<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 11-K
ANNUAL REPORT
Pursuant to Section 15(d)
of the Securities and Exchange Act of 1934
For the fiscal years ended December 31, 1997 and 1996
Commission file number 1-12082
A. Full Title of the plan and the address of the plan, if different from that
of the issuer named below:
HANOVER DIRECT, INC. SAVINGS AND RETIREMENT PLAN
c/o Hanover Direct, Inc.
1500 Harbor Boulevard
Weehawken, New Jersey 07087
B. Name of issuer of the securities held pursuant to the plan and the address
of its principal executive office:
Hanover Direct, Inc.
1500 Harbor Boulevard
Weehawken, New Jersey 07087
<PAGE> 2
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Administrative Committee of
Hanover Direct, Inc. Savings and Retirement Plan:
We have audited the accompanying statements of net assets available for benefits
of Hanover Direct, Inc. Savings and Retirement Plan (the "Plan"), formerly The
Horn & Hardart Company Savings Plan, as of December 31, 1997 and 1996, and the
related statement of changes in net assets available for benefits for the year
ended December 31, 1997. These financial statements and the schedules referred
to below are the responsibility of the Plan's Management. Our responsibility is
to express an opinion on these financial statements and schedules 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 the
Plan's 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 financial statements referred to above present fairly, in
all material respects, the net assets available for benefits of the Plan as of
December 31, 1997 and 1996, and the changes in net assets available for benefits
for the year ended December 31, 1997, in conformity with generally accepted
accounting principles.
Our audits were performed for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedules of assets held
for investment purposes and reportable transactions are presented for the
purpose of additional analysis and are not a required part of the basic
financial statements but are supplementary information required by the
Department of Labor's Rules and Regulations for Reporting and Disclosure under
the Employee Retirement Income Security Act of 1974. The supplemental schedules
have been subjected to the auditing procedures applied in the audits of the
basic financial statements and in our opinion, are fairly stated in all
material respects in relation to the basic financial statements taken as a
whole.
New York, New York ARTHUR ANDERSEN LLP
June 11, 1998
<PAGE> 3
HANOVER DIRECT, INC. SAVINGS AND RETIREMENT PLAN
(formerly The Horn & Hardart Company Savings Plan)
STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997
---------------------------------------------------------------------------------------
Stable Spectrum Spectrum New International Hanover
Value Income Growth Horizons Stock Direct, Inc.
Fund Fund Fund Fund Fund Stock Fund Total
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Fund receivable $ 24,198 $ 9,908 $ 22,741 $ 18,736 $ 6,381 $ 1,131 83,095
Plan participant loan receivable 446,640 -- -- -- -- -- 446,640
Unallocated contributions -- -- -- -- -- -- --
Investment in Fund 4,016,561 2,182,790 6,846,725 1,423,975 490,074 -- 14,960,125
Investment in Hanover Direct, Inc. Common
Stock (at market) - T. Rowe Price -- -- -- -- -- 622,060 622,060
---------------------------------------------------------------------------------------
Total assets 4,487,399 2,192,698 6,869,466 1,442,711 496,455 623,191 16,111,920
LIABILITIES AND FUND BALANCE:
Contributions payable to:
Hanover Direct, Inc and Subs (Forfetures) 161,982 -- -- -- -- -- 161,982
---------------------------------------------------------------------------------------
Net assets available for benefits $4,325,417 $2,192,698 $6,869,466 $1,442,711 $496,455 $623,191 15,949,938
=======================================================================================
<CAPTION>
1996
--------------------------------------------------------------------------------------
Stable Spectrum Spectrum New International Hanover
Value Income Growth Horizons Stock Direct, Inc.
Fund Fund Fund Fund Fund Stock Fund Total
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Fund receivable $ -- $ -- $ -- $ -- $ -- $ -- $ --
Plan participant loan receivable 411,083 411,083
Unallocated contributions
Investment in Fund 4,079,812 2,127,453 6,130,853 829,618 294,855 13,462,591
Investment in Hanover Direct, Inc. Common --
Stock (at market) - T. Rowe Price 169,969 169,969
--------------------------------------------------------------------------------------
Total assets 4,490,895 2,127,453 6,130,853 829,618 294,855 169,969 14,043,643
LIABILITIES AND FUND BALANCE:
Contributions payable to: --
Hanover Direct, Inc and Subs (Forfetures) 130,302 130,302
--------------------------------------------------------------------------------------
Net assets available for benefits $4,360,593 $2,127,453 $6,130,853 $829,618 $294,855 $ 169,969 $13,913,341
======================================================================================
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 4
HANOVER DIRECT, INC. SAVINGS AND RETIREMENT PLAN
(formerly The Horn & Hardart Company Savings Plan)
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
Stable Spectrum Spectrum New International Hanover
Value Income Growth Horizons Stock Direct, Inc. Plan
Fund Fund Fund Fund Fund Stock Fund Totals
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
INCREASE IN NET ASSETS:
Interest/dividend income $ 235,027 $ 156,609 $ 694,841 $ 34,596 $ 26,010 $ -- $ 1,147,083
Change in plan participant loan
receivable (11,756) (26,784) (82,977) 24,937 11,444 990 (84,146)
Contributions
Participants 847,134 200,218 443,971 416,746 162,354 14,882 2,085,305
Hanover Direct, Inc. and
subsidiaries (net of credited
forfeitures of $0 in 1997) 146,859 56,551 118,255 109,010 42,918 4,141 477,734
Interfund transfers (76,278) (41,979) 45,875 66,054 31,590 (25,262) --
-------------------------------------------------------------------------------------------
Total additions 1,140,986 344,615 1,219,965 651,343 274,316 (5,249) 3,625,976
-------------------------------------------------------------------------------------------
DECREASE IN NET ASSETS:
Disbursements, withdrawals,
terminations and administrative
costs 1,183,272 355,544 787,544 121,914 49,001 21,514 2,518,789
Unallocated forfeitures (7,110) 7,817 22,214 5,716 2,709 334 31,680
Net change in depreciation
(appreciation) on fund
investments -- (83,991) (328,406) (89,380) 21,006 (480,319) (961,090)
-------------------------------------------------------------------------------------------
Total deductions (additions) 1,176,162 279,370 481,352 38,250 72,716 (458,471) 1,589,379
-------------------------------------------------------------------------------------------
Net increase (decrease) (35,176) 65,245 738,613 613,093 201,600 453,222 2,036,597
NET ASSETS AVAILABLE FOR
BENEFITS, beginning of year 4,360,593 2,127,453 6,130,853 829,618 294,855 169,969 13,913,341
-------------------------------------------------------------------------------------------
NET ASSETS AVAILABLE FOR
BENEFITS, end of year $4,325,417 $2,192,698 $6,869,466 $1,442,711 $496,455 $ 623,191 $15,949,938
===========================================================================================
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE> 5
HANOVER DIRECT, INC. SAVINGS AND RETIREMENT PLAN
(formerly The Horn & Hardart Company Savings Plan)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 and 1996
1. DESCRIPTION OF THE PLAN
The Hanover Direct, Inc. Savings and Retirement Plan (the "Plan"), formerly The
Horn & Hardart Company Savings Plan, commenced April 1, 1983. Participation in
the Plan is available to all eligible employees of Hanover Direct, Inc. and its
subsidiaries (the "Company") who have attained the age of 21, have credit for
not less than one year of service (1,000 hours), and have applied for
participation in the Plan.
Participants whose annual base salary is under $66,000 may make pretax
contributions of up to 10% of their total annual compensation ("Employee
Contribution"). The Company matches one-third of these pretax contributions up
to 6% of their total annual compensation ("Employer Contribution"). These same
participants may contribute an additional amount up to 10% of their total annual
compensation on a voluntary basis ("Voluntary Contribution"). The Voluntary
Contributions are not tax-deferred and therefore, are considered to be an
after-tax contribution. Voluntary Contributions are not matched by the Company.
The participants have the right to elect that contributions (Employee, Employer,
and Voluntary Contributions) be allocated to any combination of six funds.
During the first quarter of 1996, the six funds were Fixed Income Fund, Hanover
Direct, Inc. Stock Fund, a party in interest, Conservative Bond Fund, Capital
Growth Fund, Conservative Equity Fund, and a Balanced Value Fund. Paine Webber
Trust Company ("PWTC") served as trustee of these funds. As of April 1, 1996 the
Plan's assets became administered by T. Rowe Price Retirement Plan Services,
Inc. ("TRP"). As of April 1, 1996 and during 1997 the following five funds were
available: Stable Value Fund, Spectrum Income Fund, Spectrum Growth Fund, New
Horizons Fund and International Stock Fund. The Hanover Direct, Inc. Stock Fund
also remains available to participants and is entrusted to TRP.
A participant whose total annual compensation is in excess of $66,000, or a
highly compensated employee ("HCE"), is limited to pretax contributions of 5% of
their total annual compensation. The Company matches one-third of these
contributions. No Voluntary Contributions are permitted by an HCE.
The maximum limitation on employee pretax contributions was $9,500 for both
years. The HCE maximum compensation limit for contributions for 1997 and 1996
was $160,000 and $150,000, respectively. The Plan elected to maintain a 5%
maximum contribution level on HCEs, limiting this group to a maximum
contribution of $8,000 and $7,500 for 1997 and 1996, respectively.
5
<PAGE> 6
There were 1,112 and 1,155 participants in the Plan at December 31, 1997 and
1996, respectively.
A participant will become 100% vested in the account value of the Employer's
Contribution upon the earlier of: the completion of five calendar years of
vesting service, retirement or termination after reaching age 62, death while an
employee, or because of permanent disability. Participants are fully vested in
their Employee Contributions immediately. A participant may elect to withdraw
from his/her Voluntary Contribution account an amount not to exceed his/her
vested account value. Forfeitures by reason of termination, withdrawal or lapse
of participation are used to reduce the Company's contribution for that
particular year. In 1996, forfeitures amounted to $130,302. No portion of this
total was utilized to reduce Employer Contributions during 1996, however, they
were used to reduce Employer Contributions to participants in 1997. In 1997,
total forfeitures amounted to $161,982, none of which was utilized to reduce
Employer Contributions during 1997.
Participants are allowed to take out loans of up to 50% of their individual
vested balance as of the most current Plan valuation. The minimum loan is $500
while the maximum is $50,000. The loans can be for a period between one to five
years, in whole year increments, bearing a fixed rate of interest of the prime
rate plus one percent, determined at the time of loan issuance. Each participant
can have only one loan outstanding at any one time and the loan can be repaid
before the end of the original term.
The Plan participant loan receivable amounted to $446,640 and $411,083 at
December 31, 1997 and 1996, respectively, with interest rates ranging from 7% to
10%. Vested benefits payable to terminated employees at December 31, 1997
amounted to $810,692.
The Plan is administered by the Administrative Committee (the "Committee") which
is comprised of three persons who serve at the sole discretion of the Company's
Board of Directors without compensation from the Plan. The Committee has general
authority to control and manage the operation and administration of the Plan,
including authority to appoint and remove trustees and to adopt rules
interpreting or implementing the Plan.
Administrative costs of the Plan that were borne by Hanover Direct, Inc. were
$10,174 and $36,730 in 1997 and 1996, respectively. As of April 1, 1996, certain
administrative costs of the Plan are borne by participants of the Plan and
amounted to $33,360 in 1997. These costs are included in disbursements,
withdrawals, terminations and administrative costs.
2. SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting
6
<PAGE> 7
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 date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results could
differ from those estimates.
Investment Valuation and Income Recognition
Investments in the Company's common stock are stated at market value as
determined by reference to published market data. Purchases and sales of
securities are recorded on a trade date basis, and interest is recorded on the
accrual basis. In 1996, investments held by PWTC in the Fixed Income Fund,
Conservative Bond Fund, Balanced Value Fund, Conservative Equity Fund, and
Capital Growth Fund are stated at market value. In 1996 and 1997, investments
held by TRP in the Stable Value Fund, Spectrum Income Fund, Spectrum Growth
Fund, New Horizons Fund, International Stock Fund and the Company's Stock Fund
are stated at market value. Purchases and sales of securities are recorded on a
trade date basis. Realized gains and losses from security transactions are
reported using the moving weighted average method.
Basis of Accounting
The accompanying financial statements have been prepared on the accrual basis of
accounting.
3. INVESTMENTS
On April 1, 1996, the Company transferred the Plan funds from PWTC to TRP. The
Plan's participants were given the option to invest in five new funds, in
addition to the Company's Stock Fund. The PWTC funds were transferred to the TRP
funds in such a way as to consistently invest participant funds into funds with
like investment strategies. These new funds are as follows: The Stable Value
Fund is a common trust fund which invests in investment contracts selected by
TRP which are reported at their estimated fair value. The Spectrum Income Fund
seeks a high level of current income consistent with moderate share price
fluctuation by investing primarily in domestic and foreign bond funds. It may
allocate up to 25% of its assets to stock funds. The Spectrum Growth fund seeks
long-term capital appreciation and growth of income, with current income as a
secondary objective. It invests primarily in domestic stock funds and also in a
foreign stock fund. The New Horizons Fund provides long-term capital growth by
investing primarily in common stocks of small rapidly growing companies. The
International Stock Fund seeks to provide capital appreciation through
investment in well-established non-US companies. Contributions to the Hanover
Direct, Inc. Stock Fund were invested in the common stock of the Company, a
party in interest. As of December 31, 1997 and 1996, the stock fund held 207,353
and 226,626 shares, respectively, at corresponding market values of $622,060 and
$169,969. The stock price at June 10, 1998 was $3.00 per share. All of the
above-mentioned investments exceed 5% of the Plan's net assets available for
benefits as of December 31, 1997 with the exception of the International Stock
Fund and the Hanover Direct, Inc. Stock Fund.
7
<PAGE> 8
4. CONTRIBUTION RECEIVABLE
The contribution receivable consists of unallocated Employee and Employer
Contributions owed to the fund as of the plan year-end. There were no such
receivables at December 31, 1996. For 1997, there were contributions receivable
of $83,095. The unallocated Employee and Employer contributions owed to the fund
for 1997 were received by the fund in January 1998.
5. CONTRIBUTION PAYABLE
The December 31, 1996 contribution payable consists of unvested Employer
Contributions forfeited by terminated Plan participants. The forfeited amounts
were used to reduce the Company's contributions to participants in 1997.
6. NET DEPRECIATION (APPRECIATION) ON FUND INVESTMENTS
The net depreciation/(appreciation) of fund investments at December 31, 1997
consists of unrealized appreciation of approximately $863,000 and an aggregate
realized gain of approximately $99,000. The Plan sold investments during the
1997 Plan year with approximate aggregate costs of $2.16 million, resulting in
aggregate proceeds of approximately $2.23 million. The realized gain/loss on
the investments sold is the difference between the market value at the beginning
of the Plan year (or on the purchase date if purchased during the Plan year) and
the date of sale.
7. PLAN TERMINATION
The Plan may be terminated at any time at the Company's sole discretion,
although the Company has not expressed any intention to do so currently. Upon
termination, contributions by the Company and participants cease and all Company
contributions which had been credited to each participant's account become fully
vested immediately.
8. TAX STATUS
The Plan has received a favorable determination letter from the Internal Revenue
Service stating that the Plan, as of October 6, 1994, is qualified under Section
401(k) of the Internal Revenue Code and, accordingly, is exempt from federal
income taxes. The Plan was amended and restated during the year ended December
31, 1989 to reflect the impact of the Tax Reform Act of 1986 and the Technical
and Miscellaneous Revenue Act of 1988.
9. OTHER INFORMATION
There were no transactions with parties-in-interest, as defined by the Employee
Retirement Income Securities Act of 1974, for the years ended December 1997 and
1996. There were no loans, fixed income obligations or leases which were either
in default or classified as uncollectable at December 31, 1997 and 1996.
8
<PAGE> 9
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
members of the Administrative Committee have duly caused this annual report to
be signed on its behalf by the undersigned hereunto duly authorized.
HANOVER DIRECT, INC. SAVINGS AND
RETIREMENT PLAN
DATE: June 29, 1998
By: /s/ Larry Svoboda
-----------------------------------
Larry Svoboda
Senior Vice President
Chief Financial Officer
<PAGE> 10
HANOVER DIRECT, INC. SAVINGS AND RETIREMENT PLAN
(formerly The Horn & Hardart Company Savings Plan)
FORM 5500 - ITEM 27A
SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES
AS OF DECEMBER 31, 1997
<TABLE>
<CAPTION>
Current
Description Cost Value
----------- ------------------------
<S> <C> <C>
INVESTMENT IN:
STABLE VALUE PORTFOLIO - T. Rowe Price
Retirement Plan Services, Inc. $ 4,016,561 $ 4,016,561
SPECTRUM INCOME PORTFOLIO - T. Rowe Price
Retirement Plan Services, Inc. 2,105,002 2,182,790
SPECTRUM GROWTH PORTFOLIO - T.Rowe Price
Retirement Plan Services, Inc. 6,579,992 6,846,725
NEW HORIZONS PORTFOLIO - T. Rowe Price
Retirement Plan Services, Inc. 1,341,877 1,423,975
INTERNATIONAL STOCK PORTFOLIO - T. Rowe
Price Retirement Plan Services, Inc. 514,406 490,074
HANOVER DIRECT, INC. COMMON STOCK(1) 161,769 622,060
PLAN PARTICIPANT LOAN RECEIVABLE(2) 446,640 446,640
------------------------
TOTAL ASSETS HELD FOR INVESTMENT PURPOSES $15,166,247 $16,028,825
========================
</TABLE>
(1) Represents party in interest. Common stock par value is $.667 per share.
(2) Terms of these loans generally range from 1 to 5 years and bear interest
ranging from 7.0% to 10.0%.
<PAGE> 11
HANOVER DIRECT, INC. SAVINGS AND RETIREMENT PLAN
(formerly The Horn & Hardart Company Savings Plan)
FORM 5500 - ITEM 27D
SCHEDULE OF REPORTABLE TRANSACTIONS (1)
FOR THE YEAR ENDED DECEMBER 31, 1997
SERIES OF TRANSACTIONS
<TABLE>
<CAPTION>
Identity of Expense
Party Number Purchase Selling Lease Incurred With
Involved Description of Shares Price (2) Price (2) Rental Transaction
- ----------------------------------------------------------------- --------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
T. Rowe Price Retirement Plan
Services, Inc. Investment in Stable Value Fund 1,042,506 $ 1.00 $ -- $ -- $ --
T. Rowe Price Retirement Plan
Services, Inc. Investment in Stable Value Fund 1,143,089 -- 1.00 --
T. Rowe Price Retirement Plan
Services, Inc. Investment in Spectrum Growth Fund 88,144 16.03 -- -- --
T. Rowe Price Retirement Plan
Services, Inc. Investment in Spectrum Growth Fund 1,065,574 0.94
<CAPTION>
Identity of
Party Current Net
Involved Cost Value Gain
- ------------------------------- --------------------------------
<S> <C> <C> <C>
T. Rowe Price Retirement Plan
Services, Inc. $1,042,506 $1,042,506 $ --
T. Rowe Price Retirement Plan
Services, Inc. 1,143,089 1,143,089 --
T. Rowe Price Retirement Plan
Services, Inc. 1,412,687 1,412,990 (303)
T. Rowe Price Retirement Plan
Services, Inc. 943,976 1,003,311 (59,335)
</TABLE>
INDIVIDUAL TRANSACTIONS
<TABLE>
<CAPTION>
Identity of Expense
Party Number Purchase Selling Lease Incurred With
Involved Description of Shares Price (2) Price (2) Rental Transaction
- ----------------------------------------------------------------- --------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
T. Rowe Price Retirement Plan
Services, Inc. Investment in Stable Value Fund 854,537 $ -- $ 1.00 $ -- $ --
T. Rowe Price Retirement Plan
Services, Inc. Investment in Spectrum Growth Fund 44,399 15.65
T. Rowe Price Retirement Plan
Services, Inc. Investment in Spectrum Growth Fund 47,763 -- 16.13 -- --
<CAPTION>
Identity of
Party Current Net
Involved Cost Value Gain
- ------------------------------- --------------------------------
<S> <C> <C> <C>
T. Rowe Price Retirement Plan
Services, Inc. $854,537 $854,537 --
T. Rowe Price Retirement Plan
Services, Inc. 694,841 694,841 --
T. Rowe Price Retirement Plan
Services, Inc. 724,087 770,454 (46,367)
</TABLE>
(1) Defined as five percent of Plan net assets at beginning of Plan year.
(2) Average price
<PAGE> 12
EXHIBIT 1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report included in this Form 11-K, into Hanover Direct, Inc.'s (formerly The
Horn & Hardart Company) previously filed Registration Statement File No.
2-94286.
New York, New York ARTHUR ANDERSEN LLP
June 29, 1998
<PAGE> 1
EXHIBIT 1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report included in this Form 11-K, into Hanover Direct, Inc.'s (formerly The
Horn & Hardart Company) previously filed Registration Statement File No.
2-94286.
New York, New York ARTHUR ANDERSEN LLP
June 29, 1998
