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UNITED STATES
SECURITIES AND EXCHANGE COMMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
/X/ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarter ended July 2, 1994
or
/ / Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ............. to ...............
Commission file number 0-16126
SPIEGEL, INC.
(Exact name of registrant as specified in its charter)
Delaware 36-2593917
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3500 Lacey Road, Downers Grove, Illinois 60515-5432
(Address of principal executive offices) (Zip Code)
708-986-8800
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
The number of shares outstanding of each of the issuer's classes of common
stock, as of August 8, 1994 are as follows:
Class A non-voting common stock, $1.00 par value
15,054,844 shares
Class B voting common stock, $1.00 par value
93,141,654 shares.
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SPIEGEL, INC. AND SUBSIDIARIES
Due to the seasonality of the registrant's business, the results for the three
and six month periods are not necessarily indicative of the results for the
year. The financial statements have been prepared from the books and records of
the registrant. They reflect all adjustments which are, in the opinion of
management, necessary to a fair presentation of the results for the interim
periods. These financial statements should be read in conjunction with the
consolidated financial statements and the notes thereto included in the
registrant's Annual Report on Form 10-K, which includes financial statements
for the year ended December 31, 1993.
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Consolidated Balance Sheets, July 2, 1994 and December 31, 1993
Consolidated Statements of Earnings,
Three and Six Months Ended July 2, 1994 and June 30, 1993
Consolidated Statements of Cash Flows,
Six Months Ended July 2, 1994 and June 30, 1993
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)
July 2, 1994 and December 31, 1993
<TABLE>
<CAPTION>
(unaudited)
July 2, December 31,
1994 1993
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<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 38,654 $ 47,389
Receivables, net 999,155 998,525
Inventories, net 445,079 438,869
Prepaid expenses:
Catalog advertising 58,031 45,509
Other 27,000 14,336
Deferred income tax benefit 48,013 48,037
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Total current assets 1,615,932 1,592,665
Property and equipment, net 304,004 288,551
Intangibles, net 187,512 189,454
Other assets 161,307 139,921
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$ 2,268,755 $ 2,210,591
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LIABILITIES and STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt,including current maturities $ 119,986 $ 89,152
Accounts payable 157,934 226,311
Accrued liabilities:
Salaries and wages 22,163 32,255
General taxes 87,541 97,764
Other accrued liabilities 107,434 142,204
Income taxes 0 39,561
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Total current liabilities 495,058 627,247
Long-term debt, excluding current maturities 1,152,598 971,683
Deferred income taxes 44,218 44,176
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Total liabilities 1,691,874 1,643,106
Stockholders' equity:
Class A non-voting common stock,
$1.00 par value; authorized 16,000,000
shares; issued 15,051,044 shares
at July 2, 1994 and 14,599,824 at
December 31, 1993 15,051 14,600
Class B voting common stock,
$1.00 par value; authorized 94,000,000
shares; issued 93,141,654 shares
at July 2, 1994 and December 31, 1993 93,142 93,142
Additional paid-in capital 215,744 209,029
Retained earnings 252,944 250,714
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Total stockholders' equity 576,881 567,485
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$ 2,268,755 $ 2,210,591
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</TABLE>
[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 July 2, 1994 and June 30, 1993
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
July 2, June 30, July 2, June 30,
1994 1993 1994 1993
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<S> <C> <C> <C> <C>
Net sales and other revenues:
Net sales $ 600,650 $ 454,156 $1,149,373 $ 893,163
Finance revenue 56,975 46,320 115,207 94,021
Other revenue 17,452 15,350 32,631 28,925
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675,077 515,826 1,297,211 1,016,109
Cost of sales and operating expenses:
Cost of sales, including buying and
occupancy expenses 392,971 313,552 761,584 619,731
Selling, general and administrative
expenses 250,741 178,017 474,912 349,337
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643,712 491,569 1,236,496 969,068
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Operating income 31,365 24,257 60,715 47,041
Interest expense 19,792 17,236 37,498 34,923
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Earnings before income taxes 11,573 7,021 23,217 12,118
Income taxes 5,069 3,026 10,169 5,223
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Net earnings $ 6,504 $ 3,995 $ 13,048 $ 6,895
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Net earnings per common share $ 0.06 $ 0.04 $ 0.12 $ 0.07
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Weighted average number of common
shares outstanding 108,191,064 104,044,812 108,171,958 104,031,766
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</TABLE>
See accompanying notes to consolidated financial statements.
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Spiegel, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
($000s omitted)
Six Months Ended July 2, 1994 and June 30, 1993
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended
July 2, June 30,
1994 1993
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Net cash provided by (used in) operating activities $ (160,958) $ (75,157)
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Cash flows from investing activities:
Net additions to property and equipment (34,488) (34,169)
Net additions to other assets (21,386) (20,728)
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Net cash used in investing activities (55,874) (54,897)
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Cash flows from financing activities:
Borrowings of debt 273,599 168,975
Payments of debt (61,850) (28,100)
Dividends paid (10,818) (11,443)
Issuance of common stock 6,894 0
Exercise of stock options 272 226
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Net cash provided by financing activities 208,097 129,658
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Net change in cash and cash equivalents (8,735) (396)
Cash and cash equivalents at beginning of period 47,389 3,604
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Cash and cash equivalents at end of period $ 38,654 $ 3,208
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Supplemental cash flow information:
Cash paid during the year for:
Interest $ 37,808 $ 35,818
Income taxes $ 57,387 $ 32,124
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</TABLE>
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) Adjustments
The financial statements reflect all adjustments which are, in
the opinion of management, necessary to a fair presentation of
the results for the periods presented.
(2) Reclassifications
Certain prior year amounts have been reclassified to conform to
the current presentation.
(3) Change in Accounting Periods
In 1994, the company modified its quarterly and annual reporting from calendar
periods to a 52/53 week fiscal year ending on the Saturday closest to
December 31. Accordingly, results for the second quarter and year-to-date 1994
periods include 13 and 26 weeks, respectively, and are referred to as the
three and six months periods ended July 2, 1994. Results for 1993 are reported
on a calendar basis.
(4) Accounting Changes
Postemployment Benefits
The Company adopted SFAS No. 112, Employers' Accounting for Postemployment
Benefits, in the second quarter of 1994. The effect on the financial
statements was immaterial and, therefore, was not separately disclosed.
Investments in Debt and Equity Securities
The Company adopted the provisions of Statement of Financial Accounting
Standards (SFAS) No. 115, Accounting for Certain Investments in Debt and
Equity Securities, which requires the classification of debt and equity
securities into one of three categories; held to maturity, trading securities
or available-for-sale. The Company's debt and equity securities are recorded
in the consolidated balance sheet as cash equivalents and other assets. These
securities are being held-to-maturity and thus, there is no financial
statement impact to adopting SFAS No. 115.
(5) Stockholders' Equity
In January, the underwriters excercised their option to purchase an
additional 400,000 shares of Class A non-voting common stock as part of the
secondary offering of common stock completed in December 1993. Accordingly,
common stock was increased $400 representing the par value of the shares and
additional paid-in capital was increased by $6,494 for the difference between
the proceeds from the issuance and the par value.
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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 July 2, 1994 As Compared To Three Months Ended June 30, 1993
Net sales for the three months ended July 2, 1994, increased 32% to $600,650
compared to $454,156 for the three months ended June 30, 1993. This increase
was the result of the continued positive response to merchandise offerings at
Spiegel and Eddie Bauer and to the incremental sales from the acquisition of
New Hampton, which was completed in August 1993. Eddie Bauer experienced
strong retail sales increases with their comparable store sales increasing 13%.
Spiegel continued to see strength in the home area as well as sales increases
in certain categories of womens' apparel.
Finance revenues increased 23% during the quarter due primarily to a $200
million or 27% increase in Preferred Card receivables over the June 30, 1993,
levels. The overall strength of the net sales as well as record high numbers
of Preferred Card users helped drive this increase.
The gross profit margin on net sales increased to 34.6% for the three months
ended June 30, 1994 compared to 31.0% for the comparable 1993 period. This is
the result of continued cost and inventory control efforts and strong margins
from private-label merchandise programs.
Selling, general and administrative expenses as a percentage of total revenues
for the three months ended July 2, 1994 and June 30, 1993 were 37.1% and 34.5%,
respectively. This increase reflects the incremental advertising and
circulation costs associated with the Company's continued strategy of
increasing market share through aggressive new catalog customer acquisition
programs. Results also reflect the credit costs associated with the strong
response realized from the introduction of the FCNB credit program to New
Hampton's catalog customers.
During the third quarter, the Company's new catalog distribution facility will
commence operations. This facility will provide distribution services for the
catalog divisions of both Spiegel and Eddie Bauer. While some additional
operations costs will be incurred during the transition, this facility is
expected to provide enhanced customer service and operating efficiencies. The
transition is expected to be completed during the third quarter of 1994 for
Eddie Bauer. Spiegel will begin its initial shipments out of the facility in
August, and their transition is expected to be completed in early 1995.
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Interest expense for the three months ended July 2, 1994 increased 15% to
$19,792 compared to $17,236 for the three months ended June 30, 1993. This
increase is due to higher average debt levels which were partially offset by
slightly lower overall effective interest rates. The Company's consolidated
tax rate was 43.8% compared to the 1993 rate of 43.1%. This increase reflects
the change in the federal statutory corporate tax rate from 34% to 35% enacted
during the third quarter of 1993.
Six Months Ended July 2, 1994 Compared With Six Months Ended June 30, 1993
Net sales for the six months ended July 2, 1994 increased 29% to $1,149,373
compared to $893,163 for the six months ended June 30, 1993. This increase was
the result of the continued growth in both catalog and retail divisions of
Spiegel and Eddie Bauer and to the incremental sales from the acquisition of
New Hampton, which was completed in August 1993. Eddie Bauer comparable store
sales increased 13%. Spiegel sales in the home areas and certain categories
of womens' apparel were strong.
Finance revenues increased 23% during the six month period ended July 2,1994 as
compared to the same period of 1993 due to higher Preferred Card receivable
balances throughout the 1994 period as compared to 1993. Higher levels of
Preferred Card net sales as well as record numbers of Preferred Card users
helped drive this increase.
The gross profit margin on net sales increased to 33.7% for the six months
ended June 30, 1994 compared to 30.6% for the comparable 1993 period.
Continued inventory cost control efforts and the Company's increasing private-
label merchandise programs contributed to this improvement.
Selling, general and administrative expenses as a percentage of total revenues
were 36.6% for the six months ended July 2, 1994 and 34.4% for the comparable
period in 1993. As discussed above, this increase is driven by additional
advertising and circulation costs associated with new catalog and credit card
customer acquisition programs.
The increase of 7.4% in interest expense for the six months ended July 2, 1994
as compared to the six months ended June 30, 1993 is driven by higher debt
levels throughout the year. The additional debt is primarily used to finance
higher levels of customer accounts receivable. The Company's consolidated tax
rate was 43.8% compared to the 1993 rate of 43.1%. This increase reflects the
change in the federal statutory corporate tax rate from 34% to 35% enacted
during the third quarter of 1993.
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Seasonality and Quarterly Fluctuations:
The Company, like other retailers, has experienced and expects to continue to
experience seasonal fluctuations in its merchandise sales and net income.
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 $330 million at July
2, 1994 and December 31, 1993.
Net cash used in operating activities was $161 million and $75 million for the
six month periods ended July 2, 1994 and June 30, 1993, respectively. This
increase in cash requirements is the result of several factors including higher
inventory and customer receivable balances and a greater cash outlay for income
taxes in the six months ended July 2, 1994 compared to the same period last
year. Finally, decreases in accounts payable and accrued liability balances
represented significant uses of cash.
Net additions to property and equipment for the six months ended July 2, 1994
were $34.5 million consisting primarily of capital spending related to the new
catalog distribution facility constructed in Groveport, OH and to the Eddie
Bauer retail division's ongoing store additions and remodels in process.
During the third quarter of 1993, the Company recorded a $39 million
nonrecurring charge to effect the estimated costs for closure of certain of the
Company's existing catalog distribution facilities. This charge consisted of
termination benefits, disposal of certain fixed assets and other related costs.
The Company expects a portion of these costs will be paid in 1994 with the
remaining costs paid out in 1995, with the exception of the write-off of
property and equipment of $6.5 million, which is a noncash item. During the
six month period ended July 2, 1994, $1.5 million of expenditures have been
made relating to this charge.
The Company believes that its cash on hand, together with cash flows
anticipated to be generated from operations, borrowings under its existing
credit facilities and other available sources of credit, will be adequate to
fund the Company's capital and operating requirements for the foreseeable
future, including expenditures related to distribution facilities and new store
openings.
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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.
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<CAPTION>
Signature Title Date
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<C> <S> <C>
/s/ James W. Sievers Vice President August 12, 1994
James W. Sievers (Chief Financial Officer)
</TABLE>
