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 May 5, 2001
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 14, 2001, 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 May 5, 2001 (Unaudited)
and February 3, 2001.................................... 3
Unaudited Consolidated Statements of Operations for the
Fiscal Quarters Ended May 5, 2001 and April 29, 2000.... 4
Unaudited Consolidated Statements of Cash Flows for the
Fiscal Quarters Ended May 5, 2001 and April 29, 2000.... 5
Unaudited 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.......................................... 13
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS............ 13
ITEM 6. EXHIBITS 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)
MAY 5, FEBRUARY 3,
2001 2001*
--------- -----------
ASSETS (Unaudited)
CURRENT ASSETS:
Cash and cash equivalents .................................................... $ 2,940 $ 6,838
Accounts receivable, less allowances for doubtful accounts of
$1,124 and $1,121 .......................................................... 34,090 27,610
Inventories .................................................................. 58,859 55,858
Deferred income taxes-current portion ........................................ 2,255 2,255
Prepaid expenses and other current assets .................................... 1,260 1,021
--------- ---------
Total current assets ............................................... 99,404 93,582
PROPERTY, PLANT AND EQUIPMENT--Net ............................................. 31,965 31,955
INTANGIBLE ASSETS--Net ......................................................... 23,621 23,970
OTHER ASSETS ................................................................... 3,112 3,817
--------- ---------
$ 158,102 $ 153,324
========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES:
Accounts payable ............................................................. $ 7,415 $ 12,512
Accrued expenses and other current liabilities ............................... 12,616 16,678
Current portion of term loan ................................................. 7,035 2,345
Revolving credit loan ........................................................ 11,459 --
Income taxes payable ......................................................... 1,274 363
--------- ---------
Total current liabilities .................................... 39,799 31,898
--------- ---------
LONG-TERM PORTION OF TERM LOAN ................................................ -- 5,276
--------- ---------
10-7/8% SENIOR NOTES ........................................................... 127,713 127,615
--------- ---------
DEFERRED INCOME TAXES .......................................................... 6,554 6,554
--------- ---------
OTHER LONG-TERM OBLIGATIONS .................................................... 2,130 2,071
--------- ---------
REDEEMABLE PREFERRED STOCK
(Liquidation value $50,062 and $48,486) ................................... 49,185 47,649
--------- ---------
STOCKHOLDERS' DEFICIENCY:
Common stock:
Class A, $.01 par value, 12.5% cumulative; authorized 500,000
shares, issued and outstanding: 290,000 (aggregate liquidation
value, $48,007 and $46,643) ............................................ 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 ..................................................................... (80,121) (80,581)
--------- ---------
Total stockholders' deficiency ...................................... (67,279) (67,739)
--------- ---------
$ 158,102 $ 153,324
========= =========
*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
----------------------
MAY 5, APRIL 29,
2001 2000
-------- ---------
(Unaudited)
NET SALES ................................................. $ 57,760 $ 59,124
COST OF GOODS SOLD ........................................ 43,303 41,944
-------- --------
GROSS PROFIT .............................................. 14,457 17,180
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES ............................................... 6,555 6,293
AMORTIZATION OF INTANGIBLE ASSETS ......................... 349 290
-------- --------
OPERATING INCOME .......................................... 7,553 10,597
OTHER EXPENSE:
Interest expense ...................................... (3,806) (3,824)
Amortization of debt expense and other--net ........... (203) (300)
-------- --------
INCOME BEFORE PROVISION FOR INCOME TAXES .................. 3,544 6,473
PROVISION FOR INCOME TAXES ................................ 1,548 2,589
-------- --------
NET INCOME ................................................ 1,996 3,884
Less: Preferred Stock dividends and accretion ............. (1,536) (1,441)
Common A preference ................................. (1,364) (1,284)
-------- --------
NET (LOSS) INCOME ATTRIBUTABLE TO
COMMON STOCKHOLDERS ................................... $ (904) $ 1,159
======== ========
BASIC NET INCOME (LOSS) PER COMMON SHARE:
Class A Common Stock ...................................... $ 4.47 $ 4.73
======== ========
Class B Common Stock ...................................... $ (0.23) $ 0.30
======== ========
Weighted average shares used in computation of basic income
(loss) per share:
Class A Common Stock .................................... 290 290
======== ========
Class B Common Stock .................................... 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
----------------------
MAY 5, APRIL 29,
2001 2000
-------- ---------
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ................................................. $ 1,996 $ 3,884
Adjustments to reconcile net income to net
cash (used) provided by operating activities:
Depreciation and amortization of fixed assets .............. 1,659 1,709
Amortization of other assets ............................... 626 567
Changes in operating assets and liabilities, net of acquisition:
Accounts receivable ........................................ (6,783) (1.901)
Inventories ................................................ (3,001) (131)
Prepaid and refundable income taxes ........................ -- 77
Accounts payable ........................................... (5,097) 578
Accrued expenses & other liabilities ....................... (4,004) (3,646)
Income taxes payable ....................................... 911 2,500
Other--net ................................................. 590 (164)
-------- --------
Net cash (used) provided by operating activities .... (13,103) 3,473
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition, net of working capital effect ................ -- (1,705)
Purchases of property and equipment ........................ (1,918) (885)
Proceeds from disposals of property and equipment .......... 250 21
-------- --------
Net cash used by investing activities ................ (1,668) (2,569)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
(Repayments) of Term Loan ................................. (586) (586)
Borrowings under revolving credit agreements .............. 11,459 36
-------- --------
Net cash provided (used) by financing activities .... 10,873 (550)
-------- --------
(DECREASE) INCREASE IN CASH .................................... (3,898) 354
CASH, BEGINNING OF PERIOD ...................................... 6,838 3,413
-------- --------
CASH, END OF PERIOD ............................................ $ 2,940 $ 3,767
======== ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest ....................................... $ 7,345 $ 7,434
======== ========
Cash paid (received) for income taxes ....................... $ 637 $ 12
======== ========
Non-cash investing and financing activities -
Redeemable preferred stock issued in lieu of dividends ..... $ 1,495 $ 1,400
======== ========
Details of Acquisition:
Fair value of net assets acquired ......................... $ 235
Cash paid ................................................. (1,940)
--------
Net cash paid ............................................. $ (1,705)
========
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 May 5, 2001 are not
necessarily indicative of the results that may be expected for the fiscal year
ending February 2, 2002, or any other period. The balance sheet at February 3,
2001 has been derived from the audited financial statements at that date. For
further information, refer to the financial statements for the fiscal year ended
February 3, 2001. To facilitate comparison with the current fiscal year, certain
reclassifications have been made to the prior year's financial statements.
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 caps, 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 in accordance with Statement
of Financial Accounting Standards No. 131, DISCLOSURES ABOUT SEGMENTS OF AN
ENTERPRISE AND RELATED INFORMATION.
The Company's operations are on a "52/53-week" fiscal year ending on the
Saturday closest to January 31. 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.
NOTE 2 - CREDIT AGREEMENTS, ETC.
Anvil's Loan and Security Agreement (the "Loan Agreement") provides 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 Loan
Agreement, by its terms, expires March 11, 2002, unless extended. The Term Loan
was in the principal amount of $11,725, repayable in quarterly principal
installments of $586 through April 2004, subject to extension of the Loan
Agreement. Amounts due under the Loan Agreement are secured by substantially all
the
6
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 May 5, 2001, there was $11,459 outstanding under the
Revolving Credit Facility bearing interest at approximately 8.0% annually.
As required by the Certificate of Designations relating to the 13% Senior
Exchangeable Preferred Stock, the Company has paid stock dividends aggregating
802,490 shares ($20,062 liquidation value) through May 5, 2001.
NOTE 3 - INVENTORIES
Inventories at May 5, 2001 and February 3, 2001 consisted of the following:
May 5, 2001 February 3, 2001
----------- ----------------
Finished goods $37,728 $35,263
Work-in-process 8,399 12,620
Raw materials & supplies 12,732 7,975
------- -------
$58,859 $55,858
======= =======
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.
------------------------ -----------------------
MAY 5, FEBRUARY 3, MAY 5, FEBRUARY 3,
2001 2001 2001 2001
---- ---- ---- ----
Current assets .................. $ 99,404 $ 93,582 $ 2,309 $ 2,584
========= ========= ========= =========
Total assets .................... $ 158,102 $ 153,324 $ 2,457 $ 2,751
========= ========= ========= =========
Current liabilities ............. $ 39,799 $ 31,898 $ 339 $ 501
========= ========= ========= =========
Long-term liabilities ........... $ 136,397 $ 141,516 -- --
========= ========= ========= =========
Total liabilities ............... $ 176,196 $ 173,414 $ 339 $ 501
========= ========= ========= =========
Stockholder's (deficiency) equity $ (18,094) $ (20,090) $ 2,118 $ 2,250
========= ========= ========= =========
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
---------------------- ----------------------
MAY 5, APRIL 29, MAY 5, APRIL 29,
2001 2000 2001 2000
---- ---- ---- ----
Net sales ...... $57,760 $59,124 $ 1,696 $ 1,782
Operating income 7,553 10,597 54 100
Interest expense 3,806 3,824 -- --
Net income ..... 1,996 3,884 35 67
Holdings and Cottontops have fully and unconditionally, jointly and severally
guaranteed Anvil's 10-7/8% Senior Notes. Complete financial statements and other
disclosures concerning Anvil and Cottontops are not presented because management
has determined they
7
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 five other non-guarantor direct subsidiaries: A.K.H., S.A, Star, S.A.,
and Estrella Mfg. Ltda., organized in Honduras; Livna, Limitada, organized in El
Salvador; and CDC GmbH, organized in Germany. Other than as stated herein, 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.
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 a number of domestic yarn
suppliers, generally placing orders for quantities ranging from 30 days' to a
one year's supply, 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 have declined significantly over the last few years, and are currently
slightly higher than the same period last year. Management is continually
reviewing and adjusting the Company's purchase commitments to take maximum
advantage of prevailing prices.
8
QUARTER ENDED MAY 5, 2001 COMPARED TO QUARTER ENDED APRIL 29, 2000
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
--------------------------
MAY 5, APRIL 29,
2001 2000
---- ----
STATEMENT OF OPERATIONS DATA:
Net sales..................................... 100.0% 100.0%
Cost of goods sold............................ 75.0 70.9
Gross profit.................................. 25.0 29.1
Selling, general and administrative expenses.. 11.3 10.6
Interest expense.............................. 6.6 6.5
OTHER DATA:
EBITDA (1).................................... $9.6 million $12.6 million
Percentage of net sales............... 16.6% 21.3%
(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 May 5, 2001 amounted to $57.7 million, as
compared to $59.1 million for the first quarter of the prior year. The decrease
of $1.4 million (2.3%) was the result of a decline in the average selling price
of approximately 13%, partially offset by an increase of nearly 12% in total
units sold.
GROSS PROFIT for the quarter ended May 5, 2001 decreased approximately $2.7
million (15.9%). The decline was the result of the aforementioned reduced sales
and a decrease in gross margin from 29.1% in the prior year's quarter to 25.0%
in the current quarter. While the Company continues to benefit from reduced
costs by shifting manufacturing functions offshore, the gains realized from
these moves were more than offset by lower selling prices for basic T-shirts. In
addition, the product mix of goods sold in the current quarter included a lower
percentage of goods having traditionally higher gross margins. Increasing energy
prices have also begun to have an adverse affect on production costs.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (including distribution expense)
for the quarter ended May 5, 2001 increased by $0.3 million (4.2%) to $6.6
million from $6.3 million for the prior year's quarter. The increase is
primarily the result of higher advertising expenditures, and increased
distribution expense caused by greater units shipped and increasing utility
costs at the Company's distribution center.
INTEREST EXPENSE was approximately the same in both quarters. While interest
rates have declined slightly, the Company had higher borrowings on its line of
credit in the current quarter as compared to the same period in the prior year.
9
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
$6.2 million in the year ended February 3, 2001 and $3.4 million in the year
ended January 29, 2000. Historically, the Company's major capital expenditures
have related to the acquisition of machinery and equipment and management
information systems hardware and software. Management estimates that capital
expenditures in the next three fiscal years will aggregate approximately $55
million, including expenditures relating to new offshore manufacturing
operations and expansion of the Company's distribution facility, as well as
routine capital expenditures in the ordinary course of business.
The Company's principal working capital requirements are financing accounts
receivable and inventories. At May 5, 2001 the Company had net working
capital of approximately $59.6 million, including $2.9 million in cash and
cash equivalents, $34.1 million of accounts receivable, $58.9 million of
inventories, $3.5 million of other current assets, $18.5 million in
borrowings under the Loan Agreement; and $21.3 million in accounts payable and
other current liabilities.
Anvil's Loan and Security Agreement (the "Loan Agreement") provides 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
Loan Agreement, by its terms, expires March 11, 2002, unless extended. The Term
Loan was in the principal amount of $11.7 million, repayable in quarterly
principal installments of $0.6 million through April 2004, subject to extension
of the Loan Agreement. Amounts due under the Loan Agreement 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 May 5, 2001
there was $11.5 million outstanding under the Revolving Credit Facility, bearing
interest at 8.0% annually.
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.
10
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.
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 fund its normal
working capital requirements and satisfy its debt service requirements. While no
definitive arrangements have been made, management of the Company is confident
that, if required, it will be able to secure, on a timely basis and on favorable
terms, adequate financing for the planned expansion of its production and
distribution facilities.
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 Standards ("SFAS") No. 138, "Accounting for Certain
Derivative Instruments and Certain Hedging Activities." This statement addresses
a limited number of issues causing implementation difficulties for entities
applying SFAS No. 133. SFAS No. 133 requires that an entity recognizes all
derivative instruments as either assets or liabilities in the balance sheet and
measure those instruments at fair value. The Company was required to adopt SFAS
No. 133 effective February 4, 2001. Adoption of SFAS No. 133 did not have
significant impact on the Company's results of operations, equity or financial
position, as it does not engage in derivative or hedging transactions.
11
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; (ii)
moving its sewing operations offshore; and (iii) planning for the relocation
offshore of its cutting operations, and the offshore addition of certain textile
operations.
The management initiatives already implemented have had a favorable effect on
the Company's results of operations, and management believes that its plans to
implement other efficiency-oriented strategies will enable it to maintain
profitability 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. 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
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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 2001 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.
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
None.
(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, 2001
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