**SECURITIESAND EXCHANGE COMMISSION**

**WASHINGTON,DC 20549**

 

**FORM 10-K**

 

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

 

**For theFiscal Year Ended January 28, 2006**

 

**CommissionFile Number 333-26999**

 

**ANVIL HOLDINGS, INC.**

(Exact name ofregistrant 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  offices)              |       |                 |

 

Registrant’s telephone number (including area code)       **(212) 476-0300**

 

**SecuritiesRegistered Pursuant to Section 12(b) or 12(g) of the Act:**

None

 

Indicateby check mark if the registrant is a well-known seasoned issuer, as defined inRule 405 of the Securities Act:  o  Yes  ýNo

 

Indicateby check mark if the registrant is not required to file reports pursuant toSection 15(d) of the Act:  ýYes  oNo

 

Indicate by check mark whether the registrant (1) has filed all reportsrequired to be filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject to suchfiling requirements for the past 90 days: ý  Yes  oNo

 

Indicate by check mark if disclosure of delinquent filers pursuant toItem 405 of Regulation S-K is not contained herein, and will not be contained,to the best of the registrant’s knowledge, in definitive proxy or informationstatements incorporated by reference in Part III of this Form 10-K or anyamendment to this Form 10-K :  ý

 

Indicate by check mark whetherthe registrant is a:

Largeaccelerated filer    o           Accelerated Filer     o           Non-acceleratedfiler  ý

 

Indicate by check mark whetherthe registrant is a shell company:

o Yes         ý   No

 

At April 14, 2006 therewere 390,000 of the registrant’s Class B Common Stock, $0.01 per share parvalue (the “Class B Common”) held by non-affiliates. At such date, there was noestablished trading market for these shares.

 

At April 14, 2006, therewere 290,000 shares of the registrant’s Class A Common Stock, $0.01 per sharepar value (the “Class A Common”) and 3,600,000 shares of Class B Commonoutstanding.

 

**DocumentsIncorporated by Reference:**

** **

Those portions of the CombinedInformation Statement for the Company’s 2006 Annual Meetings of Stockholders(the “Information Statement”) are incorporated herein by reference in Part III,Items 11, 12, 13 and 14.

 

 

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**PART I**

 

***Item 1. Business.***

 

**Corporate Structure**

 

As used herein, the “Company”refers to Anvil Holdings, Inc. (“Holdings”), including, in some instances, itswholly-owned subsidiary, Anvil Knitwear, Inc., a Delaware corporation (“Anvil”),and its other subsidiaries, as appropriate to the 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 and affiliates(collectively, “BRS”) purchased new common stock; (iii) 399 Venture 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 capital stock of the Company inexchange for newly issued common stock; and (iv) 399 Venture exchanged aportion of its capital stock for Senior Exchangeable Preferred Stock and newcommon stock. During fiscal 2003, 399 Venture transferred its holdings in theCompany 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 ExchangeablePreferred Stock, due 2009 (the “Preferred Stock”) and (ii) 390,000 shares ofClass B common stock (the “Units Offering”). Additionally, Anvil sold $130,000,000 of 10-7/8% Senior Notes due 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’s fiscal years in this report, “fiscal 2005”refers to the year ended January 28, 2006, “fiscal 2004” refers to the yearended January 29, 2005, etc.

 

**General**

 

The Company is engaged inthe business of designing, manufacturing and marketing high quality activewearfor men, women and children, including short and long sleeve T-shirts, sportshirts and niche products, all in a variety of styles and fabrications. Theseactivewear products are supplemented with caps, towels, robes and bags. TheCompany markets and sells its products primarily to distributors, screenprinters and private label brand owners, principally in the United States. TheCompany’s brands include the *Anvil,* C*otton Deluxe, chromaZONE*and *TowelsPlus*brand names and the *Anvil*logo. Priorto their ultimate resale to the consumer, the Company’s products typically areprinted or embroidered with logos, designs or characters. Marketing of theCompany’s products is accomplished by:  (i)maintaining a broad range of high quality goods; (ii) strong relationships withcustomers and suppliers; (iii) flexible, vertically integrated manufacturingoperations; (iv) commitment to controlling costs and improving manufacturingprocesses; and (v) taking advantage of the continuing growth of the activewearmarket.

 

The Company offers highquality 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 itscustomers to meet their needs for style and color requirements. The Company competesby: (i) targeting niche products; (ii) responding quickly to marketdevelopments; (iii) regularly introducing new products; and (iv) providing abroad range of products. In addition, the Company continues to make significantinvestments to maintain and

 

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modernize itsmanufacturing and distribution facilities and to seek methods to improvequality, increase efficiency, reduce costs, manage inventories and shortenproduction cycles.

 

# **Business Strategy**

#  

The Company’s objectiveis to increase net sales and improve results of operations by implementing thefollowing key elements of its business strategy:

 

*Offer a Broad Range of HighQuality Products*.The Company will continue to offer high quality activewear in a variety ofstyles, colors, fabric weights and blends, enabling it to serve a broad numberof market niches effectively. The Company will continue to expand its productofferings and to broaden its position in the imprinted/decorated product marketby offering products to supplement its traditional activewear business.

 

*Enhance and Expand CustomerRelationships*. The Company continually seeks to strengthenand expand its customer relationships by promoting the Company’s: (i) broadproduct offerings; (ii) ability to design customized products; (iii) quick,reliable delivery; and (iv) ability to accommodate modifications to customerorders. The Company’s direct salesforce focuses on developing strongrelationships with distributors, and enhancing “pull through” with the distributors’customers. In fiscal 2005, sales to domestic distributors accounted forapproximately 72% of the Company’s net sales. In the Company’s experience,distributors typically place larger orders, purchase a broader product mix,maintain higher inventory levels and develop more predictable order andre-order patterns than certain of its other customers. Nevertheless, theCompany continues to actively seek to broaden its customer base. The Companyestimates that distributors resell products to more than 30,000 screenprinters, embroiderers and other customers. The Company’s broad productofferings have enabled it to more effectively service its customers and satisfytheir disparate 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 core products) which knits (from purchased yarn), bleaches, dyes, finishes,cuts and sews its activewear products at its manufacturing facilities. TheCompany believes that being vertically integrated allows it to maintain acompetitive cost structure, minimize delivery time and provide consistent, highquality products. The Company’s manufacturing efficiency enables it to provideits customers with low cost, quality products.

 

*Continue to Control Costs andImprove Manufacturing*. The Company continues to make capitalexpenditures to maintain and modernize its manufacturing and distributionfacilities and explore methods to improve quality, increase efficiency, reducecosts, manage inventories and shorten production cycles. The Company believesit can improve its operating results by increasing the use of offshoreoperations and continually improving its manufacturing processes. Recently, theCompany ceased operations in El Salvador and is in the process of transferringproduction to an expanded cutting and sewing facility in Nicaragua. Also, the Company has announced its plans for a newHonduran textile facility, which it is anticipated will ultimately replace theCompany’s textile operations in Asheville, North Carolina. See “*Item 2. Properties,*” below.

 

*Capitalize on the Growth of theActivewear Market*. The Company believes that sales ofactivewear products have been, and will continue to be driven by consumerpreference for comfortable apparel selections and the continuing emphasis onphysical fitness. In addition, continuing general economic growth is expectedto enhance the corporate promotional business, a significant segment of theCompany’s ultimate customer base.

 

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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. These activewear products are supplemented with caps,towels, robes and bags. This broad array of products is marketed and sold bythe 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 (“SFAS”) No. 131, *Disclosures about Segmentsof an Enterprise and Related Information.*This one segment consistsof several major product categories as follows:

 

*Basic and promotional T-shirts*comprisethe Company’s principal source of revenues, accounting for approximately 69%and 65% of net sales in fiscal 2005 and 2004, respectively. *Ladies Apparel* includes fashion T-shirts and tank tops forwomen*. Sport Shirts*include short and longsleeve collared shirts for men. *Niche Products*representthe Company’s specialty items such as baseball shirts, “ringers,” sleevelessT-shirts and athletic shorts. *Accessories* arecaps, towels, robes and bags. The Company sources all of its*accessories* and portions of its other product categories asfinished products.

 

## **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 seeks todifferentiate itself from other activewear manufacturers by also marketingniche products to its customers and encouraging its customers to purchase abroader product mix. However, over the past few years, demand for low-priced basicT-shirts has increased, which has caused the T-shirt category to grow as apercentage of the Company’s sales.

 

Management continues tobelieve that offering higher priced products with more style elements to itscustomers has helped the Company to compete effectively and to service thelarge and middle-tier wholesale T-shirt distributor market. However, in orderto keep up with changing market dynamics, Management continues to expand anddiversify its customer base.

 

## **Customers**

## ** **

The Company markets itsproducts primarily to distributors, a wide range of screen printers and privatelabel customers. The Company also sells a small percentage of its productsdirectly to retailers. The Company currently services over 200 customers, 20 ofwhich account for approximately 83% of the Company’s net sales. One suchcustomer, Broder Bros., Co., accounted for approximately 36% of the Company’s business,based upon net sales for fiscal 2005. No other individual customer accountedfor more than 10% of the Company’s net sales during fiscal 2005.

 

## **Raw Materials**

## ** **

The Company’s primary rawmaterial is cotton yarn. The Company does not spin its own yarn. Instead, theCompany purchases substantially all of its yarn pursuant to purchase ordersfrom a number of domestic spinners. One individual spinner accounted forapproximately 39%****of the Company’s

 

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purchased yarn in fiscal2005. The vast majority of the yarn used by the Company is readily availableand can be purchased from a number of sources. Management believes that marketconcentration by spinners may have a long-term impact on the availability andpricing of domestic yarn. To date, despite some concentration, there has beenno adverse effect on the Company’s ability to obtain yarn.

 

The Company determinesthe size of its purchase orders for yarn based on its estimate of future yarnprices and levels of supply. Purchase orders can be for quantities of yarnranging from 30 days to a year’s supply.

 

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

 

## **Competition**

 

The imprinted activewearsegment of the apparel market includes a number of significant competitors andthe activewear segment of the industry overall is extremely competitive.Competition in this segment of the apparel industry is generally based uponprice, quality, customer service and breadth of product offerings. In responseto market conditions and industry-wide adjustments in price, the Company reviewsand adjusts its product offerings and pricing structure on an ongoing 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 has caused many domestic apparelmanufacturers to move their manufacturing operations 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 labelproducts at competitive prices on a timely basis. The Company believes that itsoverall turnaround time is well-regarded in the industry and provides acompetitive advantage. The Company also believes that its strategy of offeringa broader product mix including higher quality, niche products, and use oflower-cost offshore manufacturing operations, should enable it to continue tocompete effectively in its industry market segment.

 

Supplementingits manufacturing operations, the Company continues to seek reliablesources of finished products from outside 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 onJanuary 1, 1995, requires a complete phase-out of all existing quotas over aten-year period. Accordingly, all quotas were phased out at the beginning of2005 for World Trade Organization (“WTO”) member states. Pursuant to theChinese Protocol of Accession to the WTO, the United States and China agreed tothe reimposition of quotas on textile products from China for three years.

 

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 from quotas and duties applies to apparelmade from U.S. fabric (made from U.S. yarn) cut in a Caribbean basin country ifU.S. thread is used. This Act also exempts a limited amount of knit apparel(other than outerwear T-shirts) made from regional fabric (made from U.S.yarn), and T-shirts (other than underwear T-shirts) using fabric (made fromU.S. yarn) formed in a Caribbean basin country.

 

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InAugust 2005, the United States signed the Dominican Republic-CentralAmerica-United States Free Trade Agreement Implementation Act (“CAFTA”) withthe Dominican Republic, Costa Rica, El Salvador, Guatemala, Honduras andNicaragua. With the adoption of CAFTA and conformance with the provisionsthereof in a country, the United States-Caribbean Basin Trade Partnership Actceases to be operative with respect to that country.

 

UnderCAFTA nearly all duties will be eliminated on “originating” textile and apparelgoods. “Originating” wearing apparel generally is apparel made from U.S. orregional fabric, cut and sewn in the U.S. or the region, using thread formedand finished in the U.S. or the region. “Region” and “regional” refers only to thecountries that have implemented CAFTA. To date, El Salvador, Honduras andNicaragua have implemented CAFTA.

 

TheCompany continues to evaluate the possible impact of governmental actions.

 

## **Employees**

 

At January 28, 2006, theCompany, including its offshore subsidiaries, employed a total of****3,734 people (169 full-time salaried employees and 3,565 full-timeand part-time hourly employees) in the following areas: manufacturing anddistribution: 3,616; finance and administration:75;****andsales and marketing: 43. Of the Company’s 3,734****employees,****754****are employedin the United States and 2,980 at offshore locations.

 

None of the Company’semployees is covered by a collective bargaining agreement. The Company has notexperienced any work stoppages and considers its relations with its employeesto 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 hasdeveloped strong brand awareness among its targeted customer base and as aresult regards its brand names as valuable assets.

 

## **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 2006 or beyond. As is the case withmanufacturers in general, if a release of hazardous substances occurs on orfrom the Company’s properties or any associated offsite disposal location, orif contamination from prior activities is discovered at any of the Company’sproperties, the Company may be held liable. While the amount of such liabilitycould be material, the Company endeavors to conduct its operations in all ofits facilities in a manner that reduces such risks.

 

In 1990, Winston Mills,Inc., a subsidiary of McGregor Corporation (“McGregor”) and a predecessor ofthe Company, entered into an Administrative Order on Consent (“AOC”) with theNorth Carolina Department of Environment, Health and Natural Resources (“DEHNR”)concerning certain groundwater contamination discovered at its Asheville, NorthCarolina facility. Since that time,

 

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McGregor, throughCulligan International Company (“Culligan”), a former affiliate, has beenconducting investigative and corrective action under DEHNR oversight and hasremained responsible to DEHNR with respect to contamination that is subject tothe AOC. While the total cost of the cleanup at the facility will depend uponthe extent of contamination and the corrective action approved by the DEHNR,preliminary cleanup cost estimates range from $1.0 to $4.0 million. McGregorcontinues to be a party to the Asheville, North Carolina facility’s hazardouswaste permit and Culligan has guaranteed McGregor’s obligations under the AOC.McGregor also contractually agreed to fully indemnify the Company with respectto the contamination as part of the terms of the acquisition of the Anvilbusiness (the “Acquisition”). This indemnity is guaranteed by Culligan and byAstrum International Corp. (now known as Samsonite Corporation), an affiliateof 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 theCompany for any costs associated with certain other environmental mattersidentified at the time of the Acquisition. The Company believes that, even ifMcGregor were unable to fulfill its indemnification obligations, these othermatters would not have a material adverse effect on the financial condition orresults of operations of the Company. McGregor also agreed to indemnify theCompany, subject to certain limitations, with respect to environmentalliabilities that arise from events that occurred or conditions in existenceprior to the Acquisition. Culligan and Samsonite have also guaranteed McGregor’sobligations under these indemnities.

 

The Company’s operationsin jurisdictions outside the United States are subject to local environmentallaws. The Company endeavors to operate within the parameters of such laws.

 

## ***Item 1A. Risk Factors.***

 

***The Company’s results of operations and financial position may bematerially affected by many factors both of a global nature as well as specificto the Company’s business.***

 

**SubstantialLeverage and Debt Service Obligations**

 

Asa result of the Company’s recapitalization in May 1997 and its operations andfinancing activities since that date, the Company currently has substantialindebtedness and debt service obligations which it may not be able to meet aspresently structured.

 

TheCompany’s obligations under its 10-7/8% Senior Notes, due March 15, 2007 (the “SeniorNotes”) call for an interest payment of $7,069,000 on September 15, 2006,followed by an additional payment of $137,069,000 (principal and interest) on March15, 2007.

 

TheCompany’s Loan 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”). The Loan Agreement expires January 11, 2007.At January 28, 2006, there was $15,225,000 outstanding under the Revolving CreditFacility.

 

OnMarch 15, 2009, the Company is required to redeem all outstanding shares of itsPreferred Stock at an amount equal to the liquidation preference and allaccumulated and unpaid dividends. The Company has not declared or paid any cashdividends on the Preferred Stock since March 15, 2002 and, accordingly, thismandatory redemption would require a cash payment of $96,197,000 on March 15,2009.

 

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Managementof the Company presently believes that, based upon current and anticipatedlevels of operations, it will be able to satisfy its interest obligations underthe Revolving Credit Facility, and that there will be sufficient availabilityunder the Revolving Credit Facility to fund normal working capital requirementsthrough the expiration of the Loan Agreement on January 11, 2007. However, itis unlikely that the Company will be able to satisfy its obligations to repaythe principal on the Senior Notes when due. Additionally, the Company’s abilityto renew the Loan and Security Agreement is uncertain if the Senior Notes havenot been refinanced prior to the expiration of the Loan and Security Agreement.

 

TheCompany has engaged the services of Jefferies & Company, Inc. as itsfinancial advisor in exploring and reviewing strategic alternatives withrespect to its capital structure. Unless refinancing/restructuring of theSenior Notes is accomplished prior to the expiration of the Revolving CreditFacility, the Company may not be able to renew the Revolving Credit Facility onacceptable terms, if at all. There can be no assurance that the Company willmake the interest payment due on the Senior Notes on September 15, 2006, orwithin any applicable grace period thereafter, which could create a default underthe Senior Notes and/or under the Revolving Credit Facility. These factors raise substantial doubt about the Company’sability to continue as a going concern.

 

**SubstantialRisks Inherent in the Company’s Business**

 

*Competitive pressures could harmthe Company’s revenue and results and results of operations.*

 

The imprinted activewearsegment of the apparel market includes a number of significant competitors andthe activewear segment of the industry overall is extremely competitive.Competition in this segment of the apparel industry is generally based uponprice, quality, customer service and breadth of product offerings. The Company’sprincipal competitors include several domestic and foreign manufacturers ofactivewear, some of which are larger and have greater financial and otherresources than the Company. The actions of these competitors could result inloss of business and/or force the Company to reduce its prices.

 

*Elimination of quotas and aninflux of foreign goods could adversely affect the Company.*

 

There may be an influx ofimported textile products from other nations, which could adversely affectprices for the Company’s core products.

 

*The Company is dependent upon afew yarn suppliers and its ongoing relationships with such suppliers to maintainan adequate supply of raw materials.*

 

The Company purchasesspun yarn from approximately five individual suppliers. One individual spinneraccounted for approximately 39%****of the Company’spurchased yarn in fiscal 2005. Although the yarn used by the Company is readilyavailable and can be purchased from a number of sources, Management believesthat market concentration by spinners may have a long-term impact on theavailability and pricing of domestic yarn.

 

*The Company is currentlydependent on the smooth transition to its Nicaraguan cutting and sewingfacility and its Honduran textile operation.*

 

Utilization levels areimportant to profitability due to the substantial fixed costs of the Company’stextile operations. Recent manufacturing moves in Central America and the moveof the Company’s textile operation to Honduras may, in the near-term, cause inefficiencieswith resultant higher costs.

 

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*In view of its commitment to itsoffshore operations, the Company is dependent upon the stability of thegovernments in the jurisdictions in which it operates.*

 

*The Company’s revenues areheavily dependent upon sales to certain customers who comprise a significantportion of the Company’s net sales.*

 

Customers who are outsidedistributors accounted for 72% of the Company’s net sales for the fiscal yearended January 28, 2006. Twenty of the Company’s customers accounted forapproximately 83% of net sales in fiscal 2005. One such outside distributor,Broder Bros., Co.,  accounted forapproximately 36% of the Company’s business. Loss of one or more of thesecustomers could have a material adverse affect upon the Company’s business.

 

*Unforeseen environmental costscould affect the Company’s future results.*

 

The Company, like otherapparel manufacturers, is subject to federal, state and local environmental andoccupational health and safety laws and regulations of the United States and inother jurisdictions in which they operate. As is the case with manufacturers ingeneral, if a release of hazardous substances occurs on or from the Company’sproperties or any associated offsite disposal location, or if contaminationfrom prior activities is discovered at any of the Company’s properties, theCompany may be held liable. While the amount of such liability could bematerial, the Company endeavors to conduct its operations in a manner thatreduces such risks.

 

*The Company is dependent on thepersonal efforts, relationships and abilities of its senior management team,Messrs. Geller, Corsano, Hollander, Turner, Ferramosca and Keeney.*

 

The Company currently hasemployment agreements with Bernard Geller, its Chief Executive Officer andAnthony Corsano, Jacob Hollander, and William H. Turner, each an executiveofficer. The loss of services of any of the members of the Company’s seniormanagement team could have a material adverse effect on the future performanceof the Company. The Company does not maintain “key man” insurance on any of themembers of its senior management team. The employment agreements with Messrs.Corsano, Hollander and Turner contain provisions for automatic one-yearextensions. Each of these agreements expire on January 31, 2007, pursuant totheir one-year automatic extensions. Mr. Geller’s employment agreement expireson January 31, 2007 and he has informed the Company that he intends to retireon that date.

 

*The Company’s operations could bedisrupted by global or regional catastrophic events, particularly damage to oran interruption in its information technology networks and systems.*

 

The Company’s businesscan be affected by natural disasters or other factors such as large-scaleterrorist attacks. Security breaches or physical disasters could createinterruptions including interruptions in information technology processes.

 

**SubstantialRisks of the Economy and Business Environment in General**

 

*In addition to the above factorsand matters discussed elsewhere herein, there are numerous other factors whichare considered by Management to be risks which could adversely affect theCompany’s business results. Some of these factors include:*

 

•                  Changes in general economic conditions such as fueland energy costs, transportation costs, workforce availability, etc.

•                  Governmental/regulatory actions and initiatives in theUnited States and Central America

 

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•                  Changes in rates of interest, inflation or taxes

•                  Changes in the Company’s relationship with itsemployees in the United States and Central America

 

***Item 1B. Unresolved Staff Comments.***

 

Notapplicable.

 

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

## ** **

The Company conducts itsoperations principally through four manufacturing facilities and a centralizeddistribution center. The Company utilizes a vertically integrated manufacturingprocess (i.e., performing substantially all of the manufacturing processesrequired to produce its products) with fabric being knit, bleached or dyed,from purchased yarn, at its domestic textile facility, and then cutting andsewing such fabric at its offshore facilities. The Company utilizes offshoreand domestic contractors as it deems necessary. Spectratex operates a garmentdye facility in North Carolina.

 

*TextileFacility Operations*. TheCompany conducts textile operations at its owned facility located in Asheville,North Carolina. Yarn is received at the textile facility, where circularknitting machines knit the yarn into tubes of basic fabric constructions, whileflat and circular knitting machines are used to knit collars. The tubes offabric correspond in weight and diameter to the various styles and sizesrequired to make the Company’s activewear products. The knitted fabric is thenbatched for bleaching or dyeing. Substantially all of the Company’s activewearproducts are either bleached to remove the color of natural cotton or dyed forcolored products. The Company’s textile facility contains computerizedcontrols, dye simulators and spectrometers and modern jet vessels to assist theCompany in maintaining an efficient and quality controlled environment for the dyeingand bleaching process. The Company’s textile facility operated at approximately86% of capacity during fiscal 2005. Anvil’s wholly-owned Honduran subsidiary,A.K.H., S.A., has entered into a lease agreement pursuant to which the lessoris constructing a new textile facility, to eventually replace the Asheville,North Carolina facility. Construction is expected to be completed and occupancyto commence during the beginning of the second quarter of fiscal 2006.

 

*Cutting and Sewing Facilities*.Cutting and sewing is conducted at leased facilities located in Honduras andNicaragua and at offshore contractors. Fabric produced at the Company’s textilefacility is shipped to cutting facilities where it is cut and then transferredto the sewing facilities for assembly.

 

*Distribution Operations*.The Company performs substantially all of its distribution functions at itsowned centralized distribution facility located in Dillon, South Carolina. Thiscentralized distribution facility enables the Company to provide efficient andresponsive customer service and to efficiently manage inventory.

 

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 |       | Dye House, Office & Warehouse     |       | 83,000          |       | Leased           | (2)        |   |
| Dillon, SC    |       | Distribution                          |       | 660,000         |       | Owned            |       |   |
| Honduras      |       | Sewing                                |       | 63,000          |       | Leased           | (3)        |   |
|          |       | Cutting                               |       | 82,000          |       | Leased           | (3)        |   |
|          |       | Textile Facility (Under Construction) |       | 238,000         |       | Leased           | (4)        |   |
| Nicaragua     |       | Cutting & Sewing                  |       | 142,000         |       | Leased           | (5)        |   |
| Germany       |       | Office & Distribution             |       | 14,000          |       | Leased           | (2)        |   |

 

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(1) The lease for theCompany’s executive office space expires in 2008.

(2) The leases for thesefacilities expire in 2007.

(3) The leases for thesefacilities expire in 2010.

(4) If occupied asplanned, the lease for this facility will expire in 2016.

(5) The lease for thisfacility expires in 2011.

 

Managementestimates that capital expenditures in the next two fiscal years will aggregateapproximately $4,000,000 annually. This amount does not include capitalexpenditures relating to the planned textile facility in Honduras, which arecurrently estimated at approximately $9,000,000 in fiscal 2006 and $1,000,000in fiscal 2007. See *Item 7. Management’sDiscussion and Analysis of Financial Condition and Results of Operations*—*Liquidity and Capital Resources*, below. The Company considers its owned and leasedfacilities and equipment to be in good condition and suitable and adequate forthe Company’s current operations.

 

Periodically, asnecessary, the Company contracts certain manufacturing operations to outsiders.Management considers this ordinary industry practice and foresees no materialrisks in continuing this policy as necessary.

 

*InformationTechnology*:  The Company continues its commitment to thegrowth and modernization of its information technology systems through theupgrading of both its purchased and in-house developed systems and equipment.

 

TheCompany will continue expanding its internet technology and, to date, maintainsa number of websites. Two of the websites were created for large customers totrack information such as inventory position, order status and invoicing. Anotherwebsite was developed for the Company’s sales force to check order status,request pricing information and submit call reports. A fourth website allowsthe Company’s sales force to view, real time, inventory status through smartphones as well as computers.

 

TheCompany has installed hardware and contracted satellite communications servicebetween its offshore and domestic locations.

 

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. Spectratex’s garment dye business has been integrated into the Company’sInformation Technology system.

 

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

 

The Company is a party tovarious litigation matters incidental to the conduct of its business. TheCompany does not believe that the outcome of any of the matters in which it iscurrently involved will have a material adverse effect on the financialcondition, liquidity, business or results of operations of the Company. See *Item 1. “Business**3⁄4EnvironmentalMatters,”* above.

 

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

 

None.

 

10

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**PART II**

 

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

 

There is no establishedpublic trading market for any of the Company’s common equity securities. At April14, 2006 there were 33 record holders of the Class A Common and 36 recordholders of the Class B Common. All of Anvil’sissued and outstanding capital stock is owned by Holdings.

 

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

 

**SELECTED HISTORICAL FINANCIAL DATA**

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

 

Setforth below are the selected historical financial data of the Company as of thedates and for the periods shown. The selected historical statement ofoperations data of the Company for fiscal years 2003 through 2005 and thebalance sheet data for fiscal years 2004 and 2005 have been derived from theconsolidated financial statements of the Company which have been audited by Deloitte& Touche LLP, whose report thereon appears under “Item 8. FinancialStatements and Supplementary Data.”  Theselected historical statement of operations data of the Company for fiscalyears 2001 and 2002 and the balance sheet data for fiscal years 2001 through2003 have been derived from audited consolidated financial statements which arenot included herein. Holdings has no independent operations apart from itswholly owned subsidiary, Anvil, and its sole asset is the capital stock ofAnvil. The selected consolidated financial data should be read in conjunctionwith *Item 1a—Risk Factors*, *Item 7—Management’s Discussion and Analysis of Financial Condition andResults of Operations*and with the consolidated financial statementsand related notes thereto included elsewhere herein.

 
| ** **                                                                       | ** ** | **Fiscal Year Ended** | ** ** |
|----------------------------------------------------------------------------------|------------|---------------------------------|------------|
| ** **                                                                       | ** ** | **February 2,**            | ** ** | **February 1,** | ** ** | **January 31,** | ** ** | **January 29,** | ** ** | **January 28,** | ** ** |
| ** **                                                                       | ** ** | **2002**                        | ** ** | **2003** | ** ** | **2004** | ** ** | **2005** | ** ** | **2006** | ** ** |
| ** **                                                                       | ** ** | **[Fiscal 2001]**          | ** ** | **[Fiscal 2002]** | ** ** | **[Fiscal 2003]** | ** ** | **[Fiscal 2004]** | ** ** | **[Fiscal 2005]** | ** ** |
| ** **                                                                       | ** ** | ** **                      | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Statement Of Operations Data:**                                                |       |                            |       |   |   |   |   |   |   |   |   |
| Net sales                                                                        |       | $                               | 199,661    |   | $ | 224,329 |   | $ | 191,222 |   | $ | 192,358 |   | $ | 179,928 |   |
| Cost of goods sold                                                               |       | 152,557                         |       | 168,168 |   | 163,267 |   | 153,869 |   | 150,001 |   |
| Gross profit                                                                     |       | 47,104                          |       | 56,161 |   | 27,955 |   | 38,489 |   | 29,927 |   |
| Selling, general and administrative expenses                                     |       | 23,520                          |       | 24,117 |   | 24,444 |   | 24,927 |   | 26,123 |   |
| Amortization of intangible assets                                                |       | 1,338                           |       | 619 |   | 313 |   | 286 |   | 286 |   |
| Goodwill/asset impairments                                                       |       | —                          |       | — |   | 19,416 |   | — |   | 3,713 |   |
| Operating income (loss)                                                          |       | 22,246                          |       | 31,425 |   | (16,218 | ) | 13,276 |   | (195 | ) |
| Other expense:                                                                   |       |                            |       |   |   |   |   |   |   |   |   |
| Interest expense(1)                                                              |       | 14,636                          |       | 14,165 |   | 14,431 |   | 21,627 |   | 23,029 |   |
| Other expense - net, principally amortization of debt expense                    |       | 759                             |       | 534 |   | 972 |   | 1,081 |   | 1,159 |   |
| Income (loss) before provision (benefit) for income taxes                        |       | 6,851                           |       | 16,726 |   | (31,621 | ) | (9,432 | ) | (24,383 | ) |
| Provision (benefit) for income taxes.                                            |       | 2,404                           |       | 6,089 |   | (13,297 | ) | (803 | ) | 4,095 |   |
| Net income  (loss)                                                               |       | $                               | 4,447      |   | $ | 10,637 |   | $ | (18,324 | ) | $ | (8,629 | ) | $ | (28,478 | ) |
| Pro forma net income (loss) assuming retroactive application of SFAS  No. 150(1) |       | $                               | (663       | ) | $ | 7,163 |   | $ | (24,415 | ) |   |   |   |   |
|                                                                             |       |                            |       |   |   |   |   |   |   |   |   |
| EBITDA(2)                                                                        |       | $                               | 30,652     |   | $ | 41,663 |   | $ | 11,772 |   | $ | 20,141 |   | $ | 10,845 |   |
|                                                                             |       |                            |       |   |   |   |   |   |   |   |   |
| RATIO OF EARNINGS TO FIXED CHARGES                                               |       | 1.00  to 1                      |       | 1.47  to 1 |   |   |   | .60  to 1 |   | .02  to 1 |   |
| DEFICIENCY IN EARNINGS TO COVER FIXED CHARGES                                    |       |                            |       |   |   | $ | 15,436 |   |   |   |   |   |
| **Balance Sheet Data (at end of period):**                                       |       |                            |       |   |   |   |   |   |   |   |   |
| Cash                                                                             |       | $                               | 11,931     |   | $ | 9,933 |   | $ | 1,451 |   | $ | 4,682 |   | $ | 5,871 |   |
| Total assets                                                                     |       | 145,725                         |       | 148,850 |   | 131,340 |   | 126,132 |   | 108,310 |   |
| Total debt (including preferred stock in fiscal 2004 and 2005)  (1)         |       | 133,281                         |       | 131,326 |   | 146,057 |   | 195,483 |   | 208,654 |   |
| Preferred stock (liquidation value)                                              |       | 51,436                          |       | 43,033 |   | 49,124 |   | — |   | — |   |
| Total  stockholders’ deficiency                                             |       | (68,402                         | )          | (61,236 | ) | (85,639 | ) | (94,273 | ) | (122,751 | ) |

 

11

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(1)   Pursuant to SFAS No. 150, effective at thebeginning 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, theCompany classified the Preferred Stock on its balance sheet between liabilitiesand equity and the related dividends and accretion as a reduction in equity notincluded as an element of interest expense.Restatement of prior periods is not permitted when applying SFAS No. 150. Thepro forma amounts represent what the reported net income would have been ifSFAS No. 150 had been in effect for all the periods presented; i.e., reportingthe dividends and accretion on the Preferred Stock as interest expense as wellas including gains on the purchase of the Preferred Stock as an element of theCompany’s results of operations.

 

(2)    EBITDA is defined as operating income plusdepreciation and amortization and certain other 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 the Company. Inaddition, Management believes EBITDA is a widely accepted financial indicatorof a company’s ability to service and/or incur indebtedness. EBITDA does nottake into account the Company’s debt service requirements and other commitmentsand, accordingly, is not necessarily indicative of amounts that may beavailable for discretionary uses. The EBITDA measure presented herein may notbe comparable to other similarly titled measures of other companies. EBITDA has been computed as follows:

 
| ** **                                                      | ** ** | **Fiscal 2001** | ** ** | **Fiscal 2002** | ** ** | **Fiscal 2003** | ** ** | **Fiscal 2004** | ** ** | **Fiscal 2005** | ** ** |
|-----------------------------------------------------------------|------------|----------------------|------------|----------------------|------------|----------------------|------------|----------------------|------------|----------------------|------------|
| Net income (loss)                                               |       | $                    | 4,447      |                 | $          | 10,637               |       | $                    | (18,324    | )                    | $          | (8,629 | ) | $ | (28,478 | ) |
| Add back:                                                       |       |                 |       |                 |       |                 |       |                 |       |                 |       |
| Provision (benefit) for income taxes                            |       | 2,404                |       | 6,089                |       | (13,297              | )          | (803                 | )          | 4,095                |       |
| Interest expense                                                |       | 14,636               |       | 14,165               |       | 14,431               |       | 21,627               |       | 23,029               |       |
| Goodwill/asset impairments                                      |       | —               |       | —               |       | 19,416               |       | —               |       | 3,713                |       |
| Other expenses (non-operating)                                  |       | 759                  |       | 534                  |       | 972                  |       | 1,081                |       | 1,159                |       |
|                                                            |       | 22,246               |       | 31,425               |       | 3,198                |       | 13,276               |       | 3,518                |       |
| Add: Depreciation of fixed assets                               |       | 7,068                |       | 9,619                |       | 8,261                |       | 6,579                |       | 7,041                |       |
|      Amortization of intangible assets |       | 1,338                |       | 619                  |       | 313                  |       | 286                  |       | 286                  |       |
| EBITDA                                                          |       | $                    | 30,652     |                 | $          | 41,663               |       | $                    | 11,772     |                 | $          | 20,141 |   | $ | 10,845 |   |

 

***Item 7. Management’s Discussion and Analysisof Financial Condition and******Results of Operations***

 

Thefollowing discussion provides information with respect to the results ofoperations of the Company for each of the three fiscal years in the periodended January 28, 2006. The following information should be read in conjunctionwith *Item 6. “Selected Financial Data”* andthe consolidated financial statements and the notes thereto included elsewhereherein.

 

**Critical Accounting Policies And Estimates**

 

The Company’s significantaccounting policies are more fully described in Note 3 to the consolidatedfinancial statements, included elsewhere herein. The application of accountingpolicies require judgement by Management in selecting the appropriateassumptions for calculating financial estimates. By their nature, thesejudgements are subject to an inherent degree of uncertainty and are based uponhistorical 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

 

12

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reportingperiod. Actual results could differ from those estimates. The Company’ssignificant critical accounting policies include:

 

***Revenue Recognition and Allowances—***Revenue is recognized at the time merchandise isshipped and title has passed. Allowances for sales returns, discounts and for estimateduncollectible accounts are provided whensales are recorded, based upon historical experience and current trends,and periodically updated, as appropriate. While the actual amounts have beenwithin the range of the Company’s projections, there can be no assurances thatthis 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. If required, based upon Management’sjudgement, reserves for slow moving inventory and markdowns of inventorywhich has declined significantly in value are provided. The Company’s markdownshave increased during the last three fiscal years as the result of industry-widelower selling prices for basic goods. While such markdowns have been within therange of Management’s projections, the Company cannot guarantee that it willcontinue to experience the same level of markdowns, or that markdowns takenwill be adequately representative of any future declines in selling prices.

 

***Evaluation of Long-Lived Assets—*** Pursuant to SFAS No. 144, *Accountingfor the Impairment of Long-lived Assets,*long-lived assets areassessed for recoverability whenever events or changes in circumstancesindicate that an asset may have been impaired. In evaluating an asset forrecoverability, the Company estimates the future cash flows expected to resultfrom the use of the asset and eventual disposition. If the sum of the expectedfuture cash flows (undiscounted and without interest charges) is less than thecarrying amount of the asset, an impairment loss, equal to the excess of thecarrying amount over the fair value of the asset, is recognized. During thefiscal year ended January 28, 2006, the Company recorded an impairment chargeof $3,713,000 relating to the planned transfer of production operations of itstextile facilities. See Note 6 to the consolidated financial statements,included elsewhere herein.

 

***Income taxes***—The Company accounts for income taxes 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. The Company has recorded deferred tax assetsresulting from net operating loss carryforwards and temporary differences,which will reduce taxable income in future periods. A valuation allowance isrequired for these deferred tax assets when it is more likely than not that allor a portion of them will not be realized. As a result of recent losses whichthe Company is not able to carry back against prior years’ income, as well asrecent Management projections, the Company determined that, at this time,realization of the Company’s net deferred tax assets is not more likely thannot. Accordingly, the Company increased its valuation allowances to fullyreserve against its net deferred tax assets. Management intends to recordvaluation allowances, to the extent subsequent tax losses continue. A portionor all of such valuation allowances could be reversed in the future, dependingupon the availability of deferred tax assets and carryforwards to offset anyfuture taxable income.   See Note 11to the consolidated financial statements included elsewhere herein.

 

**Results of Operations**

 

The Company’s results ofoperations are affected by numerous factors, including competition, generaleconomic conditions, raw material costs, mix of products sold and plantutilization. Certain activewear products of the type manufactured by theCompany are generally available from multiple sources and the Company’scustomers often purchase products from more than one source. To remaincompetitive, the Company reviews and adjusts its pricing structure as necessaryin response to price changes. The

 

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Company modifies itsprices to the extent necessary to remain competitive with the prices set by itscompetitors.

 

The gross profit marginsof the Company’s products vary significantly. Accordingly, the Company’soverall gross profit margin is affected by its product mix. In addition, plantutilization levels are important to profitability due to the substantial fixedcosts of the Company’s textile operations. The largest component of the Company’scost of goods sold is the cost of yarn. The Company obtains substantially allof its yarn from a number of domestic yarn suppliers, generally placing ordersbased upon Management’s expectations regarding future yarn prices and levels ofsupply. Yarn prices fluctuate from time to time principally as a result ofcompetitive conditions in the yarn market and the cost of raw cotton. TheCompany adjusts the timing and size of its purchase orders for yarn in aneffort to minimize fluctuations in its raw material costs resulting fromchanges in yarn prices. Management is continually reviewing and adjusting theCompany’s purchasing policies to take advantage of price decreases andameliorate the impact of price increases.

 

Thefollowing table sets forth, for each of the periods indicated, certainstatement of operations data, expressed as a percentage of net sales, for theCompany for each of the three fiscal years in the period ended January 28, 2006:

 
| ** **                                   | ** ** | **Fiscal Year Ended** | ** ** |
|----------------------------------------------|------------|---------------------------------|------------|
| ** **                                   | ** ** | **January 31,**            | ** ** | **January 29,** | ** ** | **January 28,** | ** ** |
| ** **                                   | ** ** | **2004**                        | ** ** | **2005** | ** ** | **2006** | ** ** |
| ** **                                   | ** ** | **[Fiscal 2003]**          | ** ** | **[Fiscal 2004]** | ** ** | **[Fiscal 2005]** | ** ** |
| **Statement of Operations Data:**            |       |                            |       |   |   |   |   |
| Net sales                                    |       | 100.0                           | %          | 100.0 | % | 100.0 | % |
| Cost of goods sold                           |       | 85.4                            |       | 80.0 |   | 83.4 |   |
| Gross profit                                 |       | 14.6                            |       | 20.0 |   | 16.6 |   |
| Selling, general and administrative expenses |       | 12.8                            |       | 13.0 |   | 14.5 |   |
| Goodwill/asset impairments                   |       | 10.2                            |       | 0.0 |   | 2.1 |   |
| Interest expense†                       |       | 7.5                             |       | 11.2 |   | 12.8 |   |

 

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† Includes preferred dividends of $6,904,000 and $7,837,000 in fiscal2004 and 2005, respectively, as a result of adopting SFAS No. 150. Fiscal 2003does not include such dividends as interest expense. Interest expense onborrowings (excluding Preferred Stock) for fiscal 2004 and 2005 is 7.7% and 8.4%of net sales, respectively.

 
| **Other Data:**         |   |   |       |   |   |       |   |
|-------------------------|--------|--------|------------|--------|--------|------------|--------|
| EBITDA (1)              |   | $      | 11,772,000 |   | $      | 20,141,000 |   | $ | 10,845,000 |   |
| Percentage of net sales |   | 6.2%   |       | 10.5%  |   | 6.0%       |   |
|                         |        |        |            |        |        |            |        |  |  |  |

 

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(1) EBITDA is defined asoperating income plus depreciation and amortization and certain other non-cashcharges. EBITDA should not be considered in isolation or as a substitute fornet income, cash flows from operating activities and other income or cash flowstatement data, or as a measure of profitability or liquidity. Managementbelieves, however, that EBITDA represents a useful measure of assessing the performanceof the Company’s ongoing operating activities as it reflects earnings trends ofthe Company. In addition, Management believes EBITDA is a widely acceptedfinancial indicator of a company’s ability to service and/or incur indebtedness.EBITDA does not take into account the Company’s debt service requirements andother commitments and, accordingly, is not necessarily indicative of amountsthat may be available for discretionary uses. The EBITDA measure presentedherein may not be comparable to other similarly titled measures of othercompanies. See “*Item 6—Selected Financial Data,”* above for the computation of EBITDA.

 

**Fiscal Year Ended January 28,2006 Compared to Fiscal Year Ended January 29, 2005**

 

*Net sales*forthe fiscal year ended January 28, 2006 amounted to $179,928,000 as compared to$192,358,000 for the prior fiscal year, a decrease of $12,430,000, or 6.5%. Totalunits sold were approximately 3.4% less than the prior fiscal year, and theaverage selling price decreased by

 

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approximately 3.2%. Managementbelieves that the primary reason for these declines is the continuingcompetitive pressure in pricing and market share.

 

*Gross profit*forthe fiscal year ended January 28, 2006 was $29,927,000 as compared to $38,489,000in the prior fiscal year, a decrease of $8,562,000 (22.2%). Gross margindeclined from 20.0% to 16.6%. Approximately $1,300,000 of the decline in grossprofit is the result of the aforementioned decline in units sold. The remaining$7,200,000 decline in gross profit was the result of the following factors. Textileconversion, cutting and sewing costs were higher by approximately $5,500,000when compared to the prior fiscal year. Of this amount, the Company estimatesthat $3,000,000 is the result of costs incurred and accelerated depreciationrelating to the transition of certain cutting and sewing operations toNicaragua and the transfer of textile operations to Honduras. There were unfavorablechanges in product mix ($6,200,000), partially offset by higher selling priceson certain of the Company’s products ($2,500,000) and lower yarn prices ($2,400,000).Increases in other manufacturing costs, such as fuel and energy, caused anadditional $400,000 reduction in gross profit.

 

*Selling, general andadministrative expenses* (including distribution expense) forthe fiscal year ended January 28, 2006 increased $1,196,000 (4.8%), from $24,927,000in the prior fiscal year to $26,123,000 in the fiscal year ended January 28,2006. The increase was largely the result of severance costs associated withreduction in personnel at corporate headquarters and increased costs incurredin the consolidation of the Spectratex operations. Selling expenses wereapproximately $200,000 higher as a result of an increase in selling staff.

 

*Goodwill/Assetimpairments* forthe fiscal year ended January 28, 2006 consists of a non-cash charge of $3,713,000 relating to Management’s assessment of the impairmentto the carrying value of certain assets to be sold in conjunction with theplanned transfer of production operations of the Company’s textile facilitiesfrom Asheville, NC to Honduras. See Note 6 to the consolidated financialstatements included elsewhere herein.

 

*Interest expense*on borrowings (exclusive of the Company’s Redeemable Preferred Stock) increased$470,000 (3.2%) in the current fiscal year ended January 28, 2006 as comparedto the prior fiscal year. The increase is the result of higher interest ratesduring the current fiscal year and higher average borrowings on the Company’srevolving credit facility. Dividends and accretion on the Company’s RedeemablePreferred Stock, classified as interest expense, increased $932,000 due to thecompounding of unpaid dividends (see Note 13 to the consolidated financialstatements included elsewhere herein).

 

*Provision for income taxes*for the year ended January 28, 2006 reflects the Company’s decision toestablish valuation allowances for tax benefits relating to current period taxloss carryforwards as well existing deferred tax assets. Accordingly, despitethe Company’s pre-tax loss, there is a tax provision of $4,095,000 in thefiscal year ended January 28, 2006, as compared to a tax benefit of $803,000 inthe preceding fiscal year. A tax benefit was recorded in the prior year asthere were loss carrybacks available to offset the prior years losses. See Note11 to the consolidated financial statements included elsewhere herein.

 

**Analysis of Cash Flow Data**

 

*Cash usedin operating activities*was $603,000 in the current fiscal year, while in the prior fiscal year, theCompany’s operating activities provided $14,507,000 in cash. Although variouselements of the Company’s operating assets and liabilities have fluctuated asreflected in the Consolidated Statement of Cash Flows, the change in cash usedin operating activities is primarily the result of the unfavorable change inoperating profit, before the provision for asset impairment of $3,713,000.

 

15

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*Cashused in investing activities* was approximately $1,000,000 less in the fiscal year ended January 28, 2006 compared to theprior fiscal year, representing adecline in the Company’s net investments in capital equipment.

 

*Cashprovided by financing activities* was $4,945,000 in the fiscal year ended January 28, 2006. This amount represents the Company’s netborrowings under its revolving credit line for the current fiscal year. For thesame period of the prior year, the Company made net repayments of $6,406,000 onits revolving credit line The Company completed repayment of its Term Loan inApril 2004, and accordingly expended $586,000 less in Term Loan payments in thecurrent fiscal year than theprior fiscal year.

 

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

 

*Net sales*forthe fiscal year ended January 29, 2005 amounted to $192,358,000 as compared to$191,222,000 for the immediately preceding fiscal year, an increase of$1,136,000. Total units sold were approximately 3% less than the fiscal yearended January 31, 2004, while the average selling price increased byapproximately 3.7% for the same period. The decrease in units sold is theresult of the Company’s decision to reduce emphasis on sales of basic whiteT-Shirts, primarily during the second fiscal quarter of the fiscal year endedJanuary 29, 2005. This change is also the primary reason for the increase inaverage selling prices.

 

*Gross profit*forthe fiscal year ended January 29, 2005 was $38,489,000 as compared to$27,955,000 in the immediately preceding fiscal year, an increase of$10,534,000 (37.7%). Gross margin improved from 14.6% to 20.0% primarily as theresult of the following factors, in the approximate amounts indicated: (i)lower costs related to textile conversion, cutting and sewing efficiencies($12,500,000); (ii) favorable changes in selling prices ($1,500,000); and (iii)fewer markdowns ($2,000,000); partially offset by higher yarn prices($5,500,000).

 

*Selling, general andadministrative expenses* (including distribution expense) forthe fiscal year ended January 29, 2005 increased $483,000 (2.0%), from$24,444,000 in the fiscal year ended January 31, 2004 to $24,927,000 in thefiscal year ended January 29, 2005. As a percentage of sales, these expenseswere approximately 13% in each fiscal year. Incentive compensation for bothselling and administrative personnel was approximately $500,000 greater in thefiscal year ended January 29, 2005 than the immediately preceding fiscal year,due to the improved operating profit; professional fees increased approximately$250,000; and the Company experienced an increase in expenses of $200,000relating to its European distribution operation. These increases were partiallyoffset by reduced advertising expenses and lower distribution costs due tofewer units being shipped.

 

*Interest expense*increased $292,000 (2.0%) in the fiscal year ended January 29, 2005 as comparedto the immediately preceding fiscal year. The increase is the result of higherinterest rates during the later fiscal year and higher average borrowings onthe 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 consolidated financialstatements), in the fiscal year ended January 29, 2005, the Company beganclassifying dividends and accretion on its Redeemable Preferred Stock($6,904,000 in the such fiscal year) as interest expense.

 

*Benefit for income taxes*reflects a significantly lower effective tax rate than in previous fiscal yearsbecause the aforementioned preferred dividends of $6,904,000 for the fiscalyear ended January 29, 2005, although now classified as interest expense foraccounting presentations, remain non-deductible for Federal and state taxpurposes.

 

16

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**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 expenditures of $4,333,000 and $3,657,000 in the fiscalyears ended January 29, 2005 and January 28, 2006, respectively. Historically,the Company’s major capital expenditures have related to the acquisition ofmachinery and equipment and management information systems hardware andsoftware. Management estimates that capital expenditures in the ordinary courseof business for each of the next two fiscal years will be approximately$4,000,000 annually. This amount does not include capital expenditures relatingto the planned textile facility in Honduras, which are currently estimated atapproximately $9,000,000 in fiscal 2006 and $1,000,000 in fiscal 2007.

 

The Company’s principalworking capital requirements are financing accounts receivable and inventories.At January 28, 2006 the Company had net working capital of $43,987,000comprised of $5,871,000 in cash, $23,533,000 of accounts receivable, $50,605,000of inventories and $1,483,000 of other current assets, less revolving creditborrowings of $15,225,000 and accounts payable and other current liabilities of$22,280,000.

 

The Company’s futurecapital expenditures as well as its working capital requirements will besignificantly influenced by the refinancing/restructuring matters discussedbelow.

 

Anvil’sLoan and Security Agreement, as amended on May 20, 2004 (the “Loan Agreement”),provides for a maximum revolving credit facility of $40,000,000 (the “RevolvingCredit Facility”). The Loan Agreement, as amended, expires January 11, 2007. Theoriginal Loan Agreement included a term loan in the initial principal amount of$11,725,000 which has been fully repaid. Amounts due under the Loan Agreementare secured by substantially all the inventory, receivables, intangibles andproperty, plant and equipment of Anvil. Holdings and Spectratex, Inc., awholly-owned subsidiary of Anvil (“Spectratex” [formerly named Cottontops])guarantee amounts due under the Loan Agreement. Interest on the RevolvingCredit Facility is at prime plus one-quarter percent or LIBOR plus 2-1/4%, atthe Company’s option. At January 28, 2006, there was $15,225,000 outstandingunder the Revolving Credit Facility bearing interest at 7.5%. At the same date,the amount available for additional borrowings was $15,240,000. The maximumamount outstanding under the Revolving Credit Facility during the fiscal yearended January 28, 2006 was $31,064,000. While on January 28, 2006, the Companyhad cash on hand of $5,871,000, it should be noted that both the Company’sRevolving Credit borrowings and its cash position are subject to dailyfluctuations based on numerous factors such as collections, operating expensesand 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 Indenturerestricts, among other things, Anvil’s and certain of its subsidiaries’ abilityto pay dividends or make certain other “restricted” payments (except to theextent, among other things, the restricted payments are less than 50% of theConsolidated Net Income of Anvil [as defined therein]), to incur additionalindebtedness, to encumber or sell assets, to enter into transactions withaffiliates, to enter into certain guarantees of indebtedness, to make certaininvestments, to merge or consolidate with any other entity and to transfer orlease 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 aholding company, Holdings’ ability to pay cash dividends on the SeniorPreferred Stock or, if issued, principal and interest on the debentures intowhich the Senior Preferred Stock is convertible (the “Exchange Debentures”) isdependent upon the earnings of Anvil and its subsidiaries and their ability todeclare

 

17

----

 

dividends or make otherintercompany transfers to Holdings. Under the terms of the Senior NoteIndenture, Anvil may incur certain indebtedness pursuant to agreements that mayrestrict its ability to pay such dividends or other intercompany transfersnecessary to service Holdings’ obligations, including its obligations under theterms of the Senior Preferred Stock and, if issued, the Exchange Debentures.Neither the Senior Note Indenture nor the Loan Agreement restricts Anvil’ssubsidiaries from declaring dividends or making other intercompany transfers toAnvil.

 

Managementof the Company presently believes that, based upon current and anticipatedlevels of operations, it will be able to satisfy its interest obligations underthe Revolving Credit Facility, and that there will be sufficient availabilityunder the Revolving Credit Facility to fund normal working capital requirementsthrough the expiration of the Revolving Credit Facility on January 11, 2007. However,it is unlikely that the Company will be able to satisfy its obligations torepay the principal on the Senior Notes when due. The Company has engaged theservices of Jefferies & Company, Inc. as its financial advisor in exploringand reviewing strategic alternatives with respect to its capital structure. Unlessrefinancing/restructuring of the Senior Notes is accomplished prior to theexpiration of the Revolving Credit Facility, the Company may not be able torenew the Revolving Credit Facility on acceptable terms, if at all. Therecan be no assurance that the Company will make the interest payment due on theSenior Notes on September 15, 2006, or within any applicable grace periodthereafter, which could create a default under the Senior Notes and/or underthe Revolving Credit Facility. These factors raise substantial doubt about the Company’s ability to continue as agoing concern.

 

**Contractual Obligations and Commitments**

 

A summary of the Company’s contractual obligations and commitments asof January 28, 2006 is as follows:

 
| ** **                  | ** ** | **Less Than** | ** ** | ** **         | ** **  | ** **         | ** ** | ** ** | ** **  |
|-----------------------------|------------|--------------------|------------|--------------------|-------------|--------------------|------------|------------|-------------|
| ** **                  | ** ** | **1 Year**    | ** ** | **1-3 Years** | ** **  | **3-5 Years** | ** ** | **Total**  | ** **  |
| Revolving Credit  note      |       | $                  | 15,225,000 |               |        |               |       |       | $           | 15,225,000 |   |
| Long-term debt              |       |               |       | $                  | 130,000,000 |               |       |       | 130,000,000 |   |
| Interest on  long-term debt |       | 14,138,000         | *          | 7,069,000          |        |               |       | 21,207,000 |        |
| Operating leases            |       | 2,469,000          |       | 4,729,000          |        | $                  | 685,000    |       | 7,883,000   |   |
| Employment  Agreements      |       | 1,500,000          |       |               |        |               |       | 1,500,000  |        |
| Letters of  Credit          |       | 1,541,000          |       |               |        |               |       | 1,541,000  |        |
| Redeemable                  |       |               |       |               |        |               |       |       |        |
| Preferred Stock             |       |               |       |               |        | 96,197,000         |       | 96,197,000 |        |
| Total                       |       | $                  | 34,873,000 |               | $           | 141,798,000        |       | $          | 96,882,000  |   | $ | 273,553,000 |   |

 

----

*$7,069,000 was paid on March 15, 2006.

 

Theabove amounts do not include minimum lease payments which would be requiredupon occupancy by the Company of its textile facility in Honduras. If completedand occupied as planned, minimum lease payments on this facility would beapproximately $1,500,000 annually for an initial term of ten years, commencingon or about June 2006.

 

The Company’s agreement with Jefferies & Co. (See Item 1A. RiskFactors, above) calls for a fee of $600,000 upon consummation of a “Restructuring” in the event that the Restructuring consists solely of theextension of the maturities of the Senior Notes and the Preferred Stock, or, inthe case of a Restructuring other than solely by extension, 0.75% of the faceamount of all the Preferred Stock in excess of $20,000,000 and all of theSenior Notes.

18

----

 

**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. However, historically,revenues have been higher during the first half of the Company’s fiscal years.

 

**Effect of Inflation**

 

Inflation generallyaffects the Company by increasing the interest expense of floating rateindebtedness and by increasing the cost of labor, equipment and raw materials. TheCompany does not believe that inflation has had any material effect on theCompany’s business during the periods discussed herein.

 

**Recent Accounting Pronouncements**

 

In November 2004, the FinancialAccounting Standards Board (“FASB”) issued SFAS No. 151, *InventoryCosts* which amends Accounting Research Bulletin No. 43, Chapter 4, *Inventory Pricing*, to clarify the accounting for abnormalamounts of idle facility expense, freight, handling costs, and wasted material.This Statement requires that those items be recognized as current-periodcharges and requires that allocation of fixed production overheads to the costof conversion be based on the normal capacity of the production facilities.This statement is effective for fiscal years beginning after June 15, 2005. TheCompany has not yet assessed the impact which the adoption of SFAS No. 151might have on the Company’s reported consolidated results of operations orfinancial position.

 

InDecember 2004, the FASB issued SFAS No. 123(R), *Share-BasedPayments,* that will require compensation costs related toshare-based payment transactions to be recognized in the financial statements. Withlimited exceptions, the amount of compensation cost will be measured based onthe grant-date fair value of the equity or liability instruments issued. Inaddition, if granted, liability awards will be remeasured each reporting period.Compensation cost will be recognized over the period that an employee providesservice in exchange for the reward. SFAS No. 123(R) is effective as to theCompany as of the beginning of the Company’s 2006 fiscal year. If applicable,the Company will account for stock-based compensation costs prospectively atthe time of adoption. The adoption of SFAS 123(R) is not expected to have amaterial effect on the Company’s reported consolidated financial position orresults of operations, based on the Company’s current nominal level of stockbased compensation.

 

In May 2005, the FASBissued SFAS No. 154,  *Accounting Changes and Error Correction* - a replacement ofAPB Opinion No. 20 and FASB Statement No. 3. This statement applies to allvoluntary changes in accounting principles. It also applies to changes requiredby an accounting pronouncement in the unusual instance that the pronouncementdoes not include specific transition provisions. This statement requiresretrospective application to prior periods’ financial statements of changes inaccounting principles, unless it is impracticable to determine either theperiod-specific effects or the cumulative effect of the change. This statementis effective for accounting changes and corrections made in fiscal yearsbeginning after December 31, 2005.

 

**Forward-Looking Information**

 

The Company’s results ofoperations have been significantly affected by industry-wide fluctuations inselling prices. Such prices have declined significantly over the last severalyears. Management continues its efforts to reduce costs and improvemanufacturing efficiencies. Although the Company believes that prices havestabilized, Management cannot predict the future effects of numerous economicfactors such as GATT implementation and the impact of a possible influx oftextile products

 

19

----

 

from WTO member nationssuch as China. Accordingly, Management is continually seeking to diversify andexpand the Company’s customer base and also to place increased emphasis on thesale of goods sourced as finished products.

 

The Company is includingthe following cautionary statement in this Form 10-K to make applicable andtake advantage of the safe harbor provisions of the Private SecuritiesLitigation Reform Act of 1995 for any forward-looking statements made by, or onbehalf of, the Company. Forward-looking statements include statementsconcerning plans, objectives, goals, strategies, future events or performance,and underlying assumptions and other statements which are other than statementsof historical facts. From time to time, the Company may publish or otherwisemake available forward-looking statements of this nature. All such subsequentforward-looking statements, whether written or oral and whether made by or onbehalf of the Company, are also expressly qualified by these cautionarystatements. Certain statements contained herein are forward-looking statementsand accordingly involve risks and uncertainties which could cause actualresults or outcomes to differ materially from those expressed in theforward-looking statements. The forward-looking statements contained herein arebased on various assumptions, many of which are based, in turn, upon furtherassumptions. The Company’s expectations, beliefs and projections are expressedin good faith and are believed by the Company to have a reasonable basis,including without limitation, Management’s examination of historical operatingtrends, data contained in the Company’s records and other data available fromthird parties, but there can be no assurance that Management’s expectation,beliefs or projections will result or be achieved or accomplished. In additionto the other factors and matters discussed elsewhere herein, the followingfactors are important factors that, in the view of the Company, could causeactual results to differ materially from those discussed in the forward-lookingstatements:

 

1. Changesin economic conditions, in particular those which affect the activewear market.

2. Changesin the availability and/or price of yarn, in particular, if increases in theprice of yarn are not passed along to the Company’s customers.

3. Changesin senior management or control of the Company.

4. Inabilityto obtain new customers or retain existing ones.

5. Significantchanges in competitive factors, including product pricing conditions, affectingthe Company.

6. Governmental/regulatoryactions and initiatives, including, those affecting financings.

7. Significantchanges from expectations in actual capital expenditures and operatingexpenses.

8. Occurrencesaffecting the Company’s ability to obtain funds from operations, debt or equityto finance needed capital expenditures and other investments.

9. Significantchanges in rates of interest, inflation or taxes.

10. Significantchanges in the Company’s relationship with its employees and the potentialadverse effects if labor disputes or grievances were to occur.

11. Changesin accounting principles and/or the application of such principles to theCompany.

 

The foregoing factors couldaffect the Company’s actual results and could cause the Company’s actualresults during fiscal 2006 and beyond to be materially different from anyanticipated results expressed in any forward-looking statement made by or onbehalf of the Company. The Company disclaims any obligation to update anyforward-looking statements to reflect events or other circumstances after thedate hereof.

 

20

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***Item 7A. Quantitative and Qualitative Disclosures About Market Risk.***

 

The Company believes that its potential exposure tomarket risk is not material.

 

***Item 8. Financial Statements and Supplementary Data.***

 

Seepage F-1, Index to Financial Statements, included elsewhere herein.

 

***Item 9. Changes in and Disagreements with Accountants on Accounting andFinancial 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 28, 2006 and concluded thatthese controls and procedures are effective.

 

There have been nochanges in the Company’s internal control over financial reporting thatoccurred during the Company’s most recent fiscal quarter that have materiallyaffected, or are reasonably likely to materially affect, the Company’s internalcontrol over financial reporting.

 

# ***Item 9B. Other Information.***

#  

None.

 

21

----

 

**PART III**

 

***Item 10. Directors and Executive Officers of the Registrant.***

 

Withrespect to the directors of the Company, the information required by Item 10 ofForm 10-K appears on pages 1 through 4 of the Information Statement, and isincorporated herein by reference.

 

Pursuantto General Instruction G to Form 10-K, the following information is furnishedconcerning the executive officers and key employees of the Company.

 

**EXECUTIVEOFFICERS AND**

**CERTAINKEY EMPLOYEES OF ANVIL**

 

The following sets forthcertain information with respect to the executive officers and certain keyemployees of Anvil.

 
| **Name**          | ** ** | **Age(1)** | ** ** | **Position**                                                                                     |
|-------------------|------------|------------|------------|--------------------------------------------------------------------------------------------------|
|              |       |       |       |                                                                                             |
| Bernard Geller    |       | 72         |       | Chief Executive Officer, Chairman of the Board                                                   |
|              |       |       |       |                                                                                             |
| Anthony Corsano   |       | 46         |       | President and Chief Operating Officer                                                            |
|              |       |       |       |                                                                                             |
| Jacob Hollander   |       | 64         |       | Executive Vice President, Chief Administrative  Officer, Secretary, General Counsel and Director |
|              |       |       |       |                                                                                             |
| William H. Turner |       | 58         |       | Executive Vice President of Manufacturing                                                        |
|              |       |       |       |                                                                                             |
| Frank Ferramosca  |       | 51         |       | Executive Vice President of Finance, Chief Financial  Officer                                    |
|              |       |       |       |                                                                                             |
| Frank D. Keeney   |       | 55         |       | Executive Vice President of Sales and Marketing                                                  |

 

----

(1)          All ages are as ofDecember 31, 2005.

 

*Bernard Geller*has served as the Chief Executive Officer of Anvil, President of Holdings, andhas been a Director of Anvil and Holdings since February 1995. Since March1997, Mr. Geller has served as Chairman of the Board of Anvil and Holdings andfrom July 1997 to February 28, 2001,  asPresident of Anvil.

 

*Anthony Corsano*has served as President and ChiefOperating Officer of Anvil since February 28, 2001. Prior thereto, he served asExecutive Vice President of Sales and Marketing of Anvil for more than fiveyears.

 

*Jacob Hollander* has served as Executive Vice President,Chief Administrative Officer, Secretary and General Counsel of Anvil and VicePresident, Secretary and General Counsel of Holdings since February, 1995.Since March, 1997, Mr. Hollander has served as a Director of Anvil andHoldings.

 

*WilliamH. Turner*has servedas Executive Vice President of Manufacturing of Anvil since February 1995.

 

22

----

 

*Frank Ferramosca*was employed by Anvil in April 2004 as Executive Vice President of Finance and becameVice President of Finance of Holdings in May 2004.   In March 2005, he was appointed ChiefFinancial Officer of both Anvil and Holdings. A Certified Public Accountant(State of New York), Mr. Ferramosca served as Senior Vice President ofOperations Planning for Sony Electronics Inc. from 2000 to 2004.

 

*Frank D. Keeney*was employed by Anvil in April 2005 as Senior Vice President of Sales, andbecame Executive Vice President of Sales and Marketing in July 2005. Mr. Keeneyserved as Vice President of Sales for Haggar Clothing Company from January 2000to April 2002, Senior Vice President of Sales and Marketing and StrategicBusiness Unit Manager for Tropical Sportswear International from April 2002 toOctober 2004; and Vice President of Sales for Caribbean Joe Apparel fromOctober 2004 to April 2005.

 

***Item 11. Executive Compensation.***

 

**The information required by Item 11of Form 10-K appears on pages 4 through 8 of the Information Statement, and isincorporated herein by reference.**

** **

***Item12. Security Ownership of Certain Beneficial Owners and Management and Related StockholderMatters.***

 

**The information required by Item 12of Form 10-K appears on pages 8 through 11 of the Information Statement, and isincorporated herein by reference.**

** **

# ***Item 13. Certain Relationshipsand Related Transactions.***

#  

**The information required by Item 13of Form 10-K appears on page 11 of the Information Statement and isincorporated herein by reference.**

 

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

 

**The information required by Item 14of Form 10-K appears on page 4 of the Information Statement and is incorporatedherein by reference.**

** **

**PART IV**

 

***Item15. Exhibits and Financial Statement Schedules.***

 

 (a) Documents filed as part of this report:

 

1. Thefinancial statements required to be filed hereunder are listed on page F-1

 

2. Thefinancial statement schedules required to be filed hereunder are listed on pageF-1

 

23

----

 

3. Exhibits filed as partof this report:

 
| **No.** | ** ** | **Description**                                                                                                                                        |
|---------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------|
|    |       |                                                                                                                                                   |
| 12      |       | Computation of Ratio of  Earning to Fixed Charges                                                                                                      |
|    |       |                                                                                                                                                   |
| 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. |

 

(b)  Additional exhibits (previously filed asindicated):

 
| **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)                                                                                                                                                                                                                                           |

 

24

----

 
| 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)                                                                                                                                                                                                                                                                                                 |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                     |
| 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                                                                                                                                                                                                                                               |

 

25

----

 
|   |   | 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)                                                                                                                                                                                                                      |
|   |   |                                                                                                                                                                                                                                                                                                             |
| 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)    |   | Previously filed with  the Company’s Registration Statement and Amendments thereto on Form S-4 (SEC  file No. 333-26999) and is incorporated herein by reference. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                   |
| (2)    |   | Previously filed with  the Company’s Form 10-Q for the Quarter ended August 2, 1997, and is  incorporated herein by reference.                                    |
|   |   |                                                                                                                                                                   |
| (3)    |   | Previously filed with  the Company’s Form 10-K for the Year ended January 31, 1998, and is  incorporated herein by reference.                                     |
|   |   |                                                                                                                                                                   |
| (4)    |   | Previously filed with  the Company’s Form 10-Q for the Quarter ended October 31, 1998, and is  incorporated herein by reference.                                  |
|   |   |                                                                                                                                                                   |
| (5)    |   | Previously filed with  the Company’s Form 10-K for the Year ended January 30, 1999, and is  incorporated herein by reference.                                     |
|   |   |                                                                                                                                                                   |
| (6)    |   | Previously filed with  the Company’s Form 10-K for the Year ended February 3, 2001 and is incorporated  herein by reference.                                      |
|   |   |                                                                                                                                                                   |
| (7)    |   | Previously filed with  the Company’s Form 10-K for the Year ended February 2, 2002 and is  incorporated herein by reference.                                      |
|   |   |                                                                                                                                                                   |
| (8)    |   | Previously filed with  the Company’s Form 10-K for the Year ended February 1, 2003 and is  incorporated herein by reference.                                      |
|   |   |                                                                                                                                                                   |
| (9)    |   | Previously filed with  the Company’s Form 10-K for the Year ended January 31, 2004 and is  incorporated herein by reference.                                      |

 

(c)                                None.

 

26

----

 

**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 28, 2006 |   |
| Bernard Geller                       |       |                | and  Director (Principal  |     |   |
|                                 | ** ** | Executive  Officer) |                      |     |
|                                 |       |                |                      |     |
| */s/ Jacob Hollander*                |       |                | Vice President, Secretary |     | April 28, 2006 |   |
| Jacob Hollander                      |       |                | and Director              |     |   |
|                                 |       |                |                      |     |
| * /s/*  *Frank Ferramosca* |       |                | Vice President, Principal |     | April 28, 2006 |   |
| Frank Ferramosca                     |       |                | Financial and Accounting  |     |   |
|                                 |       | Officer             |                      |     |
|                                 |       |                |                      |     |
| */s/ Richard R. Leonard*             |       |                | Director                  |     | April 28, 2006 |   |
| Richard R. Leonard                   |       |                |                      |     |   |
|                                 |       |                |                      |     |
| */s/ Anthony T. Williams*            |       |                | Director                  |     | April 28, 2006 |   |
| Anthony T. Williams                  |       |                |                      |     |   |
|                                      |            |                     |                           |          |  |  |  |  |  |  |

 

SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TOSECTION 15(D) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIESPURSUANT 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.

 

27

----

 

**ANVIL HOLDINGS, INC. ANDSUBSIDIARIES**

**INDEX TO CONSOLIDATED FINANCIALSTATEMENTS AND**

**CONSOLIDATED FINANCIAL STATEMENTSCHEDULES**

 
| Report  of Independent Registered Public Accounting Firm                            |   |
|-------------------------------------------------------------------------------------|--------|
|                                                                                |   |
| Consolidated  Balance Sheets as of January 29, 2005 and January 28, 2006            |   |
|                                                                                |   |
| Consolidated  Statements of Operations for the fiscal years ended January 31, 2004, |   |
| January 29, 2005 and January  28, 2006                                              |   |
|                                                                                |   |
| Consolidated  Statements of Stockholders’ Deficiency for the fiscal            |   |
| years ended January 31,  2004, January 29, 2005 and January 28, 2006                |   |
|                                                                                |   |
| Consolidated  Statements of Cash Flows for the fiscal years ended                   |   |
| January 31, 2004, January  29, 2005 and January 28, 2006                            |   |
|                                                                                |   |
| Notes  to Consolidated Financial Statements                                         |   |
|                                                                                |   |
| Schedule  II — Valuation and Qualifying Accounts                               |   |

 

F-1

----

 

**REPORTOF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

** **

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 28, 2006 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 28, 2006.  Our audits alsoincluded the financial statement schedule listed in the Index at Item 15.  These financial statements and financialstatement schedule are the responsibility of the Company’s management.  Our responsibility is to express an opinionon the financial statements and financial statement schedule based on ouraudits.

 

Weconducted our audits in accordance with the standards of the Public CompanyAccounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtainreasonable assurance about whether the financial statements are free of materialmisstatement.  The Company is notrequired to have, nor were we engaged to perform, an audit of its internalcontrol over financial reporting.  Ouraudits included consideration of internal control over financial reporting as abasis for designing audit procedures that are appropriate in the circumstances,but not for the purpose of expressing an opinion on the effectiveness of theCompany’s internal control over financial reporting.  Accordingly, we express no such opinion.  An audit also includes examining, on a testbasis, 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 28, 2006 and January 29, 2005, and the results oftheir operations and their cash flows for each of the three fiscal years in theperiod ended January 28, 2006, 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 respectsthe information set forth therein.

 

The accompanying financial statements have beenprepared assuming that the Company will continue as a going concern.  As described in Notes 3, 9 and 10 to thefinancial statements, the Company’s interest and debt obligations, recurringlosses and stockholders’ deficiency raise substantial doubt about its abilityto continue as a going concern. Management’s plans in regard to this matter are also described in Note3.  The financial statements do notinclude any adjustments that might result from the outcome of this uncertainty.

 

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, *Accounting for Certain Financial Instruments withCharacteristics of Both Liabilities and Equity*, effective February1, 2004.

 

DELOITTE& TOUCHE LLP

 

NewYork, New York

April  27, 2006

 

F-2

----

 

**ANVILHOLDINGS, INC. AND SUBSIDIARIES**

**CONSOLIDATEDBALANCE SHEETS**

(In Thousands,Except Share and Per Share Data)

 
| ** **                                                                                                                                                               | ** **                                          | **January 29,** | ** ** | **January 28,** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------------------------------|-----------------|------------|-----------------|------------|
| ** **                                                                                                                                                               | ** **                                          | **2005**        | ** ** | **2006**        | ** ** |
| ** **                                                                                                                                                               | ** **                                          | ** **      | ** ** | ** **      | ** ** |
| **ASSETS**                                                                                                                                                               |                                                |            |       |            |       |
|                                                                                                                                                                     |                                                |            |       |            |       |
| CURRENT ASSETS:                                                                                                                                                          |                                                |            |       |            |       |
| Cash                                                                                                                                                                     |                                                | $               | 4,682      |            | $          | 5,871 |   |
| Accounts  receivable, less allowances for doubtful accounts of $1,188 and $760 as of  January 29, 2005 and January 28, 2006, respectively                                |                                                | 28,366          |       | 23,533          |       |
| Inventories                                                                                                                                                              |                                                | 50,206          |       | 50,605          |       |
| Prepaid and  refundable income taxes                                                                                                                                     |                                                | 2,547           |       | 80              |       |
| Deferred income  taxes-current portion                                                                                                                                   |                                                | 3,605           |       | —          |       |
| Prepaid expenses  and other current assets                                                                                                                               |                                                | 1,365           |       | 1,403           |       |
| Total current  assets                                                                                                                                                    |                                                | 90,771          |       | 81,492          |       |
| PROPERTY, PLANT AND EQUIPMENT—Net                                                                                                                                   |                                                | 30,915          |       | 23,314          |       |
| DEFERRED INCOME TAXES                                                                                                                                                    |                                                | 897             |       | —          |       |
| INTANGIBLE ASSETS—Net                                                                                                                                               |                                                | 1,998           |       | 1,712           |       |
| OTHER ASSETS                                                                                                                                                             |                                                | 1,551           |       | 1,792           |       |
|                                                                                                                                                                     | Total Assets                                        |            | $          | 126,132         |       | $ | 108,310 |   |
|                                                                                                                                                                     |                                                |            |       |            |       |
| **LIABILITIES  AND STOCKHOLDERS’  DEFICIENCY**                                                                                                                 |                                                |            |       |            |       |
|                                                                                                                                                                     |                                                |            |       |            |       |
| CURRENT LIABILITIES:                                                                                                                                                     |                                                |            |       |            |       |
| Accounts payable                                                                                                                                                         |                                                | $               | 7,308      |            | $          | 4,289 |   |
| Accrued expenses  and other current liabilities                                                                                                                          |                                                | 17,417          |       | 17,991          |       |
| Revolving credit  loan                                                                                                                                                   |                                                | 10,280          |       | 15,225          |       |
| Total current  liabilities                                                                                                                                               |                                                | 35,005          |       | 37,505          |       |
| 10-7/8% SENIOR  NOTES                                                                                                                                                    |                                                | 129,175         |       | 129,565         |       |
| OTHER LONG-TERM OBLIGATIONS                                                                                                                                              |                                                | 197             |       | 127             |       |
| MANDATORILY REDEEMABLE PREFERRED STOCK-Net of  Treasury Holdings                                                                                                         |                                                | 56,028          |       | 63,864          |       |
|                                                                                                                                                                     | Total Liabilities                                   |            | 220,405    |            | 231,061    |   |
|                                                                                                                                                                     |                                                |            |       |            |       |   |
| COMMITMENTS AND CONTINGENCIES                                                                                                                                            |                                                |            |       |            |       |
|                                                                                                                                                                     |                                                |            |       |            |       |
| 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, $76,299 and $86,288) |                                                | 3               |       | 3               |       |
| Class B, $.01  par value, authorized 7,500,000 shares; issued and outstanding: 3,605,000  shares                                                                         |                                                | 36              |       | 36              |       |
| Class C, $.01  par value; authorized 1,400,000 shares; none issued                                                                                                       |                                                | —          |       | —          |       |
| Additional  paid-in capital                                                                                                                                              |                                                | 12,813          |       | 12,813          |       |
| Accumulated  deficit                                                                                                                                                     |                                                | (107,125        | )          | (135,603        | )          |
|                                                                                                                                                                     | Total Stockholders’ Deficiency                 |            | (94,273    | )               | (122,751   | ) |
|                                                                                                                                                                     | Total Liabilities and Stockholders’ Deficiency |            | $          | 126,132         |       | $ | 108,310 |   |

 

See notes toconsolidated financial statements.

 

F-3

----

 

**ANVIL HOLDINGS, INC. ANDSUBSIDIARIES**

**CONSOLIDATEDSTATEMENTS OF OPERATIONS**

(In Thousands)

 
| ** **                                                        | ** ** | **Fiscal Year Ended** | ** ** |
|-------------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                        | ** ** | **January 31,**       | ** ** | **January 29,** | ** ** | **January 28,** | ** ** |
| ** **                                                        | ** ** | **2004**              | ** ** | **2005** | ** ** | **2006** |   |
|                                                              |       |                  |       |   |   |   |   |
| NET SALES                                                         |       | $                     | 191,222    |   | $ | 192,358 |   | $ | 179,928 |   |
| COST OF GOODS SOLD                                                |       | 163,267               |       | 153,869 |   | 150,001 |   |
| Gross profit                                                      |       | 27,955                |       | 38,489 |   | 29,927 |   |
| SELLING, GENERAL  AND ADMINISTRATIVE EXPENSES                     |       | 24,444                |       | 24,927 |   | 26,123 |   |
| AMORTIZATION OF INTANGIBLE ASSETS                                 |       | 313                   |       | 286 |   | 286 |   |
| GOODWILL/ASSET IMPAIRMENTS                                        |       | 19,416                |       | — |   | 3,713 |   |
| OPERATING (LOSS) INCOME                                           |       | (16,218               | )          | 13,276 |   | (195 | ) |
| INTEREST EXPENSE:                                                 |       |                  |       |   |   |   |   |
| Interest on borrowings                                            |       | 14,431                |       | 14,723 |   | 15,193 |   |
| Dividends and  accretion on redeemable preferred stock            |       | —                |       | 6,904 |   | 7,836 |   |
| Total interest  expense                                           |       | 14,431                |       | 21,627 |   | 23,029 |   |
| OTHER  EXPENSE—NET, PRINCIPALLY AMORTIZATION OF DEBT EXPENSE |       | 972                   |       | 1,081 |   | 1,159 |   |
|                                                              |       |                  |       |   |   |   |   |
| LOSS BEFORE (BENEFIT) PROVISION FOR INCOME TAXES                  |       | (31,621               | )          | (9,432 | ) | (24,383 | ) |
|                                                              |       |                  |       |   |   |   |   |
| (BENEFIT) PROVISION FOR INCOME TAXES                              |       | (13,297               | )          | (803 | ) | 4,095 |   |
|                                                              |       |                  |       |   |   |   |   |
| NET LOSS                                                          |       | $                     | (18,324    | ) | $ | (8,629 | ) | $ | (28,478 | ) |

 

See notes toconsolidated financial statements.

 

F-4

----

 

**ANVIL HOLDINGS, INC. ANDSUBSIDIARIES**

**CONSOLIDATEDSTATEMENTS OF STOCKHOLDERS’ DEFICIENCY**

 

(In Thousands)

 
| ** **                        | ** ** | **Common Stock** | ** ** | **Additional** | ** ** | **Accumulated** | ** ** | ** **          | ** ** |
|-----------------------------------|------------|------------------|------------|----------------|------------|-----------------|------------|---------------------|------------|
|                              |       | **Class A**      | ** ** | **Class B**    | ** ** | **Class C**     | ** ** | **Paid-in Capital** | ** ** | **Deficit** | ** ** | **Total** | ** ** |
|                              |       |             |       |           |       |            |       |                |       |   |   |   |   |
| Balance at February 2, 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 | ) |
| Net loss                          |       |             |       |           |       |            |       |                |       | (28,478 | ) | (28,478 | ) |
| Balance at January 28, 2006       |       | $                | 3          |           | $          | 36              |       | —              |       | $ | 12,813 |   | $ | (135,603 | ) | $ | (122,751 | ) |

 

See notes toconsolidated financial statements.

 

F-5

----

 

**ANVIL HOLDINGS, INC. ANDSUBSIDIARIES**

**CONSOLIDATEDSTATEMENTS OF CASH FLOWS**

(In Thousands)

 
| ** **                                                                                        | ** ** | **Fiscal Year Ended** | ** ** |
|---------------------------------------------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                                                        | ** ** | **January 31,**       | ** ** | **January 29,** | ** ** | **January 28,** | ** ** |
|                                                                                              |       | **2004**              | ** ** | **2005** | ** ** | **2006** |   |
|                                                                                              |       |                  |       |   |   |   |   |
| CASH FLOWS FROM OPERATING ACTIVITIES:                                                             |       |                  |       |   |   |   |   |
| Net loss                                                                                          |       | $                     | (18,324    | ) | $ | (8,629 | ) | $ | (28,478 | ) |
| Adjustments to  reconcile net loss to net cash (used in)   provided by operating activities: |       |                  |       |   |   |   |   |
| Depreciation and  amortization of fixed assets                                                    |       | 8,261                 |       | 6,579 |   | 7,041 |   |
| Other  amortization                                                                               |       | 1,109                 |       | 1,164 |   | 1,192 |   |
| Deferred income  taxes                                                                            |       | (7,814                | )          | 114 |   | 4,502 |   |
| Goodwill/asset  impairment                                                                        |       | 19,416                |       | — |   | 3,713 |   |
| Preferred  dividends in interest expense payable on redemption.                                   |       | —                |       | 6,904 |   | 7,836 |   |
| Changes in operating assets and liabilities:                                                      |       |                  |       |   |   |   |   |
| Accounts  receivable                                                                              |       | (181                  | )          | 130 |   | 4,833 |   |
| Inventories                                                                                       |       | (8,911                | )          | 2,308 |   | (399 | ) |
| Prepaid and  refundable income taxes                                                              |       | (4,411                | )          | 3,073 |   | 2,467 |   |
| Prepaid expenses  and other current assets                                                        |       | 377                   |       | 46 |   | (38 | ) |
| Accounts payable                                                                                  |       | (6,063                | )          | (1,123 | ) | (3,019 | ) |
| Accrued expenses  and other current liabilities                                                   |       | (2,857                | )          | 4,705 |   | 574 |   |
| Other long-term  obligations                                                                      |       | —                |       | (458 | ) | (70 | ) |
| Other—net                                                                                    |       | (53                   | )          | (306 | ) | (757 | ) |
| Net cash (used  in)  provided by operating activities                                        |       | (19,451               | )          | 14,507 |   | (603 | ) |
|                                                                                              |       |                  |       |   |   |   |   |
| CASH FLOWS FROM INVESTING ACTIVITIES:                                                             |       |                  |       |   |   |   |   |
| Purchases of  property and equipment                                                              |       | (3,708                | )          | (4,333 | ) | (3,657 | ) |
| Proceeds from  sale of property and equipment                                                     |       | 336                   |       | 49 |   | 504 |   |
| Net cash used in  investing activities                                                            |       | (3,372                | )          | (4,284 | ) | (3,153 | ) |
|                                                                                              |       |                  |       |   |   |   |   |
| CASH FLOWS FROM FINANCING ACTIVITIES:                                                             |       |                  |       |   |   |   |   |
| Borrowings  (repayments) under revolving credit agreement                                         |       | 16,686                |       | (6,406 | ) | 4,945 |   |
| Repayments of  Term Loan                                                                          |       | (2,345                | )          | (586 | ) | — |   |
| Net cash  provided by  (used in) financing  activities                                       |       | 14,341                |       | (6,992 | ) | 4,945 |   |
|                                                                                              |       |                  |       |   |   |   |   |
| **(DECREASE) INCREASE IN CASH**                                                                   |       | (8,482                | )          | 3,231 |   | 1,189 |   |
|                                                                                              |       |                  |       |   |   |   |   |
| **CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR**                                                  |       | 9,933                 |       | 1,451 |   | 4,682 |   |
|                                                                                              |       |                  |       |   |   |   |   |
| **CASH AND CASH EQUIVALENTS, END OF YEAR**                                                        |       | $                     | 1,451      |   | $ | 4,682 |   | $ | 5,871 |   |
| **SUPPLEMENTAL CASH FLOW INFORMATION:**                                                           |       |                  |       |   |   |   |   |
| Cash paid for  interest                                                                           |       | $                     | 14,431     |   | $ | 14,723 |   | $ | 15,192 |   |
| Cash refunds of  income taxes                                                                     |       | $                     | (1,446     | ) | $ | (4,122 | ) | $ | (3,833 | ) |
|                                                                                              |       |                  |       |   |   |   |   |
| **SUPPLEMENTAL  SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:**                        |       |                  |       |   |   |   |   |
| Preferred Stock Dividends Payable in Cash and  Accretion                                          |       | $                     | 6,091      |   |   |   |   |   |

 

See notes toconsolidated financial statements.

 

F-6

----

 

**ANVILHOLDINGS, INC. AND SUBSIDIARIES**

**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS**

**(InThousands, Except Share Data)**

** **

**1.  THE COMPANY**

 

As used herein, the“Company” refers to Anvil Holdings, Inc. (“Holdings”), including, in someinstances, its wholly-owned subsidiary, Anvil Knitwear, Inc., a Delawarecorporation (“Anvil”), and its other subsidiaries, as appropriate to thecontext. The Company is engaged in the business of designing, manufacturing andmarketing high quality activewear for men, women and children, including shortand long 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. TheCompany markets and sells its products primarily to distributors, screenprinters and private label brand owners, principally in the United States ofAmerica.

 

The Company reports itsoperations in one segment in accordance with Financial Accounting StandardsBoard (“FASB”) Statement of Financial Accounting Standards (“SFAS”) No. 131, *Disclosures About Segments of an Enterprise andRelated 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 repurchaseda substantial portion of its outstanding shares of capital stock; (ii)Bruckmann, Rosser, Sherrill & Co., L.P. and certain of its employees andaffiliates (collectively, “BRS”) contributed $13,063 for the purchase of newcommon stock; (iii) 399 Venture Partners, Inc. and certain of its employees andaffiliates (collectively, “399 Venture”) and certain management investorsreinvested a portion of their shares of capital stock of the Company inexchange for newly issued common stock; and (iv) 399 Venture exchanged aportion of its capital stock for Senior Exchangeable Preferred Stock and newcommon stock.  During fiscal 2003, 399Venture transferred its holdings in the Company to an affiliate, Court SquareCapital, Ltd (“Court Square”).

 

Concurrently with theRecapitalization, the Company sold 30,000 Units consisting of (i) $30,000, 13%Senior Exchangeable Preferred Stock due 2009 and (ii) 390,000 shares of Class Bcommon stock (the “Units Offering”).  TheSenior Exchangeable Preferred Stock was recorded at $27,656 representing theproceeds of $30,000, less $390 allocated to the Class B common stock and $1,954of expenses attributable to the Units Offering. Additionally, on March 14, 1997, Anvil sold $130,000 of 10-7/8% SeniorNotes due March 15, 2007 (“Senior Notes”) in connection with theRecapitalization.

 

**3.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**

** **

***Basis of Presentation—*** The accompanying consolidatedfinancial statements have been prepared in accordance with accountingprinciples generally accepted in the United States of America (“GenerallyAccepted Accounting Principles” or “GAAP”).  The accompanying financialstatements have been prepared assuming that the Company will continue as agoing concern which 

 

F-7

----

 

contemplates the realization of assets and the satisfaction ofliabilities in the normal course of business.

 

As described in Notes 9 and 10, the Company’s Loan and SecurityAgreement which includes the Revolving Credit Facility, expires January 11,2007 and its 10-7/8% Senior Notes are due March 15, 2007.  Management ofthe Company presently believes that, based upon current and anticipated levelsof operations, it will be able to satisfy its interest obligations under theRevolving Credit Facility, and that there will be sufficient availability underthe Revolving Credit Facility to fund normal working capital requirementsthrough the expiration of the Revolving Credit Facility on January 11,2007.  However, Management of the Company believes it is unlikely that theCompany will be able to satisfy its obligations to repay the principal on theSenior Notes when due and that the Company’s ability to renew the Loan andSecurity Agreement is uncertain if the Senior Notes have not been refinanced priorto the expiration of the Loan and Security Agreement.  The Company hasengaged the services of Jefferies & Company, Inc. as its financial advisorin exploring and reviewing strategic alternatives with respect to its capitalstructure.  Unless refinancing/restructuring of the Senior Notes isaccomplished prior to the expiration of the Loan and Security Agreement, theCompany may not be able to renew the Loan and Security Agreement on acceptableterms, if at all.  There can be no assurance that the Company will makethe interest payment due on the Senior Notes on September 15, 2006, or withinany applicable grace period thereafter, which could create a default under theSenior Notes and/or under the Loan and Security Agreement.

 

The Company’s financing needs as described above, along with itsrecurring losses, which amounted to ($18,324), ($8,629) and ($28,478) in thefiscal years ended January 31, 2004, January 29, 2005 and January 28, 2006,respectively, and its stockholders’ deficiency ($122,751 as of January 28,2006) raise substantial doubt about its ability to continue as a goingconcern.  The Company’s continuation as a going concern is dependent uponits ability to obtain additional financing or refinancing as may be required,and ultimately to attain successful operations.

 

The financial statements do not include any adjustments relating to therecoverability and classification of recorded asset amounts or the amounts andclassification of liabilities that might be necessary should the Company be unableto continue as a going concern.

 

The consolidatedfinancial statements include the accounts of the Company and its wholly-ownedsubsidiaries. Intercompany accounts and transactions are eliminated inconsolidation.

 

***Fiscal Year—***The Company’s operationsare on a “52/53-week” fiscal year ending on the Saturday closest to January 31.The years ended January 31, 2004, January 29, 2005, January 28, 2006 andFebruary 3, 2007 are referred to herein as Fiscal 2003, Fiscal 2004, Fiscal2005 and Fiscal 2006, respectively.

*** ***

***Use of Estimates—***The preparation offinancial statements in conformity with GAAP requires Management to makecertain estimates and assumptions that affect the reported amounts of assetsand liabilities and disclosure of contingent assets and liabilities at the dateof the financial statements and the reported amounts of revenues and expensesduring the reporting period.  Actualresults could differ from those estimates. The accounts requiring the use of significant estimates include, amongothers: accounts receivable, inventories, various income tax accounts,long-lived assets, intangible assets and certain reserves.

 

F-8

----

 

***Fair Value of Financial Instruments***—Thefinancial instruments in the accompanying consolidated balance sheets arereported at historical amounts.  Suchamounts generally approximate fair value, with the exception of the SeniorNotes and the Redeemable Preferred Stock. Management believes the fair value of these instruments to be considerablyless than their reported amounts, but an estimable fair value is notpracticably determinable because of the lack of a regular market for thesesecurities.  Accordingly, the estimatespresented herein are not necessarily indicative of the amounts that the Companycould realize in a current market exchange.

 

***Property, Plant and Equipment***—Property,plant and equipment is being depreciated for financial reporting purposes usingthe straight-line method over the estimated useful lives of the assets.  Leasehold improvements are amortized over thelesser of the estimated useful life or the term of the lease.  With the exception of certain assets forwhich the depreciable lives have been adjusted (See Note 6 to the consolidatedfinancial statements), depreciable lives are generally as follows:

 

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

 

***Inventories—***Inventories are stated atthe lower of cost or market, with cost being determined primarily by the first-in,first-out (FIFO) method.

 

***Intangible Assets***—Intangible assets ofthe Company as of January 28, 2006 consist of trademarks which are beingamortized over their estimated useful life of 17 years.  Goodwill (which was not being amortized) hasbeen fully written off due to an impairment in value recorded as of January 31,2004.  See Note 7 to the consolidatedfinancial statements.

 

***Evaluation of Long-Lived Assets—***Long-livedassets are assessed for recoverability whenever events or changes incircumstances indicate that an asset may have been impaired.   In evaluating an asset for recoverability,the Company estimates the future cash flows expected to result from the use ofthe asset and eventual disposition.  Ifthe sum of the expected future cash flows (undiscounted and without interestcharges) is less than the carrying amount of the asset, an impairment loss,equal to the excess of the carrying amount over the fair value of the asset, isrecognized.  See Note 6 to theconsolidated financial statements.

 

***Deferred Financing Fees—***Included inother assets are net deferred financing fees ($1,064 and $548 at January 29,2005 and January 28, 2006, respectively) which are being amortized over theterm of the applicable obligations.

 

***Stock Option Plan*—**The Company accountsfor its stock option plan in accordance with Accounting Principles BoardOpinion No. 25, *Accounting for Stock Issued toEmployees,* under which no compensation cost is recognized for stockoption awards.  Had compensation costbeen determined consistent with SFAS No. 123, * Accounting for Stock-Based Compensation*(“SFAS123”), the effect on the Company’s reported results of operations would havebeen immaterial because of the nominal amount of option activity.

 

F-9

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***Revenue Recognition—***Revenue isrecognized at the time merchandise is shipped and title has passed.  Allowances for sales returns and discountsare provided when sales are recorded. Shipping and handling costs billed to customers are included as acomponent of net sales, and the related expense is included as a component ofselling, general and administrative expenses, and amounted to $100, $89 and$134 in Fiscal 2003, Fiscal 2004 and Fiscal 2005, respectively.

 

***Income Taxes—***Income taxes have beenaccounted for in accordance with SFAS No. 109, *Accountingfor Income Taxes*, which requires the use of an asset and liabilityapproach for financial accounting and reporting of income taxes.  A valuation allowance is recorded againstdeferred tax assets at such time as it is determined that it is no longer morelikely than not that such deferred tax assets are realizable.

 

***Significant Customers***—The Company hashad one customer which accounted for approximately 33%, 41% and 36%,respectively, of the Company’s net sales in Fiscal 2003,  Fiscal 2004 and Fiscal 2005.

 

***Recent Accounting Pronouncements***

 

In November 2004, theFASB issued SFAS No. 151, *Inventory Costs*which amends Accounting Research Bulletin No. 43, Chapter 4, *Inventory Pricing*, to clarify theaccounting for abnormal amounts of idle facility expense, freight, handlingcosts, and wasted material.  Thisstatement requires that those items be recognized as current-period charges andrequires that allocation of fixed production overheads to the cost ofconversion be based on the normal capacity of the production facilities. Thisstatement is effective for fiscal years beginning after June 15, 2005.  The Company has not yet assessed the impactwhich the adoption of SFAS No. 151 might have on the Company’s reportedconsolidated results of operations or financial position.

 

In December 2004, theFASB issued SFAS No. 123(R), *Share-BasedPayments,* that will require compensation costs related toshare-based payment transactions to be recognized in the financialstatements.  With limited exceptions, theamount of compensation cost will be measured based on the grant-date fair valueof the equity or liability instruments issued. In addition, if granted, liability awards will be remeasured eachreporting period.  Compensation cost willbe recognized over the period that an employee provides service in exchange forthe reward. SFAS No. 123(R) is effective as to the Company as of the beginningof the Company’s 2006 fiscal year.  Ifapplicable, the Company will account for stock-based compensation costsprospectively at the time of adoption. The adoption of SFAS 123(R) is not expected to have a material effect onthe Company’s reported consolidated results of operations, based on theCompany’s current nominal level of stock-based compensation.

 

In May 2005, the FASBissued SFAS No. 154,  *Accounting Changes and Error Correction* -a replacement of APB Opinion No. 20 and FASB Statement No. 3.  This statement applies to all voluntarychanges in accounting principles.  Italso applies to changes required by an accounting pronouncement in the unusualinstance that the pronouncement does not include specific transitionprovisions. This statement requires retrospective application to prior periods’financial statements of changes in accounting principles, unless it isimpracticable to determine either the period-specific effects or the cumulativeeffect of the change. This statement is effective for accounting changes andcorrections made in fiscal years beginning after December 31, 2005.

 

F-10

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**4.  INVENTORIES**

** **

Inventories consist ofthe following:

 
| ** **                 | ** ** | **January 29,** | ** ** | **January 28,** | ** ** |
|----------------------------|------------|-----------------|------------|-----------------|------------|
| ** **                 | ** ** | **2005**        | ** ** | **2006**        | ** ** |
| ** **                 | ** ** | ** **      | ** ** | ** **      | ** ** |
| Finished goods             |       | $               | 38,807     |            | $          | 41,066 |   |
| Work-in-process            |       | 1,821           |       | 1,876           |       |
| Raw materials and supplies |       | 9,578           |       | 7,663           |       |
|                       |       | $               | 50,206     |            | $          | 50,605 |   |

 

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

** **

Property plant andequipment consists of the following:

 
| ** **                                     | ** ** | **January 29,** | ** ** | **January 28,** | ** ** |
|------------------------------------------------|------------|-----------------|------------|-----------------|------------|
| ** **                                     | ** ** | **2005**        | ** ** | **2006**        | ** ** |
|                                           |       |            |       |            |       |
| Land                                           |       | $               | 1,446      |            | $          | 1,274 |   |
| Buildings and improvements                     |       | 19,531          |       | 10,875          |       |
| Machinery, equipment, furniture and fixtures   |       | 58,789          |       | 59,601          |       |
|                                           |       | 79,766          |       | 71,750          |       |
| Less accumulated depreciation and amortization |       | (48,851         | )          | (48,436         | )          |
|                                           |       | $               | 30,915     |            | $          | 23,314 |   |

 

Depreciation andamortization expense related to property, plant and equipment for the fiscalyears ended January 31, 2004, January 29, 2005, and January 28, 2006 was  $8,261, $6,579 and $7,041, respectively.

 

At January 28, 2006, theabove property, plant and equipment includes assets held for sale having anadjusted carrying value of $1,915 after the provision for asset impairmentdiscussed in Note 6, below.

 

**6.**  **PROVISIONFOR ASSET IMPAIRMENT**

 

In connection with theCompany’s decision during the third quarter of Fiscal 2005 to proceed with theconstruction of a new textile facility in Honduras and to transfer certainproduction operations to that facility, Management assessed the recoverabilityof existing assets which would be affected by this decision.  Based upon such assessment, the Companyprovided a $3,713 charge representing its estimate of the impairment to thecarrying value of certain of the affected property, plant and equipment, net ofthe estimated proceeds from the sale of this property, plant and equipment.  In addition, the remaining useful lives ofthe machinery and equipment have been reduced from their original useful lives,which ranged from 4 to 10 years to eighteen months resulting from the phase-outof the assets during the transition. As a result, depreciation was acceleratedon the machinery and equipment which will be phased out during the transition,resulting in an increase in cost of goods sold of $743 for the fiscal yearended January 28, 2006.  The transitionis currently estimated by Management to be complete by the end of Fiscal2006.  The aforementioned charges do notinclude: (i) future expenses (presently estimated by Management atapproximately $2,000) which may be incurred for personnel costs once thetransition and related contractual matters have further

 

F-11

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progressed; and (ii)additional accelerated depreciation of $1,487 on the machinery and equipment tobe recorded during the fiscal year ending February 3, 2007.

 

**7.  GOODWILL AND INTANGIBLE ASSETS**

 

The Company has adoptedthe provisions of SFAS No. 142, *Goodwill andOther Intangible Assets,*which requires that goodwill and otherintangible assets be tested for impairment annually and when an event occursindicating that it is possible an impairment exists.  At 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 charge of $19,416, representing the entire carryingamount of the Company’s existing goodwill. The impairment resulted from an implied reduction in the Company’s fairvalue resulting from the reduced revenue and gross margin projections caused bya continuing industry-wide decline in selling prices for the Company’s basicgoods.

 

The Company’s remainingintangible assets, which are being amortized, consist of trademarks having anaggregate value of $4,858, less accumulated amortization of  $2,860 and $3,146 as of January 29, 2005 andJanuary 28, 2006, respectively. Amortization expense for these trademarks will be $286 in each futurefiscal year.  The Company believes thatprojected cash flows as well as the intrinsic value of its trademarks arerepresentative of their carrying value.

 

**8.  ACCRUED EXPENSES AND OTHER CURRENTLIABILITIES**

** **

Accrued expenses andother current liabilities consist of the following:

 
| ** **                                 | ** ** | **January 29,** | ** ** | **January 28,** | ** ** |
|--------------------------------------------|------------|-----------------|------------|-----------------|------------|
|                                       |       | **2005**        | ** ** | **2006**        | ** ** |
|                                       |       |            |       |            |       |
| Accrued wages, fringe benefits and bonuses |       | $               | 4,567      |            | $          | 4,577 |   |
| Accrued interest payable                   |       | 5,503           |       | 5,503           |       |
| Accrued promotional expenses               |       | 3,880           |       | 5,571           |       |
| Other                                      |       | 3,467           |       | 2,340           |       |
|                                       |       | $               | 17,417     |            | $          | 17,991 |   |

 

**9.  CREDIT AGREEMENT**

 

Anvil’s Loan and SecurityAgreement, as amended on May 20, 2004 (the “Loan Agreement”), provides for amaximum revolving credit facility of $40,000 (the “Revolving CreditFacility”).   The Loan Agreement, asamended, expires January 11, 2007.  Theoriginal Loan Agreement included a term loan in the initial principal amount of$11,725, repayable in quarterly principal installments of $586, the last ofwhich was made in April 2004.  Amountsdue under the Loan Agreement are secured by substantially all the inventory,receivables, intangibles and property, plant and equipment of Anvil.  Holdings and Spectratex, Inc. a wholly-ownedsubsidiary of Anvil (“Spectratex” [formerly named Cottontops]) guaranteeamounts due under the Loan Agreement.  The Loan agreement contains various non-financial covenants, all of whichthe Company is in compliance with as of January 28, 2006.  Interest on the Revolving Credit Facility isat prime plus one-quarter percent or LIBOR plus 2-1/4%, at the Company’soption.  At January 29, 2005 and January28, 2006, there was $10,280 and $15,225 outstanding under the Revolving CreditFacility bearing interest at 5.5% and 7.5%, respectively.  The weighted average interest rate onborrowings under the

 

F-12

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Loan Agreement during thefiscal years ended January 31, 2004, January 29, 2005 and January 28, 2006 was4.3%, 4.7% and 6.6%, respectively.  Themaximum amount outstanding under the Revolving Credit Facility during thefiscal year ended January 28, 2006 was $31,064. At January 28, 2006 there was $15,240 available for additional borrowingsunder the Revolving Credit Facility.

 

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

 

On March 14, 1997, Anvilissued $130,000 of 10-7/8% Senior Notes (the “Senior Notes”) due March 15, 2007and received proceeds of $126,100 net of debt discount of $3,900.  Interest on the Senior Notes is payablesemiannually on March 15 and September 15. The Company may redeem the Senior Notes at a redemption price of 100% atany time beginning March 15, 2004.

 

The Senior Notes areguaranteed by the Company, Spectratex and the Non-U.S. subsidiaries of Anviland are senior unsecured obligations of the Company ranking senior in right ofpayment to all subordinated indebtedness of the Company and *pari passu* in right of payment with allexisting and future senior indebtedness, including borrowings under the LoanAgreement.  The indenture relating to theSenior Notes contains certain non-financial covenants as well as financialcovenants, including restrictions on additional indebtedness, certain assetsales, and the payment of dividends, all of which the Company is in compliancewith as of January 28, 2006.

 

**11.  INCOME TAXES**

 

The provision (benefit)for income taxes consists of the following:

 
| ** **                           | ** ** | **Fiscal Year Ended** | ** ** |
|--------------------------------------|------------|-----------------------|------------|
| ** **                           | ** ** | **January  31,**      | ** ** | **January 29,** | ** ** | **January 28,** | ** ** |
|                                 |       | **2004**              | ** ** | **2005** | ** ** | **2006** | ** ** |
|                                 |       |                  |       |   |   |   |   |
| Current:                             |       |                  |       |   |   |   |   |
| Federal                              |       | $                     | (5,546     | ) | $ | (920 | ) | $ | (179 | ) |
| State and local                      |       | 64                    |       | 3 |   | (228 | ) |
| Total current  benefit               |       | (5,482                | )          | (917 | ) | (407 | ) |
| Deferred:                            |       |                  |       |   |   |   |   |
| Federal  (benefit) provision         |       | (5,785                | )          | 100 |   | (4,148 | ) |
| State and local  (benefit) provision |       | (2,030                | )          | 14 |   | (362 | ) |
| Increase in  valuation allowance     |       | —                |       | — |   | 9,012 |   |
| Total deferred  (benefit) provision  |       | (7,815                | )          | 114 |   | 4,502 |   |
| Total tax (benefit) provision        |       | $                     | (13,297    | ) | $ | (803 | ) | $ | 4,095 |   |

 

Pursuant to SFAS No. 109,*Accounting for Income Taxes,*duringthe fiscal year ended January 28, 2006, as a result of recent losses which theCompany is not able to carry back against prior years’ income, as well asrecent Management projections, the Company determined that, at this time,realization of the Company’s net deferred tax assets is not more likely thannot.  Accordingly, the Company increasedits valuation allowances in Fiscal 2005 to fully reserve against its netdeferred tax assets of $4,502 recorded through January 29, 2005.  In addition, a valuation allowance of $4,510was established to offset the net deferred tax assets generated in the currentfiscal year ended January 28, 2006.   Management intends to record valuation allowances, to the extentsubsequent tax losses continue.

 

The Company’s consolidatedpre-tax results of operations for the fiscal years ended January 31, 2004,January 29, 2005 and January 28, 2006 includes pre-tax income of $633 andpre-tax losses of $365 and $3,155, respectively, attributable to foreignsources.

 

A reconciliation of thestatutory Federal tax rate and the effective rate is as follows.

 

F-13

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| ** **                                                    | ** ** | **Fiscal Year Ended** | ** ** |
|---------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                    | ** ** | **January 31,**       | ** ** | **January 29,** | ** ** | **January 28,** | ** ** |
|                                                          |       | **2004**              | ** ** | **2005** | ** ** | **2006** |   |
|                                                          |       |                  |       |   |   |   |   |
| Federal statutory tax rate                                    |       | 35                    | %          | 35 | % | 35 | % |
| Dividends and accretion of preferred stock                    |       | —                |       | (26 | ) | (11 | ) |
| Valuation allowances provided                                 |       | —                |       | — |   | (37 | ) |
| State and local  taxes—net of Federal income tax benefit |       | 4                     |       | — |   | 2 |   |
| Foreign and other                                             |       | 3                     |       | — |   | (6 | ) |
|                                                          |       |                  |       |   |   |   |   |
| Effective tax rate                                            |       | 42                    | %          | 9 | % | (17 | %) |

 

The tax effects oftemporary differences that give rise to deferred tax assets and liabilities arepresented below:

 
| ** **                                            | ** ** | **January 29,** | ** ** | **January 28,** | ** ** |
|-------------------------------------------------------|------------|-----------------|------------|-----------------|------------|
|                                                  |       | **2005**        | ** ** | **2006**        |       |
|                                                  |       |            |       |            |       |
| Deferred tax assets relating to:                      |       |            |       |            |       |
| Inventories                                           |       | $               | 1,486      |            | $          | 1,180 |   |
| Reserves not  currently deductible                    |       | 2,102           |       | 876             |       |
| Charitable  contributions                             |       | 17              |       | 21              |       |
| Total current  deferred tax assets                    |       | 3,605           |       | 2,077           |       |
| Deferred tax assets (liabilities) relating to:        |       |            |       |            |       |
| Property, plant  and equipment                        |       | (2,066          | )          | 1,452           |       |
| Intangible assets                                     |       | 2,858           |       | 2,607           |       |
| Unremitted  foreign earnings                          |       | (939            | )          | —          |       |
| NOL Carryforward                                      |       | 394             |       | 2,640           |       |
| Tax credit  carryforwards and other                   |       | 2,035           |       | 1,621           |       |
| Total  non-current deferred tax assets                |       | 2,282           |       | 8,320           |       |
| Total deferred tax assets before valuation allowances |       | 5,887           |       | 10,397          |       |
| Valuation allowances                                  |       | (1,385          | )          | (10,397         | )          |
| Net deferred tax assets                               |       | $               | 4,502      |            | —     |   |
|                                                       |            |                 |            |                 |            |  |  |

 

The Company has a Federalnet operating loss carryforward of approximately $7,000 at January 28, 2006,for which a full valuation allowance has been recorded.  The Company also has state tax creditcarryforwards of $1,757 at January 28, 2006, for which a full valuationallowance has been recorded.  Thesecarryforwards expire on various dates through 2019.

 

**12.  EMPLOYEE SAVINGS AND INVESTMENT PLAN**

** **

The Company has a savingsand investment plan under which eligible employees may contribute up to 60% oftheir compensation, subject to certain limitations.  The Company matches 100% of pre-taxcontributions up to the first 3% and 50% of the next 3%.  During the fiscal years ended January 31,2004, January 29, 2005 and January 28, 2006, the Company made cashcontributions to the plan aggregating $667, $596 and $618, respectively.

 

F-14

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**13.  CAPITAL STRUCTURE**

 

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

*** ***

In connection with theUnits Offering, in March 1997, the Company issued 1,200,000 shares of 13%Mandatorily Redeemable Senior Exchangeable Preferred Stock (“RedeemablePreferred Stock”) due 2009.  Total sharesauthorized are 2,300,000. Dividends accrue quarterly at 13% on the sum of theliquidation value ($25 per share) plus accumulated and unpaid dividendsthereon.

 

On any scheduled dividendpayment date, the Company may, at its option, but subject to certainconditions, exchange all but not less than all of the shares of RedeemablePreferred Stock then outstanding for the Company’s 13% Subordinated ExchangeDebentures due 2009 (“Exchange Debentures”). No Exchange Debentures have been issued. The Redeemable Preferred Stock or the Exchange Debentures, if issued,will be redeemable at the option of the Company, in whole or in part, at anytime on or after March 15, 2002, at the redemption price of 101% of theliquidation preference or aggregate principal amount thereof (as the case maybe), plus, in the case of the Redeemable Preferred Stock, an amount equal toall accumulated and unpaid dividends per share to the date of redemption, or inthe case of the Exchange Debentures, an amount equal to all accumulated andunpaid interest thereon to the date of redemption.  On March 15, 2009, the Company is required toredeem all outstanding shares of the Redeemable Preferred Stock at an amountequal to the liquidation preference and all accumulated and unpaid dividends.This mandatory redemption would require a cash payment of $96,197 on March 15,2009.  The Redeemable Preferred Stock wasrecorded at 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 $24,187, 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.  EffectiveNovember 17, 2005, one such director resigned.

 

Effective as of thebeginning of the fiscal year ended January 29, 2005, the Company adopted theprovisions of SFAS No. 150, *Accounting forCertain 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

 

F-15

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SFAS No. 150 required theCompany to begin classifying its 13% Senior Exchangeable Preferred Stock (the“Preferred Stock”) as a liability, and the related dividends and accretion asinterest expense.  Prior to the effectivedate of SFAS No. 150, the Company classified the Preferred Stock on its balancesheet between liabilities and equity and the related dividends and accretion asa reduction in equity not included as an element of interest expense.  Restatement of prior periods is not permittedwhen applying SFAS No. 150.  If theprovisions of SFAS No. 150 had been in effect for periods prior to the fiscalyear ended January 29, 2005, the Company would have reported a net loss of$24,415 in the fiscal year ended January 31, 2004.

 

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

 
| ** **                                                                        | ** ** | **January 29,** | ** ** | **January 28,** | ** ** |
|-----------------------------------------------------------------------------------|------------|-----------------|------------|-----------------|------------|
|                                                                              |       | **2005**        | ** ** | **2006**        | ** ** |
|                                                                              |       |            |       |            |       |
| Preferred Stock  issued and outstanding  (Liquidation value, $80,884 and $91,922) |       | $               | 81,139     |            | $          | 92,488 |   |
| Less—Preferred  Stock in treasury  (Liquidation value, $25,033 and $28,449)  |       | (25,111         | )          | (28,624         | )          |
| Preferred Stock—net  (Liquidation value, $55,851 and $63,473)                |       | $               | 56,028     |            | $          | 63,864 |   |

 

***Common Stock***

 

The Class A Common Stockaccretes liquidation preference at the rate of 12.5% per annum, compoundedquarterly, which is payable prior to distribution of dividends on Common Stock.

 

Holders of Class B CommonStock are entitled to one vote per share on all matters to be voted on bystockholders, while holders of Class A Common Stock and Class C Common Stock(authorized, but unissued)  have no rightto vote on any matters except in special circumstances, such as a merger,consolidation, recapitalization or reorganization of the Company.

 

**14.  STOCK OPTION PLAN**

** **

Effective January 1,2002, the Company adopted a stock option plan (the “Option Plan”) whichauthorizes the granting of options for approximately 5.0% of the outstandingClass B Common Stock on a fully diluted basis.  The Option Plan may be terminated by the Company at any time.  The options may be granted to certain membersof management and key employees and are subject to time vesting as well asvesting provisions relating to the sale or recapitalization of the Company, asdefined.   The exercise price of such optionsis the fair 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.  Since adoption of the plan,options to purchase 15,000 shares were exercised and options to purchase 15,000shares were cancelled.  At January 28,2006, options to purchase 60,000 shares (all of which are exercisable) areoutstanding with an average life of approximately six 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%. The Company accounts for its stock option plan in accordance with AccountingPrinciples Board Opinion No. 25, *Accountingfor Stock Issued to Employees,* under which no compensation cost isrecognized for stock option awards.  Hadcompensation cost been determined consistent with SFAS No. 123, the effect onthe Company’s

 

F-16

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reported results ofoperations would have been immaterial because of the nominal amount of optionactivity.

 

**15.  COMMITMENTS AND CONTINGENCIES**

** **

***Leases—***The Company is obligated undervarious leases for equipment, office space and manufacturing facilities whichexpire at various dates through 2011. Future minimum rental commitments undernoncancelable operating leases, with terms in excess of one year, are asfollows:

 

Fiscal Year Ending In:

 
| 2007  |   | $     | 2,469  |   |
|-------|--------|-------|--------|--------|
| 2008  |   | 1,915 |   |
| 2009  |   | 1,537 |   |
| 2010  |   | 1,277 |   |
| 2011  |   | 685   |   |
| Total |   | $     | 7,883  |   |

 

The above amounts do notinclude minimum lease payments which would be required upon occupancy by theCompany of its textile facility in Honduras. If completed and occupied as planned, minimum lease payments on this facilitywill be approximately $1,500 annually for an initial term of ten years,commencing on or about June 2006.

 

Rental expense for thefiscal years ended January 31, 2004, January 29, 2005 and January 28, 2006 was$2,875, $3,011 and $2,908, respectively.

 

***Letters of Credit****—*At January 28, 2006, the Company wasparty to open letters of credit in the amount of  $1,541, expiring through July 2006.

 

***Employment Agreements***—The Company hasfour employment agreements with certain of its executives providing for minimumannual compensation.  All of theseagreements currently expire on January 31, 2007, and three are subject toautomatic one-year renewals.  For theyear ending February 3, 2007, the minimum amount payable under these employmentagreements is $1,500.

 

***Litigation—***The Company is 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.

 

***Environmental Matters***—Prior to the1995 initial formation of the Company, groundwater contamination was discoveredat what is now the Company’s 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

 

F-17

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of the cleanup at thefacility will depend upon the extent of contamination and the corrective actionapproved by the DEHNR, preliminary cleanup cost estimates range from $1.0 to$4.0 million. McGregor continues to be a party to the Asheville, North Carolinafacility’s hazardous waste permit and Culligan has guaranteed McGregor’sobligations under the AOC. McGregor also contractually agreed to fully indemnifythe Company with respect to the contamination as part of the terms of theacquisition of the Anvil business (the “Acquisition”).   This indemnity is guaranteed by Culligan andby Astrum International Corp. (now known as Samsonite Corporation), an affiliateof 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 1995.  Culligan andSamsonite have also guaranteed McGregor’s obligations under theseindemnities.  The consolidated financialstatements do not include any liabilities which might arise from the foregoingmatters.

 

*OtherAgreement* - The Company’s agreement with Jefferies & Co.(See Note 3)  calls for a fee of $600upon consummation of a “Restructuring” (as defined in the agreement) in theevent that the Restructuring consists solely of the extension of the maturitiesof the Senior Notes and the Preferred Stock, or, in the case of a Restructuringother than solely by extension, 0.75% of the face amount of all the PreferredStock in excess of $20,000 and all of the Senior Notes.

 

**16.** **  SUMMARIZED FINANCIAL DATA OF CERTAINSUBSIDIARIES**

** **

Holdings has noindependent operations apart from its wholly-owned subsidiary, Anvil, and itssole asset is the capital stock of Anvil. Anvil is Holdings’ only direct subsidiary.  Holdings, Spectratex and the Non-U.S.subsidiaries of Anvil fully and unconditionally, jointly and severallyguarantee the 10-7/8% Senior Notes of Anvil. In addition to Spectratex, 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 Anvil GmbH (formerly named CDC GmbH),organized in Germany.  There are no otherdirect or indirect subsidiaries of the Company.   The following information presents certaincondensed consolidating financial data for Holdings, Anvil, Spectratex and theNon-U.S. Subsidiaries.  Complete financialstatements and other disclosures concerning Anvil, Spectratex and the Non-U.S.Subsidiaries are not presented because Management has determined they are notmaterial to investors.  For Fiscal 2005,the tax provision, which consists primarily of the establishment of valuationallowances on the Company’s net deferred tax assets was allocated to Anvil, asthe majority of such assets related to Anvil.

 

F-18

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| ** **                                                    | ** **   | ** **   | ** **   | ** **   | ** **   | ** **     | ** **   | ** **       | ** **   | ** **   | ** **   | **Holdings  and** | ** **   |
|---------------------------------------------------------------|--------------|--------------|--------------|--------------|--------------|----------------|--------------|------------------|--------------|--------------|--------------|-------------------|--------------|
| ** **                                                    | ** **   | ** **   | ** **   | ** **   | ** **   | ** **     | ** **   | **Non-U.S.**     | ** **   | **Elim-**    | ** **   | **Subsidiaries**  | ** **   |
| ** **                                                    | ** **   | **Holdings** | ** **   | **Anvil**    | ** **   | **Spectratex** | ** **   | **Subsidiaries** | ** **   | **inations** | ** **   | **Consolidated**  | ** **   |
| ***FISCAL 2005***                                             |         |         |         |         |         |           |         |             |         |         |         |              |         |
| Balance Sheet Data                                            |         |         |         |         |         |           |         |             |         |         |         |              |         |
| Total current assets                                          |         |         |         | $            | 76,278       |           | $            | 426              |         | $            | 4,788        |              |         |   | $ | 81,492 |   |
| Other assets                                                  |         |         |         | 21,113       |         | 903            |         | 4,802            |         |         |         | 26,818            |         |
| Investment in Spectratex                                      |         |         |         | 767          |         |           |         |             |         | (767         | )            |              |         |
| Investment in Non-U.S. Subs                                   |         |         |         | 7,880        |         |           |         |             |         | (7,880       | )            |              |         |
| Total assets                                                  |         |         |         | $            | 106,038      |           | $            | 1,329            |         | $            | 9,590        |              | $            | (8,647 | ) | $ | 108,310 |   |
| Total current liabilities                                     |         |         |         | $            | 35,233       |           | $            | 562              |         | $            | 1,710        |              |         |   | $ | 37,505 |   |
| Investment in Anvil                                           |         | $            | 58,887       |         |         |           |         |             |         |         | $            | (58,887           | )            |   |   |
| Long-term debt  and other non-current obligations             |         | 63,864       |         | 129,692      |         |           |         |             |         |         |         | 193,556           |         |
| Stockholders’ (deficiency)/ equity                       |         | (122,751     | )            | (58,887      | )            | 767            |         | 7,880            |         | 50,240       |         | (122,751          | )            |
| Total  liabilities and stockholders’ equity/(deficiency) |         | $            | —       |         | $            | 106,038        |         | $                | 1,329        |         | $            | 9,590             |         | $ | (8,647 | ) | $ | 108,310 |   |
|                                                          |         |         |         |         |         |           |         |             |         |         |         |              |         |
| Statement of Operations Data                                  |         |         |         |         |         |           |         |             |         |         |         |              |         |
| Net sales                                                     |         |         |         | $            | 172,169      |           | $            | 7,849            |         | $            | 20,130       |              | $            | (20,220 | ) | $ | 179,928 |   |
| Cost of goods sold                                            |         |         |         | 139,737      |         | 8,450          |         | 22,034           |         | (20,220      | )            | 150,001           |         |
| Gross profit (loss)                                           |         |         |         | 32,432       |         | (601           | )            | (1,904           | )            |         |         | 29,927            |         |
| Operating  expenses, including goodwill/asset impairments     |         |         |         | 28,451       |         | 534            |         | 1,137            |         |         |         | 30,122            |         |
| Interest expense and other                                    |         | $            | 7,837        |         | 16,304       |           | 47           |             |         |         |         |              | 24,188       |   |
| Loss before taxes                                             |         | (7,837       | )            | (12,323      | )            | (1,182         | )            | (3,041           | )            |         |         | (24,383           | )            |
| Provision for income taxes                                    |         |         |         | 4,095        |         |           |         |             |         |         |         | 4,095             |         |
| Net loss                                                      |         | $            | (7,837       | )            | $            | (16,418        | )            | $                | (1,182       | )            | $            | (3,041            | )            |   |   | $ | (28,478 | ) |
|                                                          |         |         |         |         |         |           |         |             |         |         |         |              |         |
| ***FISCAL 2004***                                             | *** *** | *** *** | *** *** | *** *** | *** *** | *** ***   | *** *** | *** ***     | *** *** | *** *** | *** *** | *** ***      | *** *** |
| Balance Sheet Data                                            |         |         |         |         |         |           |         |             |         |         |         |              |         |
| Total current assets                                          |         |         |         | $            | 87,192       |           | $            | 541              |         | $            | 3,038        |              |         |   | $ | 90,771 |   |
| Other assets                                                  |         |         |         | 29,397       |         | 1,155          |         | 4,809            |         |         |         | 35,361            |         |
| Investment in Spectratex                                      |         |         |         | 1,044        |         |           |         |             |         | (1,044       | )            |              |         |
| Investment in Non-U.S. Subs                                   |         |         |         | 6,120        |         |           |         |             |         | (6,120       | )            |              |         |
| Total assets                                                  |         |         |         | $            | 123,753      |           | $            | 1,696            |         | $            | 7,847        |              | $            | (7,164 | ) | $ | 126,132 |   |
| Total current liabilities                                     |         |         |         | $            | 32,626       |           | $            | 652              |         | $            | 1,727        |              |         |   | $ | 35,005 |   |
| Investment in Anvil                                           |         | $            | 38,245       |         |         |           |         |             |         |         | $            | (38,245           | )            |   |   |
| Long-term debt  and other non-current obligations             |         | 56,028       |         | 129,372      |         |           |         |             |         |         |         | 185,400           |         |
| Stockholders’ (deficiency)/ equity                       |         | (94,273      | )            | (38,245      | )            | 1,044          |         | 6,120            |         | 31,081       |         | (94,273           | )            |
| Total  liabilities and stockholders’ Equity/(deficiency) |         | $            | —       |         | $            | 123,753        |         | $                | 1,696        |         | $            | 7,847             |         | $ | (7,164 | ) | $ | 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-19

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| ** **                                                | ** ** | ** **   | ** ** | ** ** | ** ** | ** **     | ** ** | ** **       | ** ** | ** **   | ** ** | **Holdings and** | ** ** |
|-----------------------------------------------------------|------------|--------------|------------|------------|------------|----------------|------------|------------------|------------|--------------|------------|------------------|------------|
| ** **                                                | ** ** | ** **   | ** ** | ** ** | ** ** | ** **     | ** ** | **Non-U.S.**     | ** ** | **Elim-**    | ** ** | **Subsidiaries** | ** ** |
| ** **                                                | ** ** | **Holdings** | ** ** | **Anvil**  | ** ** | **Spectratex** | ** ** | **Subsidiaries** | ** ** | **inations** | ** ** | **Consolidated** | ** ** |
| ***Fiscal 2003***                                         |       |         |       |       |       |           |       |             |       |         |       |             |       |
| 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, including goodwill/asset impairments |       |         |       | 42,745     |       |           |       |             |       |         |       | 44,173           |       |
| 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 | ) |
|                                                           |            |              |            |            |            |                |            |                  |            |              |            |                  |            |  |  |  |  |  |

 

**17.  CERTAIN RELATIONSHIPS AND RELATEDTRANSACTIONS**

 

Anvil, Holdings and Spectratexhave entered into a management agreement with BRS, effective as of the Recapitalization,whereby BRS is to provide certain advisory and consulting services in relationto the affairs of Anvil, Holdings and Spectratex, including services inconnection with strategic financial planning, and the selection, retention andsupervision of investment bankers or other financial advisors orconsultants.  Annual fees under thismanagement agreement are $250.

 

Anvil, Holdings and Spectratexhave entered into a management agreement with CVC Management LLC (“CVC Mgmt.”),an affiliate of Court Square effective September 15, 2002, whereby CVC Mgmt. isto provide certain advisory and consulting services in relation to the affairsof Anvil, Holdings and Spectratex, including services in connection withstrategic financial planning, and the selection, retention and supervision ofinvestment bankers or other financial advisors or consultants.  Annual fees under this management agreementare $250.

 

BRS and Court Square aresignificant stockholders of the Company and each has the right to name up tothree of the Company’s Directors. Currently BRS has designated one of such Director.

 

F-20

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

** **
| ** **                     | ** ** | **Fiscal  2004** | ** ** | **Fiscal  2005** | ** ** |
|--------------------------------|------------|------------------|------------|------------------|------------|
| ** **                     | ** ** | **Quarter**      | ** ** | **Quarter**      | ** ** |
|                           |       | **First**        | ** ** | **Second**       | ** ** | **Third** | ** ** | **Fourth** | ** ** | **First** | ** ** | **Second** | ** ** | **Third*** | ** ** | **Fourth** |   |
|                           |       |             |       |             |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Net sales                      |       | $                | 53,021     |             | $          | 53,104 |   | $ | 41,477 |   | $ | 44,756 |   | $ | 49,498 |   | $ | 48,953 |   | $ | 41,399 |   | $ | 40,078 |   |
| Gross profit                   |       | 12,952           |       | 10,555           |       | 7,258 |   | 7,724 |   | 9,095 |   | 9,454 |   | 6,587 |   | 4,791 |   |
| Provision for asset impairment |       | —           |       | —           |       | — |   | — |   | — |   | — |   | 3,713 |   | — |   |
| Operating income (loss)        |       | 5,983            |       | 4,599            |       | 861 |   | 1,833 |   | 2,126 |   | 3,182 |   | (3,838 | ) | (1,665 | ) |
| Net loss                       |       | (452             | )          | (1,333           | )          | (3,589 | ) | (3,255 | ) | (3,193 | ) | (2,813 | ) | (14,842 | ) | (7,630 | ) |
|                                |            |                  |            |                  |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

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*Subsequentto the issuance of the interim consolidated financial statements for the periodended October 29, 2005, the Company determined that the provisions of SFAS No.144, *Accounting for the Impairment orDisposal of Long-Lived Assets* were misapplied*. *TheCompany determined that the previously reported interim financial statementsfor the third quarter of Fiscal 2005 overstated the provision for assetimpairment by $1,287 and understated depreciation expense included in cost ofgoods sold by $683, resulting in an overstatement of gross profit of $683, anda net overstatement in operating loss and net loss of $604 from the previouslyreported amounts of $34,129, $7,270, $5,000, ($4,442) and ($15,446) for cost ofgoods sold, gross profit, provision for asset impairment, operating (loss) andnet (loss), respectively.  As a result,the amounts presented above for the third quarter of Fiscal 2005 have beenrestated from amounts previously reported in the Company’s Form 10-Q toproperly apply SFAS No. 144.  TheCompany’s Form 10-Q filing for the third quarter of 2006 will present thecorrected amounts for the comparative 2005 period.

 

F-21

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**SCHEDULE II**

 

**ANVIL HOLDINGS, INC. ANDSUBSIDIARIES**

**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 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 |   |
|                                                                 |       |            |       |               |       |            |       |              |       |            |       |
| Fiscal year  ended January 28, 2006  Allowance for doubtful accounts |       | $               | 1,188      |               | $          | (426            | )          | $                 | —     |            | $          | (2 | ) | $ | 760 |   |

 

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(a)       Accountswritten off or collected - net

 

S-1

----