<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended JULY 1, 1995
------------
Commission file number 1-12082
HANOVER DIRECT, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 13-0853260
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(State of incorporation) (IRS Employer Identification No.)
1500 HARBOR BOULEVARD, WEEHAWKEN, NEW JERSEY 07087
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(Address of principal executive offices) (Zip Code)
(201) 863-7300
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(Telephone number)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
--- ---
Common stock, par value $.66 2/3 per share: 93,009,626 shares outstanding as of
August 11, 1995.
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HANOVER DIRECT, INC.
FORM 10-Q
JULY 1, 1995
INDEX
<TABLE>
<CAPTION>
Part I - Financial Information Page
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<S> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheets - December 31, 1994 and July 1, 1995. . . . . . . 3
Condensed Consolidated Statements of Income (Loss) - thirteen and twenty-six weeks
ended July 2, 1994 and July 1, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . 5
Condensed Consolidated Statements of Cash Flows - twenty-six weeks ended
July 2, 1994 and July 1, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Notes to Condensed Consolidated Financial Statements - thirteen and twenty-six
weeks ended July 2, 1994 and July 1, 1995 . . . . . . . . . . . . . . . . . . . . . . 8
Item 2. Management's Discussion and Analysis of Consolidated Financial Condition
and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Part II - Other Information
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . 20
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . 20
Signature . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
</TABLE>
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PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
HANOVER DIRECT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1994 AND JULY 1, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 31, JULY 1,
1994 1995
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(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 24,053 $ 10,641
Accounts receivable, net 25,247 18,949
Inventories 83,653 91,388
Prepaid catalog costs 33,725 35,619
Deferred tax asset, net 3,200 3,200
Other current assets 2,658 3,981
-------- --------
Total Current Assets 172,536 163,778
-------- --------
Property and Equipment, at cost
Land 1,917 4,726
Buildings and building improvements 7,994 21,121
Leasehold improvements 6,807 15,243
Furniture, fixtures and equipment 24,103 38,524
Construction in progress 21,358 5,259
-------- --------
62,179 84,873
Accumulated depreciation and amortization (19,708) (26,773)
-------- --------
Net Property and Equipment 42,471 58,100
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Goodwill, net 19,026 32,262
Investments and Advances 6,000 6,095
Deferred tax asset, net 11,800 11,800
Other assets, net 10,413 15,980
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Total Assets $262,246 $288,015
======== ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
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HANOVER DIRECT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
AS OF DECEMBER 31, 1994 AND JULY 1, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 31, JULY 1,
1994 1995
------------ -------
(IN THOUSANDS, EXCEPT SHARE
AND PER SHARE AMOUNTS)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt and capital lease obligations $ 812 $ 4,831
Accounts payable 89,366 84,786
Accrued liabilities 20,215 21,502
Customer prepayments and credits 3,642 3,129
--------- ---------
Total Current Liabilities 114,035 114,248
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Noncurrent Liabilities:
Long-term debt 35,907 66,519
Capital lease obligations 1,196 2,065
Other 1,383 2,114
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Total Noncurrent Liabilities 38,486 70,698
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Total Liabilities 152,521 184,946
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Commitments and Contingencies
Shareholders' Equity:
6% Series A Preferred Stock, convertible, $.01 par value, authorized
5,000,000 shares; issued 156,600 shares in 1994 and 1995 1,589 1,636
Series B Preferred Stock, convertible, $.01 par value, authorized and
issued 634,900 shares in 1995 - 5,458
Common Stock, $.66 2/3 par value, authorized 150,000,000
shares; issued 92,978,234 shares in 1994 and 93,066,020
shares in 1995 61,985 62,043
Capital in excess of par value 253,210 253,298
Accumulated deficit (201,102) (213,599)
--------- ---------
115,682 108,836
Less:
Treasury stock, at cost (1,157,061 shares in 1994 and 1995) (3,345) (3,345)
Notes receivable from sale of Common Stock (1,912) (1,969)
Deferred compensation (700) (453)
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Shareholders' Equity 109,725 103,069
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Total
Total Liabilities and Shareholders' Equity $ 262,246 $ 288,015
========= =========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
4
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HANOVER DIRECT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(UNAUDITED)
<TABLE>
<CAPTION>
13 WEEKS ENDED 26 WEEKS ENDED
-------------- --------------
JULY 2, JULY 1, JULY 2, JULY 1,
1994 1995 1994 1995
---- ---- ---- ----
(in thousands, except share and share amounts)
<S> <C> <C> <C> <C>
REVENUES $ 185,113 $ 182,774 $ 364,339 $ 359,365
Operating costs and expenses:
Cost of sales and operating expenses 114,870 119,771 229,466 233,458
Selling expenses 49,141 51,198 93,030 101,832
General and administrative expenses 16,957 17,793 33,439 34,209
---------- ---------- ---------- ----------
180,968 188,762 355,935 369,499
---------- ---------- ---------- ----------
INCOME (LOSS) FROM OPERATIONS 4,145 (5,988) 8,404 (10,134)
---------- ---------- ---------- ----------
Interest expense (876) (1,386) (2,219) (2,138)
Interest income 203 197 238 283
Other expense (500) - (175) -
---------- ---------- ---------- ----------
(1,173) (1,189) (2,156) (1,855)
---------- ---------- ---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES 2,972 (7,177) 6,248 (11,989)
Income tax provision (129) (313) (260) (403)
---------- ---------- ---------- ----------
NET INCOME (LOSS) 2,843 (7,490) 5,988 (12,392)
Preferred stock dividends and accretion (35) (59) (71) (105)
---------- ---------- ---------- ----------
Net income (loss) applicable to common shareholders $ 2,808 $ (7,549) $ 5,917 $ (12,497)
========== ========== ========== ==========
Primary and fully diluted net income (loss) per share $ 0.03 $ (0.08) $ 0.06 $ (0.13)
========== ========== ========== ==========
Weighted average shares outstanding
for primary and fully diluted earnings per share 95,441,204 92,846,299 91,515,952 92,818,157
========== ========== ========== ==========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
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HANOVER DIRECT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
26 WEEKS ENDED
--------------
JULY 2, JULY 1,
1994 1995
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(IN THOUSANDS)
<S> <C> <C>
Cash flows from operating activities:
NET INCOME (LOSS) $ 5,988 $ (12,392)
Adjustments to reconcile net income (loss) to net cash used
by operating activities:
Depreciation and amortization 2,721 4,174
Changes in assets and liabilities
Accounts receivable (3,554) 8,069
Inventories 4,019 5,623
Prepaid catalog costs (3,603) 1,677
Other assets (487) 615
Accounts payable (22,914) (14,576)
Accrued liabilities (2,492) (3,535)
Customer prepayments and credits (139) (884)
--------- ---------
NET CASH (USED) BY OPERATING ACTIVITIES (20,461) (11,229)
--------- ---------
Cash flows from investing activities:
Acquisitions of property (6,230) (12,293)
Payments for businesses acquired, net of cash acquired - (13,008)
Notes receivable and Investments with unconsolidated subsidiaries (6,169) (3,376)
Other, net (680) (2,049)
--------- ---------
NET CASH (USED) BY INVESTING ACTIVITIES (13,079) (30,726)
--------- ---------
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
6
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HANOVER DIRECT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
26 WEEKS ENDED
--------------
JULY 2, JULY 1,
1994 1995
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(IN THOUSANDS)
<S> <C> <C>
Cash flows from financing activities:
Net borrowings under credit facility - 29,000
Payments of long-term debt and capital lease obligations (6,489) (566)
Cash dividends paid on Preferred Stock (886) -
Proceeds from issuance of Common Stock 48,934 166
Other, net (138) (57)
-------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 41,421 28,543
-------- --------
Net increase (decrease) in cash and cash equivalents 7,881 (13,412)
Cash and cash equivalents at the beginning of the year 2,583 24,053
-------- --------
CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD $ 10,464 $ 10,641
======== ========
Supplemental cash flow disclosures:
Interest paid $ 1,400 $ 1,166
======== ========
Income taxes paid $ 482 $ 932
======== ========
Issuance of Common Stock for notes receivable $ 1,452 $ 388
======== ========
Acquisition of businesses:
Fair value of assets acquired $ - 40,474
Fair value of liabilities assumed - 22,066
Preferred stock issued - 5,400
-------- --------
Net cash paid $ - $ 13,008
======== ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
7
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HANOVER DIRECT, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THIRTEEN AND
TWENTY-SIX WEEKS ENDED JULY 2, 1994 AND JULY 1, 1995 (UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited interim condensed consolidated financial
statements have been prepared in accordance with the instructions for Form
10-Q, and, therefore, do not include all information and footnotes necessary
for a fair presentation of financial condition, results of operations and cash
flows in conformity with generally accepted accounting principles. Reference
should be made to the annual financial statements, including the footnotes
thereto, included in the Hanover Direct, Inc. (the "Company") Annual Report on
Form 10-K for the fiscal year ended December 31, 1994. In the opinion of
management, the accompanying unaudited interim condensed consolidated financial
statements contain all material adjustments, consisting of normal recurring
accruals, necessary to present fairly the financial condition, the results of
operations and cash flows of the Company and its consolidated subsidiaries for
the interim periods. Operating results for interim periods are not necessarily
indicative of the results that may be expected for the entire year. Certain
prior year amounts have been reclassified to conform with the current year
presentation.
2. RETAINED EARNINGS RESTRICTIONS
The Company is limited from paying dividends at any time on its Common
Stock beyond 25% of the consolidated net income of the then preceding four
quarter period or from acquiring in excess of one million shares of its Common
Stock by the most restrictive debt covenants contained in its current debt
agreements to which the Company is a party.
3. EARNINGS PER SHARE
Net income per share - Net income per share was computed using the
weighted average number of shares outstanding. At July 2, 1994, 5,033,735
warrants and 1,511,912 stock options were considered to be common stock
equivalents and are included in the calculations of both primary and fully
diluted earnings per share for the quarter and the six months ended July 2,
1994. Due to the net loss for the quarter and six months ended July 1, 1995,
warrants, stock options and convertible preferred stock are excluded from the
calculations of both primary and fully diluted earnings per share.
Supplemental earnings per share - The following represents the pro
forma results of operations for the thirteen weeks and twenty-six weeks ended
July 2, 1994 and July 1, 1995, as if the Leichtung, The Safety Zone and
Austad's acquisitions, which were made in the first half of 1995, had occurred
at the beginning of each fiscal year (in thousands, except per share data).
The pro forma results include the impact of accounting for the acquisitions
including amortization of goodwill and customer lists, amortization of the
discount related to the Series B Preferred Stock issued to acquire The Safety
Zone and interest on the cash used to acquire Leichtung and Austad's.
<TABLE>
<CAPTION>
FOR THE THIRTEEN WEEKS ENDED FOR THE TWENTY-SIX WEEKS ENDED
JULY 2, 1994 JULY 2, 1994
---------------------------- ------------------------------
AS REPORTED PRO FORMA AS REPORTED PRO FORMA
----------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues $185,113 $206,404 $364,339 $406,537
Net income $2,843 $1,895 $5,988 $5,317
Net income per share $.03 $.02 $.06 $.06
</TABLE>
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<TABLE>
<CAPTION>
FOR THE THIRTEEN WEEKS ENDED FOR THE TWENTY-SIX WEEKS ENDED
JULY 1, 1995 JULY 1, 1995
---------------------------- ------------------------------
AS REPORTED PRO FORMA AS REPORTED PRO FORMA
----------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues $182,774 $191,584 $359,365 $378,974
Net (loss) $(7,490) $(7,030) $(12,392) $(12,441)
Net (loss) per share $(.08) $(.08) $(.13) $(.14)
</TABLE>
The pro forma information does not purport to be indicative of the
results that actually would have been obtained if the operations were combined
during the periods presented and is not intended to be a projection of future
results or trends.
4. INVESTMENTS AND ACQUISITIONS
Acquisitions
Leichtung, Inc. In January 1995, the Company acquired substantially
all of the assets of Leichtung, Inc. ("Leichtung"), a direct marketer of
wood-working and home improvement tools and related products sold under the
Improvements and Leichtung Workshops names, for a purchase price of
approximately $12.8 million in cash and the assumption of certain liabilities.
This acquisition has been accounted for using the purchase method of accounting
based on the estimated fair market values of the assets and liabilities
acquired and has resulted in approximately $6.0 million of goodwill and $2.3
million of customer mailing lists. These estimates are subject to revision in
future periods in 1995 and any adjustment would be reflected in goodwill.
The Improvements and Leichtung Workshops catalogs had revenues of
approximately $29 million and $12 million for the full year 1994, respectively.
The Safety Zone. In February 1995, the Company acquired 80% of the
outstanding common stock of Aegis Safety Holdings, Inc. ("Aegis"), publisher
of The Safety Zone catalog, through the issuance of 634,900 shares of a
newly-created Class B Convertible Additional Preferred Stock ("Series B Stock")
of the Company with a stated value of $10 per share. Previously, in September
1993, the Company had acquired 20% of the outstanding common stock of Aegis.
Non-cumulative dividends on the Series B Stock will accrue and be paid at 5%
per annum during each of the first three years if Aegis attains at least $1
million in earnings before interest and taxes each year. In years four and
five, dividends will accrue and be paid at 7% per annum and are not contingent
on the achievement of any earnings target. The Series B Stock is convertible
at anytime, at $6.66 per share, subject to antidilution, at the option of the
holder and is convertible at the Company's option if the market value of the
Company's Common Stock is greater than $6.66 per share, subject to
antidilution, for 20 trading days in any consecutive 30 days trading period or
at the holder's option from time to time. If after five years the Series B
Stock is not converted, it is mandatorily redeemable, at the Company's option,
in cash or for 952,359 shares, subject to antidilution, of the Company's Common
Stock provided the market value of the stock is at least $6.33 per share,
subject to antidilution. If the market value of the Company's Common Stock
does not meet this minimum, the redemption rate is subject to adjustment which
would increase the number of shares for which the Series B Stock is redeemed.
The Company does not anticipate that dividends will be paid based on the 1995
results.
This investment has been accounted for using the purchase method of
accounting based on the fair market values of Aegis' assets and liabilities and
the Series B Stock, and has resulted in approximately $7.1 million of goodwill
and $.5 million of customer mailing lists. The fair value of the Series B
Stock, which is based on an independent appraisal, is $.9 million less than the
stated value and the discount is being
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amortized over a five-year period. This amortization is included in Preferred
Stock dividends and accretion in the statement of income. The results of
operations of Aegis are included in the accompanying statement of income from
the date of acquisition. Aegis had revenues of approximately $14 million for
the full year 1994.
Austad's. In May 1995, the Company acquired 67.5% of the outstanding
common stock of Austad Holdings, Inc. ("Austad's"), a direct marketer of golf
equipment and related apparel and accessories, for a purchase price of $1.8
million of cash. This acquisition has been accounted for using the purchase
method of accounting based on the estimated fair market values of the assets
and liabilities acquired (including $.4 million cash) and has resulted in
approximately $.6 million of goodwill and approximately $1.0 million of
customer mailing lists. The results of operations of Austad's are included in
the accompanying statement of income from the date of acquisition. Austad's
had revenues of approximately $39 million for the full year 1994.
The Company also lent $2.2 million to The Austad Company ("TAC"), a
wholly owned subsidiary of Austad's. The loan bears interest at the rate of
10%, is due through May 2000 and is subordinated to certain of Austad's
existing bank indebtedness. The Company also provided a $.4 million loan to
TAC which bears interest at a fluctuating rate (8.75% through April 1996) and
is secured by a second mortgage on TAC's office and warehouse. The $.4 million
loan is repayable in the event that either the office and warehouse are sold or
the first mortgage on the building is refinanced. TAC has a $5.0 million
revolving credit agreement with a bank that expires in February 1996 and is
secured by substantially all of TAC's assets with available borrowings based on
inventory and receivable balances. The outstanding balance was $3.3 million at
July 1, 1995 and $1.7 million was available for borrowing.
In the event that TAC reaches certain earnings goals in fiscal 1995,
the Company is required to contribute up to $2.2 million to Austad's. Such
contribution can be in cash or forgiveness of any outstanding indebtedness,
including the $2.2 million loan discussed above.
Investments and Advances
Tiger Direct. In February 1995, the Company entered into an agreement
to acquire certain securities of Tiger Direct, Inc. ("Tiger"), a direct
marketer of computer software, peripherals and CD-ROM hardware and software.
Such agreement was amended in March 1995 and in June 1995 the parties executed
a letter of intent (the "Letter of Intent") providing for certain amendments to
the agreement.
As set forth in the Letter of Intent, Tiger proposes to issue
$3 million stated value of its not as yet authorized convertible preferred
stock to the Company. The convertible preferred stock would pay a dividend for
a period of three years at the rate of 12% per year, payable in shares of Tiger
common stock valued at rates ranging from $1.20 to $1.50 per share. Tiger also
proposes to issue one, two and three-year warrants to the Company to purchase
shares of Tiger common stock at exercise prices ranging from $1.20 to $1.50 per
share.
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If the convertible preferred stock to be issued by Tiger as
contemplated by the Letter of Intent is converted into common stock, the
Company would own approximately 8.9% of Tiger's outstanding common stock. If
the warrants are exercised and the dividend shares are fully issued, the
Company would increase its ownership percentage to approximately 21.4% of
Tiger's outstanding common stock.
Tiger has agreed to permit the Company to nominate four out of Tiger's
seven directors. The Company has agreed to provide certain strategic services
to Tiger.
In February 1995, the Company entered into a loan and security
agreement with Tiger pursuant to which the Company is providing a secured
working capital line of credit to Tiger, up to a maximum of $3.0 million,
bearing interest at the prime rate plus 2% per annum. At July 1, 1995, $3.0
million had been loaned under such loan agreement which is included in
Investments and advances. All amounts loaned under this agreement are due to
be repaid when the transaction closes or within one year from termination if
the transaction does not close, although the Letter of Intent provides that
such amount would be repaid by December 31, 1998 and would effectively be
convertible into shares of convertible preferred stock at $1.20 per share. The
Company also has $.5 million included in Investments and advances representing
transaction costs in Tiger.
Pursuant to the Letter of Intent, Tiger has agreed to effect the
distribution of rights to purchase Tiger common stock to the holders of its
securities after the closing of the purchase of its securities by the Company.
The Company has agreed to exercise all rights distributed to it and will be
entitled to satisfy its obligation to pay the rights offering price by applying
all amounts due under the working capital line of credit to such obligation
and paying the balance, if any, in cash. If the rights offering is effectuated
and all Tiger securityholders exercise their rights, the Company will increase
its ownership percentage to approximately 53.8% of Tiger's outstanding common
stock.
The amendments called for by the Letter of Intent have yet to be
reflected in definitive agreements. Since the excution of the Letter of
Intent, because of continuing operating problems at Tiger, the Company and
Tiger have orally agreed that the consummation of the transactions described
above between the parties will be subject to the rationalization of Tiger's
operations in a manner acceptable to the Company. In addition, the Company has
advised Tiger that any such rationalization must be capable of being completed
without the investment by the Company of additional cash. The Company may
however issue its equity securities to or for the benefit of Tiger to assist in
the consummation of any such plan. Accordingly, whether the securities to be
issued by Tiger as described in the Letter of Intent will be acquired by the
Company and the terms of any such acquisition must be finally negotiated.
Also, the Company and NAR are discussing arrangements between them jointly to
facilitate any ultimate investment in Tiger. However, there can be no
assurance that this most recent closing condition or any other closing
condition contained in the definitive documentation will be satisfied or that
the transaction will be consummated in the manner described herein or
otherwise. Finally, the Company has been advised by Tiger that it is having,
and has consented to Tiger having, conversations and providing information to
several companies regarding a posible joint venture or other alternative to
the proposed agreement with the Company.
Boston Publishing Company. In February 1994, the Company acquired a
20% equity interest in Boston Publishing Company ("BPC") and provided secured
and unsecured loans to BPC. In August 1994, BPC filed for protection under
Chapter 11 of the United States Code. In 1995, the Company received the
inventory and rights to the customer mailing list of BPC in payment of a $1.2
million loan. The Company is in the process of liquidating such assets and the
proceeds are expected to be sufficient to realize the carrying value of the
assets.
Regal Communications, Inc. During 1994, the Company invested
approximately $2.7 million in convertible debt securities of Regal
Communications, Inc. ("Regal"). In September 1994, Regal filed for protection
under Chapter 11 of the United States Code. As a result, during 1994, the
Company established a valuation allowance against the securities reflecting
their estimated fair value of $1.7 million. During 1995, certain assets of
Regal have been liquidated at or above the estimates established in 1994 and
the Company continues to expect to recover the $1.7 million carrying value of
its investment that is included in Investments and advances. To date, no asset
distributions have been made by Regal. The Company expects distributions to
begin no sooner than the fourth quarter of 1995 and to continue into 1996.
5. LONG-TERM DEBT
In April 1995, the Company and the lenders under its five-year $80
million unsecured Credit Facility ("Credit Facility") amended the applicable
agreements to, among other things, ease the requirements in certain financial
covenants, increase the interest rate payable by the Company under certain
circumstances and require the lenders initial consent for certain investments
and acquisitions.
As of July 1, 1995 the Company was not in compliance with several
financial covenants under its Credit Facility but obtained a waiver through
August 31, 1995. The Company has received a commitment letter from its lenders
to amend the credit agreement which will reduce the Credit Facility from $80
million to $60 million, grant to the lenders a security interest in certain
assets of the Company, including accounts receivable, customer mailing lists
and certain equipment, and will have an interest rate ranging from one half of
one
percent to two percent over LIBOR or the lenders' base rate, depending on
certain financial ratios, and will be in effect through September 1, 1997. The
Company anticipates executing such amendment in the next several weeks. The
amended agreement will require the Company to maintain, as defined, a minimum
fixed charge coverage ratio, a minimum tangible net worth, a maximum ratio
of
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funded debt to earnings before interest, taxes, depreciation and amortization
and profitability requirements, beginning with the third quarter of 1995,
whereby the Company shall not incur net losses in excess of $1 million in any
quarter or net losses for any two consecutive quarters. The commitment letter
is subject to the satisfaction of various conditions including negotiation and
execution of definitive agreements.
As of July 1, 1995, the Company was also not in compliance with
several of the financial covenants under the 9.25% Senior Subordinated Notes
due 1998 ("9.25% Notes") for which it has received a waiver through August 31,
1995. In order for the Company's lenders under the Credit Facility to obtain a
security interest in certain assets of the Company, as mentioned above, the
approval of the holder of the 9.25% Notes was required. Such holder refused to
grant such approval on terms that were satisfactory to the Company and its
senior lenders and directed the Trustee under the 9.25% Notes to send the
Company notice of default which would take effect upon the expiration of the
waiver period. As of July 1, 1995, there were $14,000,000 aggregate principal
amount of 9.25% Notes outstanding.
The Company is negotiating a letter of intent with the holder of the
Notes under which the holder of the Notes would receive an option to put the
Notes at par plus accrued interest to NAR Group Limited ("NAR"), a British
Virgin Islands corporation which owns 53% of the outstanding common stock of
the Company, if the Notes have not been refinanced by the Company or purchased
by a third party located by the Company by December 15, 1995. NAR would be
granted an option to acquire the Notes at par plus accrued interest from the
holder at any time on or prior to December 15, 1995. The Company has agreed to
pay to NAR a fee of $105,000 upon the signing of the put and call agreement
with the holder of the 9.25% Notes and a fee of 1.5% of the outstanding
principal amount of the 9.25% Notes upon the funding of the put or call
together with any and all expenses incurred by NAR in performing its obligation
under the put or call. The Company has also agreed to indemnify NAR against any
and all claims or losses asserted against it or incurred by it relating to the
transaction contemplated by the Letter of Intent. The holder of the 9.25%
Notes has requested that the amendments and agreements be documented in a
fashion acceptable to such holder no later than August 30, 1995. If such
documentation cannot be completed, or negotiations are not satisfactorily
concluded, and if the Trustee accelerates the 9.25% Notes, the Company
has received a commitment letter from NAR, such that NAR has
agreed to purchase a note from the Company at par plus accrued interest on
substantially equivalent terms as the 9.25% Notes, the proceeds of which will
be used by the Company to repay the 9.25% Notes. NAR would receive the same
fees referred to above for purchasing such note from the Company.
6. INCOME TAXES
At July 1, 1995, the Company has a net deferred tax asset of $15
million, including a deferred tax asset valuation allowance of approximately
$44 million, which was recorded in prior years relating to the realization of
certain net operating loss carryforwards ("NOLs"). At July 1, 1995, the
Company had $148 million of NOLs. Realization of the future tax benefits
associated with the NOLs is dependent on the Company's ability to generate
taxable income within the carryforward period and the periods in which net
temporary differences reverse. Future levels of operating income and taxable
income are dependent upon general economic conditions, competitive pressures on
sales and margins, postal and other delivery rates, and other factors beyond
the Company's control. Accordingly, no assurance can be given that sufficient
taxable income will be generated for utilization of all of the NOLs and
reversals of temporary differences.
Management believes that the $15 million represents a reasonable
conservative estimate of the future utilization of the NOLs and the Company
will continue to evaluate the likelihood of future profit and the necessity of
future adjustments to the deferred tax asset valuation allowance.
12
<PAGE> 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following table sets forth, for the fiscal periods indicated, the
percentage relationship to revenues of certain items in the Company's condensed
consolidated statements of income.
<TABLE>
<CAPTION>
13 WEEKS ENDED 26 WEEKS ENDED
-------------- --------------
JULY 2, JULY 1, JULY 2, JULY 1,
1994 1995 1994 1995
------ ------ ------ ------
<S> <C> <C> <C> <C>
Revenues . . . . . . . . . . . . . . . . . . . . . . . . 100.0% 100.0% 100.0% 100.0%
Cost of sales and operating expenses . . . . . . . . . . 62.1 65.5 63.0 65.0
Selling expenses . . . . . . . . . . . . . . . . . . . . 26.5 28.0 25.5 28.3
General and administrative expenses . . . . . . . . . . . 9.2 9.7 9.2 9.5
Income (loss) from operations . . . . . . . . . . . . . . 2.2 (3.3) 2.3 (2.8)
Interest expense, net . . . . . . . . . . . . . . . . . . .4 .7 .5 .5
Net income (loss) . . . . . . . . . . . . . . . . . . . . 1.5 (4.1) 1.6 (3.4)
</TABLE>
RESULTS OF OPERATIONS
THIRTEEN WEEKS ENDED JULY 1, 1995 COMPARED WITH THIRTEEN WEEKS ENDED JULY 2,
1994.
Net Income (Loss). The Company reported a net loss of $(7.5) million
or $(.08) per share for the quarter ended July 1, 1995 compared to net income
of $2.8 million or $.03 per share in the same period last year.
The net loss was primarily the result of the impact of postage rate
increases at the beginning of 1995, substantial paper price increases that
began in the fourth quarter of 1994 and continued into 1995, and a weak retail
environment. The Company decided to discontinue four poorly performing
catalogs which could not meet these cost challenges. These catalogs generated
losses of $<6.2> million in the quarter, including a charge of approximately
$4.0 million representing the estimated costs to liquidate inventory and
severance. In addition, the Company has incurred costs in connection with the
consolidation of facilities into its new Roanoke, Virginia fulfillment center
and in closing duplicate facilities. To address these issues, the Company has
reduced circulation of its summer catalogs by 9% and has implemented a cost
reduction program that has reduced the Company's workforce by 9%.
Revenues. Revenues decreased slightly in the quarter ended July 1,
1995 to $183 million from $185 million for the same period in 1994. The
decline in revenues was a result of a weak retail environment and a planned
reduction in the number of catalogs mailed. The Company discontinued four
poorly performing catalogs in 1995 which had $9 million of revenues in the
second quarter of 1995 compared to $13 million of revenues in the same period
in 1994.
The Company generated a 9% decrease in revenues from catalogs
excluding acquisitions in 1995, partially offset by revenues of $14 million
from Improvements, The Safety Zone and Austad's ("1995 acquisitions") which
were acquired in the first half of 1995. Non-Apparel catalog revenues,
including the 1995 acquisitions, decreased 1% while Apparel catalog revenues
decreased 3%.
Operating Costs and Expenses. Cost of sales and operating expenses
increased to 65.5% of revenues in the second quarter of 1995 compared to 62.1%
for the same period in 1994. An improvement in gross margins from continuing
catalogs in 1995 was offset by significant markdowns representing estimated
costs
13
<PAGE> 14
to liquidate the inventory of the discontinued catalogs. Operating costs were
also increased by the cost of temporarily operating out of multiple
distribution facilities and an additional $2.6 million in postage costs as a
result of the 18% rate increase by the United States Postal Service for the
delivery of customer packages.
Selling expenses increased to 28.0% of revenues in the second quarter
of 1995 from 26.5% of revenues for the same period in 1994 due to a 14%
increase in postage rates for the mailing of catalogs to customers and
increases in paper prices up to 50% higher than prices paid in the second
quarter of 1994. These increases resulted in approximately $5.0 million of
additional costs in the second quarter of 1995. To address these price
increases, the Company's existing catalogs' circulation was 19% lower for the
summer 1995 season compared to the summer 1994 season. Including the 1995
acquisitions, the Company mailed approximately 101 million catalogs for the
summer 1995 season, a decrease of 9% from 1994.
General and administrative expenses increased to 9.7% of revenues from
9.2% in the same period in 1994. Total expenses increased $.8 million, or 5%,
from 1994 to 1995, primarily as a result of $1.2 million of expenses from the
1995 acquisitions, including $.1 million of amortization of goodwill and
customer mailing lists, and $.2 million of severance costs. These increases
were partially offset by expense reductions from the Company's cost reduction
program.
Income (Loss) from Operations. The Company recorded a loss from
operations of $(6.0) million in the second quarter of 1995, or (3.3)% of
revenues, compared to income from operations of $4.1 million for the same
period in 1994, or 2.2% of revenues. The four discontinued catalogs generated
a loss of $(6.2) million in the second quarter of 1995, compared to a loss of
$(.8) million in 1994.
The Non-Apparel group's results of operations decreased $4.7 million
from income of $3.3 million in the second quarter of 1994 to a loss of $(1.4)
million in 1995 due primarily to the cost increases mentioned above. The
Company has discontinued the Mature Wisdom catalog (which had 1994 full year
revenues of $14 million and a 1995 second quarter loss of $(.6) million).
The Apparel group's results of operations decreased $5.5 million from
income of $1.3 million in the second quarter of 1994 to a loss of $(4.2)
million for the same period in 1995. The Men's Apparel catalogs generated $1.3
million of income from operations in the second quarter of 1995 compared to
income of $.9 million in the second quarter of 1994 as customer demand has
remained strong in 1995. The Women's Apparel catalogs generated a loss from
operations of $(5.5) million in the second quarter of 1995 compared with income
of $.5 million in the same period in 1994. The loss in 1995 includes $(5.6)
million of losses from three catalogs, Essence by Mail, Simply Tops and One
212, which are being discontinued after their summer 1995 mailings. These
catalogs had combined revenues of $40 million for the full year 1994.
The 1995 acquisitions generated $.3 million of income from operations
in the second quarter of 1995. The Company's agreement with Sears generated
$.6 million of income in the second quarter of 1995, which is consistent with
the same period in 1994.
Interest Expense, Net. Interest expense, net increased from $.7
million in the second quarter of 1994 to $1.2 million in the second quarter of
1995 due to increased borrowings for working capital requirements, capital
expenditures and acquisitions.
Other Expense. Other expense of $.5 million in the second quarter of
1994 represents the charge for the loss on the Company's unsecured loan to BPC.
14
<PAGE> 15
Income Taxes. The Company believes that the net deferred tax asset of
$15 million that was recorded in prior years represents a reasonable,
conservative estimate of the future utilization of the tax NOLs and the Company
will continue to evaluate the likelihood of future profit and the necessity of
future adjustments to the deferred tax asset valuation allowance. The Federal
income tax provision of $1.2 million for the quarter ended July 2, 1994 was
offset by the utilization of certain NOLs. The Company recorded a state tax
provision of $.3 million and $.1 million in the second quarters of 1995 and
1994, respectively.
TWENTY-SIX WEEKS ENDED JULY 1, 1995 COMPARED WITH TWENTY-SIX WEEKS ENDED
JULY 2, 1994.
Net Income (Loss). The Company reported a net loss of $(12.4) million
or $(.13) per share for the twenty-six weeks ended July 1, 1995 compared to net
income of $6.0 million or $.06 per share in the same period last year.
The net loss was primarily the result of the impact of the postage
rate increases at the beginning of 1995, substantial paper prices increases
that began in the fourth quarter of 1994 and continued into 1995, and a weak
retail environment. The Company discontinued four poorly performing catalogs
which could not meet these cost challenges. These catalogs generated losses of
$<8.9> million in the first half of 1995, including a charge of approximately
$4.0 million representing the estimated costs to liquidate the inventory and
severance. In addition, the Company has incurred costs in connection with the
consolidation of facilities into its new Roanoke, Virginia fulfillment center
and operating duplicate facilities resulting in $1.7 million of costs that will
not be incurred in the second half of 1995. To address these issues, during
the first quarter of 1995, the Company began reducing catalog circulation and
implemented a cost reduction program that has reduced the Company's personnel
by 9%.
Revenues. Revenues decreased slightly in the twenty-six weeks ended
July 1, 1995 to $359 million from $364 million for the same period in 1994.
The decline in revenues was a result of a weak retail environment and a planned
reduction in the number of catalogs mailed. The Company discontinued four
poorly performing catalogs in 1995 which had $20 million of revenues in the
first half of 1995 compared to $27 million of revenues in the same period of
1994.
The lower revenues in 1995 were primarily the result of an 8% decrease
in revenues from catalogs excluding the 1995 acquisitions, partially offset by
revenues of $24 million from the 1995 acquisitions. Non-Apparel catalog
revenues, including the 1995 acquisitions, decreased 1% while Apparel catalog
revenues decreased 4%.
Operating Costs and Expenses. Cost of sales and operating expenses
increased to 65.0% of revenues in the first half of 1995 compared to 63.0% for
the same period in 1994. Overall gross margins improved slightly in 1995, even
though the Company absorbed significant markdowns representing the estimated
cost to liquidate the inventory of the discontinued catalogs. This improvement
was offset by the cost of temporarily operating out of multiple facilities and
an additional $5.2 million in postage costs as a result of the 18% rate
increase by the United States Postal Service for the delivery of customer
packages.
Selling expenses increased to 28.3% of revenues in the twenty-six
weeks ended July 1, 1995 from 25.5% of revenues for the same period in 1994 due
to a 14% increase in postage rates for the mailing of catalogs to customers and
increases in paper prices up to 50% higher than prices paid in the same period
of 1994. These increases resulted in approximately $8.0 million of additional
costs in the first half of 1995. To address these price increases, the
Company's catalogs' circulation, excluding 1995 acquisitions, was 12% lower for
the spring and summer 1995 seasons than for the same seasons in 1994. Including
the 1995 acquisitions, the Company mailed approximately 211 million catalogs
for the spring and summer 1995 seasons, an increase of only 1% from 1994.
15
<PAGE> 16
General and administrative expenses were 9.5% of revenues in the first
half of 1995 compared to 9.2% is the same period in 1994. Total expenses
increased $.8 million, or 2%, from 1994 to 1995, primarily as a result of $1.7
million of expenses from the 1995 acquisitions, including $.2 million of
amortization of goodwill and customer mailing lists, and $.6 million of
severance costs. The expense increases were partially offset by expense
reductions from the Company's cost reduction programs.
Income (Loss) from Operations. The Company recorded a loss from
operations of $(10.1) million in the twenty-six weeks ended July 1, 1995, or
(2.8)% of revenues, compared to income from operations of $8.4 million for the
same period in 1994, or 2.3% of revenues. The four discontinued catalogs
generated a loss of $(8.9) million in the first half of 1995 compared to a loss
of $(1.2) million in 1994.
The Non-Apparel group's results of operations decreased $11.7 million
from income of $9.4 million in the first half of 1994 to a loss of $(2.3) in
1995 due primarily to the cost increases mentioned above. The group was
operating out of multiple distribution facilities in the first half of 1995
(Roanoke, VA and Hanover, PA). The Company discontinued the Mature Wisdom
catalog (which had 1994 full year revenues of $14 million and a 1995 first half
loss of $(1.0) million).
The Apparel Group's results of operations decreased $7.3 million from
income of $.9 million in the first half of 1994 to a loss of $(6.4) million for
the same period in 1995. The Men's Apparel catalogs generated $1.7 million of
income from operations in the first half of 1995 compared to income of $1.0
million in the same period of 1994 as customer demand has remained strong and
margins have improved in 1995. The Women's Apparel catalogs generated a loss
from operations of $(8.1) million in the first half of 1995 compared with a
loss of $(.1) million for the same period in 1994. The loss in 1995 includes
$(7.9) million of losses from three catalogs in the group, Essence by Mail,
Simply Tops and One 212, which are being discontinued after their summer 1995
mailings. These catalogs had combined revenues of $40 million for the full
year 1994.
The 1995 acquisitions generated $.7 million of income from operations
in the twenty-six weeks ended July 1, 1995. The Company's agreement with Sears
generated $1.4 million of income in the twenty- six weeks ended July 1, 1995,
which is consistent with the same period in 1994.
Interest Expense, Net. Interest expense, net decreased slightly from
$2.0 million in the first half of 1994 to $1.9 million in the first half of
1995 due to reduced borrowing costs related to the credit facility entered into
in the fourth quarter of 1994 offset by higher levels of borrowings in 1995 to
fund operating losses.
Other Expense. Other expense of $.2 million for the twenty-six weeks
ended July 2, 1994 represents the charge for the loss on the Company's
unsecured loan to BPC, partially offset by a gain on the sale of securities.
Income Taxes. The Company believes that the net deferred tax asset of
$15 million that was recorded in prior years represents a reasonable,
conservative estimate of the future utilization of the tax NOLs and the Company
will continue to evaluate the likelihood of future profit and the necessity of
future adjustments to the deferred tax asset valuation allowance. The Federal
income tax provision of $2.2 million for the twenty-six weeks ended July 2,
1994 was offset by the utilization of certain NOLs. The Company recorded a
state tax provision of $.4 million and $.3 million in the twenty-six weeks
ended July 1, 1995 and July 2, 1994, respectively.
16
<PAGE> 17
Shareholders' Equity. The number of shares of Common Stock
outstanding increased by 87,786 in 1995 due to shares issued in connection with
the Company's equity incentive plans, net of forfeitures. At July 1, 1995,
there were 92,825,626 shares of Common Stock outstanding compared to 92,737,840
shares outstanding at December 31, 1994.
LIQUIDITY AND CAPITAL RESOURCES
Working Capital. At July 1, 1995, the Company had $10.6 million in
cash and cash equivalents, compared to $24.1 million at December 31, 1994. The
$13.5 million decrease in cash and cash equivalents resulted from $14.3 million
of infrastructure investments, the payment of $13.4 million for the
acquisitions of Leichtung ($1.2 million of the purchase price of Leichtung was
paid in 1994) and Austad's, $3 million loaned to Tiger as discussed in Note 4
to the Condensed Consolidated Financial Statements and the use of $11.2 million
of cash in operations, offset by $29.0 million of additional borrowings under
the Credit Facility. The $11.2 million of cash used in operations in the first
half of 1995 was primarily to fund operating losses. Working capital and the
current ratio were $49.5 million and 1.43 to 1 at July 1, 1995 versus $58.5
million and 1.51 to 1 at December 31, 1994.
Infrastructure Investments. In 1994, the Company substantially
completed the construction of its fulfillment center in Roanoke, Virginia.
The Company began partial shipping and receiving activities at the facility in
the first quarter of 1995 and performed significant testing of the systems in
the second quarter. The Company anticipates that the facility will be fully
operational for the holiday 1995 selling season. The Company's operating
margins were negatively impacted in the first half of 1995 as it incurred
approximately $1.7 million of costs in connection with the start-up and
relocation of distribution activities to the Roanoke facility and the operation
of several small duplicate distribution facilities which were closed in the
first half of 1995.
The Company is continuing its management information systems upgrade
project and has spent a total of $11.1 million through July 1995, including
$2.0 million in 1995. As of August 1, 1995, three of the Company's catalogs
were on line with the new system and the Company expects to roll out the system
to the rest of its catalogs beginning in August 1995 and continuing through
early 1996. The Company expects to continue to incur certain duplicate system
costs during 1995 as it transitions to the new computer system.
Financing. In the first half of 1995, the Company borrowed $10
million under the 15 year term loan portion of the Credit Facility and borrowed
an additional $19 million under the revolving portion of the Credit Facility.
The Company has made significant infrastructural investments and does not
anticipate significant future cash outlays for such purposes, which is expected
to result in improved cash flows and financial position in the second half of
1995.
The Company believes that after the expected amendment of its Credit
Facility, as discussed in Note 5 to the Condensed Consolidated Financial
Statements, it will have sufficient capital to support its operating activities.
However, the amended Credit Facility will increase the Company's financing
costs.
Effects of Inflation. The Company normally experiences increased cost
of sales and operating expenses as a result of the general rate of inflation in
the economy. Operating margins are generally
17
<PAGE> 18
maintained through selective price increases where market conditions permit.
The Company's inventory is mail order merchandise which undergoes sufficiently
high turnover so that the cost of goods sold approximates replacement cost.
Because sales are not dependent upon a particular supplier or product brand,
the Company can adjust product mix to mitigate the effects of inflation on its
overall merchandise base.
Paper and Postage. The Company mails its catalogs and ships most of
its merchandise through the United States Postal Service ("USPS"), with catalog
mailing and product shipment expenses representing approximately 16% of
revenues in 1994. In January 1995, the USPS increased postage rates by
approximately 14% to 18%. The Company is also experiencing record price
increases in 1995 for paper that is used in the production of its catalogs and
expects these price increases to continue. The increase in paper prices have
increased the Company's costs by approximately $3.5 million in the first half
of 1995 and the increase in catalog and parcel postage rates have increased
costs by approximately $9.7 million in the same period. These cost increases
and the duplicate costs associated with the consolidation of the distribution
facilities and the transition to the new management information system
discussed previously have adversely impacted the Company's margins and earnings
in the first half of 1995 and the Company is attempting to mitigate their
impact on the second half of the year although there can be no assurance of
this.
18
<PAGE> 19
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
On May 23, 1995, the United States District Court for the
District of New Jersey dismissed, with prejudice, the
complaint filed by Veronica Zucker, an individual who
purchased shares of Common Stock of the Company in the
Company's public offering completed on April 7, 1994. The
complaint, which was purported to be filed on behalf of a
class of all persons who purchased the Common Stock of the
Company in the public offering or thereafter through and
including August 15, 1994, sought to recover money damages the
class had allegedly suffered as a result of certain false and
misleading material misstatements contained in the Company's
public offering prospectus dated March 30, 1994. The District
Court dismissed the plaintiff's claim, with prejudice, for
failure to state a claim upon which relief could be granted.
On June 22, 1995, plaintiff filed a notice of appeal of the
May 23, 1995 decision to the United States Court of Appeal for
the Third Circuit. The Company and its directors and
executive officers will continue to defend the matter
vigorously.
Item 4. Submission of Matters to a Vote of Security Holders
On June 22, 1995 the Company held its 1995 Annual Meeting of
Shareholders. The matters acted upon at the meeting were:
(1) The election of all 11 members of the Board of Directors,
including Ralph Destino, J. David Hakman, S. Lee Kling,
Theodore H. Kruttschnitt, Jeffrey Laikind, Elizabeth Valk
Long, Edmund R. Manwell, Alan G. Quasha, Jack E. Rosenfeld,
Geraldine Stutz and Robert F. Wright, to serve until the 1996
Annual Meeting of Shareholders (and until their successors
have been duly elected and qualified), with a minimum vote for
each director of 83,893,687 shares in favor, 1,120,452 shares
against, and no shares abstaining; and
(2) The ratification and approval of the appointment of Arthur
Andersen LLP as the Company's independent auditors for the
fiscal year ending December 30, 1995, with 84,781,667 shares
in favor, 141,127 shares against, and 91,345 shares
abstaining.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 27 - Financial Data Schedule (EDGAR filing only).
(b) Reports on Form 8-K - The Company filed one Current Report on Form
8-K, dated May 25, 1995, reporting the acquisition of 67.5% of the
outstanding capital stock of Austad Holdings, Inc. pursuant to Item 2
of such form and filing financial statements for the years ended
December 31, 1994 and 1993 and the periods ended March 31, 1995 and
1994 (unaudited) for The Austad Company, the business acquired,
together with certain pro forma financial statements for the year
ended December 31, 1994 and the three months ended April 1, 1995.
19
<PAGE> 20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HANOVER DIRECT, INC.
------------------------------------
Registrant
/s/Wayne P. Garten
------------------------------------
Wayne P. Garten
Executive Vice President and
Chief Financial Officer
on behalf of the Registrant and as
principal financial officer)
August 14, 1995
20
<PAGE> 21
EXHIBIT INDEX
Exhibit 27 - Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE HANOVER
DIRECT, INC AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS AND
STATEMENTS OF INCOME FOR THE SIX MONTHS ENDED JULY 1, 1995 AND IS QUALIFIED IN
ITS ENTIRETY, EXCEPT FOR GROSS ACCOUNTS RECEIVABLE AND THE ALLOWANCE FOR
DOUBTFUL ACCOUNTS, BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-30-1995
<PERIOD-END> JUL-01-1995
<CASH> 10,641
<SECURITIES> 0
<RECEIVABLES> 21,382
<ALLOWANCES> (2,433)
<INVENTORY> 91,388
<CURRENT-ASSETS> 163,778
<PP&E> 84,873
<DEPRECIATION> (26,773)
<TOTAL-ASSETS> 288,015
<CURRENT-LIABILITIES> 114,248
<BONDS> 68,584
<COMMON> 62,043
7,094
0
<OTHER-SE> 33,932
<TOTAL-LIABILITY-AND-EQUITY> 288,015
<SALES> 359,365
<TOTAL-REVENUES> 359,365
<CGS> 233,458
<TOTAL-COSTS> 369,499
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,138
<INCOME-PRETAX> (11,989)
<INCOME-TAX> 403
<INCOME-CONTINUING> (12,392)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (12,392)
<EPS-PRIMARY> (0.13)
<EPS-DILUTED> (0.13)
</TABLE>
