HOSIERY CORP OF AMERICA INC, 10-K/A, 1996-07-03

HOSIERY CORP OF AMERICA INC
10-K/A, 1996-07-03
KNITTING MILLS

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K/A
(AMENDMENT NO. 1)

(MARK ONE)
( X ) ANNUAL REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)

For the Fiscal Year Ended December 31, 1995

( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)

For the Transition Period From _______ to ________

Commission File No. 33-87392

HOSIERY CORPORATION OF AMERICA, INC.
------------------------------------------------------------------
(Exact name of registrant as specified in its charter)

DELAWARE 36-0782950
- ---------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)

3369 Progress Drive
Bensalem, Pennsylvania 19020
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: (215) 244-1777

Indicate by check mark whether the Registrant (1) has filed all reports
required 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 the registrant's knowledge, in definitive proxy or
information statements incorporated by reference in part iii of this form
10-k or any amendment to this form 10-k. (X)

The aggregate market value of the voting stock held by non-affiliates of
the registrant is zero. All of the voting stock is held by affiliates and
there is no established public trading market for any class of common stock
of the Registrant.

Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.

Class Outstanding at March 25, 1996
- ---------------------------- -----------------------------
Voting 1,328,396
Class A, non-voting 75,652

<PAGE>

PART I

ITEM 1. BUSINESS

Hosiery Corporation of America, Inc. (the "Company"), the
Registrant is a corporation organized in 1975 under the laws of the state
of Delaware.

The Company is engaged in the direct mail marketing, manufacturing
and distribution of quality women's sheer hosiery products to consumers
throughout the United States. The Company markets women's sheer hosiery
through a continuous product shipment or "continuity" program. The
Company's continuity program involves mailing to customers a specially
priced introductory hosiery offer, the acceptance of which enrolls
customers in the program and results in additional shipments of hose on a
regular and continuous basis upon payment of a prior hose shipment. The
Company's hosiery production was approximately 55 million pairs in 1995,
primarily marketed under the SilkiesR brand name. The Company's
manufacturing operations supply all the hosiery required by the Company's
continuity program.

The Company markets its hosiery products exclusively through its
direct mail marketing continuity program. The success of this program
depends on targeting likely customers and on retaining customers by
delivering quality hosiery products directly to the home on a regular
basis. Drawing on its customer list of over 50 million individuals and on
certain rented customer lists, the Company has developed sophisticated
statistical, regression, segmentation and other financial analyses to
accurately target, test and acquire first-time (and previously inactive)
"front end" customers through direct mail solicitation. The Company has
designed an initial direct mail solicitation offer which has attracted
front end customers and reactivated previous customers.

In order to induce customers to participate in the Company's
continuity program, the introductory hosiery offer is priced as a "loss
leader". The introductory offer is priced at a nominal amount, $1.00 per
pair plus shipping and handling, that is substantially less than the cost
of manufacturing, processing and shipping the related hosiery.

Front end customers who continue to participate in the Company's
continuity program become part of the Company's repeat or "back end"
customer base. After responding to the front end solicitation and receiving
their first shipment, customers can elect to continue in the program,
receiving either four or six pairs of hose with each subsequent shipment. A
customer who chooses to participate in the continuity program by making
regular purchases pursuant thereto is an active back end customer. Such
"active back end customers" exclude customers receiving their first
shipment. Upon payment for each shipment, customers are sent another
shipment of regularly priced hose, on average every four to six weeks. The
Company has established a consistent and predictable back end customer base
by providing customers with quality hosiery products on a regular basis. As
of December 1995, the Company had approximately 1.1 million back end
customers.

Marketing Strategy

The Company has created a marketing strategy which combines direct
mail marketing techniques with its continuity program. The Company's
marketing efforts focus on targeting and acquiring front end customers, as
well as maintaining a strong relationship with continuity or back end
customers through efficient fulfillment of quality products, customer
service, creative new product introductions and unique marketing
strategies. These direct mail marketing initiatives, refined by advanced
statistical and regression analyses, have increased the size and quality of
its customer base.

The Continuity Program. The Company's current initial direct mail
solicitation offers its customers the opportunity to receive one free pair
of hosiery with the purchase of two additional pairs at $1.00 per pair. The
customer is able to choose the size, style and color of hosiery for this
initial shipment. Upon receiving the first shipment, the customer can (i)
pay for the product and order a second shipment, (ii) pay for the product
and elect not to order a second shipment, or (iii) return the product and
keep the free pair.

By paying for the product and ordering a second shipment of
hosiery, the customer joins the Company's continuity program and becomes a
repeat or back end customer. Upon payment for each shipment, customers are
sent a subsequent shipment of regularly priced hose, on average every four
to six weeks, with some customers electing a bi-monthly shipment option.
With each shipment, customers may change the selection of styles, colors
and sizes. Back end shipments contain either four or six pairs of hosiery
which vary in price according to style. All shipments are made on credit,
but the Company's exposure to any one customer is limited to the cost of
one shipment. Customers are not required to commit to a minimum purchase
amount and can cancel the program at any time, for any reason.

The Company actively re-promotes customers who have chosen to
discontinue their participation in the continuity program. Based upon the
number of previous shipments and the circumstances regarding cancellation
of previous enrollment, the Company will send as many as nine reactivation
offers to reinstate these customers. In total, the Company sends about 6
million such offers annually, and believes that approximately 30% of those
customers rejoin the continuity program as the result of these efforts. The
Company also maintains a database of inactive customers who receive
adaptations of the standard front end solicitation.

Acquiring Front End Customers. Direct mail marketing has become
the Company's sole means of attracting new front end customers and
reactivating previous customers, and has replaced less-targeted methods
previously used by the Company, including co-operative advertising and
package inserts. Four major solicitations featuring the Company's specially
priced introductory offer are mailed each year (January, March, June,
September). There is no significant seasonality in the mailings.

The Company employs advanced statistical and regression analyses
in conjunction with each of its solicitation promotions. The Company
utilizes its proprietary in-house database of over 58 million customers, as
well as lists rented from other direct marketing firms, and analyzes
information concerning customer buying habits and payment records in order
to determine which potential customers are likely to purchase hosiery from
the Company on a regular and long-term basis. During each major
solicitation, all chosen customer lists are ranked by potential realizable
profit. The mailing cut off is then matched to budgeted production. This
process ensures that anticipated profit is maximized from each of the four
mailings.

Retention of Back End Customers. The Company seeks to retain its
continuity or back end customers by providing high quality hosiery on a
regular basis and at competitive prices. In addition, the Company employs a
variety of programs designed to retain customers over a long period of
time. As members of the continuity program, customers receive gift
certificates with each shipment of hosiery which can be redeemed for a wide
array of merchandise. The Company also offers a women's wear catalog
featuring branded and private label lingerie and intimate apparel products
in conjunction with outside manufacturers. Through these means the Company
believes it has been able to establish a predictable base of back end
customers without significant losses of customers over time. The Company
continually is working on developing new means of better retaining its back
end customers. Customers exit the continuity program for various reasons
including unavailability of certain styles and colors, preference for
retail stores, situational changes, too much hosiery, promotional sales at
retail stores, quality and garment fit.

Through its data processing capabilities, the Company tracks a
customer's order history from the initial order through each subsequent
purchase, whether the purchase is a hosiery product, merchandise from the
women's wear merchandise catalog, or other consumer products received
through gift redemptions. Each of the Company's customer service
representatives has on-line capabilities to retrieve customer specific
queries and purchasing history.

Customer Testing. All aspects of the Company's direct mail
marketing program result from specific customer testing which the Company
conducts continuously. Such testing enables the Company to (i) project the
profitability of certain in-house and outside customer lists; (ii) maximize
response rates to front end solicitations; (iii) determine the
profitability of the product mix offered to back end customers; (iv)
determine optimal pricing strategy; and (v) increase payment and retention
rates. Constant refinement of test programs through creative design, offer
upgrades, new hosiery products and referrals are conducted throughout
various mailings with the objective of increasing response rates or
reducing cost, without negatively impacting continuation or retention. The
time from test to application can take between three and twelve months
depending on the testing employed. Historically, the Company's actual
results have been similar to its test results.

Customer Profile. Management believes that the Company's average
customer is a working woman between age 30 and 55. The Company estimates
that its average customer buys approximately 60% of her sheer hosiery
products from the Company, and many of such customers purchase hosiery for
other household members.

Product and Development

The Company manufactures moderately priced, quality women's sheer
hosiery under the SilkiesR brand name. The Company's product line is
designed to include the more popular product styles and colors for which
most customers have the greatest demand and, effective January 1996,
includes six styles of sheer hosiery, in nine different colors and six
sizes, as well as knee-hi's. The Company's elastomer products (compression
garments containing spandex) include Control Top, Total Leg Control, Sheer
Charm and Shapely Perfection styles. The Company's elastomer products
currently represent approximately 80% of its total production. The
remainder of the Company's production consists of its non-elastomer
products including Panty 'n Hose, Sheer to Waist and Knee-Hi styles. As of
January 1996, the styles range in price from $2.33 to $4.69 per pair. The
Company performs extensive consumer research and product testing to: (i)
ensure product quality, (ii) service all significant markets and (iii)
convert existing compression hose customers to higher margin, sheer
compression hosiery products such as Shapely Perfection.

Data Processing and Management Information Systems

The Company has computer and data processing capabilities which
are more than adequate for its current level of operations. Furthermore,
management believes that no further significant incremental capital
investment in its computer systems would be necessary to handle the
anticipated growth in the level of front end customers beyond 5.0 million,
and the related increase in back end shipments. The Company has a full back
up and disaster recovery program for its data processing system which
enables operation at an outside facility within twelve hours of the onset
of such need.

The Company provides data processing services, including
proprietary software programs, to its marketing operations that manage the
flow of all hosiery products from solicitation to customer fulfillment.
These services include direct mail solicitations, customer list management
and customer service operations, including order input, billing,
collection, printing and tracking of customers ordering history. Through
its database capabilities, the Company is also able to store and manage a
proprietary database of customer purchasing habits gathered from the
Company's hosiery sales history in addition to customer gift redemptions
and women's wear merchandise catalogs. This historical database of customer
purchasing habits covers current and past hosiery shipments, customers'
credit statistics, buying patterns and purchasing records.

Manufacturing and Distribution

The Company manages all phases of the manufacturing and
fulfillment of hosiery products, including planning, purchasing,
production, packaging and distribution. The Company's direct mail marketing
program is vertically integrated into its manufacturing and production
operations, the latter providing the Company's marketing operations with
all the Company's hosiery needs. By spreading the volume of yearly orders
over four major solicitation dates, manufacturing and fulfillment are able
to avoid extreme variations, and thereby ensure higher efficiency and
better product quality. Additionally, the results of the Company's direct
mail marketing program allow the Company quickly to adjust its
manufacturing output accordingly.

Production Process. Once front end and back end orders have been
received, the shipment information is communicated via computer to the
Company's facilities at Newland, North Carolina. The Company's ability to
schedule its annual output which allows the Company to practice "Just In
Time" inventory management techniques. The primary raw materials utilized
by the Company are nylon and spandex yarn, dye and chemicals, and are all
readily available. Such raw materials are purchased directly from suppliers
who provide the Company with technical support. All knitting and sewing
operations, including toe closing, line seaming and gusset seaming, are
located at the Company's facilities in Newland, North Carolina. Once the
hosiery products have been manufactured, they are transported to the
Company's Lancaster, South Carolina, facility where the products are dyed,
packaged and prepared for delivery.

Suppliers. The primary raw materials utilized in the Company's
manufacturing operations are nylon and spandex yarn, dye and chemicals. The
Company purchases a majority of its yarn under 6-month fixed-price
contracts from various domestic and international suppliers. Although the
Company generally stocks only a two to three week supply of raw materials
in order to manage inventory efficiently, the predictable nature of the
Company's shipments generally allows it to order raw materials up to a year
in advance and secure an adequate supply at prearranged costs.

Packaging and Distribution. The Company operates fully automated,
high speed packaging machines and distributes its products through the
United States Postal Service directly to the customer's home. The Company's
use of standardized and fully automated packaging allows the Company to
achieve significant efficiencies. The Company uses the United States Postal
Service and has been able to control delivery costs by passing on to its
customers any increases in postal rates. However, there can be no assurance
that in the future the Company will be able to pass on increased shipping
costs to its customers. The Company also tries to minimize postal costs
through the use of pre-sorting, utilizing nine digit zip codes and
co-mingling of mail.

Capital Investment. The Company has substantially completed an
extensive investment program begun in 1990 to modernize its manufacturing,
computer and distribution operations, resulting in the improved efficiency
of the Company's manufacturing operations. During the past five years, the
Company has spent approximately $18 million replacing the majority of its
knitting and sewing capacity with advanced robotics, installing automatic
packaging equipment for more timely response through efficient fulfillment,
building a new dye house and distribution facility and upgrading its
computer facilities. The Company maintains relationships with its machinery
producers in order to keep up-to-date on changing manufacturing methods.
The Company's current manufacturing operations have the capacity to produce
approximately 60 million pairs annually. In addition, the modernization
program has provided the Company with the ability to expand future
production capacity by approximately 20% from current levels without
significant incremental capital investment.

Growth Strategy

Management believes that the Company's ability to analyze and
manage a large customer base, combined with its knowledge of customer
buying profiles, provides strong potential for future growth through the
direct mail marketing channel. The Company's strategy for additional growth
primarily involves expanding its current operations by acquiring front end
customers through increased solicitations and improved response rates. In
1995, the Company brought in 5.0 million front end customers which has
increased substantially from 1993 and 1994 where 3.3 million and 3.7
million front ends were acquired, respectively.

The basis for the continued growth in front end acquisitions will
be the ability to obtain previously unavailable lists and new promotional
techniques which have demonstrated improved response rates. Management
anticipates that the continued increase in front end customers will
continue to lead to growth in back end shipments over the next several
years. The Company believes, based in part on management's significant
experience with international operations and test marketing during 1995 in
the United Kingdom, that the international markets provide significant
opportunities for growth.

Additionally, the Company expects to explore the possibility of an
acquisition in the direct mail industry where it can apply its marketing
and computer facilities to enhance the value of the Company acquired.

Competition and Industry

The Company operates exclusively in the women's sheer hosiery
industry, targeting adult females as customers. Management believes that
the overall women's sheer hosiery market may be declining as a result of
the high cost of repeat purchases of such products and changes in women's
choices in business and leisure wear. Despite this apparent overall market
decline, the Company has been able to increase its sales from $109.8
million in 1993 to $136.3 in 1995.

Women's sheer hosiery is sold through a variety of distribution
channels, including discount stores, grocery and drug stores, specialty
stores, national chains and direct marketing. The Company is the only
organization which focuses solely on distributing women's sheer hosiery
through a direct mail marketing continuity program. Although several
competitors have sold their hosiery products via mail order for many years,
this distribution has concentrated on the large quantity sale of
irregulars, as opposed to the Company's direct mail marketing of high
quality women's hosiery products in a continuity program. Because the
Company sells women's sheer hosiery, it competes indirectly with major
manufacturers and distributors of women's sheer hosiery who primarily sell
through the retail channel and some of whom are larger and better
capitalized than the Company, and may have greater brand recognition than
the Company.

The major United States hosiery manufacturers include Sara Lee
Hosiery, a division of Sara Lee Corporation, Kayser-Roth, a subsidiary of
Mexican-based Grupo Synkro S.A., the Company and Americal, a privately held
U.S. concern. Sara Lee Hosiery and Kayser-Roth account for more than 70% of
the women's sheer hosiery market. Over 60 other smaller manufacturers also
produce women's sheer hosiery primarily for sale under private labels.
Competition in the women's sheer hosiery market is generally based on
price, quality and customer service.

In addition, the Company competes, and faces potential
competition, with other direct marketing companies. Such competitors
include businesses which engage in direct mail, catalog sales,
telemarketing and other methods of sale which compete for the attention and
spending dollars of consumers in the home. There are numerous direct
marketing companies that are larger and better capitalized than the Company
and that offer more varied product assortments. The Company believes,
however, that it is the only significant direct marketing company to focus
exclusively on women's sheer hosiery.

Employees

As of December 31, 1995, the Company had 843 employees, 164 of
whom were located at its headquarters and operations center in Bensalem,
Pennsylvania, 384 of whom were located at its manufacturing facility in
Newland, North Carolina, and 291 of whom were located at its manufacturing,
packaging and fulfillment operations facility in Lancaster, South Carolina.
Additionally, 4 employees have been added in the United Kingdom for a major
test in 1996. Of the total number of employees, 121 are salaried workers.
The remaining 722 are non-salaried employees, the majority of whom are paid
an hourly wage plus incentive compensation based on productivity measures.
The Company's hourly workforce is not affiliated with any unions. The
Company has not experienced any work stoppages and believes its relations
with its employees are good.

Recapitalization

ITEM 2. PROPERTIES

The Company owns or leases facilities at four principal locations.
The following sets forth the general location of each, its size, whether
the facility is owned or leased and the principal function of each.

Size in Owned/
Location Square Feet Leased Function

Headquarters; Adminis-
tration; Marketing; Data
Processing;
Bensalem, Pennsylvania 60,000 Leased Customer Service

Newland, North Carolina 138,000 Owned Knitting; Sewing

Lancaster, South Carolina 142,000 Owned Dyeing; Packaging;
Fulfillment Operations

Liverpool, United Kingdom 15,000 Leased Headquarters; United
Kingdom

The owned facilities are subject to mortgages and security interests
granted to secure payment of the Company's debt. See Note 11 to the
Consolidated Financial Statements of Hosiery Corporation of America, Inc.
in Item 8 hereof.

ITEM 3. LEGAL PROCEEDINGS

The Company is involved in, or has been involved in, litigation
arising in the normal course of its business. The Company can not predict
the timing or outcome of these claims and proceedings. Currently, the
Company is not involved in any litigation which is expected to have a
material effect on the financial position of the business or the results of
operations and cash flows of the Company.

In 1984, as a result of a lawsuit brought by the FTC, the Federal
District Court for the Eastern District of Pennsylvania issued a consent
injunction, which sets forth specific rules with which the Company must
comply in conducting its mail order business and permanently enjoins the
Company, its successors and assigns, its officers, agents, representatives
and employees, and anyone acting in concert with the Company from violating
various FTC and Postal Service laws and regulations. Since entry of the
consent injunction, the FTC has not instituted any proceedings against the
Company with respect to its mail order business nor has it advised the
Company that it considers the Company to be in violation of the consent
injunction. The Company believes that it is in full compliance with the
consent injunction and continued compliance has not had a material effect
on the Company's business.

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

The Company did not submit any matter to a vote of its security
holders during the fourth quarter of 1995.

PART II

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

There is no established public trading market for any class of
common equity of the Company.

Approximately 95% of the common stock is owned by affiliates of
the Company. Holders of voting common stock are subject to a stockholders
agreement. See Item 10, page 37.

ITEM 6. SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
Year Ended December 31,
1991 1992 1993 1994(a) 1995
---- ---- ---- ------- ----
(In Thousands)

<S> <C> <C> <C> <C> <C>
Net Revenues $ 87,713 $ 102,235 $ 109,824 $ 118,560 $ 136,299

Income From Continuing
Operations before Provision for
Income Taxes and Cumulative
Effect of Accounting Change 23,359 10,676 14,943 17,116 12,056

Working Capital 6,132 7,632 7,518 3,152 5,794

Total Assets 64,989 66,152 66,859 74,860 82,860

Long Term Debt 11,954 13,455 12,305 153,442 151,093

Other Long-Term Obligations -- 1,204 584 66 --

Redeemable Equity Securities -- -- -- 45 332

Stockholders Equity 21,802 25,656 26,318 (110,266) (102,868)
(Deficiency in Assets)

Cash Dividends Declared 738 387 -- -- --

- ----------------
(a) On October 17, 1994, the Company effected the recapitalization of its
capital stock. For discussion of the recapitalization, see Note 3 to
the Consolidated Financial Statements of Hosiery Corporation of
America, Inc. in Item 8 hereof.
</TABLE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1995, 1994
AND 1993

Results of Operations

The following table sets forth certain income statement data for
the Company expressed as a percentage of net revenues.

Fiscal Years Ended December 31,
1993 1994 1995
---- ---- ----
Net revenues............................ 100.0% 100.0% 100.0%
Cost of sales........................ 45.4 44.3 44.7
Administrative and general expenses.. 13.2 11.5 7.5
Provision for doubtful accounts...... 4.6 4.8 5.7
Marketing costs...................... 12.7 13.1 12.8
Coupon redemption costs.............. 5.2 5.4 4.4
Depreciation and amortization........ 1.9 2.6 1.8
----- ----- -----

Subtotal........................ 83.0 81.7 76.9
---- ---- ----

Income from continuing operations
before interest, other (income)
expenses and provision for
income taxes......................... 17.0% 18.3% 23.1%
==== ==== ====

Fiscal 1995 Compared to Fiscal 1994

Solicitations to front end customers were increased by 41.6% from
30.6 million in fiscal 1994 to 43.3 million in fiscal 1995. Due to the
increased number of mailings, front end shipments increased 31.2% from 10.1
million pairs in 1994 to 13.3 million pairs in 1995. As a direct result of
higher front end shipments, the Company's back end shipments increased by
10.4% from 24.6 million pairs in 1994 to 27.2 million pairs in 1995.

Net revenues increased by 15.0% from $118.6 million in fiscal 1994
to $136.3 million in fiscal 1995. This increase was the result of higher
solicitations to elicit additional front end customers (up 1.2 million
customers from the comparable period). The increase in net revenues was
primarily the result of these additional front end shipments, the related
continuation of back end shipments for these new customers and there was a
$.05 per pair price increase in both fiscal 1995 and 1994. Price variance
accounts for approximately 25% of the sales increase, while the balance
relates to volume increases.

Returns of front end shipments increased from 378 thousand in
fiscal 1994 to 524 thousand in fiscal 1995, or 38.6%. These returns
resulted in $1.5 million and $2.1 million in deductions from sales for
front end shipments for these respective periods. Returns of back end
shipments also increased from 680 thousand in fiscal 1994 to 766 thousand
in fiscal 1995, or 12.6%. These returns resulted in $10.0 million and $11.8
million in deductions from sales for back end shipments for these
respective periods.

Cost of sales increased 16.2% from $52.5 million in fiscal 1994 to
$61.0 million in fiscal 1995. This increase was primarily attributable to
the higher front end and back end shipments. There were 1.2 million
additional front end shipments in 1995 compared to 1994. The cost of sales
for front end shipments is higher as a percent of sales than the cost of
back end shipments, resulting in an increase in cost of sales as a percent
of sales from 1994 (44.3%) to 1995 (44.7%). The higher cost of front end
shipments was partially offset by lower manufacturing costs and lower
acquisition cost for raw materials.

Administrative and general expenses decreased 25.1% from $13.6
million in fiscal 1994 to $10.2 million in fiscal 1995. As a percentage of
net revenues, these expenses decreased from 11.5% in fiscal 1994 to 7.5% in
fiscal 1995. This decrease was primarily due to lower personnel costs ($2.6
million) and the elimination of a corporate-owned life insurance program
($0.8 million).

Provision for doubtful accounts increased $2.1 million from $5.6
million in fiscal 1994 to $7.8 million in fiscal 1995. This increase was
partially caused by additional front end, second and third shipments in
fiscal 1995 as compared to fiscal 1994 (1.7 million), which have a higher
rate of uncollectible accounts, resulting in $1.3 million of the increase.
The balance of the increase was attributable to a lower payment rate ($0.4
million) as compared to fiscal 1994, and an increase in agency fees and
volume increases for other hose shipments ($0.4 million).

Marketing costs increased 12.2% from $15.5 million for fiscal 1994
to $17.4 million for fiscal 1995. This increase was directly attributable
to the substantial increase in front end solicitations (30.6 million in
1994 compared to 43.3 million in 1995).

Coupon redemption costs decreased from $6.4 million in fiscal 1994
to $6.0 million in fiscal 1995. This decrease is the result of providing a
new gift catalog to customers with an average cost per gift to the Company
that is less than that of previous catalogs. As a percentage of net
revenues, redemption costs were 5.4% in 1994 and 4.4% in 1995 reflecting
the lower gift costs in 1995 versus 1994.

Depreciation expense has declined from $3.1 million in fiscal 1994
to $2.5 million in fiscal 1995. The primary reason for the decrease related
to accelerated depreciation of computer equipment in 1994 that was replaced
in early 1995.

Interest expense has increased from $4.8 million in fiscal 1994 to
$19.7 million in fiscal 1995. This increase was the direct result of the
issuance by the Company of approximately $149 million of debt in October
1994 as part of the Recapitalization as defined in "--The Recapitalization"
below.

Pretax income from continuing operations declined from $17.1
million in fiscal 1994 to $12.1 million in fiscal 1995. The decline in
pretax income from continuing operations was attributable to the increased
interest expense related to the Recapitalization, as well as increases in
cost of sales, bad debts and marketing costs, offset by increases in sales
and reductions in administrative and general expenses.

Net income decreased from $9.7 million for the year ended December
31, 1994 to $7.5 million for the comparable period of 1995. Adjusted for
the losses on discontinued operations and the cumulative effect of a change
in accounting, net income decreased from $10.5 million in 1994 to $7.5
million in 1995. This decrease in net income resulted from decreased
operating results ($5.1 million), offset by a $2.1 million decrease in the
provision for income taxes.

Fiscal 1994 Compared to Fiscal 1993

Solicitations to front end customers were increased by 1.7% from
30.0 million in fiscal 1993 to 30.6 million in fiscal 1994. Due to the
increased number of mailings and improved response rates, front end
shipments increased 13.8% from 8.9 million pairs in fiscal 1993 to 10.1
million pairs in fiscal 1994. The Company's back end shipments increased by
1.5% from 24.3 million pairs in fiscal 1993 to 24.6 million pairs in fiscal
1994 as a direct result of higher front end shipments.

Net revenues increased $8.8 million (8.0%) to $118.6 million in
fiscal 1994 from $109.8 million in fiscal 1993. This increase was the
result of higher front end shipments and conversion of back end customers
to a six pair program from four pairs. Sales in fiscal 1993 for the six
pair program were $7.4 million (program only in effect for six months;
initiated in June 1993), while sales for fiscal 1994 for the six pair
program were $33.9 million. Additionally, there was a price increase of
$.05 (approximately 1.3%) in January 1994. The $6.2 million increase in
back end sales was attributable to higher volume ($1.2 million), price
increases ($3.7 million) and product mix ($1.3 million).

Returns of front end shipments increased from 316 thousand in
fiscal 1993 to 378 thousand in fiscal 1994. These returns resulted in $1.2
million and $1.5 million deductions from sales for front end shipments for
these respective periods. Returns of back end shipments also increased from
588 thousand in fiscal 1993 to 680 thousand in fiscal 1994. These returns
resulted in $8.2 million and $10.0 million deductions from sales for back
end shipments for these respective periods.

Cost of sales increased 5.4% from $49.8 million in fiscal 1993 to
$52.5 million in fiscal 1994. This increase was attributable to the higher
front and back end shipments. Cost of sales, as a percentage of sales,
declined from 45.4% in fiscal 1993 to 44.3% in fiscal 1994. This decrease
reflects continued benefits from the Company's modernization program in the
manufacturing of hose ($1.0 million) and conversion of customers to higher
margin spandex products. These improvements offset higher costs associated
with the increase in front end shipments (increase of 409 thousand
shipments from 1994 to 1993), which increased as a percentage of total
shipments from 32.8% in fiscal 1993 to 35.4% in fiscal 1994.

Administrative and general expenses decreased by 5.9% from $14.5
million in fiscal 1993 to $13.6 million in fiscal 1994. This decrease was
due to the decrease in corporate-owned life insurance premiums which
totaled $2.7 million in 1993 as compared to $0.8 million in 1994, offset by
one-time increased salaries and benefit costs ($0.6 million), severance
payments ($0.4 million) and costs associated with the sale of the Company
($0.2 million). As a percentage of net revenues these expenses decreased
from 13.2% in fiscal 1993 to 11.5% in fiscal 1994.

Provision for doubtful accounts increased 10.7% from $5.1 million
in fiscal 1993 to $5.6 million in fiscal 1994. The increase was caused by
the increase in front end shipments in fiscal 1994 (409 thousand) as
compared to fiscal 1993. Front end shipments and the next two subsequent
shipments consistently generate a higher level of bad debt expense than
exists for established customers. While the allowance for doubtful accounts
receivable decreased from $1.1 million to $0.9 million from December 31,
1993 to December 31, 1994, after adjusting for a one-time accrual for
specific receivables of $0.3 million, the Company's adjusted allowance for
doubtful accounts receivable increased from $0.8 million to $0.9 million or
from 4.9% to 5.1% of accounts receivable as of December 31, 1993 and 1994,
respectively.

Marketing costs increased 11.6% from $13.9 million in fiscal 1993
to $15.5 million in fiscal 1994 due to costs associated with the increased
front end solicitations ($0.7 million), the conversion of customers to the
six pair program ($0.4 million) and an increased rate of accelerated
amortization of deferred marketing costs due to the implementation of the
six pair program.

Coupon redemption costs increased 12.6% from $5.7 million in
fiscal 1993 to $6.4 million in fiscal 1994 due to increased redemptions
from a larger base of back end customers ($0.3 million) and an increase in
the reserve account for potential future redemptions ($0.3 million)
reflecting the growth in the six pair program which enables customers to
earn additional certificates. As a percentage of net revenues, redemption
costs were 5.2% versus 5.4% in fiscal 1993 and fiscal 1994, respectively.

Depreciation and amortization expense increased from $2.1 million
in fiscal 1993 to $3.1 million in fiscal 1994. The primary reason for this
increase related to accelerated depreciation of computer equipment which
was replaced in early 1995.

Interest expense increased from $1.5 million in fiscal 1993 to
$4.8 million in fiscal 1994. This increase was the direct result of the
issuance by the Company of approximately $149 million of debt in October
1994 as a result of the Recapitalization.

Other expenses were $2.3 million in fiscal 1993 whereas fiscal
1994 had $0.2 million of other income. In 1993, such expenses included $1.7
million for a litigation settlement, $0.2 million legal costs associated
with the settlement, as well as $0.4 million legal fees associated with the
estate of a former stockholder of the Company. Other income in fiscal 1994
related primarily to interest income.

Pretax income from continuing operations increased 14.5% from
$14.9 million in fiscal 1993 to $17.1 million in fiscal 1994. The growth in
pretax income from continuing operations is attributable to the increase in
net revenues and improvements in the Company's margins. This margin
increase is due primarily to the decrease in cost of sales as a percentage
of net revenues, offset by higher interest and marketing costs.

Net income increased from $4.1 million in fiscal 1993 to $9.7
million in fiscal 1994. Adjusted for the losses on discontinued operations
and the cumulative effect of a change in accounting, net income increased
11.8% from $9.4 million in fiscal 1993 to $10.5 million in fiscal 1994.
This increase in net income resulted from an improvement in operating
results ($2.2 million), offset by $1.1 million increase in the provision
for taxes. Income from continuing operations represented 8.5% of net
revenues in fiscal 1993, as compared to 8.8% in fiscal 1994.

The Company adopted Statement of Financial Accounting Standards
(SFAS) No. 112, "Employers Accounting for Postemployment Benefits," which
was effective January 1, 1994. The cumulative effect of the adoption was to
decrease net income by $163 thousand, net of taxes of $87 thousand.

Liquidity and Capital Resources

The Company's cash requirements arise principally from the need to
finance new front end solicitations (customers), capital expenditures, debt
repayment and other working capital requirements. The Company mailed 30.6
million and 43.3 million solicitations during the years 1994 and 1995. The
Company financed these solicitations and expects to finance future
solicitations from internally generated funds.

In fiscal 1993, 1994 and 1995, capital expenditures were $3.9
million, $2.8 million and $3.1 million, respectively. The majority of the
expenditures were for the purchase of knitting, sewing and dyeing equipment
and facility enhancements. These expenditures were financed substantially
through the assumption of capital leases. Also, the Company expects to
expend approximately $3.0 million in 1996 for additional equipment. These
capital expenditures will be financed through the assumption of capital
leases or other appropriate financing facilities.

The Company's debt service requirements have changed significantly
as a result of the Recapitalization. See "--The Recapitalization" below for
further discussion of debt capacity and future debt service requirements.

Working capital decreased from $7.5 million at December 31, 1993
to $3.2 million at December 31, 1994, and increased to $5.8 million at
December 31, 1995. Increased interest, taxes and financing costs account
for the decrease from 1993 to 1994. In fiscal 1995, increased cash,
receivables and inventories offset by higher interest and taxes are
responsible for the increase.

Cash flows provided by operations for 1993, 1994 and 1995 of $5.1
million, $6.3 million and $8.5 million, respectively, were derived
principally from income from continuing operations of $9.4 million, $10.5
million and $7.5 million (before the cumulative effect of a change in
accounting) in 1993, 1994 and 1995, respectively, adjusted for non-cash
expenses for depreciation and amortization, including amortization of
deferred customer acquisition costs of $15.2 million, $17.0 million and
$19.9 million in 1993, 1994 and 1995, respectively, and amortization of
debt issuance costs and discounts of $0.4 million and $1.8 million in 1994
and 1995, respectively, offset by changes in operating assets and
liabilities of $14.4 million, $9.9 million and $18.8 million in 1993, 1994
and 1995, respectively, and cash flows to fund discontinued operations of
$5.3 million and $0.6 million in 1993 and 1994, respectively. The changes
in operating assets and liabilities include increases in accounts
receivable of $1.4 million, $2.7 million and $2.1 million in 1993, 1994 and
1995, respectively, as well as payments for deferred customer acquisition
costs of $12.8 million, $12.1 million and $17.9 million in 1993, 1994 and
1995, respectively. These increases and payments reflect the increase in
volume and the significant marketing campaigns in the past three years. The
proceeds from the Recapitalization were also used, in part, to pay debt
issuance costs associated therewith totaling approximately $9.2 million in
1994 and $1.7 million in 1995, net of amounts paid or accrued through the
use of the Company's general working capital.

Net cash used in investing activities in 1995 was $1.0 million.
Investing activities provided cash totaling $2.2 million and $5.9 million
in 1993 and 1994, respectively. The predominant use of cash in investing
activities resulted from the acquisition of property and equipment of $1.1
million, $2.0 million and $1.0 million in 1993, 1994 and 1995,
respectively, and net investments in operations that were subsequently
discontinued totaling $0.4 million in 1993. Additionally, the Company
invested $1.7 million in 1993 in assets later sold to a stockholder. The
assets sold to the stockholder consisted primarily of an investment in a
foreign subsidiary, property and loans to that stockholder. Proceeds were
received from the disposal of the book division for $5.1 million in 1993
and the sale of certain discontinued operations and other assets to the
stockholder in connection with the Recapitalization totaling $7.1 million.

During 1993, 1994 and 1995, the Company used $8.0 million, $8.2
million and $4.4 million, respectively, in financing activities. Net
payments on bank and other financing, including capital lease obligations,
totaled $6.8 million, $9.9 million and $4.6 million in 1993, 1994 and 1995,
respectively. In 1994, the Company received proceeds from the issuance of
common and preferred stock totaling $53.4 million, long-term debt totaling
$80.0 million and Units totaling $69.2 million in connection with the
Recapitalization. The proceeds in 1994 from the Recapitalization were
primarily used to purchase shares for treasury totaling $199.0 million. The
proceeds from the Recapitalization were also utilized, in part, to pay fees
related to the issuance of stock associated therewith totaling
approximately $2.0 million, net of amounts paid or accrued through the use
of the Company's general working capital. The Company used cash totaling
$3.4 million in 1993 to redeem certain shares of its stock. All shares
purchased for treasury, or otherwise redeemed, were subsequently retired.

The Recapitalization

On October 17, 1994, the Company effected the recapitalization of
its capital stock (the "Recapitalization"). As a result of the substantial
indebtedness incurred in connection with the Recapitalization, the Company
has significant debt service obligations. At December 31, 1995, the
outstanding amount of the Company's indebtedness (other than trade
payables) is $151.1 million, including $78.6 million of senior secured debt
and $68.2 million of senior subordinated debt (the "Notes"). Since
consummation of the Recapitalization, the Company's ongoing cash
requirements through the end of fiscal 1999 will consist primarily of
interest payments and required amortization payments under the Credit
Agreement, interest payments on the Notes, payments of capital lease
obligations, front end marketing expenditures, working capital, capital
expenditures and taxes. The required amortization payments under the Credit
Agreement will be: $3.3 million in 1996, $9.4 million in 1997, $15.4
million in 1998, $11.1 million in 1999, $18.0 million in 2000 and $19.5
million in 2001. Other than upon a change of control (as defined) or as a
result of certain asset sales, the Company will not be required to make any
principal payments in respect of the Notes until maturity, August 2002. The
Company's primary source of liquidity will be cash flow from operations and
funds available to it under a revolving credit facility. The revolving
credit facility provides for maximum borrowings of $15.0 million, all of
which was available at December 31, 1995.

Inflation

Over the past three years, which has been a period of low
inflation, the Company has been able to increase sales volume to compensate
for increases in operating expenses. The Company has historically been able
to increase its selling prices as the cost of sales and related operating
expenses have increased and, therefore, inflation has not had a significant
effect on operations.

Accounting Statements Not Yet Adopted

Impairment of Long-Lived Assets. In March 1995, the Financial
Accounting Standards Board (FASB) issued Statement of Financial Accounting
Standards (SFAS) No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of. This statement requires
that long-lived assets and certain identifiable intangibles to be held and
used by an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Also, in general, long-lived assets and certain identifiable
intangibles to be disposed of should be reported at the lower of carrying
amount or fair value less cost to sell. The Company will be required to
adopt the new method of accounting for the impairment of long-lived assets
and for long-lived assets to be disposed of during fiscal year 1996.
However, adoption of this new standard is not expected to have a material
effect on the Company's financial position or results of operations.

Stock-Based Compensation. In October 1995, the FASB issued SFAS
No. 123, Accounting for Stock-Based Compensation, which will be adopted by
the Company in fiscal year 1996 as required by this statement. The Company
has elected to continue to measure such compensation expense using the
method prescribed by Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees, as permitted by SFAS No. 123. When adopted,
SFAS No. 123 will not have any effect on the Company's financial position
or results of operations, but will require the Company to provide expanded
disclosure regarding its stock-based employee compensation plans.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

HOSIERY CORPORATION OF AMERICA, INC.

Index to Financial Statements and Financial Statement Schedules

Financial Statements and Independent Auditors' Report:
Independent Auditors' Report.....................................
Consolidated Balance Sheets--
December 31, 1994 and 1995...................................
Consolidated Statements of Operations--
For the years ended December 31, 1993,
1994 and 1995................................................
Consolidated Statements of Cash Flows--
For the years ended December 31, 1993,
1994 and 1995...............................................
Consolidated Statements of Stockholders'
Equity (Deficiency in Assets)--For the
years ended December 31, 1993, 1994 and 1995................
Notes to Consolidated Financial Statements.......................
Financial Statement Schedule and Independent Auditors' Report:
Independent Auditors' Report.....................................
Schedule I--Valuation and Qualifying
Accounts--For the years ended
December 31, 1993, 1994 and 1995............................

Schedules other than those listed above are omitted because they
are either not applicable or not required or the information required is
included in the consolidated financial statements or notes thereto.

INDEPENDENT AUDITORS' REPORT

To the Board of Directors
Hosiery Corporation of America, Inc.
Bensalem, Pennsylvania

We have audited the accompanying consolidated balance sheets of Hosiery
Corporation of America, Inc. and subsidiaries (the "Company") as of
December 31, 1995 and 1994, and the related consolidated statements of
operations, stockholders' equity (deficiency in assets) and cash flows for
each of the three years in the period ended December 31, 1995. 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, such financial statements present fairly, in all material
respects, the consolidated financial position of the Company as of December
31, 1995 and 1994, and the results of its operations and its cash flows for
each of the three years in the period ended December 31, 1995, in
conformity with generally accepted accounting principles.

As discussed in Note 3 to the consolidated financial statements, on July
19, 1994, the Company entered into a Recapitalization and Stock Purchase
Agreement.

Deloitte & Touche LLP
Philadelphia, Pennsylvania

February 27, 1996

HOSIERY CORPORATION OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1994 AND 1995
(Dollars in thousands, except per share data)

ASSETS 1994 1995
---- ----
CURRENT ASSETS:
Cash and cash equivalents ...................... $ 3,891 $ 6,987
Accounts receivable, less an allowance
for doubtful accounts of
$923 and $1,263 in 1994
and 1995, respectively ....................... 17,158 19,708
Income tax refunds receivable .................. 530 32
Inventories .................................... 8,287 9,814
Prepaid and other current assets ............... 1,038 1,350
--------- ---------
Total current assets ......................... 30,904 37,891
PROPERTY AND EQUIPMENT, net ...................... 14,849 15,334
MAILING LIST RIGHTS .............................. 1,074 90
DEFERRED CUSTOMER ACQUISITION COSTS .............. 16,173 19,485
DEFERRED DEBT ISSUANCE COSTS, less
accumulated amortization of
$335 and $2,016 in 1994 and
1995, respectively ............................ 10,510 8,853
OTHER ASSETS ..................................... 1,350 1,207
--------- ---------
TOTAL ............................................ $ 74,860 $ 82,860
========= =========

LIABILITIES AND DEFICIENCY IN ASSETS
CURRENT LIABILITIES:
Current portion of long-term debt .............. $ 2,393 $ 3,421
Current portion of capital lease
obligations .................................. 1,056 1,402
Accounts payable ............................... 3,206 3,948
Accrued expenses and other current
liabilities .................................. 5,514 5,644
Accrued financing cost ......................... 2,242 --
Accrued interest ............................... 2,069 4,858
Mailing lists rental obligations ............... 588 38
Accrued coupon redemption costs ................ 6,320 6,117
Deferred income taxes .......................... 4,364 6,540
Income taxes payable ........................... -- 129
--------- ---------
Total current liabilities ................... 27,752 32,097
LONG-TERM DEBT, Less current portion ............. 146,789 142,565
CAPITAL LEASE OBLIGATIONS, Less
current portion ................................ 3,204 3,705
LONG-TERM OBLIGATION - Mailing lists
rental obligations ............................. 66 --
ACCRUED COUPON REDEMPTION COSTS .................. 468 521
DEFERRED INCOME TAXES ............................ 6,802 6,508
--------- ---------
Total liabilities ........................... 185,081 185,396
--------- ---------
COMMITMENTS AND CONTINGENT LIABILITIES
REDEEMABLE EQUITY SECURITIES ..................... 45 332
--------- ---------
DEFICIENCY IN ASSETS:
Preferred stock, $.01 par value, 12,000,000
shares authorized: 4,000,000 shares
designated as pay-in-kind preferred
stock, stated at liquidation value of
$10 per share; 25% cumulative,
3,750,000 and 3,739,782 shares
issued and outstanding in 1994
and 1995, respectively ....................... 37,500 37,398
Common stock, voting, $.01 par value:
3,000,000 shares authorized, 1,321,522
shares issued and outstanding ................ 13 13
Common stock, Class A, non-voting,
$.01 par value: 500,000 shares
authorized, 75,652 shares issued and
outstanding .................................. 1 1
Additional paid-in capital ..................... 16,840 16,805
Accumulated deficit ............................ (162,996) (155,588)
Stock subscription receivable .................. (125) --
Restricted stock ............................... (1,499) (1,499)
Foreign currency translation adjustment ........ -- 2
--------- ---------
Net deficiency in assets .................... (110,266) (102,868)
--------- ---------
TOTAL ............................................ $ 74,860 $ 82,860
========= =========

See notes to consolidated financial statements.

HOSIERY CORPORATION OF AMERICA, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
(Dollars in thousands)

<TABLE>
<CAPTION>
<S> <C> <C> <C>
1993 1994 1995
---- ---- ----

NET REVENUES ..................................... $ 109,824 $ 118,560 $ 136,299
--------- --------- ---------

COSTS AND EXPENSES:
Cost of sales ............................... 49,818 52,485 60,982
Administrative and general expenses ......... 14,466 13,616 10,200
Provision for doubtful accounts ............. 5,097 5,643 7,788
Marketing costs ............................. 13,925 15,542 17,442
Coupon redemption costs ..................... 5,680 6,397 5,969
Depreciation and amortization ............... 2,095 3,141 2,493
Interest expense ............................ 1,463 4,811 19,749
Other (income) expenses ..................... 2,337 (191) (380)
--------- --------- ---------

INCOME FROM CONTINUING OPERATIONS BEFORE
PROVISION FOR INCOME TAXES AND CUMULATIVE
EFFECT OF ACCOUNTING CHANGE ................... 14,943 17,116 12,056
PROVISION FOR INCOME TAXES ....................... 5,581 6,648 4,560
--------- --------- ---------

INCOME FROM CONTINUING OPERATIONS
BEFORE CUMULATIVE EFFECT OF
ACCOUNTING CHANGE ............................. 9,362 10,468 7,496
LOSS FROM DISCONTINUED OPERATIONS
(Less income tax (benefit) provision of $(2,086)
and $8 in 1993 and 1994, respectively) ......... (4,548) (329) --
LOSS ON DISPOSAL OF DISCONTINUED OPERATIONS
(Less income tax benefit of $378 and $83
in 1993 and 1994, respectively) ................ (735) (230) --
--------- --------- ---------

INCOME BEFORE CUMULATIVE EFFECT
OF ACCOUNTING CHANGE .......................... 4,079 9,909 7,496
CUMULATIVE EFFECT OF ACCOUNTING CHANGE ........... -- (163) --
--------- --------- ---------

NET INCOME ....................................... $ 4,079 $ 9,746 $ 7,496
========= ========= =========

See notes to consolidated financial statements.
</TABLE>

<TABLE>
<CAPTION>
HOSIERY CORPORATION OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
(Dollars in thousands)
<S> <C> <C> <C>
1993 1994 1995
---- ---- ----
OPERATING ACTIVITIES:
Net income .......................................................................... $ 4,079 $ 9,746 $ 7,496
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization .................................................... 2,095 3,141 2,493
Amortization of debt issue costs and discounts ................................... -- 358 1,848
Cumulative effect of change in accounting principal .............................. -- 163 --
Loss (gain) on sale and abandonments of property and equipment ................... 218 123 (2)
Loss from discontinued operations ................................................ 4,548 329 --
Loss on disposal of discontinued operations ...................................... 735 230 --
Amortization of deferred customer acquisition costs .............................. 13,107 13,495 15,574
Debt issuance costs .............................................................. -- (10,845) (23)
(Increase) decrease in operating assets, net of effects from discontinued
operations:
Accounts receivable ........................................................ (1,423) (2,663) (2,052)
(949) 410 (1,527)
Inventories
Payments for deferred customer acquisition costs ........................... (12,791) (12,099) (17,902)
Prepaid and other current assets ........................................... 154 (718) (312)
Other assets ............................................................... (1,064) (356) (56)
Increase (decrease) in operating liabilities, net of effects from discontinued
operations:
Accounts payable, accrued expenses and other liabilities ................... (1,273) 4,340 1,142
Deferred income taxes ...................................................... 3,118 1,672 1,882
Income taxes payable ....................................................... 109 (671) 129
Accrued coupon redemption costs ............................................ (286) 199 (150)
Operating activities of discontinued operations .................................. (5,296) (599) --
------ ----- -----
Net cash provided by operating activities ............................ 5,081 6,255 8,540
------ ----- -----
INVESTING ACTIVITIES:
Acquisitions of property and equipment .............................................. (1,113) (1,989) (1,019)
Proceeds from sales of property and equipment ....................................... 211 106 6
Proceeds from disposal of a line of business ........................................ 5,138 -- --
Proceeds from disposal of discontinued operations to Stockholder .................... -- 3,158 --
Proceeds from sale of assets to Stockholder ......................................... -- 3,960 --
Decrease (increase) in assets held for sale to Stockholder .......................... (1,683) 647 --
Net investing activities of discontinued operations ................................. (372) -- --
------ ----- -----
Net cash provided by (used in) investing activities .................. 2,181 5,882 (1,013)
------ ----- -----
FINANCING ACTIVITIES:
Net repayment of note payable to bank ............................................... (1,700) (2,300) --
Proceeds from bank and other financing .............................................. 2,500 80,000 --
Payments on bank and other financing ................................................ (3,200) (4,941) (3,364)
Payments on capital leases .......................................................... (1,848) (2,682) (1,256)
Payments of costs associated with issuance of stock ................................. -- (2,601) (33)
Capital contribution from Stockholder ............................................... -- 690 --
Issuance of Preferred stock ......................................................... -- 36,478 --
Issuance of Common stock ............................................................ -- 16,902 --
Issuance of Redeemable Equity Securities, net of costs to issue ..................... -- 45 185
Issuance of units ................................................................... -- 69,146 --
Stock redemptions and purchases of Treasury stock ................................... (3,417) (198,983) --
Dividends paid ...................................................................... (125) -- --
Purchase price adjustment of Treasury stock ......................................... -- -- (88)
Proceeds from stock subscription .................................................... -- -- 125
Net financing activities of discontinued operations ................................. (182) -- --
------ ----- -----
Net cash used in financing activities ................................ (7,972) (8,246) (4,431)
------ ----- -----
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS ................................... (710) 3,891 3,096
Cash and cash equivalents at beginning of year ......................................... 710 -- 3,891
------ ----- -----
Cash and cash equivalents at end of year ............................................... $ 0 $ 3,891 $ 6,987
========= ========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
$ 1,598 $ 2,436 $ 15,111
========= ========= =========
Interest
Income taxes ..................................................................... $ 1,912 $ 4,833 $ 2,261
========= ========= =========
</TABLE>

SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:

Capital lease obligations and financing arrangements of $2,746, $776 and
$2,103 were entered into for new equipment and automobiles during 1993,
1994 and 1995, respectively.

Units issued in connection with the Recapitalization Agreement in 1994
consisted of one senior subordinated note and one share of Class A, non
voting common stock. Based on the issue price of the Units and the relative
fair market value of the notes and the shares at the time of issuance, the
Company determined that $67,962 related to the notes issued and $1,184
related to the shares issued.

During 1995, in connection with the issuance of redeemable common shares,
certain agreements were amended and executed in order that preferred stock
issued in 1995 and 1994 would be redeemable under the same basic terms of
the redeemable common stock. Due to the change in terms of the preferred
stock agreement, 10,218 shares issued in October 1994 with a value net of
issuance costs of $97 were reclassified from preferred stock to redeemable
equity securities in 1995.

See notes to consolidated financial statements.

<TABLE>
<CAPTION>
HOSIERY CORPORATION OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIENCY IN ASSETS)

(Dollars in thousands)

PREFERRED STOCK
----------------------------------------------------------------------
PIK CLASS A CLASS B
-------------------- --------------------- ---------------------
Shares Amount Shares Amount Shares Amount
-------------------- --------------------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, January 1, 1993 - $ - 100,000 $ 100 100,000 $ 520
Net income
Additional cost associated
with previously repurchased
treasury stock
-------------------- --------------------- ---------------------
BALANCE, December 31, 1993 - - 100,000 100 100,000 520
Net income
Gain on sale of assets to
Stockholder recognized as
capital contribution (see Note 3)
Purchase of shares for treasury
Retirement of shares in treasury (100,000) (100) (100,000) (520)
Reclassification of Class A Common
Stock into Common Stock and
effect of stock split of Common
Stock on approximately a
62.22 to 1 basis (see Note 3)
Issuance of Common Stock (see
Notes 3 and 20)
Issuance of PIK Preferred Stock
(see Note 3) 3,637,602 36,376
Issuance of shares in connection
with debentures (see Note 3)
Issuance of shares in connection
with management grant (see
Notes 3 and 20) 102,180 1,022
Issuance of shares in connection
with Recapitalization (see Note 3) 10,218 102
Costs associated with issuance of
stock
-------------------- --------------------- ---------------------
BALANCE, December 31, 1994 3,750,000 37,500
Net income
Amendment of preferred stock
agreement resulting in certain
redeemable preferred equity
securities (10,218) (102)
Additional costs associated with
previously purchased and retired
treasury stock
Costs associated with issuance of
stock
Receipt of stock subscription
Foreign currency translation
-------------------- --------------------- ---------------------
BALANCE, December 31, 1995 3,739,782 $37,398 - $ - - $ -
==================== ===================== ====================

</TABLE>

COMMON STOCK
----------------------------------------------------------------------
CLASS A, CLASS A,
VOTING NON VOTING
-------------------- --------------------- ---------------------
Shares Amount Shares Amount Shares Amount
-------------------- --------------------- ---------------------
<S> <C> <C> <C> <C> <C>
BALANCE, January 1, 1993 - $ - 183,100 $ 183 - $ -
Net income
Additional cost associated
with previously repurchased
treasury stock
-------------------- --------------------- ---------------------
BALANCE, December 31, 1993 - - 183,100 $ 183 - $ -
Net income
Gain on sale of assets to
Stockholder recognized as
capital contribution (see Note 3)
Purchase of shares for treasury
Retirement of shares in treasury (178,396) (178)
Reclassification of Class A Common
Stock into Common Stock and
effect of stock split of Common
Stock on approximately a
62.22 to 1 basis (see Note 3) 292,600 3 (4,704) (5)
Issuance of Common Stock (see
Notes 3 and 20) 1,000,660 10 5,652 -
Issuance of PIK Preferred Stock
(see Note 3)
Issuance of shares in connection
with debentures (see Note 3) 70,000 1
Issuance of shares in connection
with management grant (see
Notes 3 and 20) 28,262 -
Issuance of shares in connection
with Recapitalization (see Note 3)
Costs associated with issuance of
stock
--------------------- --------------------- ---------------------
BALANCE, December 31, 1994 1,321,522 13 - - 75,652 1
Net income
Amendment of preferred stock
agreement resulting in certain
redeemable preferred equity
securities
Additional costs associated with
previously purchased and retired
treasury stock
Costs associated with issuance of
stock
Receipt of stock subscription
Foreign currency translation
--------------------- --------------------- ---------------------
BALANCE, December 31, 1995 1,321,522 $ 13 - $ - 75,652 $ 1
===================== ===================== =====================

</TABLE>

TREASURY STOCK
---------------------------------------------------
PREFERRED COMMON
STOCK STOCK Additional
---------------------- ----------- Paid-In
Class A Class B Class A Amount Capital
---------------------- -------------------------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE, January 1, 1993 94,540 90,575 161,059 $(15,198) $ 4,638
Net income
Additional cost associated
with previously repurchased
treasury stock (3,417)
---------------------- -------------------------- -------------
BALANCE, December 31, 1993 94,540 90,575 161,059 (18,615) 4,638
Net income
Gain on sale of assets to
Stockholder recognized as
capital contribution (see Note 3) 690
Purchase of shares for treasury 5,460 9,425 17,337 (198,983)
Retirement of shares in treasury (100,000) (100,000) (178,396) 217,598 (4,566)
Reclassification of Class A Common
Stock into Common Stock and
effect of stock split of Common
Stock on approximately a
62.22 to 1 basis (see Note 3) 2
Issuance of Common Stock (see
Notes 3 and 20) 17,017
Issuance of PIK Preferred Stock
(see Note 3)
Issuance of shares in connection
with debentures (see Note 3) 1,183
Issuance of shares in connection
with management grant (see
Notes 3 and 20) 477
Issuance of shares in connection
with Recapitalization (see Note 3)
Costs associated with issuance of
stock (2,601)
---------------------- -------------------------- -------------
BALANCE, December 31, 1994 - - - - 16,840
Net income
Amendment of preferred stock
agreement resulting in certain
redeemable preferred equity
securities
Additional costs associated with
previously purchased and retired
treasury stock
Costs associated with issuance of
stock (35)
Receipt of stock subscription
Foreign currency translation
---------------------- -------------------------- -------------
BALANCE, December 31, 1995 - - - $ - $16,805
====================== ========================== =============

</TABLE>

Retained
Earnings Stock Foreign
(Accum. Subscription Restricted Currency
Deficit) Receivables Stock Translation Total
------------ -------------- ------------ ------------- ---------
<S> <C> <C> <C> <C> <C>
BALANCE, January 1, 1993 $ 35,413 $ - $ - $ - $ 25,656
Net income 4,079 4,079
Additional cost associated
with previously repurchased
treasury stock (3,417)
------------ -------------- ------------ ------------- ---------
BALANCE, December 31, 1993 39,492 - - - (26,318)
Net income 9,742 9,746
Gain on sale of assets to
Stockholder recognized as
capital contribution (see Note 3) 690
Purchase of shares for treasury (198,983)
Retirement of shares in treasury (212,234) -
Reclassification of Class A Common
Stock into Common Stock and
effect of stock split of Common
Stock on approximately a
62.22 to 1 basis (see Note 3)
Issuance of Common Stock (see
Notes 3 and 20) (125) 16,902
Issuance of PIK Preferred Stock
(see Note 3) 36,376
Issuance of shares in connection
with debentures (see Note 3) 1,184
Issuance of shares in connection
with management grant (see
Notes 3 and 20) (1,499) -
Issuance of shares in connection
with Recapitalization (see Note 3) 102
Costs associated with issuance of
stock (2,601)
------------ -------------- ------------ ------------- ---------
BALANCE, December 31, 1994 (162,996) (125) (1,499) - (110,266)
Net income 7,496 7,496
Amendment of preferred stock
agreement resulting in certain
redeemable preferred equity
securities (102)
Additional costs associated with
previously purchased and retired
treasury stock (88) (88)
Costs associated with issuance of
stock (35)
Receipt of stock subscription 125 125
Foreign currency translation 2 2
------------ -------------- ------------ ------------- ----------
BALANCE, December 31, 1995 $(155,588) $ - $(1,499) $ 2 $(102,868)
============ ============== ============ ============= ==========

</TABLE>

See notes to consolidated financial statements.

HOSIERY CORPORATION OF AMERICA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
(Dollars in thousands, except per share data)

1. ORGANIZATION

Hosiery Corporation of America, Inc. and subsidiaries is a company
incorporated in the State of Delaware and is engaged in the direct
mail marketing, manufacturing and distribution of quality women's
sheer hosiery products to consumers throughout the United States.
The Company markets women's sheer hosiery through a continuous
product shipment or "continuity" program. The Company's continuity
program involves mailing to customers a specially priced
introductory hosiery offer, the acceptance of which enrolls
customers in the program and results in additional shipments of hose
on a regular and continuous basis upon payment of a prior hose
shipment. The Company's manufacturing operations supply all the
hosiery required by the Company's continuity program.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation - The consolidated financial statements
include the accounts of Hosiery Corporation of America, Inc. (the
"Company") and its subsidiaries. All significant intercompany
accounts and transactions have been eliminated.

Revenue Recognition - Revenue less allowance for returns is
recognized when merchandise is shipped. The Company provides for
returns at the time of shipment based upon historical experience.

Cash and Cash Equivalents - Cash and cash equivalents consist of
cash and other short-term securities purchased with maturities of
less than three months.

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

Property and Equipment - Property and equipment are stated at cost
less accumulated depreciation. Depreciation is provided on a
straight-line basis using estimated lives of 31 years for buildings,
5 to 10 years for machinery and equipment, 5 to 7 years for
furniture and fixtures and 3 to 5 years for automobiles. Leasehold
improvements are amortized over the shorter of the estimated useful
life or the lease periods which are generally 15 to 18 years.
Effective January 1, 1994, the Company changed its estimate of the
useful lives of certain computer equipment. This change was made to
better reflect the estimated period during which such assets would
remain in service. This change resulted in additional depreciation
expense for the year ended December 31, 1994, by approximately $700.

Deferred Customer Acquisition Costs - Deferred customer acquisition
costs consist of marketing costs (postage, printed material,
customer list rentals, etc.) of the initial shipment to a customer
and similar costs associated with the resolicitation of previously
canceled customers. These costs are aggregated by promo- tional
program and are amortized on an accelerated basis based upon the
estimated current year revenue in proportion to the expected future
revenue generated by these customers. Approximately 56% of these
costs are amortized in the first 12 months, 69% within 18 months,
and 78% within 24 months. The loss incurred on front end shipments
to customers is charged to operations at the time of the front end
shipment.

Software Costs - Software costs, principally internally developed,
consist of the expenses associated with the development (computer
time, license, programming time) of material software projects with
a long-term benefit and are included in the consolidated balance
sheet as Other Assets. Such assets are amortized on a straight-line
basis over a 5 to 10 year period. Effective January 1, 1994, the
Company changed its estimate of the useful life of software costs
for new software to 7 years to better reflect the estimated period
during which such assets will remain in service.

Derivative Financial Instruments - The Company enters into interest
rate caps to manage exposure to fluctuations in interest rates.
Premiums paid on caps are amortized to interest expense over the
term of the cap.

Deferred Debt Issuance Costs - Debt issuance costs represent costs
associated with bank borrowings and notes and are amortized using
the effective interest method over the terms of the related
borrowings.

Income Taxes - The Company uses the liability method of accounting
for income taxes in accordance with SFAS No. 109, Accounting for
Income Taxes. Under the liability method, deferred income taxes are
determined based upon enacted tax laws and rates applied to the
differences between the financial statement and tax basis of assets
and liabilities.

Mailing List Rights - Mailing list rights consist of contracts that
are recorded as an asset and a liability. The asset is allocated to
deferred customer acquisition costs based on actual usage in
proportion to the total estimated usage of the mailing list. The
current and long-term portion of the liability is recorded based on
the payment terms in the contract.

Postemployment Benefits - Effective January 1, 1994, the Company
adopted Statement of Financial Accounting Standards No. 112 (SFAS
No. 112), Employers' Accounting for Postemployment Benefits. SFAS
No. 112 requires the expected cost of providing benefits to former
or inactive employees after employment but before retirement be
accrued if certain conditions are met. The Company provides sick
pay, long-term disability and severance benefits for certain
employees. The liability for benefits accrued at January 1, 1994 of
approximately $163, net of tax of $87, has been reflected in the
consolidated statement of income as a cumulative effect of change in
accounting. This change had no material effect on net income for the
year ended December 31, 1994.

Impairment of Long-Lived Assets - SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of, is effective for fiscal years beginning after December
15, 1995. This statement requires that long-lived assets and certain
identifiable intangibles to be held and used by an entity be
reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be
recoverable. Also, in general, long-lived assets and certain
identifiable intangibles to be disposed of should be reported at the
lower of carrying amount or fair value less cost to sell. The impact
of this new standard is not expected to have a material effect on
the Company's financial position or results of operations.

Accounting for Stock-Based Compensation - SFAS No. 123, Accounting
for Stock-Based Compensation, will be adopted by the Company in
fiscal year 1996 as required by this statement. The Company has
elected to continue to measure such compensation expense using the
method prescribed by Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees, as permitted by SFAS No.
123. When adopted, SFAS No. 123 will not have any effect on the
Company's financial position or results of operations, but will
require the Company to provide expanded disclosure regarding its
stock-based employee compensation plans.

Foreign Currency Translation - Assets and liabilities of the foreign
affiliate are translated at the rates of exchange at the balance
sheet date. The translation adjustments that result are reported in
foreign currency translation adjustment, a separate component of
deficiency in assets. Income and expense items are translated at
average monthly rates of exchange.

Use of Estimates - The preparation of the Company's consolidated
financial statements in conformity with generally accepted
accounting principles necessarily 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.

Reclassifications - Certain reclassifications were made to the prior
year's consolidated financial statements to conform to
classifications used in the current period.

3. RECAPITALIZATION

On July 19, 1994, an affiliate of Kelso & Company, Inc. ("Kelso"),
the Company and Joseph A. Murphy, the sole stockholder of the
Company (the "Stockholder"), entered into a Recapitalization and
Stock Purchase Agreement (the "Recapitalization Agreement").
Pursuant to the Recapitalization Agreement, the Company repurchased
from the Stockholder (the "Repurchase") for approximately $191.2
million, which includes approximately $0.9 million in post-closing
adjustments (net of $7.8 million received from the Stockholder for
the purchase of certain assets (see below)), all of its then
outstanding shares of preferred stock and a substantial portion of
its then outstanding shares of common stock. On October 17, 1994,
the Company effected the recapitalization of its capital stock (the
"Recapitalization"), pursuant to which certain affiliates and
designees of Kelso and certain members of operating management of
the Company (collectively, the "Investor Group"), purchased a
controlling equity interest in the Company. The Company effected the
Repurchase with the proceeds of the Financing (as defined below).
Following the consummation of the Repurchase (and after giving
effect to the purchase of common stock by the Investor Group
pursuant to the Financing), the Investor Group owns approximately
74% of the Company's common stock, with the Stockholder retaining
approximately 21% of the Company's common stock.

The Company obtained the funds necessary to effect the Repurchase,
repay certain existing indebtedness of the Company and pay the fees
and expenses incurred in connection with the Recapitalization
primarily from the proceeds of a financing (the "Financing") which
included (i) borrowings of $80.0 million under a credit agreement,
consisting of $80.0 million of term loan facilities (the "Term Loan
Facilities") and a $15.0 million revolving credit facility, entered
into among the Company, Bankers Trust Company, and the banks
signatory thereto, (ii) gross proceeds of approximately $69.1
million from the issuance and sale of the Units (each unit
consisting of one Senior Subordinated Note and one share of Class A
Common Stock), (iii) gross proceeds of approximately $36.5 million
from the sale to the Investor Group of shares of a new class of
pay-in-kind preferred stock of the Company for cash, and (iv) gross
proceeds of approximately $17.1 million from the sale to the
Investor Group of shares of Common Stock for cash. The Company also
utilized working capital of approximately $2.0 million to pay fees
and expenses incurred in connection with the Recapitalization. In
addition, certain members of the Company's management were granted
restricted pay-in-kind preferred stock and restricted common stock
of $1,022 and $478, respectively (see Note 20).

The Recapitalization and Stock Purchase Agreement contained
customary representations, warranties and conditions. The
Recapitalization and Stock Purchase Agreement also provided that, at
or prior to the consummation of the Acquisition, the Stockholder and
the Company enter into an Escrow agreement pursuant to which, among
other things, $10.0 million of the aggregate purchase price paid by
the Company to the Stockholder pursuant to the Repurchase be held in
escrow to provide a source of payment to satisfy the Stockholder's
indemnification obligations under the Recapitalization and Stock
Purchase Agreement.

Prior to the Recapitalization, the Company had authorized classes of
voting and non-voting common stock, with shares of voting stock
issued and outstanding. As part of the Recapitalization, such
non-voting stock was retired and such voting stock was changed and
reclassified from Class A Common Stock, par value $1.00 per share,
into one share of Common Stock, par value $.01 per share. In
addition, in connection with the Recapitalization, the Company
issued and sold shares of non-voting Class A Common Stock, a small
number of which was purchased by certain designees of Kelso, and the
remainder of which was sold in the form of Shares as part of the
Units. Upon the occurrance of any Conversion Event (as defined,
e.g., any transfer of shares of Class A Common Stock to any persons
who are not affiliates of the transferor), each share of Class A
Common Stock shall be convertible into one share of the Company's
Common Stock. Subsequent to the Recapitalization, the Company
effected a stock split of its Common Stock on approximately a
62.22-to-1 basis.

In connection with the Recapitalization, the Company sold for cash
certain assets which were not used in its hosiery business to the
Stockholder. The assets were sold at fair value ($7.8 million) as of
July 19, 1994, which approximated their then net book value. Certain
of these assets, including the Company's Book, Bag, and Overseas
Divisions, were restated in the financial statements as discontinued
operations and classified as net assets of discontinued operations.
The remainder of these assets were classified in the financial
statements as assets held for sale to stockholder. (See Notes 4 and
5.) Upon final consummation of the sale on October 17, 1994, the
carrying value of these assets had declined by approximately $690
resulting in a gain on the sale. This gain was reflected as a
capital contribution in the accompanying financial statements.

4. DISCONTINUED OPERATIONS AND DISPOSAL OF A LINE OF BUSINESS

During 1993, the company entered into an agreement to dispose of its
rights for the sale of romance novels through direct mail. On July
30, 1993, these rights were sold to Harlequin Enterprises Limited
for $5,138 which resulted in a loss of approximately $700 after
income tax benefit. The terms of this agreement preclude the Company
from publishing and selling contemporary romance novels in North
America. On July 9, 1994, as part of the Company's Recapitalization,
the Company discontinued the remainder of its Book Division, along
with its Overseas and Bag Divisions.

Summary results of the Book, Bag, and Overseas Divisions were as
follows:

1993 1994
---- ----
Net revenues......................... $16,582 $ 389
Loss before income taxes (benefit)... (6,634) (321)
Provision for income taxes (benefit). (2,086) 8
Net loss............................. (4,548) (329)

5. PROVISION FOR COUPON REDEMPTION

As part of the marketing program, the Company issues coupons to
program participants based upon the products purchased or the
referral of new customers to the Company. Customers may redeem
coupons for free gifts from a program catalog once they have
collected the required number of coupons. During 1995, customers
with an average of 31 coupons redeemed for a free gift (35 coupons
in 1994) after a collection period of approximately four years. The
estimated future costs for this program have been determined based
on historical customer redemption patterns applicable to outstanding
coupons and average gift costs.

6. INVENTORIES

1994 1995
---- ----

Raw materials...................... $ 936 $ 787
Work-in-process.................... 1,342 1,602
Finished goods..................... 5,231 5,763
Promotional and packing material... 778 1,662
--- -----
$8,287 $9,814
====== ======

7. PROPERTY AND EQUIPMENT

1994 1995
---- ----

Land and buildings............... $ 5,639 $ 5,873
Machinery and equipment.......... 15,948 15,990
Furniture and fixtures........... 1,520 1,598
Leasehold improvement............ 3,613 3,728
Automobiles...................... 492 569
------ ------
27,212 27,758
Less accumulated depreciation
and amortization................ 12,363 12,424
------ ------
$14,849 $15,334
======= =======

Property and equipment includes assets acquired under capital
leases, principally machinery and equipment having a net book value
of approximately $4,847 and $5,618 as of December 31, 1994 and 1995,
respectively. Related accumulated depreciation and amortization was
$4,361 and $3,116, respectively. Depreciation and amortization
expense for capital lease assets for 1993, 1994 and 1995 was $1,269,
$1,810 and $1,077, respectively.

8. OTHER ASSETS

1994 1995
---- ----

Software, net of accumulated
amortization of approximately
$5,150 and $5,387, respectively.. $ 978 $ 800
Deposits........................... 305 327
Miscellaneous other................ 67 80
------ ------
$1,350 $1,207
====== ======

9. MAILING LIST RIGHTS AND OBLIGATIONS

During 1992, the Company entered into noncancelable mailing list
rights obligations expiring through 1996. Related mailing list
rights as of December 31, 1994 and 1995 are $1,074 and $90, net of
amounts allocated to deferred customer acquisition costs of $3,750
and $4,733, respectively. Future minimum payments by year under
these list agreements have initial or remaining terms of up to three
years and have been recorded as mailing lists rental obligations in
current liabilities and in "Long-term obligations--Mailing lists
rental obligations" in the accompanying balance sheets.

10. OTHER (INCOME) EXPENSES

Included in other (income) expenses are the following:

1993 1994 1995
---- ---- ----

Interest and other income.......... $ (388) $ (314) $ (378)
Litigation settlement and
related expenses................. 2,327 -- --
Miscellaneous (income) expenses... 398 123 (2)
------ ------ ------
$2,337 $ (191) $ (380)
====== ====== ======

11. LONG-TERM DEBT

1994 1995
---- ----

Amounts due under revolving credit and
term loan agreement............................. $ 80,000 $ 76,725
13.75% Senior Subordinated Notes due
August 2002..................................... 67,984 68,153
Serial bonds issued by the South
Carolina Jobs-Economic Development
Authority with interest rates ranging
from 5.8% to 7.1% payable beginning
July 1993 in quarterly principal
payments and semi-annual payments to the
trustee of the Bonds. Bonds are
collateralized by a letter of credit
and a building addition in South Carolina....... 1,196 1,108
Other 2 --
Total long-term debt.............................. 149,182 145,986
Less current portion.............................. 2,393 3,421
------- --------

TOTAL LONG-TERM PORTION........................... 146,789 $142,565
======= ========

On October 17, 1994, the Company entered into a revolving credit and
term loan agreement with a group of banks with outstanding
borrowings totaling $80,000 at December 31, 1994 and $76,725 at
December 31, 1995. The facility is secured by substantially all of
the assets of Hosiery Corporation of America. The facility is also
subject to the continuing guarantees of the subsidiaries of Hosiery
Corporation of America. The revolving credit and term loan portions
of the facility have maximum borrowings of $15,000 and $80,000,
respectively. The term loans are segregated into two series, A Term
Loans and B Term Loans,each totaling $40,000. The revolving credit
facility expires on October 17, 1999. The Company can borrow based
on a formula which comprises the sum of 80% of accounts receivable
and 50% of inventory. Interest under the agreement is payable at the
banks' prime lending rate plus 1.75%. There were no borrowings
outstanding under this agreement at December 31, 1994 and 1995. The
A Term Loans are payable in quarterly installments ranging from $375
to $3,750, with a final payment due October 17, 1999. The B Term
Loans are payable in semi-annual installments ranging from $200 to
$10,000, with a final payment due July 31, 2001. Interest is
generally payable quarterly and is charged at a premium ranging from
1.75% to 2.25% over the Base Rate or 2.75% to 3.25% over the
Eurodollar Rate as defined. The rate in effect at December 31, 1995
ranged from 8.31% to 9.19%. Additionally, fees are charged on the
average daily amount of unused commitment and are payable quarterly.
Under the terms of the agreement, certain restrictions are placed on
additional borrowings, the purchase of property and equipment, the
payment of cash dividends and the disposition of assets. The Company
has also agreed to maintain certain financial ratios as defined in
the agreement.

During 1994, the Company sold the 13.75% Senior Subordinated Notes,
with a principal amount of $70,000, at a discount, which discount is
being amortized using the interest method over the life of the
notes. Interest is payable semi-annually. The Notes were sold in
denominations of one thousand dollars, each of which contained one
share (collectively the "Shares") of the Company's Class A Non
Voting Common Stock, par value $.01 per share. The Notes and the
Shares were immediately detachable. Beginning October 1, 1997, the
Notes, or a portion thereof, will be subject to redemption at the
option of the Company at specified redemption prices ranging from
100% to 112% of the aggregate principal amounts of Notes so
redeemed. Upon the occurence of a Change of Control, as defined,
each holder of the Notes shall have the right to require the Company
to repurchase such holder's Notes at a purchase price equal to 101%
of the aggregate principal amount thereof. Under the terms of the
agreement, certain restrictions are placed on additional borrowings,
the purchase of property and equipment, the payment of cash
dividends and the disposition of assets.

The Company is currently in compliance with all debt covenants noted
above.

The Company was contingently liable for outstanding letters of
credit in the amount of approximately $1,494 as of December 31,
1995.

On January 17, 1995, the Company purchased an interest rate cap for
$149 from Bankers Trust Company. This cap protects $30,000 of the
Term Loan Debt from an increase in interest rates over 10%. The cap
is based on the LIBOR and pays the excess interest over 10%. The
term of the interest rate cap is three years.

Maturities of long-term debt consisted of the following as of
December 31, 1995:

1996 ...................................... 3,421
1997 ...................................... 9,517
1998 ...................................... 15,517
1999 ...................................... 11,267
2000 ...................................... 18,117
Thereafter ................................ 88,147
-------
$145,986
=======

12. INCOME TAXES

The provision for income taxes (benefit) consists of the following:

1993 1994 1995
---- ---- ----
Federal:
Current .................. $ 6,146 $ 4,491 $ 2,432

Deferred ................. (956) 1,110 2,053
------- ------- -------
5,190 5,601 4,485
------- ------- -------
States:
Current .................. 361 485 246

Deferred ................. 30 562 (171)
------- ------- -------
391 1,047 75
------- ------- -------
$ 5,581 $ 6,648 $ 4,560
======= ======= =======

The components of net deferred tax liabilities consisted of the
following:

1994 1995
---- ----
Deferred tax liabilities:
Deferred customer acquisition costs ......... $ 4,974 $ 6,064
Accounts receivable ......................... 4,008 5,010
Property and equipment ...................... 611 741
Other assets ................................ 728 42
Other current assets ........................ 1,099 1,689
Accrued coupon redemption costs ............. 141 98
-------- --------
11,561 13,644
-------- --------
Deferred tax assets:
Accrued expenses ............................ (383) (583)
Other (12) (13)
-------- --------
(395) (596)
-------- --------
$ 11,166 $ 13,048
======== ========

The following is a reconciliation of the federal statutory rate and
the Company's effective tax rate:

1993 1994 1995
---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Tax provision at statutory rate ... $5,080 34.0% $5,820 34.0% $4,099 34.0%
State taxes, net of federal benefit 254 1.7 540 3.2 160 1.3
Other ............................. 247 1.6 288 1.7 301 2.5
------ ---- ------ ---- ------ ----
Provision for income taxes ........ $5,581 37.3% $6,648 38.9% $4,560 37.8%
====== ==== ====== ==== ====== ====
</TABLE>

13. REDEEMABLE EQUITY SECURITIES

In connection with the Recapitalization, the Company issued 2,826
shares of voting common stock, $.01 par value, to management
stockholders for cash. The Company is obligated to redeem these
shares from the management stockholders upon the death, disability
or termination of employment of the holder. The redeemable common
stock was recorded at fair value on the date of issuance, less
issuance costs, totaling $45. During 1995, the Company issued an
additional 4,048 shares of voting common stock, $.01 par value, for
cash under the same basic terms. The redeemable common stock was
recorded at fair value on the date of issuance, less issuance costs,
totaling $63. In connection with the issuance of redeemable common
shares in 1995, certain agreements were amended and executed in
order that 14,643 shares of preferred stock issued for cash in 1995
and 10,218 of preferred stock issued for cash in October 1994 would
be redeemable under the same basic terms of the redeemable common
stock. Each preferred share has a $.01 par value, a stated value at
liquidation of $10 and cumulative dividends of 25% of additional
shares of PIK preferred stock or fractions thereof. The redeemable
preferred stock was recorded at fair value on the date of issuance
or amendment providing for their redemption, less issuance costs,
totaling $224. The redemption provisions expire the earlier of the
fifth anniversary of the October 17, 1994 Recapitalization or the
closing of an IPO.

14. TREASURY STOCK

In November 1991, subsequent to the death of Bryan Nelson, and in
accordance with the Company's require-ments pursuant to a buy/sell
agreement dated July 25, 1984 among Joseph Murphy, President, Bryan
Nelson, Executive Vice President, (both being beneficial
stockholders), and the Company, the Board of Directors approved the
Company's purchase of 64,787 shares of common stock for
approximately $4,013 and 14,145.5 shares of Class A preferred stock
and 24,417 shares of Class B preferred stock for approximately $273
such stock being beneficially owned by the estate of Bryan Nelson.
The redemption price of approximately $4,300 ("Redemption Price")
was offered based on a formula within the buy/sell agreement. In
December 1991, the Company, through an Offering Memorandum dated in
October 1991, agreed to purchase, from the beneficiaries of the
Estate, 2,226 shares of common stock for $1,977 and 30,030.5 shares
of Class A preferred stock and 51,839 shares of Class B preferred
stock for $2,730. The purchase price for the common stock and Class
A and Class B preferred stock utilized valuations of the Company's
common and preferred stock. The valuations were prepared by an
independent third party. In 1992, the total redemption price was
approved by the Board of Directors and was paid to an escrow agent
pursuant to an escrow agreement between the Company and the escrow
agent dated March 4, 1992. The estate of Bryan Nelson was not party
to the escrow agreement. On April 14, 1992, Sarah Nelson,
Administratrix of the estate of Bryan Nelson, filed a petition in
Montgomery County, Pennsylvania, Court of Common Pleas, to void the
aforementioned agreement. On September 30, 1993, the Company reached
a Settlement Agreement with the Administratrix of the estate of
Bryan Nelson to end all pending litigation pursuant to this
Settlement Agreement, which was approved by the Montgomery County,
Pennsylvania, Court of Common Pleas. The Company paid an additional
amount of approximately $3,137 in connection with this redemption.
This amount, plus approximately $280 of interest which was accrued
from amounts tendered in 1991, was accounted for as treasury stock.

Pursuant to the Recapitalization Agreement (see Note 3), the Company
repurchased from the Stockholder for approximately $199.0 million,
which includes approximately $0.9 million in post-closing
adjustments, all of its then outstanding shares of Preferred Stock
(5,460 Class A shares and 9,425 Class B shares) and 17,337 shares of
its then outstanding Common Stock. These shares along with all
previously acquired shares of Preferred and Common Stock were then
retired. During 1995, additional post closing adjustments totaling
$88 were made to the purchase price relating to the retired treasury
shares.

HOSIERY CORPORATION OF AMERICA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
(Dollars in thousands, except per share data)

15. LEASE COMMITMENTS

The Company leases premises under cancelable and noncancelable
operating leases with lease terms expiring through 2007. Future
minimum payments by year and in the aggregate under all
noncancelable capital and operating leases having initial or
remaining terms of one year or more consisted of the following at
December 31, 1995:

Year ending Capital Operating
December 31, Leases Leases
- ------------ ------ ------
1996 ............................................. $ 1,644 $ 984
1997 ............................................. 1,451 934
1998 ............................................. 989 917
1999 ............................................. 784 873
2000 ............................................. 379 873
Thereafter ....................................... 385 5,602
------- -------
5,632 $10,183
=======
Amount representing imputed interest ............. 525
-------
Present value of net minimum lease
payments ....................................... 5,107
Less current portion ............................. 1,402
-------
$ 3,705
=======

Rental expense under all operating leases for the years ended December 31,
1993, 1994 and 1995, was approximately $1,430, $1,301 and $1,046,
respectively.

16. COMMITMENTS AND CONTINGENCIES

On June 19, 1993, the Company reached a Settlement Agreement with
International Data Processing, Inc. ("IDP") to end all pending
litigation regarding a lawsuit brought by the Company against IDP
for breach of contract and intentional misrepresentation by IDP, and
a counterclaim by IDP against the Company alleging improper
termination of an agreement to manage, staff and operate the
Company's data processing center for 5 years beginning in 1989.
Pursuant to the Settlement Agreement, which was approved by the
Federal Court in Newark, New Jersey, the Company paid the total
amount of $1,650 to IDP and the related legal costs of $220, which
have been included in other (income) expenses.

The Company has entered into employment agreements with certain
members of management.

The Company has agreed to pay Kelso an annual fee of $263 each year
for financial advisory services and to reimburse Kelso for
out-of-pocket expenses incurred. Non-officer directors of the
Company, other than those directors who are affiliated with Kelso,
will be paid an annual retainer of $20. In addition, all
out-of-pocket expenses of non-officer directors, including those
directors who are affiliated with Kelso, related to meetings
attended, will be reimbursed by the Company. Non-officer directors,
including those directors affiliated with Kelso, will receive no
additional compensation for their services as directors of the
Company except as described above.

The Company is involved in, or has been involved in, litigation
arising in the normal course of its business. The Company can not
predict the timing or outcome of these claims and proceedings.
Currently, the Company is not involved in any litigation which is
expected to have a material effect on the financial position of the
business or the results of operations and cash flows of the Company.

17. PROFIT SHARING PLAN

The Company has a profit sharing plan covering all employees and
those of its subsidiaries. Eligible employees can participate as of
January 1 and July 1 after twelve months of service. Employee
contributions are made on a pretax basis under Section 401(k) of the
Internal Revenue Code. The Company's contribution is at the
discretion of the Board of Directors. The expense associated with
the employer contribution was approximately $365, $430 and $442 in
1993, 1994 and 1995, respectively.

All contributions and investments are held in a trust for the
benefit of plan participants. Employees with five years of service
prior to January 1, 1990, are 100% vested in the entire amounts held
for them under the plan. All employees are 100% vested in their
pretax contributions and earnings thereon, but become vested in the
Company contributions and earnings at a rate based on years of
service, with full vesting after five years.

18. FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company values the financial instruments as required by SFAS No.
107, Disclosures about Fair Value of Financial Instruments. The
following methods and assumptions were used to estimate the fair
value of each class of financial instrument:

Cash and Cash Equivalents, Accounts Receivable, Accounts Payable and
Accrued Expenses. The carrying amount of these items are a
reasonable estimate of their fair values because of the short
maturity of these instruments.

Long-term Debt including Current Maturities. The fair value of the
Company's long-term debt is based on the quoted market price on the
subordinated notes and on current interest rates that are available
to the Company for debt not quoted on an exchange. At December 31,
1995 the Company had a carrying amount of long-term debt of $145,986
and an estimated fair value of $148,008.

19. STOCK OPTION PLAN

In October 1994, the Board of Directors resolved to adopt a stock
option plan for the issuance of 190,909 shares of common stock.
Although the terms of the stock option plan have not been finalized,
the Company has agreed to grant options to certain key employees of
the Company under certain circumstances.

20. RELATED PARTIES TRANSACTIONS

The Company advanced funds to three of its officers totaling $1,206
during 1993 and $491 during 1994. These amounts are evidenced by
demand notes with interest at rates ranging from 1.0% to 1.5% over
prime and have been recorded together with accrued interest as
assets held for sale. These advances were repaid on October 17,
1994, as part of the Recapitalization.

During 1993, the Company paid $1,000 as a brokerage fee to a
corporation controlled by the sole Stockholder and chief executive
officer of the Company pursuant to a brokerage fee agreement in
connection with the sale of certain assets and rights of Meteor
Incorporated, a former subsidiary of the Company, to unrelated third
parties.

During 1993, the Estate transferred real property to the Company in
lieu of payment for advances made for the Estate for administration
expenses and taxes totaling $150. The real property was sold on
October 1, 1993, to an unrelated party resulting in a loss of
approximately $115 which was reflected in the consolidated statement
of operations in 1993.

In connection with the Recapitalization, certain members of the
Company's management were granted restricted pay-in-kind preferred
stock and restricted common stock of $1,022 and $478, respectively.
Compensation associated with the grant of these shares was measured
by the difference between the aggregate price of the restricted
shares and the aggregate fair value of the shares on the measurement
date. Such compensation is being recognized ratably over the
six-year period for which services must be performed in order for
these individuals to receive the shares without restriction. The
Company is recognizing compensation expense over six years
commencing October 17, 1994, which is the date the Company effected
the Recapitalization and granted the restricted shares. Compensation
expense related to these shares for the period ended December 31,
1994 and December 31, 1995 totaled $52 and $250, respectively.

In connection with the Recapitalization, on October 17, 1994,
certain designees of Kelso acquired shares of the Company's Common
Stock. The proceeds from the sale of these shares were received
subsequent to December 31, 1994 and, accordingly, were included in
the accompanying 1994 balance sheet as an increase (stock
subscriptions receivable) in deficiency in assets.

During 1994 and 1995, certain officers of the Company acquired
shares of both the Company's common and preferred stock. These
shares are included in the accompanying balance sheets as redeemable
equity securities and are shown net of issuance costs.

Kelso provides financial advisory services to the Company for an
annual fee. Payment for these services and reimbursement of expenses
totalled $172 in 1994 and $308 in 1995.

21. PREFERRED STOCK

The PIK Preferred Stock is entitled to cumulative dividends, payable
solely in additional shares of PIK Preferred Stock, at an estimated
rate of 25% per annum when, as and if declared by the Board of
Directors of the Company. Cumulative dividends on preferred shares
that have not been declared since The Recapitalization total
approximately 1.1 million shares of preferred stock. The PIK
Preferred Stock has an aggregate liquidation preference of
approximately $37.5 million plus the liquidation preference of
additional shares of PIK Preferred Stock issued in payment of
dividends on the PIK Preferred Stock and the liquidation preference
in respect of accumulated and unpaid dividends, whether or not
declared. The PIK Preferred Stock is redeemable at the option of the
Company in whole or in part at any time for a redemption price equal
to the liquidation preference thereof plus all accumulated and
unpaid dividends, whether or not declared, to the date of
redemption. In addition, the PIK Preferred Stock has no voting
rights, except that the PIK Preferred Stock is entitled to vote, as
a separate class, in the event of any merger, consolidation, or sale
of all or substantially all of the Company's assets, any amendment
to the Company's Restated Certificate of Incorporation or any
authorization or issuance by the Company of capital stock ranking
senior to or pari passu with the PIK Preferred Stock with respect to
dividends or liquidation preference or securities convertible into
or exchangeable or exercisable for such capital stock.

22. QUARTERLY INFORMATION (UNAUDITED)

Summarized quarterly financial data for 1995 and 1994 are set forth
below:

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
March 31 June 30 September 30 December 31 Total
-------- ------- ------------ ----------- -----
1995

Net Revenues ...................................... $ 33,608 $ 36,526 $ 32,902 $ 33,263 $136,299
Gross Profit ...................................... 16,489 20,593 18,674 19,561 75,317
Income from continuing operations
before provision for income taxes
and cumulative effect of
accounting change .............................. 286 4,572 2,467 4,731 12,056
Net Income ........................................ 175 2,789 1,504 3,028 7,496

1994

Net Revenue ....................................... 31,328 29,915 28,865 28,452 118,560
Gross Profit ...................................... 15,896 17,203 15,985 16,991 66,075
Income from continuing operations
before provision for income taxes
and cumulative effect of
accounting change .............................. 5,065 5,497 4,801 1,753 17,116
Net Income ........................................ 2,786 3,603 2,064 1,293 9,746

</TABLE>

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

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The Company's executive officers and directors, as well as
additional information with respect to those persons, are set forth in the
table below.

Name Age Position
- ---- --- --------
John F. Biagini 52 Chairman, Chief Executive Officer and President
Darrell Edwards 37 Vice President and Director of Marketing
Robert M. Henry 49 Senior Vice President, Business Development
Arthur Hughes 54 Vice President and Chief Financial Officer
William J. Kelly 46 Vice President, Systems and Operations
Hans Lengers 50 President, U.S. Textile Corporation and Director
Robert Mooney 53 Vice President and General Counsel
Frank K. Bynum, Jr. 33 Director
Michael B. Goldberg 49 Director
Joseph A. Murphy 52 Director

Directors shall be elected by a plurality of the votes cast at
annual meetings of stockholders (except in the case of vacancies on the
Board of Directors). All directors of the Company serve for the term for
which they are elected or until their successors are duly elected and
qualified or until death, retirement, resignation, or removal. All
executive officers hold office at the pleasure of the Board of Directors.
See "--Stockholders Agreement" and "--Employment Agreements".

Non-officer directors of the Company, other than those directors
who are affiliated with Kelso, will be paid on annual retainer of $20,000.
In addition, all out-of-pocket expenses of non-officer directors, including
those directors who are affiliated with Kelso, related to meetings attended
will be reimbursed by the Company. Non-officer directors, including those
directors affiliated with Kelso, will receive no additional compensation
for their services as directors of the Company except as described above.
Officers of the Company who serve as directors do not receive compensation
for their services as directors other than the compensation they receive as
officers of the Company.

There are no family relationships among directors and executive
officers of the Company. For certain information regarding the stock
ownership of the Company, see "Security Ownership of Certain Beneficial
Owners and Management".

The business experience for at least the last five years of each
of the directors and executive officers is as follows:

Mr. Biagini has been the Chairman, Chief Executive Officer and
President of the Company since consummation of the Recapitalization. Mr.
Biagini served as President and Chief Operating Officer since June 1992.
From March 1988 to June 1992, Mr. Biagini was Vice President of Marketing
of the Company. Before joining the Company in March 1988, Mr. Biagini was
President of the Direct Marketing Division of Harlequin Enterprises from
1983 to 1988 and served in various United States and international direct
mail assignments for Reader's Digest Association from 1972 to 1983.

Mr. Edwards has been the Vice President and Director of Marketing
of the Company since consummation of the Recapitalization. Mr. Edwards
served as Vice President and Director of Marketing since he joined the
company in October 1992. Before joining the Company in October 1992, Mr.
Edwards held various magazine marketing positions for Reader's Digest
Association since at least 1989.

Mr. Henry has been Senior Vice President, Business Development
since September 1995. From 1993 to 1995, he served as Chairman, Marketing
Services, for Bates Advertising U.S. From 1990 to 1993, Mr. Henry was Vice
Chairman and Chief Operating Officer of McCaffrey and McCall Advertising.

Mr. Hughes has been the Vice President and Chief Financial Officer
of the Company since August 1995. Mr. Hughes served as Vice President and
Controller of the Company from 1990 to August 1995.

Mr. Kelly has been the Vice President, Systems and Operations, of
the Company since December 1993. From November 1988 until December 1993,
Mr. Kelly was Vice President, Systems and Programming. Before joining the
Company in November 1988, Mr. Kelly held various data processing systems
and data processing operations management positions.

Mr. Lengers has been the President of U.S. Textile Corporation
(the Company's wholly-owned manufacturing subsidiary) and a Director of the
Company since 1978, and is one of the founders of U.S. Textile Corporation.

Mr. Mooney has been the Vice President, General Counsel and
Secretary of the Company since consummation of the Recapitalization. Mr.
Mooney served as the Vice President and General Counsel since joining the
Company in September 1988. Before joining the Company in September 1988,
Mr. Mooney served as the Company's outside counsel for several years.

Mr. Bynum has been a director of the Company since the
consummation of the Recapitalization. Mr. Bynum has been a Vice President
of Kelso since July 1991, and was an Associate of Kelso from October 1987
to July 1991. He is a director of Douglas Broadcasting, Inc., Ellis
Communications, Inc. and United Refrigerated Services, Inc.

Mr. Goldberg has been a director of the Company since consummation
of the Recapitalization. Mr. Goldberg has been a Managing Director of Kelso
since October 1991. Mr. Goldberg served as a Managing Director and jointly
managed the merger and acquisitions department at The First Boston
Corporation from 1989 to May 1991. Mr. Goldberg was a partner at the law
firm of Skadden, Arps, Slate, Meagher & Flom from 1980 to 1989. Mr.
Goldberg is a director of General Medical Corporation and United
Refrigerated Services, Inc.

Mr. Murphy has been a director of the Company since consummation
of the Recapitalization. Mr. Murphy joined the Company in September 1980 as
Chief Operating Officer. In December 1983, Mr. Murphy was promoted to
President and Chief Executive Officer and was simultaneously elected to the
Board of Directors. In June 1992, Mr. Murphy ceased serving as President of
the Company but continued to serve as Chairman and Chief Executive Officer,
a position from which he resigned prior to consummation of the
Recapitalization.

On December 22, 1993, Kelso and its chief executive officer,
without admitting or denying the findings contained therein, consented to
an administrative order in respect of Commission inquiry relating to the
1990 acquisition of a portfolio company by a Kelso affiliate. The order
found that Kelso's tender offer filing in connection with the acquisition
did not comply fully with the Commission's tender offer reporting
requirements, and required Kelso and its chief executive officer to comply
with these requirements in the future.

In connection with the transactions effected by the
Recapitalization Agreement, the Company paid Kelso a fee of $2.625 million
for financial advisory services and reimbursed it for out-of-pocket
expenses incurred in connection with rendering such services. In addition,
the Company has agreed to pay Kelso an annual fee of $262,500 each year for
financial advisory services and to reimburse it for out-of-pocket expense
incurred. The Company has also agreed to indemnify Kelso against certain
claims, losses, damages, liabilities and expenses which may arise, in
connection with rendering such financial advisory services.

The Company has a Compensation Committee, which currently consists
of three directors: John Biagini, Frank Bynum and Michael Goldberg. Messrs
Bynum and Goldberg are neither officers nor employees of the Company or any
of its affiliates.

Stockholders Agreement

The Stockholders Agreement provides, among other things, that,
(subject to changes that may be made from and after such time with respect
to the members and size of the Board of Directors in accordance with the
Company's Restated Certificate of Incorporation and By-Laws), the Company's
Board of Directors will consist of five members, including (i) two officers
of the Company designated by Kelso from certain management stockholders of
the Company, (ii) two other individuals designated by Kelso (who may be
affiliates of Kelso) and (iii) the Stockholder. In addition, Kelso and the
Stockholder agreed pursuant to the Stockholders Agreement that (i) so long
as the Stockholder and certain of his transferees collectively own 10% or
more of the outstanding Common Stock, the Stockholder shall be a director
of the Company and (ii) so long as Kelso and its affiliates collectively
are the largest stockholders of the Company and collectively own at least
35% of the outstanding stock of the Company, Kelso shall be entitled to
elect a majority of the Board of Directors of the Company. Under the
Company's Restated Certificate of Incorporation and By-Laws, the Board of
Directors shall consist of not less than three (3) nor more than eight (8)
members, and following consummation of the Recapitalization shall be fixed
from time to time by resolution of the Board of Directors (the "Board
Resolution"), or by resolution adopted by the vote of a majority of the
stockholders of the Common Stock or by consent executed on behalf of such
stockholders (the "Stockholder Resolution"); provided, that in the event of
a conflict between the Board Resolution and the Stockholder Resolution, the
Stockholder Resolution shall govern. The Stockholders Agreement also limits
transfers of Common Stock and Class A Common Stock by certain parties
thereto, and provides for certain tag-along, drag-along and registration
rights. (The Stockholders Agreement is dated as of October 17, 1994. The
original signatories thereto are the Company; the Stockholder, Joseph A.
Murphy; Kelso Investment Associates V, L.P.; Kelso Equity Partners V, L.P.;
as well as John F. Biagini, CEO of the Company and Hans Lengers, President
of U.S. Textile Corporation.)

ITEM 11. EXECUTIVE COMPENSATION

The following table sets forth the total compensation earned by
the Chief Executive Officer and the four most highly compensated executive
officers of the Company for the fiscal year ended December 31, 1995, as
well as the total compensation earned by such individuals for the two
previous fiscal years.

SUMMARY COMPENSATION TABLE
--------------------------

Annual Compensation Long-Term Compensation
------------------------------------- ----------------------
<S> <C> <C> <C> <C> <C>
Other Restricted
Annual Stock
Name Year Salary Bonus (c) Compensation Awards (d)
- ---- ---- ------ --------- ------------ ----------

John F. Biagini 1995 $340,622 $250,000 $ 7,182(a) $ --
Chairman of the Board, 1994 321,194 200,000 12,486(a) 1,000,000
Chief Executive Officer 1993 288,634 -- 12,486(a) --
and President

Hans Lengers 1995 402,663 -- 1,800(a) --
President, U.S. Textile 1994 391,696 -- 1,882(a) 499,000
Corporation 1993 380,288 -- 1,882(a) --

William J. Kelly 1995 210,652 24,250 7,182(a) --
Vice President, Systems 1994 205,281 26,500 9,779(a) --
and Operations 1993 185,618 17,500 9,779(a) --

Darrell Edwards 1995 139,470 29,100 7,182(a) --
Vice President and 1994 151,472 21,000 9,277(b) --
Director of Marketing 1993 120,240 5,000 59,987(b) --

Arthur Hughes 1995 133,786 34,200 4,833(a) --
Vice President and 1994 110,846 19,200 4,412(a) --
Chief Financial Officer 1993 101,957 -- 4,244(a) --

- ----------------
(a) Amounts represent Company contributions to the 401(k) Plan, which is a defined contribution plan.
(b) Represents relocation expenses for Mr. Edwards.
(c) Represents amounts awarded as cash bonuses.
(d) Represents compensation associated with restricted stock awards for certain officers. See "Management Stock Purchase
and Restricted Stock Award Agreements" below.
</TABLE>

Long-Term Compensation

Management Stock Purchase and Restricted Stock Award Agreements

Prior to the closing of the Recapitalization, Mr. Biagini and Mr.
Lengers entered into Management Stock Purchase and Restricted Stock Award
Agreements with the Company (the "Management Stock Agreements"), pursuant
to which Mr. Biagini was granted 18,841 shares of Common Stock and 68,120
shares of PIK Preferred Stock, and Mr. Lengers was granted 9,421 shares of
Common Stock and 34,060 shares of PIK Preferred Stock in addition to the
shares of Common Stock and PIK Preferred Stock purchased by Messrs. Biagini
and Lengers. The Common Stock was sold at $16.92 per share and the PIK
Preferred Stock at $10.00 per share to the original investor group.
Compensation with respect to the grant of shares will be recognized ratably
over the six-year period for which services must be performed in order for
Messrs. Biagini and Lengers to receive the shares without restriction.
Additionally, in 1995 the management group was offered limited
opportunities to purchase stock at the same price as Messers. Biagini and
Lengers which resulted in net proceeds to the Company of $190 thousand.

Stock Option Plan

In October 1994, the Board of Directors resolved to adopt a stock
option plan for the issuance of 190,909 shares of common stock. Although
the terms of the stock option plan have not been finalized, the Company has
agreed to grant options to certain key employees of the Company under
certain circumstances.

No options were granted to the Chief Executive Officer or the four
most highly compensated executive officers during the year ended December
31, 1995.

Employment Agreements

In August 1980, Hans Lengers entered into an Employment Agreement
with the Company's manufacturing subsidiary, U.S. Textile Corporation
("U.S. Textile"), pursuant to which he is employed as President and Chief
Executive Officer of U.S. Textile and to manage and operate its business
and affairs for his lifetime, such agreement having been amended on
September 12, 1994. Mr. Lengers is not entitled to receive compensation
upon the voluntary termination of his employment with U.S. Textile. In
addition, the Company may abrogate the terms and conditions of the
Employment Agreement for good cause as defined by the law of North
Carolina, and in any event, the Employment Agreement will terminate upon
Mr. Lengers' death, adjudicated incompetency, bankruptcy or physical or
mental inability to perform his duties thereunder. The agreement provides
for a base salary of $5,000 per month and additional compensation in the
amount that 25.0% of the U.S. Textile net profits exceed such base
compensation, such that the sum of the base compensation and this
additional compensation does not exceed $250,000 per annum, adjusted each
year for cost of living increases. The Consumer Price Index for Urban Wage
Earners and clerical workers is used as the index to compute cost of living
increases. The ceiling for Mr. Lengers' salary in 1995 was $412,730. In
addition, Mr. Lengers has agreed during the time of his employment not to
devote any of his time and efforts to the affairs of any other business in
direct competition with U.S. Textile.

In August 1992, Arthur C. Hughes entered into an Executive
Employment Agreement with the Company pursuant to which he is employed as
Vice President and Chief Financial Officer of the Company. The initial term
of the agreement is five years. The agreement provides for an initial base
salary of $97,825 and 6.5% annual increases. In addition, Mr. Hughes is
entitle to receive a bonus as defined by the President and the Board of
Directors to be calculated based on the results of the fiscal year in
particular on achieving budgeted corporate profits (35%) and achieving
management objectives that are developed each year (65%). Mr. Hughes is
also entitled to participate in all standard employee benefits provided by
the Company and to use an automobile provided by the Company.

In September 1993, Robert J. Mooney entered into an Executive
Employment Agreement with the Company pursuant to which he is employed as
Vice President and General Counsel of the Company. The initial term of the
agreement is five years. The agreement provides for an initial base salary
of $142,851 and 5.0% annual increases. Solely at the discretion of the
Board of Directors, Mr. Mooney receives a bonus of not less than $10,000 in
January of each year. In addition, Mr. Mooney is entitled to standard
Company medical benefits, as well as term life insurance in the amount of
$500,000 and the use of an automobile.

In September 1995, Robert M. Henry entered into an Executive
Employment Agreement with the Company pursuant to which he is employed as
Senior Vice President of Business Development of the Company. The term of
the agreement is indefinite. The agreement provides for an initial base
salary of $250,000. In addition, Mr. Henry is entitled to receive a bonus
the amount of which is based on achieving objectives defined by the
President and the performance of the Company against annual corporate
targets. Mr. Henry is also entitled to participate in all standard employee
benefits provided by the Company, to use an automobile provided by the
Company, and to participate in the Company's Stock Option Plan on terms and
conditions enjoyed by other executive officers.

All four aforementioned employment agreements require a successor
to the employer thereunder to assume the respective obligations of such
employer under the applicable agreement.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT

The following table sets forth information as of February 27, 1996
with respect to the beneficial ownership of shares of Common Stock of all
stockholders of the Company who are known by the Company to beneficially
own more than 5% of any such class, by each director, by each executive
officer of the Company named in the summary compensation table and by all
directors and executive officers of the Company as a group, as determined
in accordance with Rule 13d-3(i) under the Securities Exchange Act of 1934,
as amended. The Common Stock set forth in the following table includes only
voting Common Stock. Except as indicated in the footnotes below, all shares
of Common Stock are voting Common Stock. Prior to the consummation of the
Recapitalization, all of the issued and outstanding shares of Common Stock
and Old Preferred Stock were owned by the Stockholder.

Percentage
of Shares of
Name and Address Number of Shares Common Stock
of Beneficial Owner of Common Stock Outstanding
- ------------------- --------------- -----------

Kelso Investment Associates V, L.P. (a)(b) ... 1,000,660 75.33%
Kelso Equity Partners V, L.P. (a)(b) ......... 1,000,660 75.33
Joseph S. Schuchert(b) ....................... (c) (c)
Frank T. Nickell(b) .......................... (c) (c)
George E. Matelich(b) ........................ (c) (c)
Thomas R. Wall, IV(b) ........................ (c) (c)
Michael B. Goldberg(b) ....................... -- --
Frank K. Bynum, Jr.(b) ....................... -- --
Joseph A. Murphy(d) .......................... 292,600 22.03%
John F. Biagini(d)(e) ........................ 20,725 1.56%
Hans Lengers(d)(e) ........................... 10,363 0.78%
William J. Kelly(d) .......................... 188 0.01%
Darrell Edwards(d) ........................... 753 0.06%
Arthur C. Hughes(d) .......................... 471 0.04%
All directors and executive officers of the
Company as a group(d) .................... 326,513 24.58%

- ---------------
(a) As part of the Recapitalization Kelso Investment Associates V, L.P. ("KIA
V") and Kelso Equity Partners V, L.P. ("KEP V", and with KIA V, the "Kelso
Affiliates"), each acquired, respectively 960,634 and 40,026 shares of
Common Stock, representing 72.32% and 3.01%, respectively, of the shares of
Common Stock outstanding. The Kelso Affiliates, due to their common
control, could be deemed to beneficially own each of the other's shares.
In addition, certain designees of Kelso not affiliated with Kelso acquired
5,652 shares of non-voting Class A Common Stock. KIA V, KEP V and certain
designees of Kelso not affiliated with Kelso acquired approximately 97.0%
of the shares of PIK Preferred Stock issued in the Recapitalization. The
PIK Preferred Stock, while entitled to certain voting rights under limited
circumstances, are not voting securities of the Company.

(b) The business address for such person(s) is c/o Kelso & Company, Inc., 350
Park Avenue, 21st Floor, New York, New York 10022.

(c) Messrs. Schuchert, Nickell, Matelich and Wall may be deemed to share
beneficial ownership of shares of common stock and preferred stock owned
of record by KIA V and KEP V, by virtue of their status as general
partners of the general partner of KIA V and general partners of KEP V.
Messrs. Schuchert, Nickell, Matelich and Wall share investment and voting
power with respect to securities owned by the KIA V and KEP V. Messrs.
Schuchert, Nickell, Matelich and Wall disclaim beneficial ownership of
shares of common stock and preferred stock owned of record by KIA V and
KEP V.

(d) The business address of such person(s) is c/o Hosiery Corporation of
America, Inc., 3369 Progress Drive, Bensalem, Pennsylvania 19020.

(e) In addition, prior to the closing of the Recapitalization, Messrs. Biagini
and Lengers acquired in the aggregate approximately 3.0% of the shares of
PIK Preferred Stock issued in the Recapitalization. The amounts of Common
Stock beneficially owned by Messrs. Biagini and Lengers as reflected in
the above table and PIK Preferred Stock acquired by Messrs. Biagini and
Lengers as described in the preceding sentence include grants made by the
Company prior to the consummation of the Recapitalization to Messrs.
Biagini and Lengers of an aggregate of 28,262 shares of Common Stock and
approximately 2.7% of the shares of PIK Preferred Stock, in each case
subject to certain restrictions.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Set forth below is a summary of certain agreements and
arrangements entered into by the Company and related parties in connection
with the Recapitalization.

Investor Relationships

Kelso affiliates beneficially own 71.67% of the shares of common
equity of the Company as described under "Security Ownership of Certain
Beneficial Owners and Management". The Company has agreed to indemnify
Kelso and its affiliates against certain claims, losses, damages,
liabilities and expenses which may arise in connection with the
transactions contemplated by the Recapitalization Agreement. The Company
has also agreed to pay Kelso an annual fee of $262,500 each year for
financial advisory services and to reimburse it for out-of-pocket expenses
incurred, and to indemnify it against certain claims, losses, damages,
liabilities and expenses which may arise, in connection with rendering such
services. Kelso's out-of-pocket expenses in connection with its services
rendered during 1995 were approximately $46,000.

Certain Kelso affiliates are parties to a stockholders agreement.
In addition, certain affiliates of Kelso, the Company and certain investors
in the Company's stock who are designees of Kelso entered into Letter
Agreements (collectively, the "Letter Agreements"), each of which, among
other things, provides for certain restrictions on the transfer of stock by
such investors. The Company has a stockholders agreement which provides,
among other things, for certain restrictions on the transfer of the
Company's stock.

The Recapitalization and Related Transactions

The Recapitalization Agreement contains customary representations,
warranties, indemnities and conditions. In addition, the Recapitalization
Agreement provides that the Stockholder, on the one hand, and Company, on
the other, will, subject to certain limitations set forth therein,
indemnify each other and their respective stockholders, subsidiaries,
affiliates, officers and directors and their respective successors and
assigns, from, against and in respect of any damages, losses, deficiencies,
liabilities, costs and expenses, incurred as a result of any (i)
misrepresentations or breaches of warranties set forth in the
Recapitalization Agreement or in any certificate delivered pursuant thereto
and (ii) non-fulfillment of certain agreements or covenants set forth in
the Recapitalization Agreement. The representations and warranties and
covenants and agreements to which such indemnification relates are standard
and include representations and warranties with respect to ownership of
stock, capitalization, financial statements, absence of defaults under
agreements and violations of law and similar matters. In addition, the
Recapitalization Agreement provides for similar indemnification by the
Stockholder with respect to certain other matters, including, among other
things, claims by third parties resulting from or arising out of certain
activities in connection with the Stockholder's auction and sale of the
Company and certain liabilities incurred as a result of the operations (or
relating to the assets) which were transferred to the Stockholder prior to
the Recapitalization (as described below) or arising out of such transfer.
Under the Recapitalization Agreement, such indemnification is subject to
certain baskets and deductibles and, in general, has an aggregate limit of
$15 million.

The Recapitalization Agreement also provided for the Stockholder
and the Company to enter into an Escrow Agreement pursuant to which, among
other things, $10 million of the aggregate purchase price paid by the
Company to the Stockholder pursuant to the Repurchase is held in escrow to
provide a source of payment to satisfy the Stockholder's indemnification
obligations under the Recapitalization Agreement. In addition, the
Stockholder has pledged to the Company the shares of Common Stock which
were not purchased by the Company pursuant to the Repurchase and which the
Stockholder continues to own following the consummation of the
Recapitalization (such shares represent approximately 21% of the Company's
Common Stock outstanding following the consummation of the
Recapitalization).

In connection with the Recapitalization, the Company transferred
to the Stockholder certain assets consisting primarily of the stock of all
of its non-hosiery related subsidiaries, some of which are inactive
businesses, certain receivables, equipment leased to one of the non-hosiery
subsidiaries, certain life insurance policies, four owned or leased
automobiles and three owned or leased personal computers. None of the
assets transferred to the Stockholder, except the life insurance policies
and loans thereon, automobiles and computers, were used in the Company's
hosiery business.

PART IV

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

A. The following documents are filed as a part of this Report:

(1) and (2) Financial Statements and Financial Statement
Schedules--see Index to Financial Statements and Financial Statment
Schedules appearing on Page 15.

(3) Exhibits, including those incorporated by reference. The following
is a list of exhibits filed as part of this Annual Report on Form
10-K. Where so indicated by footnote, exhibits which were
previously filed are incorporated by reference. For exhibits
incorporated by reference, the location of the exhibit in the
previous filing is indicated in parentheses.

<TABLE>
<CAPTION>
<S> <C> <C>
EXHIBITS INCORPORATION BY REFERENCE

3.1 Restated Certificate of Incorporation Exhibit 3.1 to Registration Statement No.
of the Company 33-87392 on Form S-1 dated May 15, 1995.

3.2 Certificate of Designation, Powers, Exhibit 3.2 to Registration Statement
Preferences and Rights of Pay-in-Kind No. 33-87392 on Form S-1 Dated May 15,
Preferred Stock 1995

3.3 Amendment to the Restated Exhibit 3.3 to Registration Statement
Certificate of Incorporation of No. 33-87392 on Form S-1 dated May 15,
the Company 1995

3.4 Amendment to the Restated Exhibit 3.1 to Report 10-Q for the quarter
Certificate of Incorporation of ended September 30, 1995
the Company

3.5 By Laws of the Company Exhibit 3.4 to Registration Statement No.
33-87392 on Form S-1 dated May 15, 1995

4.1 Indenture dated as of October 17, Exhibit 4.1 to Registration Statement No.
1994 between the Company and 33-87392 on Form S-1 dated May 15, 1995
United States Trust Company of
New York, as Trustee

4.2 Credit Agreement dated as of October Exhibit 4.1 to Registration Statement No.
17, 1994, among the Company; 33-87392 on Form S-1 dated May 15, 1995
National Westminster Bank PLC, as
Co-Agent; Nations Bank of North
Carolina, N.A., as Co-Agent; Bankers
Trust Company, as Agent; and the
financial institutions listed on the
signature pages thereto

10.1 Executive Employment Agreement Exhibit 10.2 to Registration Statement No.
between Hosiery Corporation of 33-87392 on Form S-1 dated May 15, 1995
America, Inc. and Arthur C. Hughes,
dated as of August 3, 1992

10.2 Employment Agreement between U.S. Exhibit 10.3 to Registration Statement No.
Textile Corporation and Hans 33-87392 on Form S-1 dated May 15, 1995
Lengers, dated as of August 29, 1980,
and an Amendment thereto among U.S.
Textile Corporation., the Company and
Hans Lengers, dated as of September 12,
1994

10.3 Executive Employment Agreement Exhibit 10.4 to Registration Statement No.
between the Company and Robert 33-87392 on Form S-1 dated May 15, 1995
J. Mooney, dated as of September 16,
1993

*10.4 Executive Employment Agreement
between the Company and Robert
M. Henry, dated as of August 7, 1995

*10.5 Management Stock Subscription
Agreement dated August 14, 1995

*21.1 Subsidiaries of the Registrant

</TABLE>

* Filed herewith.

B. Reports on Form 8-K filed during the quarter ended December 31, 1995:

None.

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 on
the 3rd day of July, 1996.

HOSIERY CORPORATION OF AMERICA, INC.
/s/ ARTHUR C. HUGHES
BY: ___________________________
Arthur C. Hughes
Vice President and Chief
Financial 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 indicated on the 3rd day of July,
1996.

Signatures Title

/s/ JOHN F. BIAGINI
______________________________ Chairman of the Board, Chief Executive
John F. Biagini Officer and President (Principal
Executive Officer)

/s/ HANS LENGERS
______________________________ President, U.S. Textile Corporation and
Hans Lengers Director

/s/ ARTHUR C. HUGHES
______________________________ Vice President and Chief Financial
Arthur C. Hughes Officer (Principal Financial
and Accounting Officer)

/s/ FRANK K. BYNUM, JR.
______________________________ Director
Frank K. Bynum, Jr.

/s/ MICHAEL B. GOLDBERG
______________________________ Director
Michael B. Goldberg

/s/ JOSEPH A. MURPHY
______________________________ Director
Joseph A. Murphy

INDEPENDENT AUDITORS' REPORT

To the Board of Directors
Hosiery Corporation of America, Inc.
Bensalem, Pennsylvania

We have audited the consolidated financial statements of Hosiery
Corporation of America, Inc., and its subsidiaries (the "Company") as of
December 31, 1995 and 1994, and for each of the three years in the period
ended December 31, 1995, and have issued our report thereon dated February
27, 1996; such report is included elsewhere in this Form 10-K. Our audits
also included the consolidated financial statement schedule of the Company
referred to in Item 8. This consolidated financial statement schedule is
the responsibility of the Company's management. Our responsibility is to
express an opinion based on our audits. In our opinion, such consolidated
financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.

Deloitte & Touche LLP
Philadelphia, Pennsylvania

February 27, 1996

SCHEDULE I

HOSIERY CORPORATION OF AMERICA, INC.
VALUATION AND QUALIFYING ACCOUNTS
(Dollars in thousands)

Balance at Charged to Balance at
Beginning of Costs and Amounts End of
Period Expenses Written Off Period
------ -------- ----------- ------
YEAR ENDED DECEMBER 31, 1995
Allowance for Uncollectible Accounts.............. $ 923 $7,788 $7,448 $1,263
===== ====== ====== ======

YEAR ENDED DECEMBER 31, 1994
Allowance for Uncollectible Accounts.............. $1,060 $5,643 $5,780 $ 923
====== ====== ====== =====

YEAR ENDED DECEMBER 31, 1993
Allowance for Uncollectible Accounts.............. $ 583 $5,097 $4,620 $1,060
===== ====== ====== ======
</TABLE>

EXHIBIT INDEX

EXHIBITS

10.4 Executive Employment Agreement
between the Company and Robert
M. Henry, dated as of August 7, 1995

10.5 Management Stock Subscription
Agreement dated August 14, 1995

21.1 Subsidiaries of the Registrant

EXHIBIT 21.1

HOSIERY CORPORATION OF AMERICA, INC.
SUBSIDIARIES OF THE REGISTRANT

The following table lists each significant subsidiary of Hosiery
Corporation of America, Inc. and its jurisdiction of organization.

Jurisdiction
of
Subsidiary Organization
- ---------- ------------
U.S. Textile Corporation (100% owned)...................... North Carolina
The Stonebury Group, Inc. (100% owned)..................... Nevada
Hosiery Corporation International, Inc. (100% owned)....... Delaware