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 June 26, 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 August 3, 1999
- ---------------------------- -----------------------------
Voting 11,581,623
Class A, non-voting 657,998
<PAGE>
INDEX PAGE
- ----- ----
PART I - FINANCIAL INFORMATION
- ------------------------------
Item 1. Condensed Consolidated Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets
June 26, 1999 and December 31, 1998 3
Condensed Consolidated Statements of Operations
Three month and six month periods ended June 26, 1999
and June 27, 1998 4
Condensed Consolidated Statements of Cash Flows
Six month periods ended June 26, 1999 and June 27, 1998 5
Notes to Condensed Consolidated Financial Statements 6-8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9-16
Item 3. Quantitative and Qualitative Disclosures About Market Risk 16
PART II - OTHER INFORMATION 17-19
- ---------------------------
SIGNATURES 20
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
JUNE 26, 1999 AND DECEMBER 31, 1998
(Dollars in thousands, except share and per share data)
<CAPTION>
June 26, December 31,
1999 1998
----------- ------------
ASSETS (Unaudited)
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents ........................................................... $ -- $ --
Accounts receivable, less an allowance for doubtful accounts of
$3,933 and $1,901 in 1999 and 1998, respectively ................................... 36,702 32,214
Inventories ......................................................................... 19,778 20,008
Prepaid and other current assets .................................................... 3,596 3,748
--------- ---------
Total current assets ........................................................... 60,076 55,970
PROPERTY AND EQUIPMENT, net .............................................................. 16,810 17,906
DEFERRED CUSTOMER ACQUISITION COSTS ...................................................... 55,165 46,933
DEFERRED DEBT ISSUANCE COSTS, less accumulated amortization of
$7,539 and $6,774 in 1999 and 1998, respectively .................................... 4,142 4,790
GOODWILL, less accumulated amortization of $123 and $61 in 1999 and 1998, respectively ... 3,671 3,733
OTHER ASSETS ............................................................................. 658 707
--------- ---------
TOTAL .................................................................................... $ 140,522 $ 130,039
========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Borrowings under line of credit ..................................................... $ 9,500 $ 3,400
Current portion of long-term debt ................................................... 8,992 7,617
Current portion of capital lease obligations ........................................ 1,572 1,726
Bank overdrafts ..................................................................... 1,574 1,397
Accounts payable .................................................................... 10,865 10,321
Accrued expenses and other current liabilities ...................................... 8,521 9,389
Accrued interest .................................................................... 4,539 4,771
Accrued coupon redemption costs ..................................................... 4,687 4,679
Deferred income taxes ............................................................... 9,351 8,115
--------- ---------
Total current liabilities ...................................................... 59,601 51,415
LONG-TERM DEBT, Less current portion ..................................................... 118,260 121,433
CAPITAL LEASE OBLIGATIONS, Less current portion .......................................... 4,428 5,176
ACCRUED COUPON REDEMPTION COSTS .......................................................... 409 408
DEFERRED INCOME TAXES .................................................................... 12,405 10,884
--------- ---------
Total liabilities .............................................................. 195,103 189,316
--------- ---------
COMMITMENTS AND CONTINGENT LIABILITIES
REDEEMABLE EQUITY SECURITIES ............................................................. 948 885
--------- ---------
STOCKHOLDERS' DEFICIT:
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 $113,390 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: 60,000,000 shares authorized, 11,655,971
shares issued, 11,494,194 shares outstanding in 1999 and 1998 ..................... 117 117
Common stock, Class A, non-voting, $.01 par value:
1,000,000 shares authorized, 657,998 shares issued and outstanding ................ 7 7
Additional paid-in capital .......................................................... 18,696 18,759
Compensatory stock options outstanding .............................................. 20,943 20,943
Accumulated deficit ................................................................. (130,379) (134,950)
Restricted stock .................................................................... (322) (447)
--------- ---------
(53,453) (58,086)
Treasury stock, at cost, 170,492 shares in 1999 and 1998 (8,715 preferred shares
and 161,777 common shares) ........................................................ (2,076) (2,076)
--------- ---------
Net stockholders' deficit ...................................................... (55,529) (60,162)
--------- ---------
TOTAL .................................................................................... $ 140,522 $ 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 Six Month Periods Ended
------------------------- -----------------------
June 26, June 27, June 26, June 27,
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
NET REVENUES ............................... $ 62,422 $ 50,516 $119,567 $ 94,194
-------- -------- -------- --------
COSTS AND EXPENSES:
Cost of sales ......................... 27,674 24,207 56,815 45,943
Administrative and general expenses ... 3,448 3,175 7,354 6,632
Provision for doubtful accounts ....... 6,965 3,883 11,710 7,011
Marketing costs ....................... 12,922 9,340 23,834 17,700
Coupon redemption costs ............... 882 976 1,969 2,041
Depreciation and amortization ......... 893 797 1,757 1,571
Other expenses ........................ 282 58 538 54
-------- -------- -------- --------
OPERATING INCOME ........................... 9,356 8,080 15,590 13,242
Interest income ....................... 6 14 15 51
Interest expense ...................... 4,170 4,150 8,232 8,224
-------- -------- -------- --------
INCOME BEFORE PROVISION FOR INCOME TAXES.... 5,192 3,944 7,373 5,069
PROVISION FOR INCOME TAXES ................. 1,973 1,498 2,802 1,926
-------- -------- -------- --------
NET INCOME ................................. $ 3,219 $ 2,446 $ 4,571 $ 3,143
======== ======== ======== ========
<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
SIX MONTH PERIODS ENDED JUNE 26, 1999 AND JUNE 27, 1998
(Dollars in thousands)
(Unaudited)
<CAPTION>
1999 1998
-------- --------
OPERATING ACTIVITIES:
<S> <C> <C>
Net income ...................................................... $ 4,571 $ 3,143
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation and amortization ................................ 1,757 1,571
Amortization of debt issue costs and discounts ............... 900 850
Other ........................................................ 123 (43)
Amortization of deferred customer acquisition costs .......... 21,553 15,485
(Increase) decrease in operating assets:
Accounts receivable .................................... (4,488) (2,489)
Inventories ............................................ 230 895
Payments for deferred customer acquisition costs ....... (29,785) (22,476)
Prepaid and other current assets ....................... 152 585
Other assets ........................................... (27) (433)
Increase (decrease) in operating liabilities:
Accounts payable, accrued expenses and other liabilities (379) 343
Deferred income taxes .................................. 2,757 1,638
Accrued coupon redemption costs ........................ 9 16
-------- --------
Net cash used in operating activities ............ (2,627) (915)
-------- --------
INVESTING ACTIVITIES:
Acquisitions of property and equipment .......................... (536) (464)
Acquisition of business ......................................... -- (3,837)
Proceeds from sale of property and equipment .................... 15 8
-------- --------
Net cash used in investing activities ............ (521) (4,293)
-------- --------
FINANCING ACTIVITIES:
Net borrowings under line of credit ............................. 6,100 3,050
Payments on bank and other financing ............................ (1,933) (1,309)
Payments on capital leases ...................................... (902) (804)
Debt issuance costs ............................................. (117) --
Purchase of treasury stock ...................................... -- (56)
-------- --------
Net cash provided by financing activities ........ 3,148 881
-------- --------
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 ..................................................... $ 7,513 $ 7,273
======== ========
Income taxes ................................................. $ 369 $ 288
======== ========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Capital lease obligations of $0 and $772 were entered into for new equipment during the six month periods
ended 1999 and 1998 respectively.
<FN>
See notes to condensed consolidated financial statements.
</FN>
5
</TABLE>
<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 June 26, 1999 and the results of operations
for the three and six month periods ended June 26, 1999 and June 27, 1998, and
cash flows for the six month periods ended June 26, 1999 and June 27, 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
June 26, December 31,
1999 1998
-------- --------
Raw materials..................................... $ 1,058 $ 909
Work-in-process................................... 2,831 3,023
Finished goods.................................... 13,375 13,500
Promotional and packing material.................. 2,514 2,576
-------- --------
$ 19,778 $ 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 futher 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 June 26, 1999, there were outstanding borrowings of $9,500 at a weighted
average interest rate of 6.7%. In addition, there were outstanding letters of
credit of approximately $800 resulting in $14,700 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 six month
period ended June 26, 1999 and June 27, 1998 is as follows:
Three Month Period Ended June 26, 1999
--------------------------------------
North
America International Total
------- ------------- -----
Revenues from external customers......... $51,492 $10,930 $62,422
Intersegment revenues.................... 501 -- 501
Segment profit (EBITDA) (1).............. 10,340 (85) 10,255
Segment assets........................... 120,280 20,242 140,522
Three Month Period Ended June 27, 1998
--------------------------------------
North
America International Total
------- ------------- -----
Revenues from external customers......... $45,038 $5,478 $50,516
Intersegment revenues.................... 1,483 -- 1,483
Segment profit (EBITDA) (1).............. 8,505 386 8,891
Segment assets........................... 100,810 7,627 108,437
- ----------
(1) Earnings before interest, taxes, depreciation and amortization (EBITDA)
represents income before provision for income taxes of $5,192 and $3,944
for the three month period ended June 26, 1999 and June 27, 1998,
respectively, excluding interest expense of $4,170 and $4,150 for the
three month period ended June 26, 1999 and June 27, 1998, respectively,
and depreciation and amortization of $893 and $797 for the three month
period ended June 26, 1999 and June 27, 1998, respectively. 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>
Six Month Period Ended June 26, 1999
------------------------------------
North
America International Total
------- ------------- -----
Revenues from external customers......... $97,330 $22,237 $119,567
Intersegment revenues.................... 1,942 -- 1,942
Segment profit (EBITDA) (1).............. 18,672 (1,310) 17,362
Segment assets........................... 120,280 20,242 140,522
Six Month Period Ended June 26, 1999
------------------------------------
North
America International Total
------- ------------- -----
Revenues from external customers......... $83,598 $10,596 $94,194
Intersegment revenues.................... 2,611 -- 2,611
Segment profit (EBITDA) (1).............. 15,450 (586) 14,864
Segment assets........................... 100,810 7,627 108,437
- ----------
(1) Earnings before interest, taxes, depreciation and amortization (EBITDA)
represents income before provision for income taxes of $7,373 and $5,069
for the six month period ended June 26, 1999 and June 27, 1998,
respectively, excluding interest expense of $8,232 and $8,224 for the six
month period ended June 26, 1999 and June 27, 1998, respectively, and
depreciation and amortization of $1,757 and $1,571 for the six month
period ended June 26, 1999 and June 27, 1998, respectively. 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
the third quarter of 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.
10
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Three and Six Month Periods Ended June 26, 1999 and June 27, 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 herin 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 Six Month Periods Ended
------------------------- -----------------------
June 26, June 27, June 26, June 27,
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net revenues ..................................... 100.0% 100.0% 100.0% 100.0%
Cost of sales .......................... 44.3 47.9 47.5 48.8
Administrative and general expenses..... 5.5 6.3 6.2 7.0
Provision for doubtful accounts ........ 11.2 7.7 9.8 7.4
Marketing costs ........................ 20.7 18.5 19.9 18.8
Coupon redemption costs ................ 1.4 1.9 1.6 2.2
Depreciation and amortization .......... 1.5 1.6 1.5 1.7
----- ----- ----- -----
Subtotal ..................... 84.6 83.9 86.5 85.9
----- ----- ----- -----
Income before interest-net, other expenses
and provision for income taxes ................ 15.4% 16.1% 13.5% 14.1%
===== ===== ===== =====
</TABLE>
11
<PAGE>
The Company's sales and operating income increased in the second quarter
compared to the same periods last year, maintaining the improvement from the
first quarter. Sales were $62.4 million and operating income $9.4 million,
compared to $50.5 million and $8.1 million, respectively, for the same period
last year. Increases in active customers, as well as increased revenue per
customer, contributed to these results.
The growth in active customers resulted from increased response rates in the
United States and increased mailing activity in the United Kingdom and Germany
and the launch of the operations in France. In addition, in the United States,
the primary 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.
In Europe, during the first half of 1999, the Company expanded its mailings in
the United Kingdom and Germany and commenced operations in France. International
revenues have more than doubled from $10.6 million in the first half of 1998 to
$22.2 million in the first half of 1999. In April, the Company continued tests
in Japan in preparation of a January 2000 launch.
Also contributing to the increase in active customers is the successful
introduction of a telemarketing program that re-enrolls cancelled customers into
the continuity program. Launched in the (third) quarter last year, 362 thousand
customers have been re-enrolled in the first six months of this year. A similar
telemarketing program was launched in Europe in the second quarter and is on
track to produce results similar to the United States market.
Increased revenue per active customers resulted from the successful introduction
of the higher-priced higher-margin Silkies Ultra(R) styles early last year. The
year 1999 will mark the first full year of selling the Ultra styles in North
America. In the first quarter of this year, these styles were launched in Europe
as well. The new style acceptance has been excellent: for the first six months
of this year, 24% of the United States Turn-4+ and 22% of United Kingdom and
Germany Turn-4+ customers are buying these new styles, compared to 11% and 0%,
respectively for the same period last year.
Three Month Period Ended June 26, 1999 Compared to Three Month Period Ended June
27, 1998
- --------------------------------------------------------------------------------
Net revenues increased to $62.4 million in the second quarter of 1999 from $50.5
million for the same period in 1998, an increase of $11.9 million or 23.6%.
North America sales were up $6.5 million and International sales increased $5.4
million, which represented a 99.5% 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 $27.7 million in the second quarter of 1999 from
$24.2 million for the same period in 1998. The increase in cost of sales is
primarily caused by the increased shipments in the International segment. As a
percentage of net revenues, cost of sales declined to 44.3% in 1999's second
quarter from 47.9% for the second quarter of 1998 caused primarily by a more
profitable mix of shipments in North America.
Administrative and general expenses increased to $3.4 million in the second
quarter of 1999 from $3.2 million in 1998 caused primarily by increased
personnel costs. As a percentage of net revenues, these expenses have declined
to 5.5 % in the second quarter of 1999 from 6.3% for the same period of 1998.
Provision for doubtful accounts increased to $7.0 million in the second quarter
of 1999 from $3.9 million for the same period of 1998. Driving the increased
expense has been the expansion internationally, where front-end shipments have
increased to 491 thousand shipments in 1999 from 216 thousand shipments in 1998.
Additionally, in North America the number of Turn 2 shipments have increased to
1.2 million in 1999 from 0.6 million in 1998. These first and second shipments
have the highest incidence of bad debts and primarily account for the increased
costs. As a percentage of net revenues, provision for doubtful accounts was
11.2% and 7.7% for the second quarters of 1999 and 1998, respectively.
12
<PAGE>
Marketing costs have increased to $12.9 million in the second quarter of 1999
from $9.3 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. In North America,
Canada is an addition in the first half of the year. Additionally, on a
consolidated basis, the amortization of prior years' cost was $7.4 million in
1999 as compared to $5.9 million in 1998. As a percentage of net revenues,
marketing costs were 20.7% in the second quarter of 1999 compared to 18.5% for
the same period in 1998.
Income before taxes was $5.2 million in the second quarter of 1999 compared to
$3.9 million in the second quarter of 1998. As a percentage of net revenues,
income before taxes was 8.3% in the second quarter of 1999 compared to 7.8% in
the second quarter of 1998.
Net income increased to $3.2 million in the second quarter of 1999 compared to
$2.4 million for the same period in 1998. The increase was due to the increase
in pretax income of $1.2 million offset by an increased provision for taxes of
$0.5 million. As a percentage of net revenues, net income was 5.2% in the second
quarter of 1999 compared to 4.8% in the second quarter of 1998.
Six Month Period Ended June 26, 1999 Compared to Six Month Period Ended June 27,
1998
- --------------------------------------------------------------------------------
Net revenues increased by 26.9% to $119.6 million in the first half of 1999 from
$94.2 million for the same period in 1998. The increase in net revenues was
attributable to a $13.7 million increase in North America and an increase of
$11.6 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
half 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 $56.8 million in the first half of 1999 from $45.9
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 47.5% in the first half of 1999 compared to 48.8% in
1998.
Administrative and general expenses increased to $7.4 million in the first half
of 1999 from $6.6 million in 1998. Increased personnel costs account for the
increase. As a percentage of net revenues, administrative and general expenses
declined to 6.2% in the first half of 1999 from 7.0% in 1998.
Provision for doubtful accounts increased to $11.7 million in 1999's first half
from $7.0 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 ($4.0 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 9.8% and
7.4% for the first half of 1999 and 1998, respectively.
Marketing costs increased to $23.8 million in the first half of 1999 from $17.7
million for same period of 1998. The increase is $6.1 million, of which
international accounts for $2.0 million related primarily to increased
solicitations in the United Kingdom and Germany and the entry into France. The
balance of the increase was primarily related to an increase of the prior year
amortization which increased by $3.7 million in the first half of 1999 as
compared to 1998. As a precentage of net revenues, marketing costs were 19.9% in
the first half of 1999 versus 18.8% in 1998.
Income before provision for income taxes increased to $7.4 million in the first
half of 1999 from $5.1 million in 1998. The increase in pretax income was
primarily the result of increased revenues offset by increased expenses for cost
of sales, administrative and general, provision for doubtful accounts and
marketing costs. As a percentage of net revenues, pretax income increased to
6.2% in 1999 from 5.4% in 1998.
Net income increased to $4.6 million in the first half of 1999 from $3.1 million
in 1998. As a percentage of net revenues, net income was 3.8% in 1999 versus
3.3% in 1998.
13
<PAGE>
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 $4.1 million is caused by three mailings in
the first half of 1999 which increased borrowings under line of credit. This was
partially offset by the increase in accounts receivable.
Net cash used in operating activities was $2.6 million for the first half of
1999 as compared to $0.9 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 $0.5 million in the
first half of 1999 compared to $4.3 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 $3.1 million and $0.9 million for
the first half 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 June 26, 1999, the outstanding amount of the Company's
indebtedness (other than trade payables and accrued expenses) is $142.8 million,
including $69.0 million of senior secured debt and $68.9 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.
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, $14.7 million of
which was available at June 26, 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.
14
<PAGE>
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 modivications 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 futher 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.
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.
15
<PAGE>
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 97%
complete. Phase IV is expected to be 100% complete by the end of August 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 $0.08 million in the first half 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 September 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.
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 June 26, 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.
16
<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 modivications 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.
17
<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 futher 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.
18
<PAGE>
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
3.1 Form of Restated Certificate of Incorporation of the Company filed
with the Secretary of State of the State of Delaware on June 24,
1999 (incorporated by reference to the Company's Registration
Statement on Form S-1, File No. 333-07197).
10.1 Amended and Restated HCI Direct, Inc. 1996 Stock Option Plan
(incorporated by reference to the Company's Registration
Statement on Form S-1, File No. 333-07197).
10.2 HCI Direct, Inc. 1999 Stock Option Plan (incorporated by reference
to the Company's Registration Statement on Form S-1, File
No. 333-07197).
10.3 Form of HCI Direct, Inc. 1996 Stock Option Plan Stock Option
Agreement (incorporated by reference to the Company's Registration
Statement on Form S-1, File No. 333-07197).
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.
19
<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)
/s/ ARTHUR C. HUGHES
Date: August 3, 1999 ____________________________
- ---------------------- Arthur C. Hughes
Vice President &
Chief Financial Officer
20
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<NAME> HCI Direct, Inc. (Formerly, Hosiery Corporation of
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<PERIOD-TYPE> Year
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-START> Jan-01-1999
<PERIOD-END> Jun-26-1999
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