-----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, GBZ2adaqdoxBosCckkgoDbbTCOnYhZSLGmLafGCgE6WK6ituCnDXN8Vd4ublz6gI sKx4CNebjL9/ySCMYHmY0w== /in/edgar/work/20000815/0000276641-00-500003/0000276641-00-500003.txt : 20000922 0000276641-00-500003.hdr.sgml : 20000921 ACCESSION NUMBER: 0000276641-00-500003 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000701 FILED AS OF DATE: 20000815 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SPIEGEL INC CENTRAL INDEX KEY: 0000276641 STANDARD INDUSTRIAL CLASSIFICATION: [5961 ] IRS NUMBER: 362593917 STATE OF INCORPORATION: DE FISCAL YEAR END: 0102 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-16126 FILM NUMBER: 703243 BUSINESS ADDRESS: STREET 1: 3500 LACEY RD CITY: DOWNERS GROVE STATE: IL ZIP: 60515-5432 BUSINESS PHONE: 7089868800 MAIL ADDRESS: STREET 1: 3500 LACEY ROAD CITY: DOWNERS GROVE STATE: IL ZIP: 60515-5432 10-Q 1 spglaugfil.txt SPIEGEL, INC. 2ND QTR 2000 FORM 10Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) /X/ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarter ended July 1, 2000 or / / Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from ............. to ............... Commission file number 0-16126 SPIEGEL, INC. (Exact name of registrant as specified in its charter) Delaware 36-2593917 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 3500 Lacey Road, Downers Grove, Illinois 60515-5432 (Address of principal executive offices) (Zip Code) 630-986-8800 (Registrant's telephone number, including area code) (Former name, former address and former fiscal year, if changed since last report) 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 [ ] APPLICABLE ONLY TO CORPORATE ISSUERS The number of shares outstanding of each of the issuer's classes of common stock, as of August 11, 2000 are as follows: Class A non-voting common stock, $1.00 par value 14,854,244 shares Class B voting common stock, $1.00 par value 117,009,869 shares - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SPIEGEL, INC. AND SUBSIDIARIES Index to Quarterly Report on Form 10-Q Thirteen and Twenty-six Weeks Ended July 1, 2000 PAGE PART I - FINANCIAL INFORMATION Item 1 - Financial Statements Consolidated Balance Sheets, July 1, 2000, July 3, 1999 and January 1, 2000 3 Consolidated Statements of Earnings, Thirteen and Twenty-six Weeks Ended July 1, 2000 and July 3, 1999 4 Consolidated Statements of Cash Flows, Twenty-six Weeks Ended July 1, 2000 and July 3, 1999 5 Notes to Consolidated Financial Statements 6-8 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations 9-16 Item 3 - Quantitative and Qualitative Disclosures About Market Risk 15-16 2 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SPIEGEL, INC. AND SUBSIDIARIES Consolidated Balance Sheets ($000s omitted, except per share amounts)
(unaudited) (unaudited) July 1, July 3, January 1, 2000 1999 2000 ------------ ------------ ------------ ASSETS Current assets: Cash and cash equivalents $ 32,411 $ 25,967 $ 46,023 Receivables, net 1,014,772 633,718 971,566 Inventories 507,220 491,896 499,413 Prepaid expenses 113,209 98,463 101,915 Refundable income taxes -- 11,041 3,830 Deferred income taxes 41,380 25,974 41,397 ------------ ------------ ------------ Total current assets 1,708,992 1,287,059 1,664,144 Property and equipment, net 332,912 341,649 333,852 Intangible assets, net 147,111 151,941 148,143 Other assets 108,984 86,780 95,901 ------------ ------------ ------------ Total Assets $ 2,297,999 $ 1,867,429 $ 2,242,040 ------------ ------------ ------------ ------------ ------------ ------------ LIABILITIES and STOCKHOLDERS' EQUITY Current liabilities: Current maturities of debt $ 125,714 $ 184,464 $ 214,464 Accounts payable and accrued liabilities 573,590 478,006 644,455 ------------ ------------ ------------ Total current liabilities 699,304 662,470 858,919 Long-term debt, excluding current maturities 741,857 521,572 566,572 Deferred income taxes 91,449 38,132 91,409 ------------ ------------ ------------ Total liabilities 1,532,610 1,222,174 1,516,900 Stockholders' equity: Class A non-voting common stock, $1.00 par value; authorized 16,000,000 shares; 14,854,244, 14,791,844 and 14,849,244 shares issued and outstanding at July 1, 2000, July 3, 1999 and January 1, 2000, respectively 14,854 14,792 14,849 Class B voting common stock, $1.00 par value; authorized 121,500,000 shares; 117,009,869 shares issued and outstanding at July 1, 2000, July 3, 1999 and January 1, 2000 117,010 117,010 117,010 Additional paid-in capital 329,012 328,713 328,984 Accumulated other comprehensive loss: Foreign currency translation adjustment (3,174) (3,304) (2,608) Retained earnings 307,687 188,044 266,905 ------------ ------------ ------------ Total stockholders' equity 765,389 645,255 725,140 ------------ ------------ ------------ Total liabilities and stockholders' equity $ 2,297,999 $ 1,867,429 $ 2,242,040 ------------ ------------ ------------ ------------ ------------ ------------
See accompanying notes to consolidated financial statements. 3 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SPIEGEL, INC. AND SUBSIDIARIES Consolidated Statements of Earnings ($000s omitted, except per share amounts) (unaudited)
Thirteen Weeks Ended Twenty-six Weeks Ended -------------------------- -------------------------- July 1, July 3, July 1, July 3, 2000 1999 2000 1999 ------------ ------------ ------------ ------------ Net sales and other revenues: Net sales $ 711,770 $ 681,331 $ 1,339,247 $ 1,245,856 Finance revenue 80,610 57,722 156,807 108,676 Other revenue 13,558 12,900 24,751 22,598 ------------ ----------- ------------ ------------ 805,938 751,953 1,520,805 1,377,130 Cost of sales and operating expenses: Cost of sales, including buying and occupancy expenses 434,443 438,565 845,884 822,820 Selling, general and administrative expenses 314,920 270,361 571,802 514,011 ------------ ----------- ------------ ------------ 749,363 708,926 1,417,686 1,336,831 ------------ ----------- ------------ ------------ Operating income 56,575 43,027 103,119 40,299 Interest expense 15,559 15,094 30,015 29,336 ------------ ----------- ------------ ------------ Earnings before income taxes 41,016 27,933 73,104 10,963 Income tax provision 15,176 11,453 27,049 4,495 ------------ ----------- ------------ ------------ Net earnings $ 25,840 $ 16,480 $ 46,055 $ 6,468 ------------ ----------- ------------ ------------ ------------ ----------- ------------ ------------ Net earnings per common share: Basic and diluted $ 0.20 $ 0.13 $ 0.35 $ 0.05 ------------ ----------- ------------ ------------ ------------ ----------- ------------ ------------ Weighted average number of common shares outstanding: Basic 131,859,388 131,801,423 131,859,250 131,794,967 ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ Diluted 131,981,831 131,911,572 131,983,364 131,902,246 ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
See accompanying notes to consolidated financial statements. 4 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SPIEGEL, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows ($000s omitted) (unaudited)
Twenty-six Weeks Ended July 1, July 3, 2000 1999 ------------ ------------ Cash flows from operating activities: Net earnings $ 46,055 $ 6,468 Adjustments to reconcile net earnings to net cash used in operating activities: Depreciation and amortization 33,534 38,245 Net gains on sale of receivables (23,655) -- Change in assets and liabilities, net of effects of acquisition: Increase in receivables, net (19,551) (89,572) Increase in inventories (7,807) (981) Increase in prepaid expenses (11,294) (5,073) Decrease in accounts payable and accrued liabilities (73,071) (99,531) Increase in income taxes 6,094 3,254 ------------ ------------ Net cash used in operating activities (49,695) (147,190) ------------ ------------ Cash flows from investing activities: Net additions to property and equipment (21,407) (10,794) Net additions to other assets (23,238) (6,054) ------------ ------------ Net cash used in investing activities (44,645) (16,848) ------------ ------------ Cash flows from financing activities: Issuance of debt 246,000 158,000 Payment of debt (159,465) (60,714) Payment of dividends (5,274) -- Exercise of stock options 33 268 ------------ ------------ Net cash provided by financing activities 81,294 97,554 ------------ ------------ Effect of exchange rate on cash (566) 1,251 Net change in cash and cash equivalents (13,612) (65,233) Cash and cash equivalents at beginning of year 46,023 91,200 ------------ ------------ Cash and cash equivalents at end of period $ 32,411 $ 25,967 ------------ ------------ ------------ ------------ Supplemental cash flow information: Cash paid during the period for: Interest $ 30,637 $ 30,063 ------------ ------------ ------------ ------------ Income taxes $ 21,206 $ 1,813 ------------ ------------ ------------ ------------
See accompanying notes to consolidated financial statements. 5 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SPIEGEL, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements ($000s omitted) (unaudited) (1) Basis of presentation The consolidated financial statements included herein are unaudited and have been prepared from the books and records of the Company in accordance with generally accepted accounting principles and the rules and regulations of the Securities and Exchange Commission. All adjustments (consisting only of normal recurring accruals) which are, in the opinion of management, necessary for a fair presentation of financial position and operating results for the interim periods are reflected. These financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's most recent Annual Report on Form 10-K, which includes financial statements for the fiscal year ended January 1, 2000. Due to the seasonality of the Company's business, results for interim periods are not necessarily indicative of the results for the year. (2) Debt In June 2000, the Company amended its existing revolving credit agreement to increase the commitment from $500,000 to $750,000. The current commitment is comprised of two components including a $600,000 long-term agreement maturing in July 2003 and a $150,000 364 day agreement maturing in June 2001. Additionally, in conjunction with the maturity of certain senior and subordinated term indebtedness, the Company entered into four new senior term loan agreements totaling $95,000, due June 2005 through June 2007. (3) Dividends In the second quarter of 2000, the Company resumed payment of quarterly dividends to shareholders. A quarterly dividend of four cents per share totaling $5,274 was paid on May 15, 2000 to shareholders of record on May 8, 2000. 6 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (4) Comprehensive income The components of comprehensive income for the thirteen- and twenty-six week periods ended July 1, 2000 and July 3, 1999 are as follows:
Thirteen Weeks Ended Twenty-six Weeks Ended -------------------------- -------------------------- July 1, July 3, July 1, July 3, 2000 1999 2000 1999 ------------ ------------ ------------ ------------ Net income $ 25,840 $ 16,480 $ 46,055 $ 6,468 Foreign currency translation adjustment (492) 609 (566) 1,251 ------------ ------------ ------------ ------------ Comprehensive income $ 25,348 $ 17,089 $ 45,489 $ 7,719 ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
(5) Accounts payable and accrued liabilities Accounts payable and accrued liabilities consist of the following:
July 1, July 3, January 1, 2000 1999 2000 ------------ ------------ ------------ Trade payables $ 186,685 $ 169,418 $ 225,859 Deposits 122,513 73,467 79,475 Gift certificates and other customer credits 40,224 34,514 49,183 Salaries, wages and employee benefits 63,716 34,218 91,377 General taxes 62,965 83,979 87,413 Allowance for future returns 24,585 24,625 34,525 Income taxes 2,207 -- -- Other liabilities 70,695 57,785 76,623 ------------ ------------ ------------ Total accounts payable and accrued liabilities $ 573,590 $ 478,006 $ 644,455 ------------ ------------ ------------ ------------ ------------ ------------
7 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (6) Segment reporting Segment revenues and operating profit, including a reconciliation to the Company's consolidated earnings before income taxes, follows:
Thirteen Weeks Ended Twenty-six Weeks Ended -------------------------- -------------------------- July 1, July 3, July 1, July 3, 2000 1999 2000 1999 ------------ ------------ ------------ ------------ Revenue: Merchandising $ 772,457 $ 734,666 $ 1,454,685 $ 1,344,094 Bankcard 33,481 17,287 66,120 33,036 ------------ ------------ ------------ ------------ Total revenue $ 805,938 $ 751,953 $ 1,520,805 $ 1,377,130 ------------ ------------ ------------ ------------ Operating income: Merchandising $ 48,045 $ 43,203 $ 77,944 $ 36,149 Bankcard 9,304 854 26,169 5,418 ------------ ------------ ------------ ------------ Total segment operating income 57,349 44,057 104,113 41,567 Premium on acquisitions (774) (1,030) (994) (1,268) ------------ ------------ ------------ ------------ Total operating income 56,575 43,027 103,119 40,299 Interest expense 15,559 15,094 30,015 29,336 ------------ ------------ ------------ ------------ Earnings before income taxes $ 41,016 $ 27,933 $ 73,104 $ 10,963 ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
8 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ($000s omitted, except per share amounts) RESULTS OF OPERATIONS Net earnings for the thirteen week period ended July 1, 2000 were $25,840, or $0.20 per share basic and diluted, compared to $16,480, or $0.13 per share basic and diluted, for the thirteen week period ended July 3, 1999. The second quarter 2000 results included net pretax gains related to the sale of receivables of $8,164. There were no comparable gains recorded in the 1999 period. The earnings improvement reflects the favorable performance of the Company's bankcard segment. Positive sales and margin performance in the Company's merchandising segment was offset by increases in expenses related to investment in e-commerce marketing initiatives and site enhancements coupled with planned increases in customer acquisition catalogs. Net earnings for the twenty-six week period ended July 1, 2000 were $46,055, or $0.35 per share basic and diluted, compared to $6,468, or $0.05 per share basic and diluted, for the twenty-six week period ended July 3, 1999. The current year period included net pretax gains related to the sale of receivables of $23,655. There were no comparable gains recorded in the 1999 period. The improved performance was driven primarily by stronger customer response to merchandise offerings and gross margin improvements in the Company's merchandising segment and included a positive contribution from the bankcard segment. 9 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Merchandising segment:
Thirteen Weeks Ended Twenty-six Weeks Ended -------------------------- -------------------------- July 1, July 3, July 1, July 3, 2000 1999 2000 1999 ------------ ------------ ------------ ------------ Catalog net sales $ 364,205 $ 369,237 $ 702,680 $ 669,654 E-commerce net sales 46,390 9,655 83,156 17,349 ------------ ------------ ------------ ------------ Total direct net sales 410,595 378,892 785,836 687,003 Retail net sales 301,175 302,439 553,411 558,853 ------------ ------------ ------------ ------------ Total net sales 711,770 681,331 1,339,247 1,245,856 Finance revenue 48,724 40,435 93,235 75,640 Other revenue 11,963 12,900 22,203 22,598 ------------ ------------ ------------ ------------ Total revenue $ 772,457 $ 734,666 $ 1,454,685 $ 1,344,094 ------------ ------------ ------------ ------------ Operating income $ 48,045 $ 43,203 $ 77,944 $ 36,149 ------------ ------------ ------------ ------------ % change Total net sales 4% 10% 7% 8% Comparable-store sales (5)% 7% (3)% 6% Total revenue 5% 11% 8% 9% ------------ ------------ ------------ ------------ Gross profit margin (% of total net sales) 39.0% 35.7% 36.9% 34.0% SG&A expenses (% of total revenue) 37.6% 34.4% 36.5% 36.1% Operating income (% of total revenue) 6.2% 5.9% 5.4% 2.7% ------------ ------------ ------------ ------------
Thirteen weeks ended July 1, 2000 compared to thirteen weeks ended July 3, 1999 - -------------------------------------------------------------------------------- Operating income for the merchandising segment increased to $48,045 in the thirteen weeks ended July 1, 2000 compared to $43,203 for the thirteen weeks ended July 3, 1999. Net pretax gains related to the sale of receivables of $5,004 favorably impacted the second quarter 2000 results. There were no comparable gains recorded in the 1999 period. Excluding the impact of the receivable gains, the merchandising segment's performance was essentially flat to last year. Positive sales and margin improvements were offset by increases in expenses related to investment in e-commerce marketing initiatives and site enhancements coupled with planned increases in customer acquisition catalogs. Total merchandising revenue increased $37,791 in the thirteen weeks ended July 1, 2000 compared to the same period last year, driven by a 4 percent increase in net sales and a 20 percent increase in finance revenue. 10 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Total direct net sales, comprised of catalog and e-commerce net sales, drove the increase in net sales over the prior year period. E-commerce net sales continued to grow at a rapid pace at each merchant division, rising 380 percent to $46,390, or 7 percent of total net sales, compared to $9,655, or 1 percent of total net sales, in the prior year period. Catalog net sales declined 1 percent in the second quarter compared to the prior year period. Growth at Spiegel and Newport News, driven by strong customer response to merchandise offerings on increased catalog circulation, was more than offset by declines at Eddie Bauer. Retail net sales were flat for the second quarter of 2000, reflecting a 5 percent decline in Eddie Bauer comparable-store sales offset by an increase in outlet stores sales and the effect of financial adjustments. Overall, Eddie Bauer experienced lackluster customer response to its spring/summer merchandise offerings in the period. Finance revenue increased 20 percent in the thirteen weeks ended July 1, 2000 compared to the prior year period due to a $5,004 net pretax gain recognized related to the sale of receivables and growth in the FCNB Preferred charge portfolio. There were no comparable gains recorded in the 1999 period. Average FCNB Preferred receivables serviced for the quarter increased 32 percent, reflecting sales growth at Spiegel and Newport News accompanied by an increase in customer utilization of the private-label credit programs. Merchandising gross profit margin on net sales increased 330 basis points to 39.0 percent for the thirteen weeks ended July 1, 2000 from 35.7 percent for the comparable 1999 period. The favorable margin performance resulted primarily from higher initial profits and a shift in the sales mix towards higher-margin apparel and private-label products. While each merchant division contributed to the margin improvement, Spiegel achieved particularly strong margin growth benefiting from stronger customer response to merchandise offerings and, in turn, lower markdowns compared to last year. Total inventories at quarter-end were 3 percent higher than last year. The selling, general and administrative expense ratio increased 320 basis points to 37.6 percent of total revenue compared to 34.4 percent in the same period last year. This increase was primarily due to investments in e-commerce marketing initiatives and site enhancements coupled with planned increases in customer acquisition catalogs. Twenty-six weeks ended July 1, 2000 compared to twenty-six weeks ended July 3, 1999 - -------------------------------------------------------------------------------- Operating income for the merchandising segment increased $41,795 in the twenty-six weeks ended July 1, 2000 to $77,944 compared to $36,149 for the prior year period. Net pretax gains related to the sale of receivables of $13,647 favorably impacted the 2000 period results. There were no comparable gains recorded in the 1999 period. Improved gross margin performance on increased sales drove the progress in the current year period. The merchandising segment also benefited from a positive earnings contribution from the FCNB Preferred charge programs. 11 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Total merchandising revenue for the twenty-six weeks ended July 1, 2000 increased $110,591, or 8 percent, compared to the same period last year. The growth in revenue was primarily attributable to a 7 percent increase in net sales and a 23 percent increase in finance revenue. Total direct net sales, comprised of catalog and e-commerce net sales, drove the increase in net sales over the prior year period. E-commerce net sales continued to grow at a rapid pace at each merchant division, rising 379 percent to $83,156, or 6 percent of total net sales, compared to $17,349, or 1 percent of total net sales, in the prior year period. Catalog net sales increased 5 percent in the current year period as growth at Spiegel and Newport News, driven by strong customer response to merchandise offerings on increased catalog circulation, outpaced declines realized at Eddie Bauer. Retail net sales decreased 1 percent in the period, reflecting a 3 percent decline in Eddie Bauer comparable-store sales, somewhat offset by strong outlet store sales. Finance revenue increased 23 percent in the twenty-six weeks ended July 1, 2000 compared to the prior year period due to a $13,647 net pretax gain recognized related to the sale of receivables and growth in the FCNB Preferred charge portfolio. There were no comparable gains recorded in the 1999 period. Average Preferred receivables serviced for the period increased 29 percent, reflecting sales growth at Spiegel and Newport News accompanied by an increase in customer utilization of the private-label credit programs. Merchandising gross profit margin on net sales increased 290 basis points to 36.9 percent for the twenty-six weeks ended July 1, 2000 from 34.0 percent for the comparable 1999 period. The favorable margin performance resulted primarily from higher initial profits and a shift in the sales mix towards higher-margin apparel and private-label products. While each merchant division contributed to the margin improvement, Spiegel achieved particularly strong margin growth benefiting from stronger customer response to merchandise offerings and, in turn, lower markdowns compared to last year. Total inventories ended the period 3 percent higher than last-year levels. The selling, general and administrative expense ratio increased slightly to 36.5 percent of total revenue compared to 36.1 percent in the same period last year. This increase was primarily due to investments in e-commerce marketing initiatives and site enhancements coupled with planned increases in customer acquisition catalogs. 12 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Bankcard segment:
Thirteen Weeks Ended Twenty-six Weeks Ended --------------------------- -------------------------- July 1, July 3, July 1, July 3, 2000 1999 2000 1999 ------------ ------------ ------------ ------------ Total revenue $ 33,481 $ 17,287 $ 66,120 $ 33,036 Operating income $ 9,304 $ 854 $ 26,169 $ 5,418 ------------ ------------ ------------ ------------
Thirteen weeks ended July 1, 2000 compared to thirteen weeks ended July 3, 1999 - -------------------------------------------------------------------------------- Bankcard revenue increased significantly in the thirteen weeks ended July 1, 2000 compared to the prior year period, driven by substantial growth in the receivable portfolio. Average bankcard receivables serviced in the second quarter increased 67 percent over the comparable period last year with a corresponding increase in average receivables sold. The increase in receivables sold led to an increase in the net excess recognized as finance revenue from these sold receivables. The net excess represents the residual amount of finance charges and fees over the sum of the return paid to certificate holders, contractual servicing fees, and credit losses. The net excess also was positively impacted by a shift in the portfolio mix to lower-risk credit products which resulted in reduced delinquencies and, in turn, lower charge-off rates compared to the prior year. Net pretax gains on the sale of receivables of $3,160 were recognized in finance revenue in the second quarter of 2000. There were no comparable gains recorded in the 1999 period. Bankcard operating income improved in the second quarter of 2000 compared to the prior year period, reflecting strong growth and favorable operating trends. The bankcard segment continues to benefit from improved charge-off and delinquency trends realized in the credit portfolio. Twenty-six weeks ended July 1, 2000 compared to twenty-six weeks ended July 3, 1999 - -------------------------------------------------------------------------------- Bankcard revenue more than doubled in the first half of fiscal 2000 compared to the prior year period, driven by substantial growth in the receivable portfolio. Average bankcard receivables serviced increased 64 percent over the comparable period last year with a corresponding increase in average receivables sold. The increase in receivables sold led to an increase in the net excess recognized as finance revenue from these sold receivables. The net excess represents the residual amount of finance charges and fees over the sum of the return paid to certificate holders, contractual servicing fees, and credit losses. The net excess also was positively impacted by a shift in the portfolio mix to lower-risk credit products which resulted in reduced delinquencies and, in turn, lower charge-off rates compared to the prior year. Net pretax gains on the sale of receivables of $10,008 were recognized in finance revenue in the current year period. There were no comparable gains recorded in the 1999 period. Bankcard operating income improved significantly in the twenty-six weeks ended July 1, 2000 compared to the prior year period, reflecting strong growth and favorable operating trends. Contributing to the progress was the favorable impact of improved delinquency and charge-off trends realized in the credit portfolio, offset slightly by an increase in costs associated with new customer acquisition. 13 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Interest expense: Interest expense was $30,015 for the twenty-six weeks ended July 1, 2000 versus $29,336 for the comparable period last year. The increase in interest expense resulted primarily from higher average debt levels compared to the prior year, driven by funding requirements to support customer receivable growth. The Company realized lower average interest rates in total for the period despite increases in LIBOR rates, primarily due to a decrease in debt-related fees recognized in the current year period. SEASONALITY AND QUARTERLY FLUCTUATIONS The Company, like other retailers, experiences seasonal fluctuations in its revenues and net earnings. Historically, a significant amount of the Company's net sales and a majority of its net earnings have been realized during the fourth quarter. Accordingly, the results for the individual quarters are not necessarily indicative of the results to be expected for the entire year. LIQUIDITY AND CAPITAL RESOURCES The Company has historically met its operating and cash requirements through funds generated from operations, the securitization of customer accounts receivable and the issuance of debt and common stock. Total customer receivables sold were $1,888,982 at July 1, 2000, $1,392,730 at July 3, 1999 and $1,639,981 at January 1, 2000. Net cash used by operating activities totaled $49,695 and $147,190 for the twenty-six week periods ended July 1, 2000 and July 3, 1999, respectively. Cash provided by securitization activity increased $277,001 over the prior year period, minimizing the need to fund the significant growth in customer receivables through other sources. Excluding receivables, net cash flow from operations improved $27,474 compared to the prior year. Favorable operating results and cash provided by the issuance of jumbo certificates of deposit by the Company's special purpose bank drove the improvement, offset somewhat by increased investment in inventories to support sales growth. Total inventories ended the period 3 percent higher than last year levels. Net cash used in investing activities totaled $44,645 for the twenty-six weeks ended July 1, 2000 compared to $16,848 in the prior year period. Expenditures in the current year were comprised primarily of Eddie Bauer retail store expansion and remodeling, distribution facility upgrades and information technology related projects. Expenditures in the comparable 1999 period were primarily related to Eddie Bauer retail store expansion and remodeling. In April 2000, the Company announced it would resume payments of quarterly dividends to shareholders. On May 15, 2000, the Company made a quarterly dividend payment of four cents per share totaling $5,274 to shareholders of record on May 8, 2000. 14 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- The Company believes that its cash on hand, together with cash flows anticipated to be generated from operations, borrowings under its existing credit facilities, securitizations of customer receivables and other available sources of funds, will be adequate to fund the Company's capital and operating requirements for the foreseeable future. MARKET RISK The Company is exposed to market risk from changes in interest rates, the securitization of customer receivables and, to a lesser extent, foreign currency exchange rate fluctuations. In seeking to minimize risk, the Company manages exposure through its regular operating and financing activities and, when deemed appropriate, through the use of derivative financial instruments. The Company does not use financial instruments for speculative purposes and is not party to any leveraged financial instruments. Interest rates: The Company manages interest rate exposure through a mix of fixed- and variable-rate financings. The Company is generally able to meet certain targeted objectives through its direct borrowings. Substantially all of the Company's variable-rate exposure relates to changes in the one-month LIBOR rate. If the one-month LIBOR rate had changed by 50 basis points, the Company's second quarter 2000 interest expense would have changed by approximately $413. In addition, derivative financial instruments are utilized occasionally to reach the Company's targeted objectives. Interest rate swaps may be used to minimize interest rate exposure when appropriate based on market conditions. The notional amounts of the Company's interest rate swap agreements totaled $58,571 at July 1, 2000. The Company believes that its interest rate exposure management policies, including the use of derivative financial instruments, are adequate to limit any material market risk exposure to its consolidated financial statements at July 1, 2000. Securitizations: In conjunction with its asset-backed securitizations, the Company recognizes gains representing the present value of estimated future net cash flows the Company will receive over the estimated outstanding period of the asset securitization. These future cash flows consist of an estimate of the excess of finance charges and fees over the sum of the return paid to certificate holders, contractual servicing fees, and credit losses along with the future finance charges and principal collections related to interests in the customer receivables retained by the Company. These estimates are calculated utilizing the current performance trends of the receivable portfolios. Certain estimates inherent in determining the present value of these estimated future net cash flows are influenced by factors outside the Company's control, and, as a result, could materially change in the near term. 15 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Foreign currency exchange rates: The Company is subject to foreign currency exchange risk related to its Canadian operations, as well as its joint venture investments in Germany and Japan. The Company is party to certain transactions with the above joint ventures that are denominated in foreign currencies. The Company monitors the exchange rates related to these currencies on a continual basis and will enter into forward derivative contracts for foreign currency when deemed advantageous based on current pricing and historical information. The Company believes that its foreign exchange risk and the effect of this hedging activity are not material due to the size and nature of the above operations. ACCOUNTING STANDARDS Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities," and No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities," establish accounting and reporting standards for derivatives and for hedging activities. As issued, SFAS No. 133 was effective for all fiscal quarters of all fiscal years beginning after June 15, 1999. In June 1999, SFAS No. 137 was issued, effectively deferring the date of required adoption of SFAS No. 133 to fiscal quarters of all fiscal years beginning after June 15, 2000. The Company is studying the statements to determine the effect on the consolidated financial position or results of operations, if any. The Company will adopt SFAS No. 133 and SFAS No. 138, as required, in fiscal year 2001. FORWARD-LOOKING STATEMENTS This report contains statements that are forward-looking within the meaning of applicable federal securities laws and are based upon the Company's current expectations and assumptions, which are subject to a number of risks and uncertainties that could cause actual results to differ materially from those anticipated. Potential risks and uncertainties include, but are not limited to, factors such as the financial strength and performance of the retail and direct marketing industry, changes in consumer spending patterns, dependence on the securitization of accounts receivable to fund operations, state and federal laws and regulations related to offering and extending credit, risks associated with collections on the Company's credit card portfolios, interest rate fluctuations, postal rate increases, paper or printing costs, the success of planned merchandising, advertising, marketing and promotional campaigns, as well as other risks indicated in other filings with the Securities and Exchange Commission such as the Company's most recent Form 10-K. 16 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SIGNATURE 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. SPIEGEL, INC.
Signature Title Date - ------------------------- -------------------------- ---------------- /s/ James W. Sievers Office of the President, August 15, 2000 James W. Sievers Chief Financial Officer (Principal Operating Executive Officer and Principal Financial and Accounting Officer)
EX-27 2 fdsaug.xfd ARTICLE 5 FIN DATA SCHED FOR 2ND QTR 2000 10Q
5 1,000 U.S.DOLLARS 6-MOS Jan-02-2000 Dec-30-2000 Jul-01-2000 1 32,411 462,059 574,354 21,641 507,220 1,708,992 634,676 301,764 2,297,999 699,304 741,857 0 0 131,864 633,525 2,297,999 1,339,247 1,520,805 845,884 845,884 571,802 (5,402) 30,015 73,104 27,049 46,055 0 0 0 46,055 0.35 0.35
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