-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EQBX4MlCtgtSCvoYwAE5Siv6DWEKMii9DAO2WSlcBNboMGQnDkKTg2/f5dirwXTp 1gz5uTDkTGp29EIW4+ZJWw== 0000950117-96-000909.txt : 19960816 0000950117-96-000909.hdr.sgml : 19960816 ACCESSION NUMBER: 0000950117-96-000909 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960629 FILED AS OF DATE: 19960814 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: DANSKIN INC CENTRAL INDEX KEY: 0000889299 STANDARD INDUSTRIAL CLASSIFICATION: WOMEN'S, MISSES', AND JUNIORS OUTERWEAR [2330] IRS NUMBER: 621284179 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-20382 FILM NUMBER: 96615457 BUSINESS ADDRESS: STREET 1: 111 W 40TH ST CITY: NEW YORK STATE: NY ZIP: 10018 BUSINESS PHONE: 2127644630 MAIL ADDRESS: STREET 1: 111 W 40TH ST CITY: NEW YORK STATE: NY ZIP: 10018 10-Q 1 DANSKIN, INC 10-Q 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. DANSKIN, INC. AND SUBSIDIARIES FORM 10-Q FOR THE FISCAL THREE AND SIX MONTH PERIODS ENDED JUNE 24, 1995 AND JUNE 29, 1996 INDEX
Page No. -------- 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
PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS DANSKIN, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS
December 30, 1995 June 29, 1996 (Unaudited) (Unaudited) ----------------- ------------- 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 ------------ ------------ ------------ ------------
These statements should be read in conjunction with the accompanying Notes to Consolidated Condensed Financial Statements. 3 ITEM 1. FINANCIAL STATEMENTS (CONTINUED) DANSKIN, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
Fiscal Three Months Ended Fiscal Six Months Ended ----------------------------- ----------------------------- June 24, 1995 June 29, 1996 June 24, 1995 June 29, 1996 (Unaudited) (Unaudited) (Unaudited) (Unaudited) ------------- -------------- ------------- ------------- 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) ($0.41) ------------ ----------- ------------ ------------ ------------ ----------- ------------ ------------ Weighted average number of common shares ....... 5,920,000 6,022,000 5,920,000 5,978,000 ------------ ----------- ------------ ------------ ------------ ----------- ------------ ------------
These statements should be read in conjunction with the accompanying Notes to Consolidated Condensed Financial Statements. 4 DANSKIN, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
Fiscal Six Months Ended -------------------------------- June 24, 1995 June 29, 1996 (unaudited) (unaudited) -------------- --------------- Cash Flows From Operating Activities: Net loss ........................................................... ($ 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) -- ----------- ----------- ----------- -----------
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 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 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 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:
December 30, June 29, 1995 1996 ------------ --------- (unaudited) (unaudited) 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 ----------- ----------- $30,849,000 $32,171,000 =========== ===========
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 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 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 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 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 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 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 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 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 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 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 EX-1 2 EXHIBIT 1 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. 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:
Fiscal First Second Third Fourth Year Quarter Quarter Quarter Quarter ------ ------- ------- ------- ------- 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
(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:
Fiscal First Second Third Fourth Year Quarter Quarter Quarter Quarter ------ ------- ------- ------- ------- 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
-2- 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- 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- 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- 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- 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- 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] EX-27 3 EXHIBIT 27
5 6-MOS DEC-30-1996 DEC-31-1995 JUN-29-1996 1,337,000 0 16,614,000 1,414,000 32,171,000 53,631,000 9,993,000 6,704,000 70,554,000 29,985,000 41,154,000 60,610 0 0 (645,610) 70,554,000 61,106,000 61,106,000 40,091,000 20,982,000 0 0 2,375,000 (2,342,000) 126,000 (2,468,000) 0 0 0 (2,468,000) ($0.41) 0
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