SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarterly Period Ended April 29, 2000
Commission File Number 333-26999
ANVIL HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 13-3801705
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
228 EAST 45TH STREET
NEW YORK, NEW YORK 10017
(address of principal (Zip Code)
executive office)
Registrant's telephone number (212) 476-0300
(including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
At June 13, 2000, there were 290,000 shares of Class A Common Stock, $0.01 par
value (the "Class A Common") and 3,590,000 shares of Class B Common Stock, $0.01
par value (the "Class B Common") of the registrant outstanding.
FORM 10-Q
ANVIL HOLDINGS, INC.
TABLE OF CONTENTS
PAGE
----
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets as of April 29, 2000 (Unaudited)
and January 29, 2000 ....................................... 3
Unaudited Consolidated Statements of Operations for the
Fiscal Quarters Ended April 29, 2000 and May 1, 1999 ....... 4
Unaudited Consolidated Statements of Cash Flows for the
Fiscal Quarters Ended April 29, 2000 and May 1, 1999 ....... 5
Notes to Consolidated Financial Statements ................. 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS ............ 8
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK .............................................. 12
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS .................. 13
ITEM 6. EXIBITS AND REPORTS ON FORM 8-K ............................ 13
SIGNATURES ................................................................... 14
2
PART I - FINANCIAL INFORMATION - ITEM 1. FINANCIAL STATEMENTS
ANVIL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share Data)
APRIL 29, JANUARY 29,
2000 2000*
---- -----
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ............................................ $ 3,767 $ 3,413
Accounts receivable, less allowances for doubtful accounts of
$1,158 and $1,211 .................................................. 32,950 31,143
Inventories .......................................................... 40,037 39,906
Prepaid and refundable income taxes .................................. 40 117
Deferred income taxes-short term portion ............................. 2,003 2,003
Prepaid expenses and other current assets ............................ 1,269 987
--------- ---------
Total current assets ..................................... 80,066 77,569
PROPERTY, PLANT AND EQUIPMENT--Net ..................................... 32,761 33,631
DEFERRED INCOME TAXES .................................................. 1,380 1,380
INTANGIBLE ASSETS--Net ................................................. 24,987 23,571
OTHER ASSETS ........................................................... 3,522 3,701
--------- ---------
$ 142,716 $ 139,852
========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES:
Accounts payable ..................................................... $ 9,101 $ 8,523
Accrued expenses and other current liabilities ....................... 13,520 17,213
Current portion of term loan ......................................... 2,345 2,345
Revolving credit loan ................................................ 620 584
Income taxes payable ................................................. 2,840 340
--------- ---------
Total current liabilities ............................ 28,426 29,005
--------- ---------
LONG-TERM PORTION OF TERM LOAN ......................................... 7,035 7,621
--------- ---------
10-7/8% SENIOR NOTES ................................................... 127,323 127,225
--------- ---------
DEFERRED INCOME TAXES .................................................. 6,467 6,467
--------- ---------
OTHER LONG-TERM OBLIGATIONS ............................................ 2,016 1,969
--------- ---------
REDEEMABLE PREFERRED STOCK
(Liquidation value $44,051 and $42,664) ........................... 42,914 41,473
--------- ---------
STOCKHOLDERS' DEFICIENCY:
Common stock
Class A, $.01 par value, 12.5% cumulative; authorized 500,000
shares, issued and outstanding: 290,000 (aggregate liquidation
value, $42,423 and $41,139) .................................... 3 3
Class B, $.01 par value, authorized 7,500,000 shares; issued and
outstanding: 3,590,000 shares .................................. 36 36
Class C, $.01 par value; authorized 1,400,000 shares; none issued
Additional paid-in capital ......................................... 12,803 12,803
Deficit ............................................................ (84,307) (86,750)
--------- ---------
Total stockholders' deficiency .............................. (71,465) (73,908)
--------- ---------
$ 142,716 $ 139,852
========= =========
* Derived from audited financial statements.
See notes to consolidated financial statements.
3
ANVIL HOLDINGS, INC. AND SUBSIDIARIES
STATEMENTS OF OPERATIONS
(In Thousands, Except Share Data)
FISCAL QUARTER ENDED
APRIL 29, MAY 1,
2000 1999
---- ----
(Unaudited)
NET SALES ............................................................ $ 59,124 $ 52,411
COST OF GOODS SOLD ................................................... 41,944 41,333
-------- --------
Gross profit .................................................. 17,180 11,078
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES .......................................................... 6,293 6,068
AMORTIZATION OF INTANGIBLE ASSETS .................................... 290 250
-------- --------
Operating income .............................................. 10,597 4,760
OTHER EXPENSE:
Interest expense ................................................. (3,824) (4,274)
Amortization of debt expense and other--net ...................... (300) (265)
-------- --------
INCOME BEFORE PROVISION FOR INCOME
TAXES AND EXTRAORDINARY ITEM ..................................... 6,473 221
PROVISION FOR INCOME TAXES ........................................... 2,589 88
-------- --------
INCOME BEFORE EXTRAORDINARY ITEM ..................................... 3,884 133
EXTRAORDINARY ITEM - Loss on extinguishment
of debt (net of tax benefit of $417) ............................. -- (627)
-------- --------
NET INCOME (LOSS) .................................................... 3,884 (494)
Less: Preferred Stock dividends ...................................... (1,400) (1,255)
Common A preference ....................................... (1,284) (1,156)
-------- --------
NET INCOME (LOSS) ATTRIBUTABLE TO
COMMON STOCKHOLDERS .............................................. $ 1,200 $ (2,905)
======== ========
BASIC INCOME (LOSS) PER COMMON SHARE
Class A Common Stock:
Income before extraordinary item .................................. $ 4.74 $ 3.40
Extraordinary item ................................................ -- (0.16)
-------- --------
Net income ........................................................ $ 4.74 $ 3.24
======== ========
Class B Common Stock:
Income (loss) before extraordinary item ........................... $ 0.31 $ (0.59)
Extraordinary item ................................................ -- (0.16)
-------- --------
Net income (loss) ................................................. $ 0.31 $ (0.75)
======== ========
Weighted average shares used in computation of
basic income (loss) per share:
Class A Common ..................................................... 290 290
======== ========
Class B Common ..................................................... 3,590 3,590
======== ========
See notes to consolidated financial statements.
4
ANVIL HOLDINGS, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
(In Thousands, Except Share Data)
FISCAL QUARTER ENDED
--------------------
APRIL 29, MAY 1,
2000 1999
---- ----
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) .......................................... $ 3,884 $ (494)
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization of fixed assets .............. 1,709 1,778
Amortization of other assets ............................... 567 528
Loss on extinguishment of debt ............................. -- 627
Changes in operating assets and liabilities, net of acquisition:
Accounts receivable ........................................ (1.901) 104
Inventories ................................................ (131) 2,061
Prepaid and refundable income taxes ........................ 77 128
Accounts payable ........................................... 578 3,028
Accrued expenses & other liabilities ....................... (3,646) (3,288)
Income taxes payable ....................................... 2,500 --
Other--net ................................................. (164) (827)
-------- --------
Net cash provided by operating activities ........... 3,473 3,645
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition, net of working capital effect ................ (1,705) --
Purchases of property and equipment--net ................... (864) (356)
-------- --------
Net cash used by investing activities ................ (2,569) (356)
Proceeds (Repayments) of Term Loan ............................ (586) 11,725
Proceeds of Revolving Credit Agreement .................... -- 19,566
(Repayments) borrowings under revolving credit agreements .. 36 (30,148)
-------- --------
Net cash provided (used) by financing activities .... (550) 1,143
-------- --------
INCREASE IN CASH ............................................... 354 4,432
CASH, BEGINNING OF PERIOD ...................................... 3,413 3,397
-------- --------
CASH, END OF PERIOD ............................................ $ 3,767 $ 7,829
======== ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest ....................................... $ 7,434 $ 7,904
======== ========
Cash paid (received) for income taxes ....................... $ 12 $ (457)
======== ========
Non-cash investing and financing activities -
Redeemable preferred stock issued in lieu of dividends ..... $ 1,400 $ 1,255
======== ========
See notes to consolidated financial statements.
5
ANVIL HOLDINGS, INC. AND SUBSIDIARIES FORM 10-Q
UNAUDITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in Thousands, Except Share Data)
NOTE 1 -BUSINESS/PRINCIPLES OF CONSOLIDATION
BASIS OF PRESENTATION: The accompanying consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Rule
10-01 of Regulation S-X. Accordingly, they do not include all the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the fiscal period ended April 29, 2000 are
not necessarily indicative of the results that may be expected for the fiscal
year ending February 3, 2001, or any other period. The balance sheet at January
29, 2000 has been derived from the audited financial statements at that date.
For further information, refer to the financial statements for the fiscal year
ended January 29, 2000.
As used herein, the "Company" refers to Anvil Holdings, Inc. ("Holdings"),
including, in some instances, its wholly owned subsidiary, Anvil Knitwear, Inc.,
a Delaware corporation ("Anvil"), and its other subsidiaries, as appropriate to
the context. The Company is engaged in the business of designing, manufacturing
and marketing high quality activewear for men, women and children, supplemented
with towels and robes. The Company markets and distributes its products, under
its brand names and private labels, primarily to wholesalers and screen
printers, principally in the United States. The Company reports its operations
in one segment.
The Company's operations are on a "52/53-week" fiscal year ending on the
Saturday closest to January 31. The current fiscal year ending February 3, 2001
contains 53 weeks. The accompanying consolidated financial statements include
the accounts of the Company, after elimination of significant intercompany
accounts and transactions.
NOTE 2 - REFINANCING AND EXTRAORDINARY ITEM
On March 11, 1999, Anvil entered into a Loan and Security Agreement (the "Loan
Agreement") providing for a maximum credit facility of $60,000 consisting of a
term loan (the "Term Loan") and a revolving credit facility (the "Revolving
Credit Facility"). The Term Loan was in the principal amount of $11,725,
repayable in quarterly principal installments of $586, which commenced on July
1, 1999. Anvil also borrowed $19,566 under the Revolving Credit Facility. The
Loan Agreement expires March 11, 2002, and amounts due under it are secured by
substantially all the inventory, receivables and property, plant and equipment
of Anvil. Holdings and Cottontops, Inc., a Delaware corporation ("Cottontops")
guaranty amounts due under the Loan Agreement. Interest on the Term Loan and the
Revolving Credit Facility are at prime plus one-half percent or LIBOR plus
2-1/2%, at the Company's option. At April 29, 2000, there was $620 outstanding
under the Revolving Credit Facility at an interest rate of 8.8%.
As required by the Certificate of Designations relating to the 13% Senior
Exchangeable Preferred Stock, the Company has paid stock dividends aggregating
562,021 shares ($14,051 liquidation value) through April 29, 2000.
6
During the quarter ended May 1, 1999, the Company recorded an extraordinary
charge of $1,044, before a tax benefit of $417, to write off deferred financing
and interest hedging costs relating to the repayment of the Credit Agreement.
NOTE 3 - INVENTORIES
Inventories at April 29, 2000 and January 29, 2000 consisted of the following:
APRIL 29, 2000 JANUARY 29, 2000
-------------- ----------------
Finished goods ......... $21,257 $22,026
Work-in-process ........ 13,218 11,777
Raw materials & supplies 5,562 6,103
------- -------
$40,037 $39,906
======= =======
NOTE 4 - SUMMARIZED FINANCIAL DATA OF CERTAIN WHOLLY-OWNED SUBSIDIARIES
Following is the summarized balance sheet data of Anvil and Cottontops.
Cottontops is a wholly-owned subsidiary of Anvil, which is a wholly-owned
subsidiary of Holdings.
ANVIL KNITWEAR, INC. COTTONTOPS, INC.
------------------------ -----------------------
APRIL 29, JANUARY 29, APRIL 29, JANUARY 29,
2000 2000 2000 2000
---- ---- ---- ----
Current assets .................. $ 80,066 $ 77,569 $ 3,671 $ 2,267
========= ========= ========== =========
Total assets .................... $ 142,716 $ 139,852 $ 3,838 $ 2,467
========= ========= ========== =========
Current liabilities ............. $ 28,426 $ 29,005 $ 663 $ 430
========= ========= ========== =========
Long-term liabilities ........... $ 142,841 $ 143,282 -- --
========= ========= ========== =========
Total liabilities ............... $ 171,267 $ 172,287 $ 663 $ 430
========= ========= ========== =========
Stockholder's equity (deficiency) $ (28,551) $ (32,435) $ 3,175 $ 2,037
========= ========= ========== =========
Following is the summarized statement of operations data of Anvil and Cottontops
for the periods indicated:
ANVIL KNITWEAR, INC. COTTONTOPS, INC.
-------------------- ----------------
QUARTER ENDED QUARTER ENDED
------------- -------------
APRIL 29, MAY 1, APRIL 29, MAY 1,
2000 1999 2000 1999
--------- ------ --------- ------
Net sales ............. $ 59,124 $ 52,411 $ 1,782 $ 626
Operating income (loss) 10,597 4,760 100 (431)
Interest expense ...... 3,824 4,274 -- --
Net income (loss) ..... 3,884 (494) 67 (256)
Holdings and Cottontops have fully and unconditionally, jointly and severally
guaranteed the 10-7/8% Senior Notes. Complete financial statements and other
disclosures concerning Anvil and Cottontops are not presented because management
has determined they are not material to investors. Holdings has no independent
operations apart from its wholly-owned subsidiary, Anvil, and its sole asset is
the capital stock of Anvil. Anvil is Holding's only direct subsidiary. In
addition to Cottontops, Anvil has four other non-guarantor direct subsidiaries:
A.K.H., S.A. and Star, S.A., both organized in Honduras; Livna, Limitada,
organized in El Salvador; and CDC GmbH, organized in Germany. There are no other
direct or indirect subsidiaries of the Company. Management believes the
Non-Guarantor Subsidiaries are inconsequential both individually and in the
aggregate.
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
The Company's results of operations are affected by numerous factors, including
competition, general economic conditions, raw material costs, mix of products
sold and plant utilization. Certain activewear products of the type manufactured
by the Company are generally available from multiple sources and the Company's
customers often purchase products from more than one source. To remain
competitive, the Company reviews and adjusts its pricing structure from time to
time in response to price changes. In the basic T-shirt market, the Company
generally does not lead its competitors in setting the current pricing structure
and modifies its prices to the extent necessary to remain competitive with
prices set by its competitors in this market.
The gross profit margins of the Company's products vary significantly.
Accordingly, the Company's overall gross profit margin is affected by its
product mix. In addition, plant utilization levels are important to
profitability due to the substantial fixed costs of the Company's textile
operations.
The largest component of the Company's cost of goods sold is the cost of yarn.
The Company obtains substantially all of its yarn from five yarn suppliers,
generally placing orders for quantities ranging from 30 days' to a one year's
supply, and occasionally even longer periods, depending upon management's
expectations regarding future yarn prices and levels of supply. Yarn prices
fluctuate from time to time principally as a result of competitive conditions in
the yarn market and supply and demand for raw cotton. The Company adjusts the
timing and size of its purchase orders for yarn in an effort to minimize
fluctuations in its raw material costs resulting from changes in yarn prices.
Historically, the Company has been successful in mitigating the impact of
fluctuating yarn prices. Yarn prices currently continue at lower levels and
management has taken steps to adjust the Company's purchase commitments to take
advantage of these lower prices.
QUARTER ENDED APRIL 29, 2000 COMPARED TO QUARTER ENDED MAY 1, 1999
The following table sets forth, for each of the periods indicated, certain
statement of operations data, expressed as a percentage of net sales.
FISCAL QUARTER ENDED
APRIL 29, MAY 1,
2000 1999
---- ----
STATEMENT OF OPERATIONS DATA:
Net sales .................................... 100.0% 100.0%
Cost of goods sold ........................... 70.9 78.9
Gross profit ................................. 29.1 21.1
Selling, general and administrative expenses.. 10.6 11.6
Interest expense ............................. 6.5 8.2
OTHER DATA:
EBITDA (1) ................................... $12.6 million $6.8 million
Percentage of net sales .............. 21.3% 13.0%
8
(1) EBITDA is defined as operating income plus depreciation and amortization.
EBITDA is not a measure of performance under GAAP. EBITDA should not be
considered in isolation or as a substitute for net income, cash flows from
operating activities and other income or cash flow statement data prepared
in accordance with GAAP, or as a measure of profitability or liquidity.
Management believes, however, that EBITDA represents a useful measure of
assessing the performance of the Company's ongoing operating activities as
it reflects earnings trends of the Company without the impact of purchase
accounting. In addition, management believes EBITDA is a widely accepted
financial indicator of a company's ability to service and/or incur
indebtedness. EBITDA should not be construed as an indication of the
Company's operating performance or as a measure of liquidity. EBITDA does
not take into account the Company's debt service requirements and other
commitments and, accordingly, is not necessarily indicative of amounts
that may be available for discretionary uses. The EBITDA measure presented
herein may not be comparable to other similarly titled measures of other
companies.
NET SALES for the quarter ended April 29, 2000 increased $6.7 million (12.8%) to
$59.1 million from $52.4 million for the quarter ended May 1, 1999. The increase
in net sales is the result of an increase in units sold of more than 20%,
partially offset by a decline in the average selling price for all goods sold of
approximately 7.5%.
GROSS PROFIT for the quarter ended April 29, 2000 increased approximately $6.1
million (55.1%). The improvement was the result of a substantial increase in
gross margin from 21.1% in the prior year's quarter to 29.1% in the current
quarter. The primary contributing factors to this improvement have been the
lower price of yarn; increased efficiencies in the Company's textile operations;
and the moving of substantially all of the Company's sewing activities offshore
to take advantage of lower offshore wage rates.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (including distribution expense)
for the quarter ended April 29, 2000 increased by $0.2 million (3.7%) to $6.3
million from $6.1 million for the prior year's quarter.
INTEREST EXPENSE for the quarter ended April 29, 2000 declined approximately
$0.5 million (10.5%) as compared to the prior year's quarter. While interest
rates were comparable during both periods, significantly lower levels of
borrowings were made possible by improved operating results.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically utilized funds generated from operations and
borrowings under its credit agreements to meet working capital and capital
expenditure requirements. The Company made capital expenditures of approximately
$5.6 million in year ended January 30, 1999 and $3.4 million in the year ended
January 29, 2000. The Company's major capital expenditures have related to the
acquisition of machinery and equipment and management information systems
hardware and software. Beginning with the current fiscal year, the Company
anticipates the level of capital expenditures to be at an annual rate of
approximately $5 million to $7 million, and has no material capital commitments
for the next twelve months outside of the ordinary course of business, other
than those relating to new offshore sewing operations.
The Company's principal working capital requirements are financing accounts
receivable and inventories. At April 29, 2000, the Company had net working
capital of approximately $51.6 million, including approximately $3.8 million of
cash and cash equivalents, $32.9 million of accounts receivable, $40.0 million
of inventories, $3.3 million of other current assets; and $28.4 million in
accounts payable and other current liabilities.
9
On March 11, 1999, Anvil entered into a Loan and Security Agreement (the "Loan
Agreement") providing for a maximum credit facility of $60.0 million, consisting
of a term loan (the "Term Loan") and a revolving credit facility (the "Revolving
Credit Facility"). The Term Loan was in the principal amount of $11.7 million,
repayable in quarterly principal installments of $0.6 million, which commenced
on July 1, 1999. Anvil also borrowed $19.6 million under the Revolving Credit
Facility. The Loan Agreement expires March 11, 2002, and amounts due under it
are secured by substantially all the inventory, receivables and property, plant
and equipment of Anvil. Holdings and Cottontops guaranty amounts due under the
Loan Agreement. Interest on the Term Loan and the Revolving Credit Facility are
at prime plus one-half percent or LIBOR plus 2-1/2%, at the Company's option. At
April 29, 2000, the Company had reduced the amount due under the Revolving
Credit Facility to $0.6 million, bearing interest at 8.8%.
The Company's ability to satisfy its debt obligations, including, in the case of
Anvil, to pay principal and interest on the Senior Notes and, in the case of
Holdings, to pay principal and interest on the Exchange Debentures, if issued,
to perform its obligations under its guarantees and to pay cash dividends on the
Senior Preferred Stock, will depend upon the Company's future operating
performance, which will be affected by prevailing economic conditions and
financial, business and other factors, certain of which are beyond its control,
as well as the availability of revolving credit borrowings under the Loan
Agreement. However, the Company may be required to refinance a portion of the
principal of the Senior Notes and, if issued, the Exchange Debentures prior to
their maturity and, if the Company is unable to service its indebtedness, it
will be forced to take actions such as reducing or delaying capital
expenditures, selling assets, restructuring or refinancing its indebtedness, or
seeking additional equity capital. There can be no assurance that if any of
these remedies are necessary, they could be effected on satisfactory terms, if
at all.
Holdings has no independent operations with its sole asset being the capital
stock of Anvil, which stock is pledged to secure the obligations under the Loan
Agreement. As a holding company, Holdings' ability to pay cash dividends on the
Senior Preferred Stock or, if issued, principal and interest on the debentures
into which the Senior Preferred Stock is convertible (the "Exchange Debentures")
is dependent upon the earnings of Anvil and its subsidiaries and their ability
to declare dividends or make other intercompany transfers to Holdings. Under the
terms of the Senior Indenture, Anvil may incur certain indebtedness pursuant to
agreements that may restrict its ability to pay such dividends or other
intercompany transfers necessary to service Holdings' obligations, including its
obligations under the terms of the Senior Preferred Stock and, if issued, the
Exchange Debentures. The Senior Note Indenture restricts, among other things,
Anvil's and certain of its subsidiaries' ability to pay dividends or make
certain other "restricted" payments (except to the extent, among other things,
the restricted payments are less than 50% of the Consolidated Net Income of
Anvil [as defined therein]), to incur additional indebtedness, to encumber or
sell assets, to enter into transactions with affiliates, to enter into certain
guarantees of indebtedness, to make certain investments, to merge or consolidate
with any other entity and to transfer or lease all or substantially all of their
assets. Neither the Senior Note Indenture nor the Loan Agreement restricts
Anvil's subsidiaries from declaring dividends or making other intercompany
transfers to Anvil.
The Company believes that based upon current and anticipated levels of
operations, funds generated from operations, together with other available
sources of liquidity, including
10
borrowings under the Loan Agreement, will be sufficient over the next twelve
months for the Company to make anticipated capital expenditures, fund working
capital requirements and satisfy its debt service requirements.
SEASONALITY
The Company's business is not significantly seasonal as it manufactures and
sells a wide variety of activewear products that may be worn throughout the
year.
EFFECT OF INFLATION
Inflation generally affects the Company by increasing the interest expense of
floating rate indebtedness and by increasing the cost of labor, equipment and
raw materials. The Company does not believe that inflation has had any material
effect on the Company's business during the periods discussed herein.
NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." The statement establishes accounting and
reporting standards requiring that derivative instruments be recorded in the
balance sheet as either an asset or liability measured at fair value. The
statement requires that changes in a derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met. As
extended by SFAS No. 137 issued in June 1999, SFAS No. 133 is effective for
fiscal years beginning after June 15, 2000. The Company has not yet quantified
the impact on its financial statements nor determined the timing or method of
adopting SFAS No. 133.
FORWARD-LOOKING INFORMATION
Although the Company has been experiencing the adverse effects of an
industry-wide decline in selling prices, management has been able to partially
offset the effect of these pricing pressures by: (i) continuing to improve and
modernize its manufacturing processes in order to reduce production costs; and
(ii) moving virtually all of its sewing operations offshore to take advantage of
lower wage rates.
As discussed above, these management initiatives have had favorable effect on
the Company's results of operations. Management intends to continue these and
other efficiency-oriented strategies to the extent it deems necessary to improve
operating results and meet competition.
The Company is including the following cautionary statement in this Form 10-Q to
make applicable and take advantage of the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995 for any forward-looking statements made
by, or on behalf of, the Company. Forward-looking statements include statements
concerning plans, objectives, goals, strategies, future events or performance,
and underlying assumptions and other statements which are other than statements
of historical facts. From time to time, the Company may publish or otherwise
make available forward-looking statements of this nature. All such subsequent
forward-looking statements, whether written or oral and whether made by or on
behalf of the Company, are also expressly qualified by these cautionary
statements.
11
Certain statements contained herein are forward-looking statements and
accordingly involve risks and uncertainties which could cause actual results or
outcomes to differ materially from those expressed in the forward-looking
statements. The forward-looking statements contained herein are based on various
assumptions, many of which are based, in turn, upon further assumptions. The
Company's expectations, beliefs and projections are expressed in good faith and
are believed by the Company to have a reasonable basis, including without
limitation, management's examination of historical operating trends, data
contained in the Company's records and other data available from third parties,
but there can be no assurance that management's expectation, beliefs or
projections will result or be achieved or accomplished. In addition to the other
factors and matters discussed elsewhere herein, the following factors are
important factors that, in the view of the Company, could cause actual results
to differ materially from those discussed in the forward-looking statements:
1. Changes in economic conditions, in particular those which affect the
activewear market.
2. Changes in the availability and/or price of yarn, in particular, if
increases in the price of yarn are not passed along to the Company's
customers.
3. Changes in senior management or control of the Company.
4. Inability to obtain new customers or retain existing ones.
5. Significant changes in competitive factors, including product pricing
conditions, affecting the Company.
6. Governmental/regulatory actions and initiatives, including, those affecting
financings.
7. Significant changes from expectations in actual capital expenditures and
operating expenses.
8. Occurrences affecting the Company's ability to obtain funds from
operations, debt or equity to finance needed capital expenditures and other
investments.
9. Significant changes in rates of interest, inflation or taxes.
10. Significant changes in the Company's relationship with its employees and
the potential adverse effects if labor disputes or grievances were to
occur.
11. Changes in accounting principles and/or the application of such principles
to the Company.
The foregoing factors could affect the Company's actual results and could cause
the Company's actual results during fiscal 2000 and beyond to be materially
different from any anticipated results expressed in any forward-looking
statement made by or on behalf of the Company.
The Company disclaims any obligation to update any forward-looking statements to
reflect events or other circumstances after the date hereof.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company believes that its potential exposure to market risk is not material.
The Company has an interest rate swap agreement in place to hedge its exposure
to interest rate risk.
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PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
See Note 2 to Financial Statements.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
27.1 Financial Data Schedule.
(B) REPORTS ON FORM 8-K
None.
Items 1, 3, 4 and 5 are not applicable and have been omitted.
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ANVIL HOLDINGS, INC. AND SUBSIDIARIES FORM 10-Q
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
ANVIL HOLDINGS, INC.
(Registrant)
/S/ PASQUALE BRANCHIZIO
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Pasquale Branchizio
Vice President of Finance
(Principal Accounting Officer)
Dated: June 14, 2000
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