HNV Hanover Direct

Hanover Direct Reports Net Income for the Second Quarter of Fiscal 2004 - Restatement of Fiscal 2000 through the First Quarter of 2004 EDGEWATER, N.J., Aug. 10 /PRNewswire-FirstCall/ -- Hanover Direct, Inc. today announced net income for the 13- and 26- weeks ended June 26, 2004 of $0.6 million and $1.0 million, respectively. This represents the third consecutive quarter that the Company has recorded net income. During the second quarter of 2004, the Company identified a revenue recognition cut-off issue that resulted in revenue being recorded in advance of the actual shipment of merchandise to the customer. The practice was stopped immediately and the Company implemented procedures to ensure that this issue does not recur. The restated amounts for all periods affected dating back to fiscal 2000, while not material, are included in the Form 10-Q and this press release filed today. For the 13- weeks ended June 26, 2004, the Company reported net income applicable to common shareholders of $0.6 million or $0.00 per share compared with a net loss of $3.6 million, or $0.02 per share, for the comparable period in 2003. These amounts were calculated after deducting Series B Participating Preferred Stock dividends and accretion of $4.3 million for the 13- weeks ended June 28, 2003. Net revenues decreased $9.4 million (8.9%) for the 13-week period ended June 26, 2004 to $96.5 million from $105.9 million for the comparable period in 2003. This decrease resulted primarily from lower inventory levels caused by the Company's reduced liquidity that resulted from lower borrowing availability and tighter vendor credit at that time. Also, related declines in initial product fill rates and higher backorders and cancellations as well as reduced circulation in Domestications contributed to the sales decline. As previously announced, on July 8, 2004, the Company closed and funded a $20 million Term Loan Facility with Chelsey Finance, LLC and amended its existing senior credit facility with Congress increasing the Company's liquidity by approximately $25 million in the aggregate. These transactions were consummated to address the liquidity issuing facing the Company. The Company's Internet sales continued to grow, despite the negative impact of low inventory levels, comprising 31.1% of combined Internet and catalog revenues for the 13- weeks ended June 26, 2004 compared with 27.5% for the comparable period in 2003. Internet sales have increased by approximately $0.8 million, or 2.9%, to $28.3 million for the 13-week period ended June 26, 2004 from $27.5 million for the comparable period in 2003. "It was a difficult quarter reflecting the impact that our tight liquidity position had on all of our businesses," stated Wayne Garten, the Company's President and Chief Executive Officer. Mr. Garten added, "On the positive side, the Company still was able to report its third consecutive profitable quarter primarily as a result of The Company Store's continued strong performance. In addition, our new financing arrangements provide the Company with adequate liquidity to support its business." The Company reported net income applicable to common shareholders of $1.0 million, or $0.00 per share, for the 26- weeks ended June 26, 2004 compared with a net loss applicable to common shareholders of $7.2 million, or $0.05 per share, for the comparable period in 2003. These amounts were calculated after deducting Series B Participating Preferred Stock dividends and accretion of $7.9 million for the 26- weeks ended June 28, 2003. The weighted average number of shares used in the calculation for basic and diluted net income per common share was 220,173,633 and 220,455,326, respectively, for the 26-week period ended June 26, 2004. The weighted average number of shares used in the calculation for both basic and diluted net loss per common share was 138,315,800 for the 26-week period ended June 28, 2003. The increase in weighted average shares was primarily the result of the Recapitalization Agreement with Chelsey Direct, LLC consummated on November 30, 2003. Net revenues decreased $15.5 million (7.5%) for the 26-week period ended June 26, 2004 to $191.9 million from $207.4 million for the comparable period in 2003. This decrease resulted from lower inventory levels caused by the Company's reduced borrowing availability, tighter vendor credit and a decline in initial product fill rates and increases in backorders and cancellations. As planned, there was a continued reduction in circulation for the Domestications brand in order to limit the investment in catalog production costs and working capital necessary to maintain its inventory. The Company's Internet sales continued to grow, despite the negative impact of low inventory levels, comprising 31.6% of combined Internet and catalog revenues for the 26- weeks ended June 26, 2004 compared with 27.1% for the comparable period in 2003. Internet sales have increased by approximately $3.9 million, or 7.3%, to $57.0 million for the 26-week period ended June 26, 2004 from $53.1 million for the comparable fiscal period in 2003. The Hanover Direct, Inc. 2004 Annual Meeting of Stockholders has been scheduled for Thursday, August 12, 2004 at 9:30 a.m., local time. The meeting will be held at the Sheraton Meadowlands Hotel and Conference Center, 2 Meadowlands Plaza, East Rutherford, New Jersey. The record date for voting at the annual meeting is July 9, 2004. Forward Looking Statements The matters discussed in this news release may include forward looking statements (within the meaning of the Private Securities Litigation Reform Act of 1995) by officers of the Company. Important factors that could cause actual results to differ materially from those in such forward looking statements include, without limitation, the matters discussed in the Management's Discussion and Analysis section of the Company's most recent quarterly report on Form 10-Q and other filings with the Securities and Exchange Commission under the caption "Cautionary Statements." In particular, these factors, many of which are beyond the Company's control, include, but are not limited to, (i) a general deterioration in economic conditions in the United States, (ii) competition, (iii) legal developments including the results of certain litigation pending against the Company, (iv) the effectiveness of efforts to reduce costs and sell certain assets, (v) the maintenance of adequate liquidity and compliance with its debt agreements, and (vi) the achievement of its business plan. We undertake no obligation to publicly update any forward looking statement whether as a result of new information, future events or otherwise. You are advised, however, to consult any further disclosures we make on related subjects in our Forms 10-Q, 8-K, 10-K or any other reports filed with the Securities and Exchange Commission. About Hanover Direct, Inc. Hanover Direct, Inc. (AMEX:HNV) and its business units provide quality, branded merchandise through a portfolio of catalogs and e-commerce platforms to consumers, as well as a comprehensive range of Internet, e-commerce, and fulfillment services to businesses. The Company's catalog and Internet portfolio of home fashions, apparel and gift brands include Domestications, The Company Store, Company Kids, Silhouettes, International Male, Scandia Down, and Gump's By Mail. The Company owns Gump's, a retail store based in San Francisco. Each brand can be accessed on the Internet individually by name. Keystone Internet Services, LLC (http://www.keystoneinternet.com/), the Company's third party fulfillment operation, also provides the logistical, IT and fulfillment needs of the Company's catalogs and web sites. Information on Hanover Direct, including each of its subsidiaries, can be accessed on the Internet at http://www.hanoverdirect.com/. HANOVER DIRECT, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands of dollars, except share amounts) (Unaudited) June 26, December 27, 2004 2003 As Restated ASSETS CURRENT ASSETS: Cash and cash equivalents $392 $2,282 Accounts receivable, net of allowance for doubtful accounts of $1,035 and $1,105, respectively 13,332 13,802 Inventories 36,974 41,794 Prepaid catalog costs 15,780 11,945 Other current assets 3,132 3,951 Total Current Assets 69,610 73,774 PROPERTY AND EQUIPMENT, AT COST: Land 4,361 4,361 Buildings and building improvements 18,212 18,210 Leasehold improvements 10,108 10,108 Furniture, fixtures and equipment 53,519 53,212 86,200 85,891 Accumulated depreciation and amortization (60,129) (58,113) Property and equipment, net 26,071 27,778 Goodwill 9,278 9,278 Deferred tax assets 2,213 2,213 Other assets 1,642 1,575 Total Assets $108,814 $114,618 LIABILITIES AND SHAREHOLDERS' DEFICIENCY CURRENT LIABILITIES: Short-term debt and capital lease obligations $12,232 $13,468 Accounts payable 39,678 41,834 Accrued liabilities 12,004 12,907 Customer prepayments and credits 5,839 5,485 Deferred tax liability 2,213 2,213 Total Current Liabilities 71,966 75,907 NON-CURRENT LIABILITIES: Long-term debt 6,970 9,042 Series C Participating Preferred Stock, authorized, issued and outstanding 564,819 shares; liquidation preference of $56,482 72,689 72,689 Other 3,692 4,609 Total Non-current Liabilities 83,351 86,340 Total Liabilities 155,317 162,247 SHAREHOLDERS' DEFICIENCY: Common Stock, $0.66 2/3 par value, authorized 300,000,000 shares; 222,294,562 shares issued and 220,173,633 shares outstanding 148,197 148,197 Capital in excess of par value 302,554 302,432 Accumulated deficit (493,908) (494,912) (43,157) (44,283) Less: Treasury stock, at cost (2,120,929 shares) (2,996) (2,996) Notes receivable from sale of Common Stock (350) (350) Total Shareholders' Deficiency (46,503) (47,629) Total Liabilities and Shareholders' Deficiency $108,814 $114,618 HANOVER DIRECT, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS) (In thousands of dollars, except per share amounts) (Unaudited) For the 13- Weeks Ended For the 26- Weeks Ended June 26, June 28, June 26, June 28, 2004 2003 2004 2003 As Restated As Restated NET REVENUES $96,482 $105,883 $191,857 $207,412 OPERATING COSTS AND EXPENSES: Cost of sales and operating expenses 58,009 66,291 117,294 131,398 Special charges 43 211 11 488 Selling expenses 25,754 26,922 49,029 51,100 General and administrative expenses 10,419 9,491 20,786 20,746 Depreciation and amortization 1,004 1,138 2,016 2,321 95,229 104,053 189,136 206,053 INCOME FROM OPERATIONS 1,253 1,830 2,721 1,359 Gain on sale of Improvements -- -- -- 1,911 INCOME BEFORE INTEREST AND INCOME TAXES 1,253 1,830 2,721 3,270 Interest expense, net 790 1,120 1,712 2,568 INCOME BEFORE INCOME TAXES 463 710 1,009 702 (Benefit) provision for Federal income taxes (62) -- 1 -- (Benefit) provision for state income taxes (38) (5) 4 10 NET INCOME AND COMPREHENSIVE INCOME 563 715 1,004 692 Preferred stock dividends -- 4,290 -- 7,922 Earnings applicable to Preferred Stock 1 -- 2 -- NET INCOME (LOSS) APPLICABLE TO COMMON SHAREHOLDERS $562 $ (3,575) $1,002 $(7,230) NET INCOME (LOSS) PER COMMON SHARE: Net income (loss) per common share - basic and diluted $0.00 $(0.02) $0.00 $(0.05) Weighted average common shares outstanding - basic (thousands) 220,174 138,316 220,174 138,316 Weighted average common shares outstanding - diluted (thousands) 220,174 138,316 220,455 138,316 HANOVER DIRECT, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands of dollars) (Unaudited) For the 26- Weeks Ended As Restated June 26, June 28, 2004 2003 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $1,004 $692 Adjustments to reconcile net income to net cash provided (used) by operating activities: Depreciation and amortization, including deferred fees 2,158 2,966 Provision for doubtful accounts 268 298 Special charges 11 488 Gain on the sale of Improvements -- (1,911) Gain on the sale of property and equipment -- (2) Compensation expense related to stock options 122 341 Changes in assets and liabilities: Accounts receivable 202 2,114 Inventories 4,820 3,418 Prepaid catalog costs (3,835) (1,844) Accounts payable (2,156) (1,703) Accrued liabilities (914) (11,082) Customer prepayments and credits 354 2,396 Other, net (530) (1,087) Net cash provided (used) by operating activities 1,504 (4,916) CASH FLOWS FROM INVESTING ACTIVITIES: Acquisitions of property and equipment (308) (1,202) Proceeds from the sale of Improvements -- 2,000 Costs related to the early release of escrow funds -- (89) Proceeds from disposal of property and equipment -- 2 Net cash (used) provided by investing activities (308) 711 CASH FLOWS FROM FINANCING ACTIVITIES: Net (payments) borrowings under Congress revolving loan facility (1,050) 6,453 Payments under Congress Tranche A term loan facility (996) (994) Payments under Congress Tranche B term loan facility (900) (900) Payments of long-term debt and capital lease obligations (362) (6) Payment of debt issuance costs (125) (78) Refund (payment) of estimated Richemont tax obligation on Series B Participating Preferred Stock accretion 347 (347) Net cash (used) provided by financing activities (3,086) 4,128 Net decrease in cash and cash equivalents (1,890) (77) Cash and cash equivalents at the beginning of the year 2,282 785 Cash and cash equivalents at the end of the period $392 $708 Supplemental Disclosures of Cash Flow Information: Cash paid for: Interest $1,332 $1,642 Income taxes $8 $663 Non-cash investing and financing activities: Series B Participating Preferred Stock redemption price increase $ -- $7,575 RESTATEMENTS OF PRIOR PERIOD FINANCIAL STATEMENTS During the second quarter of 2004, the Company identified a revenue recognition cut-off issue that resulted in revenue being recorded in advance of the actual shipment of merchandise to the customer. The practice was stopped immediately and the Company implemented procedures to ensure that this issue does not recur. The affected prior quarters' and annual periods' results have been restated as set forth below. Year ended December 30, 2000 As Previously Reported As Restated (In thousands) Accounts receivable, net $ 27,703 $ 27,357 Inventory $ 69,612 $ 69,731 Total Current Assets $ 128,446 $ 128,313 Accumulated Deficiency $ (471,651) $ (471,753) Total Shareholders' Deficiency $ (24,452) $ (24,554) Net revenues $ 603,014 $ 602,668 Loss before interest and income taxes $ (70,552) $ (70,652) Net loss and comprehensive income loss $ (80,800) $ (80,900) Net loss applicable to common shareholders $ (84,815) $ (84,915) Net loss per share-basic and diluted $ (0.40) $ (0.40) Year ended December 29, 2001 As Previously Reported As Restated (In thousands) Net revenues $ 532,165 $ 532,519 Income before interest and income taxes $ 804 $ 906 Net loss and comprehensive income loss $ (5,845) $ (5,743) Net loss applicable to common shareholders $ (16,590) $ (16,488) Net loss per share-basic and diluted $ (0.08) $ (0.08) Year ended December 28, 2002 As Previously Reported As Restated (In thousands) Accounts receivable, net $ 16,945 $ 16,938 Inventory $ 53,131 $ 53,134 Total Current Assets $ 88,287 $ 88,285 Accumulated Deficiency $ (486,627) $ (486,628) Total Shareholders' Deficiency $ (58,841) $ (58,842) Net revenues $ 457,644 $ 457,638 Net loss per share-basic and diluted $ (0.18) $ (0.18) Quarter ended March 29, 2003 As Previously Reported As Restated (In thousands) Accounts receivable, net $ 13,580 $ 12,652 Inventory $ 53,425 $ 53,787 Total Current Assets $ 90,837 $ 90,548 Accumulated Deficiency $ (486,435) $ (486,650) Total Shareholders' Deficiency $ (62,103) $ (62,318) Net revenues $ 102,474 $ 101,529 Income before interest and income taxes $ 1,655 $ 1,440 Net income (loss) and comprehensive income (loss) $ 192 $ (23) Net loss applicable to common shareholders $ (3,440) $ (3,655) Net loss per share-basic and diluted $ (0.02) $ (0.03) Quarter ended June 28, 2003 As Previously Reported As Restated (In thousands) Accounts receivable, net $ 15,360 $ 14,526 Inventory $ 49,382 $ 49,716 Total Current Assets $ 84,667 $ 84,381 Accumulated Deficiency $ (485,745) $ (485,935) Total Shareholders' Deficiency $ (65,540) $ (65,730) Net revenues $ 105,765 $ 105,883 Income before interest and income taxes $ 1,805 $ 1,830 Net income and comprehensive income $ 690 $ 715 Net loss applicable to common shareholders $ (3,600) $ (3,575) Net loss per share-basic and diluted $ (0.02) $ (0.02) Six months ended June 28, 2003 As Previously Reported As Restated (In thousands) Net revenues $ 208,239 $ 207,412 Income before interest and income taxes $ 3,460 $ 3,270 Net income and comprehensive income $ 882 $ 692 Net loss applicable to common shareholders $ (7,040) $ (7,230) Net loss per share-basic and diluted $ (0.05) $ (0.05) Quarter ended September 27, 2003 As Previously Reported As Restated (In thousands) Net revenues $ 96,633 $ 97,466 Income (loss) before interest and income taxes $ (64) $ 126 Net loss and comprehensive loss $ (16,645) $ (16,455) Net loss applicable to common shareholders $ (16,645) $ (16,455) Net loss per share-basic and diluted $ (0.12) $ (0.12) Nine months ended September 27, 2003 As Previously Reported As Restated (In thousands) Net revenues $ 304,872 $ 304,878 Net loss per share-basic and diluted $ (0.17) $ (0.17) Quarter ended December 27, 2003 As Previously Reported As Restated (In thousands) Accounts receivable, net $ 14,335 $ 13,802 Inventory $ 41,576 $ 41,794 Total Current Assets $ 73,952 $ 73,774 Accumulated Deficiency $ (494,791) $ (494,912) Total Shareholders' Deficiency $ (47,508) $ (47,629) Net revenues $ 110,002 $ 109,469 Income before interest and income taxes $ 4,621 $ 4,500 Net income and comprehensive income $ 364 $ 243 Net income applicable to common shareholders $ 364 $ 243 Net income per share-basic and diluted $ 0.00 $ 0.00 Year ended December 27, 2003 As Previously Reported As Restated (In thousands) Net revenues $ 414,874 $ 414,347 Income before interest and income taxes $ 8,017 $ 7,896 Net loss and comprehensive loss $ (15,399) $ (15,520) Net loss applicable to common shareholders $ (23,321) $ (23,442) Net loss per share-basic and diluted $ (0.16) $ (0.16) Quarter ended March 27, 2004 As Previously Reported As Restated (In thousands) Accounts receivable, net $ 12,614 $ 12,145 Inventory $ 37,646 $ 37,835 Total Current Assets $ 71,293 $ 71,152 Accumulated Deficiency $ (494,373) $ (494,470) Total Shareholders' Deficiency $ (47,086) $ (47,183) Net revenues $ 95,312 $ 95,375 Income before interest and income taxes $ 1,445 $ 1,468 Net income and comprehensive income $ 418 $ 441 Net income applicable to common shareholders $ 417 $ 440 Net income per share-basic and diluted $ 0.00 $ 0.00 The restatements did not result in a change to the Company's cash flows during the restated periods; however it did result in technical defaults by the Company with its covenants under the Congress Credit Facility and the Term Loan Facility. Congress and Chelsey Finance have waived such defaults. DATASOURCE: Hanover Direct, Inc. CONTACT: Charles Blue, S.V.P. & Chief Financial Officer of Hanover Direct, Inc., +1-201-272-3389; or Rich Tauberman of MWW Group, +1-201-507-9500, for Hanover Direct, Inc. Web site: http://www.hanoverdirect.com/

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