<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 29, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________________ to __________________
Commission file number 0-20382
--------------------
DANSKIN, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 62-1284179
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
111 West 40th Street, New York, NY 10018
-----------------------------------------
(Address of principal executive offices)
(212) 764-4630
-------------------------------
(Registrant's telephone number)
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
------ ------
The number of shares outstanding of the issuer's Common Stock, $.01 par
value, as of July 31, 1996, excluding 1,000 shares held by a subsidiary:
6,045,209.
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DANSKIN, INC. AND SUBSIDIARIES
FORM 10-Q FOR THE FISCAL THREE AND SIX MONTH PERIODS
ENDED JUNE 24, 1995 AND JUNE 29, 1996
INDEX
<TABLE>
<CAPTION>
Page No.
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<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Condensed Balance Sheets (Unaudited)
as of December 30, 1995 and June 29, 1996 3
Consolidated Condensed Statements of Operations (Unaudited)
for the Fiscal Three and Six Month Periods Ended
June 24, 1995 and June 29, 1996 4
Consolidated Condensed Statements of Cash Flows (Unaudited)
for the Fiscal Six Month Periods Ended
June 24, 1995 and June 29, 1996. 5
Notes to Consolidated Condensed Financial
Statements 6-10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11-16
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 6. Exhibits and Reports on Form 8-K 17
SIGNATURES 18
</TABLE>
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DANSKIN, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
December 30, 1995 June 29, 1996
(Unaudited) (Unaudited)
----------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ...................................................... $ 1,143,000 $ 1,337,000
Accounts receivable, less allowance for doubtful accounts of $1,631,000 at
December 1995 and $1,414,000 at June 1996 .................................. 14,631,000 16,614,000
Inventories .................................................................... 30,849,000 32,171,000
Prepaid expenses and other current assets ...................................... 3,360,000 3,509,000
------------ ------------
Total current assets ........................................................ 49,983,000 53,631,000
------------ ------------
Property, plant and equipment - net of accumulated depreciation and amortization of
$5,849,000 at December 1995 and $6,704,000 at June 1996......................... 10,632,000 9,993,000
Deferred income tax benefits ...................................................... 3,900,000 3,900,000
Other assets ...................................................................... 3,227,000 3,030,000
------------ ------------
Total Assets ...................................................................... $ 67,742,000 $ 70,554,000
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Revolving loan payable ......................................................... $ 4,101,000 $ 9,683,000
Current portion of long-term debt .............................................. 334,000 1,002,000
Accounts payable ............................................................... 9,361,000 9,390,000
Accrued expenses ............................................................... 10,531,000 9,910,000
------------ ------------
Total current liabilities ................................................... 24,327,000 29,985,000
------------ ------------
Subordinated convertible debentures ............................................... 5,000,000 5,000,000
Long-term debt, net of current maturities ......................................... 31,666,000 30,971,000
Accrued pension costs ............................................................. 5,230,000 5,183,000
------------ ------------
41,896,000 41,154,000
------------ ------------
Total Liabilities ................................................................. 66,223,000 71,139,000
------------ ------------
Commitments and contingencies
Stockholders' (deficiency) equity:
Preferred Stock, $.01 par value, 10,000 share .................................. -- --
Common Stock, $.01 par value, 20,000,000 shares authorized, 5,922,375 shares
issued at December 1995 and 6,062,018 shares issued at June 1996,
less 1,000 shares held by subsidiary ........................................ 59,214 60,610
Additional paid-in capital ..................................................... 13,849,786 14,212,390
Warrants outstanding ........................................................... 764,000 764,000
Accumulated deficit ............................................................ (11,154,000) (13,622,000)
Minimum pension liability adjustment ........................................... (2,000,000) (2,000,000)
------------ ------------
Total Stockholders' (Deficiency) Equity ......................... 1,519,000 (585,000)
------------ ------------
Total Liabilities and Stockholders' Equity ........................................ $ 67,742,000 $ 70,554,000
------------ ------------
------------ ------------
</TABLE>
These statements should be read in conjunction with the accompanying
Notes to Consolidated Condensed Financial Statements.
3
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<PAGE>
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
DANSKIN, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Fiscal Three Months Ended Fiscal Six Months Ended
----------------------------- -----------------------------
June 24, 1995 June 29, 1996 June 24, 1995 June 29, 1996
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
Net revenues ................................... $ 29,602,000 $ 29,664,000 $ 61,753,000 $ 61,106,000
Cost of goods sold ............................. 19,447,000 19,043,000 41,384,000 40,091,000
------------ ----------- ------------ ------------
Gross profit .............................. 10,155,000 10,621,000 20,369,000 21,015,000
Selling, general and administrative expenses ... 8,879,000 9,647,000 20,206,000 20,707,000
Non-recurring charges .......................... -- -- 2,498,000 --
Provision for doubtful accounts receivable ..... 128,000 137,000 844,000 275,000
Interest expense ............................... 1,263,000 1,211,000 2,507,000 2,375,000
------------ ----------- ------------ ------------
10,270,000 10,995,000 26,055,000 23,357,000
------------ ----------- ------------ ------------
Loss before income tax provision (benefit) ..... (115,000) (374,000) (5,686,000) (2,342,000)
Provision (benefit) for income taxes ........... (10,000) 63,000 (209,000) 126,000
------------ ----------- ------------ ------------
Net loss ....................................... ($ 105,000) ($ 437,000) ($ 5,477,000) ($ 2,468,000)
------------ ----------- ------------ ------------
------------ ----------- ------------ ------------
Primary loss per common share .................. ($0.02) ($0.07) ($0.93) ($0.41)
------------ ----------- ------------ ------------
------------ ----------- ------------ ------------
Weighted average number of common shares ....... 5,920,000 6,022,000 5,920,000 5,978,000
------------ ----------- ------------ ------------
------------ ----------- ------------ ------------
</TABLE>
These statements should be read in conjunction with the accompanying
Notes to Consolidated Condensed Financial Statements.
4
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<PAGE>
DANSKIN, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Fiscal Six Months Ended
--------------------------------
June 24, 1995 June 29, 1996
(unaudited) (unaudited)
-------------- ---------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net loss ........................................................... ($ 5,477,000) ($ 2,468,000)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization ..................................... 1,444,000 1,312,000
Write-off of certain trademarks and other long-term assets ........ 1,243,000 --
Provision for doubtful accounts receivable ........................ 844,000 275,000
Deferred income taxes ............................................. (375,000) --
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable .................... 1,229,000 (2,258,000)
(Increase) decrease in inventories ............................. 1,647,000 (1,322,000)
(Increase) decrease in prepaid expenses and other current assets 394,000 (149,000)
Increase (decrease) in accounts payable ......................... (1,933,000) 29,000
(Decrease) increase in accrued expenses ......................... 1,089,000 (621,000)
Financing costs incurred ........................................ (1,038,000) (129,000)
----------- -----------
Net cash from (used in) operating activities .................. (933,000) (5,331,000)
----------- -----------
Cash Flows From Investing Activities:
Capital expenditures ................................................ (304,000) (421,000)
Cash Flows From Financing Activities:
Net receipts under revolving loan payable .......................... 1,380,000 5,582,000
Proceeds of debt restructuring ...................................... 22,000,000 --
Payments under debt restructuring ................................... (22,049,000) --
Proceeds from exercises of options to purchase common shares ........ -- 309,000
Payments of long-term debt .......................................... (707,000) --
Net proceeds from sale of common stock to Savings Plan .............. 47,000 170,000
Purchase and retirement of common stock ............................. (37,000) (115,000)
----------- -----------
Net cash provided by financing activities ..................... 634,000 5,946,000
----------- -----------
Net Increase (Decrease) in Cash and Cash Equivalents ................. (603,000) 194,000
Cash and Cash Equivalents, Beginning of Period ........................ 1,842,000 1,143,000
----------- -----------
Cash and Cash Equivalents, End of Period .............................. $ 1,239,000 $ 1,337,000
----------- -----------
----------- -----------
Supplemental Disclosures of Cash Flow Information:
Interest paid .................................................... $ 2,203,000 $ 2,127,000
----------- -----------
----------- -----------
Income taxes paid ................................................ $ 36,000 $ 50,000
----------- -----------
----------- -----------
Income taxes received ............................................ ($ 652,000) --
----------- -----------
----------- -----------
</TABLE>
Non-Cash Activities
The Company contributed 29,629 of its shares of Common Stock to the
Danskin, Inc. Savings Plan in March 1996.
The Company recorded an additional $164,000 over $600,000 originally
recorded in fiscal 1995 related to warrants outstanding to its lender for which
the convertibility into shares of Common Stock of the Company increased from 7%
to 10% of then outstanding shares of Common Stock on June 22, 1995.
These statements should be read in conjunction with the accompanying
Notes to Consolidated Condensed Financial Statements.
5
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<PAGE>
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
Danskin, Inc. and Subsidiaries
Notes to Consolidated Condensed Financial Statements
----------------------------------------------------
1. In the opinion of the management of Danskin, Inc. and
Subsidiaries (the "Company"), the accompanying Consolidated
Condensed Financial Statements have been presented on a basis
consistent with the Company's fiscal year financial statements
and contain all adjustments (all of which were of a normal and
recurring nature) necessary to present fairly the financial
position of the Company as of June 29, 1996, as well as its
results of operations for the fiscal three and six months ended
June 29, 1996 and June 24, 1995, and its cash flows for the six
months ended June 29, 1996 and June 24, 1995. Certain information
and footnote disclosures normally included in annual financial
statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. Operating
results for interim periods may not be indicative of results for
the full fiscal year.
The Company designs, manufactures, distributes and markets
several leading brands of women's activewear clothing, dance
wear, tights and legwear. Danskin(R), Dance France(R) and
Round-the- Clock(R) are the Company's principal proprietary
brands. The Company also manufactures Givenchy(R), Anne Klein(R)
and other licensed hosiery brands and exercise clothing pursuant
to license agreements. In addition to its branded merchandise,
the Company manufactures and markets private label merchandise,
principally legwear, for many major retailers, including most
full line department stores. The Company also currently operates
44 factory outlet and three full price retail stores in 20
states.
2. On June 22, 1995, the Company entered into an Amended and
Restated Loan and Security Agreement with First Union National
Bank of North Carolina ("First Union") (the "Loan and Security
Agreement") which provided for restructured terms of its
financing arrangements (the "Restructuring"). The Restructuring
consisted of converting $8,000,000 of revolving credit balances
into term obligations. Total term debt obligations aggregated
$22,000,000 immediately after the Restructuring, and as of June
29, 1996. Scheduled quarterly payments commence in September 1996
ranging from $333,000 to $1,500,000 with a final maturity of
March 2002. Revolving credit obligations were reduced by the
proceeds of the new term debt, and the outstanding balance of a
new revolving credit facility of $25,000,000 amounted to
$19,683,000 as of June 29, 1996, with availability in excess of
utilization of $5,106,000. The Company classifies $10,000,000 of
its revolving obligations as long term debt. In addition to the
scheduled quarterly principal payments of the term debt, the Loan
and Security Agreement provides for a semiannual mandatory
retirement of term debt principal if cash flow, as defined,
attains certain levels, payable when availability under the
revolving credit exceeds $5,000,000.
The Loan and Security Agreement was amended subsequent to June
22, 1995 to allow for the Company's change in fiscal year end, to
permit the establishment of a Canadian subsidiary and related
factoring arrangements for purposes of selling direct to
customers in Canada, to restate certain financial covenants, to
obtain approval for the issuance of a subordinated convertible
debenture (Note 3) and to increase an annual capital expenditure
limitation to $2,000,000.
6
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<PAGE>
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
Danskin, Inc. and Subsidiaries
Notes to Consolidated Condensed Financial Statements
----------------------------------------------------
The Loan and Security Agreement established covenants requiring
the Company to meet certain interest coverage and profitability
levels, and it contains certain other restrictions, including
limits on the Company's ability to incur debt, make capital
expenditures, merge, pay dividends or repurchase its own stock.
It also provides that the Company will be in default if any
person, other than as defined, becomes the owner of or controls
more than 20% of the Company's Common Stock. In addition, First
Union may terminate the Loan and Security Agreement in the event
the Company's current Chairman is discharged or forced to resign
by the Board of Directors and not replaced by an individual who
possesses the same level of experience and reputation in the
apparel industry, unless such action is taken by the majority
vote of a Board comprised of the current or continuing Directors.
Substantially all the Company's assets continue to be
collateralized under these debt facilities.
In connection with the Restructuring, the Company issued warrants
to First Union to purchase, at an exercise price per share equal
to par value ($0.01), up to 10% of the Company's then outstanding
Common Stock. The Warrants provide for a put option by First
Union, exercisable after March 1998, at fair market value, as
defined. The Company also has a call option providing for payment
at fair market value. For so long as the Company is in compliance
with the requirements of the Loan and Security Agreement, the
Warrants provide no dilution protection for First Union for any
new issuance of securities.
In connection with the Restructuring, interest rates, for all
obligations under the Loan and Security Agreement, were set at
prime plus 1.5% (9.75% at June 29, 1996). On each annual
adjustment date (as defined), the interest rate may be reduced
based on certain ratios of interest coverage and debt to earnings
before interest, taxes, depreciation and amortization levels. In
July 1995, the Company purchased an interest rate cap from First
Union with a notional amount of $20,000,000, which provides for a
prime rate limit of 9.25% for the period through October 1998.
3. The Company completed the sale of subordinated convertible
debentures to a bond fund on August 17, 1995. The debenture has
an aggregate face value of $5,000,000, accrues interest at 8% and
matures on September 1, 2002. The initial conversion price is
$3.15, currently representing 1,587,300 shares. Such conversion
price may be reset on August 17, 1997 under certain circumstances
and will be adjusted in the event of dilution. The proceeds of
this sale were used to reduce the Company's bank revolving credit
obligations. The debenture contains customary covenants for this
type of transaction. On October 26, 1995, a representative of the
bond fund was elected as a Director of the Company, in accordance
with the provisions of the debenture.
The Company issued 10% cumulative preferred shares, $5,000,000
principal value, on July 31, 1996, having a liquidation
preference of $5,000 per share, in exchange for the subordinated
convertible debentures. The preferred shares will vote on an as
converted basis, and have an initial conversion price of $2.76,
currently representing 1,811,594 shares. Such conversion price
may be reset on the first and second anniversaries of the
issuance under certain circumstances and will be adjusted in the
event of dilution. The new preferred stock has the right to vote
separately as a class for the election of one Director. The value
of the preferred shares will be accounted for as equity.
7
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<PAGE>
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
Danskin, Inc. and Subsidiaries
Notes to Consolidated Condensed Financial Statements (continued)
----------------------------------------------------
4. The Company received notification from the Nasdaq Stock Market,
Inc., on August 6, 1996 that its request to have its Common Stock
listed on the Nasdaq Small Cap Market, instead of on the Nasdaq
National Market, had been approved.
5. Inventories are stated at the lower of cost or market on a
first-in, first-out basis. Inventories consisted of the
following:
<TABLE>
<CAPTION>
December 30, June 29,
1995 1996
------------ ---------
(unaudited) (unaudited)
<S> <C> <C>
Finished goods $18,792,000 $19,271,000
Work-in-process 6,431,000 7,128,000
Raw materials 4,461,000 4,774,000
Packaging materials 1,165,000 998,000
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$30,849,000 $32,171,000
=========== ===========
</TABLE>
6. In December 1992, several class actions (subsequently
consolidated) were filed against the Company, certain of its
officers and directors, the underwriters of its initial public
offering and the Company's former parent, Esmark, Inc.
("Esmark"), in the U.S. District Court for the Southern District
of New York, alleging that materially false and misleading
statements were made in the prospectus for the Company's initial
public offering and in subsequent public statements and a
regulatory filing. These actions arose following the Company's
reporting of a $1,000,000 pretax charge against income in fiscal
1993 related to production problems caused by an unauthorized
change in product specifications by a yarn vendor.
Following a fairness hearing held on May 29, 1996, the Court
entered an Order and Final Judgement approving a settlement of
the consolidated actions. The settlement was funded in its
entirety by defendants unrelated to the Company and by the
carrier of the Company's director's and officer's liability
insurance policy. The Company also recovered a portion of its
cost of defending the action from the carrier. The Order and
Final Judgment certifies the class and releases all of the
defendants from claims by the class members arising from the
purchase of the Company's securities, as well as claims for
contribution or indemnification arising from a class member's
claims.
8
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<PAGE>
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
Danskin, Inc. and Subsidiaries
Notes to Consolidated Condensed Financial Statements (continued)
----------------------------------------------------
On August 19, 1994, a stockholder, who is also a plaintiff in the
securities class action litigation described above, filed a
derivative action in the Delaware Court of Chancery against
Esmark and the directors of the Company, with the Company as
nominal defendant, alleging that a certain amount of funds
advanced by the Company to Esmark, and for which reserves charged
to operations have been established by the Company, constituted a
waste of corporate assets. The action does not seek any damages
from the Company. This matter has been settled, subject to court
approval, by agreement among the plaintiffs, the defendants and
the carrier of the Company's directors' and officers' liability
policy.
The Company has terminated its prior Canadian license agreement
of the Danskin(R) and Playskin(R) trademarks. It has awarded a
new Playskin(R) license to another company, and has initiated
direct sales of Danskin merchandise in Canada. The Company has
received a letter from its former Canadian licensee threatening
legal action to recover damages resulting from the "unethical
manner" in which it conducted negotiations concerning the
relationship. The Company has responded that it will commence
litigation against the former licensee for fraud in the willful
under reporting of royalties that were due under the agreement
and has demanded compensatory damages. The Company believes that
it has substantial defenses to any allegations that may be
brought by the former licensee, and that any potential liability
that might result will not have a material adverse effect on its
consolidated financial position or results of operations.
7. The Company's income tax provision (benefit) rates differed from
federal statutory rates due to the change in valuation allowance
and the effect of state taxes for the three and six months ended
June 1996 and 1995. The breakdown of income tax expense between
current tax expense and deferred tax expense is not available for
the three and six months ended June 1996 and 1995. No allocation
between current and deferred income taxes was made during the
three and six months ended June 1996 and 1995, as such amounts
would not be considered material to the Company's consolidated
financial position.
The Company's deferred tax balance as of June 1996 and December
1995 was net of valuation allowances, each amounting to
approximately $6,000,000. Valuation allowances have been
established since it is more likely than not that certain tax
benefits will not be realized.
The Company has been selected for audit by certain Federal and
state tax authorities, the resolution of which cannot be
determined at this time. Management believes that any possible
ultimate liability from these audits will not materially affect
the consolidated financial position or results of operations of
the Company.
9
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ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
Danskin, Inc. and Subsidiaries
Notes to Consolidated Condensed Financial Statements (continued)
----------------------------------------------------
8. The Company is a judgment creditor of Esmark, its former parent,
and it has fully reserved the amount of $6,099,000 owed to it
through March 1995. In light of Esmark's financial condition, the
Company no longer accrues interest on this indebtedness for
financial statement purposes. On June 6, 1996, the U.S.
Bankruptcy Court for the Southern District of New York entered an
order placing Esmark in Chapter 7 liquidation under the
Bankruptcy Code, granting the relief which had been sought in an
involuntary bankruptcy petition, and it appointed a Trustee to
administer the liquidation.
On June 7, 1996, pursuant to authorization of the Bankruptcy
Court, Sun America Life Insurance Company ("Sun America")
purchased, at a foreclosure sale, 2,010,000 shares of the
Company's Common Stock (the "Esmark Shares"), that had been owned
by Esmark, and that Esmark had pledged to Sun America to secure
the repayment of certain indebtedness owing to Sun America by a
subsidiary of Esmark. Sun America subsequently re-registered
these shares in the name of its nominee. These shares represent
approximately 33% of the Company's outstanding Common Stock.
In 1992, Esmark was granted an irrevocable 10-year proxy to vote
990,000 shares of the Company's Common Stock by Electra
Investment Trust P.L.C. ("Electra"), the registered owner of such
shares (the "Electra Shares"). The Company believes that this
proxy has ceased to have effect by virtue of the foreclosure sale
of the Esmark Shares by Sun America.
The Esmark Shares are the subject of a Registration Rights
Agreement dated July 2, 1992 between the Company and Esmark. The
Company has acknowledged the status of Electra as a Holder under
this agreement with respect to the Electra Shares.
9. The Company adopted a shareholder rights plan on June 5, 1996,
for stockholders of record on June 17, 1996, which would become
effective in the event of an accumulation of more than 35% of its
common stock by an Acquiror. A rights agreement was
executed on June 5, 1995 between the Company and its Rights
Agent, a copy of which was filed as an exhibit to the Company's
report on Form 8-K filed on June 6, 1996.
10. The Company's Chairman of the Board, Howard D. Cooley, purchased
100,000 shares of the Company's common stock on June 3, 1996,
through exercise of options at $3.00. On June 5, 1996,the Company
granted Mr. Cooley options to purchase 100,000 common shares,
subject to adoption and approval of an amendment to the Company's
stock option plan, increasing the number of shares available for
issuance, and having a market exercise price of $3.25.
10
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<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
-----------------------------------------------------------------
The following discussion and analysis should be read in
conjunction with the Consolidated Condensed Financial Statements,
related notes and other information included in this quarterly
report on Form 10-Q (operating data for Danskin include operating
data for the Company's retail activities).
CHANGE IN YEAR END
As of December 1995, the Company changed its fiscal year end to
the last Saturday in December from the last Saturday in March.
RESULTS OF OPERATIONS
Comparison of the Three and Six Months of the Year Ended
December 1996 with the Three and Six Months of the Year Ended
December 1995
NET REVENUES:
Net revenues amounted to $29.7 million for the three months ended
June 1996, an increase of $0.1 million, or 0.3%, from the prior
year three months ended June 1995. Net revenues for the six
months ended June 1996 amounted to $61.1 million, a decrease of
$0.6 million, or 1.0%, from $61.7 million for the same prior year
period. Wholesale revenues for the Company declined $0.8 million
for the three month period, and $2.1 million for the six-month
period, principally offset by an increase in retail volume of
$0.9 million for the three month period and $1.5 million for the
six-month period ended June 1996 over the same prior year
periods.
Danskin activewear net revenues, which includes the Company's
retail operations, amounted to $18.7 million for the fiscal three
months ended June 1996, an increase of $0.6 million, or 3.3%,
from $18.1 million in the prior three months ended June 1995, and
increased $0.5 million, to $38.2 million, or 1.3%, for the
six-month period ended June 1996 over the same prior year period.
Danskin wholesale revenues declined $0.3 million, to $13.7
million, or 2.1%, for the three-month period ended June 1996,
and declined $1.0 million, or 3.3%, to $28.9 million, for the
six-month period ended June 1996 from the same prior year period.
These declines were partially offset by the $0.9 million three-
month increase and the $1.5 million six-month increase in
sales for the Company's 47 retail stores, which generated $5.0
million in net revenues for the three months, and $9.3 million
for the six months ended June 1996, with seven additional stores
over the prior year. Comparable retail store sales declined 2.2%
for the three months ended June 1996 and declined 5.1% for the
six-month period ended June 1996, which is comparable to general
outlet industry trends. The Company continues to improve store
product offerings, search for prime locations, renegotiate
leases, streamline store management and evaluate existing sites.
Activewear wholesale business continues to experience the effects
of a competitive market; however, efforts toward addressing the
industry's lifestyle casual wear trends, and an expansion of
dance product offerings, primarily to specialty shops, have
partially offset declines.
11
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<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
-----------------------------------------------------------------
RESULTS OF OPERATIONS (CONTINUED)
Pennaco legwear net revenues amounted to $11.0 million for the
three months ended June 1996, a decline of $0.5 million, or 4.3%,
from $11.5 million in the three months ended June 1995, and
declined $1.1 million, or 4.6%, to $22.9 million for the
six-month period ended June 1996 from the same prior year period.
This decline was principally attributable to a continued week
hosiery market in the department store class of trade, primarily
in branded business for legwear. The re-launch of Anne Klein
sheer hosiery and tights was successfully introduced in July
1996, and new marketing initiatives for Givenchy Couture in the
high end market, and Round The Clock for maternity, continue to
be scheduled for fall shipments. The Company 's Round The Clock
Lycra(R) 3D "Leg-solutions" hosiery (containing Lycra(R) in every
course), launched in the fall of 1995, has been well received,
and has partially offset significant declines in the traditional
common Lycra(R) business. The Company believes it is the largest
producer of the "Lycra(R) 3D" hosiery and hopes to capitalize on
its current position.
GROSS PROFIT:
Gross profit increased by $0.5 million, or 5.0%, to $10.6 million
in the three months ended June 1996 from $10.1 million in the
prior year period, and increased $0.7 million, or 3.4%, to $21.0
million for the six months ended June 1996 over the same prior
year period. Gross profit as a percentage of net revenues
increased to 35.7% in the three months ended June 1996 from 34.1%
in the three months ended June 1995, and increased to 34.4% for
the six months ended June 1996 from 32.9% in the same prior year
period.
Gross margins for activewear were 40.5% and 38.5% in the three
months, and 38.9% and 38.1% for the six months ended June 1996
and 1995, respectively. This increase was primarily attributable
to improvements in retail inventory mix for the three and six
month periods, and prior year liquidations of certain excess
wholesale inventories for the quarter. This three and six-month
improvement was partially offset by increased costs associated
with traditionally lower margins on increased levels of private
label volume, and the three-month improvement was also partially
offset by higher levels of certain contracted production.
Legwear gross profit increased to 27.8% in the three months ended
June 1996 from 27.7% in the prior period, and to 26.9% for the
six months ended June 1996 from 24.9% in the prior period. The
improvement in gross profit was primarily attributable to private
label price increases and reductions in certain production costs,
partially offset by lower margins attributable to introductory
pricing of "Leg- solutions" and a continued competitive market in
traditional Lycra(R) products.
12
<PAGE>
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
-----------------------------------------------------------------
RESULTS OF OPERATIONS (CONTINUED)
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses, which include
retail store operating costs, increased by $0.8 million to $9.8
million, or 33.0% of net revenues, in the three months ended June
1996, from $9.0 million, or 30.4% of net revenues, in the three
months ended June 1995, and remained constant for the six-month
period ended June 1996 at $21.0 million, or 34.4 % of net
revenues, for 1996 and 34.0% for the same prior year period.
Selling, general and administrative expenses, excluding retail
store operating costs, decreased by $0.8 million to $15.7
million, or 25.7% of net revenues, in the six months ended June
1996, from $16.5 million, or 26.7% of net revenues, in the same
prior year period, despite a $0.5 million insurance refund of
certain legal costs in June 1995. The quarter ended June 1996
showed an increase of $0.4 million to $7.2 million, or 24.2% of
net revenues for 1996, and $6.8 million, or 23.0% of net
revenues for the same prior year period, principally due to the
insurance refund. The wholesale decrease in the 1996 six-month
period was principally a result of a reduction in the provision
for doubtful accounts and lower compensation costs, partially
offset by increased print advertising costs.
OPERATING INCOME/LOSS:
As a result of the foregoing, income from operations (i.e.,
income /loss before interest expense, non-recurring charges and
income taxes) amounted to $33,000, an improvement of $0.7
million, for the six-month period ended June 1996, and was a $.08
million loss for the three months ended June 1996, a decline of
$0.3 million. The legwear business contributed most significantly
to the year to date improvement.
INTEREST EXPENSE:
Interest expense decreased by $0.1 million to $1.2 million in the
three months ended June 1996, from $1.3 million in the three
months ended June 1995, and decreased $0.1 million to $2.4
million for the six-month period ended June 1996. The Company's
effective interest rate was 10.6% and 11.3% for the three months
ended June 1996 and 1995, and 10.6% and 11.1% for the six months
ended June 1996 and 1995, respectively. Effective interest rates
declined principally due the lower interest rate of 8% associated
with the subordinated convertible debentures.
INCOME TAX PROVISION (BENEFIT):
The Company's income tax provision (benefit) rates differed from
the Federal statutory rates due to the change in the deferred tax
valuation allowance and the effect of state taxes for the three
and six months ended June 1996 and June 1995. The Company's
deferred tax balance of $3.9 million as of June 1996 and June
1995 was net of a valuation allowance of approximately $6.0
million and $4.9 million, respectively.
NET LOSS:
As a result of the foregoing, net loss was $0.4 million for the
three months ended June 1996, a decline of $0.3 million from a
net loss in the three months ended June 1995 of $0.1 million, and
was $2.5 million for the six-month period, an improvement of $3.0
million over the prior year, which included a $2.4 million
non-recurring charge.
13
<PAGE>
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
-----------------------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary liquidity and capital requirements relate
to the funding of working capital needs, primarily inventory,
accounts receivable, capital investments in operating facilities,
machinery and equipment, and principal and interest payments on
indebtedness. The Company's primary sources of liquidity have
been from bank financing, issuance of convertible securities,
vendor credit terms and internally generated funds.
Net cash flow used in operations increased by $4.4 million to
$5.3 million for the six months ended June 1996, from a use of
cash from operations of $0.9 million in the six months ended June
1995, principally attributable to increases in working capital
requirements in line with operations.
On June 22, 1995, the Company entered into an Amended and
Restated Loan and Security Agreement with First Union National
Bank of North Carolina ("First Union") (the "Loan and Security
Agreement"), which provided for restructured terms of its
financing arrangements (the "Restructuring"). The Restructuring
consisted of converting $8.0 million of revolving credit balances
into term obligations. Total term debt obligations aggregated
$22.0 million after the Restructuring and as of June 29, 1996.
Scheduled quarterly payments commence in September 1996 and range
from $0.3 million to $1.5 million, with a final maturity in March
2002. Revolving credit obligations were reduced by the proceeds
of the new term debt, and the outstanding balance of a new
revolving credit facility of $25.0 million amounted to $19.7
million as of June 29, 1996, with availability in excess of
utilization of $5.1 million. The Company classifies $10.0 million
of its revolving obligations as long term. In addition to the
scheduled quarterly principal payments of the term debt, the Loan
and Security Agreement provides for a semiannual mandatory
retirement of term debt principal if cash flow, as defined,
attains certain levels, payable when availability under the
revolving credit exceeds $5.0 million.
The Loan and Security Agreement was amended subsequent to June
22, 1995 to allow for the Company's change in fiscal year end, to
permit the establishment of a Canadian subsidiary and related
factoring arrangements for purposes of selling direct to
customers in Canada, to restate certain financial covenants, to
obtain approval for the issuance of a subordinated convertible
debenture and to increase an annual capital expenditure
limitation to $2.0 million.
14
<PAGE>
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
-----------------------------------------------------------------
RESULTS OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
The Loan and Security Agreement established covenants requiring
the Company to meet certain interest coverage and profitability
levels, and it contains certain other restrictions, including
limits on the Company's ability to incur debt, make capital
expenditures, merge, pay dividends or repurchase its own stock.
It also provides that the Company will be in default if any
person, other than as defined, becomes the owner of or controls
more than 20% of the Company's Common Stock. In addition, First
Union may terminate the Loan and Security Agreement in the event
the Company's current Chairman is discharged or forced to resign
by the Board of Directors and not replaced by an individual who
possesses the same level of experience and reputation in the
apparel industry, unless such action is taken by the majority
vote of a Board comprised of the current or continuing Directors.
Substantially all the Company's assets continue to be
collateralized under these debt facilities.
In connection with the Restructuring, the Company issued warrants
to First Union to purchase, at an exercise price per share equal
to par value ($0.01), up to 10% of the Company's then outstanding
Common Stock. The Warrants provide for a put option by First
Union, exercisable after March 1998, at fair market value, as
defined. The Company also has a call option providing for payment
at fair market value. For so long as the Company is in compliance
with the requirements of the Loan and Security Agreement, the
Warrants provide no dilution protection for First Union for any
new issuance of securities.
In connection with the Restructuring, interest rates for all
obligations under the Loan and Security Agreement were set at
prime plus 1.5% (9.75% at June 29, 1996). On each annual
adjustment date (as defined), the interest rate may be reduced
based on certain ratios of interest coverage and debt to earnings
before interest, taxes, depreciation and amortization levels. In
July 1995, the Company purchased an interest rate cap from First
Union with a notional amount of $20.0 million, which provides for
a prime rate limit of 9.25% for the period through October 1998.
The Company completed the sale of a subordinated convertible
debenture to a bond fund on August 17, 1995. The debenture has an
aggregate face value of $5.0 million, accrues interest at 8% and
matures on September 1, 2002. The initial conversion price is
$3.15, currently representing 1,587,300 shares. Such conversion
price may be reset on August 17, 1997 under certain circumstances
and will be adjusted in the event of dilution. The proceeds of
this sale were used to reduce the Company's bank revolving credit
obligations. The debenture contains customary covenants for this
type of transaction. On October 26, 1995, a representative of the
bond fund was elected as a Director of the Company, in accordance
with the provisions of the debenture.
The Company issued 10% cumulative preferred shares, $5.0 million
principal value, on July 31, 1996, having a liquidation
preference of $5,000 per share, in exchange for the subordinated
convertible debentures. The preferred shares will vote on an as
converted basis, and have an initial conversion price of $2.76,
currently representing 1,811,594 shares. Such conversion price
may be reset on the first and second anniversaries of the
issuance under certain circumstances and will be adjusted in the
event of dilution. The new preferred stock has the right to vote
separately as a class for the election of one Director. The value
of the preferred shares will be accounted for as equity.
15
<PAGE>
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
-----------------------------------------------------------------
RESULTS OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
STRATEGIC OUTLOOK
The Company's business strategy over the next two to three years
will be to better capitalize on the high recognition of the
Danskin(R) brand and to develop new channels for distribution. In
this regard, the Company will, to the extent adequate cash flow
from operations can be generated and financing can be obtained on
appropriate terms, open additional full price Danskin(R) stores,
expand activewear and other product lines, pursue growth in
international sales and selectively license the Danskin(R) name
for additional product categories. There can be no assurance that
the Company will be able to generate adequate cash flow from
operations and obtain financing on appropriate terms to implement
this strategy or, if implemented, that this strategy will be
successful.
The Company expects that short-term capital funding requirements
will continue to be provided principally by the Company's banking
and vendor arrangements.
The Company believes that it has adequate liquidity and that it
has taken appropriate steps in an effort to address casual dress
trends in the contracting sheer hosiery market, and increased
retailer demands for responsiveness.
The Company continues to evaluate proposals for capital infusion
to satisfy long-term funding needs for growth, and to explore a
range of financing alternatives in an effort to reduce its
indebtedness, lower interest costs and expand its business. On
April 9, 1996, the Company engaged the services of Dillon Read &
Co. Inc. to assist in this process.
16
<PAGE>
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Note 6 in the Notes to Consolidated Condensed Financial
Statements in Part I - Financial Information of this Form 10-Q.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
1. Fourth Amendment, dated July 31, 1996, to the
Amended and Restated Loan and Security Agreement,
dated June 22, 1995 between the Company and First
Union National Bank of North Carolina, N.A. as
Agent on behalf of the Lenders referred to
therein.
2. Rights Agreement, dated as of June 5, 1996,
between the Company and First Union National Bank
of North Carolina, N.A., incorporated by reference
to Exhibit 4.1 to the Company's current report on
Form 8-K filed on June 6, 1996.
(b) Form 8-K
Form 8-K filed on June 6, 1996, reporting an Item five
event.
Form 8-K filed on June 21, 1996, reporting an Item one
event.
Form 8-K filed on August 6, 1996, reporting an Item five
event.
17
<PAGE>
<PAGE>
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 thereunto duly authorized.
DANSKIN, INC.
August 13, 1996 By: /s/Edwin W. Dean
-----------------------------------
Edwin W. Dean
Vice Chairman of the Board,
General Counsel and Secretary
August 13, 1996 By: /s/Beverly Eichel
-----------------------------------
Beverly Eichel
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
18
<PAGE>
<PAGE>
FOURTH AMENDMENT TO AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
THIS FOURTH AMENDMENT TO AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
(this "Amendment") is made and entered into as of July 31, 1996, by and among
DANSKIN, INC., a Delaware corporation (hereinafter referred to as "Borrower");
FIRST UNION NATIONAL BANK OF NORTH CAROLINA ("Agent"), a national banking
association, as agent for itself and the other financial institutions
("Lenders") from time to time party to the Loan Agreement (as hereinafter
defined); and such Lenders.
W I T N E S S E T H:
WHEREAS, Agent, Lenders and Borrower are parties to a certain Amended and
Restated Loan and Security Agreement (the "Loan Agreement"), dated June 22,
1995, as amended August 17, 1995, February 29, 1996, and March 18, 1996,
pursuant to which Lenders have made certain revolving credit loans, term loans
and other financial accommodations to Borrower; and
WHEREAS, the parties desire to amend the Loan Agreement as hereinafter set
forth;
NOW, THEREFORE, for and in consideration of TEN DOLLARS ($10.00) in hand
paid and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto, intending to be legally bound
hereby, agree as follows:
1. DEFINITIONS. All capitalized terms used in this Amendment, unless
otherwise defined herein, shall have the meanings ascribed to such terms in the
Loan Agreement.
<PAGE>
<PAGE>
2. AMENDMENT TO SECTION 9.3 OF THE LOAN AGREEMENT. The Loan Agreement is
hereby amended by deleting Section 9.3 thereof in its entirety and by
substituting in lieu thereof the following:
9.3. SPECIFIC FINANCIAL COVENANTS. During the term of this Agreement, and
thereafter for so long as there are any Obligations to Agent or Lenders,
Borrower covenants that, unless otherwise consented to by Agent in writing, it
shall:
(a) PROFITABILITY. Achieve Consolidated EBITDA as of the last day of the
fiscal quarter indicated for the four fiscal quarters then ending (except for
the last day of the second 1996 fiscal quarter, which shall be measured for the
two fiscal quarters then ending, and except for the last day of the third 1996
fiscal quarter, which shall be measured for the three fiscal quarters then
ending) of not less than the following amounts for the fiscal periods
corresponding thereto:
<TABLE>
<CAPTION>
Fiscal First Second Third Fourth
Year Quarter Quarter Quarter Quarter
------ ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
1996 $ N/A $ 858,000 $ 3,055,000 $ 4,750,000
1997 $ 5,900,000 $ 6,200,000 $ 6,600,000 $ 6,900,000
1998 $10,250,000 $10,750,000 $11,750,000 $12,500,000
1999 $13,000,000 $13,000,000 $12,850,000 $12,500,000
2000 $12,500,000 $13,000,000 $13,000,000 $13,000,000
2001 $13,000,000 $13,000,000 $13,000,000 $13,000,000
2002 $13,000,000 $13,000,000 $13,000,000 $13,000,000
</TABLE>
(b) MINIMUM INTEREST COVERAGE RATIO. Maintain as of the last day of each
quarter for the four (4) fiscal quarters then ending (except for the last day of
the second and the third 1996 fiscal quarters, which shall be measured for the
respective fiscal quarter then ending) a Consolidated Interest Coverage Ratio of
not less than the ratio shown below for the fiscal period corresponding thereto:
<TABLE>
<CAPTION>
Fiscal First Second Third Fourth
Year Quarter Quarter Quarter Quarter
------ ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
1996 N/A 1.00 to 1.0 1.97 to 1.0 1.12 to 1.0
1997 1.20 to 1.0 1.30 to 1.0 1.40 to 1.0 1.50 to 1.0
1998 2.75 to 1.0 3.00 to 1.0 3.25 to 1.0 3.75 to 1.0
1999 4.00 to 1.0 4.00 to 1.0 4.00 to 1.0 4.00 to 1.0
2000 4.25 to 1.0 4.00 to 1.0 4.25 to 1.0 4.50 to 1.0
2001 5.00 to 1.0 5.00 to 1.0 5.00 to 1.0 5.00 to 1.0
2002 5.00 to 1.0 5.00 to 1.0 5.00 to 1.0 5.00 to 1.0
</TABLE>
-2-
<PAGE>
<PAGE>
3. AMENDMENT FEE. Borrower shall pay to Agent, for the ratable benefit of
Lenders, an amendment fee of $117,500, which fee shall be deemed fully earned at
the closing of the transactions contemplated by this Amendment, shall be paid
concurrently with the execution and delivery of this Amendment and shall not be
subject to rebate except as may be required by Applicable Law. Such fee shall
compensate Agent and Lenders for the costs associated with the origination,
structuring, processing, approving and closing of the transactions contemplated
by this Amendment and the Second Amendment, including, but not limited to,
administrative, out-of-pocket, general overhead and lost opportunity costs,
but not including any expenses for which Borrower has agreed to reimburse Agent
and Lenders pursuant to any other provisions of this Amendment, the Loan
Agreement or any of the other Loan Documents, such as, by way of example, legal
fees and expenses.
4. RATIFICATION AND REAFFIRMATION. Borrower hereby ratifies and reaffirms
each of the Loan Documents and all of Borrower's covenants, duties and
liabilities thereunder.
5. ACKNOWLEDGEMENTS AND STIPULATIONS. Borrower acknowledges and stipulates
that the Loan Agreement and the other Loan Documents executed by Borrower are
legal, valid and binding obligations of Borrower that are enforceable against
Borrower in accordance with the terms thereof; all of the Obligations are owing
and payable without defense, offset or counterclaim (and to the extent there
exists any such defense, offset or counterclaim on the date hereof, the same is
hereby waived by Borrower); the security interests and liens granted by Borrower
in favor of Agent for the Pro Rata benefit of Lenders are duly perfected, first
priority security
-3-
<PAGE>
<PAGE>
interests and liens, subject to the exceptions set forth in the Loan Agreement
or otherwise consented to by Agent in writing.
6. REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to
Agent, to induce Agent and Lenders to enter into this Amendment, that, after
giving effect to the provisions of this Amendment, no Default or Event of
Default exists on the date hereof; the execution, delivery and performance of
this Amendment have been duly authorized by all requisite corporate action on
the part of Borrower and this Amendment has been duly executed and delivered by
Borrower; and except as may have been disclosed in writing by Borrower to Agent
prior to the date hereof, all of the representations and warranties made by
Borrower in the Loan Agreement are true and correct on and as of the date
hereof.
7. EXPENSES OF AGENT AND LENDERS. Borrower agrees to pay, on demand, all
costs and expenses incurred by Agent and Lenders, whether currently due or in
connection with the preparation, negotiation and execution of this Amendment and
any other Loan Documents executed pursuant hereto and any and all amendments,
modifications and supplements thereto, including, without limitation, the costs
and fees of Agent and Lenders' legal counsel.
8. GOVERNING LAW. This Amendment shall be governed by and construed in
accordance with the internal laws of the State of North Carolina.
9. SUCCESSORS AND ASSIGNS. This Amendment shall be binding upon and inure
to the benefit of the parties hereto and their respective successors and
assigns.
-4-
<PAGE>
<PAGE>
10. NO NOVATION. ETC. This Amendment is not intended to be, nor shall it be
construed to create, a novation or accord and satisfaction, and the Loan
Agreement as herein modified shall continue in full force and effect.
Notwithstanding any prior mutual temporary disregard of any of the terms of any
of the Loan documents, the parties agree that the terms of each of the Loan
Documents shall be strictly adhered to on and after the date hereof.
11. COUNTERPARTS. This Amendment may be executed in one or more
counterparts, each of which shall constitute an original, but all of which taken
together shall be one and the same instrument.
12. WAIVER OF NOTICE. Borrower hereby waives notice of acceptance of this
Amendment by Agent and Lenders.
13. WAIVER OF JURY TRIAL. THE PARTIES HERETO EACH HEREBY WAIVES THE RIGHT
TO TRIAL BY JURY IN ANY ACTION, SUIT, COUNTERCLAIM OR PROCEEDING ARISING OUT OF
OR RELATED TO THIS AMENDMENT.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed under seal, and delivered by their respective duly authorized
officers as of the date first written above.
BORROWER
ATTEST: DANSKIN, INC.
/s/ Edwin W. Dean By /s/ Beverly Eichel
- ------------------------------- ---------------------------------
Title: Secretary Title: Executive VP & CFO
[CORPORATE SEAL]
[Signatures continued on following page]
-5-
<PAGE>
<PAGE>
LENDERS:
FIRST UNION NATIONAL BANK OF
NORTH CAROLINA
By: /s/ Sharon J. Garn
---------------------------------
Title: AVP
FIRST UNION COMMERCIAL
CORPORATION
By: /s/ Sharon J. Garn
---------------------------------
Title: AVP
AGENT:
------
FIRST UNION NATIONAL BANK OF
NORTH CAROLINA, as Agent
By: /s/ Sharon J. Garn
---------------------------------
Title: AVP
-6-
<PAGE>
<PAGE>
CONSENT AND REAFFIRMATION
The undersigned guarantor of the Obligations of Borrower at any time owing
to Agent and Lenders hereby (i) acknowledges receipt of a copy of the foregoing
Fourth Amendment to Amended and Restated Loan and Security Agreement; (ii)
consents to Borrower's execution and delivery thereof; and (iii) affirms that
nothing contained therein shall modify in any respect whatsoever its guaranty of
the Obligations and reaffirms that such guaranty is and shall remain in full
force and effect.
IN WITNESS WHEREOF, the undersigned has executed this Consent and
Reaffirmation, on and as of the date of such Fourth Amendment to Amended and
Restated Loan and Security Agreement.
ATTEST: DANPEN, INC.
/s/ Edwin W. Dean By: /s/ Beverly Eichel
--------------------------------
Secretary Title: Executive VP & CFO
-7-
<PAGE>
<PAGE>
DANSKIN, INC.
SECRETARY'S CERTIFICATE
OF
BOARD OF DIRECTORS RESOLUTIONS
I, Edwin Dean, DO HEREBY CERTIFY, that I am the Vice Chairman and Secretary
of DANSKIN, INC. (the "Corporation"), a corporation duly organized and existing
under and by virtue of the laws of the State of Delaware and am keeper of the
records and seal thereof; that the following is a true, correct and compared
copy of the resolutions duly adopted by the unanimous consent of all members of
the Board of Directors of said Corporation effective as of July 31, 1996; and
that said resolutions are still in full force and effect:
RESOLVED, that any officer of this Corporation, including, but not limited
to, the Chairman of the Board, the Vice Chairman of the Board, the President,
Chief Operating Officer, any Vice President, the Chief Financial Officer,
Secretary or any Assistant Secretary each be, and each hereby is, authorized and
empowered (either alone or in conjunction with any one or more of the other
officers of the Corporation) to take, from time to time, all or any part of the
following actions on or in behalf of the Corporation: (i) to make, execute and
deliver to FIRST UNION NATIONAL BANK OF NORTH CAROLINA ("Agent"), (1) a Fourth
Amendment (the "Amendment") to Amended and Restated Loan and Security Agreement
(the "Amendment") providing for the amendment of that certain Amended and
Restated Loan and Security Agreement, dated as of June 22, 1995, among the
Corporation and Agent, for itself and First Union Commercial Corp., as amended
(the "Loan Agreement"), and (2) all other agreements, modifications, documents
and instruments contemplated by or delivered in connection with the Amendment;
the Amendment to be substantially in the form presented by Agent with such
additional, modified or revised terms as may be acceptable to such officers, as
conclusively evidenced by his or her execution thereof; and (ii) to carry out,
modify, amend or terminate any arrangements or agreements at any time existing
between the Corporation and Agent.
RESOLVED, that any arrangements, agreements, security agreements, or other
instruments or documents executed pursuant to these resolutions, any of such
officers of the Corporation, or by an employee of the Corporation acting
pursuant to delegation of authority, may be attested by such person and may
contain such terms and provisions as such person shall, in his or her sole
discretion, determine.
RESOLVED, that any amendments to the Loan Agreement heretofore executed by
any officer of Borrower and any actions taken under the Loan Agreement as
thereby amended are hereby ratified and approved.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed the seal of the
Corporation, as of July 31, 1996.
/s/ Edwin W. Dean
------------------------------------
Edwin Dean, Vice Chairman
and Secretary
[CORPORATE SEAL]
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-30-1996
<PERIOD-START> DEC-31-1995
<PERIOD-END> JUN-29-1996
<CASH> 1,337,000
<SECURITIES> 0
<RECEIVABLES> 16,614,000
<ALLOWANCES> 1,414,000
<INVENTORY> 32,171,000
<CURRENT-ASSETS> 53,631,000
<PP&E> 9,993,000
<DEPRECIATION> 6,704,000
<TOTAL-ASSETS> 70,554,000
<CURRENT-LIABILITIES> 29,985,000
<BONDS> 41,154,000
<COMMON> 60,610
0
0
<OTHER-SE> (645,610)
<TOTAL-LIABILITY-AND-EQUITY> 70,554,000
<SALES> 61,106,000
<TOTAL-REVENUES> 61,106,000
<CGS> 40,091,000
<TOTAL-COSTS> 20,982,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,375,000
<INCOME-PRETAX> (2,342,000)
<INCOME-TAX> 126,000
<INCOME-CONTINUING> (2,468,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,468,000)
<EPS-PRIMARY> ($0.41)
<EPS-DILUTED> 0
</TABLE>
