SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(MARK ONE)
( X ) QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended September 25, 1999
or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From _______ to ________
Commission File No. 33-87392
HCI DIRECT, INC.
(FORMERLY, 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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at November 4, 1999
- ---------------------------- -------------------------------
Voting 1,331,574
Class A, non-voting 75,652
<PAGE>
INDEX PAGE
- ----- ----
PART I - FINANCIAL INFORMATION
- ------------------------------
Item 1. Condensed Consolidated Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets
September 25, 1999 and December 31, 1998 3
Condensed Consolidated Statements of Operations
Three month and nine month periods ended
September 25, 1999 and September 26, 1998 4
Condensed Consolidated Statements of Cash Flows
Nine month periods ended September 25, 1999
and September 26, 1998 5
Notes to Condensed Consolidated Financial Statements 6-10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11-17
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 17
PART II - OTHER INFORMATION 18-20
- ---------------------------
SIGNATURES 21
2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
- ----------------------------------------------------
<TABLE>
HCI DIRECT, INC. (FORMERLY, HOSIERY CORPORATION OF AMERICA, INC.) AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 25, 1999 AND DECEMBER 31, 1998
(Dollars in thousands, except share and per share data)
<CAPTION>
September 25, December 31,
1999 1998
------------- ------------
ASSETS (Unaudited)
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents ........................................................... $ - $ -
Accounts receivable, less an allowance for doubtful accounts of
$4,373 and $1,901 in 1999 and 1998, respectively ................................... 41,997 32,214
Inventories ......................................................................... 19,170 20,008
Prepaid and other current assets .................................................... 6,894 3,748
--------- ---------
Total current assets ........................................................... 68,061 55,970
PROPERTY AND EQUIPMENT, net .............................................................. 16,800 17,906
DEFERRED CUSTOMER ACQUISITION COSTS ...................................................... 57,496 46,933
DEFERRED DEBT ISSUANCE COSTS, less accumulated amortization of
$7,941 and $6,774 in 1999 and 1998, respectively .................................... 3,740 4,790
GOODWILL, less accumulated amortization of $154 and $61 in 1999 and 1998, respectively ... 3,640 3,733
OTHER ASSETS ............................................................................. 720 707
--------- ---------
TOTAL .................................................................................... $ 150,457 $ 130,039
========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES:
Borrowings under line of credit ..................................................... $ 14,600 $ 3,400
Current portion of long-term debt ................................................... 10,367 7,617
Current portion of capital lease obligations ........................................ 1,587 1,726
Bank overdrafts ..................................................................... 153 1,397
Accounts payable .................................................................... 15,749 10,321
Accrued expenses and other current liabilities ...................................... 8,905 9,389
Accrued interest .................................................................... 1,968 4,771
Accrued coupon redemption costs ..................................................... 4,434 4,679
Deferred income taxes ............................................................... 10,237 8,115
--------- ---------
Total current liabilities ...................................................... 68,000 51,415
LONG-TERM DEBT, Less current portion ..................................................... 115,052 121,433
CAPITAL LEASE OBLIGATIONS, Less current portion .......................................... 4,691 5,176
ACCRUED COUPON REDEMPTION COSTS .......................................................... 386 408
DEFERRED INCOME TAXES .................................................................... 13,594 10,884
--------- ---------
Total liabilities .............................................................. 201,723 189,316
--------- ---------
COMMITMENTS AND CONTINGENT LIABILITIES
REDEEMABLE EQUITY SECURITIES ............................................................. 983 885
--------- ---------
STOCKHOLDERS' DEFICIENCY:
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, (liquidation preference of $120,244 and
$101,236 in 1999 and 1998, respectively), 3,748,497 shares issued in 1999 and 1998,
3,739,782 shares outstanding in 1999 and 1998 ..................................... 37,485 37,485
Common stock, voting, $.01 par value: 3,000,000 shares authorized, 1,340,122
shares issued, 1,321,522 shares outstanding in 1999 and 1998 ...................... 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 .......................................................... 18,771 18,869
Compensatory stock options outstanding .............................................. 20,943 20,943
Accumulated deficit ................................................................. (127,127) (134,950)
Restricted stock .................................................................... (259) (447)
--------- ---------
(50,173) (58,086)
Treasury stock, at cost, 27,315 shares in 1999 and 1998 (8,715 preferred shares
and 18,600 common shares) ......................................................... (2,076) (2,076)
--------- ---------
Net stockholders' deficiency ................................................... (52,249) (60,162)
--------- ---------
TOTAL .................................................................................... $ 150,457 $ 130,039
========= =========
<FN>
See notes to condensed consolidated financial statements.
</FN>
3
</TABLE>
<PAGE>
<TABLE>
HCI DIRECT, INC. (FORMERLY, HOSIERY CORPORATION OF AMERICA, INC.) AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands)
(Unaudited)
<CAPTION>
Three Month Periods Ended Nine Month Periods Ended
September 25, September 26, September 25, September 26,
1999 1998 1999 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
NET REVENUES ..................................................... $ 61,246 $ 48,042 $ 180,813 $ 142,236
--------- --------- --------- ---------
COSTS AND EXPENSES:
Cost of sales ............................................... 26,486 20,536 83,301 66,479
Administrative and general expenses ......................... 3,386 3,102 10,740 9,734
Provision for doubtful accounts ............................. 5,553 2,065 17,263 9,076
Marketing costs ............................................. 12,653 9,148 36,487 26,848
Coupon redemption costs ..................................... 694 833 2,663 2,874
Depreciation and amortization ............................... 879 941 2,636 2,512
Expenses related to stock offering .......................... 2,000 -- 2,000 --
Other (income) expenses ..................................... (34) (192) 504 (138)
--------- --------- --------- ---------
OPERATING INCOME ................................................ 9,629 11,609 25,219 24,851
Interest income ............................................. 9 7 24 58
Interest expense ............................................ 4,178 4,173 12,410 12,397
--------- --------- --------- ---------
INCOME BEFORE PROVISION FOR INCOME TAXES ........................ 5,460 7,443 12,833 12,512
PROVISION FOR INCOME TAXES ...................................... 2,207 2,829 5,009 4,755
--------- --------- --------- ---------
NET INCOME ...................................................... $ 3,253 $ 4,614 $ 7,824 $ 7,757
========= ========= ========= =========
<FN>
See notes to condensed consolidated financial statements.
</FN>
</TABLE>
4
<PAGE>
<TABLE>
HCI DIRECT, INC. (FORMERLY, HOSIERY CORPORATION OF AMERICA, INC.) AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTH PERIODS ENDED SEPTEMBER 25, 1999 AND SEPTEMBER 26, 1998
(Dollars in thousands)
(Unaudited)
<CAPTION>
1999 1998
------- -------
OPERATING ACTIVITIES:
<S> <C> <C>
Net income ..................................................................................... $ 7,824 $ 7,757
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation and amortization ............................................................... 2,636 2,512
Amortization of debt issue costs and discounts .............................................. 1,374 1,275
Other ....................................................................................... 186 16
Amortization of deferred customer acquisition costs ......................................... 32,708 23,703
(Increase) decrease in operating assets:
Accounts receivable ................................................................... (9,783) (4,121)
Inventories ........................................................................... 838 (2,700)
Payments for deferred customer acquisition costs ...................................... (43,271) (32,254)
Prepaid and other current assets ...................................................... (3,146) 24
Other assets .......................................................................... (124) (397)
Increase (decrease) in operating liabilities:
Accounts payable, accrued expenses and other liabilities .............................. 897 116
Deferred income taxes ................................................................. 4,832 3,252
Accrued coupon redemption costs ....................................................... (267) (147)
-------- --------
Net cash used in operating activities ........................................... (5,296) (964)
-------- --------
INVESTING ACTIVITIES:
Acquisitions of property and equipment ......................................................... (611) (861)
Acquisition of business ........................................................................ -- (3,904)
Proceeds from sale of property and equipment ................................................... 16 20
-------- --------
Net cash used in investing activities ........................................... (595) (4,745)
-------- --------
FINANCING ACTIVITIES:
Net borrowings under line of credit ............................................................ 11,200 6,250
Payments on bank and other financing ........................................................... (3,838) (2,088)
Payments on capital leases ..................................................................... (1,354) (1,224)
Debt issuance costs ............................................................................ (117) --
Proceeds from exercise of options .............................................................. -- 520
Purchase of treasury stock ..................................................................... -- (2,076)
-------- --------
Net cash provided by financing activities ....................................... 5,891 1,382
-------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS ......................................................... -- (4,327)
Cash and cash equivalents at beginning of year ................................................. -- 4,327
-------- --------
Cash and cash equivalents at end of period ..................................................... $ -- $ --
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest .................................................................................... $ 13,764 $ 13,240
======== ========
Income taxes ................................................................................ $ 372 $ 1,013
======== ========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Capital lease obligations of $730 and $1,404 were entered into for new equipment during the nine month periods
ended 1999 and 1998, respectively.
<FN>
See notes to condensed consolidated financial statements.
</FN>
</TABLE>
5
<PAGE>
HCI DIRECT, INC. (FORMERLY, HOSIERY CORPORATION OF AMERICA, INC.)
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share data)
(Unaudited)
NOTE 1. Condensed Consolidated Financial Statements
In the opinion of management, the accompanying condensed consolidated financial
statements of HCI Direct, Inc. (formerly, Hosiery Corporation of America, Inc.)
and subsidiaries, which are unaudited except for the Consolidated Balance Sheet
as of December 31, 1998, which is derived from audited financial statements,
include all normal and recurring adjustments necessary to present fairly the
Company's financial position as of September 25, 1999 and the results of
operations for the three and nine month periods ended September 25, 1999 and
September 26, 1998, and cash flows for the nine month periods ended September
25, 1999 and September 26, 1998.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. These condensed consolidated financial
statements should be read in conjunction with the consolidated financial
statements and notes thereto included in the Company's Annual Report on Form
10-K as filed with the Securities and Exchange Commission on March 31, 1999.
NOTE 2. Inventories
September 25, December 31,
1999 1998
------------- ------------
Raw materials...................................... $ 1,048 $ 909
Work-in-process.................................... 3,010 3,023
Finished goods..................................... 12,260 13,500
Promotional and packing material................... 2,852 2,576
--------- ---------
$ 19,170 $ 20,008
========= =========
NOTE 3. Commitments and Contingencies
The Company has continuing obligations with certain members of management
pursuant to previously signed employment agreements.
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 cannot predict the timing or outcome
of these claims and proceedings. Currently, except as discussed below, 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.
From time to time, the Company has received inquiries from the Federal Trade
Commission ("FTC"), various state regulatory authorities, self-regulatory
agencies and trade associations concerning aspects of the Company's promotional
materials, including whether the terms of the Company's promotional offers are
sufficiently disclosed in these materials.
6
<PAGE>
As a result of a lawsuit brought by the FTC, the Federal District Court for the
Eastern District of Pennsylvania issued a consent injunction in 1984, which
specifies rules the Company must follow in conducting its mail order business.
The consent injunction permanently enjoins the Company from violating various
FTC and Postal Service laws and regulations. As a result of these inquiries, in
1984 the Company adopted revised promotional materials. The Company believes but
cannot assure that these modifications and its current and future promotional
materials will meet the concerns expressed by the FTC or be deemed to be in
compliance with the consent injunction.
In 1997, the Company reached an agreement with an 11-state group that imposes
specific disclosure requirements on the Company's promotional materials and
specifies rules the Company must follow in its promotional materials and in
conducting its mail order business. The modifications the Company made to its
solicitation materials had a material adverse effect on its U.S. response rates
in 1997 and 1998. The Company does not believe that these modifications will
have a further significant negative impact on its response rates in the future,
although the Company cannot guarantee that this will be the case. In addition,
while the Company believes the modifications to its promotional materials meet
the concerns expressed by the 11-state group and comply with the terms of that
agreement, the Company cannot assure that these modifications will be deemed to
be in compliance with the 11-state agreement.
Under the terms of the 11-state agreement, the Company paid $0.3 million in
administrative expenses and fees during 1997. The agreement also required that
the Company pay refunds to customers under certain circumstances for a six-month
period. These refunds were not material to the Company's business, financial
condition or results of operations.
Beginning in early 1999, the Company introduced a new promotional offer in North
America whereby the customer has the opportunity to receive one free pair of
hosiery when the customer responds to the Company's initial solicitation. Under
this offer, if the customer does not elect to cancel future shipments, the
customer automatically becomes a participant in the Company's continuity
program. While the Company believes that this new promotional offer complies
with the terms of its agreement with the 11-state group, the Company cannot
assure this. Accordingly, there may be some additional modifications that the
Company may need to make to its promotional materials to fully satisfy the terms
of the agreement.
In 1997 and 1998, the Company received inquiries from the Direct Marketing
Association and the National Advertising Division of the Better Business Bureau
concerning whether the terms of its promotional offers are sufficiently
disclosed in its promotional materials. These inquiries were resolved without
any future modifications to the Company's promotional materials.
The Company recently received formal inquiries from 2 states which were not part
of the 11-state group. The Company is in discussions with these states and is
seeking to resolve or settle these inquiries. The Company does not believe that
the amount of any settlement of either inquiry would be material. While the
Company believes that it will be able to resolve these inquiries and other
future inquiries, it cannot assure this, nor can it assure that these or other
regulators or trade associations will not require or seek to impose additional
changes to the Company's promotional materials or billing practices. In
addition, the Company cannot assure that these additional changes to its
materials or billing practices, if any, will not be significant or will not have
a material adverse effect on its business, financial condition or results of
operations.
The direct mail marketing industry is subject to ongoing and changing federal,
state, local and foreign consumer protection, mail order and other laws and
regulations. Accordingly, it is possible that new or additional laws or
regulations could be passed at any time. While the Company's management believes
that its promotional materials are in substantial compliance with applicable
laws and regulations, the Company cannot give any assurance in that regard nor
can it assure that additional laws or regulations will not be passed which could
have a material adverse effect on the Company's ability to rent customer lists
from third parties, or on its future response rates, business, financial
condition or results of operations.
7
<PAGE>
NOTE 4. Note Payable to Bank
The Company has a revolving credit facility which provides for maximum
borrowings of $25,000. The Company can borrow based on a formula which comprises
the sum of 80% of accounts receivable and 50% of inventory. Interest is charged
at the bank's prime lending rate plus 0.5% or 1.5% over the Eurodollar rate.
At September 25, 1999, there were outstanding borrowings of $14,600 at a
weighted average interest rate of 7.1%. In addition, there were outstanding
letters of credit of approximately $700 resulting in $9,700 available to borrow.
NOTE 5. Operating Segments
The Company organizes its business units into two geographic segments: North
America and International. Segment information for the three and nine month
period ended September 25, 1999 and September 26, 1998 is as follows:
Three Month Period Ended September 25, 1999
-------------------------------------------
North
America International Total
------- ------------- -----
Revenues from external customers.... $ 53,453 $ 7,793 $ 61,246
Intersegment revenues............... 330 -- 330
Segment profit (EBITDA) (1)......... 12,295 222 12,517
Segment assets...................... 126,615 23,842 150,457
Three Month Period Ended September 26, 1998
-------------------------------------------
North
America International Total
------- ------------- -----
Revenues from external customers.... $ 44,099 $ 3,943 $ 48,042
Intersegment revenues............... 2,002 -- 2,002
Segment profit (EBITDA) (1)......... 12,096 461 12,557
Segment assets...................... 105,087 11,219 116,306
- ----------
(1) Earnings before interest, taxes, depreciation and amortization (EBITDA)
represents income before provision for income taxes of $5,460 and $7,443
for the three month period ended September 25, 1999 and September 26,
1998, respectively, excluding interest expense of $4,178 and $4,173 for
the three month period ended September 25, 1999 and September 26, 1998,
respectively, and depreciation and amortization of $879 and $941 for the
three month period ended September 25, 1999 and September 26, 1998,
respectively and expenses related to stock offering of $2,000 for the
three month period ended September 25, 1999. EBITDA does not purport to
represent net income or net cash provided by operating activities, as
those terms are defined under generally accepted accounting principles.
Further, the Company's measure of EBITDA may not be comparable to
similarly titled measures of other companies.
8
<PAGE>
Nine Month Period Ended September 25, 1999
------------------------------------------
North
America International Total
------- ------------- -----
Revenues from external customers.... $150,783 $ 30,030 $180,813
Intersegment revenues............... 2,272 -- 2,272
Segment profit (EBITDA) (1)......... 30,967 (1,088) 29,879
Segment assets...................... 126,615 23,842 150,457
Nine Month Period Ended September 26, 1998
------------------------------------------
North
America International Total
------- ------------- -----
Revenues from external customers.... $127,697 $ 14,539 $142,236
Intersegment revenues............... 4,613 -- 4,613
Segment profit (EBITDA) (1)......... 27,546 (125) 27,421
Segment assets...................... 105,087 11,219 116,306
- ----------
(1) Earnings before interest, taxes, depreciation and amortization (EBITDA)
represents income before provision for income taxes of $12,833 and
$12,512 for the nine month period ended September 25, 1999 and September
26, 1998, respectively, excluding interest expense of $12,410 and $12,397
for the nine month period ended September 25, 1999 and September 26,
1998, respectively, and depreciation and amortization of $2,636 and
$2,512 for the nine month period ended September 25, 1999 and September
26, 1998, respectively and expenses related to stock offering of $2,000
for the nine month period ended September 25, 1999. EBITDA does not
purport to represent net income or net cash provided by operating
activities, as those terms are defined under generally accepted
accounting principles. Further, the Company's measure of EBITDA may not
be comparable to similarly titled measures of other companies.
NOTE 6. Change in Company Name and Stock Transactions
On June 24, 1999, the Board of Directors and Stockholders approved the Company's
filing of a Restated Certificate of Incorporation that was amended to (i) change
the name of the Company to HCI Direct, Inc., (ii) increase the number of shares
of capital stock which the Company is authorized to issue to 73 million shares,
consisting of (a) 60 million shares of Common Stock, par value $.01 per share,
(b) 1 million shares of Class A Common Stock, par value $.01 per share, and (c)
12 million shares of preferred stock, par value $.01 per share, which includes 4
million shares of payment-in-kind preferred stock, par value $.01 per share,
having the powers, preferences, and rights and qualifications, limitations and
restrictions set forth in the Company's Restated Certificate of Incorporation.
All authorized share data has been adjusted to reflect these changes.
On June 24, 1999, the Board of Directors and Stockholders approved an 8.6976942
to 1 stock split, effective June 24, 1999. All Common Stock and Class A Common
Stock share and per share data have been adjusted to reflect the 8.6976942 to 1
stock split.
The Company was contemplating an intial public offering of approximately
10,000,000 shares of its Common Stock. In connection with this contemplated
offering, the Company entered into the following related transactions:
(a) On June 14, 1999, the Company offered to repurchase all of the
outstanding 13 3/4% senior subordinated notes through a tender
offer.
(b) On June 25, 1999, the Company entered into a commitment letter
with Bankers Trust Company for a new credit facility for
borrowings up to $135,000
9
<PAGE>
Both of these transactions were contingent upon the successful completion of the
initial public offering. When the Company decided not to follow through and
complete the initial public offering, both of these transactions became void and
were cancelled. The Company expects to incur approximately $2,000 of expenses in
1999 related to the cancellation of the initial public offering.
On June 24, 1999, the Board of Directors approved that the Company's 1996 Stock
Option Plan be amended to, among other things, increase from 1,873,214 to
2,795,169, adjusted for the Company's stock split, the number of shares of
Common Stock authorized for issuance under the plan.
On June 24, 1999, the Board of Directors approved the Company's 1999 Stock
Option Plan providing for the grant of Awards (as defined in the Plan) to
certain employees, consultants and directors of the Company of up to 600,000
shares of Common Stock under the terms and conditions set forth in the 1999
Stock Option Plan.
On June 24, 1999, the Board of Directors approved grants of options to two
officers for the purchase of an aggregate of 921,956 shares of Common Stock
under the 1996 Stock Option Plan. Options to purchase 691,467 shares have an
option exercise price equal to $15.03 per share and options to purchase 230,489
shares have an option exercise price equal to the per share price to the public
in an intial public offering.
NOTE 7. Subsequent Events
On October 20, 1999, the stockholders of the Company approved the reversal of
the 8.6976942 to 1 stock split effected June 24, 1999 (the "reverse stock
split") which was previously approved by the Board of Directors on September 1,
1999. The reverse stock split was effective on October 28, 1999 when the
Restated Articles of Incorporation of the Company were filed with the State of
Delaware. All Common Stock and Class A Common Stock share and per share data
have been adjusted to reflect the reverse stock split.
10
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Three and Nine Month Periods Ended September 25,1999 and
September 26, 1998
- --------------------------------------------------------------------------------
The following discussion should be read in conjunction with the audited
Consolidated Financial Statements of HCI Direct, Inc. (formerly, Hosiery
Corporation of America, Inc.) and Subsidiaries, and the respective Notes
thereto, filed with the registrants' Annual Report on Form 10-K for the fiscal
year ended December 31, 1998. As used within Item 2 and 3, the term "Company"
refers to HCI Direct, Inc. and its wholly-owned subsidiaries.
On June 24, 1999, the name of the Company was changed to HCI Direct, Inc. from
Hosiery Corporation of America, Inc.
The information herein contains forward looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995 that involve a number of
risks and uncertainties. A number of factors could cause actual results,
performance, achievements of the Company, or industry results to be materially
different from any future results, performance or achievements expressed or
implied by such forward looking statements. These factors include, but are not
limited to, the significant indebtedness of the Company and in the Company's
specific market areas: changes in prevailing interest rates and the availability
of and terms of financing to fund the cash needs of the Company; inflation;
changes in costs of goods and services; economic conditions in general and in
the Company's specific market areas; demographic changes; changes in or failure
to comply with federal, state and/or local government regulations; liability and
other claims asserted against the Company; changes in operating strategy or
development plans; labor disturbances; changes in the Company's acquisition and
capital expenditure plans; and other factors referenced in Item 7A, Quantitative
and Qualitative Disclosures About Market Risk, in the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1998. In addition, such forward
looking statements are necessarily dependent upon assumptions, estimates and
dates that may be incorrect or imprecise and involve known and unknown risks,
uncertainties and other factors. Accordingly, any forward looking statements
included herein do not purport to be predictions of future events or
circumstances and may not be realized. Forward looking statements can be
identified by among other things, the use of forward-looking terminology such as
"believes", "expects", "may", "will", "should", "seeks", "pro forma",
"anticipates", "intends" or the negative of any thereof, or other variations
thereon or comparable terminology, or by discussions of strategy or intentions.
Given these uncertainties, readers are cautioned not to place undue reliance on
such forward looking statements. The Company disclaims any obligations to update
any such factors or to publicly announce the results of any revisions to any of
the forward looking statements contained herein to reflect future events or
developments.
Results of Operations
- ---------------------
The following table sets forth certain income statement data for the Company
expressed as a percentage of net revenues:
<TABLE>
<CAPTION>
Three Month Periods Ended Nine Month Periods Ended
---------------------------- -----------------------------
September 25, September 26, September 25, September 26,
1999 1998 1999 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net revenues .................................... 100.0% 100.0% 100.0% 100.0%
Cost of sales ......................... 43.2 42.7 46.1 46.7
Administrative and general expenses ... 5.5 6.5 5.9 6.8
Provision for doubtful accounts ....... 9.1 4.3 9.6 6.4
Marketing costs ....................... 20.7 19.0 20.2 18.9
Coupon redemption costs ............... 1.1 1.7 1.5 2.0
Depreciation and amortization ......... 1.4 2.0 1.5 1.8
----- ----- ----- -----
Subtotal .................... 81.0 76.2 84.8 82.6
----- ----- ----- -----
Income before interest-net, other expenses
and provision for income taxes ............... 19.0% 23.8% 15.2% 17.4%
===== ===== ===== =====
</TABLE>
11
<PAGE>
The Company's sales and operating income increased in the first three quarters
compared to last year. Revenues have increased substantially (up 27%) from $142
million in 1998 to $181 million in 1999.
During 1999, the company expanded its mailings in the United Kingdom and Germany
and commenced operations in France. International revenues have more than
doubled during the year from $14.5 million 1998 to $30.0 million in 1999. In
April and September, the Company continued tests in Japan in preparation of a
first quarter 2000 launch.
In the United States, the giveaway new customer solicitation offer was changed
from "one free pair plus two pairs at $1.00 each" to simply "one pair free".
Test results of this new offer indicate it will increase substantially the
number of repeat, full price shipments as compared to the prior offer.
Additionally, in the United States, as well as Europe, customers now have the
ability to order their first shipment through the internet. In July, a child's
program was launched in the United States as "Little Silkies". Other new
programs in 1999 include telemarketing in the United States, Germany and the
United Kingdom to re-enroll customrs in the program and the introduction of the
high priced and higher margin Silkies Ultra styles in Europe during 1999.
Three Month Period Ended September 25, 1999 Compared to Three Month Period Ended
September 26, 1998
- --------------------------------------------------------------------------------
Net revenues increased to $61.2 million in the third quarter of 1999 from $48.0
million for the same period in 1998, an increase of $13.2 million or 27.5%.
North America sales were up $9.4 million and International sales increased $3.8
million, which represented a 100% increase for the quarter. Driving the
increased International sales were increased mail quantities and the
commencement of operations in France. North America benefited from the
introduction of a new offer, which helped increase back-end shipments and a new
front-end offer that increased response rates.
Cost of sales increased to $26.5 million in the third quarter of 1999 from $20.5
million for the same period in 1998. The increase in cost of sales is caused by
increased shipments North America and the International markets plus the
introduction of a children's program (Little Silkies) and the Internet. As a
percentage of net revenues, cost of sales increased to 43.2% in 1999's third
quarter from 42.7% for the third quarter of 1998. The percentage increased from
42.7% related to the introduction of Little Silkies, the Internet and the start
up in France. Excluding the start ups, the percentage would have been at 42.7%
in 1999.
Administrative and general expenses increased to $3.4 million in the third
quarter of 1999 from $3.1 million in 1998 caused primarily by increased
personnel costs. As a percentage of net revenues, these expenses have declined
to 5.5 % in the third quarter of 1999 from 6.5% for the same period of 1998.
Provision for doubtful accounts increased to $5.6 million in the third quarter
of 1999 from $2.1 million for the same period of 1998. The sales increase in the
United States is being generated by a new one free program for the first
shipment. The second shipment has a substantially higher incidence of bad debts
in this program as compared to 1998 and is primarily responsible for the
increase in the provision for doubtful accounts in the third quarter of 1999. As
a percentage of net revenues, provision for doubtful accounts was 9.1% and 4.3%
for the third quarter of 1999 and 1998, respectively.
Marketing costs have increased to $12.7 million in the third quarter of 1999
from $9.1 million in for the same period of 1998. The increase is related to the
expansion internationally in both the United Kingdom and Germany, the
introduction of the program in France and testing in Japan. Additionally, on a
consolidated basis, the amortization of prior years' cost was $4.3 million in
1999 as compared to $3.0 million in 1998. As a percentage of net revenues,
marketing costs were 20.7% in the third quarter of 1999 compared to 19.0% for
the same period in 1998.
In 1999, the Company estimates that it incurred $2.0 million in expenses related
to a potential initial public offering of equity securities which was not
consummated.
12
<PAGE>
Income before taxes decreased to $5.5 million in the third quarter of 1999 from
$7.4 million in 1998. A review of the major components of the business for the
third quarter of 1999 and 1998 is as follows:
1999 1998
---- ----
Existing Business
US, UK, Canada $8,824 $7,582
(Excludes IPO expense of $2.0mm)
Investment in Germany, France, Little
Silkies, Internet and Japan (Loss) (1,364) (139)
Stock Offering Expense (2,000) N/A
------ ------
Pre-tax Income $5,460 $7,443
====== ======
The existing business (pre-tax income) has grown 16.3% offset by the investment
in growing additional businesses and the stock offering expense.
Nine Month Period Ended September 25, 1999 Compared to Nine Month Period Ended
September 26, 1998
- --------------------------------------------------------------------------------
Net revenues increased by 27.1% to $180.8 million in the first nine months of
1999 from $142.2 million for the same period in 1998. The increase in net
revenues was attributable to a $23.1 million increase in North America and an
increase of $15.5 million in international net revenues. The increase in North
America was the result of higher back-end shipments and the addition of Canada
for the first nine months of 1999 versus only the second half in 1998 ($2.3
million of the increase). The increase in international revenues is the result
of increased mail quantities in the United Kingdom and Germany and the expansion
into France.
Cost of sales increased to $83.3 million in the first nine months of 1999 from
$66.5 million in 1998. Driving the increase in cost of sales is the
international expansion and the increased revenue in North America. As a
percentage of net revenues, cost of sales is 46.1% in the first nine months of
1999 compared to 46.7% in 1998.
Administrative and general expenses increased to $10.7 million in the first nine
months of 1999 from $9.7 million in 1998. Increased personnel costs account for
the increase. As a percentage of net revenues, administrative and general
expenses declined to 5.9% in the first nine months of 1999 from 6.8% in 1998.
Provision for doubtful accounts increased to $17.3 million in 1999's first nine
months from $9.1 million in 1998. The primary reason for the increase has been
the introduction of a new offer in the United States that increases the number
of back-end shipments and profits but also results in a higher provision for
doubtful accounts ($7.4 million in North America). Additionally, increased
mailings and shipments in the international segment account for the difference.
As a percentage of net revenues, provision for doubtful accounts was 9.6% and
6.4% for the first nine months of 1999 and 1998, respectively.
Marketing costs increased to $36.5 million in the first nine months of 1999 from
$26.8 million for same period of 1998. The increase is $9.6 million, of which
international accounts for $3.5 million related primarily to increased
solicitations in the United Kingdom and Germany and the entry into France. The
balance of the increase ($6.2 million) is attributable to North America. As a
percentage of net revenues, marketing costs were 20.2% in the first nine months
of 1999 versus 18.9% in 1998.
13
<PAGE>
Income before taxes increased to $12.8 million in the first nine months of 1999
from $12.5 million in 1998. A review of the major components of the business
year-to-date 1999 and 1998 is as follows:
1999 1998
---- ----
Existing Business
US, UK, Canada $18,985 $13,127
(Excludes IPO expense of $2.0mm)
Investment in Germany, France, Little
Silkies, Internet and Japan (Loss) (4,152) (615)
Stock Offering Expense (2,000) N/A
------- -------
Pre-tax Income $12,833 $12,512
======= =======
The existing business (pre-tax income) has grown 44.6% offset by the investment
in growing additional businesses and the stock offering expense.
Net income has remained level at $7.8 million in 1999 and 1998. Excluding the
investment in new countries and other businesses and the stock offering expense,
net income would have increased.
Liquidity and Capital Resources
- -------------------------------
The Company's cash requirements arise principally from the need to finance new
customer acquisitions, capital expenditures, debt repayment and other working
capital requirements. The Company expects to finance these cash requirements
from its Revolving Credit Facility.
The decrease in working capital of $4.5 million is caused by four mailings in
the first nine months of 1999 which increased borrowings under line of credit
and accounts payable. This was partially offset by the increase in accounts
receivable.
Net cash used in operating activities was $5.3 million for the first nine months
of 1999 as compared to $1.0 million in 1998. This change was primarily due to
increases in receivables, increases in the payments for customer acquisition
costs offset by an increase in the amortization of customer acquisition costs.
Net cash used in investing activities to acquire assets was $0.6 million in the
first nine months of 1999 compared to $4.7 million in 1998. This change was
primarily due to the Company's acquisition of Enchantress Hosiery of Canada in
1998.
Net cash provided by financing activities was $5.9 million and $1.4 million for
the first nine months of 1999 and 1998, respectively. The difference primarily
representing increased borrowings under the credit facility.
The Recapitalization
As a result of the substantial indebtedness incurred in connection with a
Recapitalization, in October 1994, the Company has significant debt service
obligations. At September 25, 1999, the outstanding amount of the Company's
indebtedness (other than trade payables and accrued expenses) is $146.3 million,
including $72.1 million of senior secured debt and $69.0 million of senior
subordinated debt (represented by 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: $7.5 million in 1999, $13.0 million
in 2000, $20.0 million in 2001 and $19.0 million in 2002. 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.
14
<PAGE>
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 $25.0 million, $9.7 million of which
was available at September 25, 1999.
Legal Proceedings
- -----------------
As discussed further in Part II, Item 1--Legal Proceedings, from time to time,
the Company has received inquiries from the Federal Trade Commission ("FTC"),
various state regulatory authorities, self-regulatory agencies and trade
associations concerning aspects of the Company's promotional materials,
including whether the terms of the Company's promotional offers are sufficiently
disclosed in these materials.
As a result of a lawsuit brought by the FTC, the Federal District Court for the
Eastern District of Pennsylvania issued a consent injunction in 1984, which
specifies rules the Company must follow in conducting its mail order business.
The consent injunction permanently enjoins the Company from violating various
FTC and Postal Service laws and regulations. As a result of these inquiries, in
1984 the Company adopted revised promotional materials. The Company believes but
cannot assure that these modifications and its current and future promotional
materials will meet the concerns expressed by the FTC or be deemed to be in
compliance with the consent injunction.
In 1997, the Company reached an agreement with an 11-state group that imposes
specific disclosure requirements on the Company's promotional materials and
specifies rules the Company must follow in its promotional materials and in
conducting its mail order business. The modifications the Company made to its
solicitation materials had a material adverse effect on its U.S. response rates
in 1997 and 1998. The Company does not believe that these modifications will
have a further significant negative impact on its response rates in the future,
although the Company cannot guarantee that this will be the case. In addition,
while the Company believes the modifications to its promotional materials meet
the concerns expressed by the 11-state group and comply with the terms of that
agreement, the Company cannot assure that these modifications will be deemed to
be in compliance with the 11-state agreement.
Under the terms of the 11-state agreement, the Company paid $0.3 million in
administrative expenses and fees during 1997. The agreement also required that
the Company pay refunds to customers under certain circumstances for a six-month
period. These refunds were not material to the Company's business, financial
condition or results of operations.
Beginning in early 1999, the Company introduced a new promotional offer in North
America whereby the customer has the opportunity to receive one free pair of
hosiery when she responds to the Company's initial solicitation. Under this
offer, if the customer does not elect to cancel future shipments, she
automatically becomes a participant in the Company's continuity program. While
the Company believes that this new promotional offer complies with the terms of
its agreement with the 11-state group, the Company cannot assure this.
Accordingly, there may be some additional modifications that the Company may
need to make to its promotional materials to fully satisfy the terms of the
agreement.
In 1997 and 1998, the Company received inquiries from the Direct Marketing
Association and the National Advertising Division of the Better Business Bureau
concerning whether the terms of its promotional offers are sufficiently
disclosed in its promotional materials. These inquiries were resolved without
any further modifications to the Company's promotional materials.
The Company recently received formal inquiries from 2 states which were not part
of the 11-state group. The Company is in discussions with these states and is
seeking to resolve or settle these inquiries. The Company does not believe that
the amount of any settlement of either inquiry would be material. While the
Company believes that it will be able to resolve these inquiries and other
future inquiries, it cannot assure this, nor can it assure that these or other
regulators or trade associations will not require or seek to impose additional
changes to the Company's promotional materials or billing practices. In
addition, the Company cannot assure that these additional changes to its
materials or billing practices, if any, will not be significant or will not have
a material adverse effect on its business, financial condition or results of
operations.
15
<PAGE>
The direct mail marketing industry is subject to ongoing and changing federal,
state, local and foreign consumer protection, mail order and other laws and
regulations. Accordingly, it is possible that new or additional laws or
regulations could be passed at any time. While the Company's management believes
that its promotional materials are in substantial compliance with applicable
laws and regulations, the Company cannot give any assurance in that regard nor
can it assure that additional laws or regulations will not be passed which could
have a material adverse effect on the Company's ability to rent customer lists
from third parties, or on its future response rates, business, financial
condition or results of operations.
Year 2000
- ---------
As in the case with most other businesses, the Company is in the process of
evaluating and addressing Year 2000 compliance of both its information
technology systems and its non-information technology systems. Year 2000
compliance efforts are designed to identify, address, and resolve issues that
may be created by programs written to run on microprocessors which reference
years as two digit fields rather than four. Any such programs may recognize a
date using "00" as the year 1900 rather than 2000. If this situation occurs, the
potential exists for system failure or miscalculations by computer programs.
The Company has adopted a five-phase Year 2000 program consisting of Phase I -
identification and ranking of the components of the Company's systems, equipment
and suppliers that may be vulnerable to Year 2000 problems; Phase II -
assessment of items identified in Phase I; Phase III - remediation or
replacement of non-compliant systems and components and determination of
solutions for non-compliant suppliers; Phase IV - testing of systems and
components following remediation; and Phase V - developing contingency plans to
address the most reasonably likely worst case Year 2000 scenarios. The Company
has completed Phases I, II and III. Phase IV is complete for all critical
business applications. Of the non-critical items, Phase IV is approximately 99%
complete. Phase IV is expected to be 100% complete by the end of November 1999.
Phase V is expected to be complete by the end of 1999. Follow up testing is
planned for the fourth quarter of 1999 to ensure that all components have
remained compliant. The Company has spent approximately $0.4 million on internal
manpower costs during 1997 and 1998 related to the Year 2000 issue, representing
approximately 4% of the information systems budget. The Company has incurred
approximately $0.1 million in the first nine months of 1999 and expects to incur
approximately $0.02 million of future expense to complete the Year 2000
compliance project.
The Company's use of its own information technology personnel to make the
business systems Year 2000 compliant may delay some other strategic information
systems development and implementation which would have otherwise benefited the
Company in various ways and to varying extents. The Company does not believe
that it will be at a competitive disadvantage as a result of these delays.
The Company continues to make inquiries of its vendors whose Year 2000
compliance is important to its ongoing business. Based on preliminary
information received by the Company, the only significant vendor that could
adversely affect operations is the United States Postal Service. The postal
service assumes that it will be compliant, but if it is not, the Company's
business and operations could be materially adversely affected. The Company
currently does not have any contingency plans. However, it recognizes the need
to develop contingency plans and expects to have these plans secure where
applicable by the end of November 1999.
While the Company believes that the Year 2000 matters discussed above will not
have a material impact on its business, financial condition or results of
operations, the Company cannot assure that it will not be adversely affected by
such matters.
16
<PAGE>
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.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
- -------------------------------------------------------------------
The market risk of the Company's financial instruments as of September 25, 1999,
has not significantly changed since December 31, 1998. The market risk profile
on December 31, 1998, is disclosed in the Company's 1998 Annual Report on Form
10-K.
17
<PAGE>
PART II - OTHER INFORMATION
- ---------------------------
Item 1. Legal Proceedings
The Company is involved in, or has been involved in, litigation arising in the
normal course of its business. The Company cannot predict the timing or outcome
of these claims and proceedings. Currently, except as discussed below, 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.
From time to time, the Company has received inquiries from the Federal Trade
Commission ("FTC"), various state regulatory authorities, self-regulatory
agencies and trade associations concerning aspects of the Company's promotional
materials, including whether the terms of the Company's promotional offers are
sufficiently disclosed in these materials.
As a result of a lawsuit brought by the FTC, the Federal District Court for the
Eastern District of Pennsylvania issued a consent injunction in 1984, which
specifies rules the Company must follow in conducting its mail order business.
The consent injunction permanently enjoins the Company from violating various
FTC and Postal Service laws and regulations. As a result of these inquiries, in
1984 the Company adopted revised promotional materials. The Company believes but
cannot assure that these modifications and its current and future promotional
materials will meet the concerns expressed by the FTC or be deemed to be in
compliance with the consent injunction.
In 1997, the Company reached an agreement with an 11-state group that imposes
specific disclosure requirements on the Company's promotional materials and
specifies rules the Company must follow in its promotional materials and in
conducting its mail order business. The modifications the Company made to its
solicitation materials had a material adverse effect on its U.S. response rates
in 1997 and 1998. The Company does not believe that these modifications will
have a further significant negative impact on its response rates in the future,
although the Company cannot guarantee that this will be the case. In addition,
while the Company believes the modifications to its promotional materials meet
the concerns expressed by the 11-state group and comply with the terms of that
agreement, the Company cannot assure that these modifications will be deemed to
be in compliance with the 11-state agreement.
Under the terms of the 11-state agreement, the Company paid $0.3 million in
administrative expenses and fees during 1997. The agreement also required that
the Company pay refunds to customers under certain circumstances for a six-month
period. These refunds were not material to the Company's business, financial
condition or results of operations.
Beginning in early 1999, the Company introduced a new promotional offer in North
America whereby the customer has the opportunity to receive one free pair of
hosiery when the customer responds to the Company's initial solicitation. Under
this offer, if the customer does not elect to cancel future shipments, the
customer automatically becomes a participant in the Company's continuity
program. While the Company believes that this new promotional offer complies
with the terms of its agreement with the 11-state group, the Company cannot
assure this. Accordingly, there may be some additional modifications that the
Company may need to make to its promotional materials to fully satisfy the terms
of the agreement.
18
<PAGE>
In 1997 and 1998, the Company received inquiries from the Direct Marketing
Association and the National Advertising Division of the Better Business Bureau
concerning whether the terms of its promotional offers are sufficiently
disclosed in its promotional materials. These inquiries were resolved without
any further modifications to the Company's promotional materials.
The Company recently received formal inquiries from 2 states which were not part
of the 11-state group. The Company is in discussions with these states and is
seeking to resolve or settle these inquiries. The Company does not believe that
the amount of any settlement of either inquiry would be material. While the
Company believes that it will be able to resolve these inquiries and other
future inquiries, it cannot assure this, nor can it assure that these or other
regulators or trade associations will not require or seek to impose additional
changes to the Company's promotional materials or billing practices. In
addition, the Company cannot assure that these additional changes to its
materials or billing practices, if any, will not be significant or will not have
a material adverse effect on its business, financial condition or results of
operations.
The direct mail marketing industry is subject to ongoing and changing federal,
state, local and foreign consumer protection, mail order and other laws and
regulations. Accordingly, it is possible that new or additional laws or
regulations could be passed at any time. While the Company's management believes
that its promotional materials are in substantial compliance with applicable
laws and regulations, the Company cannot give any assurance in that regard nor
can it assure that additional laws or regulations will not be passed which could
have a material adverse effect on the Company's ability to rent customer lists
from third parties, or on its future response rates, business, financial
condition or results of operations.
Item 2. Change in Securities
None.
Item 3. Defaults upon Senior Securities
None.
Item 4. Submission of Matters to a vote of Security Holders
On June 24, 1999, a majority of holders of the Company's issued and outstanding
Common Stock and payment-in-kind preferred stock approved by written consent the
Company's filing of a Restated Certificate of Incorporation that was amended to
(i) change the name of the Company to HCI Direct, Inc., (ii) increase the number
of shares of capital stock which the Company is authorized to issue to 73
million shares, consisting of (a) 60 million shares of Common Stock, par value
$.01 per share, (b) 1 million shares of Class A Common Stock, par value $.01 per
share, and (c) 12 million shares of preferred stock, par value $.01 per share,
which includes 4 million shares of payment-in-kind preferred stock, par value
$.01 per share, and (iii) provide for a 8.6976942 to 1 stock split of all
outstanding shares of Common Stock and Class A Common Stock. In addition, on
June 24, 1999, a majority of holders of the Company's issued and outstanding
Common Stock and payment-in-kind preferred stock approved by written consent (i)
an amendment to the Company's 1996 Stock Option Plan to, among other things,
increase from 1,873,214 to 2,795,169, adjusted for the Company's stock split,
the number of shares of Common Stock authorized for issuance under the plan and
(ii) the Company's 1999 Stock Option Plan providing for the grant of Awards (as
defined in the plan) to certain employees, consultants and directors of the
Company of up to 600,000 shares of Common Stock under the terms and conditions
set forth in the 1999 Stock Option Plan.
19
<PAGE>
On October 20, 1999 the stockholders of the Company approved the reversal of the
8.6976942 to 1 stock split effected June 24, 1999 (the "reverse stock split")
which was previously approved by the Board of Directors on September 1, 1999.
The reverse stock split was effective on October 28, 1999 when the Restated
Articles of Incorporation of the Company were filed with the State of Delaware.
All Common Stock and Class A Common Stock share and per share data have been
adjusted to reflect the reverse stock split.
Item 5. Other Information
On June 25, 1999, Mr. Joseph A. Murphy resigned as a director of the
Company.
Item 6. Exhibits and Reports on Form 8K.
A. Exhibits
27.0 Financial Data Schedule
B. Form 8K
No reports on Form 8K have been filed during the quarter for which this
report is filed.
20
<PAGE>
SIGNATURES
- ----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HCI DIRECT, INC.
----------------
(Registrant)
Date: November 4, 1999 /s/ ARTHUR C. HUGHES
- ------------------------ ----------------------------
Arthur C. Hughes
Vice President &
Chief Financial Officer
21
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<ARTICLE> 5
<CIK> 0000934383
<NAME> HCI Direct, Inc. (Formerly, Hosiery Corporation of
America, Inc.)
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> Year
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-START> Jan-01-1999
<PERIOD-END> Sep-25-1999
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 46,370
<ALLOWANCES> 4,373
<INVENTORY> 19,170
<CURRENT-ASSETS> 68,061
<PP&E> 37,403
<DEPRECIATION> 20,603
<TOTAL-ASSETS> 150,457
<CURRENT-LIABILITIES> 68,000
<BONDS> 69,669
596
37,485
<COMMON> 14
<OTHER-SE> (89,748)
<TOTAL-LIABILITY-AND-EQUITY> 150,457
<SALES> 180,813
<TOTAL-REVENUES> 180,813
<CGS> 39,200
<TOTAL-COSTS> 83,301
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<INTEREST-EXPENSE> 12,410
<INCOME-PRETAX> 12,833
<INCOME-TAX> 5,009
<INCOME-CONTINUING> 7,824
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