CHIC BY H I S INC, 10-K, 2000-02-09

CHIC BY H I S INC
10-K, 2000-02-09
WOMEN'S, MISSES', AND JUNIORS OUTERWEAR

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED NOVEMBER 6, 1999
COMMISSION FILE NUMBER 1-11722

CHIC BY H.I.S, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

DELAWARE 13-3494627
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

1372 BROADWAY, NEW YORK, NEW YORK 10018
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: (212) 302-6400

Securities registered pursuant to Section 12(b) of the Act:

NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- -------------------

Common Stock New York Stock Exchange, Inc.
$0.01 par value

Securities registered pursuant to Section 12(g) of the Act: NONE

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

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

As of January 14, 2000, the aggregate market value of the voting stock held
by non-affiliates of the registrant was approximately $5,118,371 based upon the
closing market price of a share of Common Stock on the New York Stock Exchange
as reported by the Wall Street Journal.

As of January 14, 2000, the registrant had 9,870,793 shares of Common Stock
outstanding.

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. Except for the historical information
contained or incorporated by reference in this filing, the matters discussed or
incorporated by reference herein are forward-looking statements. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause the actual results, performance, or achievements of
the Company, or industry results, to be materially different from any future
results, performance, or achievements expressed or implied by such
forward-looking statements. Such factors include, among others, those set forth
below under the heading "Additional Cautionary Statements" as well as the
following: general economic and business conditions; industry capacity; fashion,
apparel and other industry trends; competition; overseas expansion; the loss of
major customers; changes in demand for the Company's products; cost and
availability of raw materials; changes in business strategy or development
plans; quality of management; and availability, terms and deployment of capital.
Special attention should be paid to the forward-looking statements contained
herein including, but not limited to, statements relating to the Company's
ability to obtain sufficient financial resources to meet its capital expenditure
and working capital needs, financial risks associated with customers
experiencing financial difficulties, the benefits expected to be derived from
the restructuring and Mexican plant opening described in this report,
international expansion and competition.

ADDITIONAL CAUTIONARY STATEMENTS

LEVERAGE AND FINANCIAL COVENANTS; DEFAULT UNDER DOMESTIC CREDIT FACILITY.
The Company continues to have indebtedness that could adversely affect its
ability to respond to changing business and economic conditions. At November 6,
1999, the Company had an aggregate of approximately $82.8 million of
indebtedness (including capital leases) outstanding and the Company's
stockholders' equity was approximately $43.5 million. In addition, the Company's
Loan Agreements contain covenants that impose certain operating and financial
restrictions on the Company. Such restrictions affect, and in many respects
limit or prohibit, among other things, the ability of the Company to incur
additional indebtedness, create liens, sell assets, engage in mergers or
acquisitions, make capital expenditures and pay dividends.

As of November 6, 1999, the Company was not in compliance with certain covenants
of its domestic credit agreement for which waivers have not been obtained.
Accordingly, the Company has classified the outstanding balance under the
domestic credit agreement as current liabilities. The Company is pursuing
negotiations to amend the existing credit facility or obtain alternative
financing. In addition, the Company has engaged an investment banker to assist
in structuring a transaction to sell selected assets of the Company. There can
be no assurance that the Company will be successful in its efforts to modify or
replace its domestic credit facility. These matters raise substantial doubt
about the Company's ability to continue as a going concern. See Note 2 to the
Consolidated Financial Statements.

DEPENDENCE ON MAJOR CUSTOMERS. During fiscal 1999, 1998 and 1997, sales to
one major customer (with sales in excess of 10% of total sales), Kmart
Corporation ("K-Mart"), accounted for approximately 16.4%, 23.5% and 23.4% of
the Company's consolidated net sales,

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respectively. The loss of such a major customer could have an adverse effect on
the results of the Company's operations. In addition, several of the Company's
licensees sell products bearing the Company's trademarks to the same retailer.
The Company has no long-term commitments or long-term contracts with any of its
customers.

RECENT APPAREL INDUSTRY TRENDS. Competition in the apparel industry has
been exacerbated by the recent consolidations and closings of major stores. Like
many of its competitors, the Company sells to certain retailers who have
recently experienced financial difficulties and some of whom are currently
operating under the protection of the federal bankruptcy laws. Although the
Company monitors the financial condition of its customers, the Company cannot
predict what effect, if any, the financial condition of such customers will have
on the Company. The Company believes that developments to date within these
companies have not had a material adverse effect on the Company's financial
position or results of operations.

NATURE OF INDUSTRY; DEPENDENCE ON JEANS. The apparel industry is highly
competitive and characterized generally by ease of entry. Many of the Company's
competitors are substantially larger and have greater financial, marketing and
other resources than the Company. The Company's revenues are derived principally
from sales of jean products. Although the Company's products for the domestic
market have historically been less sensitive to fashion trends than higher
fashion lines, the apparel industry is subject to rapidly changing consumer
preferences, which may have an adverse effect on the results of the Company's
operations if the Company materially misjudges such preferences.

RISKS OF DOING BUSINESS OVERSEAS. In general, the Company believes that the
demand for jeans in foreign markets is more susceptible to changes in fashion
preferences than in the domestic market. In addition, it is not possible to
predict accurately the effect that the continued elimination of trade barriers
among members of the European Union will have on the Company's operations in
Europe. The Company is also expanding its activities in Eastern Europe, where
economic, political and financial conditions are changing rapidly, and commenced
manufacturing operations in Mexico in fiscal 1997. In general, there can be no
assurance that the results of the Company's European operations or the
operations in Mexico will not be adversely affected by factors such as
restrictions on transfer of funds, political instability, competition, the
relative strength of the U.S. dollar, changes in fashion preferences and general
economic conditions.

ABSENCE OF DIVIDENDS. Except for the shareholder rights redemption in
fiscal 1998, the Company has not, in recent years, paid any cash or other
dividends on its Common Stock. As a holding company, the ability of the Company
to pay dividends is dependent upon the receipt of dividends or other payments
from its subsidiaries. The Company's domestic credit agreements (the "Loan
Agreements") contain certain limitations on the Company's ability to pay
dividends.

<PAGE>

of internal programs and equipment; communication with major customers and
vendors with respect to the status of their systems; an evaluation of facility
related issues and the development of a contingency plan. This approach is
designed to maintain an uninterrupted supply of goods and services to/from the
Company.

The Company has incorporated the Y2K programming modifications with an overall
upgrade in its computer programming language. All programs were reviewed,
remediated and converted by the end of the third quarter of fiscal 1999. The
Company has expanded its program testing to include an integrated systems test
to provide an additional level of assurance on the system. The Company has also
assessed all hardware components and is not aware of any material investment
required for its mainframe and critical hardware equipment to be Y2K compliant.

The Company is in a continuous process of communicating with its major customers
and suppliers. This contact is designed to determine systems compatibility and
compliance. The Company has been assured by its major suppliers that there will
be no disruption in the delivery of goods and services. The Company believes
that adequate resources are available for the supply of its raw materials and
facility related equipment will continue to be operational.

The Company has relied entirely on internal programming and operational
resources for review and remediation of Y2K issues. Accordingly, no incremental
costs have been expended for such activities.

The failure to correct a material Y2K problem could result in an interruption in
normal business activity. The Company's plan is expected to significantly reduce
the risk associated with the Y2K issue. However, due to the inherent uncertainty
of the Y2K issue and dependence on third-party compliance, no assurance can be
given that potential Y2K failures will not adversely effect the Company's
operations, liquidity and financial position.

<PAGE>

PART I
ITEM 1. BUSINESS

GENERAL

Chic by H.I.S, Inc. (the "Company") was incorporated in Delaware in
December 1988 under the name Henry I. Siegel Holding Corp. and changed its name
to Chic by H.I.S, Inc. on December 15, 1992. All references herein to the
"Company" include Chic by H.I.S, Inc. and its domestic and foreign subsidiaries
unless otherwise indicated by the context.

The Company designs, manufactures and markets moderately priced, basic
style, cotton denim jeans, casual pants and shorts for women, girls, men and
boys, which are sold throughout the United States principally through mass
merchandisers. The Company also markets similar apparel in Europe, primarily in
Germany. In the United States, women's and girls' jeans and casual pants are
generally marketed under the CHIC(R) brand name, and men's and boys' jeans and
casual pants are generally marketed under the H.I.S(R) brand name, while in
Europe all of the Company's apparel is sold under the H.I.S brand name.

The Company also licenses the use of its trademark, primarily the CHIC
brand name, to manufacturers of a variety of products that the Company does not
manufacture, including women's sportswear, intimate apparel, shirts,
accessories, hosiery and footwear. Many of these products are sold by the same
retailers that sell the Company's products and are generally promoted at the
retail level in a manner that complements the Company's products. In the United
States, the Company sells its apparel primarily to mass merchandisers. The
Company's marketing and advertising strategy emphasizes the quality, comfortable
fit and competitive pricing of its jeans and pants. The Company believes that
its ability to respond quickly to its domestic customers' needs, as a result of
its experienced manufacturing capabilities and its state-of-the-art ordering,
inventory and management information systems, gives it an advantage over many of
its competitors. The Company's excellence in servicing mass merchandisers has
been recognized by industry-wide awards and, in the opinion of management, is an
important asset in maintaining and broadening its business.

Information with respect to sales, operating income and identifiable assets
attributable to each of the Company's geographic areas appears in Note 11 of
Notes to Consolidated Financial Statements included herein.

RECENT DEVELOPMENTS

As of November 6, 1999, the Company was not in compliance with certain
covenants of its domestic credit agreement for which waivers have not been
obtained. Accordingly, the Company has classified the outstanding balance under
the domestic credit agreement as current liabilities. The Company is pursuing
negotiations to amend the existing credit agreement or obtain alternative
financing. There can be no assurance that the Company will be successful in its
efforts to modify or replace the domestic credit facility. These matters raise
substantial doubt about the Company's ability to continue as a going concern.

The Company has engaged an investment banker to assist in structuring a
transaction to sell selected assets of the Company to enable the Company to
focus on its strategic objective - utilizing its Mexican manufacturing
facilities to maximize shareholder value and profitability.

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UNITED STATES OPERATIONS

United States sales increased during fiscal 1992 primarily as a result of
greater sales to major mass merchandiser customers, which generally gained
market share in the jeans market relative to other retailers, and an improving
United States economy. During fiscal 1993, United States sales remained
relatively constant. During fiscal 1994, United States sales increased primarily
due to increased advertising and remained relatively constant through fiscal
1995. During fiscal 1996, United States sales decreased primarily as a result of
a shrinking market share and substantial price competition. This condition
continued through fiscal 1999, while the Company continued to compete against
private label merchandise at the mass merchant channel of distribution.

During the first and fourth quarters of fiscal 1996, management authorized
and committed the Company to undertake significant downsizing and operational
changes which, during 1996, resulted in restructuring and special charges of $30
million.

The charge in the first quarter included the closing of certain
manufacturing facilities in Tennessee and Kentucky. These first quarter closures
resulted in the termination of approximately 940 employees and resulted in a
total charge against earnings aggregating $15 million. In the fourth quarter,
the Company identified additional manufacturing facilities to be closed. The
Company has also started to move certain manufacturing operations to Mexico. The
additional closures resulted in the termination of approximately 700 employees
and a total charge against earnings aggregating $15 million.

In fiscal 1997, the Company proceeded to implement changes in advertising,
marketing and manufacturing policies adopted in the prior year. Additional
advertising costs were incurred related to special cooperative advertising
programs designed to stimulate over the counter sales and manufacturing
operations were established in Mexico. By the end of fiscal 1997, over 1 million
pair of jeans had been produced in Mexico and a second facility was under
construction.

In the second quarter of fiscal 1998, as production capacity in Mexico
increased, the Company announced its intention to continue to close additional
manufacturing facilities in the United States. In connection therewith, the
Company recorded restructuring and special charges of $24.1 million consisting
of a write-down in the value of related property and equipment, the write-off of
operating inefficiencies incurred during the shut-down period and the accrual of
estimated costs of disposition. The plant closings resulted in the termination
of approximately 1,300 employees.

APPAREL

WOMEN'S AND GIRLS' JEANS

The Company's principal product line is women's and girls' jeans marketed
under the CHIC and CHIC KIDS brand names, respectively, and other brand names
owned by the Company, including ZNO(R) anD SUNSET BLUEs(R). The Company's jeans
are available in a variety of finishes, such as prewashed and stonewashed. By
altering the laundry time and ingredients used in the finishing process, the
Company is able to produce various colors and shades in denim products.

The Company was the originator of "proportioned to fit" jeans for women,
which it introduced in 1975. The Company's women's and girls' jeans are designed
to provide a more comfortable fit by tailoring their measurements to a woman's
or girl's height in addition to her waist size. Each size is offered for sale in
a variety of inseam lengths. Women's and girls' jeans are available in a relaxed
fit, slim fit and classic fit.

The Company's jeans are offered in four general size categories: CHIC
misses is offered in sizes 2 to

2
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20 in petite, average and tall lengths; ZNO juniors is offered in sizes 1 to 15
in petite, average and tall lengths; CHIC plus is offered in sizes 18 to 26 in
petite and average lengths; and CHIC KIDS is offered in sizes 7 to 14 for young
girls.

Currently, the Company's women's jeans are generally priced to sell at
retail for between $14.99 and $19.99, with most products priced to sell at
retail for $17.99. The Company's girls' jeans are generally priced to sell at
retail for between $12.99 and $15.99.

WOMEN'S AND GIRLS' CASUAL PANTS AND SHORTS

The Company markets women's casual pants and shorts under the CHIC brand
name and girls' casual pants and shorts under the CHIC KIDS brand name. The
Company's casual pants are available in the same "proportioned to fit" sizes as
CHIC jeans. The Company believes that CHIC pants have the same advantages as
CHIC jeans in terms of fit, quality and value. Casual pants are generally more
fashion-oriented and are more susceptible than basic jeans to changing consumer
preferences. The Company's two primary casual pant styles, the "CHIC Spectator"
which is made of 100% cotton wrinkle resistant, and the "CHIC Schooners," which
is all-cotton, are both basic design casual pants.

Currently, the Company's women's casual pants are generally priced to sell
at retail for between $15.99 and $19.99 and the women's casual shorts are
generally priced to sell at retail for between $12.99 and $15.99.

WOMEN'S AND GIRLS' JEAN SHORTS

The Company markets women's and girls' jean shorts under the CHIC and CHIC
KIDS brand names, respectively. Traditional five-pocket jean shorts constitute
the Company's core product in this line. The Company complements this basic
product with jean shorts that are slightly more fashion-oriented. Currently, the
Company's women's jean shorts are generally priced to sell at retail for between
$12.99 and $16.99. The Company's girls' jean shorts are generally priced to sell
at retail for between $9.99 and $12.99.

MEN'S AND BOYS' JEANS AND JEAN SHORTS AND MEN'S CASUAL PANTS AND SHORTS

The Company markets men's and boys' jeans and jean shorts and men's casual
pants and shorts under the H.I.S and HARDWARE(R) brand names. The Company offers
its men's and boys' apparel in a broad range of sizes, colors, fabrics and
finishes. All of the men's and boys' five-pocket jeans manufactured by the
Company are available in two styles: a relaxed fit and a classic fit. The
Company offers men's jeans in 38 different sizes by waist and inseam length.
Boys' jeans are offered in sizes 8 to 18 in regular fit and slim fit.

The Company's line of men's casual pants is marketed under the H.I.S and
HARDWARE label and is available in casual, classic and basic styles that are
generally more fashion-oriented and are more susceptible than its men's or boys'
jeans to changing consumer preferences.

Currently, the Company's men's jeans are generally priced to sell at retail
for between $15.99 and $19.99; jean shorts are generally priced to sell at
retail for between $12.99 and $16.99; and casual pants are generally priced to
sell at retail for between $19.99 and $21.99. Boys' jeans are generally priced
to sell at retail for between $12.99 and $15.99.

SALES AND DISTRIBUTION

During fiscal 1999, the Company sold its products to more than 1,000
retailers, which the Company believes, operate over 7,000 stores in the United
States. The Company also started to sell merchandise in the Canadian market.
Most of the Company's sales in fiscal 1999 were made to mass merchandisers and
the remainder was made primarily to department and specialty stores. Sales of
the CHIC and H.I.S product lines to the Company's two largest accounts, K-mart
Corporation and Target (a division of Dayton Hudson

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Corporation), accounted for approximately 38% of United States sales.

Sales are made primarily through the Company's full-time sales force and
also through showrooms and trade shows, with an emphasis on selling to mass
merchandisers. The Company has a direct sales force, which includes individuals
located in the Company's New York City showroom as well as showrooms in Chicago,
Dallas and other locations. The Company pays only sales commissions to its
salespeople. Although the Company pays a base salary to its regional sales
managers, a portion of the income of such managers is in the form of incentive
bonuses, traditionally based on increases in the Company's sales. Each
salesperson is equipped with a personal computer that has a direct satellite
linkup with the mainframe located in the Company's executive offices, which
allows each salesperson to access readily various types of information such as
product availability. The Company maintains its principal showroom in New York
and additional showrooms in Chicago and Dallas to service regional markets. Each
showroom is staffed by local sales representatives.

The Company operates retail outlet stores in Tennessee and Kentucky that
sell seconds and closeouts of CHIC and H.I.S brand merchandise, including
licensed products. During fiscal 1999, the Company closed five of the eight
retail outlet stores and two subsequent to the end of fiscal 1999. The Company
believes there are more efficient and cost-effective means to distribute
closeout merchandise.

The Company's warehouse and distribution center facility is located in
Bruceton, Tennessee. All goods are sewn either at the Company's manufacturing
facilities or outside contractors. As of November 6, 1999, the Company operated
one domestic assembly plant, as well as three sewing plants and a laundry
located in Mexico. Goods produced by contractors are sewn, laundered and
finished by the contractor. Finished products are shipped to Bruceton for
warehousing and distribution to the Company's customers throughout the United
States and Canada.

Substantially all of the Company's sales in the United States and Europe
are to retailers. For the year ended November 6, 1999, November 7, 1998 and
November 1, 1997, sales to one major customer (with sales in excess of 10% of
total sales) approximated 16.4%, 23.5% and 23.4% of consolidated net sales,
respectively. The receivables from the Company's major customer at November 6,
1999 represented approximately 10.0% of the total accounts receivable balance.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations." The Company reviews a customer's credit history before extending
credit. An allowance for possible losses is established based upon factors
surrounding the credit risk of specific customers, historical trends and other
information.

MARKETING, ADVERTISING AND PROMOTION

The Company advertises its products nationwide through television and print
media. The Company's advertising strategy emphasizes the quality, comfortable
fit and competitive pricing of its jeans and pants. At the national level, the
Company's advertising is image oriented. Television commercials promote the CHIC
name and are designed to create a personality for the brand. In fiscal 1998, the
Company signed a contract with a new advertising agency to coordinate its fiscal
1999 campaign to present a cohesive marketing presentation and revitalize its
nationally recognized brands.

Consumer advertising for the Company's CHIC line of products is done
primarily through consumer print and, to a lesser extent, network and cable
television. Print advertising of the CHIC line consists primarily of spreads in
magazines oriented toward women. National television advertisements are
generally run during the fall back-to-school, spring and Christmas selling
seasons. The Company's advertising of its H.I.S line has been accomplished
primarily through the use of print advertising. The Company targets women in the
18-49 age group for its CHIC brand women's products, with and emphasis on the
18-34 age group, and targets men in the 18-49 age group for its H.I.S brand
men's products. The Company believes that consumers of its products are
generally in the moderate-income bracket.

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The Company supplements its national advertising campaign through the use
of cooperative advertising in radio and newspaper media, in which the Company's
products are among those featured by various retailers in their advertisements.
In addition, the Company advertises to retailers through print advertisements in
a variety of trade magazines and newspapers.

The Company believes that there are opportunities for increasing the
Company's share of the mass merchandise market for men's jeans in the United
States, which the Company believes is substantially larger than the market for
women's jeans. Based on its reputation as a reliable supplier of branded women's
jeans and its previous history as a manufacturer of men's jeans and other
apparel under the H.I.S brand name, the Company believes that opportunities
exist to expand the distribution of its men's jeans. The Company anticipates
that there will be a positive correlation between an increase in advertising and
an increase in sales, but there can be no assurance that the Company will
realize its objective of increasing its share of the men's and boys' jeans
market, which is highly competitive and in which the Company currently has only
a limited presence.

The Company works with retailers to provide custom displays to stores. The
Company provides to its customers, free of charge, a variety of point of sale
display materials such as signs, size markers, graphics, in-store posters,
photographs and other visual supports.

PRODUCT DESIGN

The Company's in-house merchandising department develops jeans and casual
pants product lines, including the pricing and packaging for each line. The
merchandising group interprets market trends by visiting retail stores
throughout the United States, Canada and Europe, attending trade shows, working
with textile mills and retailers and conducting market research. The Company
also researches and tests denim finishes in order to develop new wash finishes
and treatments to add to the Company's product mix.

After the merchandising group has researched the retail market and domestic
fabric market, consulted with the various fashion and color forecasting services
to which the Company subscribes and decided on the details to be incorporated
into the new lines, prototype samples, fit, colors and packaging are developed
in the New York office. The prototypes are then sent to the Company's
manufacturing facility in Bruceton, Tennessee, which produces a manufactured
sample.

In keeping with the Company's emphasis on a quality fit, the garment has
several fit evaluations using a professional fit model from prototype stage to a
finished manufactured garment. The samples produced in Tennessee are evaluated
for fit, color and finish and then sent to the sales force to display to
prospective customers. When the garment has been sold and the first production
run of garments is produced, a full size range is sent to New York where the
garment is fitted on models of various sizes to allow the merchandisers to make
any final adjustments that may be needed to improve the fit and appearance of
the new lines for different body types.

MANUFACTURING AND RAW MATERIALS

The Company performs all phases of the manufacturing process in converting
raw materials into finished goods. The Company purchases all of its raw
materials domestically and manufactures all of its products in North America.
Consequently, the Company enjoys a shorter lead-time in filling orders than is
usually associated with competitors that rely on imports of finished goods or
offshore manufacturing processes.

The Company currently buys finished fabric in bulk from domestic suppliers
and generally has no
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supply contracts with terms longer than three months. The Company believes that
through its domestic suppliers it is able to obtain good quality materials in a
timely manner at competitive prices. During fiscal 1999, the Company purchased
approximately 58.0% of its raw materials from three suppliers, which were the
only companies supplying more than 10% of the Company's raw materials during
fiscal 1999. The Company maintains a portion of its inventories in commodity raw
materials, which consist mainly of cotton fabrics, including denim and twills.
These raw materials, the Company believes, are readily available from numerous
domestic and foreign sources. Although the Company relies heavily on certain
suppliers for its raw material needs, the Company believes that the loss of any
one source of raw materials, though no such loss is presently anticipated, would
not have a material adverse effect on its business since many other alternative,
comparable sources are readily available.

The Company operates manufacturing facilities in Tennessee and Mexico. In
the second quarter of fiscal 1997, the Company established its first
manufacturing facility in Durango, Mexico. A second facility commenced
operations in the second quarter of fiscal 1998, and a third facility in the
first quarter of fiscal 1999. Concurrent with the increase in the Company's
productive capacity in Mexico, the Company closed certain United States
manufacturing facilities. In the fourth quarter of fiscal 1999, the Company
commenced operations of a laundry facility in Mexico.

With its manufacturing systems, which the Company believes are
state-of-the-art, the Company is usually capable of converting raw material into
a finished garment and delivering such garment to the retailer within eight
weeks from the date the Company receives the retailer's order. The Company's
facilities and systems, together with substantially domestic sourcing of fabric
and other raw materials, enable it to adapt to changing consumer preferences
quickly and to respond swiftly to customer orders.

The Company generally cuts fabric only after receiving confirmed purchase
contracts from customers. Each contract is for a specified amount of product at
a specified price and usually provides for several preliminary, staggered
delivery dates. Customers then place specific orders for delivery against such
contract. By manufacturing in response only to a confirmed purchase contract,
the Company is able to determine its finished inventory needs in advance of such
delivery dates so as to be able to respond quickly to a customer's order and at
the same time minimize its finished inventory risk. Occasionally, based on
agreements with customers, preliminary delivery dates are extended. The
postponement of a delivery date may cause the Company to lose sales it otherwise
might have made to the customer for the period during which delivery is
eventually made. Should a delivery date be postponed, the Company is often able
to arrange with its suppliers to delay delivery of raw materials the Company has
ordered.

The Company uses contract carriers to pick up raw materials from its
suppliers and transport such raw materials to the Company's central cutting
facility in Bruceton, Tennessee. In Bruceton, the fabric is cut and trimmed and
then shipped to the US/Mexico border by the Company's own fleet of tractors and
trailers and, from there to one of the Company's manufacturing facilities in
Mexico, by contract carriers, where the garments are sewn, laundered, pressed
and finished. Assembled garments are then returned to Bruceton for final
warehousing and distribution.

EUROPEAN OPERATIONS

In Europe, where mass merchandisers have limited market share, the Company's
H.I.S brand jeans are sold primarily through department stores and mail order
catalogs. Most of the Company's sales in Europe are made in Germany. In recent
years, European sales have expanded beyond Germany, Austria and Switzerland into
surrounding countries, including Poland, the Czech Republic, Slovakia, Belgium,
Luxembourg and the Netherlands. The Company markets women's and men's jeans and
casual pants under the H.I.S brand name.

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As in the United States, the Company's core business in Europe is basic,
five-pocket denim jeans. The Company believes that its jeans continue to be the
best selling women's jeans in Germany during fiscal 1999.

Prior to fiscal 1997, the Company had been licensing the H.I.S brands for
sale in the Czech Republic for the previous three years. Commencing fiscal 1997
the Company ended the licensing arrangement and marketed its products directly
with its own contracting, sales force and distribution center.

The Company believes that in many European countries basic jeans, such as
those manufactured by the Company, are perceived to be a fashion item as well as
a basic, functional product and are therefore worn in a broader range of
settings than in the United States, which contributes to a high level of demand
for jeans in Europe. The Company believes that approximately 50 million pairs of
women's and men's jeans are sold in Germany each year, and that approximately
one-half of such jeans sold do not bear a recognized brand name. Due to their
fashion versatility and the absence of mass merchandisers and discount
retailers, jeans are priced much higher, in relative terms, at the retail level
in Europe than in the United States.

The Company's European headquarters are located in Garching, Germany
(outside of Munich), where the Company has its own staff of merchandising,
sales, production, management and finance personnel. The Company does not own
any manufacturing facilities in Europe, but currently has long-term agreements
with approximately thirty-five manufacturers in the Czech Republic, Germany,
Greece, Italy, Malta, Portugal, Tunisia and Turkey, where the Company believes
quality products can be manufactured at competitive prices. Due to the large
number of manufacturers, the Company believes that the termination of any
existing manufacturing contract would not have a material adverse effect on its
operations. All of the raw materials used to assemble the jeans and pants are
purchased by the Company in Europe and are readily available from numerous
suppliers. Raw materials are shipped to subcontractors in foreign countries for
assembly. Finished goods are shipped by the subcontractors to the Company's
distribution centers for washing, finishing, warehousing and then shipment to
the Company's customers.

Most European customers are traditional department stores such as Kaufhof
AG, Mac Fash TextilHandels-GessellschaftmbH, Hertie Waren-und Kaufhaus GmbH,
Horten AG and specialty stores such as Leffers AG and Peek & Cloppenburg KG in
Germany. Other significant customers include German-based Otto Versand GmbH &
Co., the world's largest mail-order firm, and Quelle, Europe's largest
mail-order firm, as well as Spar Osterreichische Warenhandels-AG (Hervis
Modekaufhaus GmbH), one of the largest retail operations in Austria.

The Company employs a merchandising staff that creates styles and selects
fabrics designed to meet the demands of the European consumer. Approximately
2,500 retail accounts and mail-order houses are serviced by fewer than 25
commissioned sales people. The Company's European advertising is aimed at men
and women between the ages of 16 and 39 through television and print media.

It is not possible to predict accurately the effect that the continued
elimination of trade barriers among members of the European Union will have on
the Company's operations in Europe. The Company considers other Western European
countries, such as the United Kingdom, France and Italy, to be extremely
competitive markets and does not anticipate that it will seek to expand sales
significantly in such countries.

In the second quarter of fiscal 1997, the Company completed an initial
public offering of its previously wholly-owned German subsidiary, h.i.s.
Sportswear AG, resulting in the sale of 2,120,000 shares, representing
approximately 47.5% of the stock, at an offering price of DM 39 per share
(approximately $22.61). The net proceeds received by the Company of
approximately $43.1 million were used to repay indebtedness and for general
corporate purposes.

7
<PAGE>

CENTRAL OFFICE AND COMPUTER SYSTEM

The Company maintains its principal executive offices in New York City from
which it provides its department managers with integrated information with
respect to inventory, production, manufacturing and distribution operations as
well as financial matters. The Company believes that it has a state-of-the-art
computer information system, substantially all of the software for which was
developed internally. This sophisticated system allows the Company's salespeople
to enter sales orders electronically. Many large customers submit their orders
directly to the Company over an electronic data interchange system via
satellite. Such linkups allow the Company to process customer orders quickly,
reducing the lead-time between orders and deliveries.

Major customers customarily place confirmed purchase contracts for a total
unit quantity by price, style and delivery date. Through point of sale data
collection devices, many of these customers monitor their sales to consumers and
report directly to the Company their over-the-counter level of sales as well as
the desired inventory levels they wish to maintain at their individual stores.
On a weekly basis the Company receives information as well as detailed shipment
orders for each of the stores of such customers. These detailed store orders are
designed to replenish the inventory levels of the individual retail stores,
which the Company is generally able to do in five to eight business days.

The Company also receives on a daily basis orders taken by its sales force.
These orders are electronically transmitted to the Company by members of the
sales force through their own computer terminals, which are connected to the
Company's main computer system via satellite. Such orders are then
electronically reviewed for style, color, size, creditworthiness and requested
delivery dates. If the results of such reviews are satisfactory, the orders are
considered to be confirmed purchase contracts and are added to backlog.

The computer system allows the Company to monitor production in real time,
so that the location and status of every cut and production plan in every
factory is known at any moment in time. In the highly competitive apparel
industry, the Company believes that its "just-in-time" ability to respond
quickly to customer demand gives it a significant advantage over many of its
competitors, especially with respect to mass merchandisers.

LICENSING

Pursuant to approximately 20 license agreements between the Company and
various manufacturers and/or importers, such licensees produce and market a
variety of products under the CHIC name and/or H.I.S name including: sportswear,
intimate apparel, accessories, hosiery and footwear. Most of these products
complement apparel products marketed by the Company.

The Company began licensing its trademarks in fiscal 1989. Licensing
revenues have increased from approximately $0.8 million in fiscal 1990, the
first full year of licensing operations, to approximately $6.4 million in fiscal
1996. Licensing revenues declined to approximately $2.8 million in fiscal 1999
due to poor retail business in the United States and the discontinuation of the
licensing agreement in the Czech Republic.

The current license agreements expire on various dates through 2002. Many
of the agreements, however, permit the licensee to renew its agreement, subject
to certain conditions, prior to expiration, generally for an additional
three-year period. The majority of the agreements require that licensees pay a
specified guaranteed minimum royalty to the Company at the beginning of each
quarter during the term of the licensing agreement and then pay a certain
percentage (generally five percent) of the licensee's net sales of products
bearing a trademark licensed by the Company. Such payments are due within 30
days after the end of each quarter, against which amount the guaranteed royalty
is deducted. Generally, each licensee is required

<PAGE>

to spend specified amounts for advertising and promotion of the licensed
products and most licensees offer a matching cooperative advertising plan to
retailers for advertising in weekly circulars that are used by some retailers to
advertise sale items. The Company has received no indication from its licensees
that they intend to terminate their licensing agreement with the Company prior
to its expiration.

The Company's strategy is to identify market leaders in their respective
fields who will generate increased sales over an extended period of time and
entrench the brand names in key categories. The Company often consults with its
largest customers to identify and evaluate potentially suitable licensees. In
evaluating a potential licensee, the Company considers the experience, financial
stability, manufacturing performance and marketing ability of the potential
licensee. It also evaluates the marketability of the products proposed to be
licensed and the compatibility of such products with other products manufactured
or licensed by the Company. The Company believes that strong consumer acceptance
of the CHIC and/or H.I.S brand name and the care that the Company uses in
selecting suitable licensees have been major contributors to its licensing
program.

The Company continues to explore opportunities to expand its licensing
program to other related products and geographic regions to strengthen brand
identity.

By increasing consumer awareness of its brand names through expanded
advertising of its products, and continuing to use care in selecting suitable
licensees, the Company anticipates that it will be able to strengthen its
licensing business. As the demand for licensed products expands, competition
will increase among licensors and no assurance can be given that the Company
will be able to expand or maintain its market position with respect to various
licensed goods in the future. In addition, no assurance can be given that demand
will expand.

The Company coordinates the efforts of its licensees in a number of ways.
The Company communicates its color schemes, styling and market trends to its
licensees prior to each season, presents a coordinated in-store presentation of
proprietary and licensed products, and coordinates the advertising of the family
of CHIC and/or H.I.S. products through planned promotions.

As a general policy matter, in the United States the Company licenses its
brand names for use only on products it does not manufacture.

COMPETITION

The apparel industry is highly competitive and characterized generally by
ease of entry. Although the Company's products have been historically less
sensitive to fashion trends than higher fashion lines, the apparel industry is
subject to rapidly changing consumer preferences, which may have an adverse
effect on the results of the Company's operations if the Company does not
accurately judge such preferences. Among the factors that shape the competitive
environment are quality of garment construction and design, price, fit, brand
name, style and color selection, advertising and the manufacturer's ability to
respond quickly to the retailer on a national basis. Customer and consumer
acceptance and support are also important aspects of competition in this
industry. The Company believes that its ability to market its products though
its broad distribution network, which consists primarily of mass merchandisers,
is important to its ability to compete. The Company also believes that its
continued success will depend upon its ability to remain competitive in these
areas.

The Company competes with numerous domestic and foreign manufacturers, many
of which are larger or are associated with companies with substantially greater
resources than the Company. The Company faces competition in sales on both the
retail and consumer level. In general, mass merchandisers limit their product
selection to moderately priced products. Accordingly, the Company believes that
the domestic jeans market with respect to sales to mass merchandisers is
stratified by a more narrow price range than sales to consumers,

9
<PAGE>

who might be willing to buy products in a broader price range. Since certain
retailers generally carry only moderately priced products, particularly mass
merchandisers, the Company competes for sales to such retailers only with
companies that market similarly priced products.

The Company considers its significant competitive advantages to be the high
consumer recognition and acceptance of the CHIC brand name and its ability to
respond quickly to its customers' needs as a result of the Company's experienced
manufacturing capabilities and advanced computer information system. Although
brand recognition is an important element of competition in the apparel
business, in the mass merchandising retail industry, brand recognition is less
significant in the marketing of casual pants than in the marketing of jeans.
Most mass merchandisers carry only casual pants bearing their own private label
and a limited number, if any, of other brands of casual pants. Consequently,
with respect to its mass merchandising customers, the Company's casual pants
compete with fewer brands than its jeans.

In Germany, Austria and Switzerland, the Company competes in a higher
priced market against various European and multinational companies, including
Mustang Bekleidungswerke, manufacturer of MUSTANG brand jeans, and Levi Strauss,
manufacturer of LEVI'S brand jeans. The Company believes that its pricing
strategy in Europe, which is to position its products in the price range below
the range for Levi Strauss, along with its reputation in Europe for marketing
jeans in a variety of sizes especially suited for women, distinguishes it from
its competitors in Europe. Certain jeans suppliers, such as Levi Strauss, have
traditionally spent more than the Company on advertising in Europe. The Company
believes that increased advertising in Europe has increased the Company's market
share by attracting consumers who traditionally have bought unbranded products.

BACKLOG

The Company's backlog consists of confirmed purchase contracts. At November
6, 1999, the Company had unfilled customer orders of approximately $88.2 million
of merchandise, of which approximately $54.8 million were for domestic orders
and approximately $33.4 million (based on the exchange rate for the deutsche
mark on November 6, 1999) were for European orders, compared to approximately
$115.2 million at November 7, 1998, of which approximately $69.8 million were
for domestic orders and approximately $45.4 million (based on the exchange rate
for the deutsche mark on November 7, 1998) were for European orders. The Company
believes that the change in backlog in the United States is attributable largely
to the weak retail climate for basic five-pocket jeans which leads to the
placement of future orders. Substantially all of the unfilled orders at November
6, 1999 are expected to be shipped before the end of the Company's fiscal year
ending November 4, 2000. The Company believes that in the past it has shipped at
least 95% of its confirmed purchase contracts. The Company has not generally
experienced difficulty in filling orders on a timely basis.

SEASONALITY

Demand for the Company's apparel products and its level of sales fluctuate
moderately during the course of the calendar year as a result of seasonal buying
trends. A moderate surge in sales of denim jeans and casual pants generally
occurs during the fall back-to-school and Christmas holiday selling seasons (the
Company's third and fourth quarter, respectively). See "Management's Discussion
and Analysis of Financial Condition and Results of Operations - Seasonality of
Business-Quarterly Results." To balance these fluctuations in demand, the
Company has developed competitively priced packages of jean shorts and casual
shorts, which are sold primarily during the Company's first and second quarters.
This enables the Company to market to the year-round apparel needs of consumers,
thereby stabilizing production levels at the Company's manufacturing facilities
during traditionally slower periods.

TRADEMARKS

Several of the Company's trademarks, including CHIC, H.I.S, HARDWARE and
ZNO, are registered in the

<PAGE>

United States Patent and Trademark Office. These registrations expire on various
dates through 2005, subject to renewal. From time to time the Company adopts new
trademarks in connection with the marketing of its products. The Company
considers its trademarks to be significant assets of the Company and to have
significant value in the marketing of its products.

The Company has registered and filed applications for various trademarks,
including H.I.S, which is the primary trademark used by the Company to market
its products in Europe, in approximately 20 countries throughout the world,
primarily Germany, Austria and Switzerland. The Company believes that these
foreign trademarks constitute significant assets and are material to its
European marketing operations.

The Company has recently registered a new trademark, SLAX(R) , to market
women's casual pants in Europe. This marketing effort represents a significant
diversification in the Company's product line in Europe. Depending on the
European success of this line, the Company may introduce this label in the
United States.

EMPLOYEES

As of November 6, 1999, the Company employed approximately 1,000 full-time
people in the United States, 2,800 people in Mexico and 150 people in Europe.
Most of the Company's domestic work force is employed in Tennessee, where the
Company believes that it is one of the largest private employers.

None of the Company's employees are represented by a union. The Company
believes that its relationship with its employees is good.

The Company believes that all of its manufacturing facilities are in
material compliance with applicable occupational health and safety laws.

BUSINESS ACQUISITIONS

In January 1999, the Company purchased certain assets, including inventory,
tradenames and sales orders, of Stuffed Shirt, Inc. for $4.3 million. The
purchase price was payable $1 million at closing, with the balance payable
within 90 days of the closing date.

In August 1999, the Company purchased certain assets, including inventory,
tradenames, sales orders and equipment, of Sierra Pacific Apparel Company, Inc.,
for $5.1 million. The purchase price of the inventory of approximately $4.1
million is payable out of the proceeds of the sale of the merchandise.
Approximately $.5 million was payable at closing, with the balance payable
through capitalized lease financing.

<PAGE>

ITEM 2. PROPERTIES

The Company owns its principal manufacturing and distribution facilities,
which are located in Tennessee and Mexico. The Company leases additional
facilities, including its corporate headquarters and showrooms in New York City,
and other offices, factories, warehouses, showrooms and retail stores in the
United States, Germany, Austria and Switzerland from unrelated third parties.
The Company's principal owned and leased properties are described in the chart
below.

PRINCIPAL OWNED AND LEASED PROPERTIES

SQUARE
LOCATION FOOTAGE OWNED/LEASED
-------- ------- ------------

North America
Manufacturing and Assembly Facilities..Bruceton, TN 200,094 Owned
Bruceton, TN 150,000 Owned
Durango, Mexico 108,000 Owned
Durango, Mexico 220,000 Owned
Gleason,TN 53,103 Owned(1)
Hickman, KY 280,000 Leased(1)
Saltillo, TN 48,028 Owned(1)
South Fulton, TN 70,269 Owned(1)
Trezevant, TN 42,008 Owned(1)
Warehouse and Distribution.............Bruceton, TN 422,087 Owned
Showrooms..............................Chicago, IL 1,242 Leased
Dallas, TX 1,325 Leased
New York, NY 8,721 Leased
Retail Stores..........................Bruceton, TN 5,500 Leased
Machine Shop and Equipment Warehouse...Bruceton, TN 41,000 Owned
Bruceton, TN 12,000 Owned
Corporate Offices......................New York, NY 34,034 Leased

Europe
Office and Warehouse...................Prague, Czech
Republic 1,534 Leased
Garching, Germany 90,000 Leased
Warsaw, Poland 8,216 Leased

Showrooms........................ Bergheim, Austria 2,000 Leased
Prague, Czech
Republic 347 Leased
Berlin, Germany 600 Leased
Munich, Germany 1,500 Leased
Neuss, Germany 1,100 Leased
Warsaw, Poland 137 Leased
Zurich, Switzerland 700 Leased

(1) Facility not in operation. Asset held for sale.

The Company believes that its existing facilities are well maintained, in
good operating condition and are adequate for its present level of operations
and sufficient to accommodate any increased output for the foreseeable future
after consideration of the operational changes anticipated to be made.

<PAGE>

ITEM 3. LEGAL PROCEEDINGS

After a period of negotiation regarding the separation of Mr. Robert
Luehrs from the Company, the Company commenced a lawsuit against Mr. Robert
Luehrs seeking a declaration that he had retired from the Company in May 1998,
or, in the alternative, that he had been properly terminated for cause. Mr.
Luehrs counterclaimed against the Company, alleging that the Company had
breached his employment contract and discriminated against him on the basis of
his age and disability. Mr. Luehrs contends that he was terminated without cause
and so is entitled to $511,875 for breach of contract, in addition to the amount
he alleges he is due under a disability benefits clause in his employment
agreement, and unspecified damages stemming from his allegations of age
discrimination.

From time to time, the Company is also involved in litigation
incidental to the conduct of its business. The Company believes that no
currently pending litigation to which it is a party will have a material adverse
effect on its consolidated financial condition or results of operations.

ENVIRONMENTAL MATTERS

The Company believes it is in material compliance with all applicable
environmental laws to which it is subject, including, among others, the Federal
Water Pollution Control Act, and the Tennessee Solid Waste Disposal Act.
Although the Company is unable to predict what legislation or regulations may be
adopted in the future with respect to environmental protection and what their
impact on the Company may be, compliance with existing legislation and
regulations has not had a material adverse effect on its capital expenditures,
results of operations or competitive position.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not applicable.

<PAGE>

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Except for the shareholder rights redemption, the Company has not paid any
cash or other dividends on its common stock in the last two years. As a holding
company, the ability of the Company to pay dividends is dependent upon the
receipt of dividends or other payments from its subsidiaries. The Company is
restricted from paying any dividends according to the Company's domestic credit
facility which generally limits the payment of dividends (aggregated with
certain other restricted payments and restricted investments) by the Company,
and by the domestic bank subsidiaries to the Company.

Price Range Of Common Stock:

1998 1999
- -----------------------------------------------------------------------
High Low High Low
- -----------------------------------------------------------------------
First Quarter $8 $6 3/8 $4 9/16 $3
Second Quarter 9 3/8 7 1/8 3 1/2 2 3/8
Third Quarter 9 1/4 5 7/8 3 1/4 2
Fourth Quarter 6 2 5/8 2 7/16 3/4

The Company's Common Stock is traded on the New York Stock Exchange under the
symbol "JNS."

As of December 31, 1999, there were 117 stockholders of record.

<PAGE>

ITEM 6. SELECTED FINANCIAL DATA
CHIC BY H.I.S, INC. AND SUBSIDIARIES

The following financial information is qualified by reference to, and should be
read in conjunction with, the Consolidated Financial Statements of the Company
and related notes thereto, and "Management's Discussion and Analysis of
Financial Condition and Results of Operations." The selected consolidated
financial information for each of the five fiscal years in the period ended
November 6, 1999 is derived from the Consolidated Financial Statements of the
Company which have been audited by BDO Seidman, LLP.

INCOME STATEMENT DATA: FISCAL YEAR ENDED

(In Thousands, except share and per share amounts) Nov. 4, Nov. 2, Nov. 1, Nov. 7, Nov. 6,
1995 1996 1997 1998 1999

<S> <C> <C> <C> <C> <C>
Net sales:
United States $277,896 $212,121 $162,170 $149,486 $143,417
Europe 98,172 106,669 112,618 104,356 94,566

$376,068 $318,790 $274,788 $253,842 $237,983

Gross profit:
United States $ 32,598 $ 26,325 $ 12,234 $ 16,900 $ 14,248
Europe 39,554 43,737 47,125 44,178 39,375

$ 72,152 $ 70,062 $ 59,359 $ 61,078 $ 53,623

Licensing revenues $ 5,773 $ 6,359 $ 2,842 $ 2,706 $ 2,810

Operating expenses:
Selling, general and administrative expenses $ 69,415 $ 61,295 $ 69,434 $ 62,236 $ 57,928
Restructuring and special charges - 30,000 - 24,125 -

Operating income (loss):
United States $(16) $(25,256) $(19,227) $(31,913) $ (8,161)
Europe 8,526 10,382 11,994 9,336 6,666

$ 8,510 $(14,874) $ (7,233) $(22,577) $ (1,495)

Gain on sale of subsidiary stock - - 34,079 - -
Other expense, net - - - (1,104) -
Interest and finance costs (6,129) (6,544) (4,576) (4,816) (6,908)
Income (loss) before benefit (provision) for
income taxes, minority interest and
extraordinary items 2,381 (21,418) 22,270 (28,497) (8,403)
Benefit (provision) for income taxes (1,369) (4,146) (10,394) 2,762 (3,143)
Income (loss) before minority interest and
extraordinary items $ 1,012 $(25,564) $ 11,876 $(25,735) $(11,546)
Minority interest - - (1,081) (2,116) (1,497)
Extraordinary items - - (330) - -
Net income (loss) $ 1,012 $(25,564) $ 10,465 $(27,851) $(13,043)
Earnings (loss) per common share:
Basic:
Before extraordinary items $.10 $(2.62) $1.10 $(2.82) $(1.32)
Net income (loss) $.10 $(2.62) $1.07 $(2.82) $(1.32)
Diluted:
Before extraordinary items $.10 $(2.62) $1.11 $(2.82) $(1.32)
Net income (loss) $.10 $(2.62) $1.07 $(2.82) $(1.32)
Weighted average number of common shares and share
equivalents outstanding
Basic 9,753,868 9,753,868 9,755,684 9,867,437 9,870,793
Diluted 9,753,868 9,753,868 9,804,658 9,867,437 9,870,793
</TABLE>

15
<PAGE>

<TABLE>
<CAPTION>
BALANCE SHEET DATA: FISCAL YEAR ENDED
(In Thousands, except share and per share amounts) Nov. 4, Nov. 2, Nov. 1, Nov. 7, Nov. 6,
1995 1996 1997 1998 1999

Working capital $123,394 $ 98,762 $ 67,514 $ 61,133 $ 15,903
Total assets 239,525 191,553 188,703 177,075 172,267
Short-term debt, including current portion
of capital lease obligations 7,202 1,614 17,698 24,389 60,471
Long-term debt, including capital lease
obligations 86,261 72,806 26,649 46,036 22,356
Stockholders' equity $113,427 $ 80,878 $ 89,068 $ 59,471 $ 43,507
</TABLE>

Cash dividends have not been paid in any of the years presented.

16
<PAGE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the Consolidated
Financial Statements and Notes contained therein.

Results of Operations. The following table sets forth selected operating data as
a percentage of net sales for the periods indicated.

Fiscal Year 1997 1998 1999
- ----------- ---- ---- ----

Net sales
United States 59.0% 58.9% 60.3%
Europe 41.0 41.1 39.7

Consolidated 100.0 100.0 100.0

Gross margin
United States 7.5 11.3 9.9
Europe 41.8 42.3 41.6

Consolidated 21.6 24.0 22.5

Licensing revenues 1.0 1.1 1.2

Selling, general and administrative expenses 25.3 24.5 24.3

Restructuring and special charges - 9.5 -

Operating loss (2.6) (8.9) (.6)

Gain on sale of subsidiary stock 12.4 - -

Other expense, net - (.4) -

Interest and finance costs (1.7) (1.9) (2.9)

Income (loss) before benefit (provision) for
income taxes, minority interest and
extraordinary item 8.1 (11.2) (3.5)

Benefit (provision) for income taxes (3.8) 1.1 (1.3)

Minority interest (.4) (.8) (.6)

Extraordinary item (.1) - -

Net income (loss) 3.8% (10.9)% (5.4%)

FISCAL YEAR ENDED NOVEMBER 6, 1999 ("FISCAL 1999") COMPARED TO FISCAL YEAR ENDED
NOVEMBER 7, 1998 ("FISCAL 1998")

NET SALES. Net sales for fiscal 1999 decreased by $15.8 million, or 6.3%, from
$253.8 million for fiscal 1998 to $238.0 million. United States sales decreased
by $6.1 million, or 4.1%, to $143.4 million primarily due to a decrease in
branded sales which was partially offset by an increase in private label sales.
As of November 6, 1999, the Company had a total backlog of confirmed domestic
purchase orders of $54.8 million, a decrease of 21.5% compared to $69.8 million
as of November 7, 1998. In fiscal 1999, European sales decreased by 14.6 million
deutsche marks, or 7.9%, to 170.2 million deutsche marks. When converted into
U.S. currency using the prevailing currency exchange rate, the European sales
translated into a decrease of $9.8 million, or 9.4%, to $94.6 million for fiscal
1999. As of November 6, 1999, the Company had a total backlog of confirmed

17
<PAGE>

European purchase orders of 62.9 million deutsche marks, a decrease of 15.4%
compared to 74.4 million deutsche marks as of November 7, 1998. The confirmed
European backlog, when converted into U.S. currency at the then prevailing
currency exchange rate, was $33.3 million, a decrease of 26.4% compared to $45.4
million on November 7, 1998.

The Company's backlog consists of confirmed purchase contracts.
Substantially all of the unfilled orders are expected to be shipped within 12
months. The Company believes that in the past it has shipped at least 95% of its
confirmed purchase contracts. The Company has not generally experienced
difficulty in filling orders on a timely basis.

GROSS PROFIT. Gross profit for fiscal 1999 decreased $7.5 million, or 12.0%,
from $61.1 million in fiscal 1998 to $53.6 million, while gross margin decreased
from 24.1% to 22.5%. United States gross profit decreased $2.7 million from
$16.9 million for fiscal 1998 to $14.2 million. The decrease in gross profit and
as a percentage of net sales in the United States was primarily due to the
decrease in branded sales, the increase in private label business and the
off-price sale of merchandise in an effort to improve cash flow. European gross
profit decreased $4.8 million from $44.2 million for fiscal 1998 to $39.4
million, while gross margin decreased from 42.3% in fiscal 1998 to 41.6%
primarily due to a decrease in the average unit selling price.

LICENSING REVENUES. Licensing revenues increased $.1 million in fiscal 1999 from
$2.7 million in fiscal 1998 to $2.8 million primarily due to an increase of $1.0
million in European licensing revenues.

SG&A EXPENSES. Selling, general and administrative expenses decreased $4.3
million, or 6.9%, to $57.9 million for fiscal 1999 primarily due to a decrease
in domestic payroll and payroll fringe costs of $2.5 million, a decrease in
costs related to the operation of the Company's outlet stores of $.6 million, a
decrease in aviation expenses of $.4 million, the receipt of a workers'
compensation refund of approximately $1.1 million, a decrease in European
operating expenses of $1.1 million, and a credit of approximately $1.4 million
relating to excess accrued restructuring changes from the prior year, which were
partially offset by an increase in domestic advertising expenses of $2.8
million.

OPERATING INCOME (LOSS). The operating loss for fiscal 1999 decreased $21.1
million from $22.6 million in fiscal 1998 to $1.5 million, primarily due to the
decrease in operating expenses, which was partially offset by the decrease in
gross profit and the restructuring and special charges recorded in the prior
year.

INTEREST AND FINANCE COSTS. Interest and finance costs increased $2.1 million or
43.4%, from $4.8 million for fiscal 1998 to $6.9 million for fiscal 1999. The
increase in interest cost was due to higher outstanding borrowings at higher
effective interest rates for the period.

INCOME TAXES. The provision for income taxes for fiscal 1999 was $3.1 million as
compared to a benefit of $2.8 million for fiscal 1998. The change is primarily
due to the reduction in the deferred tax benefit attributable to the domestic
loss in fiscal 1999 by approximately $5.0 million to the extent its future
realization is uncertain. The deferred tax benefit attributable to the domestic
loss in fiscal 1998 was reduced by approximately $6.0 million due to an increase
in valuation allowance.

FISCAL YEAR ENDED NOVEMBER 7, 1998 ("FISCAL 1998") COMPARED TO FISCAL YEAR ENDED
NOVEMBER 1, 1997 ("FISCAL 1997")

NET SALES. Net sales for fiscal 1998 decreased by $21.0 million, or 7.6%, from
$274.8 million for fiscal 1997
18

<PAGE>

to $253.8 million. United States sales decreased by $12.7 million, or 7.8%, to
$149.5 million primarily due to a decrease in unit sales volume and a decrease
in average selling price. As of November 7, 1998, the Company had a total
backlog of confirmed domestic purchase orders of $69.8 million, a decrease of
26.1% compared to $94.4 million as of November 1, 1997. In fiscal 1998, European
sales decreased by 6.3 million deutsche marks, or 3.3%, to 184.8 million
deutsche marks. When converted into U.S. currency using the prevailing currency
exchange rate, the European sales translated into a decrease of $8.3 million, or
7.3%, to $104.4 million for fiscal 1998. As of November 7, 1998, the Company had
a total backlog of confirmed European purchase orders of 74.4 million deutsche
marks, an increase of 5.7% compared to 70.4 million deutsche marks as of
November 1, 1997. The confirmed European backlog, when converted into U.S.
currency at the then prevailing currency exchange rate, was $45.4 million, an
increase of 11.3% compared to $40.8 million on November 1, 1997.

GROSS PROFIT. Gross profit for fiscal 1998 increased $1.7 million, or 2.9%, from
$59.4 million in fiscal 1997 to $61.1 million, while gross margin increased from
21.6% to 24.1%. United States gross profit increased $4.7 million from $12.2
million for fiscal 1997 to $16.9 million. The increase in gross profit and as a
percentage of net sales in the United States was primarily due to the increase
in production at the Company's lower cost Mexican production facility. European
gross profit decreased $2.9 million from $47.1 million for fiscal 1997 to $44.3
million, while gross margin increased from 41.8% in fiscal 1997 to 42.3%
primarily due to product mix.

LICENSING REVENUES. Licensing revenues remained relatively flat for fiscal 1998
from $2.8 million in fiscal 1997 to $2.7 million.

SG&A EXPENSES. Selling, general and administrative expenses decreased $7.2
million, or 10.4%, to $62.2 million for fiscal 1998 primarily due to the special
advertising charge recorded in the prior year period.

RESTRUCTURING AND SPECIAL CHARGES. In fiscal 1998, the Company announced its
intention to continue to close additional manufacturing facilities in the United
States. In connection therewith, the Company recorded restructuring and special
charges of $24.1 million consisting of a write-down in the value of related
property and equipment ($15.1 million), the write-off of operating
inefficiencies incurred during the shut-down period ($5.4 million) and the
accrual of estimated costs of disposition ($3.6 million). Fair value for
property was determined primarily by appraisals. The plant closings resulted in
the termination of approximately 1,300 employees. In addition, the downsizing
associated with such plant closings may affect the accounting, disclosure and
funding of the Company's pension benefit obligation.

OPERATING INCOME (LOSS). The operating loss for fiscal 1998 increased $15.3
million from an $7.2 million in fiscal 1997 to $22.5 million, primarily due to
the restructuring and special charges, which were partially offset by the
increase in gross profit and the decrease in operating expenses.

GAIN ON SALE OF SUBSIDIARY STOCK. In fiscal 1997, the Company recorded a gain on
the sale of approximately 47.5% of its wholly owned European subsidiary of
approximately $34.1 million. Proceeds of the sale were used in May 1997 to repay
domestic borrowings.

INTEREST AND FINANCE COSTS. Interest and finance costs increased $.2 million or
5.3%, from $4.6 million for fiscal 1997 to $4.8 million for fiscal 1998. The
increase in interest cost was due to higher outstanding borrowings for the
period.

INCOME TAXES. The benefit for income taxes for fiscal 1998 was $2.8 million as
compared to a provision of $10.4 million for fiscal 1997. The change is
primarily due to the Company's fiscal 1998 loss. The deferred tax

19
<PAGE>

benefit attributable to the domestic loss in fiscal 1998 was reduced by
approximately $6.0 million to the extent its future realization is uncertain.

EXTRAORDINARY ITEM. In fiscal 1997, the Company recorded an extraordinary charge
of $.3 million attributable to the early extinguishment of $43 million of senior
notes payable.

SEASONALITY OF BUSINESS--QUARTERLY RESULTS. The Company experiences seasonal
increases and decreases in its working capital requirements. This pattern
results primarily from the demand for the Company's apparel products and the
level of sales, which fluctuate moderately during the course of the calendar
year as a result of seasonal buying trends.

The following table summarizes the unaudited net sales, gross profit, operating
income (loss) and net income (loss) of the Company for each of the interim
financial reporting periods in the last two fiscal years.

(In Thousands) First Second Third Fourth
Quarter Quarter Quarter Quarter
- -------------- ------- ------- ------- -------

<S> <C> <C> <C> <C>
Fiscal Year Ended November 7, 1998
Net sales $ 64,245 $68,828 $59,896 $60,873
Gross profit 16,565 14,779 14,141 15,593
Operating income (loss) 5,255 (25,922) 148 (2,058)
Net income (loss) 1,516 (23,203) (1,371) (4,793)
Per common share:
Net income (loss) $.15 $(2.34) $(.14) $(.49)

Fiscal Year Ended November 9, 1999
Net sales $ 51,228 $70,011 $52,298 $64,446
Gross profit 14,371 14,601 11,615 13,036
Operating income (loss) 1,467 (1,889) 993 (2,065)
Net income (loss) (1,887) (4,313) (1,867) (4,975)
Per common share:
Net income (loss) $(.19) $(.44) $(.19) $(.50)
</TABLE>

LIQUIDITY AND CAPITAL RESOURCES. The Company's principal capital requirements
have been to fund working capital needs and capital expenditures. The Company
has historically relied primarily on internally generated funds, trade credit,
bank borrowings and other debt offerings to finance these needs.

In fiscal 1999, net cash of $.7 million was used in operations, as compared to
$20.8 million in fiscal 1998. The net cash used in operations was primarily
attributable to the net loss for the period, the increase in accounts receivable
and the decrease in accrued liabilities, which was partially offset by the
decrease in inventories and the increase in accounts payable.

Net cash of $7.3 million was used in investing activities in fiscal 1999, as
compared to $6.7 million in fiscal 1998. Cash used in investing activities was
primarily attributable to the acquisition of manufacturing facilities and
equipment in Mexico and by the purchase of property and equipment from Sierra
Pacific. The Company continued to expand its manufacturing facilities in Mexico
by developing a laundry operation which commenced operations in August 1999. In
the second quarter of fiscal 1998, the Company announced its intention to close

20
<PAGE>

additional domestic manufacturing facilities. In connection therewith, the
Company recorded restructuring and special charges in fiscal 1998 which include
a valuation adjustment of the related property and equipment, the write-off of
manufacturing inefficiencies and accrued estimated costs of disposition. In
addition, the downsizing associated with such plant closings may affect the
accounting, disclosure and funding of the Company's pension benefit obligation.

Net cash provided by financing activities was $9.4 million in fiscal 1999, as
compared to $22.7 million in fiscal 1998. The cash provided by financing
activities in fiscal 1999 was primarily attributable to the increase in
borrowings against the Company's credit facilities. In fiscal 1998, the Company
used approximately $1.0 million to repurchase 160,000 shares of its common stock
on the open market. This repurchase partially offsets the potentially dilutive
effect of the stock options exercised. The cash provided by financing activities
in fiscal 1998 was primarily attributable to the increase in borrowings against
the Company's credit facilities and proceeds from the sale of common stock
issued pursuant to the exercise of outstanding stock options.

As of November 6, 1999, the Company had a $60 million domestic credit agreements
providing a $40 million revolving line of credit and $20 million term loan, with
seasonal increases in the revolving line of credit to $43,000,000 from February
through June and to $48,000,000 from July through September of each year. As of
November 6, 1999, $51.1 million was outstanding against the domestic credit
agreement. In addition, the Company had $23.6 million of IRBs outstanding at
November 6, 1999. The Company also has foreign financing agreements with two
banks providing term loans aggregating 2.1 million deutsche marks (approximately
$1.1 million, based on the November 6, 1999 foreign currency exchange rate) and
lines of credit aggregating 42 million deutsche marks (approximately $22.3
million, based on the November 6, 1999 foreign currency exchange rate).

As of November 6, 1999, approximately $5.3 million was outstanding borrowings
against the foreign lines of credit. As of November 6, 1999, the Company was not
in compliance with certain covenants of its domestic credit agreement for which
waivers have not been obtained. Accordingly, the Company has classified the
outstanding balance under the domestic credit agreement as current liabilities.
The Company is pursuing negotiations to amend the existing credit facility or
obtain alternative financing. In addition, the Company has engaged an investment
banker to assist in structuring a transaction to sell selected assets of the
Company. There can be no assurance that the Company will be successful in its
efforts to modify or replace its domestic credit facility or sell certain of its
assets. These matters raise substantial doubt about the Company's ability to
continue as a going concern. The independent accountants' report on the audit of
the Company's 1999 financial statements includes an explanatory paragraph
regarding substantial doubt about the Company's ability to continue as a going
concern. The accompanying financial statements do not include any adjustments
relating to the recoverability and classification of recorded asset amounts or
the amounts and classification of liabilities that might be necessary should the
Company be unable to continue as a going concern.

The Company is a holding company, and is dependent upon the receipt of dividends
or other payments from its subsidiaries. The Company expects that cash generated
from operations and the credit agreements will provide the financial resources
sufficient to meet its foreseeable working capital and capital expenditure
requirements, assuming a waiver under the credit domestic credit agreement or
the modification or replacement of the domestic credit agreement is obtained.
There can be no assurance that the Company will be successful in its efforts to
modify or replace its domestic credit facility. There can also be no assurance
that the Company will not need to borrow from other sources during future
periods. In addition, the sale of certain assets could provide cash for working
capital and capital expenditure requirements. However, there can be no assurance
that the Company will sell any such assets.

In recent years, certain retail customers have experienced significant financial
difficulties. The Company attempts to minimize its credit risk associated with
these customers by closely monitoring its accounts receivable balances and their
ongoing financial performance and credit status. Historically, the Company has
not experienced material adverse effects from transactions with these customers.
However, considering the customer concentration of the Company's net sales, any
material financial difficulty experienced by a

21
<PAGE>

significant customer could have an adverse effect on the Company's financial
position or results of operations.

Y2K. The Company did not experience any Year 2000 (Y2K) computer programming
issues as a result of the turn of the century that significantly impaired the
Company's operations. The Company continues to assess the potential impact of
the Y2K computer processing issue on its management and information systems. The
Company believes that it has a prudent approach in place to address these issues
and monitor remedial action. The approach includes: an assessment of internal
programs and equipment; communication with major customers and vendors with
respect to the status of their systems; an evaluation of facility related issues
and the development of a contingency plan. This approach is designed to maintain
an uninterrupted supply of goods and services to/from the Company.

The Company has incorporated the Y2K programming modifications with an overall
upgrade in its computer programming language. All programs were reviewed,
remediated and converted by the end of the third quarter of fiscal 1999. The
Company has expanded its program testing to include an integrated systems test
to provide an additional level of assurance on the system. The Company has
assessed all hardware components and is not aware of any material investment
required for its mainframe and critical hardware equipment to be Y2K compliant.

The Company has relied entirely on internal programming and operational
resources for review and remediation of Y2K issues. Accordingly, no incremental
costs have been expended for such activities.

RECENT ACCOUNTING STANDARDS. In February 1998, the FASB issued SFAS No. 132,
"Employers' Disclosures about Pensions and Other Postretirement Benefits" (SFAS
132), which revises employers' disclosures about pension and other
postretirement benefit plans. SFAS 132 is effective for financial statements for
periods beginning after December 15, 1997, and requires comparative information
for earlier years to be restated. The adoption of SFAS No. 132 in fiscal 1999
did not have a material impact on the Company's financial statement disclosures.

In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133
requires companies to recognize all derivative contracts at their fair values,
as either assets or liabilities on the balance sheet. If certain conditions are
met, a derivative may be specifically designated as a hedge, the objective of
which is to match the timing of gain or loss recognition on the hedging
derivative with the recognition of (1) the changes in the fair value of the
hedged asset or liability that are attributable to the hedged risk, or (2) the
earnings effect of the hedged forecasted transaction. For a derivative not
designated as a hedging instrument, the gain or loss is recognized in income in
the period of change. SFAS No. 133 is effective for all fiscal quarters of
fiscal years beginning after June 15, 2000.

Historically, the Company has not entered into derivative contracts either to
hedge existing risks or for speculative purposes. Accordingly, the Company does
not expect adoption of the new standard to affect its

22
<PAGE>

financial statements.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company's primary market risks include fluctuations in interest rates, and
exchange rate variability. A significant portion of the Company's debt relates
to a revolver and term loan. As of November 6, 1999 the outstanding balance of
the revolver was $32 million. Interest on the outstanding balance is charged at
either the prime rate, plus .75% or the Eurodollar rate, plus 3.25% at the
Company's option. As of November 6, 1999 the outstanding balance of the term
loan was $19 million. Interest on the outstanding balance is charged the
Eurodollar rate, plus 3.5%. Thus, the Company is subject to market risk in the
form of fluctuations in interest rates. The company does not trade in derivative
financial instruments.

The Company also conducts operations in various foreign countries, including
Mexico, Canada, Germany, Austria, Switzerland, Czech Republic, Poland, and
Slovakia. For the year ended November 6, 1999, approximately 40% of the
Company's revenues were earned outside of the U.S. and collected in local
currency. In addition, operating expenses are paid in the corresponding local
currency and is subject to increased risk for exchange rate fluctuations between
such local currencies and the dollar. The Company does not conduct any hedging
activities.

23
<PAGE>

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Report of Independent Certified Public Accountants

Consolidated Balance Sheets at November 7, 1998 and November 6, 1999

Consolidated Statements of Operations For the Years Ended
November 1, 1997, November 7, 1998, and November 6, 1999

Consolidated Statement of Stockholders' Equity For the Years Ended
November 1, 1997, November 7, 1998, and November 6, 1999

Consolidated Statement of Cash Flows for the Years Ended
November 1, 1997, November 7, 1998, and November 6, 1999

Notes to Consolidated Financial Statements

24
<PAGE>

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF CHIC BY H.I.S, INC.

We have audited the accompanying consolidated balance sheets of Chic by H.I.S,
Inc. and subsidiaries as of November 7, 1998 and November 6, 1999, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the three years in the period ended November 6, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Chic by H.I.S, Inc.
and subsidiaries as of November 7, 1998 and November 6, 1999, and the results of
their operations and their cash flows for each of the three years in the period
ended November 6, 1999, in conformity with generally accepted accounting
principles.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company continues to experience losses from operations
and is in default of its domestic credit facility. These matters raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans in regards to these matters are also described in Note 2. The
accompanying financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or the amounts and
classification of liabilities that might be necessary should the Company be
unable to continue as a going concern.

/s/ BDO Seidman, LLP

BDO Seidman, LLP
New York, New York
January 12, 2000

25
<PAGE>

CONSOLIDATED BALANCE SHEETS
CHIC BY H.I.S, INC. AND SUBSIDIARIES

(IN THOUSANDS, EXCEPT SHARE DATA) Nov. 7, 1998 Nov. 6, 1999
Assets (Note 5)
Current:
Cash and cash equivalents $ 3,623 $ 2,079
Accounts receivable - net of allowance of
$237 and $216 for doubtful accounts (Notell) 27,242 35,115
Inventories (Note 3) 74,167 58,488
Deferred income taxes (Note 8) 3,549 3,592
Prepaid expenses and other current assets 2,974 3,199
Total Current Assets 111,555 102,473
Property, Plant and Equipment,
net (Notes 4, 5, 6 and 13) 58,680 62,694
Deferred Income Taxes (Note 8) 4,557 4,557
Other Assets 2,283 2,543
$177,075 $172,267
Liabilities and Stockholders' Equity
Current:
Revolving bank loan (Note 5) $ 21,381 $ 31,982
Foreign bank debt (Note 5) - 5,337
Current maturities of long-term debt (Note 5) 2,395 22,488
Obligations under capital leases (Note 6) 613 664
Accounts payable 12,466 18,066
Accrued liabilities:
Payroll, payroll taxes and commissions 5,759 4,418
Income taxes 1,874 668
Restructuring and special charges (Note 13) 2,383 -
Other 3,551 2,947
Total current liabilities 50,422 86,570
Non-current:
Long-term debt (Note 5) 44,850 21,310
Pension liability (Note 7) 11,982 13,298
Obligations under capital leases (Note 6) 1,186 1,046
Total non-current liabilities 58,018 35,654
Minority interest 9,164 6,536
Commitments (Notes 5, 6, 7, 9, 12 and 13)
Stockholders' Equity (Notes 7 and 10):
Preferred stock, $.01 par value - shares
authorized 10,000,000; none issued - -
Common stock, $.01 par value -
25,000,000 shares authorized; 9,870,793
issued and outstanding 98 98
Paid-in capital 106,275 106,304
Retained deficit (34,249) (47,292)
Cumulative foreign currency
translation adjustment (671) (2,305)
Excess of additional pension liability
over intangible pension asset (11,982) (13,298)

59,471 43,507
$177,075 $172,267

See accompanying notes to consolidated financial statements.

<PAGE>

CONSOLIDATED STATEMENTS OF OPERATIONS
CHIC BY H.I.S, INC. AND SUBSIDIARIES

YEAR ENDED

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) Nov. 1, 1997 Nov. 7, 1998 Nov. 6, 1999
<S> <C> <C> <C>
Net sales (Note 11) $ 274,788 $ 253,842 $ 237,983
Cost of goods sold 215,429 192,764 184,360
Gross profit 59,359 61,078 53,623
Licensing revenues (Note 12) 2,842 2,706 2,810
62,201 63,784 56,433
Selling, general and administrative expenses 69,434 62,236 57,928
Restructuring and special charges (Note 13) - 24,125 -

Operating loss (7,233) (22,597) (1,495)
Gain on sale of subsidiary stock (Note 14) 34,079 - -
Other expense, net - (1,104) -
Interest and finance costs (4,576) (4,816) (6,908)

Income (loss) before benefit (provision) for income
taxes, minority interest and extraordinary item 22,270 (28,497) (8,408)
Benefit (provision) for income taxes (Note 8) (10,394) 2,762 (3,143)

Income (loss) before minority interest and
extraordinary item 11,876 (25,735) (11,546)
Minority interest (1,081) (2,116) (1,497)

Income (loss) before extraordinary item 10,795 (27,851) (13,043)
Extraordinary loss from extinguishment of debt (330) - -

Net income (loss) $ 10,465 $(27,851) $(13,043)

Earnings (loss) per common share:
Basic:
Income (loss) before extraordinary item $ 1.11 $ (2.82) $ (1.32)
Net income (loss) $ 1.07 $ (2.82) $ (1.32)

Diluted:
Income (loss) before extraordinary item $ 1.10 $ (2.82) $ (1.32)
Net income (loss) $ 1.07 $ (2.82) $ (1.32)

Weighted average number of common shares and share equivalents
outstanding
Basic 9,755,684 9,867,437 9,870,793
Diluted 9,804,658 9,867,437 9,870,793

</TABLE>

See accompanying notes to consolidated financial statements.

27
<PAGE>

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED NOVEMBER 1, 1997, NOVEMBER 7, 1998 AND NOVEMBER 6, 1999
CHIC BY H.I.S, INC. AND SUBSIDIARIES

Excess of
additional
pension
liability
Foreign over
Retained currency intangible
Common Paid-in earnings translation pension
(In Thousands) Total stock capital (deficit) adjustment asset
- -------------------------------------------------------------------------------------------------------

<S> <C> <C> <C> <C> <C> <C>
Balance, November 2, 1996 $80,878 $98 $105,526 $(16,764) $1,645 $(9,627)

Comprehensive income (loss):
Net income 10,465 - - 10,465 - -
Foreign currency translation
adjustment (1,313) - - - (1,313) -
Adjustment of excess of additonal
pension liability over intangible
pension asset (Note 7) (1,027) - - - - (1,027)

Total comprehensive income (loss) 8,125 0 0 10,465 (1,313) (1,027)
Stock options exercised (Note 10) 65 1 64 - - -
Balance, November 1, 1997 89,068 99 105,590 (6,299) 322 (10,654)
Comprehensive income (loss):
Net loss (27,851) - - (27,851) - -
Foreign currency translation
adjustment (1,003) - - - (1,003) -
Adjustment of excess of additional
pension liability over intangible
pension asset (Note 7) (1,328) - - - - (1,328)
Total comprehensive loss (30,182) 0 0 (27,851) (1,003) (1,328)
Stock repurchase (987) (2) (985) - - -
Stock options exercised (Note 10) 1,553 1 1,552
Short-swing Section 16(b) profits 118 - 118 - - -
Dividends paid (Note 10) (99) - - (99) - -
Balance, November 7, 1998 59,471 98 106,275 (34,249) (671) (11,982)
Comprehensive income (loss):
Net loss (13,043) - - (13,043) - -
Foreign currency translation
adjustment (1,634) - - - (1,634) -
Adjustment of excess of additional
pension liability over intangible
pension asset (Note 7) (1,316) - - - - (1,316)
Total comprehensive loss (15,993) 0 0 (13,043) (1,634) (1,316)
Short-swing Section 16(b) profits 29 - 29 - - -
Balance, November 6, 1999 $43,507 $98 $106,304 $(47,292) $(2,305) $(13,298)
</TABLE>

See accompanying notes to consolidated financial statements.

28
<PAGE>

CONSOLIDATED STATEMENTS OF CASH FLOWS
CHIC BY H.I.S, INC. AND SUBSIDIARIES
<TABLE>

YEAR ENDED

(IN THOUSANDS) Nov. 1, 1997 Nov. 7, 1998 Nov. 6, 1999
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net income (loss) $ 10,465 $ (27,851) $ (13,043)
Adjustments to reconcile net income (loss) to net cash used in
operating activities:
Gain on sale of subsidiary stock (34,079) - -
Gain on sale of property and equipment - (1,912) -
Minority interest 1,081 2,116 1,497
Non-cash restructuring and special charges - 13,680 -
Depreciation and amortization 4,533 4,340 3,546
Provision for doubtful accounts 65 47 21
Deferred income taxes 4,703 (7,799) (43)
Decrease (increase) in:
Accounts receivable 318 5,637 (7,894)
Inventories (13,008) (2,799) 15,679
Prepaid expenses and other current assets (2,095) 586 (225)
Other assets (1,324) 153 (260)
Increase (decrease) in:
Accounts payable 5,407 (4,566) 5,600
Accrued liabilities 2,061 (2,457) (5,533)
Total adjustments (32,338) 7,026 12,388
Net cash used in operating activities (21,873) (20,825) (655)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (8,608) (9,871) (7,251)
Proceeds from the sale of fixed assets - 3,188 -
Net cash used in investing activities (8,608) (6,683) (7,251)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of subsidiary stock 43,054 - -
Increase (decrease) in loans under revolving line of credit 15,000 6,381 10,601
Increase in foreign bank debt - - 5,337
Repayment of long-term debt (43,838) - (3,206)
Increase (decrease) in long-term debt - 19,161 -
Proceeds from the issuance of common stock 65 1,553 -
Stock repurchase - (987) -
Purchase of subsidiary stock - (89) (1,349)
Dividends paid to minority shareholders - (2,310) (1,955)
Dividends paid - shareholder rights redemption - (99) -
Short-swing profits - 118 29
Principal payments under capitalized lease obligations (865) (871) (90)
Retirement under capitalized lease obligations - (175) -
Net cash provided by financing activities 13,416 22,682 9,367
Increase (decrease) in cash and cash equivalents (17,065) (4,826) 1,461
Effect of exchange rates on cash (2,718) 1054 (3,004)
CASH AND CASH EQUIVALENTS, beginning of period 27,178 7,395 3,623
CASH AND CASH EQUIVALENTS, end of period $7,395 $3,623 $2,080
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 4,549 $ 4,826 $ 6,774
Taxes 3,239 7,688 4,175
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Capital leases entered into during the year - 1,483 -

</TABLE>

See accompanying notes to consolidated financial statements.

29
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CHIC BY H.I.S, INC. AND SUBSIDIARIES

1. SUMMARY OF ACOUNTING POLICIES

(A) PRINCIPLES OF CONSOLIDATION. The consolidated financial statements include
the accounts of Chic by H.I.S, Inc. and its wholly and majority owned
subsidiaries (the "Company"). All intercompany accounts and transactions have
been eliminated in consolidation.

As described in Note 14, the Company sold approximately 47.5% of the stock of
its previously wholly-owned German subsidiary, h.i.s. sportswear AG
("Sportswear") in April 1997. Minority interest represents minority
shareholders' proportionate share of the income and equity of Sportswear.

(B) BUSINESS. The Company designs, manufactures and distributes moderately
priced jeans, casual pants and shorts. The Company is headquartered in New York
City, with manufacturing facilities located in Tennessee and Mexico.
Domestically, the Company markets its jeans and casual pants primarily to mass
merchandisers and to department stores and specialty stores under the "Chic" and
"H.I.S" brand names. Its foreign operations are conducted by Sportswear, which
markets the Company's branded products in Europe. In addition, the Company
derives licensing income from the use primarily of its "Chic" trademark by
manufacturers of various products that the Company does not produce.

(C) REPORTING PERIODS. For financial reporting purposes, the Company reports on
a 52- to 53-week year ending on the first Saturday subsequent to October 31. The
fiscal years ended November 1, 1997 and November 6, 1999 each contained 52
weeks. The fiscal year ended November 7, 1998 contained 53 weeks.

(D) FOREIGN CURRENCY TRANSLATION. The financial statements of the Company's
foreign subsidiaries are translated into U.S. dollars in accordance with
Statement of Financial Accounting Standards (SFAS) No. 52, "Foreign Currency
Translation." Balance sheet accounts are translated at the current exchange rate
and income statement items are translated at the average exchange rate for the
period. Gains and losses resulting from the translation are accumulated in a
separate component of stockholders' equity.

(E) INVENTORIES. Inventories are valued at the lower of cost (first-in,
first-out) or market.

(F) DEPRECIATION. Depreciation of property, plant and equipment is computed by
the straight-line method over the estimated useful life of the respective
assets.

(G) LEASED PROPERTY UNDER CAPITAL LEASES. Property under capital leases is
amortized over the lives of the respective leases or the useful lives of the
assets.

(H) ADVERTISING COSTS. Direct costs incurred in producing media advertising are
expensed the first time the advertising takes place or services are rendered.
Promotional or advertising costs associated with customer support programs are
accrued when the related revenues are recognized.

(I) INCOME TAXES. Income taxes are calculated using the liability method
specified by SFAS No. 109 "Accounting for Income Taxes." SFAS 109 requires a
company to recognize deferred tax liabilities and assets for the expected future
tax consequences of events that have been recognized in a company's financial
statements or tax returns. Under this method, deferred tax liabilities and
assets are determined based on the difference between the financial statement
carrying amounts and tax basis of assets and liabilities using enacted tax rates
in effect in the years in which the differences are expected to reverse.
Deferred tax assets are reduced by a valuation allowance to the extent
realization is uncertain.

<PAGE>

(J) EARNINGS (LOSS) PER COMMON SHARE. Basic earnings (loss) per share includes
no dilution and is computed by dividing income available to common shareholders
by the weighted average number of common shares outstanding for the period.
Diluted earnings per share reflects the potential dilution from the assumed
exercise of stock options. Diluted earnings per share has not been presented for
1998 and 1999 as the effects of stock options would be antidilutive.
Accordingly, basic and dilutive earnings per share did not differ for 1998 and
1999.

(K) REVENUE RECOGNITION. Sales are recognized upon shipment of products or, in
the case of licensing revenues, when products using the Company's brand name are
sold by licensees or minimum guaranteed royalties are due.

(L) STATEMENTS OF CASH FLOWS. For purposes of the statements of cash flows, the
Company considers all highly liquid debt instruments purchased with an original
maturity of three months or less to be cash equivalents.

(M) STOCK OPTIONS. The Company accounts for stock options in accordance with
SFAS No. 123 "Accounting for Stock Based Compensation," which allows a choice of
either the intrinsic value method or the fair value method of accounting for
employee stock options. The Company has elected to use the current intrinsic
value method.

(N) ESTIMATES. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

(O) LONG-LIVED ASSETS. The Company reviews certain long-lived assets and
identifiable intangibles for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable. In that
regard, the Company assesses the recoverability of such assets based upon
estimated non-discounted cash flow forecasts. (See Note 13).

(P) SEGMENT INFORMATION. The Company adopted SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information" for fiscal 1999. The
statement requires disclosure of certain financial information related to
operating segments. The Company has determined that it operates in one
reportable segment.

(Q) FAIR VALUE OF FINANCIAL INSTRUMENTS. The carrying values of financial
instruments including cash and cash equivalents, accounts receivable and
accounts payable approximate fair value due to the relatively short maturities
of these instruments. The carrying value of long-term debt approximates the fair
value for similar debt issues based on quoted market prices or current rates
offered to the Company for debt of the same maturities.

(R) PRESENTATION OF PRIOR YEAR DATA. Certain reclassifications have been made to
prior-year data to conform with the current-year presentation.

(S) RECENT ACCOUNTING STANDARDS. In February 1998, the FASB issued SFAS No. 132,
"Employers' Disclosures about Pensions and Other Postretirement Benefits" (SFAS
132), which revises employers' disclosures about pension and other
postretirement benefit plans. SFAS 132 is effective for financial statements for
periods beginning after December 15, 1997, and requires comparative information
for earlier years to be restated. The adoption of SFAS No. 132 in fiscal 1999
did not have a material impact on the

<PAGE>

Company's financial statement disclosures.

2. FINANCIAL RESULTS AND LIQUIDITY

The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. The Company has incurred losses
from operations for the last four years through November 6, 1999 substantially
all related to the U.S. operations. Revenues have been insufficient to cover
costs of operations for the year ended November 6, 1999, primarily as a result
of the Company's decrease in sales, investment in Mexican manufacturing
facilities and acquisitions.

The Company is planning to take steps necessary to enable the Company to
continue as a going-concern. This includes the Company's restructuring plan,
which has resulted in the move of the majority of the U.S. manufacturing
operations to Mexico. The Company now has three manufacturing facilities, and
has commenced operations of a laundry facility in Mexico during the fourth
quarter of 1999. The Company believes the manufacturing cost savings during
fiscal 2000 will be greatly increased due to the increase in goods manufactured
in Mexico, the decrease in the goods manufactured by contractors during the
transition to Mexico and the ability for Mexican plants to manufacture specialty
type goods which have been manufactured in the U.S. in the past. The Company
also expects to improve its market share in fiscal 2000 due to the acquisitions
made during fiscal 1999 (Note 15). The Company expects to close its remaining
outlet stores in fiscal 2000 and to sell the closeout merchandise in a more
efficient and cost-effective manner. There can be no assurances that the Company
will be successful in these efforts.

The Company's continuation as a going concern is dependent on its ability to
amend or replace its domestic credit agreement and to ultimately attain
profitable operations and positive cash flows from operations. The accompanying
financial statements do not include any adjustments that may result from the
Company's inability to continue as a going concern.

32
<PAGE>

3. INVENTORIES

Inventories consist of the following:

(IN THOUSANDS) NOV. 7, 1998 NOV. 6, 1999
Raw materials $9,159 $6,535
Work-in-process 12,966 17,922
Finished goods 52,042 34,031
------- ---------
$74,167 $58,488
======= =======

4. PROPERTY PLANT AND EQUIPMENT

Major classes of property, plant and equipment consist of the following:

ESTIMATE USEFUL
(IN THOUSANDS) Nov. 7, 1998 Nov. 6, 1999 LIVES

Land $ 567 $ 514
Buildings and improvements 36,285 43,507 30 years
Machinery and equipment
(including data processing
and transportation
equipment) 27,755 26,309 3 - 12 years
Construction in progress 2,432 -
67,039 70,330
Less: Accumulated depreciation 19,657 17,347
47,382 52,983
Equipment under capital leases 10,327 10,324 7 years
Less: Accumulated amortization 6,917 7,352
3,410 2,972
Assets held for sale 7,888 6,739
$58,680 $62,694

5. LONG-TERM DEBT AND FOREIGN FINANCING AGREEMENTS

Long-term debt consists of the following:

(IN THOUSANDS) Nov. 7, 1998 Nov. 6, 1999
- -------------- ------------ ------------
Term Loan (a) $ 20,000 $ 19,100
Industrial Development Revenue Bonds (b)(i) 3,000 2,650
Industrial Development Revenue Bonds (b)(ii) 7,200 6,450
Industrial Development Revenue Bonds (b)(iii) 5,000 5,000
Industrial Development Revenue Bonds (b)(iv) 9,455 9,455
Term loan - foreign (c) 2,590 1,143
-------- --------
47,245 43,798
Less: Current portion 2,395 22,488
-------- --------
$ 44,850 $ 21,310
======== ========

<PAGE>

(a) In October 1998, the Company replaced its existing credit agreement with a
$60 million facility. The new credit agreement provides a $40 million revolving
credit facility and a $20 million term loan, with seasonal increases in the
revolving line of credit to $43,000,000 from February through June and to
$48,000,000 from July through September of each year. The credit agreement,
which expires in October 2001, is secured by among other things, accounts
receivable, finished goods inventory, certain real property and intangible
assets and the stock of Sportswear. As of November 6, 1999, the outstanding
balance of the revolver was $32.0 million, which bears interest at either the
prime rate, plus .75%, or the Eurodollar rate, plus 3.25%, at the Company's
option (8.25% and 9.00% , respectively, as of November 6, 1999). The term loan
bears interest at the Eurodollar rate, plus 3.5% (9.25% as of November 6, 1999).
The agreement contains various covenants including, among others, requirements
relating to the maintenance of certain financial ratios and limitations on
dividends and other restricted payments. As of November 6, 1999, the Company was
not in compliance with certain covenants of its domestic credit agreement for
which waivers have not been obtained. Accordingly, the Company has classified
the outstanding balance under the domestic credit agreement as current
liabilities. The Company is pursuing negotiations to amend the existing credit
facility or obtain alternative financing. There can be no assurance that the
Company will be successful in its efforts to modify or replace its domestic
credit facility.

(b)(i) In April 1995, the Company refinanced an aggregate principal balance of
$3 million through the issuance of Industrial Development Revenue Bonds by the
County of Carroll, Tennessee. The funds were initially used to construct a
manufacturing facility. The bonds, which are guaranteed by the Company, mature
April 1, 2005 and bear an average interest rate of 7.0%.

(ii) In September 1993, the Company borrowed $8.7 million in connection with
the issuance of Industrial Development Revenue Bonds by the County of Carroll,
Tennessee to construct an addition to the distribution center. The bonds mature
on September 1, 2003, and bear interest at 8% per annum. Principal payments
commenced on September 1, 1997. The bonds are collateralized by the related real
estate and are guaranteed by the Company.

(iii) In September 1994, the Company borrowed $5.0 million in connection with
the issuance of Industrial Building Revenue Bonds by the City of Hickman,
Kentucky to (1) acquire land and building and (2) renovate and expand such
manufacturing facility. The bonds are payable in annual installments commencing
on August 1, 2000. The bonds, which are not collateralized, mature as follows:

(IN THOUSANDS) INTEREST RATE
-------------- -------------

August 1, 2000 $ 375 6.10%

August 1, 2001 395 6.20%

August 1, 2002 420 6.30%

August 1, 2003 445 6.40%

August 1, 2004 475 6.50%

August 1, 2009 2,890 6.95%

(iv) On February 23, 1995, the Company borrowed approximately $9.45 million in
connection with the issuance of Industrial Development Revenue Bonds by Fulton
County, Kentucky. The proceeds were used to (i) acquire and improve a tract of
land in Fulton County, (ii) construct and equip a laundry facility on such land,
(iii) finance capitalized interest on the bonds during the construction period
and (iv) cover a portion of the costs of the issuance of the bonds. Principal
payments on the bonds are to be made in annual installments beginning on
February 1, 2001 and ending on February 1, 2010. The bonds on average bear
interest at the rate of approximately 7.5% per annum and mature as follows:

34
<PAGE>

(IN THOUSANDS) INTEREST RATE

February 1, 2001 $670 7.20%
February 1, 2002 720 7.20%
February 1, 2003 770 7.20%
February 1, 2004 830 7.60%
February 1, 2005 890 7.60%
February 1, 2006 960 7.60%
February 1, 2007 1,030 7.60%
February 1, 2008 1,110 7.50%
February 1, 2009 1,195 7.50%
February 1, 2010 1,280 7.50%

(i) In fiscal 1996, Sportswear entered into financing agreements with three
banks to provide term loans aggregating 4,600,000 deutsche marks (approximately
$2.8 million). As of November 6, 1999, the remaining outstanding balance of the
term loans was 2,150,000 deutsche marks (approximately $1.1 million), which
bears interest at an average rate of 6.0% and matures in fiscal 2000.

(ii) Sportswear has lines of credit with three banks to provide up to 42
million deutsche marks (approximately $22.3 million) at prevailing interest
rates. The lines of credit generally have no termination date but are reviewed
periodically for renewal at the option of the banks. As of November 6, 1999,
approximately $5.3 million was outstanding against the foreign lines of credit.

(d) Long-term debt maturities are as follows:

FISCAL YEAR ENDING (IN THOUSANDS)
------------------ --------------

2000 $ 22,488
2001 2,960
2002 3,290
2003 2,940
2004 1,305
Thereafter 10,815
--------
$ 43,798
========

6. CAPITALIZED LEASE OBLIGATIONS

The Company has entered into lease/purchase agreements for certain machinery and
equipment. Future minimum lease payments under capital leases, and the present
value of the net minimum lease payments as of November 6, 1999 are as follows:

<PAGE>

FISCAL YEAR ENDING (IN THOUSANDS)
------------------ --------------

2000 815
2001 605
2002 418
2003 110
-----
1,948

Less: Amount representing interest 238

Present value of net minimum lease
payments
Total 1,710
Due within one year 664
------
Due after one year $1,046
======

7. PENSION PLAN

The Company has a non-contributory defined benefit pension plan for the eligible
employees of its domestic subsidiary, Henry I. Siegel Co., Inc. ("Siegel") who
have met certain service requirements. The normal retirement age is 65, with
early retirement optional at age 62, provided the length of service
requirements, as defined in the plan, have been met.

Benefits are based upon length of service and a percentage of compensation
subject to limitation. The Company's funding policy is to contribute amounts
determined annually on an actuarial basis that provide for current and future
benefits in accordance with funding requirements of Federal law and regulations.

The following table sets forth the change in the benefit obligation and the
change in the Plan assets during the years ended November 7, 1998 and November
6, 1999 and the Plan's estimated funded status and amounts recognized in the
Company's balance sheet as of November 7, 1998 and November 6, 1999:

(IN THOUSANDS) NOV. 7, 1998 NOV. 6, 1999
CHANGE IN BENEFIT OBLIGATION:
Benefit obligation at beginning of year $ (24,882) $ (26,247)
Interest cost (2,053) (2,099)
Actuarial gain (loss) (451) 902
Benefits paid 1,139 1,272
--------- ---------
(26,247) (26,172)

CHANGE IN PLAN ASSETS:
Fair value of plan assets at beginning of year 14,967 17,022
Employer contribution 3,130 1,466
Actual return on plan assets 63 (1,272)
Benefits paid (1,138) (1,274)

17,022 15,942

Funded status (9,225) (10,230)
Unrecognized net actuarial loss 11,982 13,298
Prepaid benefit cost 2,757 3,068
====== =======

<PAGE>

The components of the net periodic benefit cost are as follows:

Year ended
----------
(IN THOUSANDS) NOV. 1, 1997 NOV. 7, 1998 NOV. 6, 1999
------------ ------------ ------------
<S> <C> <C> <C>
Interest on projected benefit
obligation 1,905 2,052 2,100
Expected return on plan assets (1,114) (1,294) (1,370)
Amortization of prior service cost 83 - -
Amortization of net obligation 312 - -
Recognized actuarial loss 317 355 425

Net periodic benefit cost $1,503 $1,113 $1,155
====== ====== ======
</TABLE>

Assumptions used in accounting for pension costs are as follows:

<TABLE>
<CAPTION>
Year ended

NOV. 1, 1997 NOV.7, 1998 NOV.6, 1999
<S> <C> <C> <C>
Discount rate 8.25% 8.00% 8.00%
Expected long-term rate of return on
on plan assets 8.25% 8.00% 8.00%

</TABLE>

As of October 31, 1996, the mortality assumption was changed from the 1951 GAM
table to the 1983 GAM table. Since the life expectancy rates under the 1983 GAM
table are longer, the effect of the change was to increase the projected benefit
obligation.

Effective January 1, 1997, the Company adopted a resolution to suspend the plan
whereby no individual who was not a participant as of May 20, 1997 would become
a participant and no additional benefits would accrue after such date. The
curtailment resulted in the accelerated amortization of the deferred transition
obligation and prior service costs of approximately $264,000, which is included
in the net periodic pension expense for fiscal 1997.

Effective September 1, 1997, the Company adopted a tax-qualified 401(k) plan for
the eligible employees of Siegel. Participants may contribute up to the legal
limitations, with the Company matching 10% of the participant's first $1,000
contribution. The expense related to the 401(k) plan for the years ended
November 1, 1997, November 7, 1998 and November 6, 1999 was approximately
$30,000, $89,000 and $45,000, respectively.

8. INCOME TAXES

The components of earnings (loss) before income taxes and the related provision
for income taxes are presented below:

<TABLE>

Year ended
----------

(IN THOUSANDS) NOV. 1, 1997 NOV. 7, 1998 NOV. 6, 1999
-------------- ------------ ------------ ------------
<S> <C> <C> <C>
Earnings (loss) before income taxes:
United States $ 10,859 $ (37,458) $ (14,563)
Europe 11,411 8,961 6,160
22,270 (28,497) (8,403)
</TABLE>

37
<PAGE>

Provision for income taxes:
Current:
U.S. Federal - - -
State and local 360 395 312
Europe 5,135 4,580 2,831
----- ----- -----
5,495 4,975 3,143

Deferred:
U.S. Federal 4,899 (7,737) -
===== ====== ======
$10,394 $(2,762) $3,143

The provision for income taxes differs from the provision that would be recorded
using the statutory U.S. Federal income tax rate due to the following: Year ened
November 6, 1999, state and local income taxes, net of Federal tax benefit of
$.2 million, foreign income taxes of $.7 million, change in valuation allowance
of $5.3 million and permanent differences and other items of $(.2) million; Year
ended November 7, 1998, state and local income taxes, net of federal tax
benefit, of $.2 million, foreign income taxes of $1.4 million, change in the
valuation allowance of $6.0 million and permanent differences and other items of
$(.4) million; Year ended November 1, 1997, state and local income taxes, net of
federal tax benefit, of $.2 million, foreign income taxes of $1.1 million, taxes
on foreign dividend of $1.8 million and permanent differences and other items of
$(.5) million. As of November 6, 1999, the Company had a net deferred tax asset
of approximately $8.1 million, consisting primarily of tax credit carryforwards
of $2.2 million and net operating loss carryforwards and restructuring charges
of $5.9 million. The Company believes that its tax strategies, including the
sale of selected assets of the Company, would result in gains that are expected
to be sufficient to enable the Company to realize the balance of the net
deferred tax asset. As of November 7, 1998, the Company had a net deferred tax
asset of $8.1 million, consisting primarily of tax credit carryforwards of $2.2
million and net operating loss carryforwards and restructuring charges of $4.1
million, and property, plant and equipment of $1.8 million. A valuation
allowance of approximately $16.8 and $11.5 million has been recorded in fiscal
1999 and fiscal 1998, respectively, to reduce the deferred tax asset to the
extent its ultimate utilization is uncertain. The Company's net operating loss
carryforwards totaling $59.1 million at November 6, 1999 expire on various dates
from 2009 to 2014.

In addition, the Company had a deferred tax asset attributable to an additional
pension liability charged to stockholders' equity of $4.6 million and $4.6
million as of November 7, 1998 and November 6, 1999, respectively, for which a
full valuation reserve has been provided due to the uncertainty of its ultimate
realization.

9. COMMITMENTS

(a) LEASES

The minimum annual rental commitments under non-cancelable leases as of November
6, 1999 are as follows (In Thousands):

MACHINERY,
REAL ESTATE AUTOMOTIVE
FISCAL YEAR ENDING TOTAL AND BUILDINGS EQUIPMENT, ETC.
- ------------------ ----- ------------- ---------------
2000 $ 3,960 3,058 902
2001 2,818 2,333 485
2002 2,478 2,234 244
2003 1,351 1,294 57
2004 1,199 1,194 5
Thereafter 6,298 6,297 1
$ 18,104 $ 16,410 $ 1,694

<PAGE>

Rent expense for the years ended November 1, 1997, November 7, 1998 and
November 6, 1999 totaled $3,528,000, $4,414,000 and $4,580,000, respectively.

(b) CONSULTING AND EMPLOYMENT AGREEMENTS

The Company has an employment agreement with one officer which has an initial
term that expires in 2001 which provides for annual base compensation of
$332,800. As disclosed in Note 15, in fiscal 1998, the Company negotiated the
settlement of a consulting agreement with a former owner of the business of
Siegel, which had an annual commitment of $500,000 and was renewable at the
option of the former owner, for $500,000.

10. STOCKHOLDERS' EQUITY

(a) STOCK OPTIONS.

In February 1993, the Company's stock option plan (the "Plan") was adopted.
Under the Plan, options to purchase an aggregate of not more than 600,000 shares
of common stock may be granted from time to time to key employees, officers,
directors, and consultants of the Company or its affiliates. Stock appreciation
rights related to options ("related SARs") and stock appreciation rights not
related to options ("unrelated SARs") may also be granted to the aforementioned
groups.

The Plan is administered by the Stock Option Committee (the "Committee") under
the Plan. The per share exercise price for stock options may not be less than
100% of the fair market value of common stock on the date the option is granted
(110% of the fair market value on the date of grant for incentive stock options
if the optionee is more than a 10%-owner of the Company). The exercise price for
unrelated SARs cannot be less than 100% of the common stock price on the date of
grant. For related SARs, the exercise price cannot be less than 100% of the fair
market value of common stock on the date of grant of the options. Options and
SARs are immediately exercisable and may be granted for a term to be determined
by the Committee of not more than ten years from the date of grant.

In January 1995, the Board of Directors adopted the Chic by H.I.S, Inc. 1995
Stock Option Plan for Non-Employee Directors (the "Formula Plan"), which permits
the award of options to purchase an aggregate of up to 80,000 shares of common
stock of the Company to certain non-employee directors. Awards under the Formula
Plan are made pursuant to a formula that is set forth in the plan. The Formula
Plan was approved by the shareholders in February 1995 and options to purchase
60,000 shares of common stock, at an exercise price of $9.875 per share, have
been awarded to certain non-employee directors. The outstanding options became
fully exercisable July 1995--six months after the date they were granted.

On December 9, 1995, the Stock Option Committee approved the replacement of
outstanding options under the Stock Option Plan with new options. The new
options have substantially the same terms as the replaced options except for the
following:

(i) The new options have an exercise price of $5.875 per share, reflecting the
fair market value of a share of Company common stock on December 9, 1995; and

(ii) the new options expire five years from the date of grant, i.e., December
8, 2000.

In May 1998, the Company granted 300,000 options to two directors, subject to
availability, with the remainder to be issued subject to shareholder approval of
an increase in the number of options authorized under the Stock Option Plan.
Such approval was granted in February 1999. The options have an exercise

39
<PAGE>

price of $9.0625 and vest in equal annual installments over a three-year period
commencing November 1, 1999.

A summary of activity for the Company's stock option plans is presented below:

EXERCISE PRICE WEIGHTED
RANGE PER AVERAGE
OPTION SHARES SHARE PRICE

<S> <C> <C> <C>
Balance, November 2, 1996 565,534 $4-5.875 $ 5.862
------- -------- -------
Granted 21,100 5.875 5.875
Exercised (11,100) 5.875 5.875
Cancelled (10,000) 5.875 5.875

Balance, November 1, 1997 565,534 $4-5.875 $ 5.862
------- -------- -------

Granted 114,466 9.063 9.063
Exercised (265,825) 5.875 5.875
Cancelled (6,150) 5.875 5.875
------- -------- -------

Balance, November 7, 1998 408,025 $4-9.063 $ 6.751
Granted 205,534 2.625-9.063 8.437
Exercised -- -- --
Cancelled (108,850) 2.625-5.875 5.726
------- ------- -------

Balance, November 6, 1999 504,709 $2.625-9.063 $ 7.659
======= =========== =======
</TABLE>

Year ended
Nov. 1, 1997 Nov. 7, 1998 Nov. 6, 1999
------------ ------------ ------------

Exercisable 565,534 293,559 304,709
Available for future grants 114,466 -- 303,316

SFAS No. 123, "Accounting for Stock-Based Compensation," requires the Company to
provide pro forma information regarding net income and earnings per share as if
compensation cost for the Company's stock option plans had been determined in
accordance with the fair value-based method prescribed in SFAS No. 123. The
Company estimates the fair value of each option at the grant date using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in the years ending November 1, 1997, November 7,
1998 and November 6, 1999, respectively: no dividends paid, for all years;
expected volatility of 20%, 20% and 45.8%; risk-free interest rates of 5.56%,
6.14% and 5.43%; and expected lives of five years. The weighted-average fair
value of options granted in fiscal 1997, 1998 and 1999 was $1.87, $2.14 and
$0.22 per option. As of November 6, 1999, the weighted-average contractual life
of the options was 2.7 years.

Under the accounting provisions of SFAS No. 123, the Company's net income and
earnings per share would have been reduced on a pro forma basis as follows:

Year ended
----------

(IN THOUSANDS) Nov. 1, 1997 Nov. 7, 1998 Nov. 6, 1999
- -------------- ------------ ------------ ------------

Net income (loss):
As reported $ 10,465 $ (27,851) $ (13,043)
Pro forma 10,440 (27,902) (13,087)
Earnings (loss) per share:
As reported $1.07 $ (2.82) $ (1.32)
Pro forma 1.07 (2.83) $ (1.33)

<PAGE>

(B) STOCKHOLDER RIGHTS PLAN.

On February 28, 1997, the Board of Directors adopted a Stockholder Rights Plan
("Plan"). Under the Plan, the Board declared a dividend of one Right for each
outstanding share of Common Stock of the Company to stockholders of record at
the close of business on March 17, 1997. Each Right entitled the holder to
purchase from the Company one one-hundredth of a share of Series A Preferred
Stock, par value $1.00 per share, at a price of $30, subject to adjustment, with
a value of twice the exercise price. The Rights would become exercisable only in
the event that any person or group of affiliated or associated persons acquired,
or obtained the right to acquire, beneficial ownership of 20% or more of the
Company's outstanding shares, or commenced a tender or exchange offer, which, if
consummated, would result in that person or group of affiliated persons owning
at least 20% of the Company's outstanding shares.

The Rights were redeemed at a price of $.01 per Right for stockholders of record
at the close of business on April 9, 1998.

11. GEOGRAPHIC INFORMATION

The Company operates primarily in two reportable geographical areas.

Geographic information was:

<TABLE>

<CAPTION>
Year ended
----------
(In Thousands) Nov. 1, 1997 Nov. 7, 1998 Nov. 6, 1999
- -------------- ------------ ------------ ------------

<S> <C> <C> <C>
Net sales:
United States $ 162,170 $ 149,486 $ 143,417
Europe (primarily Germany) 112,618 104,356 94,566
--------- --------- ---------
$ 274,788 $ 253,842 $ 237,983

Income (loss) from operations:
United States $ (19,227) $ (31,913) $ (8,161)
Europe (primarily Germany) 11,994 9,336 6,666
--------- --------- ---------
$ (7,233) $ (22,577) $ (1,495)

Long-lived assets:
United States $ 66,336 $ 53,117 $ 50,233
Mexico 4,098 7,846 14,984
--------- --------- ---------
$ 70,434 $ 60,963 $ 65,237
========= ========= =========
</TABLE>

Substantially all of the Company's sales are to retailers throughout the
United States and Europe. Sales to one major customer approximated 23.4%, 23.5%
and 16.4% of total sales for the years ended November 1, 1997, November 7, 1998
and November 6, 1999, respectively. The receivables from the Company's major
customers at November 7, 1998 and November 6, 1999 represent approximately 13.0%
and 10.0%, respectively, of the total accounts receivable balance. The Company
reviews a customer's credit history before extending credit and obtains credit
insurance on certain account balances. An allowance for possible losses is
established based upon factors surrounding the credit risk of specific
customers, historical trends and other information.

12. LICENSING REVENUES

The Company has entered into licensing agreements providing for the use of its
trademark, "CHIC" for three- or five-year terms. The Company generally receives
royalty payments of 5% of net sales made by licensees, with guaranteed minimum
payments payable in quarterly installments. Remaining annual minimum amounts

<PAGE>

are as follows:

FISCAL YEAR ENDING (IN THOUSANDS)
------------------ --------------

2000 $ 920
2001 723
2002 91
------
$1,734
======

13. RESTRUCTURING AND SPECIAL CHARGES

In second quarter of fiscal 1998, the Company announced its intention to
continue to close additional manufacturing facilities in the United States. In
connection therewith, the Company recorded restructuring and special charges of
$24.1 million consisting of a write-down in the value of related property and
equipment, the write-off of operating inefficiencies incurred during the
shut-down period and the accrual of estimated costs of disposition.
Substantially all costs associated with the restructurings were incurred prior
to November 6, 1999. In fiscal 1999, the Company reversed $1.4 million of excess
accrued restructuring costs through selling, general and administrative
expenses. The plant closings resulted in the termination of approximately 1,300
employees. In addition, the downsizing associated with such plant closings may
affect the accounting, disclosure and funding of the Company's pension benefit
obligation.

14. GAIN ON SALE OF SUBSIDIARY STOCK

On January 27, 1997, the Company announced that it had retained a managing
underwriter for a proposed initial public offering that would result in the sale
by the Company of a significant minority interest in the Company's previously
wholly-owned German subsidiary, h.i.s. sportswear AG ("Sportswear"),
headquartered in Munich. In the second quarter of fiscal 1997, the Company
announced that the initial public offering had been consummated, resulting in
the sale of 2,120,000 shares of Sportswear, representing approximately 47.5% of
the stock, at an offering price of DM 39 per share (approximately $22.61).

A gain of approximately $34.1 million was recognized on the transaction in
accordance with Staff Accounting Bulletin 51. The net proceeds received by the
Company of approximately $43.1 million were used to repay indebtedness and for
general corporate purposes.

15. BUSINESS ACQUISITIONS

The acquisitions were accounted for as purchases and, accordingly, the results
of their operations have been included in the Company's financial statements for
the fiscal year 1999. The results of their operations would not have had a
material impact on the Company's results of operations for fiscal 1998, and were
not material in 1999, thus pro-formas have not been provided.

<PAGE>

ITEM 9. CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Not Applicable.

43
<PAGE>

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The following table sets forth certain information regarding the
executive officers of the Company:
<TABLE>

NAME OFFICE OR POSITIONS HELD
<S> <C>

Daniel Rubin.....................Co-Chairman of the Board and Chief Executive Officer
Milan Danek......................Managing Director, European Operations
Christine A. Hadjigeorge.........Treasurer; Chief Financial Officer and Secretary
Roland L. Kimberlin..............President -- Manufacturing Operations

</TABLE>

Daniel Rubin is the Chief Executive Officer, Co-Chairman of the Board
and has been a director since March 1998. Mr. Rubin has been a Managing Partner
of LDR Equities, LLC, which engages in the management of real estate, textile
and clothing businesses since 1996. He has also been a principal stockholder of
Trimtex Company, a textile manufacturer and Gorden & Ferguson, a manufacturer of
men's and children outerwear, since 1987. Mr. Rubin is also a director of
Community State Bank.

Milan Danek is the Managing Director, European Operations of the
Company and was a director of the Company from 1993 until the Effective Date.
Mr. Danek has worked over 26 years at the Company (during which time he has
served as Managing Director of the Company's German subsidiary) and has
approximately 32 years of industry experience. His previous industry experience
includes three years at Levi Strauss in Germany, where he was the Marketing
Director at the time of his departure, and seven years with the exclusive
distributor of Levi Strauss for southern Germany and Austria.

Christine A. Hadjigeorge, age 37, has been the Chief Financial Officer
and Treasurer of the Company since February 1997. Prior to joining the Company,
Ms. Hadjigeorge was a partner at BDO Seidman, LLP, a public accounting firm,
where she worked for over twelve years. Ms. Hadjigeorge is a graduate of the
College of William & Mary and a certified public accountant in the state of New
York.

Roland L. Kimberlin has been a director of the Company since 1993. Mr.
Kimberlin was a director of the Company from 1993 until the Effective Date and
was elected again in June 1998. Mr. Kimberlin has served as an executive officer
of the Company for more than nine years, most recently as Vice President and
President -Manufacturing Operations. Prior to joining the Company in 1966, Mr.
Kimberlin was employed by Ashland Oil and Refining Company, where he held a
number of positions, including regional bulk plant manager.

Officers are chosen by the Board of Directors annually or at such other
time or times as the Board determines.

<PAGE>

ITEM 11. EXECUTIVE COMPENSATION

The following table sets forth the compensation awarded to, earned by
or paid to the Chief Executive Officer, and the three other most highly
compensated executive officers during the fiscal years ended November 6, 1999,
November 7, 1998 and November 1, 1997 for services rendered in all capacities to
the Company and its subsidiaries.

SUMMARY COMPENSATION TABLE (1)

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
NUMBER OF
SECURITIES
ANNUALCOMPENSATION UNDERLYING
FISCAL YEAR OTHER ANNUAL OPTIONS
NAME AND PRINCIPAL POSITION ENDED SALARY ($) BONUS ($) COMPENSATION GRANTED (#)
- --------------------------- ----- ---------- --------- ------------ -----------

<S> <C> <C> <C> <C> <C>
Daniel Rubin.......................................11/6/99 $307,500 0 0 0
Co-Chairman of the Board and Chief 11/7/98 115,385 0 0 150,000
Executive Officer(1)

Milan Danek........................................11/6/99 $516,532 $122,199 0 0
Managing Director, European Operations 11/7/98 $434,866 89,222 0 0
11/1/97 418,007 40,000 0 0

Christine A. Hadjigeorge...........................11/6/99 $137,500 $15,000 0 2,000
Chief Financial Officer 11/7/98 137,020 15,000 0 0
Treasurer, Secretary(2) 11/1/97 86,539 16,000 0 8,000

Roland L. Kimberlin................................11/6/99 $369,402 0 0 0
President -- Manufacturing Operations 11/7/98 360,965 15,000 0 0
11/1/97 360,965 40,000 0 0

</TABLE>

(1) Mr. Rubin was elected Co-Chairman of the Board of Directors and Chief
Executive Officer on May 14, 1998. Annual base compensation in fiscal
1998, $240,000.

(2) Ms. Hadjigeorge's employment as Chief Financial Officer commenced
February 24, 1997 at an annual base compensation for fiscal 1997 of
$125,000.

OPTION EXERCISES/VALUE OF UNEXERCISED OPTIONS

The following table sets forth certain information concerning
unexercised options to purchase Common Stock of the Company held at the end of
fiscal year 1998 by the named executive officers and options exercised by the
named executive officers during fiscal year 1999. No named executive officer has
been awarded stock appreciation rights.

AGGREGATED OPTION EXERCISES IN LAST
FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES

<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
SHARES ACQUIRED VALUE UNEXERCISED STOCK IN-THE-MONEY STOCK
NAME ON EXERCISE (#) REALIZED($) OPTIONS AT FY-END (#) OPTIONS AT FY-END ($)(1)
- ---- --------------- ----------- --------------------- ------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
-------------- ------------- ----------- -------------

45
<PAGE>

<S> <C> <C> <C> <C> <C>
Daniel Rubin...................0 0 50,000 100,000 (1) (1)
Milan Danek....................0 0 0 0 -- --
Christine A. Hadjigeorge.......0 0 10,000 0 (2) --
Roland L. Kimberlin............0 0 30,000 0 (3) --
- --------
</TABLE>

(1) Based upon the closing sale price of the Common Stock on January 31,
2000 ($.50) on the New York Stock Exchange and the option exercise
price ($9.0625) such options were out of the money on January 31, 2000.

(2) Based upon the closing price of the Common Stock on January 31, 2000
($.50) on the New York Stock Exchange and the option exercise price
(8,000 options at $5.875 and 2,000 at $2.625). Such options were out of
the money on January 31, 2000.

(3) Based upon the closing sale price of the Common Stock on January 31,
2000 ($.50) on the New York Stock Exchange and the option exercise
price ($5.875) such options were out of the money on January 31, 2000.

OPTION/SAR GRANTS IN LAST FISCAL YEAR

The following table sets forth information regarding grants of stock
options by the Company during fiscal year 1999 to the named executive officers.

% OF TOTAL
OPTIONS/SARS
NUMBER OF GRANTED TO POTENTIAL REALIZABLE VALUE
SECURITIES EMPLOYEES AT ASSUMED ANNUAL RATES
UNDERLYING IN YEAR ENDED EXERCISE OR BASE OF STOCK PRICE APPRECIATION
NAME OPTIONS/SARS NOVEMBER 6, 1999 PRICE ($/SH) FOR OPTION TERM(1)
- ---- ------------ ---------------- ------------ ------------------
5% 10%
-- ---
<S> <C> <C> <C> <C> <C>
Daniel Rubin..............................-- -- -- -- --
Milan Danek...............................-- -- -- -- --
Christine A. Hadjigeorge...............2,000 10% $2.625 $1,450 $3,205
Roland Kimberlin..........................-- -- -- -- --
</TABLE>

(1) These amounts represent hypothetical gains that could be achieved for
the options if they are executed at the end of their terms. The assumed
5% and 10% rates of stock price appreciation are mandated by the rules
of the Securities and Exchange Commission. They do not represent the
Company's estimate or projection of future prices of the Common Stock.

PENSION PLAN

The following table sets forth the approximate annual benefits payable
upon retirement at age 65 (and upon at least five years of service) under the
Pension Plan for Eligible Employees of Henry I. Siegel Co. (the "Pension Plan")
as a life annuity, based on the average annual salaries and years of service
indicated.

PENSION PLAN TABLE
YEARS OF SERVICE
----------------
<TABLE>
<CAPTION>

AVERAGE ANNUAL
COMPENSATION 15 20 25 30 35
-------------- -- -- -- -- --

<PAGE>

Compensation used to determine benefits generally includes a
participant's total earned income, wages, salaries and other amounts received
for services rendered to the Company or an affiliate, excluding certain
specified items such as Company contributions to a deferred compensation plan
and amounts realized in connection with stock options or restricted stock.
Annual compensation taken into account under the Pension Plan is limited to
$14,000. Benefits are computed on a single life annuity basis and are not
subject to any offset for social security. With respect to the following
individuals named in the Summary Compensation Table, the annual current covered
compensation under the plan is $14,000, which is substantially less than the
amount set forth under "Salary" in the Summary Compensation Table, and the
estimated current credited years of service are as follows:

Mr. Danek..................................23 years
Mr. Kimberlin..............................30 years

Effective January 1, 1997, the Company adopted a resolution to suspend
the Pension Plan whereby no individual who was not a participant as of May 20,
1997 would become a participant and no additional benefits would accrue after
such date.

CERTAIN DEATH BENEFITS

Upon recommendation of the Compensation Committee, in the first quarter
of fiscal 1994 the Board of Directors authorized the Company to pay $2 million
to the estate of Roland Kimberlin, and $1 million to the estate of Milan Danek
upon the death of Mr. Kimberlin or Mr. Danek, respectively, if (i) such
executive is an employee of the Company at the time of his death or (ii) retires
in good standing from the Company no earlier than the date on which such
executive reaches the age of 65 and (iii) if the Company at the time of the
death of such executive is the owner and beneficiary of insurance on his life in
the principal amount to be paid. In March, 1997, the death benefit payable to
the estate of Milan Danek was increased to $2 million. The Company is
authorized, but not required, to maintain life insurance policies on the lives
of these executives naming the Company as beneficiary to support this
obligation, substantially all of which policies the Company currently has in
effect and the proceeds of which policies the Company would intend to pay to the
appropriate executive's estate upon his death.

<PAGE>

EMPLOYMENT AGREEMENTS

The Company entered into an employment agreement with Roland L.
Kimberlin, effective as of March 15, 1996, as amended on March 17, 1997 and
February 20, 1998. In March 1998, Mr. Kimberlin agreed to rescind the February
20, 1998 amendment to his employment agreement and enter into a new amendment to
his employment agreements (the "Executive Employment Agreement"). The following
is a summary of the material terms of the Executive Employment Agreement, as
amended. The Executive Employment Agreement has an initial term of five years
and provides that upon the expiration of the initial term, the initial term will
be extended automatically for successive one-year periods unless either party
gives at least 90 days' written notice of his or its intent not to allow such
extension to become effective. The Executive Employment Agreement provides for
an annual salary to Kimberlin of $341,276, which may be increased on each
February 1 during the term of the Executive Employment Agreement, at the
discretion of the Board of Directors of the Company. The Executive Employment
Agreement permits the Company to terminate the employee's employment for cause
(as defined therein) or if the employee becomes permanently and seriously
disabled. If the employee is terminated without cause, such employee would be
entitled to receive a lump sum payment equal to 18 months base salary as
severance. In the event that during the term of the Executive Employment
Agreement the employee becomes permanently disabled, either physically or
mentally, resulting in an absence from the office for periods aggregating 120
business days during any 12 month period, the Company shall pay such employee a
monthly benefit (the "Disability Benefit") following the employee's termination
of employment on account of such disability. The Disability Benefit payable
shall be 100% of the employee's monthly salary for the first 24 months of the
employee's disability and 50% of the employee's monthly salary thereafter for
the remainder, of the employee's lifetime. The Disability Benefit shall be
reduced (but not below zero), however, by an amount equal to the sum of (a) any
other disability payments received by the employee from the Company, its
subsidiary, Henry I. Siegel Company, or any insurance policy of these entities,
(b) two thirds of any earned income received by the employee for full-time
executive employment with any entity commencing after the payment of a
Disability Benefit begins, and (c) any amount for which the employee is eligible
because of his disability under Federal social security laws or, prior to age
65, under any Company or Henry I. Siegel Company sponsored retirement plan. The
Executive Employment Agreement also contains a covenant not to compete, whereby
the employee agrees that during the term of the agreement, and for up to one
year following the employee's termination of employment, the employee will not,
under certain circumstances, among other things, engage in a business that is
materially competitive with any material business operated by the Company on the
effective date of the agreement.

MANAGEMENT AGREEMENT

The Company's German subsidiary has entered into a management agreement
with Milan Danek effective as of January 13, 1997, as amended (the "Management
Agreement"). The Management Agreement, which is subject to the laws of the
Federal Republic of Germany, has an initial term of five years and provides that
upon the expiration of the initial term, the initial term will be extended
automatically for successive one-year periods unless either party gives at least
six months' written notice of his or its intent not to allow such extension to
become effective. The Management Agreement provides for an annual salary to Mr.
Danek in the amount of DM 696,000 (approximately $370,000 based on the exchange
rate for the deutsche mark on November 6, 1999), which may be increased from
time to time at the discretion of the Supervisory Board of the Company's German
subsidiary (the "Supervisory Board"). Mr. Danek is also entitled to a Disability
Benefit under the same circumstances and on the same terms as those of Mr.
Kimberlin. In addition, Mr. Danek may receive an additional bonus at the sole
discretion of the Supervisory Board. The Management Agreement also contains a
covenant not to compete, whereby Mr. Danek agrees that during the term of the
Management Agreement, and for up to one year following the expiration of the
term, he will not compete with the Company.

48
<PAGE>

COMPENSATION OF DIRECTORS

Directors who are not officers of the Company receive an annual fee of
$12,000 for serving on the Board of Directors. No annual fee is paid to any
officer serving on the Board of Directors. In addition, all directors (including
officers serving as Directors) receive a fee of $500 for each meeting of the
Board of Directors or committee meeting attended.

<PAGE>

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth information regarding each person known
by the Company to own beneficially (as such term is defined in Rule 13d-3 under
the Exchange Act) more than 5% of the outstanding Common Stock as of January 31,
2000. In accordance with the rules promulgated by the Securities and Exchange
Commission, such ownership includes shares currently owned as well as shares
which the named person has the right to acquire within 60 days, including, but
not limited to, shares which the named person has the right to acquire through
the exercise of any option, warrant or right, or through the conversion of a
security.

NUMBER OF SHARES
OF COMMON STOCK
NAME AND ADDRESS BENEFICIALLY PERCENTAGE
OF BENEFICIAL OWNER OWNED OF COMMON STOCK
------------------- ---------------- ---------------

<S> <C> <C>
Arnold M. Amster(1).............................................................963,700 9.8%
767 Fifth Avenue
New York, NY 10153
Cumberland Associates LLC(2)....................................................729,600 7.4
1114 Avenue of the Americas
New York, NY 10036
Dimensional Fund Advisors Inc.(3)...............................................580,600 5.9
1299 Ocean Avenue
Santa Monica, California 90401
Franklin Resources, Inc.(4) ....................................................964,100 9.8
777 Mariners Island Blvd.
San Mateo, California 94404

</TABLE>

(1) Includes 42,500 shares of Common Stock held by Mr. Amster's spouse and
87,500 shares of Common Stock held by Mr. Amster's daughter. Also
includes 25,000 shares of Common Stock held by the Amster Foundation, a
private family foundation, controlled by Mr. Amster. Also includes
148,900 shares of Common Stock held by Amster & Co., an investment
limited partnership of which Mr. Amster is the Senior Managing Partner.
Also includes 465,300 shares of Common Stock held by Flex Holding
Corp., a private investment company of which Mr. Amster is the Chairman
of the Board. Mr. Amster disclaims beneficial ownership to the
foregoing shares of Common Stock. Excludes 558,000 shares of Common
Stock held by the Amster Family Trust, an irrevocable trust for the
benefit of Mr. Amster's daughter, over which Mr.
Amster disclaims beneficial ownership.

(2) Based solely on information obtained from a report on Schedule 13G
filed with the Securities and Exchange Commission on February 12, 1999.
Cumberland Associates LLC is engaged in the business of managing, on a
discretionary basis, twelve securities accounts.

(3) Based solely on information obtained from a report on Schedule 13G
filed with the Securities Exchange Commission on February 11, 1999.
Cumberland Associates LLC is engaged in the business of managing, on a
discretionary basis, twelve securities accounts.

(4) Based solely on information obtained from a report on Schedule 13G
filed with the Securities and Exchange Commission on January 19, 2000.
Includes securities beneficially owned by one or more open or
closed-end investment companies or other managed accounts which are
advised by direct or indirect investment advisory subsidiaries of
Franklin Resources, Inc., of which Charles B. Johnson, Rupert H.
Johnson, Jr. and Franklin Advisory Services LLC may be deemed to be
beneficial owners.

------------

To the knowledge of the Company, except as set forth above, no
person beneficially owns more than 5% of the Common Stock.

<PAGE>

The following table sets forth beneficial and record ownership of the
Company's Common Stock as of January 31, 2000 with respect to (i) each nominee
for Director; (ii) each executive officer named in the Summary Compensation
Table under "Executive Compensation"; and (iii) all nominees for Directors and
executive officers as a group.

<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENTAGE OF
OF COMMON STOCK COMMON STOCK
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED BENEFICIALLY OWNED
------------------------ ------------------ ------------------
<S> <C> <C>

Arnold M. Amster....................................................963,700(a) 9.8%
Walter Berman.......................................................175,500(b) 1.8
Michael Conroy........................................................5,000 *
Herbert A. Denton...................................................244,900(c) 2.5
Christine A. Hadjigeorge............................................ 12,000(d) *
Roland L. Kimberlin.................................................112,385(e) 1.1
Mark Metzger........................................................205,299 2.1
Daniel Rubin........................................................340,000(f) 3.4
All Directors, Nominees and executive officers as
a group (8 persons)...............................................2,058,784 20.5
</TABLE>

(a) See footnote (1) in the table above.

(b) Includes 45,000 shares of Common Stock owned by Mr. Berman's spouse.

(c) Includes 80,000 shares owned by Providence Investors, LLC over which
Mr. Denton exercises shared voting and investment powers.

(d) Includes 10,000 shares of Common Stock that Ms. Hadjigeorge has the
right to acquire pursuant to outstanding stock options.

(e) Includes 30,000 shares of Common Stock that Mr. Kimberlin has the right
to acquire pursuant to outstanding stock options.

(f) Includes 80,000 shares owned by Mr. Rubin's father over which Mr.
Rubin has shared voting power.

* Represents less than one percent of the issued and outstanding shares
of Common Stock.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

CONSULTING ARRANGEMENTS

In May 1998, the Company entered into a consulting agreement with South
Beach Consulting Co., which is owned by Mr. Peter Brown, a former director of
the Company. Pursuant to the consulting agreement, the Company agreed to pay
South Beach Co. an annual fee of $120,000. This agreement was terminated in
January 2000.

<PAGE>

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a) The schedule and report of independent certified public accountants
thereon, listed on the Index to Financial Statement Schedules attached
hereto.

(b) No reports on Form 8-K were filed by the registrant during the last
quarter of the period covered by this report.

EXHIBIT NO. DESCRIPTION OF EXHIBIT
----------- ----------------------

3.1 Restated Certificate of Incorporation of the Company.
(Incorporated herein by reference to Exhibit 3.2 to the
Company's Registration Statement on Form S-1 No. 33-56270).

3.2 By-laws of the Company. (Incorporated herein by reference to
Exhibit 3.4 to the Company's Registration Statement on Form
S-1 No. 33-56270).

4.1 Loan Agreement, dated as of May 1, 1990, between the
Industrial Development Board of the County of Carroll (the
"ID Board") and Henry I. Siegel Company, Inc. ("Siegel").
(Incorporated herein by reference to Exhibit 4.12 to the
Company's RegistrationStatement on Form S-1 No. 33-56270).

4.2 Financing Agreement dated as of October 30, 1998 by and
among the Company, the Financial Institutions from Time to
Time Party thereto, as Lenders, and the CIT Group/Commercial
Services, Inc., as agent.

4.3 Lease, dated as of September 1, 1993, between the ID Board
and Siegel. (Incorporated herein by reference to Exhibit
10.30 to the Company's Annual Report on Form 10-K for the
fiscal year ended November 6, 1993)

4.4 Lease, dated as of August 1, 1994, between the City of
Hickman, Kentucky, and H.I.S. Kentucky, Inc. (Incorporated
herein by reference to Exhibit 4.5 to the Company's Annual
Report on Form 10-K for the fiscal year ended November 5,
1994).

4.5 Note Agreement, dated as of June 30, 1995, by the Company
and each of the Purchasers listed on Schedule 1 thereto (the
"Note Agreement"). (Incorporated herein by reference to
Exhibit 10.1 of the Company's Quarterly Report on Form 10-Q
for quarter ended August 5, 1995).

52
<PAGE>

4.6 Waiver and Amendment Agreement, dated as of February 14,
1996, among the Company and each of the Purchasers listed on
Schedule I attached to the Note Agreement. (Incorporated
herein by reference to Exhibit 4.8 to the Company's Annual
Report on Form 10-K for the fiscal year ended November 4,
1995).

4.7 Lease, dated as of February 1, 1995, between Fulton County,
Kentucky and H.I.S. Kentucky, Inc. (Incorporated herein by
reference to Exhibit 10.1 to the Company's Quarterly Report
on Form 10-Q for quarter ended May 6, 1995).

4.8 Loan Agreement, dated as of April 1, 1995, between the ID
Board and Siegel. (Incorporated herein by reference to
Exhibit 10.2 of the Company's Quarterly Report on Form 10-Q
for the quarter ended May 6, 1995).

10.1 Registration Rights Agreement, dated as of November 20,
1992, among the Company, Chrysler Capital Corporation,
Whirlpool Financial Corporation, NatWest, B.T. Expedition,
Inc., and Jesse S. Siegel. (Incorporated herein by reference
to Exhibit 4.14 to the Company's Registration Statement on
Form S-1 No. 33-56270).

10.2 Registration Rights Agreement, dated January 22, 1993, among
the Company and its stockholders as of such date.
(Incorporated herein by reference to Exhibit 4.4 to the
Company's Annual Report on Form 10-K for the fiscal year
ended November 6, 1993).

10.3 Representatives' Warrant Agreement, dated as of February 18,
1993, among the Company, Nomura Securities International,
Inc., Josephthal Lyon & Ross Incorporated and Tucker Anthony
Incorporated, including Form of Representatives' Warrant
Certificate. (Incorporated herein by reference to Exhibit
4.5 to the Company's Annual Report on Form 10-K for the
fiscal year ended November 6, 1993).

10.4 Agreement and General Release, dated as of March 14, 1998
among the Company and Burton M. Rosenberg.

10.5 Employment Agreement, dated as March 15, 1996, among the
Company, Siegel and Roland L. Kimberlin. (Incorporated
herein by reference to Exhibit 10.6 to the Company's Annual
Report on Form 10-K for the fiscal year ended November 4,
1996).

10.6 Employment Agreement, dated as of March 15, 1996, among the
Company, Siegel and Robert F. Luehrs. (Incorporated herein
by reference to Exhibit 10.7 to the Company's Annual Report
on Form 10-K for the fiscal year ended November 4, 1996).

10.7 Employment Agreement, dated as of March 15, 1996, among the
Company, Siegel and Stephen Weiner. (Incorporated herein by
reference

53
<PAGE>

to Exhibit 10.8 to the Company's Annual Report on Form 10-K
for the fiscal year ended November 4, 1996).

10.8 Lease, dated November 1989, between Tishomingo County,
Mississippi, and Siegel. (Incorporated herein by reference
to Exhibit 10.14 to the Company's Registration Statement on
Form S-1 No. 33-56270).

10.9 Lease, dated December 1, 1989, between Tishomingo County,
Mississippi, and Siegel. (Incorporated herein by reference
to Exhibit 10.15 to the Company's Registration Statement on
Form S-1 No. 33-56270).

10.10 Agreement of Lease, dated as of May 10, 1985, between
Nineteen New York Properties Limited Partnership and Siegel.
(Incorporated herein by reference to Exhibit 10.16 to the
Company's Registration Statement on Form S-1 No. 33-56270).

10.11 Lease, dated November 1, 1968, between Keystone Associates
and Siegel, as amended. (Incorporated herein by reference to
Exhibit 10.17 to the Company's Registration Statement on
Form S-1 No. 33-56270).

10.12 Lease, dated September 11, 1979, between the Mayor and Board
of Aldermen of the Town of Tiptonville, Lake County,
Tennessee, and Siegel. (Incorporated herein by reference to
Exhibit 10.18 to the Company's Registration Statement on
Form S-1 No. 33-56270).

10.13 Chic by H.I.S, Inc. 1993 Stock Option Plan and First
Amendment thereto. (Incorporated herein by reference to
Exhibit 10.19 to the Company's Registration Statement on
Form S-1 No. 33-56270).

10.14 Chic by H.I.S, Inc 1995 Stock Option Plan for Non-Employee
Directors. (Incorporated herein by reference to Exhibit
10.16 to the Company's Annual Report on Form 10-K for the
fiscal year ended November 5, 1994).

10.15 Phoenix Home Life Insurance Plan (Disability Plan).
(Incorporated herein by reference to Exhibit 10.20 to the
Company's Registration Statement on Form S-1 No. 33-56270).

10.16 Pension Plan for Eligible Employees, including amendments I
through IV thereto. (Such Plan and Amendments I through III
thereof incorporated herein by reference to Exhibit 10.21 to
the Company's Registration Statement on Form S-1 No.
33-56270).

10.17 Security Agreement, dated as of May 1, 1990, between the ID
Board and Siegel. (Incorporated herein by reference to
Exhibit 10.22 to the Company's Registration Statement on
Form S-1 No. 33-56270).

10.18 Guaranty Agreement, dated as of May 1, 1990, by the Company
in favor of Trust company Bank, as trustee. (Incorporated
herein by reference to

<PAGE>

Exhibit 10.23 to the Company's Registration Statement on
Form S-1 No. 33- 56270).

10.19 Letter, dated May 11, 1990, from the Company and Siegel to
Bayerische Hypotheken-Und Weschsel-Bank AG. (Incorporated
herein by reference to Exhibit 10.24 to the Company's
Registration Statement on Form S-1 No. 33- 56270).

10.20 Lease, dated October 27, 1986, between Sportswear and
Erbengemeinschaft Kellerer, including an amendment thereto.
(Translated). (Incorporated herein by reference to Exhibit
10.28 to the Company's Registration Statement on Form S-1
No. 33-56270).

10.21 Agreement, dated December 28, 1992, between Commerzbank and
Sportswear. (Translated). (Incorporated herein by reference
to Exhibit 10.29 to the Company's Registration Statement on
Form S-1 No. 33-56270).

10.22 Agreement, dated December 18, 1992, among Deutsche Bank,
Sportswear, Siegel and the Company. (Translated).
(Incorporated herein by reference to Exhibit 10.30 to the
Company's Registration Statement on Form S-1 No. 33- 56270).

10.23 Agreement, dated June 26, 1991, between Hypo Bank and
Sportswear. (Translated). (Incorporated herein by reference
to Exhibit 10.31 to the Company's Registration Statement on
Form S-1 No. 33-56270).

10.24 Licensing and Cooperation Agreement, dated November 2, 1990,
between Sportswear and Odevni Prumysl, Statni Podnik.
(Incorporated herein by reference to Exhibit 10.32 to the
Company's Registration Statement on Form S-1 No. 33-56270).

10.25 Licensing Agreement, dated May 29, 1992, between Sportswear
and CONSINVEST Ltd. (Translated). (Incorporated herein by
reference to Exhibit 10.33 to the Company's Registration
Statement on Form S-1 No. 33- 56270).

10.26 Guaranty Agreement, dated as of September 1, 1993, by the
Company in favor of First American National Bank, as
Trustee. (Incorporated herein by reference to Exhibit 10.31
to the Company's Annual Report on Form 10-K for the fiscal
year ended November 6, 1993).

10.27 Guaranty Agreement, dated as of August 1, 1994, by the
company in favor of First American National Bank.
(Incorporated herein by reference to Exhibit 10.29 to the
Company's Annual Report on Form 10-K for the fiscal year
ended November 5, 1994).

10.28 Guaranty Agreement, dated as of February 1, 1995, by the
Company in favor of First American National Bank, as
trustee. (Incorporated herein

<PAGE>

by reference to Exhibit 10.3 of the Company's Quarterly
Report on Form 10-Q for the quarter ended May 6, 1995).

10.29 Guaranty Agreement, dated as of April 1, 1995, by the
Company in favor of First American National Bank, as
trustee. (Incorporated herein by reference to Exhibit 10.4
of the Company's Quarterly Report on Form 10-Q for the
quarter ended May 6, 1995).

10.30 Guaranty Agreement, dated as of June 30, 1995, by Siegel in
favor of the Purchasers listed on Annex 1 thereto.
(Incorporated herein by reference to Exhibit 10.2 of the
Company's Quarterly Report on Form 10-Q for the quarter
ended August 5, 1995).

10.31 Guaranty Agreement, dated as of June 30, 1995, by Chic
Holdings Corp. in favor of the Purchasers listed on Annex 1
thereto. (Incorporated herein by reference to Exhibit 10.3
of the Company's Quarterly Report on Form 10-Q for the
quarter ended August 5, 1995).

10.32 Guaranty Agreement, dated as of June 30, 1995, by Chic by
H.I.S. Licensing Corporation in favor of the Purchasers
listed on Annex 1 thereto. (Incorporated herein by reference
to Exhibit 10.4 of the Company's Quarterly Report on Form
10-Q for the quarter ended August 5, 1995).

10.33 Guaranty Agreement, dated as of June 30, 1995, by H.I.S.
Kentucky, Inc. in favor of the Purchasers listed on Annex 1
thereto. (Incorporated herein by reference to Exhibit 10.5
of the Company's Quarterly Report on Form 10-Q for the
quarter ended August 5, 1995).

10.34 Guaranty Agreement, dated as of June 30, 1995, by h.i.s.
Limited in favor of the Purchasers listed on Annex 1
thereto. (Incorporated herein by reference to Exhibit 10.6
of the Company's Quarterly Report on Form 10-Q for the
quarter ended August 5, 1995).

13.1 Annual Report to Stockholders of the Company for the fiscal
year ended November 6, 1999 (including attachment thereto).

21.1 Subsidiaries of the Company. (Incorporated herein by
reference to Exhibit 21.1 to the Company's Annual Report on
Form 10-K for the fiscal year ended November 5, 1994).

27 Financial Data Schedule.

56
<PAGE>

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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, in the City of New
York, State of New York, on February 2, 2000.

CHIC BY H.I.S, INC.

By /s/ Daniel Rubin
------------------------
(Daniel Rubin)
Co-Chairman of the Board and
Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

SIGNATURE CAPACITY DATE
- --------- -------- ----

/s/ Daniel Rubin Co-Chairman of the Board, February 2, 2000
- ------------------------ Chief Executive Officer
(Daniel Rubin) and Director
(Principal Executive Officer)

/s/ Arnold Amster Co-Chairman of the Board, February 2, 2000
- ------------------------ Director
(Arnold Amster)

/s/ Christine A. Hadjigeorge Chief Financial Officer February 2, 2000
- ---------------------------- Secretary and Treasurer
(Christine A. Hadjigeorge) (Principal Financial Officer)

/s/ Walter Berman Director February 2, 2000
- ------------------------
( Walter Berman)

/s/ Michael Conroy Director February 2, 2000
- ------------------------
(Michael Conroy)

/s/ Herbert Denton Director February 2, 2000
- ------------------------
(Herbert Denton)

/s/ Roland L. Kimberlin Director February 2, 2000
- ------------------------
(Roland L. Kimberlin)

/s/ Mark Metzger Director February 2, 2000
- ------------------------
(Mark Metzger)

<PAGE>

FINANCIAL STATEMENT SCHEDULE

Report of Independent Certified Public Accountants on
Financial Statement Schedule S - 1

Schedule II- Valuation and Qualifying Accounts S - 2

All other schedules are not submitted because they are not required or because
the required information is included in the financial statements or notes
thereto.

<PAGE>

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

To the Shareholders of
Chic by H.I.S., Inc. and Subsidiaries

The audits referred to in our report dated January 12, 2000, relating to the
consolidated financial statements of Chic by H.I.S., Inc. and Subsidiaries which
contains a going concern explanatory paragraph, which is referred to in Item 8
of this Form 10-K, included the audit of the accompanying financial statement
schedule. This financial statement schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion on this
financial statement schedule based on our audits.

In our opinion, such financial statement schedule presents fairly, in all
material respects, the information set forth therein.

/s/ BDO Seidman, LLP

BDO Seidman, LLP

New York, New York
January 12, 2000

S-1

<PAGE>

CHIC BY H.I.S, INC.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
NOVEMBER 1, 1997
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- -------- -------- -------- -------- --------

BALANCE AT BALANCE
BEGINNING OF AT END OF
DESCRIPTION PERIOD ADDITIONS DEDUCTIONS PERIOD
- ----------- ------ --------- ---------- ------

<S> <C> <C> <C> <C>
RESERVE FOR
UNCOLLECTIBLE ACCOUNTS
AND RETURNS AND
ALLOWANCES $125 $65 $0 $190
============ =========== ============= ===========

YEAR ENDED
NOVEMBER 7, 1998
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- -------- -------- -------- -------- --------

BALANCE AT BALANCE
BEGINNING OF AT END OF
DESCRIPTION PERIOD ADDITIONS DEDUCTIONS PERIOD
- ----------- ------ --------- ---------- ------
- -

RESERVE FOR
UNCOLLECTIBLE ACCOUNTS
AND RETURNS AND
ALLOWANCES $190 $47 $0 $237
============= =========== ============= ===========

YEAR ENDED
NOVEMBER 6, 1999
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- -------- -------- -------- -------- --------

BALANCE AT BALANCE
BEGINNING OF AT END OF
DESCRIPTION PERIOD ADDITIONS DEDUCTIONS PERIOD
- ----------- ------ --------- ---------- ------
- -

RESERVE FOR
UNCOLLECTIBLE ACCOUNTS
AND RETURNS AND
ALLOWANCES $237 $0 $21 $216
============= =========== ============= ===========
</TABLE>

S-2
<PAGE>

<ARTICLE> 5
<LEGEND>
This Schedule contains summary financial information extracted from the
consolidated balance sheet and the consolidated statement of operations as filed
as part of the annual report on Form 10-K and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-7-1998
<PERIOD-END> NOV-6-1999
<CASH> 2,079
<SECURITIES> 0
<RECEIVABLES> 35,331
<ALLOWANCES> 216
<INVENTORY> 58,488
<CURRENT-ASSETS> 105,164
<PP&E> 92,814
<DEPRECIATION> 30,120
<TOTAL-ASSETS> 172,267
<CURRENT-LIABILITIES> 86,570
<BONDS> 22,356
0
0
<COMMON> 98
<OTHER-SE> 43,409
<TOTAL-LIABILITY-AND-EQUITY> 172,267
<SALES> 237,983
<TOTAL-REVENUES> 284,202
<CGS> 184,360
<TOTAL-COSTS> 57,961
<OTHER-EXPENSES> 25,229
<LOSS-PROVISION> (33)
<INTEREST-EXPENSE> 6,908
<INCOME-PRETAX> (8,403)
<INCOME-TAX> 3,143
<INCOME-CONTINUING> (11,546)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (13,043)
<EPS-BASIC> (1.32)
<EPS-DILUTED> (1.32)

</TABLE>