-----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, I3GYaUy9M6UZZSymgHLMssZyxG1VMA1Gh93ZTPGRqbxjw6+ro7KBKYeoENpohOsk 5MQGZ4/tzJBnPHFuB+dAjQ== 0000276641-98-000008.txt : 19980819 0000276641-98-000008.hdr.sgml : 19980819 ACCESSION NUMBER: 0000276641-98-000008 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980704 FILED AS OF DATE: 19980818 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: SPIEGEL INC CENTRAL INDEX KEY: 0000276641 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-CATALOG & MAIL-ORDER HOUSES [5961] IRS NUMBER: 362593917 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-16126 FILM NUMBER: 98693550 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 EX-27 1 ART. 5 FDS FOR 2ND QUARTER 10-Q
5 1,000 6-MOS JAN-02-1999 JUL-04-1998 32,229 0 513,513 15,367 494,918 1,153,214 601,082 228,453 1,784,688 532,173 634,536 131,714 0 0 472,538 1,784,688 1,150,457 1,274,599 805,773 805,773 0 0 32,286 (44,805) (19,298) (25,507) 0 0 0 (25,507) (0.27) (0.27)
10-Q 2 - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ 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 4, 1998 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 14, 1998 are as follows: Class A non-voting common stock, $1.00 par value 14,703,964 shares Class B voting common stock, $1.00 par value 117,009,869 shares. - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ SPIEGEL, INC. AND SUBSIDIARIES PART I - FINANCIAL INFORMATION Item 1 - Financial Statements Consolidated Balance Sheets, July 4, 1998 and January 3, 1998 Consolidated Statements of Earnings, Thirteen and Twenty-six Weeks Ended July 4, 1998 and June 28, 1997 Consolidated Statements of Cash Flows, Twenty-six Weeks Ended July 4, 1998 and June 28, 1997 Notes to Consolidated Financial Statements Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations Item 3 - Quantitative and Qualitative Disclosures About Market Risk Not Applicable - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ Spiegel, Inc. and Subsidiaries Consolidated Balance Sheets ($000s omitted, except per share amounts) July 4, 1998 and January 3, 1998
(unaudited) July 4, January 3, 1998 1998 ------------ ------------ ASSETS Current assets: Cash and cash equivalents $ 32,229 $ 47,582 Receivables, net 498,146 563,376 Inventories 494,918 508,756 Prepaid expenses 87,737 89,137 Refundable income taxes 10,313 6,064 Deferred income taxes 29,871 29,908 ------------ ------------ Total current assets 1,153,214 1,244,823 Property and equipment, net 372,629 394,822 Intangible assets, net 157,991 159,016 Other assets 100,854 150,893 ------------ ------------ Total Assets $ 1,784,688 $ 1,949,554 ------------ ------------ ------------ ------------ LIABILITIES and STOCKHOLDERS' EQUITY Current liabilities: Current maturities of debt $ 138,614 $ 102,900 Accounts payable 160,954 238,723 Accrued liabilities: Salaries and wages 20,785 37,305 General taxes 101,735 120,345 Allowance for returns 22,339 37,094 Other accrued liabilities 87,745 98,362 ------------ ------------ Total current liabilities 532,172 634,729 Long-term debt, excluding current maturities 619,536 713,750 Indebtedness to related parties 15,000 -- Deferred income taxes 13,728 32,982 ------------ ------------ Total liabilities 1,180,436 1,381,461 Stockholders' equity: Class A non-voting common stock, $1.00 par value; authorized 16,000,000 shares; issued 14,703,964 shares at July 4, 1998 and 14,660,464 at January 3, 1998 14,704 14,660 Class B voting common stock, $1.00 par value; authorized 121,500,000 shares; issued 117,009,869 shares at July 4, 1998 and 103,483,298 at January 3, 1998 117,010 103,483 Additional paid-in capital 328,276 271,645 Retained earnings 144,262 178,305 ------------ ------------ Total stockholders' equity 604,252 568,093 ------------ ------------ Total liabilities and stockholders' equity $ 1,784,688 $ 1,949,554 ------------ ------------ ------------ ------------
[FN] See accompanying notes to consolidated financial statements. - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ Spiegel, Inc. and Subsidiaries Consolidated Statements of Earnings ($000s omitted, except per share amounts) Thirteen and Twenty-six Weeks Ended July 4, 1998 and June 28, 1997 (unaudited)
Thirteen Weeks Ended Twenty-six Weeks Ended July 4, June 28, July 4, June 28, 1998 1997 1998 1997 ----------- ----------- ----------- ----------- Net sales and other revenues: Net sales $ 618,007 $ 646,090 $1,150,457 $1,215,875 Finance revenue 54,382 38,715 103,596 61,243 Other revenue 11,657 11,438 20,546 20,937 ----------- ----------- ----------- ----------- 684,046 696,243 1,274,599 1,298,055 Cost of sales and operating expenses: Cost of sales, including buying and occupancy expenses 426,161 434,764 805,773 835,699 Selling, general and administrative expenses 246,641 264,844 481,345 505,584 ----------- ----------- ----------- ----------- 672,802 699,608 1,287,118 1,341,283 ----------- ----------- ----------- ----------- Operating income (loss) 11,244 (3,365) (12,519) (43,228) Interest expense 15,416 16,152 32,286 32,522 ----------- ----------- ----------- ----------- Earnings (loss) before income taxes (4,172) (19,517) (44,805) (75,750) Income tax benefit (1,798) (6,034) (19,298) (31,058) ----------- ----------- ----------- ----------- Net earnings (loss) $ (2,374) $ (13,483) $ (25,507) $ (44,692) ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Redemption of preferred stock $ 8,535 $ 0 8,535 $ 0 ----------- ----------- ----------- ----------- Net earnings (loss) available to common shareholders $ (10,909) $ (13,483) $ (34,042) $ (44,692) ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Net earnings (loss) per common share Basic and diluted $ (0.08) $ (0.11) $ (0.27) $ (0.39) ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Weighted average number of common shares outstanding 131,712,229 118,106,457 125,598,183 114,184,116 ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
[FN] See accompanying notes to consolidated financial statements. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- Spiegel, Inc. and Subsidiaries Consolidated Statements of Cash Flows ($000s omitted) Twenty-six Weeks ended July 4, 1998 and June 28, 1997 (unaudited)
Twenty-six Weeks Ended July 4, June 28, 1998 1997 ------------ ------------ Cash flows from operating activities: Net earnings (loss) $ (25,507) $ (44,692) Adjustments to reconcile net earnings (loss) to net cash used in operating activities: Depreciation and amortization 38,590 41,583 Incremental gain on sale of receivables (3,000) (19,672) Change in assets and liabilities, net of effects of acquisition: Decrease in sold customer receivables (72,383) (149,734) Decrease in receivables, net 140,613 254,175 (Increase) decrease in inventories 13,838 (11,998) Decrease in prepaid expenses 1,400 527 Decrease in accounts payable (77,770) (98,419) Decrease in accrued liabilities (60,501) (63,660) Decrease in income taxes (23,466) (32,262) ------------ ------------ Total adjustments (42,679) (79,460) ------------ ------------ Net cash used in operating activities $ (68,186) $ (124,152) ------------ ------------ Cash flows from investing activities: Net additions to property and equipment (8,146) (18,899) Net (additions to) reduction in other assets 42,813 (12,519) ------------ ------------ Net cash provided by (used in) investing activities 34,667 (31,418) ------------ ------------ Cash flows from financing activities: Issuance of debt 86,500 124,500 Payment of debt (130,000) (81,448) Issuance of Class B common stock 69,992 69,972 Preferred stock redemption (8,535) -- Exercise of stock options 209 27 ------------ ------------ Net cash provided by financing activities 18,166 113,051 ------------ ------------ Net change in cash and cash equivalents (15,353) (42,519) Cash and cash equivalents at beginning of year 47,582 86,917 ------------ ------------ Cash and cash equivalents at end of period $ 32,229 $ 44,398 ------------ ------------ ------------ ------------ Supplemental cash flow information: Cash paid during the period for: Interest $ 31,882 $ 32,856 ------------ ------------ ------------ ------------ Income taxes $ 4,886 $ 4,533 ------------ ------------ ------------ ------------
[FN] See accompanying notes to consolidated financial statements. - ------------------------------------------------------------------------- - ------------------------------------------------------------------------- Spiegel, Inc. and Subsidiaries Notes to Consolidated Financial Statements ($000s omitted, except per share amounts) (unaudited) (1) Basis of presentation The consolidated financial statements included herein are unaudited and have been prepared from the books and records of Spiegel, Inc. (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 the notes thereto included in the Company's most recent Annual Report on Form 10-K, which includes financial statements for the year ended January 3, 1998. Due to the seasonality of the Company's business, the results for interim periods are not necessarily indicative of the results for the year. (2) Indebtedness to related parties The Company received a term loan in the first quarter of 1998 from 3 Suisses BVG (a wholly owned subsidiary of Otto Versand) for $15,000. The loan bears interest at a variable rate based on LIBOR plus a margin. This loan is due in its entirety in October 2000. (3) Issuance of Class B common stock On March 26, 1998, the Company issued 13,526,571 shares of Class B voting common stock to its majority shareholder, Spiegel Holdings, Inc. The net proceeds of approximately $70 million from this issuance will be used primarily to fund working capital and investing needs. (4) Preferred stock redemption In April 1998, Newport News, a subsidiary of Spiegel, Inc., redeemed all outstanding shares of its redeemable preferred stock for $12,236. The excess of the redemption price over the carrying value of the preferred stock reduced income available to common shareholders by $8,535 and the related earnings per share by $0.06. - ----------------------------------------------------------------------------- - ----------------------------------------------------------------------------- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ($000s omitted, except per share amounts) Results of Operations: Thirteen Weeks Ended July 4, 1998 As Compared To Thirteen Weeks Ended June 28, 1997 - -------------------------------------------------------------------------------- Net sales for the thirteen weeks ended July 4, 1998 were $618,007 compared to $646,090 for the thirteen weeks ended June 28, 1997. This 4% decrease was driven by an 11% decline in catalog net sales, partially offset by a 5% increase in retail net sales. Declines in catalog net sales were driven by planned circulation reductions for Spiegel Catalog. Spiegel Catalog decreased circulation to marginal customers to improve catalog productivity as it continues to implement new strategies aimed at improving performance. The Company's Newport News subsidiary offset the effect of the circulation reductions somewhat with its continued favorable performance. The retail net sales growth is attributable to an increase in the number of Eddie Bauer retail stores, as comparable-store sales declined 9% for the quarter. Eddie Bauer ended the second quarter of 1998 with 477 retail stores (excluding outlets) compared to 412 at the end of the 1997 second quarter. Eddie Bauer retail sales were negatively impacted in the quarter by higher markdowns taken in response to the weak performance of certain spring season products. Finance revenue for the second quarter of 1998 was $54,382 compared to $38,715 for the same period in 1997. This increase resulted primarily from pricing changes implemented by the Company's credit division in October 1997. In addition, higher finance revenues were realized due to a 47% increase in the average MasterCard receivable portfolio. An incremental pretax gain of $3,000 was recognized in the second quarter of 1998 due to the improved yield on existing receivables sold. Finance revenue for the second quarter of 1997 included an incremental pretax gain of $19,672 recognized pursuant to SFAS No. 125. The gross profit margin on net sales decreased to 31.0% for the thirteen weeks ended July 4, 1998 from 32.7% for the comparable 1997 period. Gross profit margin rate improvements at Spiegel Catalog and Newport News were offset by lower gross profit margins experienced at Eddie Bauer. The margin decline at Eddie Bauer resulted primarily from a higher level of markdowns compared to second quarter 1997. Eddie Bauer aggressively reacted to slow-moving spring merchandise by increasing the level of markdowns to manage inventories. The Company's consolidated inventories were down 4% from the prior year level. Selling, general and administrative expenses as a percentage of total revenues for the thirteen weeks ended July 4, 1998 and June 28, 1997 were 36.1% and 38.0%, respectively. Total selling, general and administrative expenses declined 7% in the 1998 quarter due to cost-cutting initiatives implemented by the Company. These initiatives were most prevalent at Spiegel Catalog, where selling, general and administrative expenses were reduced by more than 38% compared to last year. Spiegel Catalog and Newport News both realized better catalog productivity, improving utilization of their advertising expenses. Interest expense decreased 5% for the thirteen weeks ended July 4, 1998 to $15,416 compared to $16,152 for the thirteen weeks ended June 28, 1997. This decrease was due to lower average debt levels coupled with lower average interest rates. Twenty-six Weeks Ended July 4, 1998 As Compared To Twenty-six Weeks Ended June 28, 1997 - -------------------------------------------------------------------------------- Net sales for the twenty-six weeks ended July 4, 1998 decreased 5% to $1,150,457 compared to $1,215,875 for the twenty-six weeks ended June 28, 1997. This decrease was driven by an 11% decline in catalog net sales, partially offset by a 2% increase in retail net sales. Catalog net sales results for the period reflected planned circulation reductions for Spiegel Catalog, partially offset by higher catalog sales at Eddie Bauer and Newport News. Spiegel Catalog decreased circulation to marginal customers to improve catalog productivity as it continues to implement new strategies aimed at improving performance. Eddie Bauer retail net sales increased 3% for the period due to an increase in the number of Eddie Bauer retail stores. Comparable-store sales declined 9% compared to last year. Higher markdowns taken to liquidate fall season merchandise as well as to stimulate sales on certain spring season products negatively affected Eddie Bauer's sales. Finance revenue for the twenty-six weeks ended July 4, 1998 and June 28, 1997 was $103,596 and $61,243, respectively. This increase resulted primarily from pricing changes implemented by the Company's credit division in October 1997. In addition, higher finance revenues were realized due to a 41% increase in the average MasterCard receivable portfolio. An incremental pretax gain of $3,000 was recognized in the second quarter of 1998 due to the improved yield on existing receivables sold. Finance revenue for the 1997 period included an incremental pretax gain of $19,672 recognized pursuant to SFAS No. 125. The gross profit margin on net sales decreased to 30.0% for the twenty-six weeks ended July 4, 1998 from 31.3% for the comparable 1997 period. Continued gross profit margin rate improvements at Spiegel Catalog and Newport News were offset by lower gross profit margins experienced at Eddie Bauer. The margin decline at Eddie Bauer resulted from a higher level of clearance and promotional markdown activity to manage inventories. Although there may remain some residual margin rate pressures in the third quarter at Eddie Bauer, the Company plans overall gross margin improvements in the second half of 1998. Selling, general and administrative expenses as a percentage of total revenues for the twenty-six weeks ended July 4, 1998 and June 28, 1997 were 37.8% and 39.0%, respectively. Numerous cost-cutting initiatives have been implemented by the Company. These initiatives were most prevalent at Spiegel Catalog, where selling, general and administrative expenses were reduced by more than 34% compared to last year. However, lackluster sales performance at Eddie Bauer resulted in less leverage of selling, general and administrative expenses, partially offsetting the expense improvements experienced in other divisions. Seasonality and Quarterly Fluctuations: The Company, like other retailers, experiences seasonal fluctuations in its revenues and net earnings. Historically, a disproportionate 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 sale of customer accounts receivable, and the issuance of debt and common stock. Total customer receivables sold were $1,220,330 at July 4, 1998, $1,292,713 at January 3, 1998 and $1,313,996 at June 28, 1997. Net cash used in operating activities was $68,186 and $124,152 for the twenty-six weeks ended July 4, 1998 and June 28, 1997, respectively. In addition to improved operating results, the primary factors contributing to the net $55,966 improvement included lower investment in merchandise inventory and a decrease in cash used for payables. Spiegel Catalog continues to manage its inventories effectively, offsetting increases in inventory at Eddie Bauer and Newport News to support growth. Cash provided by receivables, net of receivables sold, declined in the 1998 period to $68,230 compared to $104,441 in the 1997 period primarily due to a lower number of active credit accounts. Net additions to property and equipment for the twenty-six weeks ended July 4, 1998 and June 28, 1997 were $8,146 compared to $18,899, respectively. The capital spending in 1998 and 1997 was primarily related to Eddie Bauer retail store expansion and remodeling. The Company plans a net of approximately 50 new stores in 1998, a majority of which will be opened in the second half. On March 26, 1998, the Company issued 13,526,571 shares of Class B voting common stock to its majority shareholder, Spiegel Holdings, Inc. The net proceeds of approximately $70 million are being used primarily to fund working capital and investing needs. In March 1994 and December 1995, Newport News issued shares of redeemable preferred stock to certain directors and executive officers of the Company, its subsidiaries and Otto Versand. All shares were redeemed in April 1998 for $12,236. The excess of the redemption price over the carrying value of the preferred stock reduced earnings available to common shareholders by $8,535 and the related earnings per share by $0.06. The Company believes that its cash on hand, together with cash flows anticipated to be generated from operations, borrowings under its existing credit facilities, sales of customer receivables and other available sources, will be adequate to fund the Company's capital and operating requirements for the foreseeable future. Year 2000: The Company continues to take the appropriate steps to minimize the threat of any material technical failure relating to Year 2000 compliance issues. Program conversion remains essentially on schedule, with testing being completed as systems are converted. In order to simulate year-end 1999 processing for all operating systems, substantially all internal software modifications will be completed by December 31, 1998. As part of the normal development cycle, several existing applications have been identified for renovation or replacement. These systems are targeted for implementation in early-to-mid 1999 and will be Year 2000 compliant upon installation. Contingency plans are being put into place to convert the existing systems to Year 2000 compliance in the event that these replacement systems cannot be implemented as planned. The Company has also implemented a comprehensive plan to communicate to all critical vendors and suppliers the expectation that they attain Year 2000 compliance in a timely manner. Contingency plans will be in place by year-end 1998 to provide alternate solutions if the progress of certain critical suppliers and vendors is questionable so as not to jeopardize the Company's ability to service its customers. The Company believes it is acting prudently in addressing the Year 2000 issue. However, it is impossible for any company to ensure Year 2000 compliance. While it is certainly possible that there may be some litigation arising from the Year 2000 conversion, the Company does not anticipate, nor can it estimate, any costs associated with such litigation at this time. The costs associated with this effort are expected to range between $7,000 and $10,000. These costs are expensed as incurred and totaled approximately $2.4 million through July 4, 1998. Accounting Standards: SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," effective for all fiscal quarters of fiscal years beginning after June 15, 1999, establishes accounting and reporting standards for derivatives and for hedging activities. The Company is studying the Statement to determine its effect, if any. The Company will adopt SFAS No. 133, as required, in fiscal year 2000. Forward-Looking Statements: This report contains statements which are forward-looking statements within the meaning of applicable federal securities laws and are based upon the Company's current expectations and assumptions. Such forward-looking statements are subject to a number of risks and uncertainties which could cause actual results to differ materially from those anticipated including but not limited to, 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, the impact of competitive activities, inventory risks due to shifts in the market demand, risks associated with collections on the Company's credit card portfolios, interest rate fluctuations, and postal rate, paper or printing cost increases, and 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. - ----------------------------------------------------------------------------- - ----------------------------------------------------------------------------- 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 Chief Financial Officer and August 18, 1998 James W. Sievers Member of the Office of the President (Principal Operating Executive Officer and Principal Financial Officer) /s/ D. L. Skip Behm Vice President - Controller August 18, 1998 D. L. Skip Behm (Principal Accounting Officer)
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