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UNITED STATES
SECURITIES AND EXCHANGE COMMMISSION
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 September 28, 1996
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 November 8, 1996 are as follows:
Class A non-voting common stock, $1.00 par value
14,615,404 shares
Class B voting common stock, $1.00 par value
93,141,654 shares.
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SPIEGEL, INC. AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Consolidated Balance Sheets, September 28, 1996 and December 30, 1995
Consolidated Statements of Earnings,
Three and Nine Months Ended September 28, 1996 and September 30, 1995
Consolidated Statements of Cash Flows,
Nine Months Ended September 28, 1996 and September 30, 1995
Notes to Consolidated Financial Statements
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
Item 5 - Other Information
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Spiegel, Inc. and Subsidiaries
Consolidated Balance Sheets
($000s omitted, except per share amounts)
September 28, 1996 and December 30, 1995
(unaudited)
September 28, December 30,
1996 1995
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ASSETS
Current assets:
Cash and cash equivalents $ 30,312 $ 42,302
Receivables, net 434,016 742,480
Inventories 633,622 572,377
Prepaid expenses 94,846 101,324
Refundable income taxes 32,907 29,560
Deferred income taxes 42,134 42,234
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Total current assets 1,267,837 1,530,277
Property and equipment, net 394,942 412,934
Intangibles, net 172,297 173,088
Other assets 161,213 157,683
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$ 1,996,289 $ 2,273,982
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LIABILITIES and STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of debt $ 109,311 $ 111,672
Accounts payable 194,436 256,527
Accrued liabilities:
Salaries and wages 20,567 32,370
General taxes 111,785 125,504
Other accrued liabilities 108,826 140,375
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Total current liabilities 544,925 666,448
Long-term debt, excluding current maturities 891,650 994,692
Indebtedness to related parties - 20,000
Deferred income taxes 57,257 57,269
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Total liabilities 1,493,832 1,738,409
Stockholders' equity:
Class A non-voting common stock,
$1.00 par value; authorized 16,000,000
shares; issued 14,614,404 shares
at September 28, 1996 and 14,604,844 at
December 30, 1995 14,614 14,605
Class B voting common stock,
$1.00 par value; authorized 94,000,000
shares; issued 93,141,654 shares
at September 28, 1996 and December 30, 1995 93,142 93,142
Additional paid-in capital 211,812 211,761
Minimum pension liability (8,650) (8,650)
Retained earnings 191,539 224,715
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Total stockholders' equity 502,457 535,573
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$ 1,996,289 $ 2,273,982
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[FN]
See accompanying notes to consolidated financial statements.
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Spiegel, Inc. and Subsidiaries
Consolidated Statements of Earnings
($000s omitted, except per share amounts)
Fiscal Periods Ended September 28, 1996 and September 30, 1995
(unaudited)
Three Months Ended Nine Months Ended
September 28, September 30, September 28, September 30,
1996 1995 1996 1995
----------- ----------- ----------- -----------
Net sales and other revenues:
Net sales $ 584,075 $ 619,632 $1,797,406 $1,837,252
Finance revenue 26,826 49,390 88,433 158,719
Other revenue 10,015 16,901 38,359 68,859
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620,916 685,923 1,924,198 2,064,830
Cost of sales and operating expenses:
Cost of sales, including
buying and occupancy
expenses 403,038 431,399 1,215,155 1,274,601
Selling, general and
administrative
expenses 225,678 268,297 706,774 797,214
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628,716 699,696 1,921,929 2,071,815
----------- ----------- ----------- -----------
Operating income (loss) (7,800) (13,773) 2,269 (6,985)
Interest expense 21,006 26,358 63,707 76,217
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Earnings (loss) before
income taxes (28,806) (40,131) (61,438) (83,202)
Income tax
provision (benefit) (13,248) (17,513) (28,262) (36,309)
----------- ----------- ----------- -----------
Net earnings (loss) $ (15,558) $ (22,618) $ (33,176) $ (46,893)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Net earnings (loss)
per common share $ (0.14) $ (0.21) $ (0.31) $ (0.43)
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----------- ----------- ----------- -----------
Weighted average number of common
shares outstanding 107,752,989 107,736,680 107,748,749 107,868,490
----------- ----------- ----------- -----------
[FN]
See accompanying notes to consolidated financial statements.
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Spiegel, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
($000s omitted)
Nine Months Ended September 28, 1996 and September 30, 1995
(unaudited)
Nine Months Ended
September 28, September 30,
1996 1995
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Cash flows from operating activities:
Net earnings (loss) (33,176) (46,893)
Adjustments to reconcile net earnings (loss) to
net cash provided by operating activities:
Depreciation and amortization 62,185 49,965
Gain on sale of receivables -- (18,637)
Change in assets and liabilities:
Sale of customer accounts receivable 138,730 350,000
(Increase) decrease in receivables, net 169,733 (72,432)
Increase in inventories (61,245) (110,733)
(Increase) decrease in prepaid expenses 6,477 (16,175)
Decrease in accounts payable (62,091) (47,444)
Decrease in accrued liabilities (57,071) (51,281)
Decrease in income taxes (3,258) (25,943)
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Total adjustments 193,460 57,320
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Net cash provided by operating activities $ 160,284 $ 10,427
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Cash flows from investing activities:
Net additions to property and equipment (26,140) (101,868)
Net additions to other assets (20,791) (13,715)
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Net cash used in investing activities (46,931) (115,583)
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Cash flows from financing activities:
Issuance of debt 306,250 306,351
Payment of debt (431,654) (181,851)
Dividends paid -- (16,192)
Purchase and retirement of common shares -- (4,742)
Exercise of stock options 61 243
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Net cash provided by (used in)
financing activities (125,343) 103,809
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Net change in cash and cash equivalents (11,990) (1,347)
Cash and cash equivalents at
beginning of period 42,302 33,439
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Cash and cash equivalents at end of period $ 30,312 $ 32,092
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Supplemental cash flow information:
Cash paid during the year for:
Interest $ 60,982 $ 72,132
Income taxes $ 2,960 $ 5,351
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[FN]
See accompanying notes to consolidated financial statements.
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Spiegel, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
($000s omitted, except share amounts)
(unaudited)
(1) Basis of Presentation
The consolidated financial statements at September 28, 1996 and for the
three- and nine- month periods then ended are unaudited and have been
prepared from the books and records of the registrant 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 period are reflected. These financial statements
should be read in conjunction with the consolidated financial statements
and the notes thereto included in the registrant's most recent Annual
Report on Form 10-K, which includes financial statements for the year
ended December 30, 1995. Due to the seasonality of the registrant's
business, the results for interim periods are not necessarily indicative
of the results for the year.
(2) Reclassifications
Certain prior year amounts have been reclassified to conform to the
current presentation.
(3) Long-term debt
In March 1996, the Company replaced certain of its existing credit
arrangements with new credit facilities and modified certain conditions
of other senior and subordinated term indebtedness. These changes were
made to strengthen the Company's liquidity and provide for future growth.
The Company established a new $600 million revolving credit agreement
with a group of 23 banks. The Company also increased its existing asset
backed commercial paper program to $600 million from $400 million with a
corresponding increase in the back-up credit line with the same group
of 23 banks. The $400 million asset backed commercial paper program
had been established in December 1995, as a prelude to these financing
modifications. Simultaneously with the establishment of these new credit
facilities, the Company canceled a $600 million commercial paper facility
and a $300 million revolving credit facility.
(4) Indebtedness to related parties
As of September 28, 1996, the Company had outstanding $30,000 on a loan
which originated in 1995 from Spiegel Holdings, Inc., the Company's
majority shareholder. The entire balance is included under "Current
maturities of debt" in the Company's balance sheet. An additional
loan the Company received in the first quarter of 1996 from
3 Suisse BVG (a wholly owned subsidiary of Xxxx Versand)
has since been paid off.
(5) Receivables
During the first nine months of 1996, the Company sold a net amount of
$138,730 in certificates representing customer accounts receivables
which are held by a trust. The certificates were sold without recourse
and the bad debt reserve related to the net receivables sold has been
reduced accordingly. The Company owns the remaining undivided interest
in the trust and will continue to service all receivables for the trust.
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Item 2.
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations
(000's omitted except per share amounts)
Results of Operations:
Three Months Ended September 28, 1996 As Compared To Three
Months Ended September 30, 1995
Net sales for the three months ended September 28, 1996,
decreased 5.7% to $584,075 compared to $619,632 for the three
months ended September 30, 1995. Xxxxx Xxxxx'x retail sales
increased by 2.6% compared to the same period last year with a
comparable store sales decrease of 5.8%. Comparable store sales
were negatively impacted by the reduction of footwear assortment
in the stores which was done to provide more space for a new
higher margin line of performance outerwear and activewear called EBTek.
Total Company catalog sales declined 9.5% for the quarter as a result
of lower productivity from Spiegel and Newport News catalog
divisions.
Finance revenue for the third quarter of 1996 was $26,826 or
45.7% below the $49,390 reported for the same period in 1995.
This decrease was the result of a significantly lower level of
average owned FCNB Preferred Card receivables in the third
quarter of 1996 compared to the same period in 1995 due to sales
of customer receivables.
The gross profit margin on net sales during the third quarter of
1996 increased to 31.0% from 30.4% during the third quarter of
1995. This improvement was driven mainly by higher margins in
the Xxxxx Xxxxx division resulting from a lower level of
promotional activity, less markdowns and reduced inventory
levels. Slightly offsetting this improvement was declines in
gross profit margin experienced at the Spiegel division as a result
of higher liquidation activity on overstock merchandise.
Selling, general and administrative expenses as a percentage of
total revenues for the three months ended September 28, 1996 and
September 30, 1995 were 36.3% and 39.1%, respectively. The majority
of the improvement is the result of activities related to the
Company's credit operations. In general, the Company's credit
business has a higher selling, general and administrative expense
ratio than other areas of the Company and has been experiencing higher
charge-offs. However, as a result of the receivable sales, the selling,
general and administrative expense ratio for the credit business has
improved. This has had a favorable impact on the overall Company's
ratio. In addition, the net effect from the reversal of the provision for
doubtful accounts related to the sale of customer receivables
was approximately $6,300 which represented an improvement of
1.1% in the selling, general and administrative expense
percentage in the current quarter compared to the prior year.
The other operating units continue to see reductions in total
selling, general and administrative expenses as a result of
improvements from the Company's new fulfillment and distribution
facilities as well as other ongoing cost reduction efforts.
Interest expense was $21,006 for the three months ended
September 28, 1996 compared to $26,358 for the three months
ended September 30, 1995. This decrease was mainly due to lower
average debt levels resulting from the higher level of customer
receivables sold and the Company's lower inventory levels.
Nine Months Ended September 28, 1996 As Compared To Nine Months
Ended September 30, 1995
For the nine months ended September 28, 1996 and September 30,
1995, net sales were $1,797,406 and $1,837,252, respectively.
Xxxxx Xxxxx'x retail sales were 9.0% higher than last year for
the period, and its comparable store sales were flat to last
year. Total Company catalog sales were 5.7% lower than last
year as a result of planned catalog circulation reductions made
to reduce the impact of previous paper price increases. Additionally,
lower productivity rates on certain catalog media at Spiegel
Catalog contributed to the decline.
Finance revenue for the nine month period ended September 28,
1996 was $88,433 compared to $158,719 for the same period of
1995. This decline is mainly the result of significantly lower
average owned FCNB Preferred Card receivables due to sales of
customer receivables. Other revenue was $38,359 and $68,859 for
the nine month periods ended September 28, 1996 and September
30, 1995, respectively. The decrease is mainly attributable to
a gain of $18,637 recognized on the sale of customer receivables
in the first quarter of 1995, because there was no comparable
gain in 1996. Also within other revenue, consulting revenue has
declined due to the sale of the Company's information technology
subsidiary in the first quarter of 1996.
The gross profit margin on net sales increased to 32.4% from
30.6% for the first nine months of 1996 compared to the same
period in 1995. Clearance and markdown activity at Xxxxx Xxxxx
was substantially lower in the 1996 period. In the first half
1995, the Company took aggressive markdowns to liquidate overstock
merchandise. Such markdowns were not required in the same
period of 1996.
Selling, general and administrative expenses as a percentage to
total revenue were 36.7% and 38.6% for the nine month periods
ended September 28, 1996 and September 30, 1995, respectively.
The Company has continued to pursue cost saving measures in all
areas of its businesses. The lower selling, general and
administrative expense ratio reflected reductions in several
operating units' expenses as well as efficiencies being realized
from the Company's new fulfillment and distribution facilities
and more tightly controlled advertising expenditures, including
catalog production costs. The 1996 ratio was also favorably
impacted by the gain of approximately $8,000 realized on the
sale of the Company's information technology subsidiary in the
first quarter and by approximately $8,000 on the reversal of the
provision for doubtful accounts on the customer receivables sold
in 1996. Also favorably effecting the 1996 ratio, as discussed
above, was the diminishing relative effect of the Company's
credit business due to receivable sales. By comparison, the 1995
ratio was favorably impacted by the effects of a sale of
$350,000 of customer receivables in March 1995 including an
$18,637 gain recognized and a reversal of approximately $15,000
of the provision for doubtful accounts on the receivables sold.
Interest expense was $63,707 and $76,217 for the nine months
ended September 28, 1996 and September 30, 1995, respectively.
This decrease was mainly due to lower average debt levels resulting
from a higher level of customer receivables sold and the Company's
lower inventory levels.
Seasonality and Quarterly Fluctuations:
The Company, like other retailers, experiences seasonal
fluctuations in its merchandise sales 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
issuance of debt and the sale of customer accounts receivable.
Total customer receivables sold were $1,318,730 at September 28,
1996, $1,180,000 at December 30, 1995 and $830,000 at September
30, 1995.
In March 1996, the Company replaced certain of its existing
credit arrangements with new credit facilities and modified
certain conditions of other senior and subordinated term
indebtedness. These changes were made to strengthen the
Company's liquidity and provide for future growth. The Company
established a new $600 million revolving credit agreement with a
group of 23 banks. The Company also increased its existing
asset backed commercial paper program to $600 million from $400
million with a corresponding increase in the back-up credit line
with the same group of 23 banks. The $400 million asset backed
commercial paper program had been established in December 1995
as a prelude to these financing modifications. Simultaneously
with the establishment of these new credit facilities, the
Company canceled a $600 million commercial paper facility and a
$300 million revolving credit facility. The Company also sold
a net amount of $138,730 of customer receivables during the
first nine months of 1996.
Net cash provided by operating activities was $160,284 and
$10,427 for the nine month periods ended September 28, 1996 and
September 30, 1995, respectively. The net cash proceeds from
the sale of $138,730 and $350,000 of customer receivables were
reported as operating cash flows in the nine months ended
September 28, 1996 and September 30, 1995, respectively.
Without the effects of the sale of customer receivables, net
cash provided by operating activities would have been $21,554
for the nine month period ended September 28, 1996 and net cash
used by operating activities would have been $339,573 for the
nine month period ended September 30, 1995. This substantial
improvement in cash flow from operations in 1996 compared to 1995
was primarily driven by changes in accounts receivable levels and
lower inventory balances. In 1996, a significant source of cash
from operating activities was decreases in customer receivables.
Decreases in accounts payable and other liabilities and an increase
in inventories in preparation for peak selling season represented
significant uses of cash.
Net additions to property and equipment for the nine months
ended September 28, 1996 and September 30, 1995 were $26,140 and
$101,868, respectively. The capital spending in 1996 was
primarily related to continued Xxxxx Xxxxx retail store expansion
and the completion of the addition to Xxxxx Xxxxx'x headquarters.
During the nine months ended September 28, 1996, the Company
incurred approximately $3,040 of expenditures related to the
nonrecurring charge taken in 1993. The charge provided for the
estimated impact of closing certain of the Company's existing
catalog distribution facilities. Expenditures incurred during
1996 were primarily for closing costs incurred relating to the
warehouse buildings.
The Company believes that its cash on hand, together with cash
flows anticipated to be generated from operations, and
borrowings under its existing credit facilities and other
available sources of funds, will be adequate to fund the
Company's capital and operating requirements for the foreseeable
future.
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 materially differ from those anticipated including
but not limited to, economic and market conditions and the
impact of competitive activities as well as other risks
indicated in 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
Item 5. Other Information
Certain changes were made in 1996 to the Company's board of
directors. At the Company's board of directors meeting on
April 25, 1996, Xx. Xxxxxxx X. Xxxxxx, President and Chief
Operating Officer of Xxxxx Xxxxx, and Xx. Xxxx X. Xxxxx, President
of the Spiegel Catalog Division, were elected to the board of
directors. In June, Xx. Xxxx-Xxxxxxxxx Xxxxxxx announced his
departure from the Company's board of directors. Xx. Xxxxxx Xxxxxxx
of Xxxx Versand (GmbH & Co) has been named to the board as
Xx. Xxxxxxx'x replacement.
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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
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/s/ Xxxxx X. Xxxxxxx Senior Vice President November 12, 0000
Xxxxx X. Xxxxxxx (Chief Financial Officer)
