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CONFORMED COPY
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K405
(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 30, 1995
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. X
----
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 22, 1996 was 14,604,844 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 99.8% 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 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 and
home furnishings at moderate price points.
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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>
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Wearing apparel 71% 73% 72%
Household furnishings
and other merchandise 29 27 28
------ ------ ------
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 FCNB.
SPIEGEL
Spiegel offers apparel, household furnishings and other merchandise
through its various catalogs and, to a lesser extent, Ultimate
Outlet retail stores. Spiegel sales were $1,168,959 and $1,202,548
for the years ended December 30, 1995 and December 31, 1994,
respectively. Spiegel is one of the largest catalog companies in
the United States and in 1995 distributed over 203 million catalogs
throughout the country. At December 30, 1995, Spiegel's customer
base included 5.9 million active customers (customers who have
purchased within the last 18 months).
Spiegel's apparel merchandise, which represented 51% of its sales
in 1995, includes private-label merchandise, developed by its
in-house product design teams based on emerging fashion trends and
customer. Spiegel also offers designer and branded apparel.
Spiegel's household furnishings and other merchandise, which
represented 49% of its sales in 1995, 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 semi annual catalog. A
shop is a focused merchandise assortment targeted to a specific
group of customers. 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
private-label apparel, home furnishings and accessories. Eddie
Bauer operates 411 retail stores in addition to catalog operations.
Total net sales were $1,427,422 and $1,231,306 for the years ended
December 30, 1995 and December 31, 1994, respectively. A key
strategy for Eddie Bauer is to leverage synergies between its
retail and catalog channels of distribution, maximizing
opportunities for cross-promotion. 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
casual apparel and accessories. Eddie Bauer also has other
specialty retail concepts that serve targeted niches including
Eddie Bauer HOME, which offers home furnishings through retail
stores and catalogs; AKA EDDIE BAUER, featuring dress sportswear
and tailored clothing, footwear and accessories for men and women
through retail stores and catalogs; 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 a joint-venture
arrangement with Otto-Sumisho, Inc. to sell its full line of Eddie
Bauer sportswear products through retail stores and catalogs in
Japan. There are currently seven stores with eight more planned
for 1996. During 1995, Eddie Bauer entered into an agreement with
Handelsgesellschaft Heinrich Heine GmbH and Sport-Scheck Gmbh (both
subsidiaries of Otto Versand) to form a joint venture to sell Eddie
Bauer products through retail stores and catalogs in Germany.
Eddie Bauer has also 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 RETAIL DIVISION
Eddie Bauer operates 365 retail and 46 outlet stores in the
United States and Canada. At December 30, 1995, 26 of these
stores were Eddie Bauer HOME Collection and 15 were AKA EDDIE
BAUER stores. 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. 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.
Growth in the retail division has been due principally to new
store openings and to the growth in its existing stores.
Comparable store sales were unchanged in 1995 and increased 4%
in 1994. In 1996, the Company is planning approximately 27
new store openings for Eddie
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Bauer. The average cost of opening a typical new Eddie Bauer
store in 1995, including inventory, furniture and fixtures,
pre-opening expenses and net leasehold improvements, was
approximately $800,00. 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.
EDDIE BAUER CATALOG DIVISION
In 1995, the Eddie Bauer catalog division distributed over 103
million catalogs and had approximately 3.1 million active
customers (those who had purchased within the last 18 months.)
As a corollary to its retail operations, Eddie Bauer catalog
concepts include its trademark Eddie Bauer Sportswear catalog,
Eddie Bauer HOME and AKA EDDIE BAUER, as well as its largest
catalog, Eddie Bauer Resource, combining all of its specialty
concepts in a single catalog. Eddie Bauer also actively
pursues new customers within its target market through
initiatives including 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 catalog 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 and in 1996, mailed its first catalog dedicated
primarily to home merchandise. Newport News' consolidated net
sales were $289,843 for the year ended December 30, 1995, as
compared to $272,937 for the year ended December 31, 1994. In
1995, Newport News mailed 174 million catalogs to active and
prospective customers. Newport News catalogs have a customer base
of 4.5 million active customers (those who had purchased within the
last 18 months.)
FCNB
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. The card is imprinted with a Spiegel, Eddie
Bauer, Newport News, 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. The accounts are serviced through FCNB's Beaverton, Oregon
headquarters. FCNB also issues MasterCard credit cards, which
represent approximately 6% of its outstanding cards.
Finance revenues generated by the credit operations were $208,304
in 1995, as compared to $232,267 in 1994. Approximately 50% of the
Company's 1995 total net sales were made on the FCNB Preferred
Charge card including approximately 76% of Spiegel catalog net
sales, 27% of Eddie Bauer's net sales, and 59% of Newport News' net
sales. The lower percentage of Eddie Bauer sales made on the
Preferred Charge card is attributable primarily
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to the relatively higher percentage of retail store sales at Eddie Bauer.
Catalog sales generally have a higher percentage of sales made on credit
compared to retail store sales.
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
for Spiegel, Eddie Bauer and Newport News. This system ensures 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.
The Company's transition to its new catalog distribution facility in
Groveport, Ohio and its common order processing systems is complete. The
Company believes the new facility, which serves the catalog fulfillment needs
of both Eddie Bauer and Spiegel, is among the most technologically advanced
catalog fulfillment systems in the United States, providing improved
productivity and customer service.
PRODUCT DEVELOPMENT AND SOURCING
The Company's product development and sourcing teams are a 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
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.
MERCHANDISE.
The Company sells domestically produced and imported merchandise, which it
purchases in the open market from approximately 7,600 suppliers, none of
which supplied as much as 5% of the merchandise purchased during 1995. 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,
6
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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", "AKA EDDIE BAUER", "Eddie Bauer HOME" and "Newport News." The
Company is also licensed to sell goods under the "Together!" label. With the
exception of the names "Spiegel", "Eddie Bauer", "AKA EDDIE BAUER", "Eddie Bauer
HOME", "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 1995, the Company employed between approximately 13,600 and 18,800 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, 1996, the Company employed approximately 13,200 full-
time equivalent employees.
Spiegel is a party to three collective bargaining agreements. Approximately 500
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 expired on February 29, 1996, was affected by the closure, in 1995, of
Spiegel's catalog distribution facility in Chicago. 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. The Company has negotiated a new agreement
with the union and believes it will be accepted by the general union membership.
This agreement would expire on February 28, 1999.
Approximately 140 full-time equivalent employees of certain Spiegel outlet
stores
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are covered by a separate agreement with Local 743. This agreement expires
on May 31, 1997. Approximately 250 full-time equivalent employees are
covered by an agreement with Teamsters Union 929 Philadelphia, affiliated
with the International Brotherhood of Teamsters, Chauffeurs, Warehousemen,
and Helpers of America. This agreement expired on January 31, 1996. A new
agreement has been signed effective February 1, 1996, which will expire on
January 31, 1999.
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 Chicago Eddie Bauer
store. A typical store lease is for a term of 10 years, with options for
renewal.
The Company's new Groveport, Ohio catalog fulfillment and distribution
facility, which was constructed on land owned by the Company, was completed
in 1994 and consolidates the majority of catalog fulfillment and distribution
functions of Spiegel and Eddie Bauer. The Company made provisions for the
closing of certain of its previous catalog distribution facilities, as
described in note 3 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 have
closed and will be disposed of or sold. In 1995, the Company purchased a four
million square-foot facility in Columbus, Ohio which replaces its previous
retail distribution facilities and performs certain catalog distribution
functions.
Eddie Bauer occupies office space in 9 buildings located in and around
Redmond, Washington, two of which are owned and seven of which are under
lease. Eddie Bauer built an addition to its headquarters in 1995. The
Company also owns a building in San Francisco, but has closed the retail
store which used to operate in it.
Spiegel leases customer order centers in Reno, Nevada; Bensalem,
Pennsylvania; 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.
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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.
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 22, 1996, the closing market 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 12,000 Class A Non-Voting Common Stockholders as of
March 22, 1996. 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 four Class B Voting Common
Stockholders.
c. DIVIDENDS
In December 1995, the Company announced it will discontinue payment of all cash
dividends. The Company will continue to evaluate its dividend policy on an
ongoing basis. Cash dividends per share paid for the years ended December 30,
1995 and December 31, 1994 are as follows:
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
------- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C>
1995 $.050 $.050 $.050 $.050 $.200
1994 $.050 $.050 $.050 $.050 $.200
</TABLE>
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ITEM 6. SELECTED FINANCIAL DATA
Five-Year Selected Financial Data
($000s omitted, except per share amounts)
<TABLE>
<CAPTION>
1995 1994 1993 (2) 1992 1991
----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
EARNINGS DATA
Net sales and
other revenues $3,184,184 $3,015,985 $2,596,147 $2,218,732 $1,976,308
Earnings (loss) before
income taxes (1) (15,807) 47,246 87,363 69,367 30,793
Net earnings
(loss) (3) $ (9,481) $ 25,100 $ 48,705 $ 43,224 $ 16,921
Net earnings (loss) per
common share(3,4) $ (.09) $ .23 $ .47 $ .42 $ .16
Cash dividends per
common share (4) $ .20 $ .20 $ .20 $ .18 $ .18
BALANCE SHEET DATA
Current assets $1,530,277 $1,908,402 $1,592,665 $1,302,838 $1,305,217
Total assets 2,273,982 2,560,287 2,210,591 1,785,213 1,728,163
Current liabilities 666,448 628,346 627,247 495,131 374,768
Long-term debt,
excluding
current maturities 1,014,692 1,300,364 971,683 764,235 841,196
Stockholders' equity $ 535,573 $ 579,217 $ 567,485 $ 478,345 $ 453,598
</TABLE>
(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). In August 1993, the Company purchased substantially all of the assets of
Newport News, Inc. for approximately $40 million. The operating results and
balance sheet data for Newport News are consolidated with the Company's from
this time forward.
(3). 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.
(4). Net earnings per common share and cash dividends per common share for 1991
and 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.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS ($000S OMITTED)
RESULTS OF OPERATIONS
The following table sets forth certain items from the Company's consolidated
financial statements as a percent of total revenues or net sales for the fiscal
years 1995, 1994 and 1993.
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Net sales and other revenues:
Net sales 90.7% 89.7% 90.0%
Finance revenue 6.5% 7.7% 7.5%
Other revenue 2.8% 2.6% 2.5%
-------- -------- --------
100.0% 100.0% 100.0%
Gross profit as a percent of net sales 32.9% 33.8% 34.3%
Selling, general and
administrative expenses as a
percent of total revenues 36.4% 36.2% 33.2%
</TABLE>
1995 COMPARED WITH 1994
Net sales for the year ended December 30, 1995 increased 7% to $2,886,225
compared with $2,706,791 for the year ended December 31, 1994. For the year
ended December 30, 1995, total Company catalog sales were $1,751,526, an
increase of 1% compared with the year ended December 31, 1994 due primarily to
higher average demand per order. This sales increase was achieved despite a 10%
decline in the number of catalogs circulated to offset higher paper and postage
costs. Retail sales of $1,134,699 for the year ended December 30, 1995
increased 18% compared with the year ended December 31, 1994. This increase
was due to a higher number of Eddie Bauer stores, 411 at December 30, 1995
compared to 353 at December 31, 1994, as Eddie Bauer's 1995 comparable store
sales were unchanged compared to 1994.
For the year ended December 30, 1995, finance revenue was $208,304 compared to
$232,267 for the year ended December 31, 1994. This decrease was due to a 19%
decline in average owned receivables outstanding offset by the effects of an
increase in the late fees and other fees charged to proprietary credit customers
as a result of a change in fee structure. Other revenue was $89,655 and $76,927
for the years ended December 30, 1995 and December 31, 1994, respectively, and
primarily comprises consulting revenue from the Company's computer consulting
subsidiary, handling charge fees, and gains recognized on the sale of customer
receivables.
Gross profit margin on net sales for the year ended December 30, 1995 was 32.9%
compared with 33.8% for the year ended December 31, 1994. The Company incurred
significant markdowns in the first half of 1995 to liquidate merchandise
overstocks created from soft demand for cold weather apparel in the fourth
quarter of 1994. In addition, the Company continues to experience a shift in
catalog sales from apparel merchandise, which has a relatively higher gross
profit margin, to home merchandise with a relatively lower gross
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profit margin. The fourth quarter saw a significant improvement in gross
profit margins, primarily for Eddie Bauer due to lower overstock positions
resulting in lower markdowns as compared to last year.
Selling, general and administrative expenses represented 36.4% of total
revenues for the year ended December 30, 1995 as compared to 36.2% for the
year ended December 31, 1994. There was a 14% increase in postal rates, and
paper prices rose more than 40% for the Company in 1995. In an effort to
minimize the effects of these increases, the Company took several measures
including reducing the number of catalogs circulated, utilizing lower paper
weights, and reducing the dimensions and page counts of the catalogs. In
addition, there has been an increase in the charge-off rate for the
proprietary credit card portfolio resulting from industry trends toward
higher charge-offs as well as a shift in the portfolio mix toward higher
levels of new credit accounts, which typically carry a higher credit risk
than the more matured segment of the portfolio. The effects of this increase
were mitigated by the favorable impact of the sale of customer receivables in
1995 as compared to 1994. Finally, the Company incurred higher warehouse
costs, especially in the first half of the year, related to the final
transition to the new catalog distribution facility and the start-up of the
new retail distribution facility. In the second half of the year, especially
the fourth quarter, the Company experienced cost savings in its distribution
operations as compared to prior years, and improvements in certain other
operating units, selling, general and administrative expense ratios due to
expense control programs.
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 $31,300 of
expenditures have been made to date, including certain termination benefits,
the impact on net periodic pension cost, and other incremental costs incurred
for closing the existing facilities. The Company added $2,400 to the reserve
in 1995 for additional costs in excess of the original estimate. The total
remaining reserve at December 30, 1995 include the noncash write-off of
property and equipment with an approximate book value of $5,000.
Interest expense for the year ended December 30, 1995 was $103,177, compared
to $85,380 for the year ended December 31, 1994. The increase was due in
almost equal proportions to higher debt levels and higher effective interest
rates. The increase in debt was used primarily to finance capital
expenditures and higher average inventory levels.
The effective tax rate for 1995 was 40.0% as compared to 46.9% in 1994. This
decrease was due to a reduction in the state effective tax rate, the relative
impact of the amortization of nondeductible goodwill as a percentage of loss
before taxes, and the effect of changes in estimates of previously provided
taxes.
12
<PAGE>
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 areas and certain categories of women's apparel as well as the
effect of a whole year of Newport News 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 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 card receivable portfolio throughout the 1994 period
compared to 1993. This increase was attributable to an increase in the number
of Preferred Charge accounts as a result of the successful introduction of
the Preferred Card to Newport News customers in 1994 and significant credit
customer acquisition efforts at Spiegel and Eddie Bauer. Other revenue for
the years ended December 31, 1994 and 1993 was $76,927 and $63,928,
respectively, and primarily comprises handling charge fees, consulting
revenue and, in 1994, a gain recognized on the sale of customer receivables.
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 year ended December 31, 1994 and 1993 were 36.2% and 33.2%,
respectively. This increase reflected 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 began initial shipments
out of the facility in 1994 and completed its transition during 1995.
Through December 31, 1994, approximately $23,000 of expenditures had been
made on the $39,000 reserve for the estimated impact of closing certain of
the Company's existing catalog distribution facilities including certain
termination benefits and the impact on net periodic pension cost.
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
13
<PAGE>
debt levels and by 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.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically met its operating and cash requirements through
funds generated from operations, the sale of customer receivables and the
issuance of debt. Customer accounts receivable sold were $1,180,000 and
$480,000 at December 30, 1995 and December 31, 1994, respectively.
Net cash provided by operating activities was $438,601 for the year ended
December 30, 1995 as compared to net cash used in operating activities of
$245,849 in the comparable prior year period. The most significant source of
operating cash in 1995 was the sale of $700,000 of customer receivables,
which was offset by a $316,752 increase in customer accounts receivable
before the current year's receivable sales. In 1994, there was significant
use of cash for an increase in customer receivables of $277,203 and an
increase in inventories of $162,526. These were partially offset by proceeds
from the sale of $150,000 customer receivables in 1994.
In the past three years, the Company has incurred substantial capital
expenditures to improve its infrastructure. Capital expenditures for 1995
and 1994 were $131,229 and $84,191, respectively. In 1994, the expenditures
were primarily related to the new catalog distribution center and the
continued expansion and remodeling of Eddie Bauer stores. In 1995, the
Company's capital expenditures were primarily related to the expansion of
Eddie Bauer including the purchase and renovation of a new retail
distribution facility, the construction of a headquarters addition, and
continued expansion and remodeling of Eddie Bauer stores. The majority of
those projects are completed and spending levels will be reduced
significantly in the coming years.
As of December 30, 1995, total debt was $1,126,364, compared with $1,380,684
as of December 31, 1994. This lower level of debt was primarily the result
of payments made on commercial paper using the proceeds from the sale of
customer receivables.
In March 1995, Statement of Financial Accounting Standards No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of, was issued. This statement establishes accounting
standards for the recognition of losses resulting from impairment of
long-lived assets to be held and used or to be disposed of. The statement
will be adopted by the Company in the 1996 fiscal year, as required.
Management believes that the effects of adoption of this statement will be
immaterial.
In October 1995, Statement of Financial Accounting Standards No. 123,
Accounting for Stock Based Compensation, was issued. This statement
establishes financial accounting and reporting standards for stock based
14
<PAGE>
employee compensation plans on a fair value based method. As allowed by the
new Statement, the Company plans to continue to use Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees" in
accounting for its stock options and will supplementally make pro forma
disclosures as if the fair value based method of accounting had been applied
according to the Statement. The Company will adopt the provisions of the
statement in 1996, as required.
The Company believes that its cash on hand, together with cash flow
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.
15
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CONSOLIDATED BALANCE SHEETS
($000s omitted, except per share amounts)
<TABLE>
<CAPTION>
December 30, December 31,
1995 1994
------------ --------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 42,302 $ 33,439
Receivables, net 742,480 1,125,728
Inventories 572,377 597,781
Prepaid expenses 101,324 80,970
Refundable income taxes 29,560 24,904
Deferred income taxes 42,234 45,580
------------- --------------
Total current assets 1,530,277 1,908,402
Property and equipment, net 412,934 335,103
Intangible assets, net 173,088 180,446
Other assets 157,683 136,336
------------- --------------
$2,273,982 $2,560,287
------------- --------------
------------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of debt $ 111,672 $ 80,320
Accounts payable 256,527 265,752
Accrued liabilities:
Salaries and wages 32,370 31,114
General taxes 125,504 118,266
Other accrued liabilities 140,375 132,894
------------- --------------
Total current liabilities 666,448 628,346
Long-term debt, excluding current maturities 994,692 1,300,364
Indebtedness to related parties 20,000 -
Deferred income taxes 57,269 52,360
------------- --------------
Total liabilities 1,738,409 1,981,070
------------- --------------
Stockholders' equity:
Class A non-voting common stock, $1.00 par
value; authorized 16,000,000 shares;
14,604,844 shares issued and outstanding
at December 30, 1995; 15,065,244 shares
issued and outstanding at December 31, 1994 14,605 15,065
Class B voting common stock, $1.00 par value;
authorized 94,000,000 shares; 93,141,654
shares issued and outstanding at
December 30, 1995 and December 31, 1994 93,142 93,142
Additional paid-in capital 211,761 215,800
Minimum pension liability (8,650) (566)
Retained earnings 224,715 255,776
------------- --------------
Total stockholders' equity 535,573 579,217
------------- --------------
$2,273,982 $2,560,287
------------- --------------
------------- --------------
</TABLE>
See accompanying notes to consolidated financial statements.
16
<PAGE>
CONSOLIDATED STATEMENTS OF EARNINGS
Years ended ($000s omitted, except per share amounts)
<TABLE>
<CAPTION>
December 30, December 31, December 31,
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
NET SALES AND OTHER REVENUES
Net sales $2,886,225 $2,706,791 $2,337,235
Finance revenue 208,304 232,267 194,984
Other revenue 89,655 76,927 63,928
------------ ------------ ------------
3,184,184 3,015,985 2,596,147
COST OF SALES AND OPERATING
EXPENSES
Cost of sales, including buying
and occupancy expenses 1,936,366 1,790,722 1,536,642
Selling, general and
administrative expenses 1,160,448 1,092,637 860,917
Nonrecurring charge - - 39,000
------------ ------------ ------------
3,096,814 2,883,359 2,436,559
Operating income 87,370 132,626 159,588
Interest expense 103,177 85,380 72,225
------------ ------------ ------------
Earnings (loss) before
income taxes (15,807) 47,246 87,363
Income tax provision (benefit) (6,326) 22,146 38,658
------------ ------------ ------------
Net earnings (loss) $ (9,481) $ 25,100 $ 48,705
------------ ------------ ------------
------------ ------------ ------------
EARNINGS PER COMMON SHARE
Net earnings (loss) per
common share $ (0.09) $ 0.23 $ 0.47
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements.
17
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
($000s omitted, except per share amounts)
<TABLE>
<CAPTION>
Treasury
stock -
Class A Class B Additional class A Minimum
non-voting voting paid-in Retained non-voting pension
Total common stock common stock capital earnings common stock liability
------- ------------ ------------ ---------- ---------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
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
($.20.per share) (20,298) (20,298)
Issuance of 3,627,600
common shares 61,705 3,628 58,077
Issuance of 109,220
treasury shares 627 144 483
Retirement of 1,027,776
treasury shares - (1,028) (3,525) 4,553
Adjustment to minimum
pension liability (1,599) (1,599)
------- ------------ ------------ ---------- ---------- ------------ ---------
BALANCES AT
DECEMBER 31, 1993 567,485 14,600 93,142 209,029 252,313 - (1,599)
Net earnings 25,100 25,100
Cash dividends
($.20 per share) (21,637) (21,637)
Issuance of 465,420
common shares 7,236 465 6,771
Adjustment to minimum
pension liability 1,033 1,033
------- ------------ ------------ ---------- ---------- ------------ ---------
BALANCES AT
DECEMBER 31, 1994 579,217 15,065 93,142 215,800 255,776 - (566)
Net loss (9,481) (9,481)
Cash dividends
($.20 per share) (21,580) (21,580)
Issuance of 39,600
common shares 243 40 203
Purchase & retirement
of 500,000
common shares (4,742) (500) (4,242)
Adjustment to minimum
pension liability (8,084) (8,084)
------- ------------ ------------ ---------- ---------- ------------ ---------
BALANCES AT
DECEMBER 30, 1995 $535,573 $ 14,605 $ 93,142 $ 211,761 $224,715 $ - $(8,650)
------- ------------ ------------ ---------- ---------- ------------ ---------
------- ------------ ------------ ---------- ---------- ------------ ---------
</TABLE>
See accompanying notes to consolidated financial statements.
18
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended ($000s omitted)
<TABLE>
<CAPTION>
December 30, December 31, December 31,
1995 1994 1993
------------- ------------- ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings (loss) $ (9,481) $ 25,100 $ 48,705
Adjustments to reconcile net earnings to
net cash provided by (used in)
operating activities:
Depreciation and amortization 76,155 54,607 45,766
Gain on sale of receivables (18,637) (10,658) -
Write-down of property and
equipment of certain
distribution facilities - - 6,500
Change in assets and liabilities,
net of effects of acquisition:
Sale of customer accounts receivable 700,000 150,000 32,756
Increase in receivables, net (316,752) (277,203) (209,800)
(Increase) decrease in inventories 25,404 (162,526) 2,447
Increase in prepaid expenses (20,354) (21,125) (1,272)
Increase (decrease)in accounts payable (9,224) 39,441 44,553
Increase in accrued liabilities 2,514 11,264 59,678
Increase (decrease) in income taxes 8,976 (54,749) (6,707)
------------ ------------- -------------
Total adjustments 448,082 (270,949) (26,079)
------------ ------------- -------------
Net cash provided by (used in)
operating activities 438,601 (245,849) 22,626
------------ ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of Newport News,net of cash acquired - - (39,492)
Net additions to property and equipment (131,229) (84,191) (104,489)
Net (additions to) or reductions of other
assets (18,110) 10,642 (61,944)
------------ ------------- -------------
Net cash used in investing activities (149,339) (73,549) (205,925)
------------ ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of debt 116,250 399,000 241,600
Payment of debt (370,570) (79,151) (56,550)
Dividends paid (21,580) (21,637) (20,298)
Purchase and retirement of common shares (4,742) - -
Issuance of common shares and other 243 7,236 62,332
------------ ------------- -------------
Net cash provided by (used in)
financing activities (280,399) 305,448 227,084
------------ ------------- -------------
Net change in cash and cash equivalents 8,863 (13,950) 43,785
Cash and cash equivalents at
beginning of year 33,439 47,389 3,604
Cash and cash equivalents ------------ ------------- -------------
at end of year $ 42,302 $ 33,439 $ 47,389
------------- ------------- -------------
------------- ------------- -------------
Supplemental cash flow information
Cash paid during the year for:
Interest $ 104,426 $ 85,723 $ 69,242
------------- ------------- -------------
Income taxes $ 6,092 $ 66,702 $ 41,035
------------- ------------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
19
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000s omitted, except per share amounts)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
Spiegel, Inc. is a multi-channel speciality retailer marketing fashionable
apparel and home furnishings through catalogs, specialty retail stores and
electronic media. The Company also operates a special purpose bank which issues
a proprietary credit card to the Company's customers.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
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. 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. 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
original 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 by
the first-in, first-out method.
ADVERTISING COSTS
Costs incurred for the production and distribution of direct response catalogs
are capitalized and amortized over the expected lives of the catalogs, which are
less than one year. Unamortized costs as of December 30, 1995 and December 31,
1994 were $65,343 and $51,524, respectively. All other advertising for both
catalog and retail operations is expensed as incurred. Total advertising
expense in the fiscal years 1995, 1994 and 1993 was $439,380, $430,180, and
$290,460, respectively.
STORE PREOPENING COSTS
Preopening and start-up costs for new stores are charged to operations as
incurred.
20
<PAGE>
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 4% 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.
INTANGIBLE ASSETS
Intangible assets represent principally trademarks and the excess of cost over
the fair market value of net assets of businesses purchased. On an annual
basis, the Company amortizes these intangibles on a straight-line basis 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 $64,099 and $55,843 at December 30, 1995 and December 31, 1994,
respectively. Management periodically considers whether there has been a
permanent impairment in the value of goodwill and trademarks by evaluating
various factors, including current and projected future operating results and
undiscounted cash flows. The Company does not believe there has been any
material impairment in the carrying value of its goodwill.
DERIVATIVE FINANCIAL INSTRUMENTS
The Company's current derivative positions consist of interest rate swaps. The
accounting treatment for these interest rate swaps is to record the net interest
paid as an adjustment to interest expense on a current basis. Gains or losses
resulting from market movements are not recognized.
SYSTEMS DEVELOPMENT COSTS
Significant systems development costs are capitalized and amortized on a
straight-line basis over a three year period. Costs, net of amortization,
included in other assets as of December 30, 1995 and December 31, 1994 were
$33,661 and $30,760, respectively. Related amortization expense recognized in
fiscal years 1995, 1994 and 1993 was $8,887, $4,069, and $2,736, respectively.
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
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 1995 presentation.
2. ACQUISITION
On August 27, 1993, the Company acquired substantially all of the assets of
Newport News, Inc. (formally New Hampton, Inc.) through a bankruptcy proceeding
for approximately $40
21
<PAGE>
million in cash. Newport News, Inc. is a specialty catalog company offering
fashionable, moderately priced women's apparel. The fair value of assets
acquired approximated the purchase price. Accordingly, goodwill has not been
recorded. The operating results of Newport News, Inc. subsequent to the
acquisition date are included in the consolidated financial statements of the
Company.
3. NONRECURRING CHARGES
During 1994 and 1995, the Company relocated certain of its catalog distribution
operations to a new facility in Groveport, Ohio, which consolidated 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 $31,300 of expenditures have been made to date, primarily
for certain employee termination benefits, the impact on net periodic pension
costs, and other incremental costs incurred for closing the existing facilities.
Included in the original reserve was $6,500 for the closing of certain
warehouse facilities and $1,500 of this was used in 1995. The remaining $5,000
is expected to be used in 1996. In 1995, $2,400 was added to the reserve for
additional costs expected in excess of the original reserve.
4. 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
average interest rate collected on the receivables approximates the current
market rates on new accounts. The allowance for credit card losses is based
upon management's evaluation of the collectibility of credit card receivables
after giving consideration to current delinquency data, historical loss
experience and general economic conditions. This allowance is continually
reviewed by management, however, the actual losses incurred may differ from
these estimates.
Receivables at December 30, 1995 and December 31, 1994 consist of the following:
<TABLE>
<CAPTION>
1995 1994
------------ --------------
<S> <C> <C>
Receivables serviced $2,001,081 $1,683,444
Receivables sold (1,180,000) (480,000)
------------ --------------
Receivables owned 821,081 1,203,444
Less allowance for returns (37,769) (27,762)
Less allowance for doubtful accounts (40,832) (49,954)
------------ --------------
Receivables, net $ 742,480 $1,125,728
------------ --------------
------------ --------------
</TABLE>
During 1995, 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 $700,000 in 1995,
under two separate transactions of $350,000 each, and $150,000 and $330,000 in
1994 and 1992, respectively. As a result of these transactions, other revenue
increased by $18,637 and $10,658 in 1995 and 1994, respectively, representing
the gain on only the sold receivables that existed at the date
22
<PAGE>
of the sale. The receivables were sold without recourse, and the bad debt
reserve related to the net receivables sold has been reduced accordingly.
Cash flows generated from the receivables in the trusts are, to the extent
allocable to the investor percentage, applied to payment of interest on the
certificates, reinvestment in additional receivables to maintain the
investors' percentage, 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 addition to the certificates sold, an additional class of investor
certificates, currently held by the Company, was issued by the trust in each
of the transactions in 1995 and 1994. The aggregate principle balances for
these certificates was $294,500 and $55,000 as of December 30, 1995 and
December 31, 1994, respectively. The value of these certificates is included
in the Company's balance sheet under "Receivables, net." The Company also
held a total of $49,400 at December 30, 1995 and December 31, 1994 in reserve
funds used as credit enhancement for related receivables sold during 1992.
Restricted cash accounts have been maintained for these reserve funds, none
of which has been utilized as of December 30, 1995. The value of these funds
has been included in the Company's balance sheet under "Other assets."
5. PROPERTY AND EQUIPMENT
Property and equipment at December 30, 1995 and December 31, 1994 consist of the
following:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Land $ 22,957 $ 19,685
Buildings and improvements 155,150 123,512
Equipment 232,147 182,921
Leasehold improvements 148,031 130,958
----------- -----------
558,285 457,076
Less accumulated depreciation
and amortization (171,791) (147,160)
----------- -----------
386,494 309,916
Construction in process 26,440 25,187
----------- -----------
Property and equipment, net $ 412,934 $335,103
----------- -----------
----------- -----------
</TABLE>
23
<PAGE>
6. LONG-TERM DEBT
The following is a summary of the Company's long-term debt at December 30,
1995 and December 31, 1994:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Notes payable:
Commercial paper, supported by
stand-by credit commitment $ 250,000 $504,000
Term loan agreements, 3.00% to 10.25%,
due March 22, 1996
through March 31, 2005 642,614 687,934
Indebtedness to related parties 45,000 -
Subordinated notes, 6.56% to 9.625%,
due June 28, 1996
through June 30, 2000 128,750 128,750
Secured notes, 7.25% to 7.35%,
due November 15, 2001 through
November 15, 2005 60,000 60,000
----------- -----------
Total long-term debt 1,126,364 1,380,684
Less current maturities of long-term debt (111,672) (80,320)
----------- -----------
Long-term debt, excluding current
maturities $1,014,692 $1,300,364
----------- -----------
----------- -----------
</TABLE>
The Company has a commercial paper program which is supported by an
irrevocable stand-by credit commitment of $600,000 with a group of 13 banks.
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 3/8 of 1% per year of outstanding borrowings and 1/4 of
1% of the total commitment. The effective annual interest rates were 6.8% in
1995 and 5.2% in 1994, including previously mentioned fees. At December 30,
1995, outstanding commercial paper of $250,000 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.
The Company also borrows funds under a letter of credit and revolving credit
facility of $300,000 with a group of 11 banks. 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. Fees
are currently 3/8 of 1% per year based on the total commitment. Borrowings
under this commitment were an average of $118,547 and a maximum of $206,000
during 1995 and an average of $47,844 and a maximum of $200,000 during 1994.
There was no outstanding usage under this facility at December 30, 1995 or
December 31, 1994.
In November 1995, the Company received a $45,000 term loan from its majority
shareholder, Spiegel Holdings, Inc. The loan bears interest at a variable
rate based on LIBOR plus a margin. Of the total outstanding principal
$25,000 will be paid in 1996 and $20,000 in 1997. The amount to be repaid in
1996 is included in the Company's balance sheet under "current maturities of
debt."
24
<PAGE>
The Company selectively uses interest rate swap contracts to hedge the
underlying interest risks on various term loans. At December 30, 1995, these
interest rate swap agreements had effective and termination dates from January
1993 to December 2009. At year-end 1995 and 1994, the notional principal
amounts of these agreements totaled $87,500 and $27,500, respectively. At
December 30, 1995, the fair value of these swap agreements, $7,454, was
obtained from financial institutions and represents the estimated amount the
Company would pay to terminate the agreements, taking into consideration current
interest rates and risk of the transaction. The fair value at December 31, 1994
was not material. The counterparties are expected to fully perform under the
terms of the agreements, thereby mitigating the risk from these transactions.
These interest rate swaps in total had an unfavorable impact on interest expense
of $234 and $565 in 1995 and 1994, respectively.
The Company has available uncommitted money market lines aggregating $75,000.
Usage under these lines averaged $5,832 during 1995 at various floating rates of
interest.
Additionally, the Company has letter of credit facilities to support the
purchase of inventories. Letter of credit commitments outstanding were $109,572
and $140,173 at December 30, 1995 and December 31, 1994, respectively.
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 30, 1995.
Aggregate maturities of long-term debt for the five years subsequent to December
30, 1995 are as follows: 1996, $111,672; 1997, $375,542; 1998, $162,900;
1999, $140,000; and 2000 and thereafter, $336,250.
7. EMPLOYEE BENEFIT PLANS
PROFIT SHARING AND THRIFT PLANS
Eligible salaried and hourly employees may participate in these plans.
Employees may elect to contribute a maximum of 10% of their pre-tax base salary
and 5% of their earnings after taxes, subject to limitations imposed by the
Internal Revenue Service.
The Company's annual contributions for the profit sharing plan are determined by
applying a formula to earnings before income taxes. Expense under this plan was
$8,314, $5,673 and $9,001 in 1995, 1994 and 1993, respectively.
The Company has thrift plans for its eligible salaried employees in which it
matches an employee's 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. The Company
contributes 25 cents for each dollar of employee contributions. Expense under
these plans was $6,612, $4,917 and $4,092 in 1995, 1994 and 1993, respectively.
STOCK OPTION PLAN
The Spiegel, Inc. Salaried Employees Incentive Stock Option Plan provides for
the issuance of options to purchase up to 1,900,000 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:
25
<PAGE>
<TABLE>
<CAPTION>
Shares Amount Average Price
----------- ---------- --------------
<S> <C> <C> <C>
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
Granted 274,500 2,222 8.09
Exercised (39,600) (243) (6.13)
Canceled (124,460) (2,532) (20.34)
----------- ---------- -------------
OUTSTANDING AT DECEMBER 30, 1995 1,363,260 $11,940 $ 8.76
----------- ---------- -------------
----------- ---------- -------------
EXERCISABLE AT DECEMBER 30, 1995 866,820 $ 6,975 $ 8.05
----------- ---------- -------------
----------- ---------- -------------
</TABLE>
Total stock options authorized but unissued at December 30, 1995 were 182,260.
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 and the pension benefit obligation. The plan assets consist
primarily of high quality common stock and bond funds. 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 30, 1995, December
31, 1994 and December 31, 1993 is computed as follows:
<TABLE>
<CAPTION>
1995 1994 1993
--------- -------- --------
<S> <C> <C> <C>
Service cost $ 397 $ 433 $ 940
Interest cost 4,413 4,340 3,562
Return on plan assets (7,049) 1,719 (7,448)
Net amortization and deferral 3,509 (5,517) 16,046
--------- -------- --------
Net periodic pension cost $ 1,270 $ 975 $13,100
--------- -------- --------
--------- -------- --------
</TABLE>
Weighted average assumptions used in accounting for obligations and assets were
as follows:
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Discount rate 7.75% 9.0%
Expected long-term rate of return on assets 9.0% 9.0%
</TABLE>
26
<PAGE>
The following table sets forth the plans' funded status at December 30, 1995 and
December 31, 1994:
<TABLE>
<CAPTION>
1995 1994
Union Non-Union Union Non-Union
Plan Plan Plan Plan
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Accumulated and projected
benefit obligation:
Vested $ 45,362 $ 10,968 $ 41,145 $ 8,519
Non-Vested 1,260 231 1,864 207
--------- --------- --------- ---------
Total 46,622 11,199 43,009 8,726
Market value of plan assets 32,525 9,993 39,079 9,504
--------- --------- --------- ---------
Over (under) funded projected
benefit obligation (14,097) (1,206) (3,930) 778
Unrecognized net transition liability 736 1,272 1,106 1,484
Unrecognized net loss from
past experience different from
that assumed and effects
of changes in assumptions 12,291 2,087 923 68
Additional liability required to
recognize minimum liability (13,028) (3,359) (2,029) -
--------- --------- --------- ---------
Prepaid (accrued) pension cost
in the balance sheet $(14,098) $(1,206) $(3,930) $2,330
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
27
<PAGE>
POSTRETIREMENT 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 30, 1995 and December 31, 1994:
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Retirees $5,290 $1,394
Fully eligible active plan participants 1,186 2,124
Other active plan participants 4,959 4,041
------- -------
Total 11,435 7,559
Unrecognized prior service cost (1,727) (715)
Unrecognized gain (loss) (2,379) 154
------- -------
Accrued postretirement benefit cost
in the balance sheet $7,329 $6,998
------- -------
------- -------
</TABLE>
The net periodic postretirement benefit cost for the years ended December 30,
1995, December 31, 1994 and December 31, 1993 is computed as follows:
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Service cost $ 629 $ 616 $ 352
Interest cost 804 583 496
Net amortization and deferral 141 56 -
-------- -------- --------
Net periodic postretirement benefit cost $1,574 $1,255 $ 848
-------- -------- --------
-------- -------- --------
</TABLE>
For measurement purposes, an 11% and 12% annual rate of increase in the per
capita cost of covered benefits (i.e., health care cost trend rate) was assumed
for 1995 and 1994, 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 30, 1995 by $864 and the aggregate of the service and interest cost
components of net periodic postretirement benefit cost for the year ended
December 30, 1995 by $178.
The weighted average discount rates used in determining the accumulated
postretirement benefit obligation were 7.75% and 9.0% at December 30, 1995 and
December 31, 1994, respectively.
28
<PAGE>
8. INCOME TAXES
The components of income tax expense (benefit) for the years ended December 30,
1995, December 31, 1994 and December 31, 1993 are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Current $(20,117) $11,506 $67,223
Deferred 13,791 10,640 (28,565)
-------- -------- --------
$ (6,326) $22,146 $38,658
-------- -------- --------
-------- -------- --------
</TABLE>
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 30, 1995, December 31, 1994 and December 31, 1993 are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
Amount Percent Amount Percent Amount Percent
-------- ------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Statutory rate $(5,532) (35.0)% $16,536 35.0% $30,577 35.0%
State income tax (net of
federal income tax benefit) (1,027) (6.5) 3,728 7.9 5,851 6.7
Amortization of non-
deductible goodwill 1,885 11.9 1,882 4.0 1,970 2.2
Changes in estimates of
previously provided taxes (1,652) (10.4) - - - -
Change in statutory rate - - - - 260 0.3
-------- ------- -------- ------- -------- -------
Effective tax rate $(6,326) (40.0)% $22,146 46.9% $38,658 44.2%
-------- ------- -------- ------- -------- -------
-------- ------- -------- ------- -------- -------
</TABLE>
29
<PAGE>
Significant components of the Company's deferred tax assets and liabilities at
December 30, 1995 and December 31, 1994 are as follows:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts $15,324 $ 18,491
Allowance for the gross profit
on estimated future returns 13,191 12,872
Reserve for distribution facility
and store closings 6,541 7,251
Compensated absences accruals 4,523 5,053
Reserve for self insurance 1,338 960
Pension liability 5,720 184
Deferred rent obligation 159 740
Postretirement benefit obligation 3,038 3,003
Capitalized overhead in inventory 4,366 9,471
Other 3,355 2,028
---------- ----------
Total deferred tax assets 57,555 60,053
---------- ----------
Deferred tax liabilities:
Property and equipment 49,171 47,715
Prepaid and deferred expenses 6,250 7,035
Gain on sale of accounts receivable 10,531 7,075
Earned but unbilled finance charges 5,871 3,694
Other 767 1,314
---------- ----------
Total deferred tax liabilities 72,590 66,833
---------- ----------
Net deferred tax liabilities $(15,035) $(6,780)
---------- ----------
---------- ----------
</TABLE>
9. 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 3% to 5%. Rental expense for all operating leases was $124,183
in 1995, $100,394 in 1994 and $87,177 in 1993.
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 30, 1995:
<TABLE>
<CAPTION>
Amount
---------
<S> <C>
1996 $121,199
1997 $112,010
1998 $102,652
1999 $ 92,966
2000 and thereafter $446,425
</TABLE>
30
<PAGE>
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.
10. STOCKHOLDERS' EQUITY
In December 1995, the Company announced it will discontinue payment of all cash
dividends. The Company will continue to evaluate its dividend policy on an
ongoing basis.
During the first six months of 1995, the Company purchased and retired 500,000
shares of Class A non-voting common stock at market value for a total cost of
$4,742. Accordingly, common stock was decreased by $500 representing the par
value of the shares and additional paid-in capital was decreased by
approximately $4,242 for the difference between the purchase price and the par
value.
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.
31
<PAGE>
STATEMENT OF MANAGEMENT RESPONSIBILITY
We have prepared the accompanying consolidated financial statements and related
information for the years 1995, 1994 and 1993. 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.
32
<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 30, 1995 and December 31, 1994, and the related
consolidated statements of earnings, stockholders' equity and cash flows for
each of the years in the three-year period ended December 30, 1995. 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 30, 1995 and December 31, 1994, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 30, 1995 in conformity with generally accepted accounting
principles.
/s/ KPMG PEAT MARWICK LLP
Chicago, Illinois
February 9, 1996
33
<PAGE>
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
($000s omitted, except per share amounts)
<TABLE>
<CAPTION>
1995 First Second Third Fourth Year End
- ------------------ ------------ ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
Net sales and
other revenues $679,627 $699,280 $685,923 $1,119,354 $3,184,184
Operating income
(loss) 9,661 (2,873) (13,773) 94,355 87,370
Net earnings (loss) $ (9,415) $(14,860) $(22,618) $ 37,412 $ (9,481)
Net earnings (loss)
per common share $ (.09) $ (.14) $ (.21) $ .35 $ (.09)
Weighted average
common shares
outstanding 108,152,162 107,716,627 107,736,680 107,746,498 107,837,992
MARKET PRICE DATA
High $ 10 1/2 $ 13 7/8 $ 13 5/8 $ 11 $ 13 7/8
Low $ 8 7/8 $ 8 3/4 $ 10 $ 6 7/8 $ 6 7/8
1994
- ------------------
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
</TABLE>
34
<PAGE>
PART III
ITEM 11. 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) 52 Chairman of the Board of Directors 1982
and Chairman of the Board of Directors of
Otto Versand (GmbH & Co).
John J. Shea (1)(3) 57 Vice Chairman of the Board of Directors, 1983
President and Chief Executive Officer
Kenneth A. Bochenski 53 Senior Vice President - Operations and 1987
Information Services
Thomas Bohlmann 50 Board of Directors and Director - Planning 1989
and Control of Otto Versand (GmbH & Co)
Dr. Michael E. Crusemann (2)(3) 50 Board of Directors and Chief Financial 1994
Officer of Otto Versand Group (1995);
Deputy Director of Finance of Otto Versand
(GmbH & Co) (1985)
Harold S. Dahlstrand 51 Senior Vice President - Human Resources 1994
Hans-Christoph Fischer 57 Board of Directors and Director - 1982
Merchandise of Otto Versand (GmbH & Co)
Hans-Jorg Hammer 56 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) 61 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) 60 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 53 Executive Vice President 1991
Dr. Peter Muller (1) 54 Board of Directors and Director - 1985
Advertising and Marketing of Otto Versand
(GmbH & Co)
35
<PAGE>
Dr. Peer Witten 50 Board of Directors and Director - 1991
Operations of Otto Versand (GmbH & Co)
</TABLE>
(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.
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, 1996.
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 57 Vice Chairman (1989), President and Chief Executive
Officer (1985) and Director (1983)
James W. Sievers 53 Senior Vice President - Finance (1995) and
Chief Financial Officer (1994); Vice
President - Finance (1990); Senior Vice
President - Finance and Operations and
Director of Eddie Bauer (1988)
Kenneth A. Bochenski (1) 53 Senior Vice President - Operations and
Information Services (1987) and Director (1987)
Harold S. Dahlstrand 51 Senior Vice President - Human Resources (1993);
Vice President - Human Resources (1985); and
Director (1994)
David C. Moon (1) 53 Executive Vice President (1994); Senior Vice
President- Merchandise (1990); Vice President -
Merchandise (1987) and Director (1991)
James J. Broderick 42 Vice President - Merchandising (1993);
Divisional Vice President - Merchandise
(1992); General Merchandise Manager
(1991); Merchandise Manager (1988)
Robert E. Conradi 52 Vice President - Merchandising (1987)
36
<PAGE>
Davia L. Kimmey 42 Vice President - Advertising (1992); Vice President
Advertising and Marketing of Eddie Bauer (1990);
Divisional Vice President
- Advertising of Eddie Bauer (1988)
Stanley D. Leibowitz 44 Vice President - Corporate Planning (1988)
Alois J. Lohn 61 Vice President - Manufacturing (1990); Vice
President - Manufacturing of Jones New York (1989)
Michael R. Moran 49 Vice President, Secretary & General Counsel (1988)
Karl A. Steigerwald 49 Vice President - Marketing (1992); Vice President -
Marketing and Information Services (1991)
John R. Steele 43 Divisional Vice President and Treasurer
(1995); Treasurer (1993); Corporate
Finance Director of Deutsche Bank (1992);
Vice President of Deutsche Bank (1988)
Richard T. Fersch 46 President and Chief Operating Office of
Eddie Bauer (1992); Executive Vice
President - Merchandising and Marketing of
Eddie Bauer (1992); Senior Vice President
- Store of Eddie Bauer (1989)
George D. Ittner 52 President and Chief Operating Officer -
Newport News (1992); Executive Vice
President and General Manager - Avon
Fashions (1985)
</TABLE>
(1) In March 1996, Kenneth A. Bochenski and David C. Moon announced they
would retire from the Company. Each will resign from the Board of Directors
in April 1996.
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, 1996.
There is no family relationship between any of the officers.
37
<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 30, 1995, December 31, 1994 and December 31, 1993
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 1995 $600,000 $ - 100,000 (2) $157,732
Vice Chairman 1994 600,000 236,250 -- 145,667
President, Chief 1993 550,000 605,500 125,000 143,218
Executive Officer
and Director
Richard T. Fersch 1995 415,000 466,875 50,000 68,789
President of 1994 400,000 150,000 10,000 79,741
Eddie Bauer 1993 304,225 274,560 5,000 59,886
David C. Moon 1995 270,000 - 10,000 72,387
Executive Vice 1994 240,000 70,900 5,000 55,862
President - 1993 220,000 183,000 5,000 64,923
Merchandise and
Director
George D. Ittner 1995 330,000 - 5,000 24,612
President of 1994 299,156 99,750 5,000 3,696
Newport News, Inc. 1993 (3) 100,000 - - -
Alois J. Lohn 1995 285,000 - - 82,078
Vice President, 1994 285,000 85,500 3,000 66,291
Manufacturing 1993 275,000 168,500 3,000 80,682
</TABLE>
(1) The following tables summarize all other compensation for the years ended
December 30, 1995, December 31, 1994 and December 31, 1993:
(2) The options granted to John J. Shea in 1995 represent a repricing of 100,000
of the options granted to him in 1993.
(3) Newport News, Inc. was acquired by the Company in August, 1993.
Compensation represented for George D. Ittner is from this time on in 1993.
38
<PAGE>
<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>
1995 John J. Shea $73,401 $38,168 $6,000 $33,413 $6,750 $157,732
Richard T. Fersch 14,515 33,514 14,010 - 6,750 68,789
David C. Moon 14,680 25,300 6,000 19,657 6,750 72,387
George D. Ittner - 17,998 - 1,994 4,620 24,612
Alois J. Lohn 22,020 25,602 6,000 21,706 6,750 82,078
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
George D. Ittner - - - - 3,696 3,696
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 $143,218
Richard T. Fersch 24,810 17,294 11,036 - 6,746 59,886
David C. Moon 5,685 17,411 13,018 22,063 6,746 64,923
George D. Ittner - - - - - -
Alois J. Lohn 13,317 17,644 12,928 30,047 6,746 80,682
</TABLE>
OPTION GRANTS TABLE
The following table sets forth grants of stock options to the named executive
officers during the year ended December 30, 1995 and the potential realizable
value of the grants assuming that the market price of the underlying stock
appreciates in value from the date of grant to the end of the option term at the
stipulated annual rates of 5% and 10%:
<TABLE>
<CAPTION>
Number
of Potential Realizable
Securities Percent of Value at Assumed
Under- Total Options Annual Rates of Stock
lying Granted to Price Appreciation
Options Employees Exercise Expiration for Option
Name Granted in 1995 Price Date 5% ($) 10% ($)
- ------------------ --------- ----------- --------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
John J. Shea 100,000 36% $ 10.00 12/30/04 $628,895 $1,593,742
Richard T. Fersch 50,000 18% 7.00 12/29/05 220,113 557,810
David C. Moon 10,000 4% 7.00 12/29/05 44,023 111,562
George D. Ittner 5,000 2% 7.00 12/29/05 22,011 55,781
Alois J. Lohn - - - - - -
</TABLE>
The stock options granted become exercisable at the rate of 20% per year from
the date of the grant.
39
<PAGE>
AGGREGATED OPTION EXERCISES IN 1995 AND DECEMBER 30, 1995 OPTION VALUES
The following table sets forth shares acquired on exercise and stock option
values at December 30, 1995:
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Shares Options at at
Acquired December 30, 1995 December 30, 1995
On Value Exercise- Unexercise- Exercise- Unexercise-
Name Exercise Realized able able able able
- ------------------ -------- -------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
John J. Shea 20,000 $265,000 239,000 119,000 $117,460 $ 3,500
Richard T. Fersch - - 21,600 63,800 2,700 525
David C. Moon - - 48,600 21,400 45,445 875
George D. Ittner - - 1,000 9,000 - -
Alois J. Lohn - - 10,600 5,400 3,350 525
</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.
REPORT OF REPRICING OF OPTIONS
The following table sets forth a transaction which in effect reprices certain
options granted. This transaction was approved by the Board of Directors and
the Stock Option Committee.
<TABLE>
<CAPTION>
Length of
Number of Market Price Exercise Original
Securities of Stock at Price at Option Term
Underlying Time of Time of Remaining at
Options Repricing or Repricing or New Date of
Repriced or Amendment Amendment Exercise Repricing or
Name Date Amended (#) $ $ Price ($) Amendment
- -------------- ------- -------------- ------------ ------------ --------- -------------
<S> <C> <C> <C> <C> <C> <C>
John J. Shea 5/10/95 100,000 $10.00 $22.75 $10.00 8 years
</TABLE>
40
<PAGE>
EMPLOYMENT AGREEMENT
The 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 current 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
1,900,000 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 $8.09. Net cash realized with respect to the exercise of
options during the year was approximately $243,000.
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, FCNB and Distribution Fulfillment Services ("DFS").
Participation commences on the beginning of a quarter following one
year of continuous service. The Company and participating
subsidiaries contribute annually to the plan 8% of the first $100
million of Spiegel consolidated earnings before income taxes, plus
6.75% of the second $100 million of Spiegel consolidated earnings
before income taxes, plus 4.5% of Spiegel consolidated earnings
before income taxes in excess of $200 million plus any other
amounts determined by the Company's Board of Directors. A minimum
total contribution of 1-1/2% of eligible considered compensation
will be made,
41
<PAGE>
but in no event will the total contribution exceed the maximum
amount deductive for Federal income tax purposes. Company
contributions and forfeitures are allocated among eligible
participants in proportion to considered 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.
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
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
seven years. Participants who suffer a financial hardship as
defined by the Internal Revenue Code may withdraw amounts from the
plan while still employed. Repayment is made through payroll
deductions. In addition, participants may annually receive a
distribution of their after-tax contributions. 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 or reaching
retirement age.
42
<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 1995, approximately
$6,340,000 was paid under these bonus plans.
NEWPORT NEWS, INC. RETIREMENT SAVINGS PLAN
Newport News has a retirement savings plan covering its associates.
Associates become eligible as of the beginning of the calendar
quarter following completion of one year of service. Associates
may elect to contribute up to 10% of their compensation to the plan
on a pre-tax basis under Section 401(k) of the Internal Revenue
Code. The associate may also elect to make nondeductible after-tax
contributions to the plan of up to 5% of their compensation. 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,
43
<PAGE>
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.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
a. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Spiegel Holdings, Inc. (SHI) holds 99.8% 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 22, 1996, was four.
<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) 92,991,374 Class B 99.8%
The Corporation Voting
Trust Center Common
1209 Orange Street Stock
Wilmington, DE 19801
</TABLE>
(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.
b. SECURITY OWNERSHIP OF MANAGEMENT
As of March 22, 1996, 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 Non-Voting Common Stock granted
by the Company to such officers, which are exercisable as of, or first become
exercisable within 60 days after, March 22, 1996.
44
<PAGE>
<TABLE>
<CAPTION>
Amount and
Name of Nature of
Title Beneficial Beneficial Acquirable Percent
of Class Owner Ownership (1) Within 60 Days of Class
- -------- -------------------- ------------- -------------- ------------
(I) (II) (III)
<S> <C> <C> <C> <C>
Class A Richard T. Fersch 25,200 21,600 *
Class A Karl-August Hopmann 15,000 0 *
Class A George D. Ittner 2,400 1,000 *
Class A Alois J. Lohn 284,600 10,600 1.9%
Class A David C. Moon 54,100 48,600 *
Class A Dr. Peter Muller 10,000 0 *
Class A John J. Shea 351,000 239,000 2.4%
Class A All directors and 1,126,325 605,400 7.7%
officers as a group
(24 persons)
</TABLE>
(1) Includes shares which may be acquired within 60 days under the Company's
Stock Option Plan.
* Less than 1%.
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. 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
$3,720,000 in 1995, $4,445,000 in 1994 and $4,126,000 in 1993. 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 retail stores. Otto Versand owns a 50% interest in
Together, Ltd. Commission expenses incurred on this account were $5,755,000,
$8,012,000 and $7,417,000 in 1995, 1994, and 1993, respectively. These
expenses include certain production services, the cost of which would
normally be borne by the Company,
45
<PAGE>
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 1993. Three retail stores were opened in the
Fall of 1994, and another four retail stores were opened during 1995. 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. To date, Eddie Bauer has contributed $8,900,000 to the project and in
1994, received a $2,500,000 licensing fee for the use of its name. Eddie
Bauer received $1,717,000 and $246,000 in royalty income on retail sales
during 1995 and 1994, respectively. Eddie Bauer recorded approximately
$673,000 and $780,000 for its share of the equity losses of the joint venture
during 1995 and 1994, respectively.
During 1995, Eddie Bauer entered into an agreement with Handelsgesellschaft
Heinrich Heine GmbH and Sport-Scheck Gmbh (both subsidiaries of Otto Versand)
to form a joint venture to sell Eddie Bauer products through retail stores
and catalogs in Germany. The joint venture and license agreements were
executed on June 6, 1995. 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
$2,330,000 to the project and has received $1,000,000 in licensing fees for
the use of its name. Eddie Bauer recorded approximately $98,000 for its
share of equity losses of the joint venture during 1995. Retail stores are
scheduled to open in late 1996.
In addition in 1994 and 1995 Eddie Bauer participated 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. This arrangement has ceased operating with the advent
of the joint venture discussed above. The Company believes that the terms of
the arrangement were no less favorable to Eddie Bauer than would have been
the case in an arrangement with an unrelated third party. During 1995 and
1994, respectively, Eddie Bauer received approximately $296,000 and $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
$13,707,000 and $11,056,000 for these services in 1995 and 1994, respectively.
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 Newport News 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: Dr. Michael Otto (4); Thomas
Bohlmann (3); Hans-Christoph Fischer (4); Hans-Jorg Hammer (4); Dr. 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
46
<PAGE>
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 Dr. Michael Crusemann (4). In
December, 1995, 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.
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.
47
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K
Page
A. 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets 16
Consolidated Statements of Earnings 17
Consolidated Statements of Stockholders' Equity 18
Consolidated Statements of Cash Flows 19
Notes to Consolidated Financial Statements 20-
31
Independent Auditors' Report 33
Selected Quarterly Financial Data 34
2. FINANCIAL STATEMENT SCHEDULE
Independent Auditors' Report on Schedule 50
Schedule II--Valuation and Qualifying Accounts 51
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.
48
<PAGE>
3. EXHIBITS
Exhibit
Number Description of Exhibit
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, 33-51755 and 33-
65469) (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
(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.
B. REPORTS ON FORM 8-K
None.
49
<PAGE>
INDEPENDENT AUDITORS' REPORT ON SCHEDULE
The Board of Directors and Stockholders
Spiegel, Inc.:
Under date of February 9, 1996, we reported on the consolidated balance sheets
of Spiegel, Inc., and subsidiaries as of December 30, 1995 and December 31,
1994, and the related consolidated statements of earnings, stockholders' equity,
and cash flows for each of the years in the three-year period ended December 30,
1995, 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 9, 1996
50
<PAGE>
SCHEDULE II
SPIEGEL, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED
($000s omitted)
<TABLE>
<CAPTION>
December 30, December 31, December31,
1995 1994 1993
---------- ----------- ----------
<S> <C> <C> <C>
ACCOUNTS RECEIVABLE VALUATION ACCOUNTS
ALLOWANCE FOR DOUBTFUL ACCOUNTS
Balance at beginning of year $49,954 $46,855 $37,231
Charged to earnings 91,612 79,183 69,160
Reduction for receivables sold (33,600) (6,300) (1,609)
Other (1) - - 695
Accounts written off, net of
recoveries (67,134) (69,784) (58,622)
---------- ----------- ----------
Balance at end of year $40,832 $49,954 $46,855
---------- ----------- ----------
---------- ----------- ----------
ALLOWANCE FOR RETURNS
Balance at beginning of year $27,762 $28,238 $23,960
Charged to earnings 274,331 266,700 259,111
Amounts written off (276,390) (267,176) (254,833)
Other (2) 12,066 - -
----------- ------------ -----------
Balance at end of year $37,769 $27,762 $28,238
---------- ----------- ----------
---------- ----------- ----------
</TABLE>
(1) Other represents the beginning balance of Newport News (formerly
New Hampton) which was acquired in 1993.
(2) Other represents an adjustment to the allowance for returns to
provide for the effect of an increase in sales activity on the
Company's proprietary card.
51
<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, 1996.
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, 1996.
<TABLE>
<CAPTION>
Signature Title
- -------------------------- ------------------------------------------
<S> <C>
/s/ John J. Shea Vice Chairman, President, Chief Executive
John J. Shea Officer and Director (Principal Operating
Executive Officer)
/s/ James W. Sievers Senior Vice President - Finance and Chief
James W. Sievers Financial Officer (Principal Financial
and Accounting Officer)
/s/ Kenneth A. Bochenski Director
Kenneth A. Bochenski
/s/ Thomas Bohlmann 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>
52
<PAGE>
EXHIBIT 21
SPIEGEL, INC.
LISTING OF SUBSIDIARIES
December 30, 1995
<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 of Canada, Inc. (1) Canada
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
S.I. Reinsurance Limited Turks & Caicos
Spiegel Acceptance Corporation Delaware
Spiegel Credit Corporation Delaware
Spiegel Credit Corporation II Delaware
Spiegel Credit Corporation III Delaware
Spiegel International, Inc. Delaware
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
</TABLE>
(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.
53
<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 reports dated February 9, 1996, relating to the
consolidated balance sheets of Spiegel, Inc. and subsidiaries as of December
30, 1995 and December 31, 1994, 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 30, 1995, which reports appear in the December 30, 1995 annual
report on Form 10-K of Spiegel, Inc.
/S/ KPMG PEAT MARWICK LLP
Chicago, Illinois
March 26, 1996
54
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