ANVIL HOLDINGS INC - 10-K Annual Report

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

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.

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K ý

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

At April 24, 2003 there were 390,000 of the registrant's Class B Common Stock, $0.01 per share par value (the "Class B Common") held by non-affiliates. At such date, there was no established trading market for these shares.

At April 24, 2003, there were 290,000 shares of the registrant's Class A Common Stock, $0.01 per share par value (the "Class A Common") and 3,605,000 shares of Class B Common outstanding.

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's current capital structure is the result of a 1997 recapitalization (the "Recapitalization") pursuant to which: (i) the Company redeemed or repurchased a substantial portion of its outstanding shares of capital stock; (ii) Bruckmann, Rosser, Sherrill & Co., L.P. and certain of its employees and affiliates (collectively, "BRS") purchased new common stock; (iii) 399 Venture Partners, Inc. and certain of its employees and affiliates (collectively, "399 Venture") and certain members of Management of the Company (the "Management Investors") reinvested a portion of their shares of capital stock of the Company in exchange for newly issued common stock; and (iv) 399 Venture exchanged a portion of its capital stock for Senior Exchangeable Preferred Stock and new common stock.

Concurrently with the Recapitalization, the Company sold 30,000 Units consisting of (i) $30,000,000, 13% Senior Exchangeable Preferred Stock, due 2009 and (ii) 390,000 shares of Class B common stock (the "Units Offering"). Additionally, Anvil sold $130,000,000 of 10⁷/8% Senior Notes due 2007 ("Senior Notes") in connection with the Recapitalization.

The Company's fiscal years end on the Saturday closest to January 31. Accordingly, when referring to the Company's fiscal years in this report, "fiscal 2002" refers to the year ended February 1, 2003, "fiscal 2001" refers to the year ended February 2, 2002, etc.

The Company is a leading designer, manufacturer and marketer of high quality activewear for sale principally into the "imprinted" or "decorated" segment of the U.S. apparel industry. The Company offers an extensive line of activewear products designed for men, women and children, including short and long sleeve T-shirts, classic button and collar knit sport shirts (known as "plackets"), collarless short and long sleeve knit shirts (known as "henleys"), fleeced sweatshirts and athletic shorts, supplemented with caps, towels, robes and bags. The Company markets and sells its products primarily to distributors and screen printers under the Anvil, Cotton Deluxe and TowelsPlus brand names, the Anvil logo, as well as private labels. Prior to their ultimate resale to the consumer, the Company's products typically are printed or embroidered with logos, designs or characters. The Company believes that its operating performance is favorably affected by: (i) its broad range of high quality products; (ii) its strong relationships with customers and suppliers; (iii) its flexible, vertically integrated manufacturing operations; (iv) its commitment to controlling costs and improving manufacturing processes; and (v) the continuing growth of the activewear market.

The Company offers high quality activewear in a variety of styles, colors, fabric weights and blends, enabling it to serve a number of market niches effectively as well as to serve the traditional T-shirt market segment. The Company works closely with its distributor and screen printer customers to meet their needs for style and color innovation. The Company continues to compete successfully by: (i) targeting niche products on which its competitors have not traditionally focused; (ii) responding quickly to market developments; (iii) regularly introducing new products; and (iv) providing a broad range of products, thereby permitting distributors to increase efficiency by reducing the number of vendors and deliveries. In addition, the Company continues to make significant investments to maintain and modernize its manufacturing and distribution facilities and to seek methods to improve quality, increase efficiency, reduce costs, manage inventories and shorten production cycles.

The Company's objective is to increase net sales and improve results of operations by implementing the following key elements of its business strategy:

Offer a Broad Range of High Quality Products. The Company will continue to offer high quality activewear in a wide variety of styles, colors, fabric weights and blends, enabling it to serve a number of market niches effectively. The Company expects to continue to expand its product offerings under its Anvil, Cotton Deluxe and TowelsPlus brands and the Anvil logo, capitalizing on the growth in the activewear market. In addition, the Company seeks to strengthen its position in the activewear market by introducing products to supplement its traditional activewear business.

Enhance and Expand Customer Relationships. The Company continually seeks to strengthen and expand its customer relationships by promoting the Company's: (i) broad product offerings; (ii) ability to design customized products; (iii) quick, reliable delivery; and (iv) ability to accommodate modifications to customer orders. The Company's direct salesforce focuses on developing strong relationships with distributors, and enhancing "pull through" by the distributors' customers. In fiscal 2002, sales to domestic distributors accounted for approximately 76% of the Company's net sales. In the Company's experience, distributors typically place larger orders, purchase a broader product mix, maintain higher inventory levels and develop more predictable order and re-order patterns than certain of its other customers. The Company estimates that distributors resell products to more than 30,000 smaller screen printers, embroiderers and other customers. The Company's broad product offerings have enabled it to more effectively service distributors and satisfy the disparate preferences of consumers.

Maintain Flexible, Vertically Integrated Manufacturing Operations. The Company is a vertically integrated manufacturer (i.e., performing substantially all of the manufacturing processes required to produce most of its products) which knits (exclusively from purchased yarn), bleaches, dyes, finishes, cuts and sews its activewear products at its manufacturing facilities. The Company believes that being vertically integrated allows it to maintain a competitive cost structure, minimize delivery time and provide consistent, high quality products. The Company's manufacturing efficiency enables it to provide its customers with low cost, quality products.

Continue to Control Costs and Improve Manufacturing. The Company continues to make capital expenditures to maintain and modernize its manufacturing and distribution facilities and explore methods to improve quality, increase efficiency, reduce costs, manage inventories and shorten production cycles. The Company believes it can continue to improve its operating results by: (i) maximizing the use of offshore manufacturing operations; and (ii) continually improving its textile manufacturing processes. As further discussed below, the Company is currently implementing the consolidation of its textile operations into a single expanded facility.

Capitalize on the Growth of the Activewear Market. The Company believes that sales of activewear products have been, and will continue to be driven by: (i) the increased consumer preference for comfortable apparel selections; (ii) more flexible dress codes, including the greater acceptance of casual wear in the workplace; and (iii) the heightened emphasis on physical fitness.

The Company's activewear products, which are designed for men, women and children, include short and long sleeve T-shirts, tank tops, classic button and collar knit sport shirts (known as "plackets") and collarless short and long sleeve knit shirts (known as "henleys") as well as a variety of other niche activewear products, such as fleeced sweatshirts and athletic shorts, supplemented with caps, towels, robes and bags. This broad array of casual knitwear and athletic wear is marketed and sold by the Company under its Anvil, Cotton Deluxe and TowelsPlus brand names and the Anvil logo, as

well as under private labels. The Company manufactures its products in a variety of fabrics and fabric blends. Prior to their ultimate resale to the consumer, the Company's products typically are imprinted or embroidered with logos, designs or characters.

Basic T-shirts and Specialty Products. Basic T-shirts and specialty products comprise the Company's principal source of revenues. The basic T-shirt was the first product introduced by the Company in the early 1970s. In addition to basic T-shirts, the Company also manufactures a variety of specialty T-shirts and other specialty products such as fleeced sweatshirts and knit shorts. This category accounted for approximately 76% of the Company's net sales in fiscal 2002.

Plackets and Henleys. The Company introduced its first line of plackets in the early 1980s and its first line of henleys in the early 1990s. Plackets include classic button and collar knit sport shirts which are produced in both short and long sleeve versions. Henleys are collarless knit shirts, which are produced in both short and long sleeve versions. This category accounted for approximately 20% of the Company's net sales in fiscal 2002.

Other Products. The Company's other products include, caps, towels, robes and bags. In addition to products which it manufactures in-house, this category includes those products which the Company sources as finished products. This category accounted for approximately 4% of the Company's net sales in fiscal 2002.

The Company markets its products primarily through a direct salesforce complemented by a sales support staff and the Company's marketing department.

The Company seeks to differentiate itself from other activewear manufacturers by marketing niche products to its customers and encouraging its customers to purchase a broader product mix. Recent market trends have necessitated increased emphasis on low-priced basic T-shirts, and this category has grown as a percentage of the Company's sales. However, Management believes that offering higher priced products with more style elements to its customers, has helped the Company to compete more effectively and to service the large and middle-tier wholesale T-shirt distributor market.

The Company markets its products primarily to distributors, a wide range of screen printers and private label customers. The Company also sells a small percentage of its products directly to retailers. The Company currently services over 200 customers, of which 20 account for approximately 79% of the Company's net sales. One such customers, Alpha Shirt Company, accounted for approximately 20% of the Company's net sales in fiscal 2002. No other individual customer accounted for more than 10% of the Company's net sales during fiscal 2002.

The Company's primary raw material is cotton yarn. The Company does not spin its own yarn. Instead, the Company purchases substantially all of its yarn pursuant to purchase orders from a number of domestic spinners. One individual spinner accounted for approximately 54% of the Company's purchased yarn in fiscal 2002. The vast majority of the yarn used by the Company is readily available and can be purchased from a number of sources. Accordingly, the Company does not have to rely on its orders with or deliveries from any single supplier. With the ability to substitute its supply of yarn, the Company believes that the inability to obtain yarn from any one supplier would not have a long term material adverse effect on the Company's ability to manufacture. Other raw materials purchased by the Company include dyes and chemicals used in the dyeing and bleaching of fabrics.

The Company believes that it is one of the larger purchasers of yarn in its industry segment and that sound relationships with each of its suppliers allow the Company to order quantities of yarn at competitive prices. The Company's relationships with its suppliers help the Company's continued access to supplies of raw materials during periods when yarn is in peak demand. As a result, the Company has not experienced any significant shortages of raw materials.

The Company determines the size of its purchase orders for yarn based on its estimate of future yarn prices and levels of supply and periodically places large purchase orders as a means of fixing its raw materials costs. The Company's purchase orders typically are for quantities of yarn ranging from 30 days' to a year's supply.

Certain of the Company's primary competitors spin their own yarn. The Company estimates that in-house yarn production could reduce overall yarn costs. The Company has concluded, however, that the benefits achieved by acquiring in-house spinning capacity would not justify the investment required to achieve that capacity. In addition, the Company believes that the quality of its purchased yarn is at least equal to the quality of yarn produced by fully integrated manufacturers in its industry market segment.

The imprinted activewear segment of the apparel market includes a number of significant competitors and the activewear segment of the industry overall is extremely competitive. Competition in this segment of the apparel industry is generally based upon price, quality, service and breadth of product offerings. In response to market conditions and industry-wide adjustments in price, the Company reviews and adjusts its product offerings and pricing structure from time to time.

The Company's principal competitors include several domestic and foreign manufacturers of activewear, some of which are larger and have greater financial and other resources than the Company. Increased competition has caused many domestic apparel manufacturers to move their manufacturing operations offshore to lower costs. The Company currently performs substantially all of its cutting and sewing activities offshore.

The Company provides its customers with a broad array of branded and private label niche products at competitive prices on a timely basis. The Company believes that its overall turnaround time is well-regarded in the industry and provides a competitive advantage. The Company also believes that its strategy of offering a broader product mix including higher quality, niche products, and use of lower-cost offshore manufacturing operations, should enable it to continue to compete effectively in its industry market segment.

Historically, the Company has benefited from quotas and tariffs imposed by the United States on the importation of apparel. The Uruguay Round of GATT, which became effective on January 1, 1995, requires a complete phase-out of all existing quotas over a ten-year period. To date, only a small amount of products manufactured by the Company have been subject to quota reductions under GATT. In addition to the phasing-out of the use of quotas, GATT also requires that the United States reduce tariffs on textile/apparel imports over the same ten-year period. To date, there have been only relatively small reductions in such tariffs.

Under the United States-Caribbean Basin Trade Partnership Act (the "Act"), effective October 1, 2000, quotas and duties were eliminated on apparel imported from certain Caribbean basin countries, provided such apparel is made from U.S. fabric (made from U.S. yarn) formed and cut in the United States. The same exemption from quotas and duties applies to apparel made from U.S. fabric cut in a Caribbean basin country if U.S. thread is used. This Act also exempts a limited amount of knit apparel (other than outerwear T-shirts) made from regional fabric (made from U.S. yarn), and T-shirts (other than underwear T-shirts) using fabric (made from U.S. yarns) formed in a Caribbean basin country.

At February 1, 2003, the Company, including its offshore subsidiaries, employed a total of 5,169 people (157 full-time salaried employees and 5,012 full-time and part-time hourly employees) in the following areas: manufacturing and distribution: 5,045; finance and administration: 85; and sales and marketing: 39. Of the Company's 5,169 employees, 1,324 are employed in the United States and 3,845 at offshore locations.

None of the Company's employees is covered by a collective bargaining agreement. The Company has not experienced any work stoppages and considers its relations with its employees to be good.

The Company attempts to register its material trademarks and trade names. The Company believes that it has developed strong brand awareness among its targeted customer base and as a result regards its brand names as valuable assets. The Company has registered or applied for trademark registrations for Anvil, Cotton Deluxe, Towels Plus and the Anvil logo as well as other labels in the United States and certain foreign countries.

The Company, like other apparel manufacturers, is subject to federal, state and local environmental and occupational health and safety laws and regulations. While there can be no assurance that the Company is at all times in complete compliance with all such requirements, the Company believes that any noncompliance is unlikely to have a material adverse effect on the financial condition or results of operations of the Company. The Company has made, and will continue to make, expenditures to comply with environmental and occupational health and safety requirements. The Company currently does not anticipate material capital expenditures for environmental control equipment in fiscal 2003 or beyond. As is the case with manufacturers in general, if a release of hazardous substances occurs on or from the Company's properties or any associated offsite disposal location, or if contamination from prior activities is discovered at any of the Company's properties, the Company may be held liable. While the amount of such liability could be material, the Company endeavors to conduct its operations in a manner that reduces such risks.

In 1990, Winston Mills, Inc., a subsidiary of McGregor Corporation ("McGregor") and a predecessor of the Company, entered into an Administrative Order on Consent ("AOC") with the North Carolina Department of Environment, Health and Natural Resources ("DEHNR") concerning certain groundwater contamination discovered at its Asheville, North Carolina facility. Since that time, McGregor, through Culligan International Company ("Culligan"), a former affiliate, has been conducting investigative and corrective action under DEHNR oversight and has remained responsible to DEHNR with respect to contamination that is subject to the AOC. While the total cost of the cleanup at the facility will depend upon the extent of contamination and the corrective action approved by the DEHNR, preliminary cleanup cost estimates range from $1.0 to $4.0 million. McGregor continues to be a party to the Asheville, North Carolina facility's hazardous waste permit and Culligan has guaranteed McGregor's obligations under the AOC. McGregor also contractually agreed to fully indemnify the Company with respect to the contamination as part of the terms of the acquisition of the Anvil business (the "Acquisition"). This indemnity is guaranteed by Culligan and by Astrum International Corp. (now known as Samsonite Corporation), an affiliate of McGregor, in the event Culligan is unable to perform its guarantor obligations. The Company could be held responsible for the cleanup of this contamination if McGregor, Culligan and Samsonite were all to become unable to fulfill their obligations to DEHNR. McGregor also agreed to fully indemnify the Company for any costs associated with certain other environmental matters identified at the time of the Acquisition. The Company believes that, even if McGregor were unable to fulfill its indemnification obligations, these

other matters would not have a material adverse effect on the financial condition or results of operations of the Company. McGregor also agreed to indemnify the Company, subject to certain limitations, with respect to environmental liabilities that arise from events that occurred or conditions in existence prior to the Acquisition. Culligan and Samsonite have also guaranteed McGregor's obligations under these indemnities.

The Company conducts its operations principally through eight manufacturing facilities and a centralized distribution center. The Company utilizes a vertically integrated manufacturing process (i.e., performing substantially all of the manufacturing processes required to produce its products) with fabric being knit, bleached or dyed, from purchased yarn, at its domestic textile facilities, and then cutting and sewing such fabric at its offshore facilities. Cottontops operates a small dyehouse and a small screen printing facility, both in Farmville, North Carolina. The Company utilizes offshore and domestic contractors as it deems necessary.

Textile Facility Operations. The Company conducts textile operations at two owned facilities located in Kings Mountain and Asheville, North Carolina. Yarn is received at the textile facilities, where circular knitting machines knit the yarn into tubes of basic fabric constructions such as jersey and fleece and circular rib and flat knitting machines knit collars. The tubes of fabric correspond in weight and diameter to the various styles and sizes required to make the Company's activewear products. The knitted fabric is then batched for bleaching or dyeing. Substantially all of the Company's activewear products are either bleached to remove the color of natural cotton or dyed for colored products. The Company's textile facilities contain computerized controls, dye simulators and spectrometers and modern jet vessels to assist the Company in maintaining an efficient and quality controlled environment for the dyeing and bleaching process. The Company's textile facilities each operated near capacity during fiscal 2002.

Management has recognized the need for more efficient textile facilities. Accordingly, the Company is in the process of consolidating its textile operations into a single expanded facility located in Asheville, North Carolina. Such consolidation and expansion is expected to be completed during fiscal 2003. With newer and more sophisticated equipment in one facility, Management believes that its current textile capacity will be maintained and may be increased. The Company's long range plans include the possibility of establishing offshore textile operations, which may be required depending upon future demand, world economic conditions and government policies affecting the Company's operations.

Cutting and Sewing Facilities. The Company's sewing operations are conducted at three leased facilities located in Honduras and El Salvador and at offshore contractors. Cutting is also conducted at leased facilities located in Honduras and El Salvador. Fabric produced at the Company's textile operations is shipped to cutting facilities where it is cut and then transferred to the sewing facilities for assembly. During fiscal 2002, the Company's cutting and sewing facilities operated generally at capacity.

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

The following table sets forth certain information regarding the Company's facilities:

Location	Principal Use	Approx. Sq. Ft.	Owned/Leased
New York, NY	Executive Offices	19,000	Leased	(1)
Kings Mountain, NC	Textile Facility	225,000	Owned
Asheville, NC	Textile Facility	225,000	Owned
Mullins, SC	Warehouse	149,000	Leased	(2)
Farmville, NC	Office, Warehouse & Screen Printing	80,000	Leased	(3)
Farmville, NC	Dye House	43,000	Leased	(3)
Dillon, SC	Distribution	660,000	Owned
Honduras	Sewing Sewing Cutting & Sewing	64,000 63,000 82,000	Leased Leased Leased	(4) (5) (6)
El Salvador	Cutting & Sewing	143,000	Leased	(6)
Germany	Office & Distribution	14,000	Leased	(7)

Management estimates that capital expenditures in fiscal 2003 and thereafter will aggregate approximately $6 million annually. This amount includes expenditures relating to the aforementioned consolidation of the Company's textile facilities, as well as routine capital expenditures in the ordinary course of business.

The Company considers its owned and leased facilities and equipment to be in good condition and suitable and adequate for the Company's current operations. Management of the Company believes that its ongoing maintenance and improvement program for its existing manufacturing facilities, including its plans for the consolidation of its textile facilities, will enable it to accommodate anticipated sales growth.

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

Information Technology. The Company continues its commitment to the growth and modernization of its information technology systems through the upgrading of both its purchased and in-house developed systems and equipment. This year's activities include major upgrades to the Company's purchased systems using internet technology. Using such technology, customers, vendors, contractors and the Company's salesforce with internet capability will be able to access selected parts of Anvil's database. Next under consideration are state of the art "high availability" backup systems for both equipment and software, to ensure constant data and processing access for all Company operations. Anvil's advance order entry, allocation and customer service systems tie into its warehouse management system using radio frequency and also tie into its customers' automatic replenishment and

EDI systems. The Company's planning and scheduling system has allowed it to optimize available manufacturing resources (textile and garment) which has helped reduce lead times and inventories and improve the timeliness of deliveries. The system is driven by the Company's in-house forecasting system as well as by customer orders. The Company has installed hardware and contracted for satellite communications service between its offshore and domestic locations.

The Company is a 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. See Item 1. "Business—Environmental Matters," above.

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters

There is no established public trading market for any of the Company's common equity securities. At April 24, 2003 there were 34 record holders of the Class A Common and 37 record holders of the Class B Common. All of Anvil's issued and outstanding capital stock is owned by Holdings.

As required by the Certificate of Designations relating to the Redeemable Preferred Stock, the Company has paid stock dividends aggregating 1,075,782 shares ($26,895,000 liquidation value) through the year ended February 1, 2003.

Set forth below are the selected historical financial data of the Company as of the dates and for the periods shown. The selected historical statement of operations data of the Company for fiscal years 2000 through 2002 and the balance sheet data for fiscal years 2001 and 2002 have been derived from the consolidated financial statements of the Company which have been audited by Deloitte & Touche LLP, whose report thereon appears under "Item 8. Financial Statements and Supplementary Data." The selected historical statement of operations data of the Company for fiscal years 1998 and 1999 and the balance sheet data for fiscal years 1998 through 2000 have been derived from audited consolidated financial statements which are not included herein. Holdings has no independent operations apart from its wholly owned subsidiary, Anvil, and its sole asset is the capital stock of Anvil. The selected consolidated financial data should be read in conjunction with "Management's Discussion and Analysis

of Financial Condition and Results of Operations" and with the consolidated financial statements and related notes thereto included elsewhere herein.

		Fiscal Year Ended
		January 30, 1999			January 29, 2000			February 3, 2001			February 2, 2002			February 1, 2003
		[Fiscal 1998]			[Fiscal 1999]			[Fiscal 2000]			[Fiscal 2001]			[Fiscal 2002]
		(53 Weeks)
Statement Of Operations Data:
Net sales		$	217,302		$	198,930		$	216,537		$	199,661		$	224,329
Cost of goods sold			179,092			146,931			153,805			152,557			168,168

Gross profit			38,210			51,999			62,732			47,104			56,161
Selling, general and administrative expenses			24,626			22,692			23,939			23,520			24,117
Amortization of intangible assets			958			958			1,306			1,338			619

Operating income			12,626			28,349			37,487			22,246			31,425
Other expense:
	Interest expense		17,279			15,793			14,903			14,636			14,165
	Other expense—net, principally amortization of debt expense		1,006			895			1,189			759			534

(Loss) income before provision for income taxes and extraordinary item			(5,659	)		11,661			21,395			6,851			16,726
(Benefit) provision for income taxes			(2,264	)		5,213			9,050			2,404			6,089

(Loss) income before extraordinary item			(3,395	)		6,448			12,345			4,447			10,637
	Extraordinary item—loss on extinguishment of debt, net of tax benefit of $417(1)		—			627			—			—			—

Net (loss) income		$	(3,395	)	$	5,821		$	12,345		$	4,447		$	10,637

EBITDA(2)		$	19,847		$	35,727		$	45,340		$	30,652		$	41,663

Balance Sheet Data (at end of period):
Cash and cash equivalents		$	3,397		$	3,413		$	6,838		$	11,931		$	9,933
Total assets			148,869			137,108			153,324			145,725			148,850
Total debt			158,335			137,775			135,236			133,281			131,326
Preferred stock (liquidation value)			37,541			42,664			48,486			51,436			43,033
Total stockholders' deficiency			(74,397	)		(73,908	)		(67,739	)		(68,402	)		(61,236	)

			Fiscal Year Ended
			January 30, 1999			January 29, 2000			February 3, 2001		February 2, 2002			February 1, 2003
Earnings (loss) per share data:
Basic and Diluted Income (Loss) Per Common Share:(3)
	Class A Common Stock:
		Income before extraordinary item	$	11.46		$	15.50		$	19.14	$	19.34		$	23.90
		Extraordinary item		—			(0.16	)		—		—			—

		Net income	$	11.46		$	15.34		$	19.14	$	19.34		$	23.90

	Class B Common Stock:
		Income (loss) before extraordinary item	$	(3.15	)	$	(0.90	)	$	0.17	$	(1.75	)	$	0.06
		Extraordinary item		—			(0.16	)		—		—			—

		Net income (loss)	$	(3.15	)	$	(1.06	)	$	0.17	$	(1.75	)	$	0.06

Weighted average shares used in computation of basic and diluted income (loss) per share:
		Class A Common		290			290			290		290			290
		Class B Common		3,590			3,590			3,590		3,590			3,592

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion provides information with respect to the results of operations of the Company for each of the three fiscal years in the period ended February 1, 2003. The following information should be read in conjunction with Item 6. "Selected Financial Data" and the consolidated financial statements and the notes thereto included elsewhere herein. It should also be noted that the year ended February 3, 2001 contains 53 weeks, whereas all the other fiscal years presented herein contain 52 weeks. Accordingly, if all other factors were equal, revenue and expense items in that year would be representative of approximately 2% more volume than other fiscal years.

The Company's significant accounting policies are more fully described in Note 3 to the consolidated financial statements, included elsewhere herein. The application of accounting policies require judgement by Management in selecting the appropriate assumptions for calculating financial estimates. By their nature, these judgements are subject to an inherent degree of uncertainty and are based upon historical experience, trends in the industry, and information available from outside sources. The preparation of financial statements in conformity with GAAP requires Management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The Company's significant accounting policies include:

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 based 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, Management has been successful in mitigating the impact of fluctuating yarn prices and is continually reviewing and adjusting the Company's purchase commitments to take maximum advantage of price changes.

As announced during the fourth quarter of fiscal 2001, the Company is in the process of consolidating its textile operations into a single expanded facility located in Asheville, North Carolina. Such consolidation and expansion is expected to be completed during fiscal 2003. As a result, the useful life of certain production equipment was adjusted, and certain other assets were written off. The necessary adjustments were recorded in the fourth quarter of the fiscal year ended February 2, 2002, and resulted in additional depreciation of $336,000 and a direct write-off of assets of $433,000, both of which were charged to cost of goods sold. The additional depreciation charge in the current fiscal year amounted to $1,295,000.

The following table sets forth, for each of the periods indicated, certain statement of operations data, expressed as a percentage of net sales, for the Company for each of the three years in the period ended February 1, 2003:

			Year Ended
			February 3, 2001			February 2, 2002			February 1, 2003
			[Fiscal 2000]			[Fiscal 2001]			[Fiscal 2002]
			(53 weeks)
Statement of Operations Data:
	Net sales			100.0	%		100.0	%		100.0	%
	Cost of goods sold			71.0			76.4			75.0
	Gross profit			29.0			23.6			25.0
	Selling, general and administrative expenses			11.1			11.8			10.8
	Interest expense			6.9			7.3			6.3
Other Data:
	EBITDA(1)		$	45,340,000		$	30,652,000		$	41,663,000
		Percentage of net sales		20.9	%		15.4	%		18.6	%

Net sales for the fiscal year ended February 1, 2003 amounted to $224,329,000 as compared to $199,661,000 for the prior fiscal year, an increase of approximately 12.4%. Total units sold increased more than 27%. However, industry-wide declining selling prices for basic goods and an unfavorable change in product mix towards goods having lower selling prices and gross margins partially offset the favorable effect of increased unit sales. The industry-wide decline in selling prices has been continuing over the last several years. Overall, the Company's average selling prices were approximately 12% less than the prior fiscal year, and have declined nearly 30% over the last three fiscal years.

Gross profit for the fiscal year ended February 1, 2003 increased $9,057,000 (19.2%). Gross margins have improved to 25.0% in the current fiscal year as compared to 23.6% in the prior period. This increase is largely the result of lower yarn prices and improved production efficiencies, partially offset by the adverse effect of lower selling prices and less favorable product mix. As discussed above, gross profit in the current fiscal year was adversely affected by additional depreciation charges aggregating approximately $1,295,000 relating to the planned consolidation of the Company's textile facilities. Comparable charges in the prior fiscal year ended February 2, 2002 amounted to $769,000.

Selling, general and administrative expenses (including distribution expense) for the fiscal year ended February 1, 2003 increased $597,000 (2.5%) as compared to the prior fiscal year. As a percentage of sales, these expenses declined from 11.8% to 10.8%. Higher expenditures incurred in improving product support in the areas of distribution and information technology were partially offset by lower selling expenses. Distribution expense for the year was approximately the same as the prior year despite an increase of more than 27% in units sold.

Interest expense declined $471,000 (3.2%) in the current fiscal year compared to the same period of the prior year. Interest rates have declined slightly, and the level of borrowings during the current fiscal year were lower than the prior year. At the end of each of the last two fiscal years, the Company was able to reduce its revolving credit borrowings to zero.

Net sales for the fiscal year ended February 2, 2002 amounted to $199,661,000 as compared to $216,537,000 for the prior fiscal year. While total units sold increased more than 4%, the decrease in revenues of $16,876,000 (7.8%) was the result of two factors: (i) industry-wide declining selling prices for basic goods; and (ii) an unfavorable change in product mix towards goods having lower selling prices and gross margins. Overall, the Company's average selling prices were approximately 12% less in the year ended February 2, 2002 as compared to the prior fiscal year.

Gross profit for the fiscal year ended February 2, 2002 decreased $15,628,000 (24.9%). Gross margins declined from 29.0% in the fiscal year ended February 3, 2001 to 23.6% in the fiscal year ended February 2, 2002. This decline was caused by: (i) the aforementioned lower selling prices and less favorable product mix; (ii) higher per unit textile production costs; and (iii) higher yarn prices. The unfavorable changes were partially offset by significant savings realized by the relocation of cutting and sewing operations offshore.

Selling, general and administrative expenses (including distribution expense) for the fiscal year ended February 2, 2002 declined $419,000 as compared to the prior fiscal year. Reflective of the lower operating results, the Company reduced its incentive-related selling and administrative compensation for the year. The savings achieved in these areas were partially offset by higher advertising expenditures and higher distribution costs.

Interest expense declined $267,000 (1.8%) in the fiscal year ended February 2, 2002 compared to the same period of the prior year. Interest rates declined slightly, and the level of borrowings during

the fiscal year ended February 2, 2002 were lower than the prior year. At the end of each of the two fiscal years, the Company was able to reduce its revolving credit borrowings to zero.

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 $17,435,000 in the year ended February 1, 2003. This amount includes expenditures relating to the aforementioned consolidation and expansion of the Company's textile facilities. Capital expenditures were $6,592,000 in the year ended February 2, 2002, and $6,165,000 in the year ended February 3, 2001. Historically, the Company's major capital expenditures have related to the acquisition of machinery and equipment and management information systems hardware and software.

The Company's principal working capital requirements are financing accounts receivable and inventories. The Company has also expended $13,201,000 to acquire its Redeemable Preferred Stock having a carrying value at the time of acquisition of $17,707,000. Management estimates that capital expenditures in the fiscal year ending January 31, 2004 and thereafter will aggregate approximately $6,000,000 annually.

At February 1, 2003 the Company had net working capital of $54,192,000 comprised of $9,933,000 in cash and cash equivalents, $28,315,000 of accounts receivable, $42,938,000 of inventories, $5,414,000 of other current assets, and $32,408,000 in accounts payable and other current liabilities.

Anvil's Loan and Security Agreement, as amended (the "Loan Agreement"), provides for a maximum credit facility of $50,000,000 consisting of a term loan (the "Term Loan") and a revolving credit facility (the "Revolving Credit Facility"). The Loan Agreement was for an original term of three years with automatic one year renewals unless contrary notice is given by either party at least 60 days prior to the expiration date. The Loan Agreement (as currently extended) expires March 11, 2004. The Term Loan was in the original principal amount of $11,725,000, repayable in quarterly principal installments of $586,000 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-quarter percent or LIBOR plus 2¹/4%, at the Company's option. At February 1, 2003 there were no amounts outstanding under the Revolving Credit Facility.

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'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

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