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CONFORMED COPY
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended ....................December 31, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the transition period from ..................... to ......................
Commission file number .......................0-16126
S P I E G E L, I N C.
(Exact name of registrant as specified in its charter)
DELAWARE 36-2593917
(State of Incorporation) (I.R.S. Employer Identification No.)
3500 LACEY ROAD 60515-5432
DOWNERS GROVE, ILLINOIS (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code (708) 986-8800
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
CLASS A NON-VOTING COMMON STOCK,
PAR VALUE, $1.00 PER SHARE
(TITLE OF CLASS)
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
------ ------
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this form 10-K or any amendment to
this Form 10-K.
The Class B Voting Common Stock is not publicly traded. Therefore, no market
value information is readily available on this class of stock.
The number of the shares of Registrant's Class A Non-Voting Common Stock and
Class B Voting Common Stock outstanding on March 20, 1995 was 14,863,544 and
93,141,654, respectively.
DOCUMENTS INCORPORATED BY REFERENCE: None
<PAGE>
PART I
ITEM 1. BUSINESS
A. GENERAL DEVELOPMENT OF BUSINESS
Spiegel, Inc., a Delaware corporation, was incorporated in 1965. Spiegel, Inc.
and its subsidiaries are sometimes referred to collectively in this Form 10-K as
the "Company." The Spiegel, Inc. catalog operations and related retail store
operations are collectively referred to in this Form 10-K as "Spiegel." The
Company and its predecessors date from 1865. Since 1905, the Company has
operated as a catalog merchandiser. In 1982, the Company was purchased by Otto
Versand (GmbH & Co) ("Otto Versand"), a privately-held German partnership that
is one of the largest catalog merchandisers in the world, selling its products
in Europe and Asia. In 1984, all of the capital stock of the Company was
transferred to the partners of Otto Versand or their designees. In this
transaction, 65% of the capital stock of the Company was transferred to Spiegel
Holdings, Ltd., an Illinois limited partnership, whose general partner was Dr.
Werner Otto. Since 1984, additional shares of the Company's capital stock have
been acquired by Spiegel Holdings, Ltd. and its successor. In 1986, Spiegel
Holdings, Ltd. was converted to Spiegel Holdings, Inc., a Delaware corporation
("SHI"). Prior to the Company's 1987 initial public offering of Class A non-
voting common stock, all of Spiegel's existing capital stock was converted into
Class B voting common stock. SHI holds 99.7% of the Company's Class B voting
common stock, affording SHI control of the Company.
In 1988, the Company acquired Eddie Bauer, Inc. and certain related Canadian
assets (collectively, "Eddie Bauer"). Eddie Bauer is a leading specialty
retailer serving the casual lifestyle needs of men and women through the sale of
high quality apparel, home furnishings and accessories through catalogs and
specialty retail stores.
In 1990, the Company acquired First Consumers National Bank ("FCNB"). FCNB is
a special purpose bank limited to the issuance of credit cards, primarily FCNB
Preferred Charge cards for use by Spiegel, Eddie Bauer and Newport News
customers.
In August 1993, the Company acquired substantially all of the assets of New
Hampton, Inc. ("New Hampton") through a bankruptcy proceeding. In 1995, New
Hampton's name was changed to Newport News, Inc. ("Newport News"). Newport News
is a specialty catalog company offering fashionable women's apparel at moderate
price points.
In September 1993, the Company entered into an arrangement with Otto-Sumisho,
Inc. to sell Eddie Bauer products through Eddie Bauer retail stores and
catalogs in Japan. Also in 1993, the Company entered into a joint venture with
Time Warner Entertainment Company, L.P. ("Time Warner") to develop and test
alternate channels of electronic home shopping.
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C. NARRATIVE DESCRIPTION OF BUSINESS
PRINCIPAL PRODUCTS, SERVICES, AND REVENUE SOURCES. The Company has two principal
merchandise categories: apparel and household furnishings and other merchandise.
The components of net sales by merchandise category for the last three years
were:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Wearing apparel 68% 69% 68%
Household furnishings
and other merchandise 32 31 32
---- ---- ----
100% 100% 100%
---- ---- ----
</TABLE>
The Company's household furnishings range from traditional to contemporary
styles, including accent pieces, decorative accessories, bedding and bath, home
electronics, window treatments and rugs. Other merchandise category includes
items such as fitness and personal care equipment, toys, cameras and luggage.
The following is a discussion of the major operations of the Company: Spiegel,
Eddie Bauer, Newport News and Credit.
SPIEGEL
Spiegel offers apparel, household furnishings and other merchandise
through its various catalogs and, to a lesser extent, Ultimate Outlet and
For You from Spiegel retail stores. Spiegel sales were $1,202,548 and
$1,171,568 for the years ended December 31, 1994 and 1993, respectively.
Spiegel is one of the largest catalog companies in the United States and
in 1994 distributed over 235 million catalogs throughout the country. At
December 31, 1994, Spiegel's customer base included 6.4 million active
customers (customers who have purchased within the last 18 months).
Spiegel's apparel merchandise, which represented 56% of its sales in 1994,
includes private label, developed by its product design teams based on
emerging fashion trends and customer research. In addition, Spiegel
features apparel by well-known American designers such as Liz Claiborne,
CK Calvin Klein and DKNY. Spiegel's household furnishings and other
merchandise, which represented 44% of its sales in 1994, are a mixture of
private label and branded merchandise ranging from traditional to
contemporary styles, including accent pieces, decorative accessories,
bedding and bath, home electronics, window treatments and rugs.
Spiegel catalogs serve as a fashion resource for the busy working woman.
These catalogs include Spiegel's trademark semi-annual catalog, specialty
catalogs targeted to distinct market segments, including E-Style and For
You from Spiegel, and other catalog mailings throughout the year. The
Company has used proprietary and other data from within and outside its
existing customer base and its fashion and marketing expertise to identify
an assortment of niche markets. Spiegel addresses each of these markets
with targeted specialty merchandise concepts, through specialty catalogs
and through "shops" included in Spiegel's main semi-annual catalog. A shop
is a focused merchandise assortment targeted to a specific group of
customers. One such shop from the Spiegel catalog is Sarah Chapman, which
features romantic, classic clothing for customers who prefer traditional
styles. Shops are managed by teams within the Spiegel catalog
organization, each comprised of representatives from different areas such
as fashion, merchandising, marketing, and advertising. Spiegel believes
that this specialty or niche marketing approach enables it to address the
widely varying needs of a diverse customer base.
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EDDIE BAUER
Eddie Bauer is a leading specialty retailer serving the casual lifestyle
needs of men and women through the sale of high quality apparel, home
furnishings and accessories. Total net sales were $1,231,306 and
$1,102,260 for the years ended December 31, 1994 and 1993, respectively.
Eddie Bauer operates 353 retail stores in addition to catalog operations.
A key strategy for Eddie Bauer is to leverage synergies between its retail
and catalog channels of distribution, maximizing opportunities for cross-
promotion between catalog and retail. This strategy includes utilizing
the catalog customer database to help identify potential store locations,
using catalog space to advertise the retail concept, and utilizing retail
store mailing lists to help build the catalog file. Eddie Bauer's
principal retailing concept is its trademark Eddie Bauer sportswear stores
and catalogs, which feature private label casual apparel and accessories.
Eddie Bauer also has other specialty retail concepts that serve targeted
niches. These specialty concepts include Eddie Bauer Home, which offers
home furnishings through retail stores and a separate catalog; AKA Eddie
Bauer, which replaces the former All Week Long concept, featuring dress
sportswear and tailored clothing, footwear and accessories for men and
women through retail stores and a separate catalog; and the Eddie Bauer
Sport Shop, a store-within-a-store concept which provides premier apparel,
equipment and accessories for field and stream sports.
In September 1993, Eddie Bauer entered into an arrangement with Otto-
Sumisho, Inc. to sell its full line of Eddie Bauer sportswear products
through retail stores and catalogs in Japan. Three Eddie Bauer stores were
opened in Japan in the Fall of 1994, along with the introduction of the
Japanese Eddie Bauer catalog. In addition to its catalog and retail store
businesses, Eddie Bauer has capitalized on selected licensing
opportunities, including a current arrangement with Ford Motor Company,
which uses the Eddie Bauer name and logo on special series Ford vehicles.
Eddie Bauer also has entered into a limited test marketing program with
Sport Scheck GmbH for the sale of Eddie Bauer products in Germany and
Switzerland through Sport-Scheck catalogs.
Eddie Bauer's private label merchandise is developed by its product design
teams and manufactured by third party manufacturers according to its
specifications. The Eddie Bauer product design teams work with the
Company's product development and sourcing department in developing
favorable sourcing alternatives.
EDDIE BAUER RETAIL DIVISION.
Eddie Bauer operates 315 retail and 38 outlet stores in the United States
and Canada. Of these stores at December 31, 1994, 17 were Eddie Bauer
Home Collection and nine were All Week Long stores. The All Week Long
stores will be converted to AKA Eddie Bauer in early 1995. A typical
Eddie Bauer store is approximately 6,500 gross square feet and is located
in an upscale regional mall or a high traffic downtown location, because
the Company believes that convenience is a primary consideration for its
target customers. Eddie Bauer's catalog customer database serves as a
valuable tool in identifying potential store locations. Most of Eddie
Bauer's current stores are located in large metropolitan markets. Eddie
Bauer has also begun to explore opportunities in certain smaller markets
where it believes a concentration of its target customers exists. Eddie
Bauer believes that these markets have the potential to contribute store
profit margins comparable to the existing store base. Eddie Bauer outlet
stores, which offer overstock and end-of-season merchandise, are located
predominantly in outlet malls and strip centers and generally in areas not
served by its core specialty retail stores.
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In 1994, Eddie Bauer opened 64 new stores and closed five stores. Growth
in this division has been due principally to new store openings and to the
growth in its existing stores, where comparable store sales reached 11% in
1993 and 4% in 1994. Comparable store sales growth was expected to
decline in 1994 from previous years' levels, but the actual rate was below
management's expectations. In 1995, the Company is currently planning
approximately 55 new store openings for Eddie Bauer. The average cost of
opening a typical new Eddie Bauer store in 1994, including inventory,
furniture and fixtures, pre-opening expenses and net leasehold
improvements, was approximately $800,000. Eddie Bauer's ability to open
and operate new stores profitably is dependent on the availability of
suitable store locations, the negotiation of acceptable lease terms, Eddie
Bauer's financial resources and its ability to control the operational
aspects and personnel requirements of its growth.
In 1992, Eddie Bauer instituted an extensive store remodeling and
refurbishment program to update the visual appearance of its stores and
improve its merchandise presentation. In 1994 and 1993, Eddie Bauer
remodelled 50 and 45 stores, respectively, and refixtured several others.
Eddie Bauer plans to remodel approximately 35 more stores in 1995.
EDDIE BAUER CATALOG DIVISION
In 1994, the Eddie Bauer catalog division distributed over 104 million
catalogs and had approximately 2.9 million active customers who had
purchased within the last 18 months. As a corollary to its retail
operations, Eddie Bauer catalog concepts include its trademark Eddie Bauer
catalog, Eddie Bauer Home and AKA Eddie Bauer, as well as its largest
catalog, The Complete Resource, combining all of its specialty concepts in
a single catalog. Eddie Bauer also actively pursues new customers within
its target market through a variety of initiatives including national
print advertising, list rentals and utilizing names of its retail store
customers.
NEWPORT NEWS
Newport News, (formerly New Hampton), acquired by the Company in August
1993, is a specialty catalog company whose principal catalog, Newport News,
offers fashionable, moderately priced women's apparel. Merchandise
categories currently include swimwear, dresses, casual wear, evening wear
and career wear. In 1994, Newport News introduced home textiles through
its Newport News Home Edition catalog. In addition, Newport News has
another smaller catalog concept, JRT, which markets value-oriented women's
apparel. Newport News' consolidated net sales were $272,937 for the 12-
month period ended December 31, 1994, as compared to $63,407 for the
approximate three-month period from the acquisition date to December 31,
1993. The Newport News catalogs represented approximately 89% of Newport
News' sales in 1994, and the Company believes it will continue to represent
a significant portion in the future. In 1994, Newport News and JRT mailed
192 million catalogs to active and prospective customers. Newport News
and JRT catalogs have a customer base of 4.6 million active customers.
CONSUMER CREDIT
In an effort to build brand loyalty and to provide additional convenience
for its customers, the Company offers a credit program for qualifying
catalog and retail customers in the form of its FCNB Preferred Charge
card, which is imprinted with a Spiegel, Eddie Bauer, Newport News, JRT,
or E STYLE logo depending on the source of the original application for
credit. This card allows a customer to purchase products from any Company
affiliate, regardless of the imprint on the card. FCNB is the issuer of
the Preferred Charge card. In February 1994, the Company introduced a
proprietary credit card to customers of its Newport News subsidiary.
Response to this offering has been very positive.
5
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Finance revenues generated by the credit operations were $232,267 in 1994,
as compared to $194,984 in 1993. Approximately 48% of the Company's 1994
net sales were made on the FCNB Preferred Charge card. In 1994,
approximately 73% of Spiegel catalog net sales, 25% of Eddie Bauer's net
sales, and 42% of Newport News' net sales were made using the Preferred
Charge card. The lower percentage of Eddie Bauer sales made on the
Preferred Charge card is attributable primarily to the relatively higher
percentage of retail store sales at Eddie Bauer. Catalog sales generally
have a higher percentage of sales made on credit than retail store sales.
FCNB solicits new Preferred Charge card accounts with both preapproved and
non-preapproved applications. The accounts are serviced through FCNB's
Beaverton, Oregon headquarters. FCNB also issues MasterCard credit cards,
which represent approximately 5% of its outstanding cards.
COMMON SYSTEMS STRATEGY
By capitalizing on synergies between its subsidiaries, the Company continues to
make significant progress toward its long-term goal of operating common systems
for the businesses. The Company operates a common order-entry system and common
accounts receivable management system for Spiegel, Eddie Bauer and Newport News.
These systems ensure rapid response to customer orders and inquiries and allow
Spiegel, Eddie Bauer and Newport News operators to handle each other's calls
when back-up support is necessary. In addition, Spiegel and Eddie Bauer share
a common customer-satisfaction system and a common marketing system for managing
their customer data base and creating marketing efficiencies and cost savings.
Another phase of the Company's common systems strategy is the new catalog
distribution facility in Groveport, Ohio and its common order processing
systems. The Company believes the new facility is among the most
technologically advanced catalog fulfillment systems in the United States,
providing improved productivity and customer service. This facility replaces
certain current catalog distribution facilities for Spiegel and Eddie Bauer.
Eddie Bauer completed its transition to the new facility during the third
quarter of 1994. Spiegel has begun shipments out of the facility and is
expected to complete its transition during the first half of 1995. The new
facility is designed to meet the Company's catalog distribution capacity needs
for the foreseeable future.
PRODUCT DEVELOPMENT AND SOURCING
The Company's product development and sourcing teams have become an increasingly
significant element of its private label merchandise strategy. The Company
selects manufacturers based on their ability to produce high quality product on
a cost-effective basis. The Company's product design teams select and source
fabrics to be delivered to manufacturers along with product patterns,
specifications and templates used for cutting fabric and other pre-production
work. Prototype samples are submitted to the Company for final production
approval to ensure manufacturer compliance with specifications.
The Company does not have any manufacturing facilities; all production is done
by third-party contractors. The product development and sourcing teams also
closely monitor the timeliness of manufacturers' delivery to the Company's
distribution facilities and provide them with packaging information. The Company
believes this strategy permits maximum flexibility, enhanced inventory
management and consistent quality control without the risks associated with
operating its own manufacturing facilities.
6
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MERCHANDISE.
The Company sells domestically produced and imported merchandise, which it
purchases in the open market from approximately 7,000 suppliers, none of which
supplied as much as 5% of the merchandise purchased during 1994. A significant
amount of the dollar value of merchandise purchased by the Company is imported
directly from the Far East and Europe. Consequently, the Company is subject to
the risks generally associated with conducting business abroad. The Company's
business could be affected by economic events or political instability that
might affect imports, including duties, quotas and work stoppages. To date these
factors have not caused any material disruption of the Company's operations. As
with other companies that denominate purchases in dollars, declines in the
dollar relative to foreign currencies could over time increase the cost to the
Company of merchandise purchased in foreign countries, which could adversely
affect the Company's results of operations. The Company is unable to predict
the effect, if any, of the above; however, the Company believes this risk exists
for many other retailers.
LICENSES AND TRADEMARKS.
The Company utilizes its own trademarks and tradenames including "Spiegel",
"Eddie Bauer", and "Newport News." The Company is also licensed to sell goods
under the "Together!" label. With the exception of the names "Spiegel", "Eddie
Bauer", "Newport News", and "Together!", the Company believes that loss or
abandonment of any particular trademark would have no significant effect on its
business.
SEASONALITY OF BUSINESS.
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. If
the Company's sales were materially different from seasonal norms during the
fourth quarter, the Company's annual operating results could be materially
affected. Accordingly, results for the individual quarters are not necessarily
indicative of the results to be expected for the entire year.
COMPETITION.
The markets in which the Company participates are highly competitive and served
by a significant number of catalog companies and retailers including traditional
department stores, so-called "off-price" and discount retailers and specialty
chains. The Company's success is highly dependent upon its ability to maintain
its existing customer lists, solicit new customers, identify distinct fashion
trends and continue to address the needs and fashion tastes of its customers.
EMPLOYEES.
During 1994, the Company employed between approximately 12,700 and 19,700 full-
time equivalent employees, depending on the time of year, reflecting the
seasonality of the Company's business and the variations in its workforce during
the year. At February 28, 1995, the Company employed approximately 15,000 full-
time equivalent employees.
Spiegel is a party to three collective bargaining agreements. Approximately 600
full-time equivalent employees are covered by an agreement between Spiegel and
the Warehouse, Mail Order, Office, Technical and Professional Employees Union,
Local 743, affiliated with the International Brotherhood of Teamsters,
Chauffeurs, Warehousemen, and Helpers of America ("Local 743"). This agreement,
which is scheduled to expire on February 29, 1996, was affected by the closure
of Spiegel's Chicago catalog distribution facility. The Company provided
affected workers with all termination benefits called for by the agreement, as
well as additional benefits such as early retirement enhancements, stay pay, job
counseling and vocational training.
Approximately 100 full-time equivalent employees of certain Spiegel outlet
stores are covered by a separate agreement with Local 743. This agreement
expires on May 31, 1997. Approximately 120 full-time equivalent employees
are covered by
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an agreement with Teamsters Union 929 Philadelphia, affiliated with the
International Brotherhood of Teamsters, Chauffeurs, Warehousemen, and Helpers of
America. This agreement expires on January 31, 1996.
The Company considers its relations with its employees to be good and has never
experienced any material interruption of operations due to labor disagreements
with its employees.
ITEM 2. PROPERTIES
The Company's corporate headquarters is located in leased office space in
Downers Grove, Illinois. In addition, all of the Company's retail store
locations are leased, with the exception of a downtown San Francisco Eddie
Bauer store, a downtown Chicago Eddie Bauer store and a Chicago Spiegel outlet
store. A typical store lease is for a term of 10 years, with options for
renewal.
The Company's new Groveport, Ohio catalog distribution facility, which was
constructed on land owned by the Company, was completed in 1994 and will
consolidate the majority of catalog distribution functions of Spiegel and Eddie
Bauer. Eddie Bauer transitioned to fulfilling catalog orders from the new
facility in 1994. The Spiegel transition, which began in 1994, is expected to
be completed during the first half of 1995. The Company has made provision for
the closing of certain of its catalog distribution facilities, as described in
note 4 to the Company's Consolidated Financial Statements.
The principal properties and facilities formerly used in Spiegel's catalog
operations consist of approximately 20 warehouses and office buildings located
in and around Chicago, Illinois. These facilities are primarily owned, but as
part of the transition to the new warehouse, most of them will be closed or
phased out. Eddie Bauer's current retail distribution facilities are located
in Columbus, Ohio, two of which are owned and four of which are leased. The
Company has recently purchased a four million square-foot facility in Columbus,
Ohio which will replace the previous Eddie Bauer retail distribution facilities.
Eddie Bauer also occupies office space in 9 buildings located in and around
Seattle, Washington, two of which are owned and seven of which are under lease.
Eddie bauer is currently building a new headquarters addition.
Spiegel leases customer order centers in Reno, Nevada; Bensalem, Pennsylvania;
Norcross, Georgia; and Wichita, Kansas, and customer service facilities in Rapid
City, South Dakota and Oakbrook, Illinois. The Company owns its Westmont,
Illinois corporate data center.
Newport News leases office space in New York, New York. Its order taking,
customer service and administrative functions are performed in a leased
facility, and its distribution function is performed in an owned facility, both
of which are located in Hampton, Virginia. Newport News also owns approximately
62 acres of vacant land in Hampton, Virginia adjacent to its distribution
facility. At present, there are no plans to either expand upon or dispose of
this vacant land.
FCNB's headquarters is located in leased office space in Beaverton, Oregon
(suburban Portland).
The Company considers its present space and facilities under development
adequate for anticipated future requirements.
ITEM 3. LEGAL PROCEEDINGS
The Company is routinely involved in a number of legal proceedings and claims
that cover a wide range of matters. In the opinion of management, the outcome
of these matters is not expected to have any material adverse effect on the
consolidated financial position or results of operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
A. MARKET INFORMATION.
The Class A Non-Voting Common Stock is traded on NASDAQ's National Market
System. The ticker symbol is SPGLA. Daily trading information is listed in the
stock tables carried by major newspapers as "SPIEGEL". See Item 8 "Selected
Quarterly Financial Data" for information on the high and low sales prices of
the Class A Non-Voting Common Stock.
On March 20, 1995, the closing sales price of the Class A Non-Voting Common
Stock, as quoted on the NASDAQ National Market System was $10 per share.
B. HOLDERS
There were approximately 11,000 Class A Non-Voting Common Stockholders as of
March 20, 1995. The Company believes that certain of the outstanding shares of
Class A Non-Voting Common Stock are held by nominees for an unknown number of
beneficial stockholders.
The Class B Voting Common Stock of the Company is privately held and is not
publicly traded. As of the date hereof, there were five Class B Voting Common
Stockholders.
C. DIVIDENDS
The Company's policy since 1987 has been to pay regular cash dividends
quarterly. Cash dividends per share paid for the years ended December 31, 1994
and 1993 are as follows:
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
------- ------- ------- ------- -----
<S> <C> <C> <C> <C> <C>
1994 $.050 $.050 $.050 $.050 $.200
1993 $.035 $.075 $.035 $.050 $.195
</TABLE>
Cash dividends per share for the first three quarters of 1993 have been restated
from amounts previously reported to reflect the two-for-one split in the
Company's outstanding common stock effected by the 100% stock dividend declared
and paid in 1993.
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ITEM 6. SELECTED FINANCIAL DATA
FIVE-YEAR SELECTED FINANCIAL DATA
YEARS ENDED DECEMBER 31 ($000S OMITTED, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
EARNINGS DATA
1994 1993 1992 1991 1990
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net sales and
other revenues $3,015,985 $2,596,147 $2,218,732 $1,976,308 $1,993,428
Earnings before
income taxes(1) 47,246 87,363 69,367 30,793 100,540
Net earnings(2) $ 25,100 $ 48,705 $ 43,224 $ 16,921 $ 61,522
Net earnings per
common share(2,3) $ .23 $ .47 $ .42 $ .16 $ .59
Cash dividends per
common share(3) $ .20 $ .20 $ .18 $ .18 $ .18
BALANCE SHEET DATA
Current assets $1,908,402 $1,592,665 $1,302,838 $1,305,217 $1,341,521
Total assets 2,560,287 2,210,591 1,785,213 1,728,163 1,746,299
Current liabilities 628,346 627,247 495,131 374,768 399,744
Long-term debt, excluding
current maturities 1,300,364 971,683 764,235 841,196 831,150
Stockholders' equity $ 579,217 $ 567,485 $ 478,345 $ 453,598 $ 455,095
<FN>
(1). Operating income for 1993 included a $39,000 charge recorded in the third quarter to reflect
the estimated impact of closing certain of the Company's existing catalog distribution facilities.
(2). Net earnings for 1992 include income of $4,101, or $.04 per share, for the cumulative effect
of accounting changes for postretirement health care benefits and inventory overhead capitalization.
(3). Net earnings per common share and cash dividends per common share for 1990 through 1992 have
been restated to reflect the two-for-one split in the Company's outstanding common stock effected
by the 100% stock dividend declared and paid in 1993.
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS ($000S OMITTED, EXCEPT PER SHARE AMOUNTS)
RESULTS OF OPERATIONS
The following table sets forth certain items from the Company's consolidated
financial statements as a percent of total revenue or net sales for the years
ended December 31, 1994, 1993 and 1992.
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Net sales and other revenues:
Net sales 89.7% 90.0% 88.9%
Finance revenues 7.7% 7.5% 7.8%
Other revenues 2.6% 2.5% 3.3%
-------- -------- --------
100.0% 100.0% 100.0%
As a percent of net sales:
Gross profit 33.8% 34.3% 31.8%
As a percent of total revenues:
Selling, general and
administrative expenses 36.2% 33.2% 32.2%
</TABLE>
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1994 COMPARED WITH 1993
Net sales for the year ended December 31, 1994 increased 16% to $2,706,791
compared with $2,337,235 for the year ended December 31, 1993. Total Company
catalog sales of $1,742,131 increased 16% for the year ended December 31, 1994
compared with the year ended December 31, 1993, due in part to increases in the
home furnishings areas and certain categories of women's apparel as well as the
effect of a whole year of New Hampton sales. Retail sales of $964,660 for the
year ended December 31, 1994 increased $124,488 or 15%, compared with the year
ended December 31, 1993, due primarily to an increase in the total number of
Eddie Bauer stores to 353 at December 31, 1994 from 294 at December 31, 1993.
Additionally, Eddie Bauer's comparable store sales increased 4%. Despite the
increases noted above, total company sales fell below management expectations,
especially in the critical fourth quarter, due to lack of demand for cold
weather apparel and accessories, and softness in certain women's apparel
categories.
Finance revenue increased $37,283 or 19.1% for the year ended December 31, 1994
compared to the year ended December 31, 1993 due to a larger FCNB Preferred
Charge receivable portfolio throughout the 1994 period as compared to 1993. This
increase was attributable to an increase in the number of Preferred Charge
accounts resulting from the successful introduction of the Preferred Charge to
New Hampton customers in 1994 and significant credit customer acquisition
efforts at Spiegel and Eddie Bauer. Other revenue includes a gain of $10,658
recognized on the sale of $150,000 of Preferred Charge receivables completed in
September 1994.
Gross profit margin on net sales for the year ended December 31, 1994 was 33.8%
compared with 34.3% for the year ended December 31, 1993. This decline was
primarily due to a higher level of promotional and markdown activity, especially
in the fourth quarter of 1994 as compared to the same period of 1993. These
markdowns were taken in an effort to dispose of potential overstock inventory as
sales were below expectations during this critical period of the Company's
operating cycle.
Selling, general and administrative expenses as a percent to total revenues for
the years ended December 31, 1994 and 1993 were 36.2% and 33.2%, respectively.
This increase reflects the higher advertising and circulation costs associated
with the Company's planned strategy of increasing market share through
aggressive new catalog customer acquisition programs. Results also reflect the
incremental expenses incurred from the conversion to a new common order
fulfillment system and dual operating expenses associated with the start-up of
and transition to a new catalog distribution facility for Eddie Bauer and
Spiegel. Eddie Bauer completed its transition to the new facility during the
third quarter of 1994. Spiegel has begun shipments out of the facility and is
expected to complete its transition during the first half of 1995. Due to this
transition, the Company expects selling, general and administrative expenses for
the first half of 1995 to be above last year's levels. The Company anticipates
realizing operating efficiencies and reduced costs after the transition is
completed.
The Company recorded a $39,000 nonrecurring charge in the third quarter of 1993
to provide for the estimated impact of closing certain of the Company's existing
catalog distribution facilities. Approximately $23,000 of expenditures have been
made to date including certain termination benefits and the impact on net
periodic pension cost. Except for the noncash write-off of property and
equipment with an approximate book value of $6,500, the Company expects the
majority of the remaining amounts will be paid in early 1995. The total
expenditures for the closure are expected to be in line with original estimates.
Interest expense for the year ended December 31, 1994 was $85,380 compared to
$72,225 for the year ended December 31, 1993. The increase was due to higher
debt levels and slightly higher effective interest rates. The increase in debt
was used primarily to finance higher average levels of customer accounts
receivable, higher average inventory levels, and capital expenditures.
The effective tax rate for 1994 was 46.9% as compared to 44.2% in 1993. This
increase was due to an increase in state income tax rates as well as the
relative impact of the amortization of non-deductible goodwill as a percentage
of earnings before taxes.
11
<PAGE>
1993 COMPARED WITH 1992
Net sales for the year ended December 31, 1993 increased 19% to $2,337,235
compared with $1,972,283 for the year ended December 31, 1992. This increase
resulted from positive response to merchandise offerings at Spiegel and Eddie
Bauer. Total Company catalog sales of $1,497,063 increased 18% for the year
ended December 31, 1993 compared with the year ended December 31, 1992, due in
part to aggressive catalog customer acquisition programs. Retail sales of
$840,172 for the year ended December 31, 1993 increased $135,001 or 19%,
compared with the year ended December 31, 1992, due primarily to Eddie Bauer's
11% increase in comparable store sales and, to a lesser extent, new store
openings. The comparable store sales increase was primarily due to Eddie Bauer's
change in its merchandise focus and retail store remodeling program initiated in
1991.
Finance revenue for the year ended December 31, 1993 increased $20,959, or 12%
over the year ended December 31, 1992, due to higher average customer accounts
receivable in 1993. This increase in average customer accounts receivable was
attributable to a higher level of Preferred Charge sales and a reduction in
customer accounts receivable sold. Other revenue for the year ended December 31,
1993 decreased $8,496, or 12% from 1992, due to the effects of sales of customer
accounts receivable in 1992, partially offset by the effects of the sale of a
small portfolio of MasterCard receivables in 1993.
Gross profit margin on net sales for the years ended December 31, 1993 and 1992
were 34.3% and 31.8%, respectively. This improvement was due to lower levels of
promotional activity throughout 1993 compared with 1992 and, to a lesser extent,
lower costs associated with improved sourcing of merchandise.
Selling, general and administrative expenses as a percent of total revenues for
the years ended December 31, 1993 and 1992 were 33.2% and 32.2%, respectively.
This expense ratio for the year ended December 31, 1992 was favorably impacted
by revenue (with only nominal selling, general and administrative costs) related
to the effects of sales of customer accounts receivable. The expense ratio for
the year ended December 31, 1993 was not similarly impacted. Also reflected in
this ratio were the relatively higher expense levels at newly acquired New
Hampton, Inc.
Included in operating results for 1993 was a $39,000 nonrecurring charge
recorded in the third quarter to reflect the estimated impact of closing certain
of the Company's existing catalog distribution facilities.
Interest expense for the year ended December 31, 1993 was $3,830 lower than in
1992 due to a reduction in the Company's effective borrowing rate. Partially
offsetting the effect of the lower borrowing rate was higher average debt
maintained to finance higher average inventory levels, higher average levels of
customer accounts receivable, continued expansion of the Eddie Bauer retail
division, expenditures relating to the new catalog distribution facility and the
purchase of New Hampton.
The effective tax rate for 1993 was 44.2% compared with 43.6% in 1992. This
increase was primarily due to a change in federal statutory corporate tax rate
from 34% to 35% enacted in the third quarter of 1993 and retroactive to January
1, 1993. In accordance with Statement of Financial Accounting Standards No. 109,
""Accounting for Income Taxes,'' income tax expense for 1993 included a charge
to cumulatively adjust taxes currently payable and deferred income taxes on the
balance sheet to reflect the new tax rate.
12
<PAGE>
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. Customer accounts receivable sold were $480,000 and
$330,000 at December 31, 1994 and December 31, 1993, respectively. The Company
issued 400,000 and 3,600,000 shares of Class A non-voting common stock in 1994
and 1993, respectively. Proceeds from these transactions were $6,900 and $61,546
in 1994 and 1993, respectively.
Net cash used in operating activities was $238,792 for the year ended December
31, 1994 as compared to net cash provided by operating activities of $20,311 in
the comparable prior year period. The net increase in cash requirements is the
result of several factors including higher inventory levels companywide but
particularly at Eddie Bauer. The Company expects to reduce inventory levels in
the first quarter of 1995. Also, payments on other working capital items such as
income taxes represented significant uses of cash.
Average customer accounts receivable levels were greater than comparable 1993
levels due to increased credit sales and an increased number of credit card
accounts resulting from the successful introduction of the Preferred Charge to
New Hampton customers in 1994 and significant customer acquisition efforts at
Spiegel and Eddie Bauer. In 1994, the Company sold $150,000 in customer
receivables, reported as operating cash flows. In 1993, FCNB sold $32,756 of
customer accounts receivable which arose from a discontinued MasterCard program.
Over the last two years, the Company has invested significant capital in
building a stronger infrastructure. Capital expenditures for 1994 and 1993 were
$84,191 and $104,489, respectively. In both 1994 and 1993, the expenditures were
primarily related to the new catalog distribution center and the continued
expansion and remodeling of Eddie Bauer stores. Expenditures for the catalog
distribution center were significantly higher in 1993 than in 1994. In 1995,
capital expenditures for the Company will largely be dedicated to the expansion
of Eddie Bauer including the purchase of a new retail distribution facility and
the construction of a headquarters addition which will be started in 1995 and
completed in 1996. The Company will continue with plans for expansion and
remodeling of Eddie Bauer stores. By the end of 1995, the Company believes that
spending will return to more normalized levels as the majority of the plans will
be completed.
As of December 31, 1994, total debt was $1,380,684, compared with $1,060,835 as
of December 31, 1993. This higher level of debt was required primarily to
finance higher average inventory levels, higher average customer accounts
receivable owned, and capital expenditures.
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.
13
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CONSOLIDATED BALANCE SHEETS
At December 31 ($000s omitted, except per share amounts)
<TABLE>
<CAPTION>
1994 1993
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 33,439 $ 47,389
Receivables, net 1,125,728 998,525
Inventories 597,781 438,869
Prepaid expenses 80,970 59,845
Refundable income taxes 24,904 -
Deferred income taxes 45,580 48,037
------------ ------------
Total current assets 1,908,402 1,592,665
Property and equipment, net 335,103 288,551
Intangibles, net 180,446 189,454
Other assets 136,336 139,921
------------ ------------
$2,560,287 $2,210,591
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 80,320 $ 89,152
Accounts payable 265,752 226,311
Accrued liabilities:
Salaries and wages 31,114 32,255
General taxes 118,266 97,764
Closing of distribution facilities 15,928 38,480
Other accrued liabilities 116,966 103,724
Income taxes -- 39,561
------------ ------------
Total current liabilities 628,346 627,247
Long-term debt, excluding current maturities 1,300,364 971,683
Deferred income taxes 52,360 44,176
------------ ------------
Total liabilities 1,981,070 1,643,106
------------ ------------
Stockholders' equity:
Class A non-voting common stock, $1.00 par
value; authorized 16,000,000 shares;
15,065,244 shares issued and outstanding
at December 31, 1994; 14,599,824 shares
issued and outstanding at December 31,1993 15,065 14,600
Class B voting common stock, $1.00 par value;
authorized 94,000,000 shares; 93,141,654
shares issued and outstanding at
December 31, 1994 and 1993 93,142 93,142
Additional paid-in capital 215,800 209,029
Retained earnings 255,210 250,714
------------ ------------
Total stockholders' equity 579,217 567,485
------------ ------------
$2,560,287 $2,210,591
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
14
<PAGE>
CONSOLIDATED STATEMENTS OF EARNINGS
Years ended December 31 ($000s omitted, except per share amounts)
<TABLE>
<CAPTION>
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
NET SALES AND OTHER REVENUES
Net sales $2,706,791 $2,337,235 $1,972,283
Finance revenue 232,267 194,984 174,025
Other revenue 76,927 63,928 72,424
---------- ---------- ----------
3,015,985 2,596,147 2,218,732
COST OF SALES AND OPERATING EXPENSES
Cost of sales, including buying and
occupancy expenses 1,790,722 1,536,642 1,344,711
Selling, general and
administrative expenses 1,092,637 860,917 714,132
Nonrecurring charge - 39,000 14,467
---------- ---------- ----------
2,883,359 2,436,559 2,073,310
Operating income 132,626 159,588 145,422
Interest expense 85,380 72,225 76,055
---------- ---------- ----------
Earnings before income taxes and
cumulative effect of accounting
changes 47,246 87,363 69,367
Income taxes 22,146 38,658 30,244
---------- ---------- ----------
Earnings before cumulative
effect of accounting changes 25,100 48,705 39,123
Cumulative effect of accounting
changes, net of income taxes of
$3,171 - - 4,101
---------- ---------- ----------
Net earnings $25,100 $ 48,705 $ 43,224
========== ========== ==========
EARNINGS PER COMMON SHARE
Net earnings per common share before
cumulative effect of accounting changes $ 0.23 $ 0.47 $ 0.38
Cumulative effect of accounting changes - - 0.04
---------- ---------- ----------
Net earnings per common share $ 0.23 $ 0.47 $ 0.42
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
15
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years ended December 31 ($000s omitted, except per share amounts)
<TABLE>
<CAPTION>
Treasury
stock
Class A Class B Additional Class A
non-voting voting paid-in Retained non-voting
Total` common stock common stock capital earnings common
------- ------------ ------------ ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balances at
December 31, 1991 $453,598 $12,000 $93,142 $154,285 $199,397 $(5,226)
Net earnings 43,224 43,224
Cash dividends
($.18 per share) (18,715) (18,715)
Issuance of 42,804
treasury shares 238 48 190
------- ------------ ------------ --------- --------- ----------
Balances at
December 31, 1992 478,345 12,000 93,142 154,333 223,906 (5,036)
Net earnings 48,705 48,705
Cash dividends
($.20.per share) (20,298) (20,298)
Issuance of 3,627,600
common shares 61,705 3,628 58,077
Issuance of 109,220
treasury shares 627 144 483
Retirement of 1,027,776
treasury shares - (1,028) (3,525) 4,553
Minimum pension
liability adjustment (1,599) (1,599)
------- ------------ ------------ --------- --------- ----------
Balances at
December 31, 1993 567,485 14,600 93,142 209,029 250,714
Net earnings 25,100 25,100
Cash dividends
($.20 per share) (21,637) (21,637)
Issuance of 465,420
common shares 7,236 465 6,771
Minimum pension
liability adjustment 1,033 1,033
------- ------------ ------------ --------- --------- ----------
Balances at
December 31, 1994 $579,217 $15,065 $93,142 $215,800 $255,210 $ -
------- ------------ ------------ --------- --------- ----------
------- ------------ ------------ --------- --------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
16
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31 ($000S OMITTED, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 25,100 $ 48,705 $ 43,224
Adjustments to reconcile net earnings to
net cash provided by (used in)
operating activities:
Cumulative effect of change
in method of accounting for inventory costs - - (13,130)
Cumulative effect of adoption of SFAS No. 106
for certain postretirement benefits - - 5,858
Write-down of property and
equipment of certain
distribution facilities - 6,500 -
Depreciation and amortization
of property and equipment 41,998 34,336 30,889
Amortization of intangibles 9,008 9,115 24,105
Change in assets and liabilities,
net of effects of acquisition:
Sale of customer accounts receivable 150,000 32,756 330,000
Increase in receivables, net (277,203) (209,800) (252,085)
(Increase) decrease in inventories (162,526) 2,447 (90,667)
Increase in prepaid expenses (21,125) (1,272) (701)
Increase in accounts payable 39,441 44,553 30,355
Increase in accrued liabilities 11,264 59,678 16,214
Increase (decrease) in income taxes (54,749) (6,707) 14,706
----------- ----------- -----------
Total adjustments (263,892) (28,394) 95,544
----------- ----------- -----------
Net cash provided by (used in) (238,792) 20,311 138,768
operating activities ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of New Hampton, net of cash acquired - (39,492) -
Net additions to property and equipment (84,191) (104,489) (58,779)
Net (additions) reductions to other assets 3,585 (59,629) (55,644)
----------- ----------- -----------
Net cash used in investing activities (80,606) (203,610) (114,423)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of debt $399,000 $241,600 $91,718
Payments of debt (79,151) (56,550) (112,613)
Dividends paid (21,637) (20,298) (18,715)
Issuance of common shares 7,236 61,705 -
Issuance of treasury shares - 627 238
----------- ----------- -----------
Net cash provided by (used in)
financing activities 305,448 227,084 (39,372)
----------- ----------- -----------
Net change in cash and cash equivalents (13,950) 43,785 (15,027)
Cash and cash equivalents at
beginning of year 47,389 3,604 18,631
----------- ----------- -----------
Cash and cash equivalents at end of year $ 33,439 $ 47,389 $ 3,604
Supplemental cash flow information =========== ========== ===========
Cash paid during the year for:
Interest $ 85,723 $ 69,242 $ 75,164
=========== ========== ===========
Income taxes $ 66,702 $ 41,035 $ 25,628
=========== ========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
17
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000s omitted, except per share amounts)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Spiegel,
Inc. and its wholly-owned subsidiaries (the Company). All significant
transactions and balances among the companies included in the consolidated
financial statements have been eliminated in consolidation. Investments of
50% or less in affiliated companies are included under the equity method.
In 1994, the Company modified its year for financial reporting purposes
from calendar periods to a 52/53 week fiscal year.
REVENUE RECOGNITION
Sales made under installment accounts represent a substantial portion of
net sales. Finance revenue on customer- installment accounts receivable is
recorded as income when earned, using the effective yield method. The
Company provides for returns at the time of sale based upon projected
merchandise returns.
CASH EQUIVALENTS
Cash equivalents consist principally of highly liquid government
securities with maturities of three months or less.
INVENTORIES
Inventories, principally merchandise available for sale, are stated at the
lower of cost or market. Cost is determined primarily by the average cost
method or the weighted average cost method. Cost of certain other
inventories is determined by the first-in, first-out method.
ADVERTISING COSTS
Capitalized catalog costs are amortized over the expected lives of the
catalogs, which are less than one year. Unamortized costs as of December
31, 1994 and 1993 were $51,524 and $45,509, respectively. All other
advertising is expensed as incurred.
STORE PREOPENING COSTS
Preopening and start-up costs for new stores are charged to operations as
incurred.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated depreciation
and amortization. Depreciation of property and equipment is computed using
the straight-line method over the estimated useful lives of the assets.
Annual depreciation rates range from 2% to 20% for buildings and
improvements and 10% to 50% for furniture and equipment. Leasehold
improvements are amortized over the lesser of the term of the lease or
asset life.
INTANGIBLES
Intangible assets represent principally trademarks and the excess of cost
over the fair market value of net assets of businesses purchased. The
Company amortizes these intangibles in relation to the anticipated
benefits to be derived from the businesses acquired, not to exceed 40
years. Total accumulated amortization of these intangibles was $55,843 and
$47,212 at December 31, 1994 and 1993, respectively.
SYSTEMS DEVELOPMENT COSTS
Significant systems development costs are capitalized and amortized on a
straight-line basis over a three year period. Unamortized costs included
in other assets as of December 31, 1994 and 1993 were $30,760 and $16,900,
respectively.
18
<PAGE>
EMPLOYEE PENSION PLANS
Company policy is to, at a minimum, fund the pension plans to meet the
requirements of the Employee Retirement Income Security Act of 1974
(ERISA).
INCOME TAXES
The Company uses the liability method in accounting for income taxes
pursuant to Statement of Financial Accounting Standards (SFAS) No. 109,
""Accounting for Income Taxes.'' Deferred tax assets and liabilities are
determined based on differences between financial reporting and tax bases
of assets and liabilities and are measured using the enacted tax rates and
laws that will be in effect when the differences are expected to reverse.
The Company is included in the consolidated federal income tax return of
Spiegel, Inc.'s majority shareholder, Spiegel Holdings, Inc.
EARNINGS PER SHARE
Earnings per share are based on the weighted average number of both
classes of common shares outstanding during the year.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified from amounts previously
reported to conform with the 1994 presentation.
2. ACCOUNTING CHANGES
In 1992, the Company refined its method of determining inventory costs to
include capitalization of certain purchasing, warehousing, storage and
transportation costs. Previously, these costs were charged to expense in
the period incurred rather than in the period in which the related
inventory was sold. The Company believes that this refinement provides a
better measurement of operations by more closely matching revenues with
expenses. The cumulative effect of applying this change in accounting on
prior periods of $7,405 (net of income taxes of $5,725) is included in net
earnings for 1992. For 1992, the effect of this change was to increase
operating income by $3,334.
In 1992, the Company adopted SFAS No. 106, ""Employers' Accounting for
Postretirement Benefits Other Than Pensions.'' The Company elected to
immediately recognize the cumulative effect of the change in accounting
for postretirement benefits of $3,304 (net of income tax benefit of
$2,554) which represents the accumulated postretirement benefit obligation
existing at January 1, 1992. The impact of this change on 1992 operations
was not material.
3. ACQUISITION
On August 27, 1993, the Company acquired substantially all of the assets
of New Hampton, Inc. (New Hampton) through a bankruptcy proceeding for
approximately $40 million in cash. New Hampton is a specialty catalog
company offering fashionable, moderately priced women's apparel. The fair
value of assets acquired approximated the purchase price. Accordingly, no
goodwill has been recorded. The operating results of New Hampton
subsequent to the acquisition date are included in the consolidated
financial statements of the Company.
4. NONRECURRING CHARGES
The Company has relocated certain of its catalog distribution operations
to a new facility in Groveport, Ohio, which will consolidate the majority
of catalog distribution functions of Spiegel and Eddie Bauer. Included in
operating results for the third quarter of 1993 was a $39,000 nonrecurring
charge for the estimated costs for closure of certain of the Company's
existing catalog distribution facilities. The charge to earnings consisted
of estimates for termination benefits, disposal of certain fixed assets
and other related costs. Approximately $23,000 of expenditures have been
made to date. The company expects the majority of the remaining amounts will
be paid in early 1995, except for the write-off of the book value of certain
property and equipment, which is a noncash item provided for in the charge.
The total expenditures for the closure are expected to be in line with original
estimates.
In 1992, the Company discontinued the use of the Honeybee name in its catalogs.
Accordingly, operating income was reduced in 1992 by $14,467 to reflect the
permanent impairment of the trademarks and goodwill associated with Honeybee
which were included in the balance sheets.
19
<PAGE>
5. RECEIVABLES
Receivables consist principally of proprietary credit card receivables
generated in connection with the sale of the Company's merchandise. The
Company's customer base is diverse, in terms of both geographic and
demographic coverage. Due to the revolving nature of the credit card
portfolio, management believes that the current carrying value of credit
card receivables approximates fair value. The collectibility of the credit
card portfolio is stable and the average interest rate collected on the
receivables approximates the current market rates on new accounts.
Receivables at December 31, 1994 and 1993 consist of the following:
<TABLE>
<CAPTION>
1994 1993
----------- -----------
<S> <C> <C>
Customer receivables serviced $1,683,444 $1,403,618
Customer receivables sold (480,000) (330,000)
----------- -----------
Customer receivables owned 1,203,444 1,073,618
Less allowance for returns (27,762) (28,238)
Less allowance for doubtful accounts (49,954) (46,855)
----------- -----------
Receivables, net $1,125,728 $998,525
=========== ===========
</TABLE>
During 1994 and 1992, the Company transferred portions of its customer
receivables to trusts which, in turn, sold certificates representing
undivided interests in the trusts to investors. Certificates sold were
$150,000 in 1994 and $330,000 in 1992. As a result of these transactions,
other revenue increased by $10,658 and $10,533 in 1994 and 1992,
respectively. As of December 31, 1994, $480,000 of the certificates were
outstanding. The bad debt reserve related to the net receivables sold has
been reduced accordingly. Cash flows generated from the receivables in the
trusts are dedicated to payment of fixed rate interest on the
certificates, reimbursement of accounts charged off in the trusts, and
payment of servicing fees to the Company. Excess cash flows revert to the
Company. The Company owns the remaining undivided interest in the trusts
not represented by the certificates and will continue to service all
receivables for the trusts.
In one of the transactions the Company acted as the cash collateral
lender, providing $14,400 for the benefit of that trust. This amount is
included in the Company's other assets. In another transaction, the
Company established reserve funds that are available if cash flows from
the receivables become insufficient to make the required payments.
Restricted cash accounts have been maintained for these reserve funds,
none of which has been utilized as of December 31, 1994. The restricted
cash of $35,000 at December 31, 1994 and 1993, respectively, was included
in other assets.
In 1993, First Consumers National Bank (a wholly-owned subsidiary of the
Company) sold $32,756 of customer accounts receivable which arose from a
discontinued MasterCard affinity program.
6. PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1994 and 1993 consist of the
following:
<TABLE>
<CAPTION>
1994 1993
----------- -----------
<S> <C> <C>
Land $ 19,685 $ 19,353
Buildings and improvements 123,512 56,776
Equipment 182,921 137,781
Leasehold improvements 130,958 117,364
----------- -----------
457,076 331,274
Less accumulated depreciation and amortization (147,160) (116,068)
----------- -----------
309,916 215,206
Construction in process 25,187 73,345
----------- -----------
Property and equipment, net $ 335,103 $288,551
=========== ===========
</TABLE>
20
<PAGE>
7. LONG-TERM DEBT
The following is a summary of the Company's long-term debt at December 31,
1994 and 1993:
<TABLE>
<CAPTION>
1994 1993
----------- -----------
<S> <C> <C>
Notes payable:
Commercial paper, supported by
stand-by credit commitment $ 504,000 $290,000
Term loan agreements, 3.00% to 10.25%,
due February 14, 1995
through December 9, 2004 687,934 592,085
Subordinated notes, 6.56% to 10.31%,
due June 28, 1996
through June 30, 2000 128,750 118,750
Secured notes, 7.25% to 7.35%,
due November 15, 2001 through
November 15, 2005 60,000 60,000
----------- -----------
Total long-term debt 1,380,684 1,060,835
Less current maturities of long-term debt (80,320) (89,152)
----------- -----------
Long-term debt, excluding current maturities $1,300,364 $971,683
=========== ===========
</TABLE>
At December 31, 1994, outstanding commercial paper of $504,000 has been
included in long-term debt, as the amount of the borrowings that will be
outstanding throughout the period covered by the commitment is not
expected to fall below this level or will be replaced with other long-term
financing. This commercial paper program is supported by an irrevocable
stand-by credit commitment with a group of 13 banks. The credit commitment
was increased to $600,000 from $450,000 in December 1994. The credit
agreement expires in September 1997 and is subject to annual extension
upon mutual agreement of the Company and banks. If the Company elects to
borrow under certain provisions of the credit agreement, the loans would
be payable on the expiration date of this agreement. Fees paid to the
banks do not exceed 1/5 of 1% per year of outstanding borrowings and 1/4
of 1% of the total commitment. The effective annual interest rates were
5.2% in 1994 and 4.2% in 1993, including previously mentioned fees.
The Company also borrows funds under a stand-by letter of credit and
revolving credit facility of $300,000 with a group of eleven banks. The
credit agreement was increased to $300,000 from $125,000 in August 1994.
The credit agreement expires in March 1998. Certain provisions of the
credit agreement limit availability of these funds through a specified
time period. This time period generally coincides with peak cash flows
generated by operations of the Company. As a result of changes in the
credit agreement, fees are currently 1/5 of 1% per year based on the total
commitment. Borrowings under this commitment were an average of $47,844
and a maximum of $200,000 during 1994 and an average of $21,422 and a
maximum of $66,000 during 1993.
Included in notes payable is a $27,500 term loan with the same eleven
banks with amortizing payments through 1997. The agreement stipulates that
interest is paid based on the London Interbank Offering Rate (LIBOR) plus
a margin. In January 1993, the Company entered into an interest rate swap
agreement with a major financial institution. Currently, at the end of
1994, this rate is fixed at 6.42%. The notional amount of the swap
agreement and the maturity date correspond with that of the outstanding
debt over the life of the term loan. The institution is expected to fully
perform under the terms of the agreement, thereby mitigating the risk from
this transaction. At December 31, 1994, the swap had a fair market value
representing an immaterial net unrealized gain for the Company.
The company has available uncommitted money market lines aggregating $45,000.
Usage under these lines averaged $5,493 during 1994 at various floating rates
of interest.
The Company also has letter of credit facilities to support the purchase
of inventories. Letter of credit commitments outstanding were $140,173 and
$69,786 at December 31, 1994 and 1993, respectively.
21
<PAGE>
The fair value of the Company's long-term debt, based upon the discounting
of future cash flows using the Company's borrowing rate for loans of
comparable maturity, approximates the carrying value of such debt at
December 31, 1994.
Aggregate maturities of long-term debt for the five years subsequent to
December 31, 1994 are as follows: 1995, $80,320; 1996, $86,672; 1997,
$609,542; 1998, $162,900; and 1999 and thereafter, $441,250.
8. EMPLOYEE BENEFIT PLANS
The Company has established the following employee benefit plans to
recognize the contributions made to successful operations by the Company's
employees.
SAVINGS AND PROFIT SHARING PLANS
Eligible salaried and hourly employees may participate in these plans. As
specified in these plans the Company's annual contributions are determined
by applying a formula to earnings before income taxes. Employees may elect
to contribute a maximum of 10% of their base salary, subject to special
limitations imposed by the Internal Revenue Service. Expense under these
plans was $5,673, $9,001 and $6,983 in 1994, 1993 and 1992, respectively.
THRIFT PLANS
The Company has thrift plans for its eligible salaried employees in which
employees may elect to contribute up to 6% of their base salary, with the
Company matching the contribution dollar for dollar up to the first 3%,
and 50 cents for each dollar contributed up to the next 3%. The Company
also has separate thrift plans for certain eligible hourly employees.
Employees may elect to contribute up to 6% of their base salary with the
Company contributing 25 cents for each dollar of employee contributions.
Expense under these plans was $4,917, $4,092 and $3,840 in 1994, 1993 and
1992, respectively.
STOCK OPTION PLAN
The Spiegel, Inc. Semi-Monthly Salaried Employees Incentive Stock Option
Plan provides for the issuance of options to purchase up to 1,600,000
shares of Class A non-voting common stock to certain salaried employees.
Under the plan, participants are granted options to purchase shares of the
specified stock at the fair market value at the date of grant. The options
are exercisable at the rate of 20% per year.
A summary of the changes in the options outstanding is as follows:
<TABLE>
<CAPTION>
Shares Amount Average Price
----------- ---------- -------------
<S> <C> <C> <C>
Outstanding at December 31, 1991 1,089,700 $ 7,319 $6.72
Granted 170,800 1,433 8.39
Exercised (42,440) (235) 5.54
Canceled (78,980) (612) 7.75
----------- ---------- -------------
Outstanding at December 31, 1992 1,139,080 7,905 6.94
Granted 206,500 4,595 22.25
Exercised (136,820) (786) 5.75
Canceled (18,120) (157) 8.64
----------- ---------- -------------
Outstanding at December 31, 1993 1,190,640 11,557 9.71
Granted 128,800 1,288 10.00
Exercised (65,420) (343) 5.24
Canceled (1,200) (9) 7.85
----------- ---------- -------------
Outstanding at December 31, 1994 1,252,820 $12,493 $9.97
=========== ========== =============
Exercisable at December 31, 1994 760,860 $ 6,058 $7.96
=========== ========== =============
</TABLE>
Total stock options authorized but unissued at December 31, 1994 were 32,300.
22
<PAGE>
PENSION PLANS
The Company also has defined benefit pension plans covering substantially
all employees other than those eligible to participate in the savings and
profit sharing plans and those hourly employees eligible to participate in
the thrift plans. The unit credit actuarial cost method is used in
developing the costs of the pension plans. A flat benefit formula is used
to measure the pension benefit obligation. Due to the relocation of
certain of its catalog distribution operations, the Company recognized a
curtailment of a related hourly pension plan. The impact on net periodic
pension cost for 1993 was a charge to operating income of $12,100, which
was included in the $39,000 nonrecurring charge in the consolidated
statements of earnings.
The net periodic pension cost for the years ended December 31, 1994, 1993
and 1992 is computed as follows:
<TABLE>
<CAPTION>
1994 1993 1992
--------- -------- --------
<S> <C> <C> <C>
Service cost $ 433 $ 940 $ 914
Interest cost 4,340 3,562 3,492
Return on plan assets 1,719 (7,448) (4,267)
Net amortization and deferral (5,517) 16,046 1,020
--------- -------- --------
Net periodic pension cost $ 975 $13,100 $1,159
========= ======== ========
</TABLE>
Weighted average assumptions used in accounting for obligations and
assets were as follows:
<TABLE>
<CAPTION>
1994 1993
-------- --------
<S> <C> <C>
Discount rate 9.0% 7.5%
Expected long-term rate of return on assets 9.0% 9.0%
</TABLE>
The following table sets forth the plans' funded status at December 31,
1994 and 1993:
<TABLE>
<CAPTION>
1994 1993
Union Non-Union Union Non-Union
Plan Plan Plan Plan
--------- --------- -------- ---------
<S> <C> <C> <C> <C>
Accumulated and projected
benefit obligation:
Vested $ 41,145 $ 8,519 $48,296 $ 9,325
Non-Vested 1,864 207 2,076 251
--------- --------- -------- ---------
Total 43,009 8,726 50,372 9,576
Market value of plan assets 39,079 9,504 40,141 10,695
--------- --------- -------- ---------
Over (under) funded projected
benefit obligation (3,930) 778 (10,231) 1,119
Unrecognized net transition liability 1,106 1,484 1,475 1,696
Unrecognized net (gain) loss from
past experience different from
that assumed and effects
of changes in assumptions 923 68 2,890 (462)
Additional liability required to
recognize minimum liability (2,029) - (4,365) -
Prepaid (accrued) pension cost --------- -------- -------- ---------
in the balance sheet $(3,930) $2,330 $(10,231) $2,353
========= ======== ========= =========
</TABLE>
23
<PAGE>
POST-RETIREMENT BENEFITS OTHER THAN PENSIONS
In addition to the benefits described above, the Company provides certain
medical benefits for eligible retired employees until age 65.
The following table presents the accumulated postretirement benefit
obligation at December 31, 1994 and 1993:
<TABLE>
<CAPTION>
1994 1993
------- -------
<S> <C> <C>
Retirees $1,394 $1,474
Fully eligible active plan participants 2,124 955
Other active plan participants 4,041 5,275
------- -------
Total 7,559 7,704
Unrecognized prior service cost (715) -
Unrecognized gain (loss) 154 (1,393)
------- -------
Accrued postretirement benefit cost in the balance sheet $6,998 $6,311
======= =======
</TABLE>
The net periodic postretirement benefit cost for the years ended December
31, 1994, 1993 and 1992 is computed as follows:
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Service cost $ 616 $ 352 $ 352
Interest cost 583 496 496
Net amortization and deferral 56 - -
-------- -------- --------
Net periodic postretirement benefit cost $1,255 $ 848 $ 848
======== ======== ========
</TABLE>
For measurement purposes, a 12% and 14% annual rate of increase in the per
capita cost of covered benefits (i.e., health care cost trend rate) was
assumed for 1994 and 1993, respectively. This rate was assumed to decrease
1% per year to 6% in 2000 and remain at that level thereafter. The health
care cost trend rate assumption has a significant effect on the amounts
reported. For example, increasing the assumed health care cost trend rate
by 1 percentage point in each year would increase the accumulated
postretirement benefit obligation as of December 31, 1994 by $538 and the
aggregate of the service and interest cost components of net periodic
postretirement benefit cost for the year ended December 31, 1994 by $140.
The weighted average discount rates used in determining the accumulated
postretirement benefit obligation were 9.0% and 7.5% at December 31, 1994
and 1993, respectively.
9. INCOME TAXES
The components of income tax expense (benefit) for the years ended
December 31, 1994, 1993 and 1992 are as follows:
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Current $11,506 $67,223 $27,408
Deferred 10,640 (28,565) 2,836
-------- -------- --------
$22,146 $38,658 $30,244
======== ======== ========
</TABLE>
24
<PAGE>
The differences between the provision for income taxes at the statutory
rate and the amounts shown in the consolidated statements of earnings for
the years ended December 31, 1994, 1993 and 1992 are as follows:
<TABLE>
<CAPTION>
1994 1993 1992
Amount Percent Amount Percent Amount Percent
-------- ------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C>
Statutory rate $16,536 35.0% $30,577 35.0% $23,585 34.0%
State income tax (net of
federal income tax benefit) 3,728 7.9 5,851 6.7 5,064 7.3
Amortization of
non-deductible goodwill 1,882 4.0 1,970 2.2 1,595 2.3
Change in statutory rate - - 260 0.3 - -
-------- ------- -------- ------- -------- -------
Effective tax rate $22,146 46.9% $38,658 44.2% $30,244 43.6%
======== ======= ======== ======= ======== =======
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes.
Significant components of the Company's deferred tax assets and
liabilities at December 31, 1994 and 1993 are as follows:
<TABLE>
<CAPTION>
1994 1993
---------- ----------
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts $ 18,491 $16,224
Allowance for the gross profit
on estimated future returns 12,872 12,596
Reserve for distribution facility and store closings 7,251 13,103
Compensated absences accruals 5,053 4,507
Pension liability 184 2,485
Deferred rent obligation 740 2,426
Postretirement benefit obligation 3,003 2,401
Capitalized overhead in inventory 9,471 4,300
Other 2,988 3,439
---------- ----------
Total deferred tax assets 60,053 61,481
---------- ----------
Deferred tax liabilities:
Property and equipment 47,715 42,036
Prepaid and deferred expenses 7,035 5,425
Gain on sale of accounts receivable 7,075 6,005
Earned but unbilled finance charges 3,694 3,193
Other 1,314 961
---------- ----------
Total deferred tax liabilities 66,833 57,620
---------- ----------
Net deferred tax assets (liabilities) $ (6,780) $ 3,861
========== ==========
</TABLE>
25
<PAGE>
10. COMMITMENTS AND CONTINGENCIES
LEASE COMMITMENTS
The Company leases office facilities, distribution centers, retail store
space and data processing equipment. Lease terms generally range from 10
to 25 years and many contain renewal options. Many of the retail store
leases provide for minimum annual rentals plus additional rentals based
upon percentage of sales, which range from 2.5% to 5%. Rental expense for
all operating leases was $100,394 in 1994, $87,177 in 1993 and $77,662 in
1992.
The following is a schedule by year of future minimum rental payments
required under operating leases that have initial or remaining
noncancelable lease terms in excess of one year as of December 31, 1994:
<TABLE>
<CAPTION>
Amount
---------
<S> <C>
1995 $100,124
1996 95,249
1997 91,500
1998 82,251
1999 and thereafter $414,934
</TABLE>
LITIGATION
The Company is routinely involved in a number of legal proceedings and
claims that cover a wide range of matters. In the opinion of management,
the outcome of these matters is not expected to have any material adverse
effect on the consolidated financial position or results of operations of
the Company.
11. STOCKHOLDERS' EQUITY
On January 5, 1994 the Company issued 400,000 shares of Class A non-voting
common stock. Accordingly, common stock was increased by $400 representing
the par value of the shares and additional paid-in capital was increased
by approximately $6,500 for the difference between the proceeds from the
issuance and the par value.
On October 11, 1993, the holders of a majority of Class B voting common
stock of the Company adopted an amendment to the Company's Restated
Certificate of Incorporation to increase the number of authorized shares
of Class A non-voting common stock of the Company from 8,000,000 to
16,000,000 shares and Class B voting common stock from 47,000,000 to
94,000,000 shares.
On October 11, 1993, the Board of Directors declared a 100% stock dividend
to stockholders of record on October 22, 1993, payable on November 2,
1993. The par value of these additional shares was capitalized by a
transfer from retained earnings to common stock of $6,000 for Class A
non-voting and $46,571 for Class B voting common stock. All 1993 and prior
year common share and per share disclosures have been restated to reflect
the stock dividend.
On October 22, 1993, the Board of Directors approved the retirement of the
1,027,776 shares of Class A non-voting common stock held in treasury with
a carrying value of $4,553. Accordingly, common stock was reduced by
$1,028 representing the par value of the shares, and additional paid-in
capital was reduced by $3,525 for the difference between the carrying
value of the treasury shares and the par value.
On December 20, 1993, the Company issued an additional 3,600,000 shares of
Class A non-voting common stock through a public offering. Accordingly,
common stock was increased by $3,600 for the par value of the shares and
additional paid-in capital was increased by $57,946 for the difference
between the proceeds from the issuance and the par value.
26
<PAGE>
STATEMENT OF MANAGEMENT RESPONSIBILITY
We have prepared the accompanying consolidated financial statements and
related information for the years 1994, 1993 and 1992. The opinion of the
Company's independent auditors, KPMG Peat Marwick LLP, on those financial
statements follows. The primary responsibility for the integrity and
objectivity of the financial information included in this annual report
rests with management. Such information was prepared in accordance with
generally accepted accounting principles appropriate in the circumstances,
based on our best estimates and judgments and giving due consideration to
materiality.
The Company maintains an internal control structure that is adequate to
provide reasonable assurance that assets are safeguarded from loss or
unauthorized use, and that produces records adequate for preparation of
financial information. There are limits inherent in all systems of
internal control structures based on the recognition that the cost of such
a structure should not exceed the benefits to be derived. In addition, the
Company maintains an internal auditing department to review the adequacy,
application and compliance of the internal control structure.
KPMG Peat Marwick LLP, independent auditors, has been engaged to audit the
financial statements and to render an opinion as to their conformity with
generally accepted accounting principles. They conducted their audit in
accordance with generally accepted auditing standards. Those standards
require that they plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. KPMG Peat Marwick LLP is a member of the SEC Practice
Section of the American Institute of Certified Public Accountants.
The Board of Directors pursues its responsibility for these financial
statements through its audit committee, composed of directors who are not
employees of Spiegel or its subsidiaries, which meets periodically with
both management and the independent auditors to assure that each is
carrying out its responsibilities. KPMG Peat Marwick LLP and the internal
audit department have free access to the audit committee, with and without
the presence of management.
27
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Stockholders and Board of Directors of Spiegel, Inc.:
We have audited the accompanying consolidated balance sheets of Spiegel,
Inc. and subsidiaries as of December 31, 1994 and 1993, and the related
consolidated statements of earnings, stockholders' equity and cash flows
for each of the years in the three-year period ended December 31, 1994.
These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
Spiegel, Inc. and subsidiaries as of December 31, 1994 and 1993, and the
results of their operations and their cash flows for each of the years in
the three-year period ended December 31, 1994 in conformity with generally
accepted accounting principles.
As discussed in note 2, in 1992 the Company changed its method of
accounting for inventory to include capitalization of certain purchasing,
warehousing, storage and transportation costs, and adopted the provisions
of Statement of Financial Accounting Standards No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions."
/s/ KPMG PEAT MARWICK LLP
Chicago, Illinois
February 10, 1995
28
<PAGE>
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarters ended ($000s omitted, except per share amounts)
<TABLE>
<CAPTION>
1994 First Second Third Fourth Year End
----------------------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales and
other revenues $ 622,134 $ 675,077 $ 649,364 $1,069,410 $3,015,985
Operating income 29,350 31,365 27,013 44,898 132,626
Net earnings $ 6,544 $ 6,504 $ 2,798 $ 9,254 $ 25,100
Net earnings per
common share $ .06 $ .06 $ .03 $ .09 $ .23
Weighted average
common shares
outstanding 108,152,215 108,191,064 108,197,629 108,206,898 108,187,069
MARKET PRICE DATA
High $ 26 3/4 $ 24 3/8 $ 19 3/4 $ 18 1/4 $ 26 3/4
Low $ 17 3/4 $ 17 $ 13 1/2 $ 8 3/4 $ 8 3/4
1993
-----------------------
Net sales and
other revenues $ 500,283 $ 515,826 $550,334 $1,029,704 $2,596,147
Operating income (1) 22,784 24,257 (6,933) 119,480 159,588
Net earnings $ 2,900 $ 3,995 $ (14,038) $ 55,848 $ 48,705
Net earnings
per common share (2) $ .03 $ .04 $ (.13) $ .53 $ .47
Weighted average
common shares
outstanding (2) 104,018,576 104,044,812 104,056,992 104,587,533 104,178,208
MARKET PRICE DATA
High (2) $ 12 5/8 $ 13 $ 23 3/8 $ 23 $ 23 3/8
Low (2) $ 7 3/4 $ 8 3/8 $ 9 3/4 $ 16 5/8 $ 7 3/4
<FN>
(1). Operating income for 1993 included a $39,000 charge recorded in the third
quarter to reflect the estimated impact of closing certain of the Company's
existing catalog distribution facilities.
(2). Net earnings per common share, weighted average common shares outstanding
and market price high and low data for the first three quarters of 1993
have been restated to reflect the two-for-one split in the Company's
outstanding common stock effected by the 100% stock dividend declared and
paid in 1993.
</TABLE>
29
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS
The following persons are the directors of the Company.
<TABLE>
<CAPTION>
Year
Elected as
Name Age Offices with Registrant or Other (4) Director
---------------------- --- ------------------------------------------ ----------
<S> <C> <C> <C>
Dr. Michael Otto (1) 51 Chairman of the Board of Directors 1982
and Chairman of the Board of Directors of
Otto Versand (GmbH & Co) for at least the
past five years.
John J. Shea (1)(3) 56 Vice Chairman of the Board of Directors, 1983
President and Chief Executive Officer
Kenneth A. Bochenski 52 Senior Vice President - Operations and 1987
Information Services
Thomas Bohlmann 49 Board of Directors and Director - Planning 1989
and Control of Otto Versand (GmbH & Co)
(1989); Managing Director of a subsidiary
of Otto Versand (GmbH & Co)(1982)
Dr. Michael E. Crusemann(2)(3)49 Deputy Member of the Executive Board and 1994
Chief Financial Officer of Otto Versand Group
(1994); Director of Finance of Otto Versand
(GmbH & Co) (1985)
Harold S. Dahlstrand 50 Senior Vice President - Human Resources 1994
Hans-Christoph Fischer 56 Board of Directors and Director - 1982
Merchandise of Otto Versand (GmbH & Co)
for at least the past five years.
Hans-Jorg Hammer 55 Board of Directors and Director - 1991
Personnel of Otto Versand (GmbH & Co)(1991);
Deputy Director - Personnel of Otto Versand
(GmbH & Co)(1988)
Horst R. Hansen (2) 60 Retired. Prior to March 1994 was a member 1982
of the Board of Directors and Director -
Finance and Chief Financial Officer
of Otto Versand Group
Karl-August Hopmann (2) 59 Retired. Prior to March 1991 was a member 1982
of the Board of Directors and Director -
Personnel of Otto Versand (GmbH & Co)(1988)
David C. Moon 52 Executive Vice President - Merchandise 1991
Dr. Peter Muller (1) 53 Board of Directors and Director - 1985
Advertising and Marketing of Otto Versand
(GmbH & Co) for at least the past five years.
Dr. Peer Witten 49 Board of Directors and Director -
Operations of Otto Versand (GmbH & Co) for
at least the past five years. 1991
<FN>
(1) Member of Board Committee (Executive Committee)
(2) Member of Audit Committee
(3) Member of Finance Committee
(4) The business experience during the last five years of directors who are executive
officers of the Company is detailed along with the listing of executive officers that
follows.
</TABLE>
30
<PAGE>
The terms of all the above-named directors expire on the date of the next annual
meeting of the stockholders which is to be held in April, 1995.
Dr. Michael Otto was a member of the Board of Directors and Director -
Merchandise of Otto Versand for ten years prior to March 1, 1981.
There is no family relationship between any of the directors.
EXECUTIVE OFFICERS
The following persons are the executive officers of the Company:
<TABLE>
<CAPTION>
Positions and Offices Held
(all positions and offices are of the Company
Name Age unless otherwise indicated)
---------------------- --- ---------------------------------------------------------
<S> <C> <C>
John J. Shea 56 Vice Chairman (1989), President and Chief Executive
Officer (1985) and Director (1983)
James W. Sievers 52 Chief Financial Officer (1994) and Vice President -
Finance (1990); Senior Vice President - Finance and
Operations and Director of Eddie Bauer (1988)
Kenneth A. Bochenski 52 Senior Vice President - Operations and Information
Services (1987) and Director (1987)
Harold S. Dahlstrand 50 Senior Vice President - Human Resources (1993);
Vice President - Human Resources (1985); and Director
(1994)
David C. Moon 52 Executive Vice President (1994); Senior Vice President -
Merchandise (1990); Vice President - Merchandise (1987)
and Director (1991)
James J. Broderick 41 Vice President - Merchandise (1993); Divisional Vice
President - Merchandise (1992); General Merchandise
Manager (1991); Merchandise Manager (1988)
Robert E. Conradi 51 Vice President - Merchandise (1987)
Davia L. Kimmey 41 Vice President - Advertising (1992); Vice President -
Advertising and Marketing of Eddie Bauer (1990);
Divisional Vice President - Advertising of Eddie Bauer
(1988)
Stanley D. Leibowitz 43 Vice President - Corporate Planning (1988)
Alois J. Lohn 60 Vice President - Manufacturing (1990); Vice President -
Manufacturing of Jones New York (1989)
Michael R. Moran 48 Vice President, Secretary and General Counsel (1988)
Karl A. Steigerwald 48 Vice President - Marketing (1992); Vice President -
Marketing and Information Services (1991)
John R. Steele 42 Treasurer (1993); Corporate Finance Director of
Deutsche Bank (1992); Vice President of Deutsche Bank
(1988)
</TABLE>
The terms of all the above-named officers expire on the date of the next annual
meeting of the Board of Directors which is to be held in April, 1995.
There is no family relationship between any of the officers.
31
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth all compensation paid or accrued by the Company
for the years ended December 31, 1994, 1993 and 1992 to or on behalf of each of
the five most highly compensated key policy-making executive officers of the
Company.
<TABLE>
<CAPTION>
Stock
Name and Annual Compensation Options All Other
Principal Salary Bonus Granted Compensation (1)
Position Year ($) ($) (#) ($)
------------------- ------ ---------- -------- ------- ---------------
<S> <C> <C> <C> <C> <C>
John J. Shea 1994 $600,000 $236,250 -- $145,667
Vice Chairman 1993 550,000 605,500 125,000 143,218
President, Chief 1992 442,000 400,000 40,000 111,611
Executive Officer
and Director
Richard T. Fersch 1994 400,000 150,000 10,000 79,741
President of 1993 304,225 274,560 5,000 59,886
Eddie Bauer 1992 272,000 130,800 4,000 44,729
David C. Moon 1994 240,000 70,900 5,000 55,862
Executive Vice 1993 220,000 183,000 5,000 64,923
President - 1992 202,000 120,000 6,000 54,438
Merchandise and
Director
Kenneth A. Bochenski 1994 220,000 94,500 5,000 44,641
Senior Vice President 1993 200,000 239,600 5,000 48,776
Operations and 1992 177,000 160,000 6,000 39,463
Information Services
and Director
Alois J. Lohn 1994 285,000 85,500 3,000 66,291
Vice President, 1993 275,000 168,500 3,000 80,682
Manufacturing 1992 262,400 129,029 - 71,465
<FN>
(1) The following tables summarize all other compensation for the years ended
December 31, 1994 and 1993:
</TABLE>
<TABLE>
<CAPTION>
Employer
Car Profit Life
Supplemental Allow- Sharing Insurance Employer
Retirement ance/ Contrib- Premiums 401(K)
Name Benefits Other ution Paid Matching Total
-------------------- ---------- --------- -------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
1994 John J. Shea $72,154 $36,368 $6,000 $24,395 $6,750 $145,667
Richard T. Fersch 33,699 33,292 6,000 -- 6,750 79,741
David C. Moon 6,808 19,311 6,000 16,993 6,750 55,862
Kenneth A. Bochenski 3,945 19,306 6,000 8,640 6,750 44,641
Alois J. Lohn 17,699 19,428 6,000 16,414 6,750 66,291
1993 John J. Shea $43,142 $33,225 $12,928 $47,177 $6,746 $143,218
Richard T. Fersch 24,810 17,294 11,036 - 6,746 59,886
David C. Moon 5,685 17,411 13,018 22,063 6,746 64,923
Kenneth A. Bochenski 3,765 15,694 12,503 10,068 6,746 48,776
Alois J. Lohn 13,317 17,644 12,928 30,047 6,746 80,682
1992 John J. Shea $39,581 $29,082 $13,396 $23,343 $6,209 $111,611
Richard T. Fersch 14,772 8,348 15,063 - 6,546 44,729
David C. Moon 3,952 14,347 11,824 18,106 6,209 54,438
Kenneth A. Bochenski 2,270 13,733 10,361 6,890 6,209 39,463
Alois J. Lohn 2,486 9,865 13,396 39,509 6,209 71,465
</TABLE>
32
<PAGE>
OPTION GRANTS TABLE
The following table sets forth grants of stock options to the named executive
officers during the year ended December 31, 1994 and the potential realizable
value of the grants assuming that the market price of the underlying stock
appreciates in value from the date of grant to the end of the option term at
the stipulated annual rates of 5% and 10%:
<TABLE>
<CAPTION>
Number
of Potential Realizable
Securities Percent of Value at Assumed
Under- Total Options Annual Rates of Stock
lying Granted to Price Appreciation
Options Employees Exercise Expiration for Option
Name Granted in 1994 Price Date 5% ($) 10% ($)
------------------ --------- ------------- -------- ----------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
John J. Shea -- -- -- -- -- --
Richard T. Fersch 10,000 8% $10.00 12/31/04 $62,889 $159,374
David C. Moon 5,000 4% 10.00 12/31/04 31,445 79,687
Kenneth A. Bochenski 5,000 4% 10.00 12/31/04 31,445 79,687
Alois J. Lohn 3,000 2% 10.00 12/31/04 18,867 47,812
</TABLE>
The stock options granted become exercisable at the rate of 20% per year from
the date of the grant.
AGGREGATED OPTION EXERCISES IN 1994 AND DECEMBER 31, 1994 OPTION VALUES
The following table sets forth shares acquired on exercise and stock option
values at December 31, 1994:
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Shares Options at at
Acquired December 31, 1994 December 31, 1994
On Value Exercise- Unexercise- Exercise- Unexercise-
Name Exercise Realized able able able able
---------------- -------- -------- ---------- -------------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
John J. Shea 8,000 $86,240 226,000 152,000 $579,610 $132,250
Richard T. Fersch -- -- 15,400 20,000 18,700 15,975
David C. Moon -- -- 41,400 18,600 143,695 26,000
Kenneth A. Bochenski -- -- 50,900 18,600 173,270 26,000
Alois J. Lohn -- -- 7,400 8,600 22,975 10,900
</TABLE>
COMPENSATION OF DIRECTORS
The Company pays an annual fee of $10,000 to its independent directors and
reimburses any reasonable out-of-pocket expenses incurred by all directors in
attending meetings.
33
<PAGE>
EMPLOYMENT AGREEMENT
he Company has an employment agreement with John J. Shea, President and Chief
Executive Officer of the Company, the term of which extends through December 31,
1998. The annual base salary under this agreement is $600,000. The agreement
entitles Mr. Shea to receive an annual bonus based on a sliding-scale percentage
of the Company's consolidated net income before taxes. Mr. Shea is also
eligible to receive certain other benefits.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Board Committee, which determines executive officer compensation, consists
of Dr. Michael Otto, Dr. Peter Muller and John J. Shea. Mr. Shea also serves
as President and Chief Executive Officer of the Company.
EMPLOYEE BENEFITS
STOCK OPTION PLAN.
The Spiegel, Inc. Semi-Monthly Salaried Employees Incentive Stock Option
Plan is administered by a Stock Option Committee consisting of three
members of the Company's Board of Directors who are not salaried employees
of the Company or its participating subsidiaries and who are appointed to
the Committee from time to time. Certain salaried employees of Spiegel and
its subsidiaries are eligible to participate in the plan. Options are
granted to those eligible employees as the Stock Option Committee shall
select from time to time. The Stock Option Committee also has authority
to determine the number of shares and terms consistent with the Plan with
respect to each option. Options granted under the plan relate to the
Class A Non-Voting Common Stock of the Company. The maximum number of
shares which may be issued under options granted is 1,600,000 shares. The
participants' options become exercisable at the rate of 20% per year. The
options expire ten years after the date of grant of options. The option
price upon exercise of the option is the fair market value of the shares on
the date of grant of the option. Options granted under the plan are not
transferable or assignable other than by will or by the laws of descent and
distribution.
The average per share price of stock options granted during the year was
$10.00. Net cash realized with respect to the exercise of options during
the year was approximately $343,000.
SPIEGEL GROUP PROFIT SHARING AND 401(K) SAVINGS PLAN
The Company maintains a consolidated Profit Sharing and 401(K) Savings Plan
for salaried and hourly employees of Spiegel, Eddie Bauer, and FCNB.
Participation commences on the beginning of a quarter following one year of
continuous service. The Company and participating subsidiaries contribute
annually to the plan 9% of the first $20 million of Spiegel consolidated
earnings before income taxes, plus 5.25% of Spiegel consolidated earnings
before income taxes in excess of $20 million, plus 5.5% of Eddie Bauer's
consolidated earnings before income taxes plus any other amounts the
Company's Board of Directors may determine. A minimum total contribution
of 1-1/2% of eligible considered compensation will be made, but in no event
will the total contribution exceed the maximum amount deducted for Federal
income tax purposes. Company contributions and forfeitures are allocted
among eligible participants in proportion to consider compensation. A
participant can make nondeductible voluntary contributions to the plan of
up to 5% of their considered compensation, subject to special limitations
imposed by the Internal Revenue Code thereon.
Contributions are held in a trust for the benefit of plan participants. A
participant receives the full amount in his account under the plan
(including investment earnings) on termination of employment by reason of
retirement (as defined by the plan document) or permanent disability.
Upon death, the full value of the participant's account is distributable to
his beneficiary. On any other termination of employment, a participant is
always 100% vested in the portion of his account attributable to his
voluntary contributions and
34
<PAGE>
is vested in the Company's contribution and earnings thereon at a rate
based on years of service, with full vesting after a maximum of seven
years. Participants who suffer financial hardship can withdraw their
voluntary contributions from the plan.
As a provision of the transition to the new plan structure, in 1994, the
amount of total profit sharing contribution was computed under the terms of
the new plan described above, as well as under the terms of the old
separate plans for Spiegel and Eddie Bauer. The computation for the
greatest amount of profit sharing was to be used for 1994 contributions.
In future years, the profit sharing will be under the terms of the new
consolidated plan.
Employees may also contribute up to 10% of their base compensation to the
401(K) Plan through payroll deductions. Employee contributions are made on
a pretax basis under Section 401(k) of the Internal Revenue Code. The
Company matches salaried employee contributions dollar for dollar up to the
first 3% of base compensation and 50 cents for each dollar contributed up
to the next 3%. The Company matches hourly employee contributions 25 cents
for each dollar contributed up to 6% of base compensation. The Company's
matching contributions, however, may not exceed the amount deductible under
the Internal Revenue Code.
All contributions and investments are held in a trust for the benefit of
plan participants. All employees who participate in the plan after one
year of service are 100% vested in their pretax contributions and earnings
thereon but become vested in the Company's matching contribution and
earnings thereon at a rate based on years of service, with full vesting
after a maximum of five years. Participants who suffer a financial
hardship may withdraw amounts from the plan while still employed. All
participants receive the full value of their accounts under the plan upon
retirement or permanent disability and the vested portion of their accounts
on other termination of employment. The full value of a deceased
participant's account is distributable to his beneficiaries. Distributions
are made in a lump sum.
SPIEGEL, INC., SUPPLEMENTAL RETIREMENT BENEFIT PLAN.
The Company maintains a funded supplemental retirement plan for the benefit
of its employees and those of its participating subsidiaries covered by the
profit sharing and thrift plans described above (the "profit sharing and
thrift plans") whose benefits under the profit sharing and thrift plans are
reduced by application of Sections 415, 401(k) and 401(a)(17) of the
Internal Revenue Code. If a participant's annual additions under the
profit sharing and thrift plans are reduced by reason of special
limitations of the Internal Revenue Code, the Company will make an annual
contribution to the trust in the amount of the reduction. Supplemental
benefits under the supplemental retirement plan are payable in cash at the
same time and in the same manner as the participant's employer account
under the profit sharing and thrift plans except no payments are made prior
to death, retirement or other termination of employment.
35
<PAGE>
SPLIT DOLLAR LIFE INSURANCE PROGRAM.
The Company maintains a split dollar life insurance program covering
certain executives of the Company. A covered employee may apply for an
individual life insurance policy on his life in a face amount up to three
times his base salary. The employee pays a portion of the annual premium
equal to the after tax cost of an equivalent amount of term life insurance.
The balance of the premium due (if any) is paid by the Company. The Company
owns a part of the cash value equal to its payments and is beneficiary for
that amount. The employee names his own beneficiary and collaterally
assigns the policy to the Company to the extent of the Company's payments.
Cash value and dividends accumulate tax-free and all amounts in excess of
the Company's payments belong to the employee. The Company premium payments
will last only seven years. Future employee contributions will reduce the
amounts advanced by the Company's premium payments. The Company may
withdraw cash at the earlier of the employee's retirement, termination of
employment or the time at which the policy dividends will pay the premium
after the withdrawal. At termination of employment or retirement, the
Company may withdraw its cash value and the employee may either surrender
the policy for his portion of the cash value, receive an income from the
insurance company in lieu of cash, or continue the policy in force. On the
death of the employee, the Company receives any amounts due it with the
balance of the proceeds payable as directed by the employee.
EXECUTIVE BONUS AND INCENTIVE PLANS.
The Company maintains various bonus plans for certain of its executives,
designed to reward performance. The Company's annual payment of bonuses is
based upon the attainment of pre-determined operating and financial
objectives. For 1994, approximately $5,200,000 was paid under these bonus
plans.
Certain executives are also eligible for a long-term incentive bonus based
on the Company's performance in 1995. In order for a bonus to be paid,
Spiegel must achieve a pre-determined pre-tax profit in 1995. For certain
officers, the formula for payout will be similar to those used for the
normal yearly performance based bonuses.
NEW HAMPTON, INC. RETIREMENT SAVINGS PLAN
New Hampton has a retirement savings plan covering its associates.
Associates become eligible as of the January 1 or July 1 following
completion of one year of service. Associates may elect to contribute from
1% to 12% of their compensation to the plan. Associate contributions are
made on a pre-tax basis under Section 401(k) of the Internal Revenue Code.
The company matches contributions at a rate of 50% of the first 4% of
compensation contributed. The company matching contributions, however, may
not exceed the amount deductible under the Internal Revenue Code.
Contributions are held in trust for the benefit of the plan participants.
A participant receives the full amount in this account under the plan
(including investment earnings) on termination of employment by reason of
retirement (as defined in the plan document), or disability. Upon death,
the full value of the participant's account is distributable to their
beneficiary. On any other termination of employment, a participant is 100%
vested at all times in the portion of his account attributable to pre-tax
contributions and is vested in the company's matching contributions and
earnings thereon, at a rate based on years of service, with full vesting
after a maximum of five years. Distributions are made on a lump sum basis.
Participants are permitted to borrow from their account, but may only have
one loan outstanding at a time. Participants suffering certain financial
hardships may request an inservice withdrawal of prior contributions.
36
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
A. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Spiegel Holdings, Inc. (SHI) holds 99.7% of the Company's Class B Voting Common
Stock. The following table sets forth certain information with respect to the
number of shares of Class B Voting Common Stock owned by SHI, which is the only
stockholder beneficially owning more than 5% of the Class B Voting Common Stock.
SHI is a holding company whose principal asset is stock of the Company. The
total number of holders of the Company's Class B voting Common Stock as of
March 20, 1995, was five.
<TABLE>
<CAPTION>
Percentage of
Outstanding
Number of Title of Class B Voting
Name and Address Shares(1) Class Common Stock
------------------------- ----------- --------- ---------------
<S> <C> <C> <C>
Spiegel Holdings, Inc.(2) 92,852,912 Class B 99.7%
The Corporation Voting
Trust Center Common
1209 Orange Street Stock
Wilmington, DE 19801
<FN>
(1) The shares are owned of record and beneficially, with sole investment and
voting power. However, see note (2) below.
(2) In excess of 50% of the common stock of SHI is beneficially owned by Dr.
Michael Otto who controls the manner in which SHI votes its Class B Voting
Common Stock of the Company in all matters, including the election of
directors. Under rules and regulations promulgated by the Securities and
Exchange Commission, Dr. Otto may be deemed to beneficially own all the
shares of the Company owned by SHI. Dr. Otto is a director of the Company.
No officers or other directors of the Company are stockholders of record
or beneficial stockholders thereof.
</TABLE>
37
<PAGE>
B. SECURITY OWNERSHIP OF MANAGEMENT
As of March 20, 1995, certain members of the Company's Board of Directors, and
the directors and officers of the Company as a group, owned shares of the
Company's Class A Non-Voting Common Stock as indicated in the following table:
As shown in Column II, in the case of Company officers, portions of the shares
indicated as beneficially owned are actually shares attributable to unexercised
and unexpired options for Class A Common Stock granted by the Company to such
officers, which are exercisable as of, or first become exercisable within
60 days after, March 20, 1995.
<TABLE>
<CAPTION>
Amount and
Name of Nature of
Title Beneficial Beneficial Acquirable Percent
of Class Owner Ownership (2) Within 60 Days of Class (2)
-------- -------------------- ------------- -------------- ------------
(I) (II) (III)
<S> <C> <C> <C> <C>
Class A Kenneth A. Bochenski(1) 86,200 50,900 *
Class A Richard T. Fersch 19,000 15,400 *
Class A Karl-August Hopmann (3) 15,000 0 *
Class A Alois J. Lohn 281,400 7,400 1.9%
Class A David C. Moon 46,900 41,400 *
Class A Dr. Peter Muller 10,000 0 *
Class A John J. Shea 330,000 226,000 2.2%
Class A All directors and
officers as a group
(24 persons) 1,044,665 533,140 7.0%
<FN>
(1) Includes 600 shares held for member of his immediate family.
(2) Includes shares which may be acquired within 60 days under the Company's
Stock Option Plan.
(3) With regard to Section 16 Reporting Compliance, the following is noted:
Mr. Fischer filed a Form 4 during fiscal year 1994 concerning one
transaction which occurred during a prior fiscal year, which was not
timely reported. Also, Mr. Hopmann filed a Form 4 eight days late
in fiscal year 1994 concerning one transaction which occurred in the prior
fiscal year.
* Less than 1%.
</TABLE>
ITEM 13. CERTAIN TRANSACTIONS
Since its acquisition of the Company in 1982, and following the transfer of its
interest therein to its partners and designees in April 1984, Otto Versand and
the Company have entered into certain agreements seeking to benefit both parties
by providing for the sharing of expertise in the field of catalog marketing. The
following is a summary of such agreements and certain other transactions.
The Company utilizes the services of Otto Versand International (GmbH) as a
buying agent for the Company in Hong Kong, Taiwan, Korea, India, Italy,
Indonesia, Singapore, Thailand and Turkey. Otto Versand International (GmbH) is
a wholly-owned subsidiary of Otto Versand. Buying agents locate suppliers,
inspect goods to maintain quality control, arrange for appropriate documentation
and, in general, expedite the process of procuring merchandise in these areas.
Under the terms of its arrangements, the Company paid $4,445,000 in 1994,
$4,126,000 in 1993 and $3,012,000 in 1992. The arrangements are indefinite in
term but may generally be canceled by either party upon one year's written
notice.
The Company has an agreement with Together, Ltd., a United Kingdom company,
which gives the Company the exclusive right to market "Together!" merchandise by
catalog and in
38
<PAGE>
retail stores in the U.S.A. Otto Versand owns a 50% interest in Together, Ltd.
Commission expenses incurred on this account were $8,012,000, $7,417,000 and
$6,007,000 in 1994, 1993, and 1992, respectively. These expenses include certain
production services, the cost of which would normally be borne by the Company,
including design of the product, color separation, catalog copy and layout,
identification of suggested manufacturing sources and test marketing
information.
In September 1993, the Company announced an agreement with Otto-Sumisho, Inc.
(a joint venture company of Otto Versand and Sumitomo Corporation) to form a
joint venture and enter into license agreements to sell Eddie Bauer products
through retail stores and catalogs in Japan. The joint venture and license
agreements were executed in 1994, and three retail stores were opened in the
Fall of 1994. The Company believes that the terms of the arrangement are no
less favorable to Eddie Bauer than would be the case in an arrangement with an
unrelated third party. Eddie Bauer has contributed $5,900,000 to the project
and has received a $2,500,000 licensing fee for the use of its name, as well as
$246,000 in royalty income on retail sales. Eddie Bauer recorded approximately
$780,000 for its share of the equity losses on the joint venture.
In addition, Eddie Bauer participates in a limited test marketing program with
Sport Scheck GmbH (a subsidiary of Otto Versand) for the sale of Eddie Bauer
products in Germany and Switzerland through Sport-Scheck catalogs. The Company
believes that the terms of the arrangement are no less favorable to Eddie Bauer
than would be the case in an arrangement with an unrelated third party. During
1994 Eddie Bauer received approximately $211,000 in royalty income from
Sport-Scheck.
In 1993, Eddie Bauer entered into an agreement with Eddie Bauer International,
Ltd., (a subsidiary of Otto Versand) whereby the latter acts as buying agent in
Asia and contacts suppliers, inspects goods and handles shipping documentation
for Eddie Bauer. The Company believes that the terms of the arrangement are no
less favorable to Eddie Bauer than would be the case in an arrangement with an
unrelated third party. The Company paid $11,056,000 for these services in 1994.
In March 1994, Newport News issued 113 shares of non-voting preferred stock
to ten directors and ten other executive officers of the Company and nine
executive officers and directors of New Hampton and Otto Versand for $40,000
per share. Each participant was eligible to purchase up to four shares. These
individuals and the number of shares each owns, indicated in parentheses
following each name, include: Michael Otto (4); Thomas Bohlmann (3);
Hans-Christoph Fischer (4); Hans-Jorg Hammer (4); Peter Muller (4); Peer
Witten(4); John J. Shea (4); Kenneth A. Bochenski (4); Harold S. Dahlstrand
(4); David C. Moon (4); James J. Broderick (4); Robert E. Conradi (4); Davia
L. Kimmey (4); Stanley D. Leibowitz (4); Alois J. Lohn (4); Michael R. Moran
(4); Georgia L. Shonk-Simmons (4); James W. Sievers (4); Karl A. Steigerwald
(4); George D. Ittner (4); James W. Brewster (4); Marianne A. Taylor (4);
Geralyn M. Madonna (2); Gerhard Hocht (4); Siegfried Kockmann (4); Gert Rietz
(4); Martin Zaepfel (4) and Michael Crusemann (4). In December, 1994, an
additional seven shares were offered to four executive officers from Newport
News and Eddie Bauer at $43,000 per share. These individuals and the number
of shares each owns, indicated in parenthesis following each name, include:
Martin Smith (1); David Knoll (1); Charley Krieg (1); and Richard Fersch (4).
The redemption price of the preferred stock prior to December 31, 1997 is
$40,000 per share. Subsequent to December 31, 1997, the redemption price is
fair market value. All shares of Newport News non-voting preferred stock must
be redeemed by December 31, 1999, but may be redeemed as early as December
31, 1997 at the option of the holder.
In February, the Executive Committee of the Board of Directors approved a plan
to repurchase up to 500,000 shares of the Company's Class A Non-Voting Common
Stock in the open market or in privately negotiated transactions. The shares to
be repurchased represent less than one percent of the Company's shares
outstanding. As of March 20, 1995, 205,000 shares have been repurchased at an
average price of $9.79.
The Company is included in the consolidated federal income tax return of SHI.
Pursuant to a tax reimbursement agreement with SHI, the Company records
provisions for income tax expense as if it were a separate taxpayer.
39
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
Page
----
<S> <C> <C> <C>
A. 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets 14
Consolidated Statements of Earnings 15
Consolidated Statements of Stockholders' Equity 16
Consolidated Statements of Cash Flows 17
Notes to Consolidated Financial Statements 18-26
Report of Independent Auditors Relating to Financial
Statements and Notes Thereto 28
Selected Quarterly Financial Data 29
2. FINANCIAL STATEMENT SCHEDULE
Report of Independent Auditors Relating to Financial
Statement Schedule 42
Schedule II--Valuation and Qualifying Accounts 43
Schedules not listed above are omitted because of absence
of conditions under which they are required or because the
required information is included in the financial
statements submitted.
</TABLE>
40
<PAGE>
3. EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
------- ----------------------
<S> <C>
3(a) Restated Certificate of Incorporation of the Registrant (i)
3(b) By-Laws of the Registrant (i)
4 Revised Specimen Stock Certificate (ii)
10(a) Spiegel, Inc., Semi-Monthly Salaried Employees Incentive Stock
Option Plan (File No. 33-15936) and post-effective Amendment
No. 1 thereto, and the Company's registration statements on
Form S-8 and post-effective amendments thereto (File No. 33-
19663, 33-32385, 33-38478, 33-44780, 33-56200 and 33-51755)
(iii)
10(b) Spiegel, Inc., Supplemental Retirement Benefit Plan (iv)
21 List of subsidiaries of the Registrant
23 Consent of Independent Auditors
24 Powers of Attorney (iv)
27 Financial Data Schedule
<FN>
(i) Filed as an Exhibit to or part of the Company's Registration Statement
on Form S-3 (File No. 33-50739) and hereby incorporated by reference
herein.
(ii) Filed as an Exhibit to the 1988 10-K.
(iii) Filed as an Exhibit to or part of the Company's Registration Statement
on Form S-8 (File No. 33-19663, 33-32385, 33-38478, 33-44780, 33-56200
and 33-51755) and hereby incorporated by reference herein.
(iv) Filed as an Exhibit to or part of the Company's Registration Statements
on Form S-1 (File No. 33-15936) and hereby incorporated by reference
herein.
</TABLE>
B. REPORTS ON FORM 8-K
None.
41
<PAGE>
INDEPENDENT AUDITORS' REPORT ON SCHEDULE
The Board of Directors and Stockholders
Spiegel, Inc.:
Under date of February 10, 1995, we reported on the consolidated balance sheets
of Spiegel, Inc., and subsidiaries as of December 31, 1994 and 1993, and the
related consolidated statements of earnings, stockholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 1994,
which are included elsewhere herein. In connection with our audits of the
aforementioned consolidated financial statements, we also audited the related
consolidated financial statement schedule as listed in Part IV, Item 14 (A) (2).
This financial statement schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion on this financial
statement schedule based on our audits.
In our opinion, such schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.
/S/ KPMG PEAT MARWICK LLP
Chicago, Illinois
February 10, 1995
42
<PAGE>
SCHEDULE II
SPIEGEL, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
($000s omitted)
<TABLE>
<CAPTION>
Year Ended December 31,
1994 1993 1992
----------- ------------ -----------
<S> <C> <C> <C>
ACCOUNTS RECEIVABLE VALUATION ACCOUNTS:
Allowance for doubtful accounts
Balance at beginning of year $46,855 $37,231 $50,776
Charged to earnings 79,183 69,160 48,802
Reduction for receivables sold (6,300) (1,609) (4,294)
Other (1) -- 695 --
Accounts written off, net of
recoveries (69,784) (58,622) (58,053)
----------- ------------ -----------
Balance at end of year $49,954 $46,855 $37,231
=========== ============ ===========
ALLOWANCE FOR RETURNS:
Balance at beginning of year $28,238 $23,960 $21,936
Charged to earnings 266,700 259,111 242,745
Amounts written off (267,176) (254,833) (240,721)
----------- ------------ -----------
Balance at end of year $27,762 $28,238 $23,960
=========== ============ ===========
<FN>
(1) Other represents the beginning balance of Newport News (formerly New
Hampton) which was acquired in 1993.
</TABLE>
43
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, Spiegel, Inc., has duly caused this Annual Report on Form 10-K to
be signed on its behalf by the undersigned, thereunto duly authorized, on
March 29, 1995.
SPIEGEL, INC.
By: /s/ John J. Shea
---------------------------------
John J. Shea, President and
Chief Executive Officer
(Principal Operating Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of Spiegel, Inc., and
in the capacities indicated on March 29, 1995.
<TABLE>
<CAPTION>
Signature Title
-------------------------- --------------------------------------------
<S> <C>
/s/ John J. Shea Vice Chairman, President, Chief Executive
-------------------------- Officer and Director (Principal Operating
John J. Shea Executive Officer)
/s/ James W. Sievers Chief Financial Officer and Vice President
------------------------- Finance (Principal Financial and
James W. Sievers Accounting Officer)
/s/ Kenneth A. Bochenski Director
-------------------------
Kenneth A. Bochenski
/s/ Thomas Bohlman Director
-------------------------
Thomas Bohlmann
/s/ Dr. Michael E. Crusemann Director
----------------------------
Dr. Michael E. Crusemann
/s/ Harold S. Dahlstrand Director
----------------------------
Harold S. Dahlstrand
/s/ David C. Moon Director
----------------------------
David C. Moon
/s/ Dr. Peter Muller Director
----------------------------
Dr. Peter Muller
</TABLE>
44
<PAGE>
Exhibit 21
SPIEGEL, INC.
LISTING OF SUBSIDIARIES
DECEMBER 31, 1994
<TABLE>
<CAPTION>
Name of Corporation Incorporated In
----------------------------------------------- -----------------
<S> <C>
Cara Corporation Illinois
Catalog 1, Inc. Delaware
Distribution Fulfillment Services, Inc. Delaware
Eddie Bauer, Inc. Delaware
Eddie Bauer International, Inc. (1) Delaware
Equity Cash Benefit Insurance Agency, Inc. Illinois
Equity Cash Benefit Insurance Agency, Inc. Nevada
First Consumers National Bank Federal Charter
For You, Inc. Delaware
Hampton Realty Acquisition Corporation (2) Delaware
Kids Stores, Inc. Delaware
Newport News, Inc. (formerly New Hampton, Inc.) Delaware
Spiegel Acceptance Corporation Delaware
Spiegel Credit Corporation Delaware
Spiegel Credit Corporation II Delaware
Spiegel Credit Corporation III Delaware
Eddie Bauer of Canada, Inc. (1) Canada
Spiegel Management Group, Inc. Delaware
Spiegel of Philadelphia, Inc. Pennsylvania
Spiegel Properties Inc. Delaware
Spiegel Publishing Company Illinois
Spiegel Teleservice, Inc. Illinois
Spiegel Teleservice, Inc. Nevada
Together Retail U.S.A., Inc. Delaware
Ultimate Outlet Inc. Delaware
<FN>
(1) Wholly-owned subsidiary of Eddie Bauer, Inc., a wholly-owned subsidiary of
Spiegel, Inc.
(2) Wholly-owned subsidiary of Newport News, Inc., a wholly-owned subsidiary
of Spiegel, Inc.
</TABLE>
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Spiegel, Inc.:
We consent to incorporation by reference in the registration statements No.
33-19663, 33-32385, 33-38478, 33-44780, 33-56200 and 33-51755 on Form S-8 of
Spiegel, Inc. of our report dated February 10, 1995, relating to the
consolidated balance sheets of Spiegel, Inc., and subsidiaries as of
December 31, 1994 and 1993, and the related consolidated statements of earnings,
stockholders' equity, and cash flows and related financial statement schedule
for each of the years in the three-year period ended December 31, 1994, which
reports appear in the December 31, 1994 annual report on Form 10-K of
Spiegel, Inc.
/S/ KPMG PEAT MARWICK LLP
Chicago, Illinois
March 29, 1995
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 33,439
<SECURITIES> 0
<RECEIVABLES> 1,175,682
<ALLOWANCES> 49,954
<INVENTORY> 597,781
<CURRENT-ASSETS> 1,908,402
<PP&E> 482,263
<DEPRECIATION> 147,160
<TOTAL-ASSETS> 2,560,287
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<COMMON> 108,207
0
0
<OTHER-SE> 471,010
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<SALES> 2,706,791
<TOTAL-REVENUES> 3,015,985
<CGS> 1,790,722
<TOTAL-COSTS> 1,790,722
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 79,183
<INTEREST-EXPENSE> 85,380
<INCOME-PRETAX> 47,246
<INCOME-TAX> 22,146
<INCOME-CONTINUING> 25,100
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 25,100
<EPS-PRIMARY> 0.23
<EPS-DILUTED> 0.23
</TABLE>
