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 October 28, 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 December 11, 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 October 28, 2000 (Unaudited)
and January 29, 2000............................................................. 3
Unaudited Consolidated Statements of Operations for the
Nine Months and Quarters Ended October 28, 2000 and
October 30, 1999................................................................. 4
Unaudited Consolidated Statements of Cash Flows for the
Nine Months Ended October 28, 2000 and October 30, 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.................................................................... 14
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS........................................ 14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K................................................ 14
SIGNATURES......................................................................................... 15
2
PART I -- FINANCIAL INFORMATION - ITEM 1. FINANCIAL STATEMENTS
ANVIL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share Data)
OCTOBER 28, JANUARY 29,
2000 2000*
---- ----
ASSETS (Unaudited)
CURRENT ASSETS:
Cash and cash equivalents...................................................................... $ 12,228 $ 3,413
Accounts receivable, less allowances for doubtful accounts of
$1,177 and $1,211 ........................................................................... 25,611 31,143
Inventories ................................................................................... 49,356 39,906
Prepaid and refundable income taxes ........................................................... 39 117
Deferred income taxes-short term portion ...................................................... 2,003 2,003
Prepaid expenses and other current assets ..................................................... 1,204 987
--------- ---------
Total current assets .............................................................. 90,441 77,569
PROPERTY, PLANT AND EQUIPMENT--Net .............................................................. 31,262 33,631
DEFERRED INCOME TAXES ........................................................................... 1,380 1,380
INTANGIBLE ASSETS--Net .......................................................................... 24,313 23,571
OTHER ASSETS .................................................................................... 3,366 3,701
--------- ---------
$ 150,762 $ 139,852
========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES:
Accounts payable .............................................................................. $ 10,974 $ 8,523
Accrued expenses and other current liabilities ................................................ 16,427 17,213
Current portion of term loan .................................................................. 2,345 2,345
Revolving credit loan ......................................................................... -- 584
Income taxes payable .......................................................................... 1,042 340
--------- ---------
Total current liabilities ......................................................... 30,788 29,005
--------- ---------
LONG-TERM PORTION OF TERM LOAN .................................................................. 5,863 7,621
--------- ---------
10-7/8% SENIOR NOTES ............................................................................ 127,518 127,225
--------- ---------
DEFERRED INCOME TAXES ........................................................................... 6,467 6,467
--------- ---------
OTHER LONG-TERM OBLIGATIONS ..................................................................... 1,772 1,969
--------- ---------
REDEEMABLE PREFERRED STOCK
(Liquidation value $46,960 and $42,664) .................................................... 45,927 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, $45,105 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 ..................................................................................... (80,415) (86,750)
--------- ---------
Total stockholders' deficiency ....................................................... (67,573) (73,908)
--------- ---------
$ 150,762 $ 139,852
========= =========
* Derived from audited financial statements
See notes to consolidated financial statements.
3
ANVIL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Share Data)
Fiscal Quarter Ended Fiscal Nine Months Ended
-------------------- ------------------------
October 28, October 30, October 28, October 30,
2000 1999 2000 1999
---- ---- ---- ----
(Unaudited)
NET SALES.............................................. $49,724 $ 42,856 $165,688 $147,037
COST OF GOODS SOLD..................................... 34,507 30,530 116,703 110,712
------- -------- -------- --------
Gross profit.................................... 15,217 12,326 48,985 36,325
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES............................................ 6,196 5,842 18,022 17,299
AMORTIZATION OF INTANGIBLE ASSETS...................... 346 250 964 729
------- -------- -------- --------
Operating income................................ 8,675 6,234 29,999 18,297
OTHER EXPENSES:
Interest expense................................... (3,558) (3,850) (11,142) (12,127)
Amortization of debt expense and other--net........ (321) (297) (875) (803)
------- -------- -------- --------
INCOME BEFORE PROVISION FOR INCOME
TAXES AND EXTRAORDINARY ITEM....................... 4,796 2,087 17,982 5,367
PROVISION FOR INCOME TAXES............................. 1,919 835 7,193 2,146
------- -------- -------- --------
INCOME BEFORE EXTRAORDINARY ITEM....................... 2,877 1,252 10,789 3,221
EXTRAORDINARY ITEM - Loss on extinguishment
of debt (net of tax benefit of $417)............... -- -- -- (627)
------- -------- -------- --------
NET INCOME............................................. 2,877 1,252 10,789 2,594
Less: Preferred Stock dividends..................... (1,493) (1,309) (4,332) (3,829)
Common A preference ........................... (1,365) (1,201) (3,966) (3,523)
------- -------- -------- --------
NET INCOME (LOSS ) ATTRIBUTABLE TO
COMMON STOCKHOLDERS................................ $ 19 $ (1,258) $ 2,491 $ (4,758)
======= ======== ======== ========
BASIC INCOME (LOSS) PER COMMON SHARE
Class A Common Stock:
Income before extraordinary item.................... $ 4.71 $ 3.82 $ 14.32 $ 11.08
Extraordinary item.................................. -- -- -- (0.16)
------- -------- -------- --------
Net income.......................................... $ 4.71 $ 3.82 $ 14.32 $ 10.92
======= ======== ======== ========
Class B Common Stock:
(Loss) income before extraordinary item............. $ -- $ (0.32) $ 0.64 $ (1.06)
Extraordinary item.................................. -- -- -- (0.16)
------- -------- -------- --------
Net income (loss)................................... $ -- $( 0.32) $ 0.64 $ (1.22)
======= ======== ======== ========
Weighted average shares used in computation of basic
income (loss) per share:
Class A Common....................................... 290 290 290 290
======= ======== ======== ========
Class B Common....................................... 3,590 3,590 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 NINE MONTHS ENDED
-----------------------------
OCTOBER 28, OCTOBER 30,
2000 1999
---- ----
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 10,789 $ 2,594
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization of fixed assets 5,092 5,255
Amortization of other assets 1,778 1,538
Loss on extinguishment of debt -- 627
Changes in operating assets and liabilities, net of acquisition:
Accounts receivable 5,532 9,643
Inventories (9,450) (2,179)
Prepaid and refundable income taxes 78 1,704
Accounts payable 2,451 1,500
Accrued expenses & other liabilities (786) (77)
Income taxes payable 702 --
Other--net (601) (214)
-------- --------
Net cash provided by operating activities 15,585 20,391
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition, net of working capital effect (1,705) --
Purchases of property and equipment (3,978) (1,659)
Proceeds from sale of property and equipment 1,255 --
-------- --------
Net cash (used) by investing activities (4,428) (1,659)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
(Repayments) proceeds of Term Loan (1,758) 10,552
(Repayments) under revolving credit agreements (584) (32,225)
-------- --------
Net cash (used) by financing activities (2,342) (21,673)
--------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 8,815 (2,941)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 3,413 3,397
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 12,228 $ 456
======== ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest $ 14,750 $ 15,976
======== ========
Cash paid (received) for income taxes $ 6,413 $ (356)
======== ========
Non-cash investing and financing activities --
Redeemable preferred stock issued in lieu of dividends $ 4,332 $ 3,780
======== ========
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 -- GENERAL
BASIS OF PRESENTATION: The accompanying consolidated financial statements have
been prepared in accordance with accounting principles which are generally
accepted in the United States of America ("Generally Accepted Accounting
Principles" or "GAAP") 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 GAAP 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 October 28, 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, robes and bags. 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.
LITIGATION: The Company is party to various litigation matters incidental to the
conduct of its business. The Company does not believe that the outcome of any of
the matters in which it is currently involved will have a material adverse
effect on the financial condition, liquidity, business or results of operations
of the Company.
6
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 October 28, 2000, there were no amounts
outstanding under the Revolving Credit Facility.
As required by the Certificate of Designations relating to the 13% Senior
Exchangeable Preferred Stock, the Company has paid stock dividends aggregating
678,411 shares ($16,960 liquidation value) through October 28, 2000.
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 October 28, 2000 and January 29, 2000 consisted of the following:
OCTOBER 28, 2000 JANUARY 29, 2000
---------------- ----------------
Finished goods $30,170 $22,026
Work-in-process 12,314 11,777
Raw materials & supplies 6,872 6,103
-------- ---------
$49,356 $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.
-------------------------- -------------------------
OCTOBER 28, JANUARY 29, OCTOBER 28, JANUARY 29,
2000 2000 2000 2000
---- ---- ---- ----
Current assets............................ $ 90,441 $ 77,569 $ 2,630 $ 2,267
========== ========== ======== =========
Total assets.............................. $ 150,762 $ 139,852 $ 2,773 $ 2,467
========== ========== ======== =========
Current liabilities....................... $ 30,788 $ 29,005 $ 690 $ 430
========== ========== ======== =========
Long-term liabilities..................... $ 141,620 $ 143,282 -- --
========== ========== ======== =========
Total liabilities......................... $ 172,408 $ 172,287 $ 690 $ 430
========== ========== ======== =========
Stockholder's equity (deficiency)......... $ (21,646) $ (32,435) $ 2,083 $ 2,037
========== ========== ======== =========
7
Following is the summarized statement of operations data of Anvil and Cottontops
for the periods indicated:
ANVIL KNITWEAR, INC. COTTONTOPS, INC.
--------------------------------------- ---------------------------------------
QUARTER ENDED NINE MONTHS ENDED QUARTER ENDED NINE MONTHS ENDED
---------------- ------------------ -------------- -----------------
OCT 28, OCT 30, OCT 28, OCT 30, OCT 28, OCT 30, OCT 28, OCT 30,
2000 1999 2000 1999 2000 1999 2000 1999
---- ---- ---- ---- ---- ---- ---- ----
Net sales................ $ 49,724 $ 42,856 $ 165,688 $147,037 $1,755 $ 994 $ 5,452 $2,956
Operating income (loss).. $ 8,675 $ 6,234 $ 29,999 $ 18,297 $ 46 $ (229) $ 152 $ (738)
Interest expense......... $ 3,558 $ 3,850 $ 11,142 $ 12,127 -- -- -- --
Net income (loss)........ $ 2,877 $ 1,252 $ 10,789 $ 2,594 $ 30 $ (132) $ 104 $ (431)
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 that the
Non-Guarantor Subsidiaries are inconsequential both individually and in the
aggregate.
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
8
raw material costs resulting from changes in yarn prices. Historically, the
Company has been successful in mitigating the impact of fluctuating yarn prices.
However, see "Forward Looking Information," below.
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 FISCAL NINE MONTHS ENDED
-------------------- ------------------------
OCTOBER 28, OCTOBER 30, OCTOBER 28, OCTOBER 30,
2000 1999 2000 1999
---- ---- ---- ----
STATEMENT OF OPERATIONS DATA:
Net sales..................................... 100.0% 100.0% 100.0% 100.0%
Cost of goods sold............................ 69.4 71.2 70.4 75.3
Gross profit.................................. 30.6 28.8 29.6 24.7
Selling, general and administrative expenses.. 12.5 13.6 10.9 11.8
Interest expense.............................. 7.2 9.0 6.7 8.3
OTHER DATA:
EBITDA (1).................................... $10.8 million $8.3 million $36.1 million $24.3 million
Percentage of net sales............... 21.7% 19.3% 21.8% 16.5%
(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.
QUARTER ENDED OCTOBER 28, 2000 COMPARED TO QUARTER ENDED OCTOBER 30, 1999
NET SALES for the quarter ended October 28, 2000 increased $6.8 million (16.0%)
to $49.7 million from $42.9 million for the quarter ended October 30, 1999.
While total units sold increased more than 22%, the average selling price of
goods sold during the current fiscal quarter was approximately 5.4% lower than
the same period in the prior year.
GROSS PROFIT for the quarter ended October 28, 2000 increased approximately $2.9
million (23.5%). The improvement was the result of an increase in gross margin
from 28.8% in the prior year's quarter to 30.6% 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 increased
utilization of offshore sewing facilities.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (including distribution expense)
for the quarter ended October 28, 2000 increased by $0.4 million (6.1%) to $6.2
million from $5.8 million for the prior year's quarter. The increase is
primarily the result of higher management and sales incentives and employee
fringe benefits, As a percentage of sales, selling, general and administrative
expenses declined from 13.6% in the prior year's quarter to 12.5% in the current
period.
9
INTEREST EXPENSE for the quarter ended October 28, 2000 declined approximately
$0.3 million (7.6%) as compared to the prior year's quarter. While interest
rates were comparable during both periods, lower levels of borrowings were made
possible by improved operating results.
NINE MONTHS ENDED OCTOBER 28, 2000 COMPARED TO NINE MONTHS ENDED OCTOBER 30,
1999
NET SALES for the Nine Months ended October 28, 2000 increased $18.7 million
(12.7%) to $165.7 million from $147.0 million for the nine months ended October
30, 1999. The increase in net sales is the result of an increase in units sold
of more than 23%, partially offset by a decline in the average selling price for
all goods sold of approximately 8.5%.
GROSS PROFIT for the Nine Months ended October 28, 2000 increased approximately
$12.7 million (34.9%). The improvement was the result of a substantial increase
in gross margin from 24.7% in the prior year's nine months to 29.6% in the
current nine months. 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 the Company's sewing activities offshore.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (including distribution expense)
for the nine months ended October 28, 2000 increased by $0.7 million (4.2%) to
$18.0 million from $17.3 million for the prior year's nine months. The increase
is the result of higher management and sales incentives, employee fringe
benefits, and additional costs associated with the formation of the Company's
German distribution center, partially offset by lower advertising and
promotional expenditures. As a percentage of sales, year to date selling,
general and administrative expenses declined from 11.8% in the nine months ended
October 30, 1999 to 10.9% for the nine months ended October 28, 2000.
INTEREST EXPENSE for the nine months ended October 28, 2000 declined
approximately $1.0 million (8.1%) as compared to the prior year's nine months.
While interest rates were comparable during both periods, 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 its capital expenditures in the ordinary course of
business will be at an annual rate of approximately $5 million to $7 million.
Capital expenditures relating to new offshore operations would substantially
increase this amount. See "Forward Looking Information," below.
The Company's principal working capital requirements are financing accounts
receivable and inventories. At October 28, 2000, the Company had net working
capital of approximately $59.7 million, including approximately $12.2 million of
cash and cash equivalents, $25.6
10
million of accounts receivable, $49.4 million of inventories, $3.3 million of
other current assets; and $30.8 million in accounts payable and other current
liabilities.
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
October 28, 2000, there were no amounts outstanding under the Revolving Credit
Facility.
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.
11
The Company believes that based upon current and anticipated levels of
operations, funds generated from operations, together with other available
sources of liquidity, including 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 2000, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard ("SFAS") No. 138, ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES. This statement addresses a limited number of
issues for entities applying SFAS No. 133 which requires that derivative
instruments be recorded in the balance sheet as either an asset or liability
measured at fair value. This statement is effective for all fiscal quarters of
fiscal years beginning after June 15, 2000. The Company currently has no
derivative financial instruments in place and has determined that the
implementation of this statement will not have a significant impact on its
consolidated financial position, liquidity or results of operations.
In December 1999, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements." This SAB summarizes certain of the SEC staff's views in applying
GAAP to revenue recognition in financial statements. The SAB, through its
subsequent revised releases, SAB's No. 101A and No. 101B, is effective for
registrants no later than the fourth fiscal quarter of fiscal years beginning
after December 15, 1999. The Company does not expect that the implementation of
this SAB will have a significant impact on its consolidated financial position,
liquidity or results of operations.
FORWARD-LOOKING INFORMATION
Although the Company continues to experience the effects of industry-wide lower
selling prices on many items, 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) taking
advantage of lower costs at offshore locations. Management intends to continue
these and other efficiency-oriented strategies to the extent it deems necessary
to improve operating results and meet competition. The results of operations for
recent fiscal quarters have been favorably impacted by lower yarn prices.
However, current indications from suppliers are that yarn prices are moving
toward higher levels.
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With the adoption of the Trade Development Act of 2000, and because of increased
production demands necessitated by additional volume, the Company is exploring
the feasibility of performing certain manufacturing operations at offshore
locations. These production moves would take at least a year to fully implement
and could entail substantial capital expenditures.
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. 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.
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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 had an interest rate swap agreement in place to hedge its exposure
to interest rate risk, which expired June 8, 2000 and was not renewed.
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: December 12, 2000
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