognized. Pursuant to Statement of Financial Accounting Standards (“SFAS”) No. 144,through January 29, 2005, there were no adjustments to the carrying amountof long-lived assets resulting from the Company’s evaluation for any periodspresented in the accompanying financial statements.

 

11

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**Results of Operations**

** **

The Company’sresults of operations are affected by numerous factors, including competition,general economic conditions, raw material costs, mix of products sold and plantutilization.  Certain activewear productsof the type manufactured by the Company are generally available from multiplesources and the Company’s customers often purchase products from more than onesource. To remain competitive, the Company reviews and adjusts its pricingstructure as necessary in response to price changes.  The Company generally does not lead itscompetitors in pricing, but instead modifies its prices to the extent necessaryto remain competitive with those set by its competitors.

 

The gross profitmargins of the Company’s products vary significantly.  Accordingly, the Company’s overall grossprofit margin is affected by its product mix. In addition, plant utilization levels are important to profitability dueto the substantial fixed costs of the Company’s textile operations.  The largest component of the Company’s costof goods sold is the cost of yarn.  TheCompany obtains substantially all of its yarn from a number of domestic yarnsuppliers, generally placing orders based upon Management’s expectationsregarding future yarn prices and levels of supply.  Yarn prices fluctuate from time to timeprincipally as a result of competitive conditions in the yarn market and thecost of raw cotton.  The Company adjuststhe timing and size of its purchase orders for yarn in an effort to minimizefluctuations in its raw material costs resulting from changes in yarn prices.  Management is continually reviewing andadjusting the Company’s purchase commitments to take advantage of pricedecreases and ameliorate the impact of price increases.

 

The following table sets forth, for each of the periods indicated,certain statement of operations data, expressed as a percentage of net sales,for the Company for each of the three fiscal years in the period ended January 29,2005:

 
| ** **                                    | ** ** | **Year Ended**             | ** ** |
|-----------------------------------------------|------------|----------------------------|------------|
| ** **                                    | ** ** | **February 1,  2003** | ** ** | **January 31,  2004** | ** ** | **January 29,  2005** | ** ** |
| ** **                                    | ** ** | **[Fiscal  2002]**         | ** ** | **[Fiscal  2003]** | ** ** | **[Fiscal  2004]** | ** ** |
|                                          |       |                       |       |   |   |   |   |
| **Statement of Operations Data:**             |       |                       |       |   |   |   |   |
| Net sales                                     |       | 100.0                      | %          | 100.0 | % | 100.0 | % |
| Cost of goods sold                            |       | 75.0                       |       | 85.4 |   | 80.0 |   |
| Gross profit                                  |       | 25.0                       |       | 14.6 |   | 20.0 |   |
| Selling, general and  administrative expenses |       | 10.8                       |       | 12.8 |   | 13.0 |   |
| Interest expense†                        |       | 6.3                        |       | 7.5 |   | 11.2 |   |

 

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† Includes preferreddividends of $6,904,000 in fiscal 2004 as a result of adopting SFAS No. 150.  The prior fiscal years do not include suchdividends as interest expense.  Interestexpense on borrowings (excluding Preferred Stock)  for fiscal 2004 is  7.7% of net sales.

 

**Other Data:**

 
| EBITDA (1)              |   | $    | 41,663,000 |   | $ | 11,772,000 |   | $ | 20,141,000 |   |
|-------------------------|--------|------|------------|--------|---|------------|--------|---|------------|--------|
| Percentage of net sales |   | 15.4 | %          | 6.2    | % | 10.5       | %      |

 

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(1)EBITDAis defined as operating income plus depreciation and amortization and certainother non-cash charges.  EBITDA shouldnot be considered in isolation or as a substitute for net income, cash flowsfrom operating activities and other income or cash flow statement data, or as ameasure of profitability or liquidity. Management believes, however, thatEBITDA represents a useful measure of assessing the performance of the Company’songoing operating activities as it reflects earnings trends of theCompany.  In addition, Managementbelieves EBITDA is a widely accepted financial indicator of a company’s abilityto service and/or incur indebtedness. EBITDA does not take into account the Company’s debt servicerequirements and other commitments and, accordingly, is not necessarilyindicative of amounts that may be available for discretionary uses. The EBITDAmeasure presented herein may not be comparable to other similarly titledmeasures of other companies.  See “*Item 6—Selected Financial Data,”* above for the computationof EBITDA.

 

12

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**FiscalYear Ended January 29, 2005 Compared to Fiscal Year Ended January 31,2004**

 

*Net sales*for the fiscal year ended January 29, 2005 amounted to$192,358,000 as compared to $191,222,000 for the prior fiscal year, an increaseof $1,136,000.  Total units sold wereapproximately 3% less than the prior fiscal year, while the average sellingprice increased by approximately 3.7% for the same period.  The decrease in units sold is the result ofthe Company’s decision to reduce emphasis on sales of basic white T-Shirts,primarily during the second fiscal quarter. This change is also the primary reason for the increase in averageselling prices.

 

*Grossprofit*for the fiscal year ended January 29, 2005 was$38,489,000 as compared to $27,955,000 in the prior fiscal year, an increase of$10,534,000 (37.7%).  Gross marginimproved from 14.6% to 20.0% primarily as the result of the following factors,in the approximate amounts indicated: (i) lower costs related to textileconversion, cutting and sewing efficiencies ($12,500,000); (ii) favorablechanges in selling prices ($1,500,000); and (iii) fewer markdowns($2,000,000); partially offset by higher yarn prices ($5,500,000).

 

*Selling,general and administrative expenses* (including distributionexpense) for the fiscal year ended January 29, 2005 increased $483,000 (2.0%),from $24,444,000 in the prior fiscal year to $24,927,000 in the fiscal yearended January 29, 2005.  As apercentage of sales, these expenses were approximately 13% in each fiscal year. Incentive compensation for both sellingand administrative personnel was approximately $500,000 greater in the currentfiscal year than the prior fiscal year, due to the improved operating profit; professionalfees increased approximately $250,000; and the Company experienced an increasein expenses of $200,000 relating to its European distribution operation.  These increases were partially offset byreduced advertising expenses and lower distribution costs due to fewer unitsbeing shipped.

 

*Interestexpense* increased $292,000 (2.0%) in the current fiscal yearended January 29, 2005  as comparedto the prior fiscal year.  The increaseis the result of higher interest rates during the current fiscal year and higheraverage borrowings on the Company’s revolving credit facility.  Also, pursuant to SFAS No. 150, “*Accounting for Certain Financial Instruments with Characteristics ofBoth Liabilities and Equity*” (see Note 13 to the financialstatements), in the current fiscal year, the Company began classifyingdividends and accretion on its Redeemable Preferred Stock ($6,904,000 in thecurrent fiscal year) as interest expense.

 

*Benefitfor income taxes* reflects a significantly lower effective taxrate than in previous fiscal years because the aforementioned preferreddividends of $6,904,000 for the fiscal year ended January 29, 2005,although now classified as interest expense for accounting presentations,remain non-deductible for Federal and state tax purposes.

 

**Analysisof Cash Flow Data**

 

*Cash provided by operating activities* was $14,507,000 in the current fiscal year,while in the prior fiscal year, the Company used $19,451,000 in its operatingactivities.  The improvement of nearly $34,000,000is primarily the result of (i)  an increase in operating earnings ofnearly $10,000,000 (exclusive of the fiscal 2003 goodwill impairment charge); (ii) adecrease in inventories of approximately $2,300,000 for the current fiscal year as compared to an increase ininventories of approximately $9,000,000 during the prior fiscal year; (iii) a net change in prepaid andrefundable income taxes of $7,500,000; and (iv) other changes in workingcapital due primarily to timing of receipts and disbursements.

 

13

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*Cash used in investing activities* was approximately $1,000,000 more in the fiscal year ended January 29, 2005 compared tothe prior fiscal year,representing the Company’s net investments in capital equipment.

 

*Cash used in financing activities* was $6,992,000 in the fiscal year ended January 29, 2005.  This compares to cash provided by financingactivities of $14,341,000 in the prior fiscal year.  The Company completedrepayment of its Term Loan in April 2004, and accordingly expended $1,759,000less in Term Loan payments in the current fiscal year than the prior fiscalyear.  During the current fiscal year theCompany reduced its borrowings on its revolving credit line by $6,406,000,whereas there was a net increase in such borrowings of $16,686,000 in the priorfiscal year.

 

**FiscalYear Ended January 31, 2004 Compared to Fiscal Year Ended February 1,2003**

 

*Net sales*for the fiscal year ended January 31, 2004 amounted to $191,222,000as compared to $224,329,000 for the prior fiscal year, a decrease of $33,107,000or approximately 14.8%.  Total units soldwere approximately 4% less than the prior fiscal year, while the averageselling price declined by nearly 11% for the same period.

 

*Grossprofit*for the fiscal year ended January 31, 2004amounted to $27,955,000 as compared to $56,161,000 for the fiscal year ended February 1,2003.  The decline of $28,206,000 (50.2%)is the result of the following factors in the amounts indicated:  (i)  lower selling prices—$23,400,000(including approximately $2,000,000 from an unfavorable change in productmix);  (ii)  higher yarnprices—$5,000,000; and (iii) decline in sales volume—$2,400,000.  The foregoing factors were partially offsetby higher expenses in the fiscal year ended February 1, 2003 relating to relocation,consolidation and integration of the Company’s textile manufacturingfacilities.

 

*Selling,general and administrative expenses* (including distributionexpense) for the fiscal year ended January 31, 2004 increased $327,000 (1.4%)as compared to the prior fiscal year.  Asa percentage of sales, these expenses increased to 12.8% in the fiscal yearended January 31, 2004 from 10.8% in the fiscal year ended February 1,2003.  Advertising expense for the fiscalyear ended January 31, 2004 was approximately $1,000,000 greater than theprior fiscal year.  However, thisincrease was partially offset by reduced incentive compensation related to bothselling and administrative personnel.

 

*Interestexpense* increased $266,000 (1.9%) in the current fiscal yearended January 31, 2004 compared to the prior fiscal year.  The increase is the result of the Company’sneed for additional borrowing under its Revolving Credit Facility during the fiscalyear ended January 31, 2004, while lower borrowings were required duringthe prior fiscal year.

 

*Amortizationof intangible assets* declined by $306,000 because by the endof the first fiscal quarter of the fiscal year ended January 31, 2004, theCompany had fully amortized a covenant not to compete which had been valued at$1,000,000 and was being amortized over a three year period.

 

As described in Note 6 tothe financial statements included elsewhere herein, the Company wrote off  $19,416,000 of goodwill in the fiscal yearended January 31, 2004.

 

**Liquidity and Capital Resources**

** **

The Company hashistorically utilized funds generated from operations and borrowings under itscredit agreements to meet working capital and capital expenditure requirements.The Company made capital

 

14

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expenditures of  $3,708,000 and $4,333,000 in the fiscal yearsended January 31, 2004 and January 29, 2005, respectively.  Management estimates that capitalexpenditures in the next two fiscal years will aggregate approximately$6,000,000 annually, exclusive of the planned expansion of its textile facilityin Honduras.  Historically, the Company’smajor capital expenditures have related to the acquisition of machinery andequipment and management information systems hardware and software.

 

The Company’s principalworking capital requirements are financing accounts receivable andinventories.  The Company also expended$13,201,000 through the fiscal year ended February 1, 2003 to acquire aportion of its Redeemable Preferred Stock.

 

At January 29, 2005the Company had net working capital of $55,766,000 comprised of $4,682,000 incash and cash equivalents, $28,366,000 of accounts receivable, $50,206,000 ofinventories and $7,517,000 of other current assets, less revolving creditborrowings of $10,280,000 and accounts payable and other current liabilities of$24,725,000.

 

Anvil’sLoan and Security Agreement, as amended on May 20, 2004 (the “LoanAgreement”), provides for a maximum revolving credit facility of $40,000,000(the “Revolving Credit Facility”).  TheLoan Agreement, as amended, expires January 11, 2007.  The original Loan Agreement included a termloan in the initial principal amount of $11,725,000 repayable in quarterlyprincipal installments of $586,000, the last of which was made in April 2004.  Amounts due under the Loan Agreement aresecured by substantially all the inventory, receivables, intangible andtangible property, plant and equipment of Anvil.  Holdings and Cottontops guaranty amounts dueunder the Loan Agreement.  Interest onthe Revolving Credit Facility is at prime plus one-quarter percent or LIBORplus 2-1/4%, at the Company’s option.  AtJanuary 29, 2005, there was $10,280,000 outstanding under the RevolvingCredit Facility bearing interest at 5.5%. While on the same date, the Company had cash on hand of $4,682,000, itshould be noted that both the Company’s Revolving Credit borrowings and itscash position are subject to daily fluctuations based on numerous factors suchas collections, operating expenses and capital expenditures.

 

TheSenior Notes are in the principal amount of $130,000,000, bearing interest at10-7/8%, and are due on March 15, 2007. The Senior Note Indenture restricts, among other things, Anvil’sand certain of its subsidiaries’ ability to pay dividends or make certain other“restricted” payments (except to the extent, among other things, the restrictedpayments are less than 50% of the Consolidated Net Income of Anvil [as definedtherein]), to incur additional indebtedness, to encumber or sell assets, toenter into transactions with affiliates, to enter into certain guarantees ofindebtedness, to make certain investments, to merge or consolidate with anyother entity and to transfer or lease all or substantially all of their assets.

 

Holdings has noindependent operations with its sole asset being the capital stock of Anvil,which stock is pledged to secure the obligations under the Loan Agreement.  As a holding company, Holdings’ ability topay cash dividends on the Senior Preferred Stock or, if issued, principal andinterest on the debentures into which the Senior Preferred Stock is convertible(the “Exchange Debentures”) is dependent upon the earnings of Anvil and itssubsidiaries and their ability to declare dividends or make other intercompanytransfers to Holdings.  Under the termsof the Senior Note Indenture, Anvil may incur certain indebtedness pursuant toagreements that may restrict its ability to pay such dividends or otherintercompany transfers necessary to service Holdings’ obligations, includingits obligations under the terms of the Senior Preferred Stock and, if issued,the Exchange Debentures. Neither the Senior Note Indenture nor the LoanAgreement restricts Anvil’s subsidiaries from declaring dividends or makingother intercompany transfers to Anvil.

 

15

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The Company’s ability tosatisfy its debt obligations, including, in the case of Anvil, to pay principaland interest on the Senior Notes and, in the case of Holdings, to pay principaland interest on the Exchange Debentures, if issued, to perform its obligationsunder its guarantees and to pay cash dividends on the Senior Preferred Stock,will depend upon the Company’s future operating performance, which will beaffected by prevailing economic conditions and financial, business and otherfactors, certain of which are beyond its control, as well as the availabilityof revolving credit borrowings under the Loan Agreement.  However, the Company may be required torefinance a portion of the principal of the Senior Notes and, if issued, theExchange Debentures prior to their maturity and, if the Company is unable toservice its indebtedness, it will be forced to take actions such as reducing ordelaying capital expenditures, selling assets, restructuring or refinancing itsindebtedness, or seeking additional equity capital.  There can be no assurance that if any ofthese remedies are necessary, they could be effected on satisfactory terms, ifat all.

 

**Contractual Obligations andCommitments**

** **

A summary of theCompany’s contractual obligations and commitments as of January 29, 2005is as follows:

 
| ** **                  | ** ** | **Less Than** | ** ** | ** **    | ** **  | ** **    | ** ** | ** ** | ** ** |
|-----------------------------|------------|---------------|------------|---------------|-------------|---------------|------------|------------|------------|
| **Contractual Obligations** | ** ** | **1 Year**    | ** ** | **1-3 Years** | ** **  | **4-5 Years** | ** ** | **Total**  | ** ** |
|                        |       |          |       |          |        |          |       |       |       |
| Long-term debt              |       |          |       | $             | 130,000,000 |          |       |       | $          | 130,000,000 |   |
| Operating leases            |       | $             | 2,787,000  |          | 3,310,000   |          | $          | 352,000    |       | 6,449,000 |   |
| Redeemable Preferred Stock  |       |          |       |          |        | 96,197,000    |       | 96,197,000 |       |
| Total                       |       | $             | 2,787,000  |          | $           | 133,310,000   |       | $          | 96,549,000 |   | $ | 232,646,000 |   |

###  

The Company believesthat, based upon current and anticipated levels of operations, funds generatedfrom operations, together with other available sources of liquidity, includingborrowings under the Loan Agreement, will be sufficient over the next twelvemonths for the Company to fund its normal working capital requirements andsatisfy its debt service requirements.

 

**Seasonality**

 

The Company’s business isnot significantly seasonal as it manufactures and sells a wide variety ofactivewear products that may be worn throughout the year.

 

**Effect ofInflation**

 

Inflation generallyaffects the Company by increasing the interest expense of floating rateindebtedness and by increasing the cost of labor, equipment and rawmaterials.  The Company does not believethat inflation has had any material effect on the Company’s business during theperiods discussed herein.

 

**RecentAccounting Pronouncements**

 

In June 2002,the Financial Accounting Standards Board (“FASB”) issued SFAS No. 146, *Accounting for Costs Associated with Exit or Disposal Activities*which will supersede Emerging Issues Task Force Consensus No. 94-3, *Liability Recognition for Certain Employee Termination Benefits and OtherCosts to Exit an Activity (including Certain Costs Incurred in aRestructuring).*  SFAS No. 146will affect the timing of the recognition of costs associated with an exit ordisposal plan by requiring them to be recognized when incurred rather than atthe date of a commitment to an exit or disposal plan.

 

16

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SFAS No. 146is to be applied prospectively to exit or disposal activities initiated after December 31,2002.  The adoption of SFAS No. 146is not expected to have a material impact on the Company’s results ofoperations or financial position.

 

In November 2004,the FASB issued SFAS No. 151, *Inventory Costs*which amends Accounting Research Bulletin No. 43, Chapter 4, “InventoryPricing,” to clarify the accounting for abnormal amounts of idle facilityexpense, freight, handling costs, and wasted material.  This Statement requires that those items berecognized as current-period charges and requires that allocation of fixedproduction overheads to the cost of conversion be based on the normal capacityof the production facilities. This statement is effective for fiscal yearsbeginning after June 15, 2005. The adoption of SFAS No. 151 is notexpected to have a material impact on the Company’s results of operations orfinancial position.

 

**Forward-LookingInformation**

 

The Company’s results ofoperations have been significantly affected by industry-wide fluctuations inselling prices.  Although average sellingprices increased slightly in fiscal 2004, overall, such prices have declinedsignificantly over the last several years.  Management continues its efforts to reducecosts and improve manufacturing efficiencies. Although the Company believes that prices have stabilized, Managementcannot predict the future effects of numerous economic factors such as GATTimplementation and the impact of a possible influx of textile products fromChina.  Accordingly, Management is continuallyseeking to diversify and expand the Company’s customer base and also to placeincreased emphasis on the sale of goods sourced as finished products.  While no assurances can be given, Managementbelieves that these initiatives will enable the Company to meet the challengesof future price fluctuations, if any.

 

The Company isincluding the following cautionary statement in this Form 10-K to makeapplicable and take advantage of the safe harbor provisions of the PrivateSecurities Litigation Reform Act of 1995 for any forward-looking statementsmade by, or on behalf of, the Company. Forward-looking statements include statements concerning plans,objectives, goals, strategies, future events or performance, and underlyingassumptions and other statements which are other than statements of historicalfacts.  From time to time, the Companymay publish or otherwise make available forward-looking statements of thisnature.  All such subsequentforward-looking statements, whether written or oral and whether made by or onbehalf of the Company, are also expressly qualified by these cautionary statements.  Certain statements contained herein areforward-looking statements and accordingly involve risks and uncertaintieswhich could cause actual results or outcomes to differ materially from thoseexpressed in the forward-looking statements. The forward-looking statements contained herein are based on variousassumptions, many of which are based, in turn, upon further assumptions.  The Company’s expectations, beliefs andprojections are expressed in good faith and are believed by the Company to havea reasonable basis, including without limitation, Management’s examination ofhistorical operating trends, data contained in the Company’s records and otherdata available from third parties, but there can be no assurance thatManagement’s expectation, beliefs or projections will result or be achieved oraccomplished.  In addition to the otherfactors and matters discussed elsewhere herein, the following factors areimportant factors that, in the view of the Company, could cause actual resultsto differ materially from those discussed in the forward-looking statements:

 

17

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| 1.  |   | Changes in  economic conditions, in particular those which affect the activewear market.                                                                         |
|-----|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 2.  |   | Changes in the  availability and/or price of yarn, in particular, if increases in the price  of yarn are not passed along to the Company’s customers.       |
| 3.  |   | Changes in  senior management or control of the Company.                                                                                                         |
| 4.  |   | Inability to  obtain new customers or retain existing ones.                                                                                                      |
| 5.  |   | Significant  changes in competitive factors, including product pricing conditions,  affecting the Company.                                                       |
| 6.  |   | Governmental/regulatory  actions and initiatives, including, those affecting financings.                                                                         |
| 7.  |   | Significant  changes from expectations in actual capital expenditures and operating  expenses.                                                                   |
| 8.  |   | Occurrences  affecting the Company’s ability to obtain funds from operations, debt or  equity to finance needed capital expenditures and other investments. |
| 9.  |   | Significant  changes in rates of interest, inflation or taxes.                                                                                                   |
| 10. |   | Significant  changes in the Company’s relationship with its employees and the potential  adverse effects if labor disputes or grievances were to occur.     |
| 11. |   | Changes in  accounting principles and/or the application of such principles to the  Company.                                                                     |

 

Theforegoing factors could affect the Company’s actual results and could cause theCompany’s actual results during fiscal 2005 and beyond to be materiallydifferent from any anticipated results expressed in any forward-lookingstatement made by or on behalf of the Company. The Company disclaims any obligation to update any forward-lookingstatements to reflect events or other circumstances after the date hereof.

 

#### ***Item 7A.  Quantitative and Qualitative DisclosuresAbout Market Risk.***

#### *** ***

The Company believes thatits potential exposure to market risk is not material.

 

***Item 8.  Financial Statements andSupplementary Data.***

 

See page F-1, Index to Financial Statements, included elsewhereherein.

 

***Item 9.  Changes in andDisagreements with Accountants on Accounting and Financial Disclosure.***

 

None.

 

# ***Item 9A.  Controls and Procedures.***

#  

The Company’s ChiefExecutive Officer and Chief Financial Officer have evaluated the Company’sdisclosure controls and procedures as of January 29, 2005 and concludedthat these controls and procedures are effective.

 

There have been nosignificant changes in internal controls or in other factors that couldsignificantly affect these controls subsequent to January 29, 2005.

 

# ***Item9B.  Other Information.***

#  

None.

 

18

----

 

**PART III**

 

***Item 10.  Directors and ExecutiveOfficers of the Registrant.***

 

With respect to the directors of the Company, the information required byItem 10 of Form 10-K appears on pages 1 through 4 of the InformationStatement, and is incorporated herein by reference.

 

Pursuant to General Instruction G to Form 10-K, the followinginformation is furnished concerning the executive officers and key employees ofthe Company.

 

**EXECUTIVEOFFICERS AND**

**CERTAIN KEY EMPLOYEES OF ANVIL**

 

The following setsforth certain information with respect to the executive officers and certainkey employees of Anvil.

 
| **Name**           | ** ** | **Age(1)** | ** ** | **Position**                                                                                      |   |
|--------------------|------------|------------|------------|---------------------------------------------------------------------------------------------------|--------|
|               |       |       |       |                                                                                              |   |
| Bernard Geller     |       | 71         |       | Chief Executive Officer, Chairman of the Board                                                    |   |
|               |       |       |       |                                                                                              |   |
| Anthony Corsano    |       | 45         |       | President and  Chief Operating Officer                                                            |   |
|               |       |       |       |                                                                                              |   |
| Jacob Hollander    |       | 63         |       | Executive Vice  President, Chief Administrative Officer,  Secretary, General Counsel and Director |   |
|               |       |       |       |                                                                                              |   |
| William H.  Turner |       | 57         |       | Executive Vice  President of Manufacturing                                                        |   |
|               |       |       |       |                                                                                              |   |
| Frank Ferramosca   |       | 50         |       | Executive Vice President of Finance, Chief Financial Officer                                      |   |

###  

----

(1)          Allages are as of December 31, 2004.

 

*BernardGeller* has served as the Chief Executive Officer of Anvil,President of Holdings, and has been a Director of Anvil and Holdings since February 1995.  Since March 1997, Mr. Geller hasserved as Chairman of the Board of Anvil and Holdings and from July 1997to February 28, 2001,  as Presidentof Anvil.

 

*AnthonyCorsano*hasserved as President and Chief Operating Officer of Anvil since February 28,2001.  Prior thereto, he served asExecutive Vice President of Sales and Marketing of Anvil for more than fiveyears.

 

*JacobHollander* hasserved as Executive Vice President, Chief Administrative Officer, Secretary andGeneral Counsel of Anvil and Vice President, Secretary and General Counsel ofHoldings since February, 1995. Since March, 1997, Mr. Hollander has servedas a Director of Anvil and Holdings.

 

*William H. Turner*has served as Executive Vice President of Manufacturing of Anvil since February 1995.

 

19

----

 

*FrankFerramosca* was employed by Anvil in April 2004 asExecutive Vice President of Finance and became Vice President of Finance ofHoldings in May 2004.  In March 2005,he was appointed Chief Financial Officer of both Anvil and Holdings.  A Certified Public Accountant (State of NewYork), Mr. Ferramosca served as Senior Vice President of OperationsPlanning for Sony Electronics Inc. from 2000 to 2004.  From 1996 to 2000, Mr. Ferramosca,served as Senior Vice President of Finance and Administration for the ConsumerAudio and Video Group of Sony Electronics Inc.

 

#### ***Item11.  Executive Compensation.***

#### *** ***

**The information required by Item 11 of Form 10-Kappears on pages 6 through 9 of the Information Statement, and is incorporatedherein by reference.**

** **

***Item12.  Security Ownership of CertainBeneficial Owners and Management and Related Stockholder Matters.***

 

**The information required by Item 12 of Form 10-K appearson pages 10 through 12 of the Information Statement, and is incorporatedherein by reference.**

** **

# ***Item13.  Certain Relationships and RelatedTransactions.***

#  

**The information required by Item 13 of Form 10-Kappears on pages 12 and 13 of the Information Statement and isincorporated herein by reference.**

** **

***Item 14. Principal Accounting Fees and Services***

 

**The information required by Item 14 of Form 10-Kappears on page 6 of the Information Statement and is incorporated hereinby reference.**

** **

**PART IV**

 

***Item15.  Exhibits and Financial StatementSchedules.***

 

 (a) Documents filed as part of thisreport:

 

1.  The financial statements required to be filedhereunder are listed on page F-1

 

2.  The financial statement schedules required to befiled hereunder are listed on page F-1

 

3.  Exhibits filed as part of this report:

 
| **No.** | ** ** | **Description**                                                                                                                                                  |
|---------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 21      |       | Subsidiaries of  Holdings.                                                                                                                                       |
|    |       |                                                                                                                                                             |
| 31.1    |       | Certification  of Principal Executive Officer pursuant to section 240.13a-14 of general  rules and regulations of the Securities Exchange act of 1934. |
|    |       |                                                                                                                                                             |   |
| 31.2    |       | Certification of Principal Financial Officer  pursuant to section 240.13a-14 of general rules and regulations of  the Securities Exchange act of 1934. |

 

20

----

 

(b) Additional exhibits (previously filed as indicated):

 
| **No.** | ** ** | **Description**                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|---------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|    |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 2.1     |       | Recapitalization  Agreement, dated as of February 12, 1997, by and among Citicorp Venture  Capital, Ltd., BRS,, Holdings, Anvil VT, Inc. and the stockholders and  voting trust certificate holders named on the signature pages thereto,  as amended by the certain Amendment and Consent to Assignment dated as of February 21,  1997 and that Waiver and Second Amendment to the Recapitalization Agreement  dated as of March 13, 1997.(1) |
|    |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 3.1     |       | Certificate of  Incorporation of Anvil.(1)                                                                                                                                                                                                                                                                                                                                                                                                                              |
|    |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 3.2     |       | Restated  Certificate of Incorporation of Holdings.(4)                                                                                                                                                                                                                                                                                                                                                                                                                  |
|    |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 3.3     |       | Certificate of  Incorporation of Cottontops.(1)                                                                                                                                                                                                                                                                                                                                                                                                                         |
|    |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 3.4     |       | By-Laws of  Anvil.(1)                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|    |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 3.5     |       | By-Laws of  Holdings.(1)                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|    |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 3.6     |       | By-Laws of  Cottontops.(1)                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|    |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 4.1     |       | Certificate of  Designation of Holdings.(1)                                                                                                                                                                                                                                                                                                                                                                                                                             |
|    |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 4.2     |       | Certificate of  Designation of Holdings relating to Series B 13% Senior Exchangeable  Preferred Stock due 2009.(2)                                                                                                                                                                                                                                                                                                                                                 |
|    |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 4.3     |       | Purchase  Agreement, dated as of March 14, 1997, by and among Donaldson, Lufkin &  Jenrette Securities Corporation (“DLJ”), Wasserstein Perella securities, Inc.  (“Wasserstein”), NationsBanc Capital Markets, Inc. (“NationsBanc”),  Anvil and Holdings. (1)                                                                                                                                                    |
|    |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 4.4     |       | Senior  Indenture, dated as of March 14, 1997, by and among the Anvil, Holdings,  Cottontops and the other Subsidiary Guarantors and United States Trust  Company of New York, as trustee.  (1)                                                                                                                                                                                                                                                               |
|    |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 4.5     |       | 10-7/8% Senior  Notes and Guarantees.(1)                                                                                                                                                                                                                                                                                                                                                                                                                                |
|    |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 4.6     |       | Series B  10-7/8% Senior Notes and Guarantees.(2)                                                                                                                                                                                                                                                                                                                                                                                                                  |
|    |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 4.7     |       | Registration  Rights Agreement, dated as of March 14, 1997, by and among Anvil, Holdings,  Cottontops and DLJ, Wasserstein and NationsBanc, as Initial Purchasers.(1)                                                                                                                                                                                                                                                                                              |
|    |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 4.8     |       | Loan and  Security Agreement dated March 11, 1999 by and among Congress Financial  Corporation, Anvil, Holdings and Cottontops. (5)                                                                                                                                                                                                                                                                                                                                |
|    |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 4.9     |       | Term Promissory  Note of Anvil dated March 11, 1999 payable to Congress Financial  Corporation.  (5)                                                                                                                                                                                                                                                                                                                                                          |

 

21

----

 
| 4.10   |   | Pledge and  Security Agreement dated March 11, 1999 between Congress Financial  Corporation and Holdings.  (5)                                                                                                                                                                                                                                                                                           |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                               |
| 4.11   |   | Pledge and  Security Agreement dated March 11, 1999 between Congress Financial  Corporation and Anvil.  (5)                                                                                                                                                                                                                                                                                              |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.1   |   | Employment  Agreement, dated as of January 30, 2001, by and between Anvil and  Bernard Geller.(6)                                                                                                                                                                                                                                                                                                             |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.2   |   | Employment  Agreement, dated as of January 30, 2001 by and between Anvil and Anthony  Corsano. (6)                                                                                                                                                                                                                                                                                                            |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.3   |   | Employment  Agreement, dated as of January 30, 2001, by and between Anvil and Jacob  Hollander.(6)                                                                                                                                                                                                                                                                                                            |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.4   |   | Employment  Agreement, dated as of January 30, 2001 by and between Anvil and William  H. Turner.(6)                                                                                                                                                                                                                                                                                                           |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.5   |   | Exchange  Debenture Indenture, dated as of March 14, 1997, by and between Holdings  and United States Trust Company of New York, as trustee.(1)                                                                                                                                                                                                                                                               |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.6   |   | Registration  Rights Agreement, dated as of March 14, 1997, by and between Holdings  and DLJ, as the Initial Purchaser.(1)                                                                                                                                                                                                                                                                                    |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.7   |   | Registration  Rights and Securityholders Agreement, dated as of March 14, 1997, by and  among Holdings, BRS, 399 Venture CCT II Partners, L.P. (“CCT”) and DLJ.(1)                                                                                                                                                                                                                                  |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.8   |   | Registration Rights  Agreement, dated as of March 14, 1997, by and among Holdings, BRS, 399  Venture, CCT, Bernard Geller, Anthony Corsano, William Turner, Jacob  Hollander and each other executive of Holdings or its subsidiaries who  acquires common stock from Holdings after the date thereof and executes a  joinder thereto, the persons set forth on the signature pages thereto  and DLJ.(1) |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.9   |   | Stockholders  Agreement, dated as of March 14, 1997, by and among Holdings, BRS, 399  Venture, CCT, Bernard Geller, Anthony Corsano, William Turner, Jacob  Hollander and each other person who acquires common stock of Holdings after  the date thereof and executes a joinder thereto.(1)                                                                                                                  |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.10  |   | 2002 Stock  Option Plan(7)                                                                                                                                                                                                                                                                                                                                                                                         |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.11  |   | Amendment No. 1  dated as of December 27, 1997 to Stockholders Agreement by and among  Holdings, BRS, 399 Venture, CCT, Bernard Geller, Anthony Corsano, William  Turner, Jacob Hollander and each other person who acquires common stock of  Holdings after the date thereof and executes a joinder thereto.(3)                                                                                         |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.12  |   | Management  Agreement dated November 3, 1998 among Anvil, Holdings, Cottontops and  BRS. (5)                                                                                                                                                                                                                                                                                                                  |

 

22

----

 
| 10.13  |   | Management  Agreement dated September 15, 2002 among Anvil, Holdings, Cottontops and  CVC Management LLC.  (8)       |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                           |
| 10.14  |   | Letter Agreement  effective as of February 1, 2004 amending and extending the Employment  Agreement of Mr. Geller(9) |

 

----

(1)          Previouslyfiled with the Company’s Registration Statement and Amendments thereto on Form S-4(SEC file No. 333-26999) and is incorporated herein by reference.

 

(2)          Previouslyfiled with the Company’s Form 10-Q for the Quarter ended August 2,1997, and is incorporated herein by reference.

 

(3)          Previouslyfiled with the Company’s Form 10-K for the Year ended January 31,1998, and is incorporated herein by reference.

 

(4)          Previouslyfiled with the Company’s Form 10-Q for the Quarter ended October 31,1998, and is incorporated herein by reference.

 

(5)          Previouslyfiled with the Company’s Form 10-K for the Year ended January 30,1999,  and is incorporated herein byreference.

 

(6)          Previouslyfiled with the Company’s Form 10-K for the Year ended February 3,  2001 and is incorporated herein by reference.

 

(7)          Previously filed withthe Company’s Form 10-K for the Year ended February 2, 2002 and isincorporated herein by reference.

 

(8)          Previouslyfiled with the Company’s Form 10-K for the Year ended February 1, 2003and is incorporated herein by reference.

 

(9)          Previouslyfiled with the Company’s Form 10-K for the Year ended January 31,2004 and is incorporated herein by reference.

 

(c) None.

 

23

----

 

**SIGNATURES**

 

Pursuant to therequirements of section 13 or 15(d) of the Securities Exchange Act of1934,  Anvil Holdings, Inc. has dulycaused this report to be signed on its behalf by the undersigned, thereuntoduly authorized.

 
| ** ** | **ANVIL  HOLDINGS, INC.** |
|------------|---------------------------|
|       |                      |
|       | By:                       | */s/ Jacob  Hollander* |   |
|       |                      | Jacob Hollander |   |
|       |                      | Vice President and Secretary |   |

 

Pursuant to therequirements of the Securities Act of 1934, this report has been signed by thefollowing persons in the capacities and on the dates indicated:

 
| **Signature**              | ** ** | **Capacity** | ** **                 | **Date** |
|----------------------------|------------|--------------|----------------------------|----------|
|                       |       |         |                       |     |
|  /s*/ Bernard Geller* |       |         | Chairman of the Board      |     | April 21, 2005 |   |
| Bernard Geller             |       |         | and Director (Principal    |     |   |   |
|                       |       |         | Executive  Officer)        |     |   |   |
|                       |       |         |                       |     |   |   |
| */s/  Jacob Hollander*     |       |         | Vice President,  Secretary |     | April 21,  2005 |   |
| Jacob Hollander            |       |         | and Director               |     |   |   |
|                       |       |         |                       |     |   |
| /s/ *Frank Ferramosca*     |       |         | Vice President, Principal  |     | April 21, 2005 |   |
| Frank Ferramosca           |       |         | Financial and Accounting   |     |   |   |
|                       |       | Officer      |                       |     |   |
|                       |       |         |                       |     |   |   |
| */s/ Bruce C. Bruckmann*   |       |         | Director                   |     | April 21,  2005 |   |
| Bruce C.  Bruckmann        |       |         |                       |     |   |   |
|                       |       |         |                       |     |   |
| */s/  Richard R. Leonard*  |       |         | Director                   |     | April 21,  2005 |   |
| Richard R.  Leonard        |       |         |                       |     |   |   |
|                       |       |         |                       |     |   |
| */s/ Richard D. Moss*      | * *   |         | Director                   |     | April 21,  2005 |   |
| Richard D. Moss            |       |         |                       |     |   |   |
|                       |       |         |                       |     |   |
| */s/ David Wagstaff III*   | * *   |         | Director                   |     | April 21,  2005 |   |
| David Wagstaff  III        |       |         |                       |     |   |   |
|                       |       |         |                       |     |   |
| */s/ Anthony T. Williams*  |       |         | Director                   |     | April 21,  2005 |   |
| Anthony T.  Williams       |       |         |                       |     |   |
|                            |            |              |                            |          |  |  |  |  |  |  |

###  

SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TOSECTION 15(D) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTEREDSECURITIESPURSUANT TO SECTION 12 OF THE ACT:

 

The Registrant has notsent an annual report or proxy material to its security holders during theperiod covered by this report

 

24

----

 

** **

**ANVIL HOLDINGS, INC. ANDSUBSIDIARIES**

# **INDEX TOCONSOLIDATED FINANCIAL STATEMENTS AND**

# ** CONSOLIDATED FINANCIAL STATEMENT SCHEDULES**

# ** **

| Report  of Independent Registered Public Accounting Firm                                                                                      |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                                                          |   |
| Consolidated Balance  Sheets at January 31, 2004 and January 29, 2005                                                                         |   |
|                                                                                                                                          |   |
| Consolidated  Statements of Operations for the fiscal years ended February 1, 2003, January  31, 2004 and January 29, 2005                    |   |
|                                                                                                                                          |   |
| Consolidated Statements of  Stockholders’ Deficiency for the fiscal  years ended February 1, 2003, January 31, 2004 and January 29, 2005 |   |
|                                                                                                                                          |   |
| Consolidated Statements of  Cash Flows for the fiscal years ended February 1, 2003, January 31, 2004 and  January 29, 2005                    |   |
|                                                                                                                                          |   |
| Notes to  Consolidated Financial Statements                                                                                                   |   |
|                                                                                                                                          |   |
| Schedule II 3⁄4Valuation  and Qualifying Accounts                                                                                          |   |

 

F-1

----

 

**REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTINGFIRM**

 

Tothe Board of Directors and Stockholders of

AnvilHoldings, Inc.

NewYork, New York

 

Wehave audited the accompanying consolidated balance sheets of Anvil Holdings,Inc. and subsidiaries (the “Company”) as of January 31, 2004 and January 29,2005, and the related consolidated statements of operations, stockholders’deficiency, and cash flows for each of the three fiscal years in the periodended January 29, 2005.  Our audits alsoincluded the financial statement schedule listed in the Index at Item15(a)(2).  These financial statements andfinancial statement schedule are the responsibility of the Company’smanagement.  Our responsibility is toexpress an opinion on the financial statements and financial statement schedulebased on our audits.

 

We conducted our audits in accordance with thestandards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan andperform the audit to obtain reasonable assurance about whether the financialstatements are free of material misstatement. The Company is not required tohave, nor were we engaged to perform, an audit of its internal control overfinancial reporting. Our audits included consideration of internal control overfinancial reporting as a basis for designing audit procedures that areappropriate in the circumstances but not for the purpose of expressing anopinion on the effectiveness of the Company’s internal control over financial reporting.Accordingly, we express no such opinion. An audit also includes examining, on atest basis, evidence supporting the amounts and disclosures in the financialstatements, assessing the accounting principles used and significant estimatesmade by management, as well as evaluating the overall financial statementpresentation.  We believe that our auditsprovide a reasonable basis for our opinion.

 

Inour opinion, such consolidated financial statements present fairly, in allmaterial respects, the financial position of Anvil Holdings, Inc. andsubsidiaries as of January 31, 2004 and January 29, 2005, and the results oftheir operations and their cash flows for each of the three fiscal years in theperiod ended January 29, 2005, in conformity with accounting principlesgenerally accepted in the United States of America.  Also, in our opinion, such financialstatement schedule, when considered in relation to the basic consolidatedfinancial statements taken as a whole, presents fairly, in all material respects,the information set forth therein.

 

Asdiscussed in Note 13 to the consolidated financial statements, the Companychanged its method of accounting for its redeemable preferred stock to conformto Statement of Financial Accounting Standards No. 150, *Accountingfor Certain Financial Instruments with Characteristics of Both Liabilities andEquity*, effective February 1, 2004.

 

DELOITTE& TOUCHE LLP

 

 

NewYork, New York

April18, 2005

 

F-2

----

 

**ANVILHOLDINGS, INC. AND SUBSIDIARIES**

# **CONSOLIDATED BALANCE SHEETS**

(In Thousands, Except Share Data)

 
| ** **                                                                                                                                                         | ** ** | **January 31,** | ** ** | **January 29,** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------|------------|-----------------|------------|
| ** **                                                                                                                                                         | ** ** | **2004**        | ** ** | **2005**        |       |
| **ASSETS**                                                                                                                                                         | ** ** | ** **      | ** ** | ** **      | ** ** |
| ** **                                                                                                                                                         | ** ** | ** **      | ** ** | ** **      | ** ** |
| CURRENT ASSETS:                                                                                                                                                    |       |            |       |            |       |
| Cash and cash  equivalents                                                                                                                                         |       | $               | 1,451      |            | $          | 4,682 |   |
| Accounts  receivable, less allowances for doubtful accounts of $1,165 and $1,188                                                                                   |       | 28,496          |       | 28,366          |       |
| Inventories                                                                                                                                                        |       | 52,514          |       | 50,206          |       |
| Prepaid and  refundable income taxes                                                                                                                               |       | 5,620           |       | 2,547           |       |
| Deferred income  taxes-current portion                                                                                                                             |       | 3,137           |       | 3,605           |       |
| Prepaid expenses  and other current assets                                                                                                                         |       | 1,411           |       | 1,365           |       |
| Total current  assets                                                                                                                                              |       | 92,629          |       | 90,771          |       |
| PROPERTY, PLANT  AND EQUIPMENT3⁄4Net                                                                                                                            |       | 33,210          |       | 30,915          |       |
| DEFERRED INCOME  TAXES                                                                                                                                             |       | 1,479           |       | 897             |       |
| INTANGIBLE  ASSETS3⁄4Net                                                                                                                                        |       | 2,284           |       | 1,998           |       |
| OTHER ASSETS                                                                                                                                                       |       | 1,738           |       | 1,551           |       |
| Total Assets                                                                                                                                                       |       | $               | 131,340    |            | $          | 126,132 |   |
|                                                                                                                                                               |       |            |       |            |       |
| **LIABILITIES AND STOCKHOLDERS’ DEFICIENCY**                                                                                                                  | ** ** | ** **      | ** ** | ** **      | ** ** |
| ** **                                                                                                                                                         | ** ** | ** **      | ** ** | ** **      | ** ** |
| CURRENT  LIABILITIES:                                                                                                                                              |       |            |       |            |       |
| Accounts payable                                                                                                                                                   |       | $               | 8,431      |            | $          | 7,308 |   |
| Accrued expenses  and other current liabilities                                                                                                                    |       | 12,712          |       | 17,417          |       |
| Revolving credit  loan                                                                                                                                             |       | 16,686          |       | 10,280          |       |
| Current portion  of term loan                                                                                                                                      |       | 586             |       | —          |       |
| Total current  liabilities                                                                                                                                         |       | 38,415          |       | 35,005          |       |
| 10-7/8% SENIOR  NOTES                                                                                                                                              |       | 128,785         |       | 129,175         |       |
| OTHER LONG-TERM  OBLIGATIONS                                                                                                                                       |       | 655             |       | 197             |       |
|                                                                                                                                                               |       |            |       |            |       |
| MANDATORILY  REDEEMABLE PREFERRED STOCK–Net of Treasury Holdings                                                                                              |       | 49,124          |       | 56,028          |       |
|                                                                                                                                                               |       |            |       |            |       |
| STOCKHOLDERS’  DEFICIENCY:                                                                                                                                    |       |            |       |            |       |
| Common stock                                                                                                                                                       |       |            |       |            |       |
| Class A, $.01  par value, 12.5% cumulative; authorized 500,000 shares, issued and  outstanding: 290,000 shares (aggregate liquidation value, $67,476 and  $76,299) |       | 3               |       | 3               |       |
| Class B, $.01  par value, authorized 7,500,000 shares; issued and outstanding: 3,605,000 and  3,600,000 shares                                                     |       | 36              |       | 36              |       |
| Class C, $.01  par value; authorized 1,400,000 shares; none issued                                                                                                 |       | —          |       | —          |       |
| Additional  paid-in capital                                                                                                                                        |       | 12,818          |       | 12,813          |       |
| Accumulated  deficit                                                                                                                                               |       | (98,496         | )          | (107,125        | )          |
| Total  Stockholders’ Deficiency                                                                                                                               |       | (85,639         | )          | (94,273         | )          |
| Total  Liabilities and Stockholders’ Deficiency                                                                                                               |       | $               | 131,340    |            | $          | 126,132 |   |

 

See notes to consolidated financial statements.

 

F-3

----

 

**ANVIL HOLDINGS, INC. ANDSUBSIDIARIES**

**CONSOLIDATED STATEMENTS OFOPERATIONS**

(In Thousands, Except Share Data)

 
| ** **                                                                                     | ** ** | **Fiscal Year Ended** | ** ** |
|------------------------------------------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                                                     | ** ** | **February 1,**       | ** ** | **January 31,** | ** ** | **January 29,** | ** ** |
| ** **                                                                                     | ** ** | **2003**              | ** ** | **2004** | ** ** | **2005** | ** ** |
|                                                                                           |       |                  |       |   |   |   |   |
| NET SALES                                                                                      |       | $                     | 224,329    |   | $ | 191,222 |   | $ | 192,358 |   |
| COST OF GOODS SOLD                                                                             |       | 168,168               |       | 163,267 |   | 153,869 |   |
| Gross profit                                                                                   |       | 56,161                |       | 27,955 |   | 38,489 |   |
| SELLING, GENERAL  AND ADMINISTRATIVE EXPENSES                                                  |       | 24,117                |       | 24,444 |   | 24,927 |   |
| AMORTIZATION OF INTANGIBLE ASSETS                                                              |       | 619                   |       | 313 |   | 286 |   |
| GOODWILL  IMPAIRMENT                                                                           |       | —                |       | 19,416 |   | — |   |
| OPERATING INCOME  (LOSS)                                                                       |       | 31,425                |       | (16,218 | ) | 13,276 |   |
| INTEREST  EXPENSE:                                                                             |       |                  |       |   |   |   |   |
| Interest on  borrowings                                                                        |       | 14,165                |       | 14,431 |   | 14,723 |   |
| Dividends and  accretion on mandatorily redeemable preferred stock                             |       | —                |       | — |   | 6,904 |   |
| Total interest  expense                                                                        |       | 14,165                |       | 14,431 |   | 21,627 |   |
|                                                                                           |       |                  |       |   |   |   |   |
| OTHER EXPENSE-NET, PRINCIPALLY AMORTIZATION OF DEBT EXPENSE                                    |       | 534                   |       | 972 |   | 1,081 |   |
|                                                                                           |       |                  |       |   |   |   |   |
| INCOME (LOSS)  BEFORE PROVISION (BENEFIT) FOR INCOME TAXES                                     |       | 16,726                |       | (31,621 | ) | (9,432 | ) |
|                                                                                           |       |                  |       |   |   |   |   |
| PROVISION (BENEFIT) FOR INCOME TAXES                                                           |       | 6,089                 |       | (13,297 | ) | (803 | ) |
|                                                                                           |       |                  |       |   |   |   |   |
| NET INCOME (LOSS)                                                                              |       | 10,637                |       | (18,324 | ) | (8,629 | ) |
| Less preferred stock dividends and accretion                                                   |       | (6,254                | )          | (6,091 | ) | — |   |
| Less Common A liquidation preference                                                           |       | (6,913                | )          | (7,805 | ) | (8,823 | ) |
| Add gain on purchase of preferred stock                                                        |       | 2,780                 |       | — |   | — |   |
| NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS                                          |       | $                     | 250        |   | $ | (32,220 | ) | $ | (17,452 | ) |
|                                                                                           |       |                  |       |   |   |   |   |
| BASIC AND DILUTED NET INCOME (LOSS) PER COMMON SHARE:                                          |       |                  |       |   |   |   |   |
|                                                                                           |       |                  |       |   |   |   |   |
| Class A Common Stock                                                                           |       | $                     | 23.90      |   | $ | 18.64 |   | $ | 25.94 |   |
|                                                                                           |       |                  |       |   |   |   |   |
| Class B Common Stock                                                                           |       | $                     | 0.06       |   | $ | (8.27 | ) | $ | (4.48 | ) |
|                                                                                           |       |                  |       |   |   |   |   |
| Weighted average shares used in computation of basic and diluted net  income (loss) per share: |       |                  |       |   |   |   |   |
| Class A Common                                                                                 |       | 290,000               |       | 290,000 |   | 290,000 |   |
| Class B Common                                                                                 |       | 3,592,000             |       | 3,604,000 |   | 3,602,000 |   |

 

See notes to consolidated financial statements.

 

 

F-4

----

 

# **ANVIL HOLDINGS,INC. AND SUBSIDIARIES**

# **CONSOLIDATED STATEMENTS OF STOCKHOLDERS’DEFICIENCY**

# ** **

(In Thousands)

 
| ** **                           | ** ** | **Common Stock** | ** ** | **Additional  Paid-in Capital** | ** ** | **Accumulated  Deficit** | ** ** | **Total**  | ** ** |
|--------------------------------------|------------|------------------|------------|---------------------------------|------------|--------------------------|------------|------------|------------|
| ** **                           | ** ** | **Class A**      | ** ** | **Class B**                     | ** ** | **Class C**              | ** ** | ** ** | ** ** | ** ** |
|                                 |       |             |       |                            |       |                     |       |       |       |   |   |   |   |
| Balance at  February 3, 2002         |       | $                | 3          |                            | $          | 36                       |       | —     |       | $ | 12,803 |   | $ | (81,244 | ) | $ | (68,402 | ) |
| Preferred stock  dividends           |       |             |       |                            |       |                     |       |       |       | (6,125 | ) | (6,125 | ) |
| Accretion of  preferred stock        |       |             |       |                            |       |                     |       |       |       | (129 | ) | (129 | ) |
| Gain on Purchase  of Preferred Stock |       |             |       |                            |       |                     |       |       |       | 2,780 |   | 2,780 |   |
| Issuance of  Class B Common Stock    |       |             |       |                            |       |                     |       | 3          |       |   |   | 3 |   |
| Net income                           |       |             |       |                            |       |                     |       |       |       | 10,637 |   | 10,637 |   |
| Balance at  February 1, 2003         |       | 3                |       | 36                              |       | —                   |       | 12,806     |       | (74,081 | ) | (61,236 | ) |
| Preferred stock  dividends           |       |             |       |                            |       |                     |       |       |       | (5,976 | ) | (5,976 | ) |
| Accretion of  preferred stock        |       |             |       |                            |       |                     |       |       |       | (115 | ) | (115 | ) |
| Issuance of  Class B Common Stock    |       |             |       |                            |       |                     |       | 12         |       |   |   | 12 |   |
| Net (loss)                           |       |             |       |                            |       |                     |       |       |       | (18,324 | ) | (18,324 | ) |
| Balance at  January 31, 2004         |       | 3                |       | 36                              |       | —                   |       | 12,818     |       | (98,496 | ) | (85,639 | ) |
| Repurchase of  Common Stock          |       |             |       |                            |       |                     |       | (5         | )          |   |   | (5 | ) |
| Net loss                             |       |             |       |                            |       |                     |       |       |       | (8,629 | ) | (8,629 | ) |
| Balance at  January 29, 2005         |       | $                | 3          |                            | $          | 36                       |       | —     |       | $ | 12,813 |   | $ | (107,125 | ) | $ | (94,273 | ) |

 

**See notes to consolidated financial statements.**

** **

**F-5**

----

** **

**ANVIL HOLDINGS, INC. ANDSUBSIDIARIES**

# **CONSOLIDATED STATEMENTS OF CASH FLOWS**

(In Thousands)

 
| ** **                                                                                           | ** ** | **Fiscal Year Ended** | ** ** |
|------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                                                           | ** ** | **February 1,**       | ** ** | **January 31,** | ** ** | **January 29,** | ** ** |
| ** **                                                                                           | ** ** | **2003**              | ** ** | **2004** | ** ** | **2005** | ** ** |
| CASH FLOWS FROM  OPERATING ACTIVITIES:                                                               |       |                  |       |   |   |   |   |
| Net income  (loss)                                                                                   |       | $                     | 10,637     |   | $ | (18,324 | ) | $ | (8,629 | ) |
| Adjustments to  reconcile net income (loss) to net cash provided by (used in) operating  activities: |       |                  |       |   |   |   |   |
| Depreciation and  amortization of fixed assets                                                       |       | 9,619                 |       | 8,261 |   | 6,579 |   |
| Amortization of  other assets                                                                        |       | 1,455                 |       | 1,109 |   | 1,164 |   |
| Deferred income  taxes                                                                               |       | (864                  | )          | (7,814 | ) | 114 |   |
| Goodwill  impairment                                                                                 |       | —                |       | 19,416 |   | — |   |
| Preferred  dividends (interest expense) payable on redemption                                        |       | —                |       | — |   | 6,904 |   |
| Changes in  operating assets and liabilities:                                                        |       |                  |       |   |   |   |   |
| Accounts  receivable                                                                                 |       | 512                   |       | (181 | ) | 130 |   |
| Inventories                                                                                          |       | 1,736                 |       | (8,911 | ) | 2,308 |   |
| Prepaid and  refundable income taxes                                                                 |       | (164                  | )          | (4,411 | ) | 3,073 |   |
| Prepaid expenses  and other current assets                                                           |       | (767                  | )          | 377 |   | 46 |   |
| Accounts payable                                                                                     |       | 6,917                 |       | (6,063 | ) | (1,123 | ) |
| Accrued expenses  and other current liabilities                                                      |       | 363                   |       | (2,857 | ) | 4,705 |   |
| Other  non-current obligations                                                                       |       | —                |       | — |   | (458 | ) |
| Other3⁄4net                                                                                       |       | (685                  | )          | (53 | ) | (306 | ) |
| Net cash  provided by (used in) operating activities                                                 |       | 28,759                |       | (19,451 | ) | 14,507 |   |
|                                                                                                 |       |                  |       |   |   |   |   |
| CASH FLOWS FROM  INVESTING ACTIVITIES:                                                               |       |                  |       |   |   |   |   |
| Purchases of  property and equipment                                                                 |       | (17,435               | )          | (3,708 | ) | (4,333 | ) |
| Proceeds from  sale of property and equipment                                                        |       | 372                   |       | 336 |   | 49 |   |
| Net cash used in  investing activities                                                               |       | (17,063               | )          | (3,372 | ) | (4,284 | ) |
|                                                                                                 |       |                  |       |   |   |   |   |
| CASH FLOWS FROM  FINANCING ACTIVITIES:                                                               |       |                  |       |   |   |   |   |
| Borrowings  (repayments) under revolving credit agreement                                            |       | —                |       | 16,686 |   | (6,406 | ) |
| Repayments of  Term Loan                                                                             |       | (2,345                | )          | (2,345 | ) | (586 | ) |
| Purchase of  preferred stock                                                                         |       | (11,349               | )          | — |   | — |   |
| Net cash (used  in) provided by financing activities                                                 |       | (13,694               | )          | 14,341 |   | (6,992 | ) |
|                                                                                                 |       |                  |       |   |   |   |   |
| **(DECREASE)  INCREASE IN CASH AND CASH EQUIVALENTS**                                                |       | (1,998                | )          | (8,482 | ) | 3,231 |   |
|                                                                                                 |       |                  |       |   |   |   |   |
| **CASH  AND CASH EQUIVALENTS, BEGINNING OF YEAR**                                                    |       | 11,931                |       | 9,933 |   | 1,451 |   |
|                                                                                                 |       |                  |       |   |   |   |   |
| **CASH  AND CASH EQUIVALENTS, END OF YEAR**                                                          |       | $                     | 9,933      |   | $ | 1,451 |   | $ | 4,682 |   |
| **SUPPLEMENTAL  CASH FLOW INFORMATION:**                                                             |       |                  |       |   |   |   |   |
| Cash paid for  interest                                                                              |       | $                     | 14,182     |   | $ | 14,431 |   | $ | 14,723 |   |
| Net payments  (refunds) of income taxes                                                              |       | $                     | 7,097      |   | $ | (1,446 | ) | $ | (4,122 | ) |
|                                                                                                 |       |                  |       |   |   |   |   |
| **SUPPLEMENTAL  SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:**                            |       |                  |       |   |   |   |   |
| Redeemable  Preferred Stock Issued in Lieu of Dividends                                              |       | $                     | 1,591      |   | — |   |   |   |
| Preferred Stock  Dividends Payable in Cash and Accretion                                             |       | $                     | 4,534      |   | $ | 5,976 |   |   |   |
| Gain on purchase  of preferred stock                                                                 |       | $                     | 2,780      |   | — |   |   |   |

##  

See notes to consolidated financial statements.

 

F-6

----

 

** ANVIL HOLDINGS, INC. ANDSUBSIDIARIES**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**(In Thousands, Except Share Data)**

 

**1.  THE COMPANY**

 

As used herein, the “Company”refers to Anvil Holdings, Inc. (“Holdings”), including, in some instances,  its wholly-owned subsidiary, Anvil Knitwear,Inc., a Delaware corporation (“Anvil”), and its other subsidiaries, asappropriate to the context.  The Companyis engaged in the business of designing, manufacturing and marketing highquality activewear for men, women and children, including short and long sleeveT-shirts, sport shirts and niche products, all in a variety of styles andfabrications.  These activewear productsare supplemented with caps, towels, robes and bags. The Company markets andsells its products primarily to distributors, screen printers and private labelbrand owners, principally in the United States. The Company reports its operations in one segment in accordance withStatement of Financial Accounting Standards (“SFAS”) No. 131, *Disclosures About Segments of an Enterprise and Related Information.*

 

**2.  RECAPITALIZATION AND REFINANCING**

 

The Company’s currentcapital structure is the result of a 1997 recapitalization (the “Recapitalization”)pursuant to which: (i) the Company redeemed or repurchased a substantialportion of its outstanding shares of capital stock; (ii) Bruckmann, Rosser,Sherrill & Co., L.P. and certain of its employees and affiliates(collectively, “BRS”) contributed $13,063 for the purchase of new common stock;(iii) 399 Venture Partners, Inc. and certain of its employees and affiliates(collectively, “399 Venture”) and certain management investors reinvested aportion of their shares of  capital stockof the Company in exchange for newly issued common stock; and (iv) 399 Ventureexchanged a portion of its capital stock for Senior Exchangeable PreferredStock and new common stock.  Duringfiscal 2003, 399 Venture transferred its holdings in the Company to anaffiliate, Court Square Capital, Ltd (“Court Square”).

 

Concurrentlywith the Recapitalization, the Company sold 30,000 Units consisting of (i)$30,000, 13% Senior Exchangeable Preferred Stock due 2009 and (ii) 390,000shares of Class B common stock (the “Units Offering”).  The Senior Exchangeable Preferred Stock wasrecorded at $27,656 representing the proceeds of $30,000, less $390 allocatedto the Class B common stock and $1,954 of expenses attributable to the UnitsOffering.  Additionally, on March 14,1997, Anvil sold $130,000 of 10-7/8% Senior Notes due March 14, 2007 (“SeniorNotes”) in connection with the Recapitalization.

 

**3. SUMMARYOF SIGNIFICANT ACCOUNTING POLICIES**

 

***Basis of Presentation—*** The accompanying consolidated financial statements have been prepared inaccordance with accounting principles generally accepted in the United Statesof America (“Generally Accepted Accounting Principles” or “GAAP”).  Such financial statements include theaccounts of the Company and its wholly-owned subsidiaries, after elimination ofsignificant intercompany accounts and transactions.

 

***Fiscal Year—***TheCompany’s operations are on a “52/53-week” fiscal year ending on the Saturdayclosest to January 31.

 

F-7

----

 

***Use of Estimates—***The preparation of financial statements in conformity with GAAP requiresManagement to make certain estimates and assumptions that affect the reportedamounts of assets and liabilities and disclosure of contingent assets andliabilities at the date of the financial statements and the reported amounts ofrevenues and expenses during the reporting period.  Actual results could differ from thoseestimates.  The accounts requiringthe use of significant estimates include, among others: accounts receivable,inventories, various income tax accounts, intangible assets and certainreserves.

 

***Cash and Cash Equivalents—***Cash and cash equivalents include all highly liquid investments with anoriginal maturity of 90 days or less.

 

***Fair Value of Financial Instruments***—The carrying amounts of  financial instruments reported in theaccompanying consolidated balance sheets approximate their fair value.  Considerable judgment is required in interpretingcertain market data to develop estimated fair values for certain financialinstruments.  Accordingly, the estimatespresented herein are not necessarily indicative of the amounts that the Companycould  realize in a current marketexchange.

 

***Property, Plant and Equipment***—Property, plant and equipment is beingdepreciated for financial reporting purposes using the straight-line methodover the estimated useful lives of the assets. Leasehold improvements are amortized over the lesser of the estimateduseful life or the term of the lease. Depreciable lives are generally as follows:

 
| Buildings and Improvements                   |   | 20-25  years |   |
|----------------------------------------------|--------|--------------|--------|
| Machinery, Equipment, Furniture and Fixtures |   | 4-10  years  |   |

 

***Inventories—***Inventoriesare stated at the lower of cost or market, with cost being determined primarilyby the first-in, first-out (FIFO) method.

 

***Intangible Assets***—Intangible assets of the Company as of January 29, 2005 consist oftrademarks  which are being amortizedover their estimated useful life of 17 years and a covenant not to compete has beenfully amortized over its three year term. Goodwill (which was not being amortized) has been fully written off dueto an impairment in value recorded as of January 31, 2004—see Note 6.

 

***Evaluation of Long-Lived Assets—***Long-lived assets are assessed for recoverabilitywhenever events or changes in circumstances indicate that an asset may havebeen impaired.   In evaluating an assetfor recoverability, the Company estimates the future cash flows expected toresult from the use of the asset and eventual disposition.  If the sum of the expected future cash flows(undiscounted and without interest charges) is less than the carrying amount ofthe asset, an impairment loss, equal to the excess of the carrying amount overthe fair value of the asset, is recognized.

 

***Deferred Financing Fees—***Included in other assets are deferred financing fees ($1,247 and $1,064 atJanuary 31, 2004 and January 29, 2005, respectively) which are being amortizedover the term of the applicable obligations.

 

***Stock Option Plan*—**The Company accounts for its stock option plan inaccordance with Accounting Principles Board Opinion No. 25, under which nocompensation cost is recognized for stock option awards.  Had compensation cost been determined consistentwith Statement of 

 

F-8

----

 

FinancialAccounting Standards No. 123, * Accounting for Stock-Based Compensation*(“SFAS123”), the effect on the Company’s results of operations would have beenimmaterial.

 

***Revenue Recognition—***Revenue is recognized at the time merchandise is shipped and title haspassed.  Allowances for sales returns anddiscounts are provided when sales are recorded.

 

***Income Taxes—***Incometaxes have been accounted for in accordance with SFAS No. 109, *Accounting for Income Taxes*, which requires the use of anasset and liability approach for financial accounting and reporting of incometaxes.

 

***Earnings Per Share—***Basic and diluted income (loss) per share is computed based upon theaverage outstanding shares of Class A and Class B common stock.

 

***SignificantCustomers***—The Company has had one customer which accountedfor approximately 20%, 33% and 41%, respectively, of the Company’s net salesfor each of the three fiscal years in the period ended January 29, 2005.

 

***Recent AccountingPronouncements***

*** ***

In June 2002, the Financial Accounting Standards Board (“FASB”) issuedSFAS No. 146, *Accounting for Costs Associated with Exit orDisposal Activities* which will supersede Emerging Issues Task ForceConsensus No. 94-3, *Liability Recognition forCertain Employee Termination Benefits and Other Costs to Exit an Activity(including Certain Costs Incurred in a Restructuring).*  SFAS No. 146 will affect the timing of therecognition of costs associated with an exit or disposal plan by requiring themto be recognized when incurred rather than at the date of a commitment to anexit or disposal plan.  SFAS No. 146 isto be applied prospectively to exit or disposal activities initiated afterDecember 31, 2002.  The adoption of SFASNo. 146 is not expected to have a material impact on the Company’s results ofoperations or financial position.

 

In November 2004, the FASB issued SFAS No. 151, *InventoryCosts* which amends Accounting Research Bulletin No. 43, Chapter 4, “InventoryPricing,” to clarify the accounting for abnormal amounts of idle facilityexpense, freight, handling costs, and wasted material.  This Statement requires that those items berecognized as current-period charges and requires that allocation of fixed productionoverheads to the cost of conversion be based on the normal capacity of theproduction facilities. This statement is effective for fiscal years beginningafter June 15, 2005. The adoption of SFAS No. 151 is not expected to have amaterial impact on the Company’s results of operations or financial position.

 

F-9

----

 

**4.  INVENTORIES**

 

Inventoriesconsist of the following:

 
| ** **                  | ** ** | **January 31,** | ** ** | **January 29,** | ** ** |
|-----------------------------|------------|-----------------|------------|-----------------|------------|
| ** **                  | ** ** | **2004**        | ** ** | **2005**        | ** ** |
|                        |       |            |       |            |       |
| Finished goods              |       | $               | 41,982     |            | $          | 38,807 |   |
| Work-in-process             |       | 1,759           |       | 1,821           |       |
| Raw materials  and supplies |       | 8,773           |       | 9,578           |       |
|                        |       | $               | 52,514     |            | $          | 50,206 |   |

 

**5.  PROPERTY, PLANT AND EQUIPMENT- NET**

 

 Property plant and equipmentconsists of the following:

 
| ** **                                      | ** ** | **January 31,** | ** ** | **January 29,** | ** ** |
|-------------------------------------------------|------------|-----------------|------------|-----------------|------------|
| ** **                                      | ** ** | **2004**        | ** ** | **2005**        | ** ** |
|                                            |       |            |       |            |       |
| Land                                            |       | $               | 1,446      |            | $          | 1,446 |   |
| Buildings and  improvements                     |       | 19,476          |       | 19,531          |       |
| Machinery,  equipment, furniture and fixtures   |       | 61,866          |       | 58,789          |       |
|                                            |       | 82,788          |       | 79,766          |       |
| Less accumulated  depreciation and amortization |       | (49,578         | )          | (48,851         | )          |
|                                            |       | $               | 33,210     |            | $          | 30,915 |   |

##  

Depreciation expense for the fiscal years ended February 1, 2003, January31, 2004, and January 29, 2005 was  $9,619,$8,261 and $6,579, respectively.

 

**6.  GOODWILL AND INTANGIBLE ASSETS**

 

Effective at thebeginning of the fiscal year ended February 1, 2003, the Company adopted theprovisions of  SFAS No. 142, *Goodwill and Other Intangible Assets.*  The adoption of SFAS No. 142 required thatthe Company cease amortizing existing goodwill and also requires goodwill to betested for impairment annually and when an event occurs indicating that it ispossible an impairment exists.   Previouslyrecorded amortization had amounted to $719 annually.  As of January 31, 2004, Management testedexisting goodwill for impairment by comparing its carrying value with its fairvalue, which was estimated as a multiple of future cash flow.  Based on this comparison, the Companyrecorded an impairment of $19,416, representing the entire carrying amount ofthe Company’s existing goodwill.  Theimpairment resulted from an implied reduction in the Company’s fair value resultingfrom the reduced revenue and gross margin projections caused by a continuingindustry-wide decline in selling prices for the Company’s basic goods.  The Company believes, however, that projectedcash flows will be adequate to cover the carrying value of its trademarks whichcontinue to be amortized.

 

Intangible assets being amortized consist oftrademarks having an aggregate value of $4,858, less accumulated amortizationof  $2,574 and $2,860 as of January 31,2004 and January 29, 2005, respectively. Amortization expense for these trademarks will be $286 in each futurefiscal year.

 

F-10

----

 

**7.****              ACCRUEDEXPENSES AND OTHER CURRENT LIABILITIES**

 

Accrued expenses and other current liabilities consistof the following:

 
| ** **                                  | ** ** | **January 31,** | ** ** | **January 29,** | ** ** |
|---------------------------------------------|------------|-----------------|------------|-----------------|------------|
| ** **                                  | ** ** | **2004**        | ** ** | **2005**        | ** ** |
| Accrued wages,  fringe benefits and bonuses |       | $               | 4,093      |            | $          | 4,567 |   |
| Accrued interest  payable                   |       | 5,503           |       | 5,503           |       |
| Other                                       |       | 3,116           |       | 7,347           |       |
|                                        |       | $               | 12,712     |            | $          | 17,417 |   |

##  

**8.  CREDIT AGREEMENT**

 

Anvil’sLoan and Security Agreement, as amended on May 20, 2004 (the “Loan Agreement”),provides for a maximum revolving credit facility of $40,000 (the “RevolvingCredit Facility”).   The Loan Agreement,as amended, expires January 11, 2007. The original Loan Agreement included a term loan in the initialprincipal amount of $11,725, repayable in quarterly principal installments of$586, the last of which was made in April 2004. Amounts due under the Loan Agreement are secured by substantially allthe inventory, receivables, intangible and tangible property, plant andequipment of Anvil.  Holdings andCottontops, Inc., a wholly-owned subsidiary of Anvil (“Cottontops”) guarantyamounts due under the Loan Agreement.  Interest on the Revolving Credit Facility is at prime plus one-quarterpercent or LIBOR plus 2-1/4%, at the Company’s option.  At January 31, 2004 and January 29, 2005,there was $16,686 and $10,280 outstanding under the Revolving Credit Facilitybearing interest at 4.25% and 5.5%, respectively.  The weighted average interest rate onborrowings under the Loan Agreement during the fiscal years ended February 1,2003, January 31, 2004 and January 29, 2005 was 4.9%, 4.3% and 4.7%,respectively.

 

**9.  10-7/8% SENIOR NOTES**

 

OnMarch 14, 1997, Anvil issued $130,000 of 10-7/8% Senior Notes (the “SeniorNotes”) due March 15, 2007 and received proceeds of $126,100 net of debtdiscount of $3,900.  Interest on thenotes is payable semiannually on March 15 and September 15.  The Company may redeem the Senior Notes at aredemption price of 100% at any time beginning March 15, 2004.

 

TheSenior Notes are guaranteed by the Company, Cottontops and the Non-U.S.subsidiaries of Anvil and are senior unsecured obligations of the Company rankingsenior in right of payment to all subordinated indebtedness of the Company and *pari passu* in right of payment with all existing and futuresenior indebtedness, including borrowings under the Loan Agreement.  The indenture relating to the Senior Notescontains certain covenants, including restrictions on additional indebtedness,certain asset sales, and the payment of dividends.

 

F-11

----

 

**10.  INCOME TAXES**

 

Theprovision (benefit) for income taxes consists of the following:

 

| ** **                          | ** ** | **Fiscal Year Ended** | ** ** |
|-------------------------------------|------------|-----------------------|------------|
| ** **                          | ** ** | **February 1,**       | ** ** | **January 31,** | ** ** | **January 29,** | ** ** |
| ** **                          | ** ** | **2003**              | ** ** | **2004** | ** ** | **2005** | ** ** |
| Current:                            |       |                  |       |   |   |   |   |
| Federal                             |       | $                     | 6,095      |   | $ | (5,546 | ) | $ | (920 | ) |
| State and local                     |       | 858                   |       | 64 |   | 3 |   |
| Total current  provision (benefit)  |       | 6,953                 |       | (5,482 | ) | (917 | ) |
| Deferred:                           |       |                  |       |   |   |   |   |
| Federal                             |       | (492                  | )          | (5,784 | ) | 100 |   |
| State and local                     |       | (372                  | )          | (2,030 | ) | 14 |   |
| Total deferred  (benefit) provision |       | (864                  | )          | (7,814 | ) | 114 |   |
|                                |       |                  |       |   |   |   |   |
| Total tax  provision (benefit)      |       | $                     | 6,089      |   | $ | (13,297 | ) | $ | (803 | ) |

##  

TheCompany’s consolidated pre-tax results of operations for the fiscal years endedFebruary 1, 2003, January 31, 2004 and January 29, 2005 includes pre-tax incomeof $1,742 and $633 and a pre-tax loss of $365, respectively, attributable toforeign sources.

 

A reconciliation of the statutory Federal tax rate andthe effective rate is as follows:

 

| ** **                                                    | ** ** | **Fiscal Year Ended** | ** ** |
|---------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                    | ** ** | **February 1,**       | ** ** | **January 31,** | ** ** | **January 29,** | ** ** |
| ** **                                                    | ** ** | **2003**              | ** ** | **2004** | ** ** | **2005** | ** ** |
| Federal  statutory tax rate                                   |       | 35                    | %          | 35 | % | 35 | % |
| Dividends and  accretion of preferred stock                   |       | —                |       | — |   | (26 | ) |
| State and local  taxes—net of Federal income tax benefit |       | 2                     |       | 4 |   | — |   |
| Foreign  taxes-net and other                                  |       | (1                    | )          | 3 |   | — |   |
| Effective tax  rate                                           |       | 36                    | %          | 42 | % | 9 | % |

##  

The tax effects of temporary differences that give rise to deferred taxassets and liabilities are presented below:

 

| ** **                                      | ** ** | **January 31,** | ** ** | **January 29,** | ** ** |
|-------------------------------------------------|------------|-----------------|------------|-----------------|------------|
| ** **                                      | ** ** | **2004**        | ** ** | **2005**        | ** ** |
| Deferred tax  assets relating to:               |       |            |       |            |       |
| Inventories                                     |       | $               | 1,291      |            | $          | 1,486 |   |
| Reserves not  currently deductible              |       | 1,840           |       | 2,102           |       |
| Charitable  contributions                       |       | 6               |       | 16              |       |
| Total current  deferred tax assets              |       | 3,137           |       | 3,605           |       |
| Deferred tax  assets (liabilities) relating to: |       |            |       |            |       |
| Property, plant  and equipment                  |       | (1,899          | )          | (2,066          | )          |
| Goodwill and  trademarks                        |       | 3,438           |       | 2,858           |       |
| Unremitted  foreign earnings                    |       | (1,104          | )          | (939            | )          |
| NOL Carryforward                                |       | 394             |       | 394             |       |
| Tax credit  carryforwards and other             |       | 2,035           |       | 2,035           |       |
| Valuation  allowance                            |       | (1,385          | )          | (1,385          | )          |
| Total  non-current deferred tax assets          |       | 1,479           |       | 897             |       |
|                                            |       |            |       |            |       |
| Total deferred  tax assets                      |       | $               | 4,616      |            | $          | 4,502 |   |

##  

TheCompany has state tax credit carryforwards totaling $1,761 at January 31, 2004and January 29, 2005, for which a valuation allowance of $1,385 has beenrecorded.  These carryforwards expire onvarious dates through 2019.

 

F-12

----

 

**11.****       INCOME(LOSS) PER SHARE**

 

Net income (loss) pershare as presented in the accompanying consolidated statements of operations iscomputed by dividing net income (loss) applicable to each class of Common Stockby the average number of shares of such stock outstanding, excludinganti-dilutive options.   Dividends andaccretion on the Company’s Preferred Stock (net of  treasury shares) were deducted from netincome (loss) for all fiscal periods through January 31, 2004 to arrive at netincome (loss) applicable to common stockholders.  Subsequent thereto, such dividends andaccretion are classified as interest expense (see Note 13).  This change in classification of preferreddividends has no impact on the Company’s computation of basic and diluted netincome (loss) per common share.  The12.5% liquidation preference relating to the Company’s Class A Common Stock isconsidered as per share earnings of that class only.  Following is the computation of the per shareamounts as presented in the consolidated statements of operations:

 
| ** **                                                                                     | ** ** | **Fiscal Year Ended** | ** ** |
|------------------------------------------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                                                     | ** ** | **February 1,**       | ** ** | **January 31,** | ** ** | **January 29,** | ** ** |
| ** **                                                                                     | ** ** | **2003**              | ** ** | **2004** | ** ** | **2005** | ** ** |
|                                                                                           |       |                  |       |   |   |   |   |
| Net income (loss) attributable to common stockholders                                          |       | $                     | 250        |   | $ | (32,220 | ) | $ | (17,452 | ) |
|                                                                                           |       |                  |       |   |   |   |   |
| Net income (loss) per common share                                                             |       | $                     | 0.06       |   | $ | (8.27 | ) | $ | (4.48 | ) |
| Preference per Class A common share                                                            |       | 23.84                 |       | 26.91 |   | 30.42 |   |
| Net income per Class A common share                                                            |       | $                     | 23.90      |   | $ | 18.64 |   | $ | 25.94 |   |
|                                                                                           |       |                  |       |   |   |   |   |
| Net (loss) income per Class B common share                                                     |       | $                     | 0.06       |   | $ | (8.27 | ) | $ | (4.48 | ) |
|                                                                                           |       |                  |       |   |   |   |   |
| Weighted average shares used in computation of basic and diluted net  income (loss) per share: |       |                  |       |   |   |   |   |
| Class A Common                                                                                 |       | 290,000               |       | 290,000 |   | 290,000 |   |
| Class B Common                                                                                 |       | 3,592,000             |       | 3,604,000 |   | 3,602,000 |   |

 

**12.  EMPLOYEE SAVINGS AND INVESTMENT PLAN**

 

The Company has a savings and investment plan under which eligibleemployees may contribute up to 60% of their compensation, subject to certainlimitations.  The Company matches 100%of  pre-tax contributions up to the first3% and 50% of the next 3%.  During the fiscalyears ended February 1, 2003, January 31, 2004 and January 29, 2005, theCompany made cash contributions to the plan aggregating $779, $667 and $596,respectively.

 

**13.  CAPITAL STRUCTURE**

 

***Redeemable Preferred Stock/Adoption of SFAS No. 150***

 

Inconnection with the Units Offering, in March 1997, the Company issued 1,200,000shares of 13% Senior Exchangeable Preferred Stock (“Redeemable Preferred Stock”)due 2009.  Total shares 

 

F-13

----

 

authorizedare 2,300,000. Dividends accrue quarterly at 13% on the sum of the liquidationvalue ($25 per share) plus accumulated and unpaid dividends thereon.

 

Onany scheduled dividend payment date, the Company may, at its option, butsubject to certain conditions, exchange all but not less than all of the sharesof Redeemable Preferred Stock then outstanding for the Company’s 13%Subordinated Exchange Debentures due 2009 (“Exchange Debentures”).  The Redeemable Preferred Stock or theExchange Debentures, if issued, will be redeemable at the option of theCompany, in whole or in part, at any time on or after March 15, 2002, at theredemption price of 101% of the liquidation preference or aggregate principalamount thereof (as the case may be), plus, in the case of the RedeemablePreferred Stock, an amount equal to all accumulated and unpaid dividends pershare to the date of redemption, or in the case of the Exchange Debentures, anamount equal to all accumulated and unpaid interest thereon to the date ofredemption.  On March 15, 2009, theCompany is required to redeem all outstanding shares of the RedeemablePreferred Stock at an amount equal to the liquidation preference and allaccumulated and unpaid dividends. The Redeemable Preferred Stock was recordedat an amount equal to the proceeds (net of discounts) less an amountattributable to the Class B Common Stock issued in Connection with the UnitsOffering.

 

In accordance with theprovisions of the Company’s Certificate of Designations relating to the 13%Senior Exchangeable Preferred Stock (the “Preferred Stock”), the Company haspaid stock dividends aggregating 1,075,782 shares ($26,895 liquidationvalue).  This amount includes alldividends declared and paid through the March 15, 2002 quarterly dividendpayment date.  Dividends subsequent tothat date are required to be paid in cash. The Board of Directors of Holdings has not declared any quarterlydividends since the March 15, 2002 dividend, and such dividends have not beenpaid.  To date, the accrued dividendsamount to $18,380, excluding dividends on preferred shares held by theCompany.  Under the Certificate ofDesignations relating to the Preferred Stock, if the Company fails to make cashdividend payments for four consecutive quarters, the holders of the PreferredStock, at a special meeting held for that purpose, voting together as a class,may elect two additional directors to the Company’s Board of Directors.    On November 6, 2003, a special meeting ofthe holders of the Preferred Stock was held for the purpose of electing twoadditional directors.  At that meeting,two directors, nominated by the holders of Preferred Stock, were elected to theCompany’s Board of Directors.

 

Effectiveas of the beginning of the current fiscal year ended January 29, 2005, theCompany adopted the provisions of SFAS No. 150, *Accountingfor Certain Financial Instruments with Characteristics of Both Liabilities andEquity*.  SFAS No. 150 requiresthat financial instruments issued in the form of shares that are mandatorilyredeemable be classified as liabilities, if such financial instruments embodyan unconditional obligation requiring the issuer to redeem them by transferringits assets at a specified or determinable date (or dates) or upon an event thatis certain to occur.  Adoption of SFASNo. 150 required the Company to begin classifying its 13% Senior ExchangeablePreferred Stock (the “Preferred Stock”) as a liability, and the relateddividends and accretion as interest expense. Prior to the effective date of SFAS No. 150, the Company classified thePreferred Stock on its balance sheet between liabilities and equity and therelated dividends and accretion as a reduction in equity not included as anelement of interest expense.  Theadoption of  SFAS No. 150 does not affectthe Company’s computation of basic and diluted net income (loss) per commonshare.   Restatement of prior periods isnot permitted when applying SFAS No. 150. If the provisions of SFAS No. 150 had been in effect for periods priorto the fiscal year ended January 

 

F-14

----

 

29, 2005, the Companywould have reported net income of $7,163 in the fiscal year ended February 1,2003 and a net loss of $24,415 in the fiscal year ended January 31, 2004.  Such amounts assume classifying dividends andaccretion on the Preferred Stock as interest expense and including the gain onpurchase of the Preferred Stock ($2,780 in the fiscal year ended February 1,2003) in the Company’s results of operations.

 

The Preferred Stock, aspresented in the accompanying consolidated balance sheets, is determined asfollows:

 
| ** **                                | ** ** | **January 31,** | ** ** | **January 29,** | ** ** |
|-------------------------------------------|------------|-----------------|------------|-----------------|------------|
| ** **                                | ** ** | **2004**        | ** ** | **2005**        | ** ** |
| Preferred Stock  issued and outstanding   |       |            |       |            |       |
| (Liquidation  value, $71,171 and $80,884) |       | $               | 71,140     |            | $          | 81,139 |   |
| Less—Preferred  Stock in treasury    |       |            |       |            |       |
| (Liquidation  value, $22,027 and $25,033) |       | (22,016         | )          | (25,111         | )          |
| Preferred  Stock—net                 |       |            |       |            |       |
| (Liquidation  value, $49,144 and $55,851) |       | $               | 49,124     |            | $          | 56,028 |   |

 

***Common Stock***

*** ***

The Class A Common Stock accretes liquidation preference at the rate of12.5% per annum, compounded quarterly, which is payable prior to distributionof dividends on Common Stock.

 

Holders of Class B Common Stock are entitled to one vote per share onall matters to be voted on by stockholders, while holders of Class A CommonStock and Class C Common Stock (authorized, but unissued)  have no right to vote on any matters except inspecial circumstances, such as a merger, consolidation, recapitalization orreorganization of the Company.

 

**14.  STOCK OPTION PLAN**

 

Effective January 1, 2002, the Company adopted a stock option plan (the“2002 Stock Option Plan”) which authorizes the granting of options forapproximately 5.0% of the outstanding Class B Common Stock on a fully dilutedbasis.   The 2002 Stock Option Plan maybe terminated by the Company at any time. The options may be granted to certain members of management and keyemployees and are subject to time vesting as well as vesting provisionsrelating to the sale or recapitalization of the Company, as defined.   The exercise price of such options is thefair market value of the Common Stock as of the date of grant.   Options to purchase 90,000 shares with anexercise period of ten years were granted to certain members of management andkey employees on January 1, 2002 at an exercise price of  $1 per share, the fair value at date ofgrant.  During the fiscal years endedFebruary 1, 2003 and January 31, 2004, options to purchase 2,500 shares and12,500 shares, respectively, were exercised.  During the fiscal years ended February 1, 2003and January 29, 2005, options to purchase 10,000 shares and 5,000 shares,respectively, were cancelled.     At January29, 2005 options to purchase 60,000 shares (all of which are exercisable) are outstandingwith an average life of approximately seven years.   The fair value of each stock option grant isestimated on the date of grant using the Black-Scholes option pricing modelwith the following weighted average assumptions used for grants in fiscal 2002:risk-free interest rate of 5.75%; expected dividend yield of 0%; expected lifeof 10 years; and expected volatility of 0%.

 

**15.  COMMITMENTS AND CONTINGENCIES**

 

***Leases—***The Company is obligated under variousleases for equipment, office space and 

 

F-15

----

 

distribution facilities which expire at various dates through 2009.Future minimum rental commitments under noncancelable operating leases, withterms in excess of one year, are as follows:

 
| Fiscal Year Ending In: |   |   |   |
|------------------------|--------|--------|--------|
| 2006                   |   | $      | 2,787  |   |
| 2007                   |   | 1,745  |   |
| 2008                   |   | 968    |   |
| 2009                   |   | 597    |   |
| Thereafter             |   | 352    |   |
| Total                  |   | $      | 6,449  |   |

 

Rental expense for the fiscal years ended February 1, 2003, January 31,2004 and January 29, 2005 was $2,818, $2,875 and $3,011, respectively.

 

***Litigation—***The Company is party to variouslitigation matters incidental to the conduct of its business.  The Company does not believe that the outcomeof any of the matters in which it is currently involved will have a materialadverse effect on the financial condition, liquidity, business or results ofoperations of the Company.

 

***Letters of Credit****—*At January 29, 2005,the Company was party to open letters of credit in the amount of  $1,278, expiring through July 2005.

 

***EnvironmentalMatters***—Prior to the Acquisition, groundwatercontamination was discovered at the Asheville, North Carolina facility.  In 1990, Winston Mills, Inc., a subsidiary ofMcGregor Corporation (“McGregor”), entered into an Administrative Order onConsent (“AOC”) with the North Carolina Department of Environment, Health andNatural Resources (“DEHNR”) concerning such contamination. Since that time,McGregor, through Culligan International Company (“Culligan”), a formeraffiliate, has been conducting investigative and corrective action under DEHNRoversight and has remained responsible to DEHNR with respect to contaminationthat is subject to the AOC. While the total cost of the cleanup at the facilitywill depend upon the extent of contamination and the corrective action approvedby the DEHNR, preliminary cleanup cost estimates range from $1.0 to $4.0million. McGregor continues to be a party to the Asheville, North Carolinafacility’s hazardous waste permit and Culligan has guaranteed McGregor’sobligations under the AOC. McGregor also contractually agreed to fullyindemnify the Company with respect to the contamination as part of the terms ofthe acquisition of the Anvil business (the “Acquisition”).   This indemnity is guaranteed by Culligan andby Astrum International Corp. (now known as Samsonite Corporation), anaffiliate of McGregor, in the event Culligan is unable to perform its guarantorobligations.  The Company could be heldresponsible for the cleanup of this contamination if McGregor, Culligan andSamsonite were all to become unable to fulfill their obligations to DEHNR.   McGregor also agreed to fully indemnify theCompany for any costs associated with certain other environmental mattersidentified at the time of the Acquisition. The Company believes that, even if McGregor were unable to fulfill itsindemnification obligations, these other matters would not have a materialadverse effect on the financial condition or results of operations of theCompany.   McGregor also agreed toindemnify the Company, subject to certain limitations, with respect toenvironmental liabilities that arise from events that occurred or conditions inexistence prior to the Acquisition. Culligan and Samsonite have also guaranteed McGregor’s obligations underthese indemnities.

 

F-16

----

 

**16.** **  SUMMARIZED FINANCIAL DATA OFCERTAIN SUBSIDIARIES**

 

Holdings has no independent operations apart from its wholly-ownedsubsidiary, Anvil, and its sole asset is the capital stock of Anvil.  Anvil is Holdings’ only directsubsidiary.  Holdings and Cottontopsfully and unconditionally, jointly and severally guarantee the 10-7/8% SeniorNotes of Anvil.  In addition to Cottontops,Anvil has six other direct subsidiaries (the “Non-U.S. Subsidiaries”): A.K.H.,S.A., Estrella Mfg. Ltda. and Star, S.A., organized in Honduras; Livna,Limitada, organized in El Salvador; Annic LLC, S.A., organized in Nicaragua;and CDC GmbH, organized in Germany. There are no other direct or indirect subsidiaries of the Company.   The following information presents certaincondensed consolidating financial data for Holdings, Anvil, Cottontops and theNon-U.S. Subsidiaries.  Completefinancial statements and other disclosures concerning Anvil, Cottontops and theNon-U.S. Subsidiaries are not presented because Management has determined theyare not material to investors.

 
| ** **                                                                                            | ** ** | ** **   | ** ** | ** ** | ** ** | ** **     | ** ** | ** **       | ** ** | ** **       | ** ** | **Holdings and** | ** ** |
|-------------------------------------------------------------------------------------------------------|------------|--------------|------------|------------|------------|----------------|------------|------------------|------------|------------------|------------|------------------|------------|
| ** **                                                                                            | ** ** | ** **   | ** ** | ** ** | ** ** | ** **     | ** ** | **Non-U.S.**     | ** ** | ** **       | ** ** | **Subsidiaries** | ** ** |
| ** **                                                                                            | ** ** | **Holdings** | ** ** | **Anvil**  | ** ** | **Cottontops** | ** ** | **Subsidiaries** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
| ***FISCAL  2004***                                                                                    |       |         |       |       |       |           |       |             |       |             |       |             |       |
| Balance Sheet  Data                                                                                   |       |         |       |       |       |           |       |             |       |             |       |             |       |
| Cash and cash  equivalents                                                                            |       |         |       | $          | 4,382      |           | $          | 79               |       | $                | 221        |             |       |   | $ | 4,682 |   |
| Accounts  receivable-net                                                                              |       |         |       | 27,071     |       | 113            |       | 1,182            |       |             |       | 28,366           |       |
| Inventories                                                                                           |       |         |       | 48,464     |       | 259            |       | 1,483            |       |             |       | 50,206           |       |
| Other current  assets                                                                                 |       |         |       | 7,275      |       | 90             |       | 152              |       |             |       | 7,517            |       |
| Total current  assets                                                                                 |       |         |       | 87,192     |       | 541            |       | 3,038            |       |             |       | 90,771           |       |
| Property, plant  & equipment-net                                                                  |       |         |       | 25,259     |       | 1,155          |       | 4,501            |       |             |       | 30,915           |       |
| Intangibles and  other non-current assets-net                                                         |       |         |       | 4,138      |       |           |       | 308              |       |             |       | 4,446            |       |
| Investment in  Anvil                                                                                  |       | $            | (38,245    | )          |       |           |       |             |       |             | $          | 38,245           |       |   |   |
| Investment in  Cottontops                                                                             |       |         |       | 1,044      |       |           |       |             |       | (1,044           | )          |             |       |
| Investment in  Non-U.S. Subsidiaries                                                                  |       |         |       | 6,120      |       |           |       |             |       | (6,120           | )          |             |       |
|                                                                                                  |       | $            | (38,245    | )          | $          | 123,753        |       | $                | 1,696      |             | $          | 7,847            |       | $ | 31,081 |   | $ | 126,132 |   |
|                                                                                                  |       |         |       |       |       |           |       |             |       |             |       |             |       |
| Accounts payable                                                                                      |       |         |       | $          | 6,547      |           | $          | 472              |       | $                | 289        |             |       |   | $ | 7,308 |   |
| Accrued  liabilities and other current liabilities                                                    |       |         |       | 15,799     |       | 180            |       | 1,438            |       |             |       | 17,417           |       |
| Revolving credit  loan                                                                                |       |         |       | 10,280     |       |           |       |             |       |             |       | 10,280           |       |
| Long-term debt  and other non-current obligations (including mandatorily redeemable preferred  stock) |       | $            | 56,028     |       | 129,372    |           |       |             |       |             |       |             | 185,400    |   |
| Stockholders’  (deficiency)/ equity                                                              |       | (94,273      | )          | (38,245    | )          | 1,044          |       | 6,120            |       | $                | 31,081     |             | (94,273    | ) |
|                                                                                                  |       | $            | (38,245    | )          | $          | 123,753        |       | $                | 1,696      |             | $          | 7,847            |       | $ | 31,081 |   | $ | 126,132 |   |
|                                                                                                  |       |         |       |       |       |           |       |             |       |             |       |             |       |
| Statement of  Operations Data                                                                         |       |         |       |       |       |           |       |             |       |             |       |             |       |
| Net sales                                                                                             |       |         |       | $          | 175,234    |           | $          | 16,551           |       | $                | 22,565     |             | $          | (21,992 | ) | $ | 192,358 |   |
| Cost of goods  sold                                                                                   |       |         |       | 137,232    |       | 16,714         |       | 21,915           |       | (21,992          | )          | 153,869          |       |
| Gross profit                                                                                          |       |         |       | 38,002     |       | (163           | )          | 650              |       |             |       | 38,489           |       |
| Operating  expenses                                                                                   |       |         |       | 23,538     |       | 660            |       | 1,015            |       |             |       | 25,213           |       |
| Interest expense  and other                                                                           |       | $            | 6,904      |       | 15,828     |           | (24        | )                |       |             |       |             | 22,708     |   |
| (Loss) before  taxes                                                                                  |       | (6,904       | )          | (1,364     | )          | (799           | )          | (365             | )          |             |       | (9,432           | )          |
| (Benefit) for  income taxes                                                                           |       | —       |       | (433       | )          | (254           | )          | (116             | )          |             |       | (803             | )          |
| Net (loss)                                                                                            |       | $            | (6,904     | )          | $          | (931           | )          | $                | (545       | )                | $          | (249             | )          |   |   | $ | (8,629 | ) |

 

F-17

----

 
| ** **                                                                           | ** ** | ** **   | ** ** | ** ** | ** ** | ** **     | ** ** | ** **       | ** ** | ** **       | ** ** | **Holdings and** | ** ** |
|--------------------------------------------------------------------------------------|------------|--------------|------------|------------|------------|----------------|------------|------------------|------------|------------------|------------|------------------|------------|
| ** **                                                                           | ** ** | ** **   | ** ** | ** ** | ** ** | ** **     | ** ** | **Non-U.S.**     | ** ** | ** **       | ** ** | **Subsidiaries** | ** ** |
| ** **                                                                           | ** ** | **Holdings** | ** ** | **Anvil**  | ** ** | **Cottontops** | ** ** | **Subsidiaries** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
| ***FISCAL  2004 (Continued)***                                                       |       |         |       |       |       |           |       |             |       |             |       |             |       |
| Cash Flow Data                                                                       |       |         |       |       |       |           |       |             |       |             |       |             |       |
| Cash provided by  operations                                                         |       |         |       | $          | 9,694      |           | $          | 3,729            |       | $                | 1,084      |             |       |   | $ | 14,507 |   |
| Investing  Activities—Purchase of property, plant & equipment and other-net |       |         |       | (3,110     | )          | (710           | )          | (464             | )          |             |       | (4,284           | )          |
| Financing  Activities—Repayments of revolving credit and term loan              |       |         |       | (6,992     | )          |           |       |             |       |             |       | (6,992           | )          |
| Intercompany  financing activities                                                   |       |         |       | 3,664      |       | (2,942         | )          | (722             | )          |             |       | —           |       |
| Increase  (decrease) in cash                                                         |       |         |       | 3,256      |       | 77             |       | (102             | )          |             |       | 3,231            |       |
| Cash at  beginning of period                                                         |       |         |       | 1,126      |       | 2              |       | 323              |       |             |       | 1,451            |       |
| Cash at end of  period                                                               |       |         |       | $          | 4,382      |           | $          | 79               |       | $                | 221        |             |       |   | $ | 4,682 |   |
|                                                                                 |       |         |       |       |       |           |       |             |       |             |       |             |       |
| ***FISCAL  2003***                                                                   |       |         |       |       |       |           |       |             |       |             |       |             |       |
| Balance Sheet  Data                                                                  |       |         |       |       |       |           |       |             |       |             |       |             |       |
| Cash and cash  equivalents                                                           |       |         |       | $          | 1,126      |           | $          | 2                |       | $                | 323        |             |       |   | $ | 1,451 |   |
| Accounts  receivable-net                                                             |       |         |       | 24,748     |       | 2,438          |       | 1,310            |       |             |       | 28,496           |       |
| Inventories                                                                          |       |         |       | 49,592     |       | 1,607          |       | 1,315            |       |             |       | 52,514           |       |
| Other current  assets                                                                |       |         |       | 9,770      |       | 133            |       | 265              |       |             |       | 10,168           |       |
| Total current  assets                                                                |       |         |       | 85,236     |       | 4,180          |       | 3,213            |       |             |       | 92,629           |       |
| Property, plant  & equipment-net                                                 |       |         |       | 26,412     |       | 720            |       | 6,078            |       |             |       | 33,210           |       |
| Intangibles and  other non-current assets-net                                        |       |         |       | 5,188      |       |           |       | 313              |       |             |       | 5,501            |       |
| Investment in  Anvil                                                                 |       | $            | (36,515    | )          |       |           |       |             |       |             | $          | 36,515           |       |   |   |
| Investment in  Cottontops                                                            |       |         |       | 4,531      |       |           |       |             |       | (4,531           | )          |             |       |
| Investment in  Non-U.S. Subsidiaries                                                 |       |         |       | 7,091      |       |           |       |             |       | (7,091           | )          |             |       |
|                                                                                 |       | $            | (36,515    | )          | $          | 128,458        |       | $                | 4,900      |             | $          | 9,604            |       | $ | 24,893 |   | $ | 131,340 |   |
|                                                                                 |       |         |       |       |       |           |       |             |       |             |       |             |       |
| Accounts payable                                                                     |       |         |       | $          | 7,586      |           | $          | 255              |       | $                | 590        |             |       |   | $ | 8,431 |   |
| Accrued  liabilities and other current liabilities                                   |       |         |       | 11,261     |       | 114            |       | 1,923            |       |             |       | 13,298           |       |
| Revolving credit  loan                                                               |       |         |       | 16,686     |       |           |       |             |       |             |       | 16,686           |       |
| Long-term debt  and other non-current liabilities                                    |       |         |       | 129,440    |       |           |       |             |       |             |       | 129,440          |       |
| Redeemable  preferred stock                                                          |       | $            | 49,124     |       |       |           |       |             |       |             |       |             | 49,124     |   |
| Stockholders’  (deficiency)/equity                                              |       | (85,639      | )          | (36,515    | )          | 4,531          |       | 7,091            |       | $                | 24,893     |             | (85,639    | ) |
|                                                                                 |       | $            | (36,515    | )          | $          | 128,458        |       | $                | 4,900      |             | $          | 9,604            |       | $ | 24,893 |   | $ | 131,340 |   |
|                                                                                 |       |         |       |       |       |           |       |             |       |             |       |             |       |
| Statement of  Operations Data                                                        |       |         |       |       |       |           |       |             |       |             |       |             |       |
| Net sales                                                                            |       |         |       | $          | 170,379    |           | $          | 17,748           |       | $                | 25,650     |             | $          | (22,555 | ) | $ | 191,222 |   |
| Cost of goods  sold                                                                  |       |         |       | 144,348    |       | 17,184         |       | 24,290           |       | (22,555          | )          | 163,267          |       |
| Gross profit                                                                         |       |         |       | 26,031     |       | 564            |       | 1,360            |       |             |       | 27,955           |       |
| Operating  expenses                                                                  |       |         |       | 23,329     |       | 701            |       | 727              |       |             |       | 24,757           |       |
| Goodwill  Impairment                                                                 |       |         |       | 19,416     |       |           |       |             |       |             |       | 19,416           |       |
| Interest expense  and other                                                          |       |         |       | 15,416     |       | (13            | )          |             |       |             |       | 15,403           |       |
| (Loss) income  before taxes                                                          |       |         |       | (32,130    | )          | (124           | )          | 633              |       |             |       | (31,621          | )          |
| (Benefit)  provision for income taxes                                                |       |         |       | (13,511    | )          | (52            | )          | 266              |       |             |       | (13,297          | )          |
| Net (loss)  income                                                                   |       |         |       | $          | (18,619    | )              | $          | (72              | )          | $                | 367        |             |       |   | $ | (18,324 | ) |

 

F-18

----

 
| ** **                                                                           | ** ** | ** **   | ** ** | ** ** | ** ** | ** **     | ** ** | ** **       | ** ** | ** **       | ** ** | **Holdings and** | ** ** |
|--------------------------------------------------------------------------------------|------------|--------------|------------|------------|------------|----------------|------------|------------------|------------|------------------|------------|------------------|------------|
| ** **                                                                           | ** ** | ** **   | ** ** | ** ** | ** ** | ** **     | ** ** | **Non-U.S.**     | ** ** | ** **       | ** ** | **Subsidiaries** | ** ** |
| ** **                                                                           | ** ** | **Holdings** | ** ** | **Anvil**  | ** ** | **Cottontops** | ** ** | **Subsidiaries** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
| ***FISCAL  2003 (Continued)***                                                       |       |         |       |       |       |           |       |             |       |             |       |             |       |
| Cash Flow Data                                                                       |       |         |       |       |       |           |       |             |       |             |       |             |       |
| Cash provided  (used) by operations                                                  |       |         |       | $          | (21,796    | )              | $          | 141              |       | $                | 2,204      |             |       |   | $ | (19,451 | ) |
| Investing  Activities—Purchase of property, plant & equipment and other-net |       |         |       | (2,922     | )          | (54            | )          | (396             | )          |             |       | (3,372           | )          |
| Financing  Activities—Borrowings repayments and other-net                       |       |         |       | 14,341     |       |           |       |             |       |             |       | 14,341           |       |
| Intercompany  financing activities                                                   |       |         |       | 2,402      |       | (87            | )          | (2,315           | )          |             |       | —           |       |
| Decrease in cash                                                                     |       |         |       | (7,975     | )          | —         |       | (507             | )          |             |       | (8,482           | )          |
| Cash at  beginning of period                                                         |       |         |       | 9,101      |       | 2              |       | 830              |       |             |       | 9,933            |       |
| Cash at end of  period                                                               |       |         |       | $          | 1,126      |           | $          | 2                |       | $                | 323        |             |       |   | $ | 1,451 |   |
|                                                                                 |       |         |       |       |       |           |       |             |       |             |       |             |       |
| ***FISCAL  2002***                                                                   |       |         |       |       |       |           |       |             |       |             |       |             |       |
| Statement of  Operations Data                                                        |       |         |       |       |       |           |       |             |       |             |       |             |       |
| Net sales                                                                            |       |         |       | $          | 209,068    |           | $          | 21,016           |       | $                | 24,638     |             | $          | (30,393 | ) | $ | 224,329 |   |
| Cost of goods  sold                                                                  |       |         |       | 157,370    |       | 18,890         |       | 21,957           |       | (30,393          | )          | 167,824          |       |
| Gross profit                                                                         |       |         |       | 51,698     |       | 2,126          |       | 2,681            |       |             |       | 56,505           |       |
| Operating  expenses                                                                  |       |         |       | 23,164     |       | 979            |       | 593              |       |             |       | 24,736           |       |
| Interest expense  and other                                                          |       |         |       | 14,872     |       | (175           | )          | 346              |       |             |       | 15,043           |       |
| Income before  taxes                                                                 |       |         |       | 13,662     |       | 1,322          |       | 1,742            |       |             |       | 16,726           |       |
| Provision for  income taxes                                                          |       |         |       | 5,017      |       | 463            |       | 609              |       |             |       | 6,089            |       |
| Net income                                                                           |       |         |       | $          | 8,645      |           | $          | 859              |       | $                | 1,133      |             |       |   | $ | 10,637 |   |
|                                                                                 |       |         |       |       |       |           |       |             |       |             |       |             |       |
| Cash Flow Data                                                                       |       |         |       |       |       |           |       |             |       |             |       |             |       |
| Cash provided  (used) by operations                                                  |       |         |       | $          | 27,485     |           | $          | (1,868           | )          | $                | 3,142      |             |       |   | $ | 28,759 |   |
| Investing  Activities Purchase of property, plant & equipment and other-net      |       |         |       | (14,133    | )          | (599           | )          | (2,331           | )          |             |       | (17,063          | )          |
| Financing  Activities Purchase of Preferred Stock and other-net                      |       |         |       | (13,694    | )          |           |       |             |       |             |       | (13,694          | )          |
| Intercompany  financing activities                                                   |       |         |       | (2,105     | )          | 2,466          |       | (361             | )          |             |       | —           |       |
| Increase  (decrease) in cash                                                         |       |         |       | (2,447     | )          | (1             | )          | 450              |       |             |       | (1,998           | )          |
| Cash at  beginning of period                                                         |       |         |       | 11,548     |       | 3              |       | 380              |       |             |       | 11,931           |       |
| Cash at end of  period                                                               |       |         |       | $          | 9,101      |           | $          | 2                |       | $                | 830        |             |       |   | $ | 9,933 |   |
|                                                                                      |            |              |            |            |            |                |            |                  |            |                  |            |                  |            |  |  |  |  |  |

 

**17.  CERTAINRELATIONSHIPS AND RELATED TRANSACTIONS**

 

Anvil, Holdings and Cottontops have entered into a management agreementwith BRS, effective as of the Recapitalization, whereby BRS is to  provide certain advisory and consultingservices in relation to the affairs of Anvil, Holdings and Cottontops,including services in connection with strategic financial planning, and theselection, retention and supervision of investment bankers or other financialadvisors or consultants.  Annual feesunder this management agreement are $250.

 

Anvil, Holdings and Cottontops have entered into a management agreementwith CVC Management LLC (“CVC Mgmt.”), an affiliate of Court Square effectiveSeptember 15, 2002, whereby CVC Mgmt. is to provide certain advisory and consulting services in relation to theaffairs of Anvil, Holdings and Cottontops, including services in connectionwith strategic financial planning, and the selection, retention and supervisionof investment bankers or other financial advisors or consultants.  Annual fees under this management agreementare $250.

 

F-19

----

 

BRS and Court Square are significant stockholders of the Company andeach has the right to name up to three of the Company’s Directors.  Currently BRS has designated two and CourtSquare has designated one of such Directors.

 

**18.  QUARTERLY FINANCIAL INFORMATION (Unaudited)**

 
| ** **                                      | ** ** | **Fiscal 2003** | ** ** | **Fiscal 2004** | ** ** |
|-------------------------------------------------|------------|-----------------|------------|-----------------|------------|
| ** **                                      | ** ** | **Quarter**     | ** ** | **Quarter**     | ** ** |
| ** **                                      | ** ** | **First**       | ** ** | **Second**      | ** ** | **Third** | ** ** | **Fourth** | ** ** | **First** | ** ** | **Second** | ** ** | **Third** | ** ** | **Fourth** | ** ** |
|                                            |       |            |       |            |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Net sales                                       |       | $               | 62,675     |            | $          | 52,254 |   | $ | 36,965 |   | $ | 39,328 |   | $ | 53,021 |   | $ | 53,104 |   | $ | 41,477 |   | $ | 44,756 |   |
| Gross profit                                    |       | 10,008          |       | 5,514           |       | 4,348 |   | 8,085 |   | 12,952 |   | 10,555 |   | 7,258 |   | 7,724 |   |
| Operating profit  (loss)                        |       | 3,111           |       | (564            | )          | (1,830 | ) | (16,935 | ) | 5,983 |   | 4,599 |   | 861 |   | 1,833 |   |
| Net (loss)(1)                                   |       | (563            | )          | (2,651          | )          | (3,821 | ) | (11,289 | ) | (452 | ) | (1,333 | ) | (3,589 | ) | (3,255 | ) |
|                                            |       |            |       |            |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic and  diluted net income (loss) per share: |       |            |       |            |       |   |   |   |   |   |   |   |   |   |   |   |   |
|                                            |       |            |       |            |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Class A Common  Stock                           |       | $               | 5.20       |            | $          | 5.01 |   | $ | 4.93 |   | $ | 3.50 |   | $ | 6.45 |   | $ | 6.53 |   | $ | 6.20 |   | $ | 6.76 |   |
|                                            |       |            |       |            |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Class B Common  Stock                           |       | $               | (0.96      | )               | $          | (1.56 | ) | $ | (1.88 | ) | $ | (3.87 | ) | $ | (0.64 | ) | $ | (0.90 | ) | $ | (1.50 | ) | $ | (1.45 | ) |

 

----

(1)  For fiscal 2004, includes the classification ofdividends and accretion on  the PreferredStock as interest expense, pursuant to the adoption of SFAS No. 150.  See Note 13.

 

F-20

----

 

# **SCHEDULE II**

# ** **

## **ANVILHOLDINGS, INC. AND SUBSIDIARIES**

**VALUATIONAND QUALIFYING ACCOUNTS**

 
| ** **                          | ** ** | ** **     | ** ** | **Charged**       | ** ** | ** **     | ** ** | ** **        | ** ** | ** **     | ** ** |
|-------------------------------------|------------|----------------|------------|-------------------|------------|----------------|------------|-------------------|------------|----------------|------------|
| ** **                          | ** ** | **Balance at** | ** ** | **(credited) to** | ** ** | **Charged to** | ** ** | ** **        | ** ** | **Balance at** | ** ** |
| ** **                          | ** ** | **beginning**  | ** ** | **costs and**     | ** ** | **other**      | ** ** | ** **        | ** ** | **end of**     | ** ** |
| **Description**                     | ** ** | **of year**    | ** ** | **expenses**      | ** ** | **accounts**   | ** ** | **Deductions(a)** | ** ** | **year**       | ** ** |
|                                |       |           |       |              |       |           |       |              |       |           |       |
| Fiscal year  ended February 1, 2003 |       |           |       |              |       |           |       |              |       |           |       |
| Allowance for  doubtful accounts    |       | $              | 1,110      |              | $          | 77             |       |              |       | $              | (35        | ) | $ | 1,152 |   |
|                                |       |           |       |              |       |           |       |              |       |           |       |
| Fiscal year  ended January 31, 2004 |       |           |       |              |       |           |       |              |       |           |       |
| Allowance for  doubtful accounts    |       | $              | 1,152      |              | $          | (10            | )          |              |       | $              | 23         |   | $ | 1,165 |   |
|                                |       |           |       |              |       |           |       |              |       |           |       |
| Fiscal year  ended January 29, 2005 |       |           |       |              |       |           |       |              |       |           |       |
| Allowance for  doubtful accounts    |       | $              | 1,165      |              |       |           |       |              | $          | 23             |       | $ | 1,188 |   |

 

----

(a)          Accounts written off orcollected - net

 

S-1

----