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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Xxxx One)
/X/ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarter ended April 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 00-0000000
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
0000 Xxxxx Xxxx, Xxxxxxx Xxxxx, Xxxxxxxx 00000-0000
(Address of principal executive offices) (Zip Code)
000-000-0000
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check xxxx 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 May 12, 2000 are as follows:
Class A non-voting common stock, $1.00 par value
14,849,244 shares
Class B voting common stock, $1.00 par value
117,009,869 shares
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SPIEGEL, INC. AND SUBSIDIARIES
INDEX TO QUARTERLY REPORT ON FORM 10-Q
THIRTEEN WEEKS ENDED APRIL 1, 2000
PAGE
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Consolidated Balance Sheets,
April 1, 2000, April 3, 1999 and January 1, 2000 3
Consolidated Statements of Earnings,
Thirteen Weeks Ended
April 1, 2000 and April 3, 1999 4
Consolidated Statements of Cash Flows,
Thirteen Weeks Ended
April 1, 2000 and April 3, 1999 5
Notes to Consolidated Financial Statements 6-7
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-13
Item 3 - Quantitative and Qualitative Disclosures
About Market Risk 11-12
PART II - OTHER INFORMATION
Item 5 - Other Information 14
2
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Spiegel, Inc. and Subsidiaries
Consolidated Balance Sheets
($000s omitted, except per share amounts)
(unaudited)
April 1, April 3, January 1,
2000 1999 2000
------------ ------------ ------------
ASSETS
Current assets:
Cash and cash equivalents $ 32,686 $ 34,204 $ 46,023
Receivables, net 871,106 555,162 971,566
Inventories 484,123 502,985 499,413
Prepaid expenses 94,217 89,736 101,915
Refundable income taxes -- 10,877 3,830
Deferred income taxes 41,395 25,960 41,397
------------ ------------ ------------
Total current assets 1,523,527 1,218,924 1,664,144
Property and equipment, net 331,143 349,279 333,852
Intangible assets, net 147,981 152,941 148,143
Other assets 99,079 87,945 95,901
------------ ------------ ------------
Total assets $ 2,101,730 $ 1,809,089 $ 2,242,040
------------ ------------ ------------
------------ ------------ ------------
LIABILITIES and STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of debt $ 209,464 $ 35,714 $ 214,464
Accounts payable and other accrued liabilities 524,122 434,175 644,455
------------ ------------ ------------
Total current liabilities 733,586 469,889 858,919
Long-term debt, excluding current maturities 531,857 684,322 566,572
Deferred income taxes 91,006 26,714 91,409
------------ ------------ ------------
Total liabilities 1,356,449 1,180,925 1,516,900
Stockholders' equity:
Class A non-voting common stock,
$1.00 par value; authorized 16,000,000 shares;
14,849,244, 14,791,544 and 14,849,244 shares
issued and outstanding at April 1, 2000,
April 3, 1999 and January 1, 2000, respectively 14,849 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 April 1, 2000,
April 3, 1999 and January 1, 2000 117,010 117,010 117,010
Additional paid-in capital 328,984 328,712 328,984
Accumulated other comprehensive loss:
Foreign currency translation adjustment (2,682) (3,913) (2,608)
Retained earnings 287,120 171,563 266,905
------------ ------------ ------------
Total stockholders' equity 745,281 628,164 725,140
------------ ------------ ------------
Total liabilities and stockholders' equity $ 2,101,730 $ 1,809,089 $ 2,242,040
------------ ------------ ------------
------------ ------------ ------------
[FN]
See accompanying notes to consolidated financial statements.
3
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Spiegel, Inc. and Subsidiaries
Consolidated Statements of Earnings
($000s omitted, except per share amounts)
(unaudited)
Thirteen Weeks Ended
--------------------------
April 1, April 3,
2000 1999
------------ ------------
Net sales and other revenues:
Net sales $ 627,476 $ 564,525
Finance revenue 76,197 50,954
Other revenue 11,193 9,698
------------ ------------
714,866 625,177
Cost of sales and operating expenses:
Cost of sales, including buying and
occupancy expenses 411,441 384,255
Selling, general and administrative
expenses 256,881 243,650
------------ ------------
668,322 627,905
------------ ------------
Operating income (loss) 46,544 (2,728)
Interest expense 14,456 14,242
------------ ------------
Earnings (loss) before income taxes 32,088 (16,970)
Income tax provision (benefit) 11,873 (6,958)
------------ ------------
Net earnings (loss) $ 20,215 $ (10,012)
------------ ------------
------------ ------------
Net earnings (loss) per common share
Basic and diluted $ 0.15 $ (0.08)
------------ ------------
------------ ------------
Weighted average number of common
shares outstanding:
Basic 131,859,113 131,788,511
------------ ------------
------------ ------------
Diluted 131,985,828 131,892,452
------------ ------------
------------ ------------
[FN]
See accompanying notes to consolidated financial statements.
4
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Spiegel, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
($000s omitted)
(unaudited)
Thirteen Weeks Ended
----------------------------
April 1, April 3,
2000 1999
------------ ------------
Cash flows from operating activities:
Net earnings (loss) $ 20,215 $ (10,012)
Adjustments to reconcile net earnings (loss) to
net cash provided by (used in) operating activities:
Depreciation and amortization 16,480 19,021
Net gains on sale of receivables (15,491) --
Change in assets and liabilities,
net of effects of acquisition:
(Increase) decrease in receivables, net 115,951 (11,016)
(Increase) decrease in inventories 15,290 (12,070)
Decrease in prepaid expenses 7,698 3,654
Decrease in accounts payable and accrued liabilities (123,840) (143,362)
Increase (decrease) in income taxes 6,936 (7,986)
------------ ------------
Net cash provided by (used in) operating activities 43,239 (161,771)
------------ ------------
Cash flows from investing activities:
Net additions to property and equipment (8,481) (4,613)
Net additions to other assets (8,306) (2,807)
------------ ------------
Net cash used in investing activities (16,787) (7,420)
------------ ------------
Cash flows from financing activities:
Issuance of debt 229,000 172,000
Payment of debt (268,715) (60,714)
Exercise of stock options -- 267
------------ ------------
Net cash provided by (used in) financing activities (39,715) 111,553
------------ ------------
Effect of exchange rate on cash (74) 642
Net change in cash and cash equivalents (13,337) (56,996)
Cash and cash equivalents at beginning of year 46,023 91,200
------------ ------------
Cash and cash equivalents at end of period $ 32,686 $ 34,204
------------ ------------
------------ ------------
Supplemental cash flow information:
Cash paid during the period for:
Interest $ 10,729 $ 11,085
------------ ------------
------------ ------------
Income taxes $ 5,003 $ 979
------------ ------------
------------ ------------
[FN]
See accompanying notes to consolidated financial statements.
5
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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 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 1, 2000. 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) Reclassifications
Certain prior period amounts have been reclassified to conform with
the 2000 presentation.
(3) Comprehensive income
The components of comprehensive income for the thirteen week periods
ended April 1, 2000 and April 3, 1999 are as follows:
Thirteen Weeks Ended
--------------------------
April 1, April 3,
2000 1999
------------ ------------
Net income (loss) $ 20,215 $ (10,012)
Foreign currency
translation adjustment (74) 642
------------ ------------
Comprehensive income (loss) $ 20,141 $ (9,370)
------------ ------------
------------ ------------
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(4) Accounts payable and accrued liabilities
Accounts payable and accrued liabilities consist of the following:
April 1, April 3, January 1,
2000 1999 2000
------------ ------------ ------------
Trade payables $ 154,745 $ 134,714 $ 225,859
Deposits 104,690 58,892 79,475
Gift certificates and
other customer credits 42,407 36,820 49,183
Salaries, wages and
employee benefits 49,622 32,642 91,377
General taxes 70,628 86,564 87,413
Allowance for future returns 24,849 21,434 34,525
Income taxes 3,507 -- --
Other liabilities 73,674 63,109 76,623
------------ ------------ ------------
Total accounts and payable and
accrued liabilities $ 524,122 $ 434,175 $ 644,455
------------ ------------ ------------
------------ ------------ ------------
(5) Segment reporting
Segment revenues and operating profit, including a reconciliation to
the Company's consolidated earnings before income taxes, follows:
Thirteen Weeks Ended
---------------------------
April 1, April 3,
2000 1999
------------ -------------
Revenue:
Merchandising $ 682,227 $ 609,428
Bankcard 32,639 15,749
------------ ------------
Total revenue $ 714,866 $ 625,177
------------ ------------
Operating income (loss):
Merchandising $ 29,899 $ (7,054)
Bankcard 16,865 4,564
------------ ------------
Total segment operating
income (loss) 46,764 (2,490)
Premium on acquisitions (220) (238)
------------ ------------
Total operating income (loss) 46,544 (2,728)
Interest expense 14,456 14,242
------------ ------------
Earnings (loss) before income
taxes $ 32,088 $ (16,970)
------------ ------------
------------ ------------
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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 April 1, 2000 were $20,215,
or $0.15 per share basic and diluted, compared to a net loss of $10,012,
or $0.08 per share, for the thirteen week period ended April 3, 1999. Net
pretax gains related to the sale of receivables of $15,491 favorably impacted
the first quarter 2000 results. There were no comparable gains recorded in
the 1999 period. Excluding the impact of gains on the sale of receivables,
first quarter net earnings increased $20,468, or $0.16 per share, over the
comparable last year 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.
Merchandising segment:
Thirteen Weeks Ended
--------------------------
April 1, April 3,
2000 1999
------------ ------------
Catalog net sales $ 337,715 $ 300,407
E-commerce net sales 37,526 7,704
------------ ------------
Total direct net sales 375,241 308,111
Retail net sales 252,235 256,414
------------ ------------
Total net sales 627,476 564,525
Finance revenue 44,511 35,205
Other revenue 10,240 9,698
------------ ------------
Total revenue $ 682,227 $ 609,428
------------ ------------
Operating income (loss) $ 29,899 $ (7,054)
------------ ------------
% change
Total net sales 11% 6%
Comparable-store sales 0% 4%
Total revenue 12% 6%
------------ ------------
Gross profit margin
(% of total net sales) 34.5% 32.0%
SG&A expenses
(% of total revenue) 35.3% 38.1%
Operating income
(% of total revenue) 4.4% (1.2)%
------------ ------------
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Thirteen weeks ended April 1, 2000 compared to thirteen weeks ended
April 3, 1999
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Operating income for the merchandising segment increased $36,953 in the thirteen
weeks ended April 1, 2000 compared to the thirteen weeks ended April 3, 1999.
Xxxxx Xxxxx, Newport News and Spiegel each improved upon the prior year
results, supported by profitable growth in the FCNB Preferred credit operations.
Key factors contributing to the progress included improved gross margin
performance on increased sales and an improved expense ratio relative to sales.
Total merchandising revenue increased $72,799 in the thirteen weeks ended
April 1, 2000 compared to the same period last year, driven by an 11 percent
increase in net sales and a 26 percent increase in finance revenue.
The net sales improvement included a 12 percent increase in total catalog net
sales accompanied by a 387 percent increase in e-commerce net sales. Each
merchant division achieved growth in catalog and e-commerce net sales,
reflecting strong customer response to merchandise offerings on increased
catalog circulation and expanded e-commerce marketing efforts. Retail net
sales decreased 2 percent in the first quarter of 2000, reflecting flat Xxxxx
Xxxxx comparable-store sales, a decline in outlet stores sales and the effect
of financial adjustments.
Finance revenue increased 26 percent in the thirteen weeks ended April 1, 2000
compared to the prior year period primarily due to an $8,643 net pretax gain
recognized related to the sale of receivables as well as growth in the FCNB
Preferred charge portfolio. There were no comparable gains recorded in the
1999 period. Higher sales at each merchant division accompanied by an increase
in customer utilization of the private-label credit programs drove growth in
the FCNB Preferred charge portfolio.
Merchandising gross profit margin on net sales increased 250 basis points to
34.5 percent for the thirteen weeks ended April 1, 2000 from 32.0 percent for
the comparable 1999 period. The favorable margin performance, driven by Xxxxx
Xxxxx and Xxxxxxx, resulted from stronger customer response to merchandise
offerings and, in turn, lower markdowns compared to last year. The margin rate
also benefited from a higher mix of apparel sales compared to last year,
particularly private-label product, in addition to improvements in sourcing and
inventory flows. Total inventories at quarter-end were down 4 percent compared
to last year.
The selling, general and administrative expense ratio benefited from the
increase in revenue ending the period at 35.3 percent of total revenue
compared to 38.1 percent in the comparable period last year. Ongoing cost
control measures and higher productivity on catalog production costs contributed
to the improvement.
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Bankcard segment:
Thirteen Weeks Ended
---------------------------
April 1, April 3,
2000 1999
------------ ------------
Total revenue $ 32,639 $ 15,749
Operating income $ 16,865 $ 4,564
------------ ------------
Thirteen weeks ended April 1, 2000 compared to thirteen weeks ended
April 3, 1999
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Bankcard revenue increased significantly in the thirteen weeks ended
April 1, 2000 compared to the prior year period, driven by substantial growth
in the receivable portfolio. Average bankcard receivables serviced in the
first quarter increased 61 percent over the comparable period last year with
a corresponding increase in average receivables sold. A higher level of
receivables sold resulted in a volume-related increase in the net excess
recognized as finance revenue from these off-balance-sheet receivables. The
net excess was also 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 $6,848 were recognized in finance revenue in the
first quarter of 2000. There were no comparable gains recorded in the 1999
period.
Bankcard operating income improved in the first quarter of 2000 compared to
the prior year period, reflecting the aforementioned increase in revenue.
Contributing to the progress was the favorable impact of improved delinquency
trends realized in the portfolio, offset slightly by an increase in costs
associated with new customer acquisition.
INTEREST EXPENSE
Interest expense was $14,456 and $14,242 for the thirteen weeks ended
April 1, 2000 and April 3, 1999, respectively. The slight increase in
interest expense reflected higher average debt levels driven by funding
requirements to support customer receivable growth, essentially offset by
lower average borrowing rates.
SEASONALITY AND QUARTERLY FLUCTUATIONS
The Company, like other retailers, experiences seasonal fluctuations in revenue
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.
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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 $1,811,980 at April 1, 2000, $1,367,730 at April 3, 1999
and $1,639,981 at January 1, 2000.
Net cash provided by operating activities totaled $43,239 for the thirteen
weeks ended April 1, 2000 compared to net cash used by operating activities of
$161,771 for the thirteen weeks ended April 3, 1999. The $205,010 improvement
was due primarily to the securitization of customer receivables, offset
somewhat by cash used to fund growth in the credit portfolios. In total,
receivables and the related securitization activity increased cash provided
by a net $126,967. Excluding receivables, net cash provided by operating
activities increased $78,043 over the prior year period. Improved operating
results and strong inventory controls drove the improvement. Total inventories
at quarter-end were down 4 percent compared to last year despite an 11
percent increase in net sales.
Net cash used in investing activities for the first quarter totaled $16,787
compared to $7,420 in the prior year period. Expenditures in the current
year were comprised primarily of Xxxxx Xxxxx retail store expansion and
remodeling, distribution facility upgrades and information technology related
projects. Also included was the acquisition of Xxxxxxxx & Xxxxx, a women's
apparel catalog, from J. Crew, Inc. in February 2000. Expenditures in the
comparable 1999 period were primarily related to Xxxxx Xxxxx retail store
expansion and remodeling.
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 trading or other 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 first
quarter 2000 interest expense would have changed by approximately $326. 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 principal amounts of the Company's interest rate swap agreements
totaled $58,571 at April 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
April 1, 2000.
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Securitizations:
In conjunction with its asset-backed securitizations, the Company recognizes
gains representing the present value of estimated future 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 cash flows are
influenced by factors outside the Company's control, and, as a result, could
materially change in the near term.
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," establishes 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 133
to fiscal quarters of all fiscal years beginning after June 15, 2000.
The Company is studying the statement to determine its effect on the
consolidated financial position or results of operations, if any. The
Company will adopt SFAS No. 133, as required, in fiscal year 2001.
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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.
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Spiegel, Inc. and Subsidiaries
PART II - OTHER INFORMATION
Item 5. Other information
On April 25, 2000, the Company announced through press release the resumption of
quarterly dividend payments to shareholders. The board of directors declared a
quarterly dividend of four cents per share on the Company's common stock
payable on May 15, 2000 to stockholders of record on May 8, 2000.
14
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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/ Xxxxx X. Xxxxxxx Office of the President, May 16, 0000
Xxxxx X. Xxxxxxx Chief Financial Officer
(Principal Operating
Executive Officer and
Principal Financial Officer)
/s/ D. Skip Xxxx Vice President - Controller May 16, 2000
D. Skip Xxxx (Principal Accounting Officer
and duly authorized officer of
the Registrant)
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