SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 11-K
[X] ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2003
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.
115 RIVER ROAD
EDGEWATER, NEW JERSEY 07020
B. Name of issuer of the securities held pursuant to the plan and the address of
its principal executive office:
HANOVER DIRECT, INC.
115 RIVER ROAD
EDGEWATER, NEW JERSEY 07020
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Plan Administrator of
Hanover Direct, Inc. Savings and Retirement Plan:
We have audited the accompanying Statements of Net Assets Available for
Benefits of the Hanover Direct, Inc. Savings and Retirement Plan (the Plan) as
of December 31, 2003 and 2002, and the related Statement of Changes in Net
Assets Available for Benefits for the year ended December 31, 2003. These
financial statements are the responsibility of the Plan's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits 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 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, 2003 and 2002, and the changes in net assets available for
benefits for the year ended December 31, 2003 in conformity with U.S. 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 Schedule H, line 4(i)
- -- Schedule of Assets (Held at End of Year) as of December 31, 2003 is
presented for the purpose of additional analysis and is not a required part of
the basic financial statements but is 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. This supplemental schedule
is the responsibility of the Plan's management. The supplemental schedule has
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.
/s/ KPMG LLP
New York, New York
June 24, 2004
HANOVER DIRECT, INC. SAVINGS AND RETIREMENT PLAN
Statements of Net Assets Available for Benefits
December 31, 2003 and 2002
2003 2002
----------- -----------
Assets:
Investments (note 3):
Common and collective trust fund $ 5,321,677 $ 5,301,271
Mutual funds 17,906,943 12,927,524
Investment in Hanover Direct, Inc.
Common Stock 214,505 189,156
Plan participant loans receivable 501,706 585,973
----------- -----------
Total investments 23,944,831 19,003,924
Contribution Receivable 449 --
----------- -----------
Net assets available for benefits 23,945,280 19,003,924
=========== ===========
See accompanying notes to financial statements.
HANOVER DIRECT, INC. SAVINGS AND RETIREMENT PLAN
Statement of Changes in Net Assets Available for Benefits
Year ended December 31, 2003
PLAN
TOTAL
-----------
Additions:
Net appreciation in fair value of investments (note 3) $ 4,115,844
Dividend income 431,844
Interest from participant loans 34,227
-----------
Net investment income 4,581,915
Contributions:
Participants 1,999,751
Hanover Direct, Inc. and subsidiaries 510,255
-----------
Total additions 7,091,921
-----------
Deductions:
Benefits paid to participants 2,141,459
Administrative expenses 9,106
-----------
Total deductions 2,150,565
-----------
Net increase 4,941,356
Net assets available for benefits:
Beginning of the year 19,003,924
-----------
End of the year $23,945,280
===========
See accompanying notes to financial statements.
HANOVER DIRECT, INC. SAVINGS AND RETIREMENT PLAN
Notes to Financial Statements
December 31, 2003 and 2002
(1) DESCRIPTION OF PLAN
The Hanover Direct, Inc. Savings and Retirement Plan (the "Plan") commenced
April 1, 1983. The following description of the Plan provides only general
information. Participants should refer to the Plan document for a more complete
description of the Plan's provisions.
Participation in the Plan is available to all Eligible Employees of Hanover
Direct, Inc. and its subsidiaries (the "Company") that have attained the age of
21 and have credit for at least six months of service (1,000 hours). Eligible
Employee does not include anyone subject to a collective bargaining agreement,
independent contractor, or a leased employee. The Plan is subject to the
provisions of the Employee Retirement Income Security Act of 1974, as amended
("ERISA").
Participants whose annual base salary is under $90,000 may make pre-tax
contributions of up to 20% of their total annual compensation ("Employee
Contribution"), up to a maximum of $12,000 in 2003, plus an additional $2,000
more for catch up contributions if they are over 50 years old. The Company
matches one-third of these pretax contributions up to 6% of participant's total
annual compensation ("Employer Contribution"). The participants have the right
to allocate contributions (Employee and Employer) among any combination of
("TRP"), as well as a Hanover Direct, Inc. Stock Fund.
A participant whose total annual compensation is in excess of $90,000 is a
highly compensated employee ("HCE"), as defined by the Internal Revenue Code
(IRC), and is limited to pre-tax contributions of 5% of his or her total annual
compensation, up to a maximum compensation limit of $200,000. The Company
matches one-third of these contributions up to 6% of a participant's maximum
compensation limit.
A participant will fully vest in the account value of the Employer's
Contribution upon the earlier of: the completion of three calendar years of
vesting service, retirement or termination after reaching age 65, death while an
employee, retirement due to permanent disability, or upon termination of the
Plan by the Company. Employee contributions vest immediately. A participant may
elect to withdraw from his or her voluntary contribution account an amount not
to exceed the participant's vested account value. Forfeitures by reason of
termination, withdrawal or lapse of participation are used to reduce the
Employer's Contributions. Nonvested forfeitures were $37,960 and $32,533 at
December 31, 2003 and 2002, respectively. In 2003, employer contributions were
not reduced from forfeited restricted accounts.
Participants are allowed to take out loans ranging from a minimum of $500 up to
the lesser of 50% of their individual vested account balance or $50,000. The
loans can be
HANOVER DIRECT, INC. SAVINGS AND RETIREMENT PLAN
Notes to Financial Statements
December 31, 2003 and 2002
for a period of up to five years and bear a fixed rate of interest of the prime
rate plus one percent, determined at the time of the loan issuance. For a loan
to purchase a primary residence, an individual must borrow a minimum of $2,500,
and may take up to 30 years to repay the loan. 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 is administered by the Administrative Committee (the "Committee"),
which is comprised of five 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.
Direct administrative costs of the Plan that were borne by the Company were
$27,274 in 2003.
Each participant's account is credited with participant and Company
contributions and Plan earnings. Participant accounts are stated at market value
at the end of each business day.
(2) SIGNIFICANT ACCOUNTING POLICIES
BASIS OF ACCOUNTING
The accompanying financial statements have been prepared on the accrual basis of
accounting in accordance with accounting principles generally accepted in the
United States of America.
INVESTMENT VALUATION AND INCOME RECOGNITION
Company Stock and mutual funds 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.
Realized gains and losses from security transactions are reported using the
moving weighted average method. Dividend income is recorded on the ex-dividend
date. The Stable Value Fund is stated at cost, which approximates market.
Participants' loans are valued at their outstanding balances, which approximate
fair value.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States 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. Actual results could differ from those estimates.
HANOVER DIRECT, INC. SAVINGS AND RETIREMENT PLAN
Notes to Financial Statements
December 31, 2003 and 2002
BENEFIT PAYMENTS
Benefit payments are recorded when paid.
(3) INVESTMENTS
The Plan's participants are given the option to invest in thirteen mutual funds
and a common and collective trust fund, in addition to the Company's Stock Fund.
These funds are as follows: the Stable Value Fund is a common trust fund which
invests in investment contracts selected by T. Rowe Price ("TRP"), the trustee
and recordkeeper for the Plan. The Spectrum Income Fund seeks a high level of
current income combined with moderate share price fluctuation by investing
primarily in domestic bond funds and two foreign bond funds. It may allocate up
to 25% of its assets to a stock fund. 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 Mid-Cap
Growth Fund provides long-term capital appreciation by investing in companies
with superior earnings growth potential that are no longer considered new or
emerging but may still be in the dynamic phase of their life cycles. The
International Stock Fund seeks to provide capital appreciation through
investments in well-established non-U.S. companies. The Equity Index 500 Fund
seeks to match the total return of the Standard & Poor's(R) 500 Composite Stock
Index ("S&P 500"). The Blue Chip Growth Fund seeks to provide long-term capital
growth, with income as a secondary objective. It invests primarily in common
stocks of large and medium-sized blue chip companies that have the potential for
above-average growth in earnings and are well established in their respective
industries. The PIMCO Total Return Fund, Admin Shares is a core bond fund that
seeks maximum total return - income plus capital appreciation. It invests in a
diversified portfolio of fixed income securities with an average duration of 3-6
years. The Retirement Income Fund seeks the highest total return over time
consistent with an emphasis on both capital growth and income. It invests in a
diversified portfolio initially consisting of about 60% stocks and 40% bonds.
The Retirement 2010 Fund seeks the highest total return over time consistent
with an emphasis on both capital growth and income. It invests in a diversified
portfolio initially consisting of about 67% stocks and 33% bonds. Over time, the
fund's allocation to bonds, particularly short-term bonds, will increase.
Approximately five years after its stated retirement date, this fund will
convert into the Retirement Income Fund. The Retirement 2020 Fund seeks the
highest total return over time consistent with an emphasis on both capital
growth and income. It invests in a diversified portfolio initially consisting of
about 79% stocks and 21% bonds. Over time, the fund's allocation to bonds will
increase. Approximately five years after its stated retirement date, this fund
will convert into the Retirement Income Fund. The Retirement 2030 Fund seeks the
highest total return over time
HANOVER DIRECT, INC. SAVINGS AND RETIREMENT PLAN
Notes to Financial Statements
December 31, 2003 and 2002
consistent with an emphasis on both capital growth and income. It invests in a
diversified portfolio initially consisting of about 90% stocks and 10% bonds for
several years. Over time, the fund's allocation to bonds will increase.
Approximately five years after its stated retirement date, this fund will
convert into the Retirement Income Fund. The Retirement 2040 Fund seeks the
highest total return over time consistent with an emphasis on both capital
growth and income. It invests in a diversified portfolio initially consisting of
about 90% stocks and 10% bonds for a substantial number of years. Over time, the
fund's allocation to bonds will increase. Approximately five years after its
stated retirement date, this fund will convert into the Retirement Income Fund.
The market value of the individual investments that represent 5% or more of the
Plan's total net assets available for benefits as of December 31, 2003 and 2002
were as follows:
2003 2002
---------- ----------
T. Rowe Price Spectrum Growth Fund $4,872,681 $3,850,287
T. Rowe Price Stable Value Fund 5,321,677 5,301,271
T. Rowe Price New Horizons Fund 2,999,873 1,997,927
T. Rowe Price Spectrum Income Fund 2,745,939 2,430,729
T. Rowe Price Mid-Cap Growth Fund 2,421,185 1,500,962
T. Rowe Price Blue Chip Growth Fund 1,955,029 1,335,065
T. Rowe Price Equity Index 500 Fund 1,834,333 1,217,729
During 2003, the Plan's investments (including gains and losses on investments
bought and sold, as well as held during the year) appreciated in value by
$4,115,844 as follows:
Mutual Funds $4,090,977
Common Stock 24,867
----------
$4,115,844
==========
(4) PLAN TERMINATION
The Plan may be terminated at any time at the Company's sole discretion subject
to the provisions of ERISA. 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. At this time, the Company has
not expressed any intention to terminate the Plan.
HANOVER DIRECT, INC. SAVINGS AND RETIREMENT PLAN
Notes to Financial Statements
December 31, 2003 and 2002
(5) TAX STATUS
The Plan has received a favorable determination letter from the Internal Revenue
Service stating that the Plan, as of June 5, 2002, is qualified under Section
401(a) of the IRC and, accordingly, is exempt from federal income taxes. The
Plan's administrator and the Plan's tax counsel believe that the Plan conforms
to ERISA requirements and continues to qualify as tax exempt under the Internal
Revenue Code.
The Company identified certain operational omissions with respect to the Plan
and has submitted an application to the IRS under the Voluntary Correction of
Operational Failures Program (VCO). The Company will pay all costs, taxes and
penalties associated with the VCO program. The Plan's management and management
of the Company expect that the final outcome of the VCO program will not have a
material effect on the Plan's financial statements.
(6) RELATED PARTY TRANSACTIONS
Certain Plan investments are shares of mutual funds managed by TRP. TRP is the
trustee and the recordkeeper for the Plan and, therefore, these transactions
qualify as party-in-interest transactions. Fees paid by the Plan for TRP's
services were $9,106 for the year ended December 31, 2003. At the participants'
instruction, contributions may be invested in common stock of the Company, a
party-in-interest. As of December 31, 2003 and 2002, the Hanover Direct, Inc.
Stock Fund held 975,025 and 995,558 shares, respectively, at corresponding
market values of $214,505 and $189,156.
SCHEDULE I
HANOVER DIRECT, INC. SAVINGS AND RETIREMENT PLAN
Schedule H, Line 4(i) - Schedule of Assets (Held at End of Year)
December 31, 2003
NUMBER OF CURRENT
DESCRIPTION SHARES VALUE
----------- ------ -----
Common and Collective Trust Fund
* T. Rowe Price Stable Value Fund 5,321,677 $ 5,321,677
Mutual Funds
* T. Rowe Price Spectrum Income Fund 233,300 2,745,939
* T. Rowe Price Spectrum Growth Fund 329,235 4,872,681
* T. Rowe Price New Horizons Fund 120,963 2,999,873
* T. Rowe Price Mid-Cap Growth Fund 56,438 2,421,185
* T. Rowe Price International Stock Fund 73,682 846,603
* T. Rowe Price Equity Index 500 Fund 61,246 1,834,333
* T. Rowe Price Blue Chip Growth Fund 68,718 1,955,029
* T. Rowe Price Retirement 2010 Fund 1,173 15,131
* T. Rowe Price Retirement 2020 Fund 3,843 51,695
* T. Rowe Price Retirement 2030 Fund 2,456 33,912
* T. Rowe Price Retirement 2040 Fund 42 582
* T. Rowe Price Retirement Income Fund 1,780 20,821
* T. Rowe Price PIMCO Total Return Fund, Admin Shares 10,192 109,159
Common Stock
* Hanover Direct, Inc. Common Stock Fund 975,025 214,505
Participants' Loan Accounts (1) 501,706
-----------
$23,944,831
===========
* Represents party-in-interest. Hanover Direct, Inc. Common Stock par value
is $.6667 per share.
(1) Terms of these loans generally range from 1 to 5 years (up to 30 years if
used to purchase a primary residence) and bear interest at prime plus one
percent. There were 186 loans outstanding bearing an average interest rate
of 6.2% at December 31, 2003.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the members
of the Administrative Committee of the Plan 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
By: _/s/ Charles E. Blue__________________
Name: Charles E. Blue
Title: Chairman of the Administrative
Committee
June 28, 2004
INDEX TO EXHIBITS
Exhibit
Number
_______
23 Consent of KPMG LLP