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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 27, 1997
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 7, 1997 are as follows:
Class A non-voting common stock, $1.00 par value
14,660,464 shares
Class B voting common stock, $1.00 par value
103,483,298 shares.
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SPIEGEL, INC. AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Consolidated Balance Sheets, September 27, 1997 and December 28, 1996
Consolidated Statements of Earnings,
Three and Nine Months Ended September 27, 1997 and September 28, 1996
Consolidated Statements of Cash Flows,
Nine Months Ended September 27, 1997 and September 28, 1996
Notes to Consolidated Financial Statements
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K
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Consolidated Balance Sheets
($000s omitted, except per share amounts)
(unaudited)
September, 27 December 28,
1997 1996
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ASSETS
Current assets:
Cash and cash equivalents $ 29,854 $ 86,917
Receivables, net 357,713 485,242
Inventories 610,141 502,209
Prepaid expenses 103,403 84,634
Refundable income taxes 41,254 16,991
Deferred income taxes 35,528 35,542
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Total current assets 1,177,893 1,211,535
Property and equipment, net 380,979 399,910
Intangibles, net 164,610 166,275
Other assets 209,936 167,905
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Total assets $ 1,933,418 $ 1,945,625
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LIABILITIES and STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of debt $ 87,900 $ 89,292
Indebtedness to related parties -- 20,000
Accounts payable 194,547 270,973
Accrued liabilities:
Salaries and wages 21,373 36,636
General taxes 103,752 127,170
Allowance for returns 22,975 41,691
Other accrued liabilities 89,725 109,634
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Total current liabilities 520,272 695,396
Long-term debt, excluding current maturities 829,250 676,656
Indebtedness to related parties 5,000 --
Deferred income taxes 52,040 52,024
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Total liabilities 1,406,562 1,424,076
Stockholders' equity:
Class A non-voting common stock,
$1.00 par value; authorized 16,000,000
shares; 14,659,264 shares issued and
outstanding at September 27, 1997 and
14,618,404 at December 28, 1996 14,659 14,618
Class B voting common stock,
$1.00 par value; authorized 104,000,000
shares; 103,483,298 shares issued and
outstanding at September 27, 1997 and
93,141,654 at December 28, 1996 103,483 93,142
Additional paid-in capital 271,641 211,828
Minimum pension liability (9,365) (9,365)
Retained earnings 146,438 211,326
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Total stockholders' equity 526,856 521,549
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Total liabilities and stockholders' equity $ 1,933,418 $ 1,945,625
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[FN]
See accompanying notes to consolidated financial statements.
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Consolidated Statements of Earnings
($000s omitted, except per share amounts)
(unaudited)
Three Months Ended Nine Months Ended
September 27, September 28, September 27, September 28,
1997 1996 1997 1996
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Net sales and other revenues:
Net sales $ 591,694 $ 584,075 $1,807,569 $1,797,406
Finance revenue 46,368 26,826 107,611 88,433
Other revenue 8,901 10,015 29,838 38,359
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646,963 620,916 1,945,018 1,924,198
Cost of sales and operating expenses:
Cost of sales, including buying and
occupancy expenses 416,750 403,038 1,252,449 1,215,155
Selling, general and administrative
expenses 240,607 225,678 746,191 706,774
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657,357 628,716 1,998,640 1,921,929
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Operating income (loss) (10,394) (7,800) (53,622) 2,269
Interest expense 16,852 21,006 49,374 63,707
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Earnings (loss) before income taxes (27,246) (28,806) (102,996) (61,438)
Income tax benefit (7,051) (13,248) (38,109) (28,262)
---------- ----------- ----------- -----------
Net earnings (loss) $ (20,195) $ (15,558) $ (64,887) $ (33,176)
---------- ----------- ----------- -----------
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Net earnings (loss) per common share $ (0.17) $ (0.14) $ (0.56) $ (0.31)
---------- ----------- ----------- -----------
---------- ----------- ----------- -----------
Weighted average number of common
shares outstanding 118,112,697 107,752,989 115,493,643 107,748,749
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
[FN]
See accompanying notes to consolidated financial statements.
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Consolidated Statements of Cash Flows
($000s omitted)
(unaudited)
Nine Months Ended
September 27, September 28,
1997 1996
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Cash flows from operating activities:
Net earnings (loss) $ (64,887) $ (33,176)
Adjustments to reconcile net earnings (loss)
to net cash provided by (used in) operating activities:
Depreciation and amortization 62,178 65,135
Gain on sale of receivables (42,358) --
Change in assets and liabilities:
Increase (decrease) in sold customer receivables (209,957) 138,730
Decrease in receivables, net 337,487 169,733
Increase in inventories (107,932) (61,245)
(Increase) decrease in prepaid expenses (18,770) 6,477
Decrease in accounts payable (76,425) (62,091)
Decrease in accrued liabilities (77,308) (57,071)
Decrease in income taxes (24,232) (3,258)
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Total adjustments (157,317) 196,410
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Net cash provided by (used in) operating activities (222,204) 163,234
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Cash flows from investing activities:
Net additions to property and equipment (25,911) (26,140)
Net additions to other assets (15,343) (23,741)
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Net cash used in investing activities (41,254) (49,881)
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Cash flows from financing activities:
Issuance of debt 225,500 306,250
Payment of debt (89,298) (431,654)
Issuance of Class B common stock 69,972 --
Exercise of stock options 222 61
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Net cash provided by (used in) financing activities 206,396 (125,343)
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Net change in cash and cash equivalents (57,063) (11,990)
Cash and cash equivalents at beginning of year 86,917 42,302
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Cash and cash equivalents at end of period $ 29,854 $ 30,312
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Supplemental cash flow information:
Cash paid during the period for:
Interest $ 46,550 $ 60,982
Income taxes $ 9,062 $ 2,960
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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 per share amounts)
(unaudited)
(1) Basis of Presentation
The consolidated financial statements at September 27, 1997 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 periods 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 28, 1996. 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 period amounts have been reclassified to conform to the
current presentation.
(3) Indebtedness to related parties
In the second quarter of 1997, the Company made the final $20,000
principal payment on the loan from the Company's majority shareholder,
Spiegel Holdings, Inc., which existed as of December 28, 1996. As of
September 27, 1997, the total indebtedness to related parties was $5,000,
representing the remaining balance on a loan received in the first quarter
of 1997 from 3 Suisses BVG (a wholly owned subsidiary of Xxxx Versand).
This loan bears interest at a variable rate based on LIBOR plus a margin
and is due in its entirety in August, 1999.
(4) Issuance of Class B common stock
On March 7, 1997, the Company issued 10,341,644 shares of Class B voting
common stock to its majority shareholder, Spiegel Holdings, Inc. The net
proceeds of $69,972 are being used primarily to fund working capital and
investing needs, including the continued expansion of Xxxxx Xxxxx.
(5) Gains on sale of customer receivables
In 1997, the Company implemented Statement of Financial Accounting
Standards No. 125, "Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities". Due to the revolving nature of
sales of customer receivables held by trusts, a pretax gain of $22,686 was
recognized under the provisions of this new accounting standard in the
third quarter. Pretax gains of $42,358 pursuant to SFAS No. 125 have been
recognized to date in 1997. These gains are recorded as Finance Revenue
in the Consolidated Statements of Earnings.
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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 27, 1997 As Compared To Three Months Ended
September 28, 1996
Net sales for the three months ended September 27, 1997, increased 1.3% to
$591,694 compared to $584,075 for the three months ended September 28, 1996.
Sales increases from Xxxxx Xxxxx'x retail and catalog divisions were
significantly offset by sales decreases at Spiegel Catalog. Retail sales at
Xxxxx Xxxxx increased 9.1% over last year, driven by an increase in the number
of stores compared to last year. Comparable store sales declined 2% for the
quarter. Total Company catalog sales declined 2.6% for the period as the
growth of Xxxxx Xxxxx'x catalog operations and the favorable performance of the
Company's Newport News division was more than offset by lower Spiegel Catalog
sales. Spiegel Catalog continues to be affected by lower productivity and
response rates experienced in catalog mailings as well as a smaller active
customer file.
Finance revenue for the third quarter of 1997 increased to $46,368 from
$26,826 a year earlier. Revenues were favorably affected by a pretax gain
of $22,686 on the sale of customer receivables recognized pursuant to SFAS
No. 125. This gain was offset somewhat by lower finance revenues generated
as a result of a significantly lower average level of owned customer
receivables. The lower level of owned customer receivables was driven by
decreases in sales on the Company's proprietary credit card, particularly at
Spiegel Catalog.
The gross profit margin on net sales decreased to 29.6% for the three months
ended September 27, 1997 from 31.0% for the comparable 1996 period. This margin
decrease is primarily due to a higher level of markdowns taken by Spiegel
Catalog to manage inventory risk and liquidate merchandise that is not in line
with the company's new targeted merchandise direction. Additionally, Xxxxx
Xxxxx is experiencing some margin rate pressures due to somewhat higher levels
of promotional activity.
Selling, general and administrative expenses as a percentage of total revenues
for the three months ended September 27, 1997 and September 28, 1996 were
37.2% and 36.3%, respectively. Factors contributing to the increase included
less leverage of fixed expenses, primarily at Spiegel Catalog, as a result of
lower productivity from catalog offerings. In addition, the 1996 ratio was
favorably impacted by the reversal of $6,300 of provision for doubtful accounts
related to the sale of customer receivables.
Interest expense for the three months ended September 27, 1997 decreased 19.8%
to $16,852 compared to $21,006 for the three months ended September 28, 1996.
This decrease was due to reduced average debt levels resulting from a lower
level of owned customer receivables and from the $69,972 net proceeds from
the issuance of Class B voting stock in March 1997.
During the third quarter of 1997, the Company revised its estimated annual
effective income tax rate from 41% to 37%. Accordingly, third quarter results
reflect the effect of this change in the estimated income tax benefit,
resulting in a quarterly effective income tax benefit rate of 25.9%. This
compares unfavorably to the 46% income tax benefit rate utilized during the
same period last year.
Nine Months Ended September 27, 1997 As Compared To Nine Months Ended
September 28, 1996
Net sales for the nine months ended September 27, 1997 and September 28, 1996
were $1,807,569 and $1,797,406, respectively. Xxxxx Xxxxx'x retail sales
increased 10.5% over last year, with a comparable store sales increase of 1%.
Total Company catalog sales were lower than last year by 4.0%. This decrease
was driven by Spiegel Catalog as it continues to be affected by the lower
productivity of catalog mailings as well as by the tightened credit policies
on the Company's proprietary credit card. Spiegel Catalog continues its effort
to strengthen its performance through its restructuring, which will create more
focused, targeted catalog offerings designed to improve sales. Somewhat
offsetting the catalog sales decline experienced by Spiegel Catalog were
catalog sales improvements at Xxxxx Xxxxx and Newport News.
Finance revenue for the nine month period ended September 27, 1997 was $107,611
compared to $88,433 for the same period in 1996. A pretax gain of $42,358 on
the sale of customer receivables was recognized during the 1997 period under
the provisions of SFAS No. 125. Offsetting this gain was a decrease in finance
revenues resulting from a significantly lower level of average owned
receivables compared to 1996 due to sales of customer receivables, as well as
decreases in sales on the Company's proprietary credit card. Other revenue
was $29,838 and $38,359 for the nine month periods ended September 27, 1997
and September 28, 1996, respectively. This decrease was due primarily to the
sale of the Company's technology consulting subsidiary at the end of the first
quarter of 1996. Also contributing to the variance were declines in sales-
volume driven other revenue categories at Spiegel Catalog as a result of lower
catalog productivity.
The gross profit margin on net sales decreased to 30.7% for the nine months
ended September 27, 1997 from 32.4% for the comparable 1996 period. This margin
decrease is primarily due to a higher level of markdowns taken by Spiegel
Catalog to manage inventory risk and liquidate merchandise that is not in line
with the company's new targeted merchandise direction.
Selling, general and administrative expenses as a percentage of total revenues
for the nine months ended September 27, 1997 and September 28, 1996 were 38.4%
and 36.7%, respectively. This increase reflects approximately $10,000 in
expenses associated with the restructuring activities of Spiegel Catalog, which
included reserves for the closing of certain facilities and a work force
reduction of approximately 125 Spiegel Catalog associates. Other factors
contributing to the increase included less leverage of selling, general and
administrative expenses, especially advertising expense, at Spiegel Catalog as
a result of lower productivity from catalog offerings. The 1996 ratio was
favorably impacted by the gain of approximately $8,000 realized on the sale
of the Company's information technology subsidiary, as well as the favorable
impact of an $8,000 reversal of the provision for doubtful accounts on customer
receivables sold in 1996.
Spiegel Catalog continues to pursue cost saving measures. In October 1997,
subsequent to the end of the third quarter, the Company announced its intention
to close two sales centers in late December 1997 to reduce fixed costs by
eliminating excess sales center capacity. Charges for this action will be
included in fourth quarter results and are currently estimated to be between
$6,000 and $8,000.
Interest expense for the nine months ended September 27, 1997 decreased 22.5%
to $49,374 compared to $63,707 for the nine months ended September 28, 1996.
This decrease was due to reduced average debt levels resulting from a lower
level of owned customer receivables and from the $69,972 net proceeds from the
issuance of Class B voting stock in March 1997.
The annual effective income tax rate is currently estimated at 37% compared to
46% recorded for the nine months ended September 28, 1996. The Company
assesses its effective tax rate on a continual basis. Different earnings
levels in the Company's individual business units can have a profound impact
on the consolidated rate.
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 sale of customer accounts receivable, and
the issuance of debt and common stock. Total customer receivables sold were
$1,253,773 at September 27, 1997, $1,463,730 at December 28, 1996 and
$1,318,730 at September 28, 1996.
Net cash used by operating activities was $222,204 for the nine month period
ended September 27, 1997 compared to net cash provided by operations of
$163,234 for the nine month period ended September 28, 1996. All categories
contributed to the net $385,438 increase in cash used for operations over the
comparable period last year, most notably accounts receivable and inventories.
Net cash provided by receivables was lower by $180,933 in the 1997 period, as
cash flow provided by decreases in accounts receivable was more than offset by
decreases in sold customer receivables. The net $46,687 increase in cash used
for inventories over last year represents the increase in inventories at Xxxxx
Xxxxx to support its growth. Xxxxx Xxxxx has opened 38 additional retail stores
since December 28, 1996 compared to 17 stores opened in the comparable period
last year.
Net additions to property and equipment for the nine months ended September 27,
1997 and September 28, 1996 were $25,912 and $26,140, respectively. The
capital spending in 1997 and 1996 is primarily related to continued Xxxxx
Xxxxx retail store expansion.
On March 7, 1997, the Company issued 10,341,644 shares of Class B voting common
stock to its majority shareholder, Spiegel Holdings, Inc. The net proceeds of
$69,972 are being used primarily to fund working capital and investing needs,
including continued expansion of Xxxxx Xxxxx.
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 of funds,
will be adequate to fund the Company's capital and operating requirements for
the foreseeable future.
In February 1997, the FASB issued SFAS No. 128, "Earnings per Share", effective
for both interim and annual periods ending after December 15, 1997. The
Company will adopt the new standard, as required, in the fourth quarter of
1997. For the three and nine months ended September 27, 1997, SFAS No. 128
would not have had an impact on the Company's loss per share calculation.
SFAS No. 130, "Reporting Comprehensive Income", effective for fiscal years
beginning after December 15, 1997, establishes standards for the reporting
and display of comprehensive income and its components in a full set of
general-purpose financial statements. The Company is evaluating the Statement's
provisions to conclude how it will present comprehensive income in its financial
statements. The Company plans to adopt the new standard, as required, in
fiscal year 1998.
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information", effective for fiscal years beginning after December 15, 1997,
establishes standards for the way public business enterprises report financial
and descriptive information about reportable operating segments in annual
financial statements and interim financial reports issued to stockholders. The
Company is evaluating the new Statement's provisions to determine the additional
disclosures required in its financial statements, if any. The Company plans to
adopt SFAS No. 131 in fiscal year 1998.
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, 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, 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,
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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PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(b). Reports on Form 8-K
On June 26, 1997, the Company filed a report on Form 8-K announcing
the early retirement of Xxxx X. Xxxx, Vice Chairman, President and
CEO, from the Company and the Board of Directors effective
July 3, 1997. It further announced the formation of the Office of
the President consisting of Xxxxxx X. Xxxxxxxxxx, Senior Vice President,
Human Resources; Xxxxxxx X. Xxxxx, Senior Vice President and General
Counsel; and Xxxxx X. Xxxxxxx, Senior Vice President and Chief Financial
Officer.
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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 Executive Vice President November 12, 0000
Xxxxx X. Xxxxxxx (Chief Financial Officer)
/s/ D. L. Skip Xxxx Vice President - Controller November 12, 1997
D. L. Skip Xxxx (Chief Accounting Officer)
