Dear Shareholders,
1998 was a year of change and challenge for your Company.  New  management and a
new board of directors have been in place for eight months. It is no secret that
the basic  denim  jeans  business  has been very weak and the  Company  has been
impacted as a result.  Sales  declined by 7.6% from 1997 levels,  and the market
continues to suffer from sluggish over-the-counter sales.

We are addressing these pervasive market conditions through the following steps:

o   Offering fashion denim models and more khaki and casual products
o   Launching an aggressive advertising and marketing campaign to revitalize and
    re-establish
    our brand recognition
o   Pursuing private label business
o   Investigating strategic acquisitions

On the  operations  side,  all costs are being  carefully  evaluated in order to
achieve maximum efficiency.

Our Mexican production  facilities  continued to grow in 1998, and we anticipate
that they will be at full  sewing  capacity  in 1999.  We also look  forward  to
completing  construction of our new laundry facility, and starting operations by
the fourth quarter of fiscal 1999.

Our  majority-owned  German  subsidiary  also  experienced a  challenging  1998,
performing  outstandingly  in a  difficult  marketplace.  A  strong  profit  was
recorded  and  inroads  into  Eastern   European  markets   continued.   Leading
international  market research firms continue to recognize  H.I.S. as the number
one brand of women's jeans in our European markets.


                                        1

<PAGE>



The year ahead  presents  ongoing  challenges  and  opportunities.  Our recently
completed  purchase of the principal  business assets of Stuffed Shirt Inc., the
addition of several strong apparel  executives to the team, and the efficiencies
in our new manufacturing facilities have us moving in the right direction.

Our Company-wide  slogan is "We're Building a Great Company." No one can predict
what  demand  will be for the  coming  year.  What I can  tell  you is that  the
employee  team at Chic by H.I.S.  is  re-energized,  dedicated  and committed to
being the best we can be.



Daniel Rubin
Chief Executive Officer


                                        2

<PAGE>



Chic Marks Milestones and Charts Course for Future Success
Celebrating its 75th  anniversary in the United States and 25th in Europe,  Chic
is poised to launch new initiatives built on a solid foundation. Chic by H.I.S.,
Inc.  proudly traces its origins to 1923,  when Henry I. Siegel founded what was
then  a work  clothes  manufacturer.  The  Company  has  evolved  into a  global
manufacturer  and  marketer  of jeans,  shorts  and  casual  pants for the whole
family.  In the U.S.,  we offer Chic for ladies and girls,  ZnO for  juniors and
HARD-WARE  by h.i.s.  for men and boys.  Internationally,  our products are sold
under the H.I.S. label.

CHIC -- The World's Best Fitting Jeans
In 1977,  the Chic  jean was  introduced  - the first  proportioned-to-fit  jean
designed  especially for women. Our jeans are offered in a range of 27 sizes and
lengths. Chic jeans continue to lead the way in offering women of all shapes and
sizes the opportunity to look great at a great price.

It's Not Just Your Mother's Jeans Anymore
Recognizing  the market  strength of the  "Millennial"  generation,  the Company
introduced  the ZnO label in 1998 to appeal to the fashion  tastes of the junior
market. Sleeker, trendier styles, washes, baubles and other features distinguish
this line from our classic products.

HARD-WARE by h.i.s. -- Soft Goods for Him
Men's clothes  formed the  foundation of our Company and continue to represent a
vital  part of our  business.  Distinguishing  our men's  brand in our  domestic
markets,  the Company launched HARD-WARE by h.i.s. to its mass-market  retailers
in 1998.




                                        3

<PAGE>



European Appeal
Our global  reach keeps  growing.  Upscale,  international  appeal of our H.I.S.
product lines has created market  opportunities for us in Germany,  Switzerland,
Austria,  Poland,  Slovakia and the Czech Republic.  As we set our sights on the
future,  our growth will be guided by a continued  commitment to our traditional
markets and an eye towards  capitalizing on emerging markets.  As trade barriers
fade, the world has indeed become a smaller place.

A Tradition of Excellence
A tradition of quality and value has established our market leadership position 
on two continents. In the U.S., Chic remains the #1 brand of women's jeans in 
our markets.  In Europe, Nielson recognized H.I.S. as the #1 women's jean in 
Germany.  The success of our brands extends to more than 125 different products
in over 3,000 stores in the U.S. alone.


                                        4

<PAGE>



Licensing Our Momentum
The  Company's  licensing  program was  strengthened  in 1998 by  expanding  our
product range in both the U.S. and Europe.  In the U.S.,  the Company is working
with its major  customers to expand  product  categories.  We are also  pursuing
opportunities  in Latin  America.  In Europe,  the Company  extended its product
range to leather products,  underwear and shoes. By generating  heightened brand
awareness and presenting a coordinated  product line,  our licensing  program is
expected  to yield  benefits  not only for our  licensed  products,  but for our
proprietary products as well.

The Building Blocks
Engineered for efficiency and quality, our manufacturing  facilities support the
highest  standards in the industry.  To remain a strong global  competitor,  the
Company has expanded its manufacturing  facilities in Mexico. Our first facility
went on-line in 1997 and reached full capacity in 1998. The second  facility was
opened in 1998 and was followed by a third with a laundry under construction. At
costs that withstand market pressure,  our  manufacturing  operation runs like a
well-oiled  machine.  The strength of our  manufacturing  enables us not only to
support  sales of our  branded  merchandise,  but also to pursue  private  label
opportunities as a supplemental source of revenue in fiscal 1999.

Building a Great Company
Continuing  a  tradition  of  excellence,  the team at Chic by H.I.S.,  Inc.  is
committed to making great clothes at a great price and being the best we can be.


                                        5

<PAGE>



Selected  Consolidated  Financial Data Chic by H.I.S., Inc. and Subsidiaries The
following financial information is qualified by reference to, and should be read
in conjunction  with, the Consolidated  Financial  Statements of the Company and
related notes thereto,  and  "Management's  Discussion and Analysis of Financial
Condition and Results of Operations."

The  selected  consolidated  financial  information  for each of the five fiscal
years in the period  ended  November  7, 1998 is derived  from the  Consolidated
Financial Statements of the Company which have been audited by BDO Seidman, LLP.

<TABLE>
<CAPTION>


                                                                                 Fiscal Year Ended
(In thousands, except share and per share amounts)        Nov. 5, 1994   Nov. 4, 1995   Nov. 2, 1996   Nov. 1, 1997   Nov. 7, 1998
Income Statement Data:
<S>                                                       <C>            <C>            <C>            <C>            <C>         
Net sales:
    United States                                         $  276,932     $  277,896     $    212,121   $    162,170   $    149,486
    Europe                                                    77,283         98,172          106,669        112,618        104,356
                                                          $  354,215     $  376,068     $    318,790   $    274,788   $    253,842
Gross profit:                                                                        
    United States                                         $   53,526     $   32,598     $     26,325   $     12,234   $     16,900
    Europe                                                    31,985         39,554           43,737         47,125         44,178
                                                          $   85,511     $   72,152     $     70,062   $     59,359   $     61,078
Licensing revenues                                        $    4,878     $    5,773     $      6,359   $      2,842   $      2,706
Operating expenses:                                                                  
    Selling, general and administrative expenses          $   68,066     $   69,415     $     61,295   $     69,434   $     62,236
    Restructuring and special charges                             --             --           30,000             --         24,125
    Special charge due to change in accounting                                       
      for advertising                                          5,928             --               --             --             --
Operating income (loss):                                                             
    United States                                         $    8,424     $      (16)    $    (25,256)  $    (19,227)  $    (31,913)
    Europe                                                     7,971          8,526           10,382         11,994          9,336
                                                          $   16,395     $    8,510     $    (14,874)  $     (7,233)  $     22,577
Gain on sale of subsidiary stock                                  --             --               --         34,079             --
Other expense, net                                                --             --               --             --        (1,104)
Interest and finance costs                                    (3,677)       (6,129)           (6,544)        (4,576)       (4,816)
Income (loss) before benefit (provision) for income                                  
     taxes, minority interest, extraordinary items                                   
     and cumulative effect of change in accounting                                   
     method                                                    12,718         2,381          (21,418)        22,270       (28,497)
                                                                                     
                                                                                     

                                                                                     
                                                                                     
                                        6                                            
                                                                                     
<PAGE>                                                                               
                                                                                     
                                                                                     
                                                                                     
                                                                                     
Benefit (provision) for income taxes                       (2,660)           (1,369)          (4,146)       (10,394)         2,762
Income (loss) before minority interest,                                              
     extraordinary items and cumulative effect
     of change in accounting method                       $ 10,058       $    1,012     $    (25,564)  $     11,876   $    (25,735)
Minority interest                                                  --            --               --   $     (1,081)  $     (2,116)
Extraordinary items                                                --            --               --   $       (330)            --
Cumulative effect of change in accounting method          $       431            --               --             --             --
Net income (loss)                                         $    10,489    $    1,012     $    (25,564)$      (10,465)  $    (27,851)
Earnings (loss) per common share:                                                                                           
    Basic:                                                                                                                  
       Before extraordinary items and cumulative effect   $    1.04      $     0.10     $      (2.62)  $       1.11   $      (2.82)
       Net income (loss)                                  $    1.08      $     0.10     $      (2.62)  $       1.07   $      (2.82)
    Diluted:                                                                                                                
       Before extraordinary items and cumulative effect   $    1.03      $     0.10     $      (2.62)  $       1.10   $      (2.82)
       Net income (loss)                                  $    1.08      $     0.10     $      (2.62)  $       1.07   $      (2.82)
Weighted average number of common shares and                                                                                 
    share equivalents outstanding                                                                                           
    Basic                                                   9,682,311     9,753,868        9,753,868      9,755,684      9,867,437
    Diluted                                                 9,726,032     9,753,868        9,753,868      9,804,658      9,867,437
Balance Sheet Data:                                                                  
Working capital                                           $   109,280    $  123,394     $     98,762   $     67,514   $     61,133
Total assets                                                  212,703       239,525          191,553        188,703        177,075
Short-term debt, including current portion of capital                                
lease obligations                                               1,274         7,202            1,614         17,698         24,389
Long-term debt, including capital lease obligations            54,240        86,261           72,806         26,649         46,036
Stockholders' equity                                      $   110,868    $  113,427     $     80,878   $     89,068   $     59,471

</TABLE>                                                                       

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

Management's  Discussion  and  Analysis of  Financial  Condition  and Results of
Operations  The  following  comments  should  be read in  conjunction  with  the
Consolidated Financial Statements and Notes contained therein.

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


                                        7

<PAGE>



<TABLE>
<CAPTION>

Fiscal Year                                             1996                   1997                1998
------------------------------------            --------------------   --------------------   ----------------
<S>                                                     <C>                   <C>                <C>  
Net sales
   United States                                         66.5%                  59.0%              58.9%
   Europe                                                33.5                   41.0               41.1
   Consolidated                                         100.0                  100.0              100.0
Gross margin
   United States                                         12.4                    7.5               11.3
   Europe                                                41.0                   41.8               42.3
   Consolidated                                          22.0                   21.6               24.0
Licensing revenues                                        2.0                    1.0                1.1
Selling general and                                      19.2                   25.3               24.5
   administrative expenses                                                                         
Restructuring and special charges                         9.4                   --                  9.5
Operating loss                                           (4.7)                  (2.6)              (8.9)
Gain on sale of subsidiary stock                         --                     12.4               --
Other expense, net                                       --                     --                  (.4)
Interest and finance costs                               (2.1)                  (1.7)              (1.9)
Income (loss) before benefit                                                                          
(provision) for income taxes,                                                                         
   minority interest and                                                                              
   extraordinary item                                    (6.7)                   8.1              (11.2)
Benefit (provision) for income                           (1.3)                  (3.8)                 
   taxes                                                                                            1.1
Minority interest                                        --                      (.4)               (.8)
Extraordinary item                                       --                      (.1)              --
Net income (loss)                                        (8.0%)                  3.8%             (10.9)%
</TABLE>

Fiscal Year Ended November 7, 1998 ("Fiscal 1998") Compared to Fiscal Year Ended
November 1, 1997 ("Fiscal 1997")

Net Sales.
Net sales for fiscal  1998  decreased  by $21.0  million,  or 7.6%,  from $274.8
million for fiscal 1997 to $253.8  million.  United  States  sales  decreased by
$12.7 million,  or 7.8%, to $149.5  million  primarily due to a decrease in unit
sales volume and a decrease in average selling price.


                                        8

<PAGE>



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

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

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


                                        9

<PAGE>



decreased  $2.9  million  from $47.1  million for fiscal 1997 to $44.3  million,
while gross margin increased from 41.8% in fiscal 1997 to 42.3% primarily due to
product mix.

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

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

Restructuring and Special Charges.
In fiscal  1998,  the  Company  announced  its  intention  to  continue to close
additional   manufacturing  facilities  in  the  United  States.  In  connection
therewith,  the Company  recorded  restructuring  and  special  charges of $24.1
million  consisting  of a  write-down  in the  value  of  related  property  and
equipment ($15.1 million),  the write-off of operating  inefficiencies  incurred
during the shut-down period ($5.4 million) and the accrual of estimated costs of
disposition ($3.6 million). Fair value for property and equipment was determined
primarily  by  appraisals.  Assets held for sale are  expected to be sold during
fiscal 1999. The plant  closings  resulted in the  termination of  approximately
1,300 employees. In addition, the downsizing associated with such plant closings
may affect the  accounting,  disclosure  and  funding of the  Company's  pension
benefit obligation.


                                       10

<PAGE>



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

Gain on Sale of Subsidiary Stock.
In fiscal 1997, the Company recorded a gain on the sale of  approximately  47.5%
of its wholly-owned European subsidiary of approximately $34.1 million. Proceeds
of the sale were used in May 1997 to repay domestic borrowings.

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

Income Taxes.
The benefit for income  taxes for fiscal 1998 was $2.8  million as compared to a
provision of $10.4  million for fiscal 1997.  The change is primarily due to the
Company's  fiscal  1998 loss.  The  deferred  tax  benefit  attributable  to the
domestic  loss in fiscal 1998 was reduced by  approximately  $6.0 million to the
extent its future realization is uncertain.

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


                                       11

<PAGE>



Fiscal Year Ended November 1, 1997 ("Fiscal 1997") Compared to Fiscal Year Ended
November 2, 1996 ("Fiscal 1996")

Net Sales.
Net sales for fiscal 1997 decreased $44.0 million, or 13.8%, from $318.8 million
for fiscal  1996 to $274.8  million.  United  States  sales  decreased  by $50.0
million, or 23.6%, to $162.2 million,  due to a decline in unit sales volume, as
well as a decrease in the average unit selling price of  approximately  5.2%. As
of November  1, 1997,  the Company  had a total  backlog of  confirmed  domestic
purchase orders of $94.4 million, an increase of 77.3% compared to $53.2 million
as of November 2, 1996. In fiscal 1997, European sales increased by 32.2 million
deutsche marks,  or 20.2%, to 191.1 million  deutsche marks primarily due to the
increased  market  penetration in Germany and  Switzerland  and the expansion of
sales in Poland and the Czech  Republic.  When  converted  using the  prevailing
currency  exchange rate, the European sales increased by $5.9 million,  or 5.6%,
to $112.6  million for fiscal  1997.  As of November 1, 1997,  the Company had a
backlog of confirmed European purchase orders of 70.4 million deutsche marks, an
increase of 3.9% compared to 67.7 million deutsche marks as of November 2, 1996.
The confirmed  European  backlog,  when converted into U.S. currency at the then
prevailing rate, was $40.8 million, a decrease of 8.8% compared to $44.7 million
as of November 2, 1996.

Gross Profit.
Gross  profit for fiscal 1997  decreased  $10.7  million,  or 15.3%,  from $70.1
million in fiscal 1996 to $59.4  million,  and gross  margin  decreased to 21.6%
from 22.0%.  United  States  gross  profit  decreased  $14.1  million from $26.3
million for fiscal 1996 to $12.2 million. The reduction of


                                       12

<PAGE>



gross profit in the United  States was  primarily  due to the decrease in sales,
which combined with inventory valuation adjustments, resulted in the decrease in
the gross margin from 12.4% to 7.5%.  The Company has reduced the carrying  cost
of the inventory to reflect the integration of the cost structure of its Mexican
production  facility,  which it  expects  to reach  full  capacity  in the first
quarter of fiscal 1998.  European  gross margin  increased  from 41.0% in fiscal
1996 to 41.8% primarily due to product mix, as well as the Company's  ability to
capitalize on improved purchasing power.

Licensing Revenues.
Licensing  revenues for fiscal 1997 decreased $3.5 million,  or 55.3%, from $6.3
million  for  fiscal  1996 to $2.8  million  primarily  due to the  poor  retail
business in the United States and the  discontinuation of a licensing  agreement
in the  Czech  Republic.  The  licensing  agreement  in the Czech  Republic  was
discontinued to allow the Company to pursue full sales and marketing  efforts in
this region.

SG&A Expenses.
Selling,  general and administrative  expenses increased $8.1 million, or 13.3%,
to $69.4 million for fiscal 1997 primarily due to increased  advertising charges
associated with special cooperative  advertising  programs designed to stimulate
over-the-counter sales.

Restructuring and Special Charges.
In fiscal 1996, the Company  recorded a charge  against  earnings of $30 million
associated with the restructuring of certain manufacturing operations due to the
continuing downturn in the retail


                                       13

<PAGE>



market.  Such restructuring included the closing of certain manufacturing 
facilities and an accompanying reduction in the workforce.

Operating Income.
Operating  income for fiscal 1997  increased $7.7 million from an operating loss
of $14.9 million in fiscal 1996 to an operating loss of $7.2 million,  primarily
due to the  restructuring  and special charges recorded in the prior year, which
were partially offset by the decrease in sales and gross profit and the increase
in selling, general and administrative expenses in the current year period.

Gain on Sale of Subsidiary Stock.
In fiscal 1997, the Company recorded a gain on the sale of  approximately  47.5%
of its  previously  wholly owned  European  subsidiary  of  approximately  $34.1
million.  Proceeds  of the  offering  were  used in May 1997 to  repay  domestic
borrowings.

Interest and Finance Costs.
Interest and finance costs decreased $2.0 million,  or 30.0%,  from $6.5 million
for fiscal 1996 to $4.5 million for fiscal 1997.  The decrease in interest  cost
was primarily due to lower average levels of borrowings.

Income Taxes.
The  provision for income taxes for fiscal 1997 was $10.4 million as compared to
$4.1 million for fiscal 1996. The increase  resulted from an increase in foreign
income taxes and the utilization of the Company's domestic deferred tax asset.


                                       14

<PAGE>



Extraordinary Item.
In fiscal  1997,  the  Company  recorded  an  extraordinary  charge of  $330,000
attributable to the early extinguishment of $43 million of senior notes payable.

Seasonality of Business -- Quarterly Results.
The Company experiences  seasonal increases and decreases in its working capital
requirements.  This pattern results  primarily from the demand for the Company's
apparel products and the level of sales,  which fluctuate  moderately during the
course of the calendar year as a result of seasonal  buying  trends.  A moderate
surge in sales of denim jeans and casual pants generally  occurs during the fall
back-to-school and Christmas holiday selling seasons. Back-to-school merchandise
is shipped  primarily  during  the  Company's  third  quarter,  while  Christmas
merchandise is shipped primarily during the Company's fourth quarter.

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


                                 First       Second        Third       Fourth
(In thousands)                  Quarter      Quarter      Quarter      Quarter
Fiscal year ended
November 1, 1997
   Net sales                  $  56,031    $  66,442    $  81,906     $ 70,409
   Operating income (loss)        1,010      (16,070)       4,245        3,582
   Net income (loss)               (724)       9,070        1,010        1,109
   Per common share:
      Net income (loss)       $    (.07)        0.93    $     .10     $    .11



                                       15

<PAGE>



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

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

In fiscal 1998, net cash of $20.8 million was used in operations, as compared to
$21.9  million in fiscal 1997.  The net cash used in  operations  was  primarily
attributable to the net loss for the period, the increase in inventories and the
decrease in accounts payable and accrued  expenses,  which were partially offset
by the  decrease in accounts  receivable  and  noncash  restructuring  and other
operating expenses.

Net cash of $6.7 million was used in  investing  activities  in fiscal 1998,  as
compared to $8.6 million in fiscal 1997.  Cash used in investing  activities was
primarily  attributable  to the  acquisition  of  manufacturing  facilities  and
equipment.  The Company's investment in such manufacturing operations was offset
by the proceeds from the disposition of the corporate  aircraft and certain idle
property and  equipment.  The Company is continuing to expand its  manufacturing
facilities  in  Mexico  and  intends  to  develop  a  laundry  operation  in the
forseeable  future.  The  construction  of the laundry is expected to require an
investment of approximately $8


                                       16

<PAGE>



million in fiscal 1999, to be financed primarily through bank borrowing.  In the
second  quarter of fiscal 1998,  the Company  announced  its  intention to close
additional  domestic  manufacturing  facilities.  In connection  therewith,  the
Company recorded  restructuring and special charges in fiscal 1998 which include
a valuation  adjustment of the related property and equipment,  the write-off of
manufacturing  inefficiencies  and accrued  estimated costs of disposition,  the
effect on future liquidity of which is not material. In addition, the downsizing
associated  with such plant closings may affect the  accounting,  disclosure and
funding of the Company's pension benefit obligation.

Net cash provided by financing  activities  was $22.7 million in fiscal 1998, as
compared  to $13.4  million  in fiscal  1997.  The cash  provided  by  financing
activities  in  fiscal  1998  was  primarily  attributable  to the  increase  in
borrowings against the Company's credit facilities and proceeds from the sale of
common stock issued  pursuant to the exercise of outstanding  stock options.  In
fiscal 1998, the Company used  approximately  $1.0 million to repurchase 160,000
shares of its common stock on the open market. This repurchase partially offsets
the  potentially  dilutive  effect  of the  stock  options  exercised.  The cash
provided by financing  activities in fiscal 1997 was primarily  attributable  to
the proceeds  from the sale of the  Company's  subsidiary  stock and  borrowings
against the Company's credit facilities.

As of November 7, 1998, the Company had a $60 million  domestic credit agreement
providing a $40 million  revolving  line of credit and $20 million term loan, of
which $41.4 million was outstanding.  In addition, the Company had $24.7 million
of IRBs outstanding at November 7, 1998. The Company also has foreign  financing
agreements with two banks


                                       17

<PAGE>



providing term loans aggregating 4.3 million deutsche marks  (approximately $2.6
million, based on the November 7, 1998 foreign currency exchange rate) and lines
of credit aggregating 58.0 million deutsche marks  (approximately $35.0 million,
based on the November 7, 1998 foreign  currency  exchange  rate).  There were no
outstanding  borrowings  against the  foreign  lines of credit as of November 7,
1998.

The Company is a holding company, and is dependent upon the receipt of dividends
or other payments from its subsidiaries. The Company expects that cash generated
from operations and the credit  agreements will provide the financial  resources
sufficient  to meet its  forseeable  working  capital  and  capital  expenditure
requirements. There can be no assurance, however, that the Company will not need
to borrow from other sources during future periods.

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

Y2K.
The  Company  continues  to assess the  potential  impact of the Year 2000 (Y2K)
computer processing issue on its management and information systems. The Company
believes  that it has a prudent  approach in place to address  these  issues and
monitor remedial action. The approach


                                       18

<PAGE>



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

The Company is incorporating the Y2K programming  modifications  with an overall
upgrade in its computer  programming  language.  While this  project  involves a
significant  effort from its programming  staff, the Company believes that it is
on schedule for a timely  completion.  All programs are expected to be reviewed,
remediated  and  converted  by  mid-1999.  The Company is also in the process of
assessing all hardware  components  and is not aware of any material  investment
required for its mainframe and critical hardware equipment to be Y2K compliant.

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

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

At this time,  the  Company is not aware of any  internal  or  external  systems
related to the Y2K  programming  issues  which  would  prevent or  significantly
impair the Company from continuing


                                       19

<PAGE>



operations  after the turn of the century.  The Company  continues to assess the
risks  associated  with program  failures and will develop a formal  contingency
plan with its business  partners to address  specific  risks.  At this point, no
serious risks of failure have been identified.

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

Recent Accounting Standards.
In June 1997, the Financial Accounting Standards Board issued two new disclosure
standards.  Results of operations  and financial  position will be unaffected by
implementation of these new standards.

SFAS No.  130,  "Reporting  Comprehensive  Income,"  established  standards  for
reporting and display of  comprehensive  income,  its components and accumulated
balances.  Comprehensive  income is  defined to  include  all  changes in equity
except those resulting from  investments by owners and  distributions to owners.
Among other disclosures,  SFAS No. 130 requires that all items that are required
to  be  recognized   under  current   accounting   standards  as  components  of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements.


                                       20

<PAGE>



SFAS  No.  131,   "Disclosure  about  Segments  of  an  Enterprise  and  Related
Information," which supersedes SFAS No. 14, "Financial Reporting for Segments of
a  Business   Enterprise,"   establishes  standards  for  the  way  that  public
enterprises  report  information  about operating  segments in annual  financial
statements  and  requires  reporting  of selected  information  about  operating
segments  in  interim  financial  statements  issued  to  the  public.  It  also
establishes   standards  for  disclosures   regarding   products  and  services,
geographic areas and major customers. SFAS No. 131 defines operating segments as
components of and  enterprises  about which  separate  financial  information is
available that is evaluated  regularly by management in deciding how to allocate
resources and in assessing performance.

Both SFAS Nos. 130 and 131 are effective for financial statements for periods
beginning after December 15, 1997 and require comparative information for
earlier years to be restated.

In June 1998,  the  Financial  Accounting  Standards  Board issued SFAS No. 133,
"Accounting  for Derivative  Instruments and Hedging  Activities."  SFAS No. 133
requires  companies to recognize all derivative  contracts at their fair values,
as either assets or liabilities on the balance sheet. If certain  conditions are
met, a derivative may be  specifically  designated as a hedge,  the objective of
which  is to  match  the  timing  of  gain or loss  recognition  on the  hedging
derivative  with the  recognition  of (1) the  changes  in the fair value of the
hedged asset or liability that are  attributable  to the hedged risk, or (2) the
earnings  effect of the hedged  forecasted  transaction.  For a  derivative  not
designated as a hedging instrument,  the gain or loss is recognized in income in
the  period of change.  SFAS No. 133 is  effective  for all fiscal  quarters  of
fiscal years beginning after June 15, 1999.


                                       21

<PAGE>



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

Report of Independent Certified Public Accountants To the Board of Directors and
Stockholders of Chic by H.I.S, Inc.
We have audited the accompanying  consolidated  balance sheets of Chic by H.I.S,
Inc.  and  subsidiaries  as of  November 1, 1997 and  November 7, 1998,  and the
related consolidated  statements of operations,  stockholders'  equity, and cash
flows for each of the three years in the period  ended  November 7, 1998.  These
financial  statements are the  responsibility of the Company's  management.  Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

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

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects,  the financial position of Chic by H.I.S, Inc.
and subsidiaries as of November 1, 1997 and November 7, 1998, and the results of
their operations and their cash flows


                                       22

<PAGE>



for each of the three years in the period ended  November 7, 1998, in conformity
with generally accepted accounting principles.


BDO Seidman, LLP
New York, New York
January 7, 1999



                                       23

<PAGE>


<TABLE>
<CAPTION>

Consolidated Balance Sheets   Chic by H.I.S, Inc. and Subsidiaries

(In thousands, except share data)                                                 Nov. 1, 1997      Nov. 7, 1998

Assets (Note 4)
<S>                                                                               <C>               <C>         
Current:                                                                          $      7,395      $      3,623
   Cash and cash equivalents
   Accounts receivable -- net of allowance of $190 and $237 for doubtful accounts       32,926            27,242
     (Note 10)
   Inventories (Note 2)                                                                 71,368            74,167
   Deferred income taxes (Note 7)                                                        3,020             3,549
   Prepaid expenses and other current assets                                             3,560             2,974
      Total current assets                                                             118,269           111,555
Property, plant and equipment, net (Notes 3, 4, 5 and 12)                               67,998            58,680
Deferred tax asset (Note 7)                                                                 --             4,557
Other assets                                                                             2,436             2,283
                                                                                  $    188,703      $    177,075
Liabilities and Stockholders' Equity
Current:
   Revolving bank loan (Note 4)                                                   $     15,000      $     21,381
   Current maturities of long-term debt (Note 4)                                         1,997             2,395
   Obligations under capital leases (Note 5)                                              701                613
   Accounts payable                                                                     17,032            12,466
   Accrued liabilities:
      Payroll, payroll taxes and commissions                                             5,492             5,759
      Income taxes                                                                       4,802             1,874
      Restructuring and special charges (Note 12)                                           --             2,383
      Other                                                                              5,731             3,551
          Total current liabilities                                                     50,755            50,422
Noncurrent                                                                                          
   Long-term debt (Note 4)                                                              25,989            44,850
   Pension liability (Note 6)                                                           10,654            11,982
   Deferred income taxes (Note 7)                                                        2,713                --
   Obligations under capital leases (Note 5)                                               660             1,186
      Total noncurrent liabilities                                                      40,016            58,018
Minority interest                                                                        8,864             9,164
Commitments (Notes 4, 5, 6, 8, 11 and 12) 
Stockholders' equity (Notes 6 and 9):                
   Preferred stock, $.01 par value -- shares authorized 10,000,000;  none issued            --                --
   Common stock, $.01 par value -- 25,000,000 shares authorized; 9,764,968                  99                98
   and 9,870,793 issued and outstanding
   Paid-in capital                                                                     105,590           106,275
   Retained deficit                                                                     (6,299)          (34,249)
   Cumulative foreign currency translation adjustment                                      332              (671)
   Excess of additional pension liability over intangible pension asset                (10,654)          (11,982)
                                                                                        89,068            59,471
                                                                                  $    188,703      $    177,075
</TABLE>

See accompanying notes to consolidated financial statements.



                                                                 24

<PAGE>



Consolidated Statements of Operations  Chic by H.I.S. Inc. and Subsidiaries


<TABLE>
<CAPTION>

                                                                                  Year Ended

(In thousands, except share and per share amou             Nov. 2, 1996   Nov. 1, 1997   Nov. 7, 1998

<S>                                                        <C>            <C>            <C>         
Net sales (Note 10)                                        $   318,790    $    274,788   $    253,842
Cost of goods sold                                             248,728         215,429        192,764
    Gross profit                                                70,062          59,359         61,078
Licensing revenues (Note 11)                                     6,359           2,842          2,706
                                                                76,421          62,201         63,784
Selling, general and administrative expenses                    61,295          69,434         62,236
Restructuring and special charges (Note 12)                     30,000              --         24,125
    Operating loss                                             (14,874)         (7,233)       (22,577)
Gain on sale of subsidiary stock (Note 13)                          --          34,079             --
Other expense, net                                                  --              --         (1,104)
Interest and finance costs                                      (6,544)         (4,576)        (4,816)
    Income (loss) before benefit (provision) for income
     taxes,  minority interest and extraordinary item          (21,418)         22,270        (28,497)
Benefit (provision) for income taxes (Note 7)                   (4,146)        (10,394)         2,762
Income (loss) before minority interest and extraordinary                                
item                                                           (25,564)         11,876        (25,735)
Minority interest                                                   --          (1,081)        (2,116)
    Income (loss) before extraordinary item                    (25,564)         10,795        (27,851)
Extraordinary loss from extinguishment of debt (Note 4)             --            (330)            --
    Net income (loss)                                      $   (25,564)   $     10,465   $    (27,851)
Earnings (loss) per common share
    Basic:
        Income (loss) before extraordinary item            $     (2.62)   $       1.11   $      (2.82)
        Net income (loss)                                  $     (2.62)   $       1.07   $      (2.82)
    Diluted:
        Income (loss) before extraordinary item            $     (2.62)   $       1.10   $      (2.82)
        Net income (loss)                                  $     (2.62)   $       1.07   $      (2.82)
Weighted average number of common shares and share
    equivalents outstanding
    Basic                                                    9,753,868       9,755,684      9,867,437
    Diluted                                                  9,753,868       9,804,658      9,867,437

</TABLE>

See accompanying notes to consolidated financial statements.



                                                                 25

<PAGE>



Consolidated Statements of Stockholders' Equity   
Chic by H.I.S, Inc. and Subsidiaries


<TABLE>
<CAPTION>
                                               Years Ended Nov. 2, 1996, Nov. 1, 1997 and Nov.7, 1998
                                               ----------------------------------------------------------------------------------

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

<S>                                            <C>          <C>        <C>           <C>         <C>            <C>         
Balance, November 4, 1995                      $ 113,427    $     98  $   105,526    $   8,800   $   3,068      $    (4,065)
Net Loss                                         (25,564)         --          --       (25,564)        --               --
Adjustment of excess of additional
    pension liability over intangible
    pension asset (Note 6)                        (5,562)         --          --            --         --            (5,562)
Foreign currency translation adjustment(          (1,423)         --          --            --      (1,423)              --
---------------------------------------------  ----------   --------   ---------     ---------   ---------      -----------
Balance, November 2, 1996                          80,878         98     105,526      (16,764)      1,645           (9,627)
Net income                                         10,465         --          --      10,465           --                --
Adjustment of excess additional
    pension liability over intangible
    pension asset (Note 6)                         (1,027)        --          --           --          --           (1,027)
Foreign currency translation adjustment            (1,313)        --          --           --      (1,313)              --
Stock options exercised (Note 9)                       65          1          64           --          --               --
---------------------------------------------  ----------   --------  ----------    ---------   ---------      -----------
Balance, November 1, 1997                          89,068         99     105,590       (6,299)        332          (10,654)
Net Loss                                          (27,851)        --          --      (27,851)         --               --
Adjustment of excess of additional
    pension liability over intangible
    pension asset (Note 6)                         (1,328)        --          --           --          --           (1,328)
Foreign currency translation adjustment            (1,003)        --          --           --       1,003)              --
Stock repurchase                                     (987)        (2)       (985)          --          --               --
Dividends paid (Note 9)                               (99)        --          --          (99)         --               --
Short-swing Section 16(b) profits                     118         --         118           --          --               --
Stock options exercised (Note 9)                    1,553          1       1,552           --          --               --
---------------------------------------------  ----------   --------  ----------    ---------   ---------      -----------
Balance November 7, 1998                        $  59,471   $     98  $  106,275    $ (34,249)  $    (671)     $   (11,982)
---------------------------------------------  ----------   --------   ----------   ----------   ---------      -----------
</TABLE>

See accompanying notes to consolidated financial statements.

Consolidated Statements of Cash Flows   Chic by H.I.S, Inc. and Subsidiaries
<TABLE>
<CAPTION>


                                                                      Year Ended                                             
(In thousands)                                       Nov. 2, 1996    Nov. 1, 1997   Nov. 7, 1998
Cash flows from operating activities:
<S>                                                    <C>           <C>          <C>            
Net income (loss)                                      $  (25,564)   $   10,465   $    27,851
---------------------------------------------------    ------------  ------------ -------------
Adjustments  to reconcile  net income  (loss) to 
   net cash  provided by (used in)
operating activities:
   Gain on sale of subsidiary stock                           --       (34,079)           --
   Gain on sale of property and equipment                     --            --        (1,912)
   Minority interest                                          --         1,081         2,116
   Noncash restructuring and special charges              22,599            --        13,680
   Depreciation and amortization                           3,687         4,533         4,340
   Allowance for doubtful accounts                            --            65            47
   Deferred income taxes                                    (630)        4,703        (7,799)
Decrease (increase) in:
   Accounts receivable                                     6,872           318         5,637
   Inventories                                            37,263       (13,008)       (2,799)
   Prepaid expenses and other current assets               1,793        (2,095)          586
   Other assets                                             (355)       (1,324)          153
Increase (decrease) in:
   Accounts payable                                       (1,890)        5,407        (4,566)
   Accrued liabilities                                    (4,297)        2,061        (2,457)
      Total adjustments                                   65,042       (32,338)        7,026
      Net cash provided by (used in) 
        operating activities                              39,478       (21,873)      (20,825)



                                                               26

<PAGE>



Cash flows from investing activites:
Purchase of property, plant and equipment                 (6,582)       (8,608)       (9,871)
Proceeds from the sale of fixed assets                        --            --         3,188
      Net cash, used in investing activities              (6,582)       (8,608)       (6,683)
Cash flows from financing activities:
Proceeds from sale of subsidiary stock                        --        43,054            --
Increase (decrease) in loans under revolving line 
  of credit                                               (6,500)       15,000         6,381
Repayment of long-term debt                              (10,000)      (43,838)           --
Increase (decrease) in long-term debt                     (2,081)           --        19,161
Proceeds from the issuance of common stock                    --            65         1,553
Due from trustee                                             409            --            --
Stock repurchase                                              --            --          (987)
Purchase of subsidiary stock                                  --            --           (89)
Dividends paid to minority shareholders                       --            --        (2,310)
Dividends paid-- shareholder rights redemption                --            --           (99)
Short-swing profits                                           --            --           118
Increase in deferred financing costs                        (114)           --            --
Principal payments under capitalized lease 
      obligations                                           (895)         (865)         (871)
Retirement of capitalized lease obligation                    --            --          (175)
      Net cash provided by (used in) financing 
          activities                                     (19,181)       13,416        22,682
      Increase (decrease) in cash and cash 
          equivalents                                     13,715       (17,065)       (4,826)
Effect of exchange rates on cash                          (1,734)       (2,718)        1,054
Cash and cash equivalents, beginning of year              15,197        27,178         7,395
Cash and cash equivalents, end of year              $     27,178   $    7,395    $     3,623
Supplemental  disclosures  of cash flow  
     information: 
   Cash paid during the year for:
      Interest                                      $      8,869    $    4,549   $     4,826
      Taxes                                                4,914         3,239         7,688
Noncash investing and financing activities:
   Capital leases entered into during the year               821            --         1,483
</TABLE>


See accompanying notes to consolidated financial statements.


Notes to Consolidated Financial Statements  Chic by H.I.S, Inc. and Subsidiaries

1  Summary of Accounting Policies
Principles of Consolidation.  The consolidated financial statements include the 
accounts of Chic by H.I.S, Inc. (the "Company") and its wholly and majority 
owned subsidiaries.  All intercompany accounts and transactions have been 
eliminated in consolidation.

As described in Note 13, the Company sold approximately 47.5% of the stock of 
its previously wholly-owned German subsidiary, H.I.S. sportswear AG 
("Sportswear") in April 1997.  Minority


                                       27

<PAGE>



interest represents minority shareholders' proportionate share of the income and
equity of Sportswear.

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

(c) Reporting Periods. For financial reporting purposes,  the Company reports on
a 52- to 53-week year ending on the first Saturday subsequent to October 31. The
fiscal  years ended  November 2, 1996 and  November  1, 1997 each  contained  52
weeks. The fiscal year ended November 7, 1998 contained 53 weeks.

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


                                       28

<PAGE>



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

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

(g) Leased  Property  Under Capital  Leases.  Property  under capital  leases is
amortized  over the lives of the  respective  leases or the useful  lives of the
assets.

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

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

(j)  Earnings per Common  Share.  In February  1997,  the  Financial  Accounting
Standards  Board issued SFAS No. 128,  "Earnings per Share," which  provides for
the calculation of "basic" and "diluted"  earnings per share. Basic earnings per
share includes no dilution and is computed


                                       29

<PAGE>



by dividing  income  available to common  shareholders  by the weighted  average
number of common shares  outstanding for the period.  Diluted earnings per share
reflects the potential dilution from the assumed exercise of stock options. This
Statement,  effective  for financial  statements  issued for periods ended after
December 15, 1997,  requires  restatement  of all prior  earnings per share data
presented.  All  periods  presented  have  been  restated  to  comply  with  the
provisions of SFAS No. 128.  Adoption of this  statement did not have a material
impact on earnings per share.

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

(l) Statements of Cash Flows.  For purposes of the statements of cash flows, the
Company considers all highly liquid debt instruments  purchased with an original
maturity of three months or less to be cash equivalents.

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

(n)  Estimates.  The  preparation  of financial  statements in  conformity  with
generally accepted  accounting  principles requires management to make estimates
and assumptions  that affect the reported  amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the


                                       30

<PAGE>



date of the  financial  statements  and the  reported  amounts of  revenues  and
expenses  during the reporting  period.  Actual  results could differ from those
estimates.

(o)  Long-lived  Assets.  The  Company  reviews  certain  long-lived  assets and
identifiable   intangibles   for  impairment   whenever  events  or  changes  in
circumstances indicate that the carrying amount may not be recoverable.  In that
regard,  the Company  assesses  the  recoverability  of such  assets  based upon
estimated nondiscounted cash flow forecasts. (See Note 12.)

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

(q) Presentation of Prior Year Data. Certain reclassifications have been made to
prior-year data to conform with the current-year presentation.

(r)  Recent  Accounting  Standards.  In  June  1997,  the  Financial  Accounting
Standards Board issued two new disclosure  standards.  Results of operations and
financial position will be unaffected by implementation of these new standards.

SFAS No.  130,  "Reporting  Comprehensive  Income,"  established  standards  for
reporting and display of  comprehensive  income,  its components and accumulated
balances.  Comprehensive  income is  defined to  include  all  changes in equity
except those resulting from  investments by owners and  distributions to owners.
Among other disclosures, SFAS No. 130 requires that all


                                       31

<PAGE>



items that are required to be recognized under current  accounting  standards as
components of comprehensive  income be reported in a financial statement that is
displayed with the same prominence as other financial statements.

SFAS  No.  131,   "Disclosure  about  Segments  of  an  Enterprise  and  Related
Information," which supersedes SFAS No. 14, "Financial Reporting for Segments of
a  Business   Enterprise,"   establishes  standards  for  the  way  that  public
enterprises  report  information  about operating  segments in annual  financial
statements  and  requires  reporting  of selected  information  about  operating
segments in interim financial statements issued to the public.

It also establishes  standards for disclosures  regarding products and services,
geographic areas and major customers. SFAS No. 131 defines operating segments as
components of and  enterprises  about which  separate  financial  information is
available that is evaluated  regularly by management in deciding how to allocate
resources and in assessing performance.

Both SFAS Nos. 130 and 131 are effective for financial statements for periods
beginning after December 15, 1997 and require comparative information for 
earlier years to be restated.

In June 1998,  the  Financial  Accounting  Standards  Board issued SFAS No. 133,
"Accounting  for Derivative  Instruments and Hedging  Activities,"  SFAS No. 133
requires  companies to recognize all derivative  contracts at their fair values,
as either assets or liabilities on the balance sheet. If certain  conditions are
met, a derivative may be  specifically  designated as a hedge,  the objective of
which  is to  match  the  timing  of  gain or loss  recognition  on the  hedging
derivative  with the  recognition  of (1) the  changes  in the fair value of the
hedged asset or liability that are attributable


                                       32

<PAGE>



to the  hedged  risk,  or (2)  the  earnings  effect  of the  hedged  forecasted
transaction.  For a derivative not designated as a hedging instrument,  the gain
or loss is  recognized  in  income  in the  period of  change.  SFAS No.  133 is
effective for all fiscal quarters of fiscal years beginning after June 15, 1999.

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

2  Inventories
Inventories consist of the following:

(In thousands)                          Nov. 1, 1997           Nov. 7, 1998
Raw Materials                            $   8,138              $   9,159
Work-in-process                             16,461                 12,966
Finished goods                              46,769                 52,042
                                         $  71,368              $  74,167

3  Property, Plant and Equipment
Major classes of property, plant and equipment consist of the following:

                                                                    Estimated
(In thousands)                    Nov. 1, 1997    Nov. 7, 1998    Useful Lives

Land                              $     780         $      567
Buildings and improvements           58,039             36,285        30 years
Machinery and equipment                                                         
(includes data processing and                                                   
transportation equipment)            37,727             27,755      3-12 years
Construction in progress              1,752              2,432



                                       33

<PAGE>




                                     98,298             67,039
Less: Accumulated depreciation       32,662             19,657
                                     65,636             47,382
Equipment under capital leases        8,881             10,327         7 years
Less: Accumulated amortization        6,519              6,917
                                      2,362              3,410
Assets held for sale                     --              7,888
                                  $  67,988            $58,680

4 Long-term Debt and Foreign Financing Agreements Long-term debt consists of the
following:

(In thousands)                                 Nov. 1, 1997       Nov. 7, 1998

Term loan (a)                                      $       --        $  20,000
Industrial Development Revenue Bonds (b)(i)             3,000            3,000
Industrial Development Revenue Bonds (b)(ii)            7,950            7,200
Industrial Development Revenue Bonds (b)(iii)           5,000            5,000
Industrial Development Revenue Bonds (b)(iv)            9,455            9,455
Term loan - foreign (c)                                 2,581            2,590
                                                       27,986           47,245
Less:  Current portion                                  1,997            2,395
                                                   $   25,989        $  44,850

(a) In June 1993,  the Company  entered  into two  financing  agreements  in the
United States  aggregating  $40 million,  consisting of a $10 million  revolving
credit  line,  a $10  million  term loan and $20  million  of senior  notes.  In
December  1994,  the Company  amended the terms of its revolving  credit line to
increase the revolving credit facility from $10.0 million to $37.5 million.  The
term loan was  repaid in  fiscal  1996 and the $20  million  senior  notes  were
replaced by $43 million of new notes,  which were prepaid in December  1996.  In
connection with the prepayment,  the Company incurred an extraordinary charge of
$330,000, net of income taxes,


                                       34

<PAGE>



attributable to a $500,000 make-whole payment to the lenders for the early
extinguishment of the debt.

In March 1997, the Company amended its credit agreement to provide a $30 million
revolving credit line and a $20 million term loan. In May 1997, the Company used
the net proceeds of $43.1  million from the sale of  approximately  47.5% of the
stock  of its  European  subsidiary  to  repay  the $20  million  term  loan and
revolving debt. In September 1997, the credit  agreement was amended to increase
the revolving credit line to $35 million and to $50 million in March 1998.

In October 1998, the Company  replaced its existing credit  agreement with a $60
million  facility.  The new credit  agreement  provides a $40 million  revolving
credit facility and a $20 million term loan. The credit agreement, which expires
in October  2001,  is secured  by,  among  other  things,  accounts  receivable,
finished goods inventory,  certain real property and intangible  assets, and the
stock of  Sportswear.  As of November 7, 1998,  the  outstanding  balance of the
revolver was $21.4 million, which bears interest at either the prime rate or the
Eurodollar rate, plus 1.75%, at the Company's  option (8% and 7%,  respectively,
as of November 7, 1998).  The term loan bears interest at the  Eurodollar  rate,
plus 2% (7.25% as of November 7, 1998). The agreement contains various covenants
including,  among others,  requirements  relating to the  maintenance of certain
financial ratios and limitations on dividends and other restricted payments.

(b) (i) In April 1995, the Company refinanced an aggregate  principal balance of
$3 million through the issuance of Industrial  Development  Revenue Bonds by the
County of  Carroll,  Tennessee.  The funds were  initially  used to  construct a
manufacturing facility. The bonds,


                                       35

<PAGE>



which are  guaranteed  by the Company,  mature April 1, 2005 and bear an average
interest rate of 7.0%.

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

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


                                                        Interest
                              (In thousands)              Rate
   August 1, 2000               $     375                 6.10%
   August 1, 2001                     395                 6.20%
   August 1, 2002                     420                 6.30%
   August 1, 2003                     445                 6.40%
   August 1, 2004                     475                 6.50%
   August 1, 2009                   2,890                 6.95%

(iv) On February 23, 1995, the Company borrowed  approximately  $9.45 million in
connection with the issuance of Industrial  Development  Revenue Bonds by Fulton
County,  Kentucky.  The proceeds were used to (1) acquire and improve a tract of
land in Fulton County,  (2) construct and equip a laundry facility on such land,
(3) finance capitalized interest on the


                                       36

<PAGE>



bonds during the construction period and (4) cover a portion of the costs of the
issuance of the bonds.  Principal payments on the bonds are to be made in annual
installments  beginning on February 1, 2001 and ending on February 1, 2010.  The
bonds on average, which are not collateralized, mature as follows:


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

(c) Foreign  Financing  Agreements (i) In fiscal 1996,  Sportswear  entered into
financing  agreements  with  three  banks  to  provide  term  loans  aggregating
4,600,000 deutsche marks  (approximately $2.8 million).  As of November 7, 1998,
the remaining outstanding balance of the term loans was 4,300,000 deutsche marks
(approximately  $2.6  million),  which bears interest at an average rate of 6.0%
and matures through fiscal 2000.

(ii) Sportswear has lines of credit with three banks to provide up to 58 million
deutsche marks  (approximately  $35.0 million) at prevailing interest rates. The
lines of credit generally have no termination date but are reviewed periodically
for  renewal at the option of the banks.  There were no  outstanding  borrowings
against the lines of credit as of November 7, 1998.


                                       37

<PAGE>



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


        Fiscal Year Ending             (In thousand)
        1999                            $   2,395
        2000                                4,540
        2001                               21,960
        2002                                3,290
        2003                                2,940
        Thereafter                         12,120
                                        $  47,245

5  Capitalized Lease Obligations
The Company has entered into lease/purchase agreements for certain machinery and
equipment.  Future  minimum lease  payments under capital leases and the present
value of the net minimum lease payments as of November 7, 1998 are as follows:


        Fiscal Year Ending                                 (In thousands)
        1999                                                $     755
        2000                                                      507
        2001                                                      405
        2002                                                      376
        2003                                                       82
                                                                2,125
        Less:  Amount representing interest                       326
        Present value of net minimum lease payments
               Total                                            1,799
               Due within one year                                613
               Due after one year                              $1,186


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


                                       38

<PAGE>



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

The following  table sets forth the plan's funded status and amounts  recognized
in the Company's financial statements at November 1, 1997 and November 7, 1998:

<TABLE>
<CAPTION>

(In thousands)                                                Nov. 1, 1997           Nov. 7, 1998
Actuarial present value of benefit obligations:
<S>                                                              <C>                    <C> 
Accumulated benefit obligation, including
  vested benefits of $24,085 and $25,993                         ($24,882)              ($26,247)
Projected benefit obligation for services
  rendered to date                                               ($24,882)              ($26,247)
Plan assets at fair value, primarily securities                    14,967                 17,022
Projected benefit obligation in excess of plan assets              (9,915)                (9,225)
Unrecognized net loss from past experience different
  from that assumed                                                10,654                (11,982)
Adjustment required to recognize minimum liability                (10,654)               (11,982)
Accrued pension liability                                          (9,915)                (9,225)
Less:  Current portion                                                739                  2,757
                                                                 ($10,654)              ($11,982)
</TABLE>

Net  pension  cost  recognized  in the  consolidated  statements  of  operations
consisted of the following:

<TABLE>
<CAPTION>

                                                               Year ended
(In thousands)                          Nov. 2, 1996          Nov. 1, 1997          Nov. 7, 1998

<S>                                     <C>   <C>                   <C>                    <C>                                   
Service cost                            $        358                    --                    --
Interest on projected
  benefit obligation                           1,403                 1,905                 2,052
Actual return on plan assets                    (202)               (1,580)                  (63)



                                                                 39

<PAGE>



Net amortization and deferral                   (683)                1,178                  (876)
                                        $        876             $   1,503                $1,113
</TABLE>


Assumptions used in accounting for pension costs are as follows:



                                                 Year ended
(In thousands)                  Nov. 2, 1996    Nov. 1, 1997       Nov. 7, 1998

Discount rate                       8.50%          8.25%               8.00%
Expected long-term rate of
  return on plan assets             8.50%          8.25%               8.00%


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

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

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


                                       40

<PAGE>



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


                                                          Year ended
(In thousands)                         Nov. 2, 1996  Nov. 1, 1997  Nov. 7, 1998
                                       
Earnings (loss) before income taxes:
        United States                   ($31,395)      $10,859      ($37,458)
        Europe                             9,977        11,411         8,961
                                         (21,418)       22,270       (28,497)
Provision (benefit) for income taxes:
  Current:
        U.S. Federal                          --            --            --
        State and local                      350           360           395
        Europe                             4,426         5,135         4,580
                                           4,776         5,495         4,975
  Deferred:
        U.S. Federal                        (630)        4,899        (7,737)
                                          $4,146       $10,394       ($2,762)


The provision for income taxes differs from the provision that would be recorded
using the statutory  U.S.  Federal  income tax rate due to the  following:  Year
ended  November  7, 1998,  state and local  income  taxes,  net of  federal  tax
benefit,  of $.2 million,  foreign  income taxes of $1.4 million,  change in the
valuation allowance of $6.0 million and permanent differences and other items of
$(.4) million; Year ended November 1, 1997, state and local income taxes, net of
federal tax benefit, of $.2 million, foreign income taxes of $1.1 million, taxes
on foreign dividend of $1.8 million and permanent differences and other items of
$(.5) million; Year ended November


                                       41

<PAGE>



2, 1996,  state and local  income  taxes,  net of federal  tax  benefit,  of $.2
million, foreign income taxes of $1.0 million, change in the valuation allowance
of $4.5  million and  permanent  differences  and other of $5.7  million.  As of
November  7, 1998,  the  Company  had a deferred  tax asset (net of a  valuation
allowance) of  approximately  $8.1 million,  consisting  primarily of tax credit
carryforwards  of  $2.2  million  and  net  operating  loss   carryforwards  and
restructuring charges of $4.1 million, and property, plant and equipment of $1.8
million.  As of November 1, 1997,  the Company had a net  deferred  tax asset of
approximately $5.8 million,  consisting primarily of tax credit carryforwards of
$2.2 million and net operating loss  carryforwards and restructuring  charges of
$6.2 million, which are partially offset by a deferred tax liability relating to
property,  plant  and  equipment  of $2.6  million.  A  valuation  allowance  of
approximately  $11.5 million has been recorded at November 7, 1998 to reduce the
deferred  tax asset to the extent its ultimate  utilization  is  uncertain.  The
Company's net deferred tax asset  represents that amount expected to be utilized
in the next few years through profitable operations. The Company's net operating
loss  carryforwards  totaling  $38 million at November 7, 1998 expire on various
dates from 2009 to 2013.

In addition,  the Company had a deferred tax asset attributable to an additional
pension  liability  charged to  stockholders'  equity of $4.0  million  and $4.6
million as of November 1, 1997 and November 7, 1998,  respectively,  for which a
full valuation  reserve has been provided due to the uncertainty of its ultimate
realization.


                                       42

<PAGE>



No provision  has been made for U.S.  Federal and foreign  withholding  taxes on
$5.6 million of the undistributed  earnings of the foreign subsidiary from prior
years, as the Company intends to indefinitely reinvest such earnings.

8  Commitments
(a) Leases. The minimum annual rental commitments under non-cancelable leases as
of November 7, 1998 are as follows (in thousands):


                                                   Real             Machinery
                                             estate and            automotive
Fiscal Year Ending             Total          buildings       equipment, etc.
1999                    $      3,530         $    2,658              $    872
2000                           2,142              1,597                   545
2001                           1,336              1,138                   198
2002                           1,173              1,091                    82
2003                             890                822                    68
Thereafter                     1,303              1,264                    39
                         $    10,374         $    8,570              $  1,804


Rent expense for the years ended November 2, 1996, November 1, 1997 and November
7, 1998 totaled $3,266,000, $3,528,000 and $4,414,000, respectively.

(b) Consulting and Employment Agreements.  The Company has employment agreements
with two officers  which have initial terms that expire in 2001 which  aggregate
approximately $640,000 in annual compensation, and a consulting agreement with a
company  that is  owned  by a  director  which  provides  for an  annual  fee of
$120,000.  As disclosed in Note 14, in fiscal 1998,  the Company  negotiated the
settlement of a consulting agreement with a former owner of the


                                       43

<PAGE>



business of Siegel, which had an annual commitment of $500,000 and was renewable
at the option of the former owner, for $500,000.

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

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

In January  1995,  the Board of Directors  adopted the Chic by H.I.S,  Inc. 1995
Stock Option Plan for Non-Employee Directors (the "Formula Plan"), which permits
the award of options to purchase an aggregate  of up to 80,000  shares of common
stock of the Company to certain nonemployee directors.  Awards under the Formula
Plan are made pursuant to a formula that is


                                       44

<PAGE>



set forth in the plan.  The Formula  Plan was  approved by the  shareholders  in
February  1995 and  options to purchase  60,000  shares of common  stock,  at an
exercise  price of $9.875 per share,  have been awarded to certain  non-employee
directors.  The outstanding  options became fully  exercisable  July 1995 -- six
months after the date they were granted.

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

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

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

In May 1998, the Company granted  300,000  options to two directors,  subject to
availability, with the remainder to be issued subject to shareholder approval of
an increase in the number of options authorized under the Stock Option Plan. The
options have an exercise price of $9.0625 and vest in equal annual  installments
over a three-year period commencing November 1, 1999.


                                       45

<PAGE>



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

<TABLE>
<CAPTION>

                                                            Exercise              Weighted
                                                         price range              average
                                 Option shares             per share                price

<S>                                   <C>           <C>                       <C>        
Balance, November 4, 1995              577,834      $    9.875-11.50          $     11.33
Granted                                598,284               4-5.875                5.862
Exercised                                   --                    --                   --
Cancelled                             (610,584)          5.875-11.50                11.04
Balance, November 2, 1996              565,534      $        4-5.875          $     5.862
Granted                                 21,100                 5.875                5.875
Exercised                              (11,100)                5.875                5.875
Cancelled                              (10,000)                5.875                5.875
Balance, November 1, 1997              565,534      $        4-5.875          $     5.862
Granted                                114,466                 9.063                9.063
Exercised                             (265,825)                5.875                5.875
Cancelled                               (6,150)                5.875                5.875
Balance, November 7, 1998              408,025      $        4-9.063          $     6.751

</TABLE>


                                                  Year ended
                                Nov. 2, 1996     Nov. 1, 1997     Nov. 7, 1998
Exercisable                         565,534         565,534         293,559
Available for future grants         114,466         114,466              --


SFAS No. 123, "Accounting for Stock-Based Compensation," requires the Company to
provide pro forma information  regarding net income and earnings per share as if
compensation  cost for the Company's  stock option plans had been  determined in
accordance  with the fair  value-based  method  prescribed  in SFAS No. 123. The
Company  estimates  the fair  value of each  option at the grant  date using the
Black-Scholes   option-pricing   model  with  the   following   weighted-average
assumptions used for grants in the years ending November 2, 1996 and November 1,
1997, respectively: no dividends paid, for all years; expected volatility of 20%
and 20%; risk-free


                                       46

<PAGE>



interest  rates of 5.56% and 6.14%;  and  expected  lives of five years and five
years. The  weighted-average  fair value of options granted in fiscal 1996, 1997
and 1998 was $1.46, $1.87 and $2.14 per option, respectively.  As of November 7,
1998, the weighted-average contractual life of the options was 2.9 years.

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


                                               Year ended
(In thousands)             Nov. 2, 1996       Nov. 1, 1997        Nov. 7, 1998
Net income (loss):
   As reported             $  (25,564)        $   10,465          $   (27,851)
   Pro forma                  (26,074)            10,440          $   (27,902)
Earnings (loss) 
  per share:
   As reported             $    (2.62)        $      1.07               (2.82)
   Pro forma                    (2.67)              (1.07)              (2.83)


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


                                       47

<PAGE>



consummated,  would result in that person or group of affiliated  persons owning
at least 20% of the Company's outstanding shares.

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

10  Geographic Information
The Company operates primarily in two reportable  geographical areas. Geographic
information was:


                                               Year Ended
(In thousands)                          Nov. 2,      Nov. 1,        Nov. 7,
                                         1996         1997           1998
Earnings (loss) before income taxes:
Net Sales:
   United States                     $  212,121    $  162,170    $   149,486
   Europe                               106,669       112,618        104,356
                                     $  318,790    $  274,788    $   253,842
Income (loss) from
operations:
   United States                     $  (25,256)   $  (19,227)   $   (31,913)
   Europe                                10,382        11,994          9,336
                                     $  (14,874)   $   (7,233)   $   (22,577)
Identifiable assets
   United States                     $  159,389    $  157,342    $   144,474
   Europe                                32,164        31,361         32,601
                                     $  191,553    $  188,703    $   177,075


Substantially all of the Company's sales are to retailers  throughout the United
States and Europe.  Sales to two major customers (with sales in excess of 10% of
total sales) approximated,  on an individual basis, 25.5% and 12.2% for the year
ended November 2, 1996. Sales to one major


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customer  approximated  23.4%  and  23.5% of total  sales  for the  years  ended
November 1, 1997 and November 7, 1998,  respectively.  The receivables  from the
Company's  major  customer at November  1, 1997 and  November 7, 1998  represent
approximately  24.3% and 13.0%,  respectively,  of the total accounts receivable
balance. The Company reviews a customer's credit history before extending credit
and obtains  credit  insurance on certain  account  balances.  An allowance  for
possible losses is established based upon factors surrounding the credit risk of
specific customers, historical trends and other information.

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


Fiscal Year Ending          (In thousands)
1999                      $              700
2000                                     660
2001                                     588
2002                                      37
                          $            1,985




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

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

Concurrent  with  the  establishment  of its  restructuring  plan,  the  Company
evaluated  its  accounting  policy  for  measuring  the  recoverability  of  its
long-lived  assets and elected early adoption of SFAS No. 121,  "Accounting  for
Impairment of Long-Lived  Assets and Assets to be Disposed Of." The write-off of
property and equipment primarily  represents the difference between the carrying
values and fair value of the equipment  which has been or will be disposed of as
part of the  restructuring.  Fair  value was  determined  based on  management's
estimate of recoverability,  net of costs, upon disposition of the assets, which
was not material. The write-off of costs related to the downsizing of production
relates  primarily to manufacturing  losses incurred during the wind-down period
at the closed facilities. Start-up costs incurred relating to


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the move to Mexico include certain  relocation and consulting costs. Other plant
closing  costs  relate  primarily  to  employee  benefits,  severance  costs and
remaining lease obligations, etc.

The charges are summarized below:


                                          First          Second                
(In thousands)                           Quarter        Quarter       Total
Write-down of property and equipment    $  7,500        $ 8,350    $ 15,850
Cost inefficiencies, caused by             3,800            --        3,800
downsizing
Start-up costs relating to Mexican            --            800         800
operations
Other costs                                3,700          5,850       9,550
                                        $ 15,000        $15,000    $ 30,000


In the second  quarter of fiscal 1998,  the Company  announced  its intention to
continue to close additional  manufacturing  facilities in the United States. In
connection therewith,  the Company recorded restructuring and special charges of
$24.1 million  consisting  of a write-down in the value of related  property and
equipment ($15.1 million),  the write-off of operating  inefficiencies  incurred
during the shut-down period ($5.4 million) and the accrual of estimated costs of
disposition ($3.6 million). Fair value for property and equipment was determined
primarily  by  appraisals.  Assets held for sale are  expected to be sold during
fiscal 1999. The plant  closings  resulted in the  termination of  approximately
1,300 employees. In addition, the downsizing associated with such plant closings
may affect the  accounting,  disclosure  and  funding of the  Company's  pension
benefit obligation.


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13  Gain on Sale of Subsidiary Stock
On January 27,  1997,  the  Company  announced  that it had  retained a managing
underwriter for a proposed initial public offering that would result in the sale
by the Company of a significant  minority  interest in the Company's  previously
wholly-owned   German   subsidiary,   H.I.S.   sportswear   AG   ("Sportswear"),
headquartered  in Munich.  In the second  quarter of fiscal  1997,  the  Company
announced that the initial public  offering had been  consummated,  resulting in
the sale of 2,120,000 shares of Sportswear,  representing approximately 47.5% of
the stock, at an offering price of DM39 per share (approximately $22.61).

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

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


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Price Range of Common Stock


                              1997                                1998
(In thousands)      High                 Low             High              Low
First Quarter      $6 5/8              $4 1/4             $8             $6 3/8
Second Quarter        7                 5 1/2            9 3/8            7 1/8
Third Quarter         7                 5 7/8            9 1/4            5 7/8
Fourth Quarter      7 7/8               6 1/2              6              2 5/8


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

As of December 31, 1998, there were 122 stockholders of record.

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