-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PPaua+lVzXG1fxHNbD/1gzqlp/dNmz3RnHByJKzklOeqNrL+LGQr/HICTjPAq9oj +CqF2uRRZ5hEUtHmiUVa4Q== 0000950123-99-004467.txt : 19990512 0000950123-99-004467.hdr.sgml : 19990512 ACCESSION NUMBER: 0000950123-99-004467 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990327 FILED AS OF DATE: 19990511 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HANOVER DIRECT INC CENTRAL INDEX KEY: 0000320333 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-CATALOG & MAIL-ORDER HOUSES [5961] IRS NUMBER: 138053260 STATE OF INCORPORATION: NV FISCAL YEAR END: 1227 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-08056 FILM NUMBER: 99617197 BUSINESS ADDRESS: STREET 1: 1500 HARBOR BLVD CITY: WEEHAWKEN STATE: NJ ZIP: 07087 BUSINESS PHONE: 2018653800 MAIL ADDRESS: STREET 1: 1500 HARBOR BLVD CITY: WEEHAWKEN STATE: NJ ZIP: 07087 FORMER COMPANY: FORMER CONFORMED NAME: HORN & HARDART CO /NV/ DATE OF NAME CHANGE: 19920703 10-Q 1 FORM 10-Q 1 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 MARCH 27, 1999 Commission file number 1-12082 HANOVER DIRECT, INC. (Exact name of registrant as specified in its charter) DELAWARE 13-0853260 (State of incorporation) (IRS Employer Identification No.) 1500 HARBOR BOULEVARD, WEEHAWKEN, NEW JERSEY 07087 (Address of principal executive offices) (Zip Code) (201) 863-7300 (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: 210,550,296 shares outstanding as of May 6, 1999. 2 HANOVER DIRECT, INC. FORM 10-Q MARCH 27, 1999 INDEX Page Part I - Financial Information Item 1. Financial Statements Condensed Consolidated Balance Sheets - March 27, 1999 and December 26, 1998.....................................3 Condensed Consolidated Statements of Income (Loss) - thirteen weeks ended March 27, 1999 and March 28, 1998 .................................5 Condensed Consolidated Statements of Cash Flows - thirteen weeks ended March 27, 1999 and March 28, 1998........................................6 Notes to Condensed Consolidated Financial Statements - thirteen weeks ended March 27, 1999 and March 28, 1998..................................7 Item 2. Management's Discussion and Analysis of Consolidated Financial Condition and Results of Operations.......................................9 Item 3. Quantitative and Qualitative Disclosures About Market Risk.........12 Part II - Other Information Item 4. Exhibits and Reports on Form 8-K ..................................13 Signatures.................................................................14 2 3 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS HANOVER DIRECT, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS AS OF MARCH 27, 1999 AND DECEMBER 26, 1998 (UNAUDITED) (IN THOUSANDS)
MARCH 27, DECEMBER 26, 1999 1998 --------- --------- ASSETS Current Assets: Cash and cash equivalents $ 3,610 $ 12,207 Accounts receivable, net 18,907 22,737 Accounts receivables under financing agreement 17,660 18,998 Inventories 57,223 62,322 Prepaid catalog costs 21,189 16,033 Deferred tax asset, net 3,300 3,300 Other current assets 2,814 2,402 --------- --------- Total Current Assets 124,703 137,999 --------- --------- Property and equipment, at cost: Land 4,634 4,634 Buildings and building improvements 22,724 22,724 Leasehold improvements 9,248 9,303 Furniture, fixtures and equipment 51,581 51,193 Construction in progress 265 113 --------- --------- 88,452 87,967 Accumulated depreciation and amortization (39,982) (37,884) --------- --------- Net Property and Equipment 48,470 50,083 Goodwill, net 16,727 16,890 Deferred tax asset, net 11,700 11,700 Other assets, net 1,889 2,198 --------- --------- Total Assets $ 203,489 $ 218,870 ========= =========
See Notes to Condensed Consolidated Financial Statements. 3 4 HANOVER DIRECT, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED) MARCH 27, 1999 AND DECEMBER 26, 1998 (UNAUDITED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
MARCH 27, DECEMBER 26, 1999 1998 --------- --------- LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Current portion of long-term debt and capital lease obligations $ 2,602 $ 2,573 Accounts payable 44,104 64,594 Accrued liabilities 22,011 22,212 Customer prepayments and credits 5,210 4,691 --------- --------- Total Current Liabilities 73,927 94,070 --------- --------- Non-current Liabilities: Long-term debt 46,824 37,288 Obligations under receivable financing 17,660 18,998 Other 2,073 2,044 --------- --------- Total Noncurrent Liabilities 66,557 58,330 --------- --------- Total Liabilities 140,484 152,400 --------- --------- Shareholders' Equity: Series B Preferred Stock, convertible, $.01 par value, authorized and issued 634,900 shares 6,175 6,128 Common Stock, $.66 2/3 par value, authorized 225,000,000 shares; issued 210,807,854 and 210,785,688 shares at March 27, 1999 and December 140,539 140,524 26, 1998, respectively Capital in excess of par value 298,557 297,751 Accumulated deficit (378,198) (373,815) --------- --------- 67,073 70,588 Less: Treasury stock, at cost (358,303 shares at March 27, 1999 and December 26, 1998) (813) (813) Notes receivable from sale of Common Stock (3,255) (3,305) --------- --------- Total Shareholders' Equity 63,005 66,470 --------- --------- Total Liabilities and Shareholders' Equity $ 203,489 $ 218,870 ========= =========
See Notes to Condensed Consolidated Financial Statements. 4 5 HANOVER DIRECT, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS) (UNAUDITED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
13 WEEKS ENDED MARCH 27, MARCH 28, 1999 1998 ------------- ------------- Revenues $ 127,714 $ 124,535 ------------- ------------- Operating costs and expenses: Cost of sales and operating expenses 81,904 78,701 Selling expenses 31,946 33,988 General and administrative expenses 14,447 12,473 Depreciation and amortization 2,301 2,337 ------------- ------------- 130,598 127,499 ------------- ------------- Loss from operations (2,884) (2,964) ------------- ------------- Interest expense, net (1,147) (1,435) ------------- ------------- Loss before income taxes (4,031) (4,399) Income tax provision (193) (250) ------------- ------------- Net loss (4,224) (4,649) Preferred stock dividends and accretion (159) (122) ------------- ------------- Net loss applicable to common shareholders $ (4,383) $ (4,771) ============= ============= Comprehensive income $ (4,383) $ (4,771) ============= ============= Basic and diluted net loss per share $ (.02) $ (.02) ============= ============= Weighted average shares outstanding 210,444,784 203,788,774 ============= =============
5 6 HANOVER DIRECT, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (IN THOUSANDS)
13 WEEKS ENDED MARCH 27, MARCH 28, 1999 1998 -------- -------- Cash flows from operating activities: Net loss $ (4,224) $ (4,649) Adjustments to reconcile net loss to net cash used by operating activities: Depreciation and amortization, including 2,616 2,745 deferred fees Provisions for doubtful accounts 807 1,091 Compensation expense related to stock options 799 590 Changes in assets and liabilities: Accounts receivable 3,023 487 Inventories 5,099 (2,554) Prepaid catalog costs (5,156) (6,474) Accounts payable (20,490) (5,715) Accrued liabilities (201) (6,511) Customer prepayments and credits 519 (336) Other, net (429) (562) -------- -------- Net cash used by operating activities (17,637) (21,888) -------- -------- Cash flows from investing activities: Acquisitions of property and equipment (404) (2,517) -------- -------- Cash flows from financing activities: Net proceeds under Credit Facility $ 9,915 $ 13,187 Payments of debt and capital lease obligations (433) (447) Proceeds from issuance of Common Stock 22 45 Other, net (60) (930) -------- -------- Net cash provided by financing activities 9,444 11,855 -------- -------- Net decrease in cash and cash equivalents (8,597) (12,550) Cash and cash equivalents at the beginning of the year 12,207 14,758 -------- -------- Cash and cash equivalents at the end of the period $ 3,610 $ 2,208 ======== ======== Supplemental cash flow disclosures: Interest paid $ 801 $ 998 ======== ======== Income taxes paid $ 374 $ 324 ======== ========
See Notes to Condensed Consolidated Financial Statements. 6 7 HANOVER DIRECT, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THIRTEEN WEEKS ENDED MARCH 27, 1999 AND MARCH 28, 1998 (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 26, 1998. 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, 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 restricted from paying dividends at any time on its Common Stock or from acquiring its capital stock by certain debt covenants contained in agreements to which the Company is a party. 3. NET LOSS PER SHARE Net loss per share is computed using the weighted average number of common shares outstanding in accordance with the provisions of Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share." The weighted average number of shares used in the calculation for both basic and diluted net loss per share excludes warrants, stock options and convertible preferred stock because a net loss was incurred for the periods reported in the accompanying condensed consolidated statements of income (loss). 4. RESTRUCTURING RESERVES The remaining restructuring reserves established in 1996 are primarily comprised of facility exit/relocation costs. Facility exit/relocation costs are primarily related to the Company's decision to sublet a portion of its Weehawken, NJ corporate facility and to consolidate its distribution centers in Roanoke, VA. Remaining reserves for restructuring costs approximated $2.9 million and $3.3 million at March 27, 1999 and December 26, 1998, respectively, and are included in accrued liabilities in the accompanying condensed consolidated balance sheets. 5. LONG-TERM DEBT The Company's long-term credit arrangement with Congress Financial Corporation is comprised of a revolving line of credit of up to $65 million ("Congress Revolving Credit Facility") and term loans aggregating $14 million ("Revolving Term Notes") expiring on January 31, 2001. At March 27, 1999, the Company had borrowings of $9.9 million under the Congress Revolving Credit Facility and $13.7 million in Revolving Term Notes. The rates of interest related to the Congress Revolving Credit Facility and Revolving Term Notes at March 27, 1999 were 8.25% and 7.72%, respectively. The face amount of unexpired documentary letters of credit were approximately $4 million at both March 27, 1999 and March 28, 1998. 7 8 The Congress Revolving Credit Facility is secured by all the assets of the Company. Borrowings under the Congress Revolving Credit Facility are based on percentages of eligible inventory and accounts receivable. The Congress Revolving Credit Facility places limitations on the incurrence of additional indebtedness and requires the Company to maintain minimum net worth and working capital throughout the term of the agreement. At March 27, 1999, the Company was in compliance with such covenants and remaining unused availability under the Congress Revolving Credit Facility was $26.9 million. The term of the outstanding letters of credit issued and the related guarantee by Richemont Finance S.A. of $25.8 million was recently extended from March 30, 1999 to March 31, 2000. 6. SEGMENT INFORMATION Beginning in 1999, the Company will have two operating segments: Brand Marketing and Web Services. This represents a change from 1998, when the Company operated only in one segment - direct marketing. In March 1999, the Company decided to reposition its operations into two separate units, each representing the overall strategic initiatives of the Company. The Brand Marketing division will primarily be comprised of the Company's branded portfolio of specialty catalogs and related retail operations and the Company's e-commerce web site portfolio relating to each of the Company's catalogs. The Web Services division will be comprised of the Company's Internet marketing services group, its telemarketing and fulfillment operations, information systems platform and corporate administration. Revenues for the Brand Marketing division will be derived primarily from the sale of merchandise through the Company's catalog and related e-commerce offerings. Other sources of revenue will include various upsell initiatives and other catalog related revenue. Revenue for the Web Services division will be comprised of charges to the Brand Marketing division pursuant to intercompany service agreements, and revenues in connection with the Company's fulfillment services and e-commerce services provided to third parties. Because the decision to realign the Company, as described above, was only made during the quarter ended March 27, 1999, as of such date, all the necessary steps to formally separate the business units had not been completed, and as such no segment information is available to be presented. 8 9 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 (Loss).
13 WEEKS ENDED MARCH 27, MARCH 28, 1999 1998 ----- ----- Revenues 100.0% 100.0% Cost of sales and operating expenses 64.1 63.2 Selling expenses 25.0 27.3 General and administrative expenses 11.3 10.0 Depreciation and amortization 1.8 1.9 Loss from operations (2.2) (2.4) Interest expense, net (.9) (1.2) Net loss (3.3)% (3.7)%
RESULTS OF OPERATIONS THIRTEEN-WEEKS ENDED MARCH 27, 1999 COMPARED WITH THIRTEEN-WEEKS ENDED MARCH 28, 1998 Net Loss. The Company reported a net loss of ($4.2) million or $(.02) per share for the thirteen-weeks ended March 27, 1999 compared with a net loss of $(4.6) million or $(.02) per share for the same period last year. The per share amounts were calculated based on weighted average shares outstanding of 210,444,784 and 203,788,774 for the current year and prior year period, respectively. This increase in weighted average shares was due to an exercise of warrants in July 1998 by Richemont Finance S. A. The net loss for the thirteen-weeks ended March 27, 1999 was primarily the result of the seasonality of the Company's business, as well as increased costs (of approximately $2.5 million) related to the Company's strategic initiatives (see Note 6 "Segment Information") offset by the reduction in operating losses associated with the discontinuance of noncore catalogs. The seasonality of the Company's business is such that the sales volumes achieved in the first quarter of the year are not sufficient to cover its fixed costs for such period. Compared to the comparable period last year, the decrease in net loss was primarily due to: (i) better catalog productivity (ii) improved upsell program (iii) improved merchandise in-stock position (lower back orders) and (iv) improved postage and distribution costs partially offset by, (i) costs related to strategic initiatives and (ii) aggressive disposal of non core catalog inventories Revenues. Revenues increased 2.6% for the thirteen-week period ended March 27, 1999 to $127.7 million from $124.5 million for the same period in 1998. Revenues from continuing operations increased by 8.1%. The Company circulated 69.3 million catalogs during the 1999 period versus 74.5 million catalogs in the prior year period. Revenues from discontinued operations decreased to $8.5 million from $14.3 million in the prior year period. 9 10 Operating Costs and Expenses. Cost of sales and operating expenses increased to 64.1% of revenues for the thirteen-week period ended March 27, 1999 compared to 63.2% of revenues for the same period in 1998. These results reflect a decrease in product margins as a result of higher merchandise and freight costs and aggressive disposal of non core catalog inventories. These cost increases were partially offset by realized savings in outbound postage expense due to improved initial fill performance by most of the Company's catalogs, as well as an improvement in distribution costs which resulted from the consolidation of distribution activities into the Company's distribution center in Roanoke, Virginia. Selling expenses decreased to 25.0% of revenues in the first quarter of 1999 from 27.3% in the same period in 1998. This decrease reflects improved catalog productivity as a result of more targeted circulation strategies as well as the repositioning of non-core catalogs to e-commerce. The number of customers having made a purchase in the preceding 12 months remained at approximately 4 million, consistent with December 26, 1998. General and administrative expenses were 11.3% of revenues for the first quarter of 1999 versus 10.0% for the comparable period in 1998. General and administrative costs reflect higher marketing, legal and MIS costs primarily related to strategic initiatives. Depreciation and amortization decreased to 1.8% of revenues for the first quarter of 1999 versus 1.9% for the comparable period in 1998. Loss from Operations. The Company recorded a loss from operations of $(2.9) million for the first quarter ended March 27, 1999 or (2.2%) of revenues, compared to a loss from operations of $(3.0) million for the same period in 1998 or (2.4%) of revenues. Interest Expense, Net. Interest expense, net decreased $.3 million in the first quarter of 1999 compared to the same period last year as a result of the Company's improved liquidity and reduced borrowing requirements. Income Taxes. The Company recorded a state tax provision of $.2 million and $.3 million in each of the thirteen-week periods ended March 27, 1999 and March 28, 1998, respectively. LIQUIDITY AND CAPITAL RESOURCES At March 27, 1999 the Company had $3.6 million in cash and cash equivalents compared with $12.2 million at December 26, 1998. Working capital and current ratio were $50.8 million and 1.69 to 1 at March 27, 1999 versus $43.9 million and 1.47 to 1 at December 26, 1998. Net cash used in operations during the quarter ended March 27, 1999 of $17.6 million was primarily the result of significant payments made to suppliers (to ensure a consistent flow of product during the first half of 1999), which improved the merchandise in-stock position, resulting in higher fill rates and reduced backorder levels, and the result of necessary spending for the Company's strategic initiatives. Cash was also used to fund a seasonal increase in catalog costs. This cash spending was partially offset by the reduction of inventory levels as a result of higher fill rates and related sales increases, and by the Company's more aggressive liquidation strategy during the period. In addition, significant cash collections from customers and from the Company's upsell activities mitigated the impact of the cash spending during the period. The Company also incurred capital expenditures of $404,000. The Company utilized $9.9 million of borrowings under the Congress Revolving Credit Facility to fund seasonal working capital requirements. This amount was less than the $13.2 million of borrowings in the comparable period during the prior year primarily due to lower inventory carrying levels. The total amount outstanding under the Congress Revolving Credit Facility at March 27, 1999 was $9.9 million, compared with $0 at December 27, 1998. Remaining availability under the Congress Revolving Credit Facility at March 27, 1999 was $26.9 million.($30.5 million including cash on hand). 10 11 In March 1999 Richemont agreed to extend its letter of credit guarantee to March 31, 2000. As consideration for this transaction, the Company agreed to pay Richemont a facility fee of 9.5% of the principal amount of each letter of credit. The Company's ability to continue to improve upon its prior year's performance and implement its business strategy is critical to maintaining adequate liquidity. 11 12 ITEM 3. QUANTITIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. none. 12 13 PART II - OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 27 Financial Data Schedule (EDGAR filing only). (b) Reports on Form 8-K none. 13 14 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 By: /s/ LARRY J. SVOBODA -------------------- Larry J. Svoboda Senior Vice-President and Chief Financial Officer (on behalf of the Registrant and as principal financial officer) Date: May 11, 1999 14 EX-27 2 FINANCIAL DATA SCHEDULE
5 THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE HANOVER DIRECT, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS AND STATEMENTS OF INCOME FOR THE THREE MONTHS ENDED MARCH 27, 1999 AND IS QUALIFIED IN IT ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 3-MOS MAR-27-1999 MAR-27-1999 3,610 0 21,082 (2,175) 57,223 124,703 88,452 (39,982) 203,489 73,927 0 6,175 0 140,539 (83,709) 203,489 127,714 127,714 81,904 48,694 0 (2,884) (1,147) (4,031) ( 193) (4,224) 0 0 0 (4,224) (.02) (.02)
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