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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 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 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 8, 1998 are as follows:
Class A non-voting common stock, $1.00 par value
14,701,964 shares
Class B voting common stock, $1.00 par value
117,009,869 shares.
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SPIEGEL,INC. AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Consolidated Balance Sheets, April 4, 1998 and January 3, 1998
Consolidated Statements of Earnings,
Thirteen Weeks Ended April 4, 1998 and March 29, 1997
Consolidated Statements of Cash Flows,
Thirteen Weeks Ended April 4, 1998 and March 29, 1997
Notes to Consolidated Financial Statements
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
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Spiegel, Inc. and Subsidiaries
Consolidated Balance Sheets
($000s omitted, except per share amounts)
April 4, 1998 and January 3, 1998
(unaudited)
April 4, January 3,
1998 1998
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ASSETS
Current assets:
Cash and cash equivalents $ 29,929 $ 47,582
Receivables, net 464,523 563,376
Inventories 515,485 508,756
Prepaid expenses 81,344 89,137
Refundable income taxes 8,841 6,064
Deferred income taxes 29,912 29,908
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Total current assets 1,130,034 1,244,823
Property and equipment, net 385,223 394,822
Intangible assets, net 158,703 159,016
Other assets 151,619 150,893
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Total Assets $ 1,825,579 $ 1,949,554
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LIABILITIES and STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of debt $ 138,614 $ 102,900
Accounts payable 147,066 238,723
Accrued liabilities:
Salaries and wages 18,927 37,305
General taxes 108,475 120,345
Allowance for returns 22,762 37,094
Other accrued liabilities 91,150 98,362
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Total current liabilities 526,994 634,729
Long-term debt, excluding current maturities 653,036 713,750
Indebtedness to related parties 15,000 --
Deferred income taxes 15,477 32,982
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Total liabilities 1,210,507 1,381,461
Stockholders' equity:
Class A non-voting common stock,
$1.00 par value; authorized 16,000,000
shares; issued 14,683,964 shares
at April 4, 1998 and 14,660,464 at
January 3, 1998 14,684 14,660
Class B voting common stock,
$1.00 par value; authorized 121,500,000
shares; issued 117,009,869 shares at
April 4, 1998 and 103,483,298 at
January 3, 1998 117,010 103,483
Additional paid-in capital 328,206 271,645
Retained earnings 155,172 178,305
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Total stockholders' equity 615,072 568,093
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Total liabilities and stockholders' equity $ 1,825,579 $ 1,949,554
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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)
Thirteen Weeks Ended April 4, 1998 and March 29, 1997
(unaudited)
Thirteen Weeks Ended
April 4, March 29,
1998 1997
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Net sales and other revenues:
Net sales $ 532,450 $ 569,785
Finance revenue 49,214 22,528
Other revenue 8,889 9,499
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590,553 601,812
Cost of sales and operating expenses:
Cost of sales, including buying and
occupancy expenses 379,612 400,935
Selling, general and administrative
expenses 234,704 240,740
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614,316 641,675
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Operating income (loss) (23,763) (39,863)
Interest expense 16,870 16,370
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Earnings (loss) before income taxes (40,633) (56,233)
Income tax benefit (17,500) (25,024)
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Net earnings (loss) $ (23,133) $ (31,209)
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Net earnings (loss) per common share
Basic and diluted $ (0.19) $ (0.28)
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Weighted average number of common
shares outstanding 119,484,137 110,261,774
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[FN]
See accompanying notes to consolidated financial statements.
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Spiegel, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
($000s omitted)
Thirteen Weeks ended April 4, 1998 and March 29, 1997
(unaudited)
Thirteen Weeks Ended
April 4, March 29,
1998 1997
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Cash flows from operating activities:
Net earnings (loss) $ (23,133) $ (31,209)
Adjustments to reconcile net earnings (loss) to
net cash used in operating activities:
Depreciation and amortization 19,207 20,467
Change in assets and liabilities,
net of effects of acquisition:
Decrease in sold customer receivables (24,897) (113,572)
Decrease in receivables, net 123,750 169,792
Increase in inventories (6,729) (18,725)
(Increase) decrease in prepaid expenses 7,794 (1,704)
Decrease in accounts payable (91,657) (105,687)
Decrease in accrued liabilities (51,792) (59,904)
Decrease in income taxes (20,286) (26,027)
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Total adjustments (44,610) (135,360)
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Net cash used in operating activities $ (67,743) $ (166,569)
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Cash flows from investing activities:
Net additions to property and equipment (6,147) (7,356)
Net additions to other assets (3,874) (6,795)
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Net cash used in investing activities (10,021) (14,151)
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Cash flows from financing activities:
Issuance of debt 145,000 108,000
Payment of debt (155,000) (45,024)
Issuance of Class B common stock 70,000 70,000
Exercise of stock options 111 22
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Net cash provided by financing activities 60,111 132,998
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Net change in cash and cash equivalents (17,653) (47,722)
Cash and cash equivalents at beginning of year 47,582 86,917
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Cash and cash equivalents at end of period $ 29,929 $ 39,195
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Supplemental cash flow information:
Cash paid during the period for:
Interest $ 13,374 $ 12,926
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Income taxes $ 3,243 $ 3,170
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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 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 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 Xxxx 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
proceeds of $70 million from this issuance will be used primarily to fund
working capital and investing needs.
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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:
Thirteen Weeks Ended April 4, 1998 As Compared To Thirteen Weeks
Ended March 29, 1997
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Net sales for the thirteen weeks ended April 4, 1998 were $532,450 compared
to $569,785 for the thirteen weeks ended March 29, 1997. This 7% decrease
was driven by an 11% decline in catalog net sales and a 1% decline in retail
net sales. Catalog net sales results for the quarter reflected a planned
circulation reduction at Spiegel Catalog, partially offset by higher catalog
sales at Xxxxx Xxxxx 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. Retail net sales
decreased due to weakness experienced at Xxxxx Xxxxx, which posted a 10%
decline in comparable-store sales for the quarter. Higher markdowns taken
to liquidate fall season merchandise negatively affected Xxxxx Xxxxx'x sales,
in addition to weak response to certain spring season products.
Finance revenue for the first quarter of 1998 was $49,214 compared to $22,528
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 36% increase in
average MasterCard receivables resulting primarily from favorable response
to the co-branded Spiegel MasterCard and Xxxxx Xxxxx MasterCard programs.
The gross profit margin on net sales decreased to 28.7% for the thirteen
weeks ended April 4, 1998 from 29.6% 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 Xxxxx Xxxxx. The margin
decline at Xxxxx Xxxxx resulted primarily from a higher level of clearance
and promotional markdown activity to liquidate fall season merchandise and
manage inventories. Consolidated inventories at quarter-end were down 1%
compared to last year.
Selling, general and administrative expenses as a percentage of total
revenues for the thirteen weeks ended April 4, 1998 and March 29, 1997 were
39.7% and 40.0%, 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 30% compared to last year. However, lackluster sales performance at Xxxxx
Xxxxx resulted in less leverage of selling, general and administrative
expenses, offsetting the expense improvements in other divisions.
Interest expense increased 3% for the thirteen weeks ended April 4, 1998 to
$16,870 compared to $16,370 for the thirteen weeks ended March 29, 1997. This
increase was due to slightly higher average debt levels, partially offset by
lower average interest rates.
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
$1,267,816 at April 4, 1998, $1,292,713 at January 3, 1998 and $1,350,158
at March 29, 1997.
Net cash used in operating activities was $67,743 for the thirteen weeks
ended April 4, 1998 as compared to $166,569 used for the thirteen weeks ended
March 29, 1997. All categories contributed to the net $98,826 improvement,
most notably accounts receivable.
Net additions to property and equipment for the thirteen weeks ended
April 4, 1998 were $6,147 compared to $7,356 for the comparable period of
1997. The capital spending in 1998 and 1997 was primarily related to Xxxxx
Xxxxx retail store expansion and remodeling.
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 $70 million are being used primarily to fund working capital and
investing needs, including continued expansion of Xxxxx Xxxxx.
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 Xxxx Versand. The redemption price of the preferred
stock prior to December 31, 1997 was at face value. Subsequent to
December 31, 1997, the redemption price was fair market value, as determined
by an independent valuation consultant. All shares were redeemed in April 1998
for $12,236. The excess of the redemption price over the carrying value of the
preferred stock of $8,535 represents a return to the preferred stockholders.
In the second quarter, this excess consideration will be treated as a
dividend to the preferred stockholders and, in accordance with SFAS No. 128,
will reduce earnings available to common shareholders and the related
earnings per share.
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.
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. 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 our ability to service our 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, with amounts associated
with this effort totaling approximately $1.6 million through April 4, 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 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.
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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 Chief Financial Officer and May 19, 0000
Xxxxx X. Xxxxxxx Member of the Office of the
President
(Principal Operating Executive Officer
and Principal Financial Officer)
/s/ D. L. Skip Xxxx Vice President - Controller May 19, 1998
D. L. Skip Xxxx (Principal Accounting Officer)
