BISCAYNE APPAREL INC. 1995 Annual Report Letter to Stockholders Operating Review In 1995, Biscayne's net sales were $100.3 million, compared to $119.5 million on a pro forma basis in 1994. Net loss in 1995 was $6.1 million, or $0.57 per share, compared to pro forma net income of $3.6 million, or $0.32 per share in 1994. Actual 1994 results included sales of $72.3 million and net income of $2.0 million, or $0.21 per share. Pro forma operating results for 1994 reflected the inclusion of M&L International, a manufacturer of children's outerwear, sportswear, and swimwear, as if it w uired January 1, 1994 rather than November 30, 1994. Biscayne confronted difficult challenges that contributed to an unfavorable operating environment in 1995 and adversely impacted our operating results. The effects of the 1994-1995 winter season (one of the warmest winters in recent history) caused both outerwear manufacturers and retailers to carry inordinately high levels of inventory into 1995. This, in turn, resulted in retailers delaying and reducing their orders for Fall 1995 merchandise. The most significant of these occurred when the CompanyÕs large st customer refrained from concluding a previously contemplated Fall 1995 outerwear program. This account represented approximately $13.0 million in revenue in 1994. Fall 1995 sales came under further pressure when warm weather lingered into November, a traditionally good selling period. In addition to the foregoing, other factors contributed to our disappointing results. Merchandising and marketing strategies initiated in our Andy Johns and Mackintosh operations were not enthusiastically received by our customers, and on-going secular changes in retailing were also at work. These changes included an extensive price deflating consolidation in the retail sector, continued consumer lethargy, and the growth of the supercenter format in the discount sector. Other significant circumstances affecting our bottom line were found in our cost of goods and cost of capital. Increased raw material expense, particularly cotton, higher labor expense in our manufacturing operations in the United States and the Philippines, and start-up expense at our new and promising Varon manufacturing facility in Honduras, all had a negative impact on our performance. Our cost of capital increased when acquisition debt, higher interest rates, and larger-than-expected inventories result ed in higher-than-anticipated interest expense. Operating Strategy In conjunction with several significant changes in our operating strategy, we have moved aggressively to restructure our organization in order to make it more efficient and cost-competitive. We have implemented targeted cost savings activities and operating initiatives, including: consolidating certain administrative functions in several of our outerwear segments, lowering selling, general and administrative expense through reductions in salaried personnel and overall operating expenses, expanding lower-cost production in our new offshore manufacturing facility in Honduras, closing high cost manufacturing facilities in the Philippines and the United States, while out- sourcing production overseas into lower-cost manufacturing facilities, consolidating outerwear distribution in our Seattle warehouse facilities, merchandising and redesigning our Spring and Fall 1996 apparel and outerwear lines in Andy Johns and Mackintosh with a new product development team, enhancing our sales and marketing effort with new and proven personnel, and replacing foreign production agents with Company personnel, thereby reducing costs and improving controls. We expect that our efforts, as described above, will result in cost reductions of approximately $1.7 million and will improve production efficiency, market penetration, and customer service. Sale of Investment As part of our strategy to focus our efforts on BiscayneÕs core outerwear businesses, in March 1996 we sold our 20% equity investment in Hartwell Sports, Inc. for $1.75 million, which represented a gain of $250,000 above our initial cost. Cash proceeds will be used to reduce the Company's outstanding indebtedness. Hartwell, which was acquired in March 1994, is a manufacturer of casual jackets, knit shirts, and activewear. Looking Ahead While 1995 was a very difficult year, we believe that we have implemented the necessary changes to return Biscayne to profitability in 1996. Despite the fact that our marketplace continues to labor under retail consolidation and related pricing pressures, we have cause for optimism. Our consolidated sales backlog as of March 15, 1996 was $52.1 million, compared to $38.9 million at March 17, 1995, an increase of 34%. We thank you for your continued support, and we look forward to favorable operating comparisons in 1996. Earl W. Powell Chairman John E. Pollack President and Chief Executive Officer March 1996 Lewis A. Engman It is with sadness that we report the passing of Lewis A. Engman, our friend and member of Biscayne's Board of Directors and Chairman of its Audit Committee since 1986. Lewis was recently President of the Generic Pharmaceutical Industry Association and previously Chairman of the Federal Trade Commission. He was instrumental in guiding Biscayne through its early stages as a public company. His many contributions and valuable insights will be missed. Andy Johns Andy Johns Fashions International is a designer, manufacturer, and distributor of active outerwear for women and children. Garments are marketed to major department and specialty stores and to selected mass merchant accounts. This segment also offers the Andy Johns Kids¨ outerwear line which features year-round outerwear in an extensive variety of styles and fabrics for children between the ages of 2 to 14 years. Andy Johns conducted its own point-of-sale market research in 1995 to help profile its customer base. As a result, we redesigned our 1996 Fall line making it more active-looking and distinguishable from the Fall 1995 line. In addition, we created a new marketing program for major regional chains. Last year, Andy Johns designed an exclusive outerwear line for Nordstrom under the Lee Lipton brand name. This collection is carried in all 60 Nordstrom stores. Mackintosh Mackintosh of New England has been making women's fine woolen coats since 1936. Its garments are classically styled and generally not subject to fashion trends. Products are marketed under the Mackintosh of New England and All Outdoors labels. In response to current market conditions, Mackintosh redesigned its look for Fall 1996 and also produced micro-fiber garments and other non-wool outerwear products. In an effort to reduce costs, Mackintosh sourced some of its 1995 production with contract manufacturers in the Dominican Republic. In addition, we expanded our private label program and marketing efforts to regional retailers. In 1996, Biscayne will also market its active outerwear under the well-known FoxRun label, which will reflect contemporary designs catering to the moderate-to-better retail store customer. FoxRun and Mackintosh products will be marketed from our New York showroom. Mackintosh also has a subsidiary in the United Kingdom which distributes its garments in Europe. M&L International M&L International is a designer, manufacturer, and marketer of infantsÕ, toddlers, and children's outerwear, sportswear, and swimwear. Outerwear products are marketed under the Weather Tamer brand name, which it owns, and the OshKosh BGosh and Bon Jour brand names, which it licenses. M&L is one of the largest manufacturers of children's outerwear in the United States. M&L's sportswear and swimwear products are marketed under its Eclipse brand name. M&L, which was acquired in November 1994, broadened Biscayne's existing children's brands and its range of apparel sizes. M&L has showrooms in Chicago, New York, Atlanta, and Los Angeles. Varon Varon is a leading supplier of girls' and boys' cotton underwear and girls' daywear, which are marketed to mass merchandisers and regional chains under private label programs. The majority of Varon's products are cotton, though its thermal underwear line is 65% cotton and 35% polyester. Varon is the largest domestic supplier of girls' thermal underwear in the U.S. Varon has been successful in growing its business through product development and line extension. In 1990, Varon's underwear line was expanded to include girls' daywear sets and boys' underwear, both offered in thermal cotton interlock and jersey fabrics. In 1995, Varon introduced a line of girls' training brassieres. While business has been strong, raw material prices, particularly cotton, and higher labor expense compressed operating margins. In response to this challenge and to meet anticipated demand, Varon opened a 25,000 square foot plant in Honduras, its first offshore manufacturing facility. In recognition of its ability to produce high quality products and to provide excellent service, Varon received Target Stores "Vendor Award of Excellence" for four consecutive years. Investor Information Policy on Public Disclosure Biscayne is committed to a corporate policy of complete and timely disclosure of fundamental information pertinent to the Company. The Company recognizes the importance of communicating on a consistent basis with the financial community, individual investors, and the news media, and it is our policy to do so with candor and dispatch. Financial Information On-Line As a service to our stockholders and the investing public, Biscayne has put its current financial information on-line. This includes news releases, Forms 10-Q, Form 10-K, and parts of its Annual Report. You may obtain this information on the Internet World Wide Web system at the following address: http://www.cfonews.com/bha; or by sending E-mail to cfo @ panix.com with the subject BHA; or by dialing direct by modem to (718) 279-3590. If you require assistance, please call our service bureau, Corporate Financials Online, at (718) 279-9133. Their experienced staff will be pleased to help you. Annual Meeting of Stockholders The Annual Meeting of Stockholders of Biscayne Apparel, Inc. will be held at 9:00 a.m., Wednesday, June 12, 1996, at the Grand Bay Hotel, 2669 South Bayshore Drive, Miami, Florida. A formal notice of the meeting, together with the Proxy Statement and Form of Proxy, will be mailed to each stockholder. Independent Public Accountants Coopers & Lybrand One Sylvan Way Parsippany, New Jersey 07054 Transfer Agent Questions regarding the transfer of certificates and related subjects should be directed to the Company's transfer agent, registrar, and dividend disbursing agent as follows: American Stock Transfer & Trust Co. 40 Wall Street New York, NY 10005 Stockholder and Investor Inquiries General inquiries from stockholders or correspondence concerning investor communications may be directed to: A. Richard Hurwitz, Vice President, Corporate Communications Biscayne Apparel, Inc. 2665 South Bayshore Drive Suite 800 Miami, Florida 33133 Telephone: (305) 858-2200 Facsimile: (305) 285-0102 Corporate Directory Board of Directors Earl W. Powell Chairman of the Board President and Chief Executive Officer, Trivest, Inc. Private Investment Firm Phillip T. George, M.D. Vice Chairman of the Board Chairman, Trivest, Inc. Private Investment Firm John E. Pollack President and Chief Executive Officer Peter Vandenberg, Jr. Vice President, Treasurer and Chief Financial Officer Harold E. Berritt, Esq. Director Partner Rubin Baum Levin Constant Friedman & Bilzin Law Firm Joseph B. Gildenhorn Director Partner The JBG Companies Real Estate Investment Company Kurt C. Gutfreund Director President M&LInternational John W. Partridge Director President SP Industries Scientific Products Manufacturer James J. Pinto, Esq. Director President Private Finance Group Private Investment Firm Corporate Management Earl W. Powell Chairman of the Board John E. Pollack President and Chief Executive Officer Peter Vandenberg, Jr. Vice President, Treasurer and Chief Financial Officer A. Richard Hurwitz Vice President, Corporate Communications Peter W. Klein, Esq. Vice President, Secretary and General Counsel Rosanne Garrido Controller Division Showrooms Andy Johns Fashions International 463 Seventh Avenue New York, New York 10018 Telephone: (212) 736-2288 Facsimile: (212) 736-2562 Mackintosh of New England Co. 463 Seventh Avenue New York, New York 10018 Telephone: (212) 868-1616 Facsimile: (212) 868-7669 M&L - Atlanta 250 Spring Street Suite 14W-124B Atlanta, Georgia 30303 Telephone: (404) 681-5113 Facsimile: (404) 681-5115 M&L - Chicago 1333 North Kingsbury Street Chicago, Illinois 60622 Telephone: (312) 944-3800 Facsimile: (312) 944-3895 M&L - Los Angeles 110 East 9th, Suite A-689 Los Angeles, California Telephone: (213) 891-9011 Facsimile: (213) 891-9640 M&L - New York 100 West 33rd Street, #930 New York, New York 10001 Telephone: (212) 594-5003 Facsimile: (212) 594-4590 M&L - (Oshkosh) 350 Fifth Avenue, 38th Floor New York, New York 10118 Telephone: (212) 629-8101 Facsimile: (212) 629-8104 Varon 1 West 34th Street New York, New York 10001 Telephone: (212) 239-8043 Facsimile: (212) 268-6585 End