<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-02-1999
<PERIOD-END> JUL-04-1998
<CASH> 32,229
<SECURITIES> 0
<RECEIVABLES> 513,513
<ALLOWANCES> 15,367
<INVENTORY> 494,918
<CURRENT-ASSETS> 1,153,214
<PP&E> 601,082
<DEPRECIATION> 228,453
<TOTAL-ASSETS> 1,784,688
<CURRENT-LIABILITIES> 532,173
<BONDS> 634,536
<COMMON> 131,714
0
0
<OTHER-SE> 472,538
<TOTAL-LIABILITY-AND-EQUITY> 1,784,688
<SALES> 1,150,457
<TOTAL-REVENUES> 1,274,599
<CGS> 805,773
<TOTAL-COSTS> 805,773
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 32,286
<INCOME-PRETAX> (44,805)
<INCOME-TAX> (19,298)
<INCOME-CONTINUING> (25,507)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (25,507)
<EPS-PRIMARY> (0.27)
<EPS-DILUTED> (0.27)
</TABLE>
<PAGE>
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
/X/ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarter ended July 4, 1998
or
/ / Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ............. to ...............
Commission file number 0-16126
SPIEGEL, INC.
(Exact name of registrant as specified in its charter)
Delaware 36-2593917
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3500 Lacey Road, Downers Grove, Illinois 60515-5432
(Address of principal executive offices) (Zip Code)
630-986-8800
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
The number of shares outstanding of each of the issuer's classes of common
stock, as of August 14, 1998 are as follows:
Class A non-voting common stock, $1.00 par value
14,703,964 shares
Class B voting common stock, $1.00 par value
117,009,869 shares.
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
<PAGE>
SPIEGEL, INC. AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Consolidated Balance Sheets, July 4, 1998 and January 3, 1998
Consolidated Statements of Earnings,
Thirteen and Twenty-six Weeks Ended July 4, 1998 and June 28, 1997
Consolidated Statements of Cash Flows,
Twenty-six Weeks Ended July 4, 1998 and June 28, 1997
Notes to Consolidated Financial Statements
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
Item 3 - Quantitative and Qualitative Disclosures About Market Risk
Not Applicable
- ------------------------------------------------------------------------------
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<PAGE>
Spiegel, Inc. and Subsidiaries
Consolidated Balance Sheets
($000s omitted, except per share amounts)
July 4, 1998 and January 3, 1998
<TABLE>
<CAPTION>
(unaudited)
July 4, January 3,
1998 1998
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 32,229 $ 47,582
Receivables, net 498,146 563,376
Inventories 494,918 508,756
Prepaid expenses 87,737 89,137
Refundable income taxes 10,313 6,064
Deferred income taxes 29,871 29,908
------------ ------------
Total current assets 1,153,214 1,244,823
Property and equipment, net 372,629 394,822
Intangible assets, net 157,991 159,016
Other assets 100,854 150,893
------------ ------------
Total Assets $ 1,784,688 $ 1,949,554
------------ ------------
------------ ------------
LIABILITIES and STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of debt $ 138,614 $ 102,900
Accounts payable 160,954 238,723
Accrued liabilities:
Salaries and wages 20,785 37,305
General taxes 101,735 120,345
Allowance for returns 22,339 37,094
Other accrued liabilities 87,745 98,362
------------ ------------
Total current liabilities 532,172 634,729
Long-term debt, excluding current maturities 619,536 713,750
Indebtedness to related parties 15,000 --
Deferred income taxes 13,728 32,982
------------ ------------
Total liabilities 1,180,436 1,381,461
Stockholders' equity:
Class A non-voting common stock,
$1.00 par value; authorized 16,000,000
shares; issued 14,703,964 shares
at July 4, 1998 and 14,660,464 at
January 3, 1998 14,704 14,660
Class B voting common stock,
$1.00 par value; authorized 121,500,000
shares; issued 117,009,869 shares at
July 4, 1998 and 103,483,298 at
January 3, 1998 117,010 103,483
Additional paid-in capital 328,276 271,645
Retained earnings 144,262 178,305
------------ ------------
Total stockholders' equity 604,252 568,093
------------ ------------
Total liabilities and stockholders' equity $ 1,784,688 $ 1,949,554
------------ ------------
------------ ------------
</TABLE>
[FN]
See accompanying notes to consolidated financial statements.
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<PAGE>
Spiegel, Inc. and Subsidiaries
Consolidated Statements of Earnings
($000s omitted, except per share amounts)
Thirteen and Twenty-six Weeks Ended July 4, 1998 and
June 28, 1997
(unaudited)
<TABLE>
<CAPTION>
Thirteen Weeks Ended Twenty-six Weeks Ended
July 4, June 28, July 4, June 28,
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales and other revenues:
Net sales $ 618,007 $ 646,090 $1,150,457 $1,215,875
Finance revenue 54,382 38,715 103,596 61,243
Other revenue 11,657 11,438 20,546 20,937
----------- ----------- ----------- -----------
684,046 696,243 1,274,599 1,298,055
Cost of sales and operating expenses:
Cost of sales, including buying and
occupancy expenses 426,161 434,764 805,773 835,699
Selling, general and
administrative expenses 246,641 264,844 481,345 505,584
----------- ----------- ----------- -----------
672,802 699,608 1,287,118 1,341,283
----------- ----------- ----------- -----------
Operating income (loss) 11,244 (3,365) (12,519) (43,228)
Interest expense 15,416 16,152 32,286 32,522
----------- ----------- ----------- -----------
Earnings (loss) before income taxes (4,172) (19,517) (44,805) (75,750)
Income tax benefit (1,798) (6,034) (19,298) (31,058)
----------- ----------- ----------- -----------
Net earnings (loss) $ (2,374) $ (13,483) $ (25,507) $ (44,692)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Redemption of preferred stock $ 8,535 $ 0 8,535 $ 0
----------- ----------- ----------- -----------
Net earnings (loss) available to
common shareholders $ (10,909) $ (13,483) $ (34,042) $ (44,692)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Net earnings (loss) per common share
Basic and diluted $ (0.08) $ (0.11) $ (0.27) $ (0.39)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Weighted average number of common
shares outstanding 131,712,229 118,106,457 125,598,183 114,184,116
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
[FN]
See accompanying notes to consolidated financial statements.
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<PAGE>
Spiegel, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
($000s omitted)
Twenty-six Weeks ended July 4, 1998 and June 28, 1997
(unaudited)
<TABLE>
<CAPTION>
Twenty-six Weeks Ended
July 4, June 28,
1998 1997
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ (25,507) $ (44,692)
Adjustments to reconcile net earnings (loss) to
net cash used in operating activities:
Depreciation and amortization 38,590 41,583
Incremental gain on sale of receivables (3,000) (19,672)
Change in assets and liabilities,
net of effects of acquisition:
Decrease in sold customer receivables (72,383) (149,734)
Decrease in receivables, net 140,613 254,175
(Increase) decrease in inventories 13,838 (11,998)
Decrease in prepaid expenses 1,400 527
Decrease in accounts payable (77,770) (98,419)
Decrease in accrued liabilities (60,501) (63,660)
Decrease in income taxes (23,466) (32,262)
------------ ------------
Total adjustments (42,679) (79,460)
------------ ------------
Net cash used in operating activities $ (68,186) $ (124,152)
------------ ------------
Cash flows from investing activities:
Net additions to property and equipment (8,146) (18,899)
Net (additions to) reduction in other assets 42,813 (12,519)
------------ ------------
Net cash provided by (used in) investing activities 34,667 (31,418)
------------ ------------
Cash flows from financing activities:
Issuance of debt 86,500 124,500
Payment of debt (130,000) (81,448)
Issuance of Class B common stock 69,992 69,972
Preferred stock redemption (8,535) --
Exercise of stock options 209 27
------------ ------------
Net cash provided by financing activities 18,166 113,051
------------ ------------
Net change in cash and cash equivalents (15,353) (42,519)
Cash and cash equivalents at beginning of year 47,582 86,917
------------ ------------
Cash and cash equivalents at end of period $ 32,229 $ 44,398
------------ ------------
------------ ------------
Supplemental cash flow information:
Cash paid during the period for:
Interest $ 31,882 $ 32,856
------------ ------------
------------ ------------
Income taxes $ 4,886 $ 4,533
------------ ------------
------------ ------------
</TABLE>
[FN]
See accompanying notes to consolidated financial statements.
- -------------------------------------------------------------------------
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<PAGE>
Spiegel, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
($000s omitted, except per share amounts)
(unaudited)
(1) Basis of presentation
The consolidated financial statements included herein are unaudited
and have been prepared from the books and records of Spiegel, Inc.
(the "Company") in accordance with generally accepted accounting
principles and the rules and regulations of the Securities and Exchange
Commission. All adjustments (consisting only of normal recurring accruals)
which are, in the opinion of management, necessary for a fair presentation
of financial position and operating results for the interim periods are
reflected. These financial statements should be read in conjunction with
the consolidated financial statements and the notes thereto included in
the Company's most recent Annual Report on Form 10-K, which includes
financial statements for the year ended January 3, 1998. Due to the
seasonality of the Company's business, the results for interim periods
are not necessarily indicative of the results for the year.
(2) Indebtedness to related parties
The Company received a term loan in the first quarter of 1998 from
3 Suisses BVG (a wholly owned subsidiary of Otto Versand) for $15,000.
The loan bears interest at a variable rate based on LIBOR plus a margin.
This loan is due in its entirety in October 2000.
(3) Issuance of Class B common stock
On March 26, 1998, the Company issued 13,526,571 shares of Class B voting
common stock to its majority shareholder, Spiegel Holdings, Inc. The net
proceeds of approximately $70 million from this issuance will be used
primarily to fund working capital and investing needs.
(4) Preferred stock redemption
In April 1998, Newport News, a subsidiary of Spiegel, Inc., redeemed all
outstanding shares of its redeemable preferred stock for $12,236. The
excess of the redemption price over the carrying value of the preferred
stock reduced income available to common shareholders by $8,535 and the
related earnings per share by $0.06.
- -----------------------------------------------------------------------------
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<PAGE>
Item 2.
Management's Discussion and Analysis
of Financial Condition and Results of Operations
($000s omitted, except per share amounts)
Results of Operations:
Thirteen Weeks Ended July 4, 1998 As Compared To Thirteen Weeks
Ended June 28, 1997
- --------------------------------------------------------------------------------
Net sales for the thirteen weeks ended July 4, 1998 were $618,007 compared to
$646,090 for the thirteen weeks ended June 28, 1997. This 4% decrease was
driven by an 11% decline in catalog net sales, partially offset by a 5%
increase in retail net sales. Declines in catalog net sales were driven by
planned circulation reductions for Spiegel Catalog. Spiegel Catalog decreased
circulation to marginal customers to improve catalog productivity as it
continues to implement new strategies aimed at improving performance. The
Company's Newport News subsidiary offset the effect of the circulation
reductions somewhat with its continued favorable performance. The retail net
sales growth is attributable to an increase in the number of Eddie Bauer retail
stores, as comparable-store sales declined 9% for the quarter. Eddie Bauer
ended the second quarter of 1998 with 477 retail stores (excluding outlets)
compared to 412 at the end of the 1997 second quarter. Eddie Bauer retail sales
were negatively impacted in the quarter by higher markdowns taken in response to
the weak performance of certain spring season products.
Finance revenue for the second quarter of 1998 was $54,382 compared to $38,715
for the same period in 1997. This increase resulted primarily from pricing
changes implemented by the Company's credit division in October 1997. In
addition, higher finance revenues were realized due to a 47% increase in the
average MasterCard receivable portfolio. An incremental pretax gain of $3,000
was recognized in the second quarter of 1998 due to the improved yield on
existing receivables sold. Finance revenue for the second quarter of 1997
included an incremental pretax gain of $19,672 recognized pursuant to
SFAS No. 125.
The gross profit margin on net sales decreased to 31.0% for the thirteen weeks
ended July 4, 1998 from 32.7% for the comparable 1997 period. Gross profit
margin rate improvements at Spiegel Catalog and Newport News were offset by
lower gross profit margins experienced at Eddie Bauer. The margin decline at
Eddie Bauer resulted primarily from a higher level of markdowns compared to
second quarter 1997. Eddie Bauer aggressively reacted to slow-moving spring
merchandise by increasing the level of markdowns to manage inventories. The
Company's consolidated inventories were down 4% from the prior year level.
Selling, general and administrative expenses as a percentage of total revenues
for the thirteen weeks ended July 4, 1998 and June 28, 1997 were 36.1% and
38.0%, respectively. Total selling, general and administrative expenses
declined 7% in the 1998 quarter due to cost-cutting initiatives implemented
by the Company. These initiatives were most prevalent at Spiegel Catalog,
where selling, general and administrative expenses were reduced by more than
38% compared to last year. Spiegel Catalog and Newport News both realized
better catalog productivity, improving utilization of their advertising
expenses.
Interest expense decreased 5% for the thirteen weeks ended July 4, 1998 to
$15,416 compared to $16,152 for the thirteen weeks ended June 28, 1997. This
decrease was due to lower average debt levels coupled with lower average
interest rates.
Twenty-six Weeks Ended July 4, 1998 As Compared To Twenty-six Weeks
Ended June 28, 1997
- --------------------------------------------------------------------------------
Net sales for the twenty-six weeks ended July 4, 1998 decreased 5% to
$1,150,457 compared to $1,215,875 for the twenty-six weeks ended June 28, 1997.
This decrease was driven by an 11% decline in catalog net sales, partially
offset by a 2% increase in retail net sales. Catalog net sales results for the
period reflected planned circulation reductions for Spiegel Catalog, partially
offset by higher catalog sales at Eddie Bauer and Newport News. Spiegel Catalog
decreased circulation to marginal customers to improve catalog productivity as
it continues to implement new strategies aimed at improving performance. Eddie
Bauer retail net sales increased 3% for the period due to an increase in the
number of Eddie Bauer retail stores. Comparable-store sales declined 9%
compared to last year. Higher markdowns taken to liquidate fall season
merchandise as well as to stimulate sales on certain spring season products
negatively affected Eddie Bauer's sales.
Finance revenue for the twenty-six weeks ended July 4, 1998 and June 28, 1997
was $103,596 and $61,243, respectively. This increase resulted primarily from
pricing changes implemented by the Company's credit division in October 1997.
In addition, higher finance revenues were realized due to a 41% increase in
the average MasterCard receivable portfolio. An incremental pretax gain of
$3,000 was recognized in the second quarter of 1998 due to the improved yield on
existing receivables sold. Finance revenue for the 1997 period included an
incremental pretax gain of $19,672 recognized pursuant to SFAS No. 125.
The gross profit margin on net sales decreased to 30.0% for the twenty-six weeks
ended July 4, 1998 from 31.3% for the comparable 1997 period. Continued gross
profit margin rate improvements at Spiegel Catalog and Newport News were offset
by lower gross profit margins experienced at Eddie Bauer. The margin decline
at Eddie Bauer resulted from a higher level of clearance and promotional
markdown activity to manage inventories. Although there may remain some
residual margin rate pressures in the third quarter at Eddie Bauer, the Company
plans overall gross margin improvements in the second half of 1998.
Selling, general and administrative expenses as a percentage of total revenues
for the twenty-six weeks ended July 4, 1998 and June 28, 1997 were 37.8% and
39.0%, respectively. Numerous cost-cutting initiatives have been implemented
by the Company. These initiatives were most prevalent at Spiegel Catalog,
where selling, general and administrative expenses were reduced by more than
34% compared to last year. However, lackluster sales performance at Eddie Bauer
resulted in less leverage of selling, general and administrative expenses,
partially offsetting the expense improvements experienced in other divisions.
Seasonality and Quarterly Fluctuations:
The Company, like other retailers, experiences seasonal fluctuations in its
revenues and net earnings. Historically, a disproportionate amount of the
Company's net sales and a majority of its net earnings have been realized during
the fourth quarter. Accordingly, the results for the individual quarters are
not necessarily indicative of the results to be expected for the entire year.
Liquidity and Capital Resources:
The Company has historically met its operating and cash requirements through
funds generated from operations, the sale of customer accounts receivable, and
the issuance of debt and common stock. Total customer receivables sold were
$1,220,330 at July 4, 1998, $1,292,713 at January 3, 1998 and $1,313,996 at
June 28, 1997.
Net cash used in operating activities was $68,186 and $124,152 for the
twenty-six weeks ended July 4, 1998 and June 28, 1997, respectively. In
addition to improved operating results, the primary factors contributing to
the net $55,966 improvement included lower investment in merchandise inventory
and a decrease in cash used for payables. Spiegel Catalog continues to manage
its inventories effectively, offsetting increases in inventory at Eddie Bauer
and Newport News to support growth. Cash provided by receivables, net of
receivables sold, declined in the 1998 period to $68,230 compared to $104,441
in the 1997 period primarily due to a lower number of active credit accounts.
Net additions to property and equipment for the twenty-six weeks ended
July 4, 1998 and June 28, 1997 were $8,146 compared to $18,899, respectively.
The capital spending in 1998 and 1997 was primarily related to Eddie Bauer
retail store expansion and remodeling. The Company plans a net of approximately
50 new stores in 1998, a majority of which will be opened in the second half.
On March 26, 1998, the Company issued 13,526,571 shares of Class B voting common
stock to its majority shareholder, Spiegel Holdings, Inc. The net proceeds of
approximately $70 million are being used primarily to fund working capital and
investing needs.
In March 1994 and December 1995, Newport News issued shares of redeemable
preferred stock to certain directors and executive officers of the Company, its
subsidiaries and Otto Versand. All shares were redeemed in April 1998 for
$12,236. The excess of the redemption price over the carrying value of the
preferred stock reduced earnings available to common shareholders by $8,535 and
the related earnings per share by $0.06.
The Company believes that its cash on hand, together with cash flows anticipated
to be generated from operations, borrowings under its existing credit
facilities, sales of customer receivables and other available sources, will be
adequate to fund the Company's capital and operating requirements for the
foreseeable future.
Year 2000:
The Company continues to take the appropriate steps to minimize the threat of
any material technical failure relating to Year 2000 compliance issues. Program
conversion remains essentially on schedule, with testing being completed as
systems are converted. In order to simulate year-end 1999 processing for all
operating systems, substantially all internal software modifications will be
completed by December 31, 1998. As part of the normal development cycle,
several existing applications have been identified for renovation or
replacement. These systems are targeted for implementation in early-to-mid 1999
and will be Year 2000 compliant upon installation. Contingency plans are being
put into place to convert the existing systems to Year 2000 compliance in the
event that these replacement systems cannot be implemented as planned.
The Company has also implemented a comprehensive plan to communicate to all
critical vendors and suppliers the expectation that they attain Year 2000
compliance in a timely manner. Contingency plans will be in place by year-end
1998 to provide alternate solutions if the progress of certain critical
suppliers and vendors is questionable so as not to jeopardize the Company's
ability to service its customers.
The Company believes it is acting prudently in addressing the Year 2000 issue.
However, it is impossible for any company to ensure Year 2000 compliance. While
it is certainly possible that there may be some litigation arising from the Year
2000 conversion, the Company does not anticipate, nor can it estimate, any costs
associated with such litigation at this time.
The costs associated with this effort are expected to range between $7,000 and
$10,000. These costs are expensed as incurred and totaled approximately
$2.4 million through July 4, 1998.
Accounting Standards:
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities,"
effective for all fiscal quarters of fiscal years beginning after June 15, 1999,
establishes accounting and reporting standards for derivatives and for hedging
activities. The Company is studying the Statement to determine its effect, if
any. The Company will adopt SFAS No. 133, as required, in fiscal year 2000.
Forward-Looking Statements:
This report contains statements which are forward-looking statements within the
meaning of applicable federal securities laws and are based upon the Company's
current expectations and assumptions. Such forward-looking statements are
subject to a number of risks and uncertainties which could cause actual results
to differ materially from those anticipated including but not limited to,
financial strength and performance of the retail and direct marketing industry,
changes in consumer spending patterns, dependence on the securitization of
accounts receivable to fund operations, state and federal laws and regulations
related to offering and extending credit, the impact of competitive activities,
inventory risks due to shifts in the market demand, risks associated with
collections on the Company's credit card portfolios, interest rate fluctuations,
and postal rate, paper or printing cost increases, and the success of planned
merchandising, advertising, marketing and promotional campaigns, as well as
other risks indicated in other filings with the Securities and Exchange
Commission such as the Company's most recent Form 10-K.
- -----------------------------------------------------------------------------
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<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SPIEGEL, INC.
<TABLE>
<CAPTION>
Signature Title Date
- ------------------------- -------------------------- ----------------
<C> <S> <C>
/s/ James W. Sievers Chief Financial Officer and August 18, 1998
James W. Sievers Member of the Office of the
President
(Principal Operating Executive Officer
and Principal Financial Officer)
/s/ D. L. Skip Behm Vice President - Controller August 18, 1998
D. L. Skip Behm (Principal Accounting Officer)
</TABLE>
