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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A1
Amendment No. 1
to
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 30, 1996
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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: 93,590,646 shares outstanding as of
May 10, 1996.
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EXPLANATORY NOTE
This Form 10-Q/A1 is being filed by Hanover Direct, Inc., a Delaware
corporation (the "Company"), as an amendment to its Quarterly Report on Form
10-Q for the fiscal quarter ended March 30, 1996 to make certain amendments to
Part I -- Items 1 and 2 and Part II -- Item 6 thereof.
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PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
The CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Loss) - Thirteen Weeks Ended
April 1, 1995 and March 30, 1996 is deleted in its entirety and replaced with
the following:
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
13 WEEKS ENDED
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APRIL 1, MARCH 30,
1995 1996
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<S> <C> <C>
REVENUES $ 176,592 $ 165,527
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Operating costs and expenses:
Cost of sales and operating expenses 112,714 108,438
Write down of inventory of discontinued
catalogs -- 1,100
Provision for facility closings 316 --
Selling expenses 50,503 45,391
General and administrative expenses 15,755 15,333
Depreciation and amortization 1,451 2,998
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180,739 173,260
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INCOME (LOSS) FROM OPERATIONS (4,147) (7,733)
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Interest expense (751) (1,663)
Interest income 85 169
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(666) (1,494)
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INCOME (LOSS) BEFORE INCOME TAXES (4,813) (9,227)
Income tax provision (90) (250)
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NET INCOME (LOSS) (4,903) (9,477)
Preferred Stock dividends and accretion (45) (59)
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Net income (loss) applicable to common
shareholders $ (4,948) $ (9,536)
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Primary and fully diluted net income
(loss) per share $ (0.05) (0.10)
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Weighted average shares outstanding for
primary and fully diluted earnings per share 92,790,015 93,493,937
=========== ===========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
* * *
The second paragraph of Note 4 (Sale of Assets) of NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS FOR THE THIRTEEN WEEKS ENDED APRIL 1, 1995 AND
MARCH 30, 1996 (Unaudited) of HANOVER DIRECT, INC. AND SUBSIDIARIES is deleted
in its entirety and replaced with the following:
"As a result of the reorganization, Austad's became a wholly-owned
subsidiary of the Company. In connection with the reorganization, TAC was
released from all future obligations under three of four store leases. The
Company expects that a similar release will be obtained in the near future
regarding the fourth lease. AGS will operate the four existing retail stores
acquired from TAC as Austad's stores under license from Austad's. The license
grants Mr. Austad exclusive retail rights to the Austad's name in 37 states and
Canada. Austad's retains all direct marketing rights and all other rights. Mr.
Austad will continue to work together with TAC on joint buying and other
cooperative efforts. The customer service and fulfillment operations of Austad's
were transferred to other Company facilities during the first quarter of 1996.
The Company is negotiating the sale of the Austad's South Dakota warehouse and
distribution facility at its approximate book value and will use the proceeds to
pay the 8.75% Mortgage Note Payable. To the extent that the proceeds from both
the sale of such facility and certain computer equipment produces any gain or
loss, Mr. Austad will share therein to the extent of his previous 32.5% interest
in Austad's."
The fifth paragraph of Note 4 (Sale of Assets) of NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS FOR THE THIRTEEN WEEKS ENDED APRIL 1, 1995 AND
MARCH 30, 1996 (Unaudited) of HANOVER DIRECT, INC. AND SUBSIDIARIES is deleted
in its entirety and replaced with the following:
"Debt Securities
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 were 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 other assets.
Subsequent to March 30, 1996, the Company received approximately $.7 million
from asset distributions made by Regal."
The following paragraph is added following the final paragraph under Note 9
(Accounting For Stock-Based Compensation) OF NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS FOR THE THIRTEEN WEEKS ENDED APRIL 1, 1995 AND MARCH 30,
1996 (Unaudited) of HANOVER DIRECT, INC. AND SUBSIDIARIES:
"The fair value of each option granted during the year ended December
30, 1995 is estimated at the date of grant using the Black-Scholes
option-pricing model utilizing expected volatility calculations based on
historical data (34.13%-40.81%) and risk free rates based on U.S. government
strip bonds on the date of grant with maturities equal to the expected option
term (6.03%-7.14%). The expected lives are equal to the option terms and no
dividends are assumed. The Company did not adopt SFAS No. 123 for the year
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ended December 30, 1995 and therefore was not required to recognize compensation
cost in accordance with SFAS No. 123 during the period. In the event that the
Company actually adopted SFAS No. 123 as of December 30, 1995, the compensation
cost recognized for grants issued during that period would have been
immaterial."
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
* * *
The second and third paragraphs under the subcaption Net Income (Loss)
of RESULTS OF OPERATIONS (THIRTEEN WEEKS ENDED MARCH 30, 1996 COMPARED WITH
THIRTEEN WEEKS ENDED APRIL 1, 1995) are deleted in their entirety and replaced
with the following:
"Non-apparel continuing catalog revenues increased 3% to $125.2
million, due to an increase in revenues from the Company's venture with Sears,
and from The Company Store, Improvements and Austad's, which offset reductions
in the other non-apparel catalogs, principally Domestications and Colonial
Garden Kitchens. Domestications revenues were down 20%, as improved response
rates partially offset a decline in the average order and a 25% reduction in
catalog circulation. The decline in Colonial Garden Kitchens' was due to lower
circulation and higher backorder levels due to merchandise delivery problems
caused by the Company's credit situation, which more than offset improved
response rates and a higher average order. Revenues from catalogs discontinued
in 1995 (Mature Wisdom, Tapestry and Hanover House) decreased in 1996 by 44% to
$10.2 million.
Apparel continuing catalog revenues declined 3% from $29.5 million for
the first quarter of 1995 to $28.8 million in the current period as increased
backorder levels in Silhouettes, also attributable to the Company's credit
situation, more than offset sales improvements in Tweeds and International Male.
Revenues from catalogs discontinued in 1995 (Essence By Mail, One 212, and
Simply Tops) declined by $6.0 million from 1995 to $1.3 million in 1996."
The first two paragraphs under the subcaption Operating Costs and Expenses of
RESULTS OF OPERATIONS (THIRTEEN WEEKS ENDED MARCH 30, 1996 COMPARED WITH
THIRTEEN WEEKS ENDED APRIL 1, 1995) are deleted in their entirety and replaced
with the following:
"Operating Costs and Expenses. Cost of sales and operating expenses
increased to 65.5% of revenues compared to 63.9% for the same period in 1995.
In the current quarter, the Company took an additional write-down of the
remaining inventory of the discontinued Simply Tops and One 212 catalogs, as
actual experience resulted in less merchandise being sold through clearance
catalogs than had been anticipated. As a result, the Company will need to
liquidate, through jobbers at a lower recovery rate, more inventory than
originally planned, which resulted in this write-down. In addition, fulfillment
and telemarketing costs increased significantly due to the severe winter
weather conditions during much of the first quarter which caused the periodic
shut down of the call centers in Wisconsin, Pennsylvania and Virginia, as well
as slowed shipments of both inbound and outbound freight. In addition, the
Company continued to experience significant operating problems in connection
with the new Roanoke fulfillment center, which will continue to impact the
Company's operating results for the balance of the year. These problems result
from equipment and software malfunctions and certain bottlenecks in the
facility. The Company is utilizing outside consultants to develop a plan to
substantially correct this situation for the fourth quarter. Corrective
measures will involve an approximate $3 million capital expenditure for
additional material handling equipment.
The write-down of inventory of discontinued catalogs totaled $1.1
million in the current quarter compared to no such charges in the same period
last year. Higher write-downs for the disposal of the remaining inventory for
the discontinued Simply Tops ($.5 million) and One 212 ($.6 million) catalogs
were recorded as the Company experienced significantly lower recovery rates on
liquidation of such inventory than had been anticipated.
The Provision for facility closings was $.3 million in 1995 which
reflected expenses incurred for relocation ($.2 million) and severance ($.1
million) costs related to several Pennsylvania facility closings in connection
with the opening of the new Roanoke distribution center which did not occur in
the current period.
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* * *
The second and third paragraphs under the subcaption Income (Loss) from
Operations of RESULTS OF OPERATIONS (THIRTEEN WEEKS ENDED MARCH 30, 1996
COMPARED WITH THIRTEEN WEEKS ENDED APRIL 1, 1995) are deleted in their entirety
and replaced with the following:
"The Non-Apparel group's results of operations decreased $3.4 million,
from a loss of $(.9) million in the first quarter of 1995 to a loss of $(4.3)
million in the same period in 1996 due primarily to the sales and cost increases
mentioned above. The increase loss was primarily due to the results of
operations at Domestications which were adversely affected by the higher
telemarketing and fulfillment costs related to its problems with its new Roanoke
distribution center. In addition, its product margin continued to be negatively
impacted by $.8 million of product mix changes, $.3 million of promotional
activities and an increase of $.7 million in write-downs of inventory due to a
decision not to continue to offer certain products in future catalogs. These
factors more than offset improved catalog productivity. The catalogs
discontinued in 1995 lost ($.7) million in 1996 compared to ($1.4) million in
the prior year.
The Apparel group's results of operations improved $.4 million from a
loss of $(2.3) million in the first quarter of 1995 to a loss of $(1.9) million
for the same period in 1996. The Men's Apparel catalogs generated income of $.4
million in the first quarter of 1995 compared to break even results for the same
period in 1996. The Women's Apparel continuing catalogs generated a loss of
$(.4) million in the first quarter of 1995 compared to a loss of $(.7) million
for the same period in 1996. The catalogs discontinued in 1995 generated a loss
of $(2.2) million in the first quarter of 1995 compared to a loss of $(1.2)
million for the same period in 1996. Such loss included an additional $1.1
million write-down of the remaining inventory for the discontinued catalogs, as
discussed above."
* * *
The paragraph under the subcaption Infrastructure Investments of LIQUIDITY AND
CAPITAL RESOURCES is deleted in its entirety and replaced with the following:
"Infrastructure investments. The Company continued its management
information systems up-grade in 1996. The new system was operational in ten
catalogs at the end of 1995 and the Company expects to complete the roll-out of
the system to the remaining catalogs in 1996, although this could be affected by
the problems in the Roanoke facility. The Company will incur higher MIS costs in
1996 due to the completion of the new system. As of March 30, 1996, the company
had incurred costs of approximately $16.2 million as part of this plan,
including $.3 million in the first quarter of 1996. Such costs included hardware
and software costs aggregating $10.3 million and internal costs of $2.8 million
related to production of this new system that have been capitalized. The Company
currently anticipates making additional expenditures of approximately $3 million
in its Roanoke facility in 1996 to alleviate certain problems it is currently
experiencing. Overall, the Company's level of capital spending has been reduced
in 1996 and will focus on these projects."
PART II - OTHER INFORMATION
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The new exhibit is hereby added to the exhibit list in Item 6 (Exhibits and
Reports on Form 8-K) in appropriate numerical order as follows:
"11 Computation of Earnings Per Share"
The exhibit itself is attached hereto.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this Amendment No. 1 to Quarterly Report to be
signed on its behalf by the undersigned thereunto duly authorized.
HANOVER DIRECT, INC.
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Registrant
By: /s/ Wayne P. Garten
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Wayne P. Garten
Executive Vice President and
Chief Financial Officer
(on behalf of the Registrant and as
principal financial officer)
July 16, 1996
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EXHIBIT INDEX
11 COMPUTATION OF PER SHARE EARNINGS
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EXHIBIT 11
<TABLE>
<CAPTION>
(In 000's, except per share amounts)
13 WEEKS ENDED
MAR. 30, APR. 1,
1996 1995
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<S> <C> <C>
Net income (loss) $(9,477) $ 4,903
Preferred stock dividends (59) (45)
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Net income (loss) applicable to Common
Shareholders (9,536) (4,948)
Average shares of common stock
outstanding during the period 93,494 92,790
Incremental shares from assumed
exercise of stock options (primary) 0 677
Total shares used to calculate PEPS* 93,494 92,790
Primary earnings per share $ (0.10) $ (0.05)
Average shares of common stock
outstanding during the period 93,494 92,790
Incremental shares from assumed
exercise of stock options (fully diluted) 0 677
Total shares used to calculate FDEPS* 93,494 92,790
Fully diluted earnings per share $ (0.10) $ (0.05)
Average shares of common stock
outstanding during the period 93,494 92,790
Basic earnings per share $ (0.10) $ (0.05)
</TABLE>
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* Per APB 15, when a net loss is reported, exercise or conversion is not to be
assumed.
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