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 September 30, 2000
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 November 10, 2000 are as follows:
Class A non-voting common stock, $1.00 par value
14,854,244 shares
Class B voting common stock, $1.00 par value
117,009,869 shares
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SPIEGEL, INC. AND SUBSIDIARIES
Index to Quarterly Report on Form 10-Q
Thirteen and Thirty-nine Weeks Ended September 30, 2000
PAGE
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Consolidated Balance Sheets,
September 30, 2000, October 2, 1999 and January 1, 2000 3
Consolidated Statements of Earnings,
Thirteen and Thirty-nine Weeks Ended
September 30, 2000 and October 2, 1999 4
Consolidated Statements of Cash Flows,
Thirty-nine Weeks Ended September 30, 2000 and October 2, 1999 5
Notes to Consolidated Financial Statements 6-7
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-13
Item 3 - Quantitative and Qualitative Disclosures
About Market Risk 12
2
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SPIEGEL, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
($000s omitted, except per share amounts)
<TABLE>
<CAPTION>
(unaudited) (unaudited)
September 30, October 2, January 1,
2000 1999 2000
------------- ------------ ------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 48,189 $ 58,024 $ 46,023
Receivables, net 1,066,296 750,125 971,566
Inventories 649,806 587,475 499,413
Prepaid expenses 118,140 111,877 101,915
Refundable income taxes -- 11,845 3,830
Deferred income taxes 41,370 25,969 41,397
------------- ------------ ------------
Total current assets 1,923,801 1,545,315 1,664,144
Property and equipment, net 334,023 336,391 333,852
Intangible assets, net 146,656 150,070 148,143
Other assets 117,685 90,059 95,901
------------- ------------ ------------
Total Assets $ 2,522,165 $ 2,121,835 $ 2,242,040
------------- ------------ ------------
------------- ------------ ------------
LIABILITIES and STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of debt $ 125,714 $ 209,464 $ 214,464
Accounts payable and other accrued liabilities 654,676 506,339 644,455
------------- ------------ ------------
Total current liabilities 780,390 715,803 858,919
Long-term debt, excluding current maturities 877,857 715,572 566,572
Deferred income taxes 91,473 41,002 91,409
------------- ------------ ------------
Total liabilities 1,749,720 1,472,377 1,516,900
Stockholders' equity:
Class A non-voting common stock,
$1.00 par value; authorized 16,000,000 shares;
14,854,244, 14,837,844 and 14,849,244 shares
issued and outstanding at September 30, 2000,
October 2, 1999 and January 1, 2000,
respectively 14,854 14,838 14,849
Class B voting common stock,
$1.00 par value; authorized 121,500,000
shares; 117,009,869 shares issued and
outstanding at September 30, 2000,
October 2, 1999 and January 1, 2000 117,010 117,010 117,010
Additional paid-in capital 329,012 328,904 328,984
Accumulated other comprehensive loss:
Foreign currency translation adjustment (4,315) (3,530) (2,608)
Retained earnings 315,884 192,236 266,905
------------- ------------ ------------
Total stockholders' equity 772,445 649,458 725,140
------------- ------------ ------------
Total liabilities and stockholders' equity $ 2,522,165 $ 2,121,835 $ 2,242,040
------------- ------------ ------------
------------- ------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements.
3
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SPIEGEL, INC. AND SUBSIDIARIES
Consolidated Statements of Earnings
($000s omitted, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
Thirteen Weeks Ended Thirty-nine Weeks Ended
---------------------------- ---------------------------
September 30, October 2, September 30, October 2,
2000 1999 2000 1999
------------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
Net sales and other revenues:
Net sales $ 644,006 $ 635,112 $ 1,983,253 $ 1,880,968
Finance revenue 102,938 61,754 259,745 170,430
Other revenue 10,659 9,764 35,410 32,362
------------- ------------ ------------- ------------
757,603 706,630 2,278,408 2,083,760
------------- ------------ ------------- ------------
Cost of sales and operating expenses:
Cost of sales, including buying and
occupancy expenses 421,100 414,730 1,266,984 1,237,550
Selling, general and administrative
expenses 292,930 267,199 864,732 781,210
------------- ------------ ------------- ------------
714,030 681,929 2,131,716 2,018,760
------------- ------------ ------------- ------------
Operating income 43,573 24,701 146,692 65,000
Interest expense 22,191 17,595 52,206 46,931
------------- ------------ ------------- ------------
Earnings before income taxes 21,382 7,106 94,486 18,069
Income tax provision 7,911 2,913 34,960 7,408
------------- ------------ ------------- ------------
Net earnings $ 13,471 $ 4,193 $ 59,526 $ 10,661
------------- ------------ ------------- ------------
------------- ------------ ------------- ------------
Net earnings per common share:
Basic and diluted $ 0.10 $ 0.03 $ 0.45 $ 0.08
------------- ------------ ------------- ------------
------------- ------------ ------------- ------------
Weighted average number of common
shares outstanding:
Basic 131,864,113 131,805,972 131,860,871 131,798,635
------------- ------------ ------------- ------------
------------- ------------ ------------- ------------
Diluted 131,974,593 132,004,689 131,980,491 131,935,921
------------- ------------ ------------- ------------
------------- ------------ ------------- ------------
</TABLE>
See accompanying notes to consolidated financial statements.
4
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SPIEGEL, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
($000s omitted)
(unaudited)
<TABLE>
<CAPTION>
Thirty-nine Weeks Ended
-----------------------------
September 30, October 2,
2000 1999
------------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 59,526 $ 10,661
Adjustments to reconcile net earnings to
net cash used in operating activities:
Depreciation and amortization 50,686 59,953
Incremental securitization income (39,163) (1,383)
Changes in assets and liabilities:
Increase in receivables, net (55,567) (204,596)
Increase in inventories (150,393) (96,560)
Increase in prepaid expenses (16,225) (18,487)
Decrease in accounts payable and
other accrued liabilities (64) (71,198)
Increase in income taxes 14,206 5,325
------------- ------------
Net cash used in operating activities (136,994) (316,285)
------------- ------------
Cash flows from investing activities:
Net additions to property and equipment (38,001) (19,861)
Net additions to other assets (33,153) (14,846)
------------- ------------
Net cash used in investing activities (71,154) (34,707)
------------- ------------
Cash flows from financing activities:
Issuance of debt 407,000 377,000
Payment of debt (184,464) (60,714)
Payment of dividends (10,548) --
Exercise of stock options 33 505
------------- ------------
Net cash provided by financing activities 212,021 316,791
------------- ------------
Effect of exchange rate changes on cash (1,707) 1,025
Net change in cash and cash equivalents 2,166 (33,176)
Cash and cash equivalents at beginning of year 46,023 91,200
------------- ------------
Cash and cash equivalents at end of period $ 48,189 $ 58,024
------------- ------------
------------- ------------
Supplemental cash flow information:
Cash paid during the period for:
Interest $ 46,151 $ 43,818
------------- ------------
------------- ------------
Income taxes $ 25,318 $ 2,860
------------- ------------
------------- ------------
</TABLE>
See accompanying notes to consolidated financial statements.
5
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SPIEGEL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
($000s omitted)
(unaudited)
(1) Basis of presentation
The consolidated financial statements included herein are unaudited and have
been prepared from the books and records of the Company in accordance with
generally accepted accounting principles and the rules and regulations of the
Securities and Exchange Commission. All adjustments (consisting only of normal
recurring accruals) which are, in the opinion of management, necessary for a
fair presentation of financial position and operating results for the interim
periods are reflected. These financial statements should be read in
conjunction with the consolidated financial statements and notes thereto
included in the Company's most recent Annual Report on Form 10-K, which
includes financial statements for the fiscal year ended January 1, 2000. Due
to the seasonality of the Company's business, results for interim periods are
not necessarily indicative of the results for the year.
(2) Debt
In June 2000, the Company amended its existing revolving credit agreement
to increase the commitment from $500,000 to $750,000. The current
commitment is comprised of two components including a $600,000 long-term
agreement maturing in July 2003 and a $150,000 364-day agreement maturing in
June 2001. Additionally, in conjunction with the maturity of certain senior
and subordinated term indebtedness, the Company entered into seven new senior
term loan agreements totaling $200,000, due June 2005 through July 2007.
(3) Dividends
In April 2000, the Company announced it would resume regular quarterly dividend
payments of $0.04 per share. On May 15, 2000, the Company made a quarterly
dividend payment totaling $5,274 to shareholders of record on May 8, 2000. On
August 21, 2000, the Company made a quarterly dividend payment totaling $5,274
to shareholders of record on August 14, 2000.
(4) Comprehensive income
The components of comprehensive income for the 13- and 39-week periods ended
September 30, 2000 and October 2, 1999 are as follows:
<TABLE>
<CAPTION>
Thirteen Weeks Ended Thirty-nine Weeks Ended
--------------------------- ---------------------------
September 30, October 2, September 30, October 2,
2000 1999 2000 1999
------------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
Net income $ 13,471 $ 4,193 $ 59,526 $ 10,661
Foreign currency
translation adjustment (1,141) (266) (1,707) 1,025
------------- ------------ ------------- ------------
Comprehensive income $ 12,330 $ 3,927 $ 57,819 $ 11,686
------------- ------------ ------------- ------------
------------- ------------ ------------- ------------
</TABLE>
6
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(5) Accounts payable and other accrued liabilities
Accounts payable and other accrued liabilities consist of the following:
<TABLE>
<CAPTION>
September 30, October 2, January 1,
2000 1999 2000
------------- ------------ ------------
<S> <C> <C> <C>
Trade payables $ 189,404 $ 170,979 $ 225,859
Deposits 186,278 72,090 79,475
Gift certificates and
other customer credits 40,706 33,600 49,183
Salaries, wages and
employee benefits 68,227 49,544 91,377
General taxes 58,406 78,489 87,413
Allowance for future returns 22,485 21,796 34,525
Income taxes 10,285 -- --
Other liabilities 78,885 79,841 76,623
------------- ------------ ------------
Total accounts payable and
other accrued liabilities $ 654,676 $ 506,339 $ 644,455
------------- ------------ ------------
------------- ------------ ------------
</TABLE>
(6) Segment reporting
Segment revenues and operating profit, including a reconciliation to
the Company's consolidated earnings before income taxes, consisted of the
following:
<TABLE>
<CAPTION>
Thirteen Weeks Ended Thirty-nine Weeks Ended
--------------------------- ---------------------------
September 30, October 2, September 30, October 2,
2000 1999 2000 1999
------------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
Revenue:
Merchandising $ 700,174 $ 686,319 $ 2,154,859 $ 2,030,413
Bankcard 57,429 20,311 123,549 53,347
------------- ------------ ------------- ------------
Total revenue $ 757,603 $ 706,630 $ 2,278,408 $ 2,083,760
------------- ------------ ------------- ------------
Operating income:
Merchandising $ 3,374 $ 21,617 $ 81,318 $ 57,766
Bankcard 40,557 4,987 66,726 10,405
------------- ------------ ------------- ------------
Total segment operating
income 43,931 26,604 148,044 68,171
Premium on acquisition (358) (1,903) (1,352) (3,171)
------------- ------------ ------------- ------------
Total operating income 43,573 24,701 146,692 65,000
Interest expense 22,191 17,595 52,206 46,931
------------- ------------ ------------- ------------
Earnings before income
taxes $ 21,382 $ 7,106 $ 94,486 $ 18,069
------------- ------------ ------------- ------------
------------- ------------ ------------- ------------
</TABLE>
7
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Item 2.
Management's Discussion and Analysis
of Financial Condition and Results of Operations
($000s omitted, except per share amounts)
RESULTS OF OPERATIONS
For the 13 weeks ended September 30, 2000 (third quarter or 13-week period),
consolidated operating income increased $18,872 to $43,573 from $24,701 for the
comparable period last year. For the 39 weeks ended September 30, 2000
(39-week period), consolidated operating income increased $81,692 to $146,692
from $65,000 for the comparable period last year. The earnings improvement in
the third quarter was driven by the favorable performance of the Company's
bankcard segment offset somewhat by a lower contribution from the merchandising
segment. The earnings improvement in the 39-week period included positive
contributions from both the merchandising and bankcard segments.
Interest expense was $22,191 and $52,206 for the 13- and 39-week periods,
respectively, compared to $17,595 and $46,931 for the comparable prior year
periods. The increase in interest expense resulted primarily from higher
average debt levels compared to the prior year, driven by funding requirements
to support customer receivable growth and increased inventory levels. The
Company realized lower average interest rates in total for the current year,
primarily due to a decrease in debt-related fees compared to the prior year.
The Company's consolidated effective tax rate for the 13- and 39-week periods
was 37% compared to 41% in the same periods last year. State tax rates have
been affected by changes in earnings mix among the Company's various divisions.
Consolidated net earnings for the third quarter were $13,471, or $0.10 per
share basic and diluted, compared to $4,193, or $0.03 per share basic and
diluted for the comparable 1999 period. Consolidated net earnings for the
39-week period were $59,526, or $0.45 per share basic and diluted, compared
to $10,661, or $0.08 per share basic and diluted, for the comparable 1999
period.
The Company, like other retailers, experiences seasonal fluctuations in its
revenues and net earnings. Historically, a significant 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 13- and 39-week periods are
not necessarily indicative of the results to be expected for the entire year.
Segment results:
Operating results for the Company are reported for two segments: merchandising
and bankcard. The merchandising segment is an aggregation of the Company's
three merchant divisions: Eddie Bauer, Newport News and Spiegel, and includes
the FCNB Preferred credit operation. The bankcard segment represents the
bankcard operations of First Consumers National Bank (FCNB), the Company's
special-purpose bank. Corporate expenses are allocated completely to both
segments based on an equitable division of costs.
The Company routinely securitizes FCNB Preferred and FCNB bankcard credit card
receivables to fund the growth of its receivable portfolios. When the Company
sells receivables in securitizations of credit card loans, it retains
interest-only strips, subordinated tranches, servicing rights, and in some
cases a cash reserve account, all of which are residual interests in the
securitized receivables. Gains or losses on the sale of the receivables
depends in part on the previous carrying amount of the financial assets
involved in the transfer, allocated between the assets sold and the residual
interests based on their fair value at the date of transfer. Quoted market
prices are not available for residual interests, so the Company estimates
fair value based on the present value of future expected cash flows using
management's best estimates of the key assumptions including credit losses,
payment speeds, forward yield curves, and discount rates commensurate with the
risks involved. Gains and losses recognized upon securitization of credit card
receivables and subsequent fair value adjustments on residual interests are
recorded as securitization income and are included in finance revenue.
Also included in finance revenue are cash flows from the trust resulting from
these residual interests. This residual interest income represents the excess
cash flows related to securitized receivables that revert back to the Company
after payment of interest to investors, related credit losses and servicing
fees.
8
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Merchandising segment:
<TABLE>
<CAPTION>
Thirteen Weeks Ended Thirty-nine Weeks Ended
--------------------------- ---------------------------
September 30, October 2, September 30, October 2,
2000 1999 2000 1999
------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
Catalog net sales $ 318,640 $ 315,614 $ 1,021,320 $ 985,268
E-commerce net sales 48,990 15,402 132,146 32,751
------------- ------------ ------------- ------------
Total direct net sales 367,630 331,016 1,153,466 1,018,019
Retail store net sales 276,376 304,096 829,787 862,949
------------- ------------ ------------- ------------
Total net sales 644,006 635,112 1,983,253 1,880,968
Finance revenue 46,545 41,442 139,780 117,082
Other revenue 9,623 9,765 31,826 32,363
------------- ------------ ------------- ------------
Total revenue $ 700,174 $ 686,319 $ 2,154,859 $ 2,030,413
------------- ------------ ------------- ------------
Operating income $ 3,374 $ 21,617 $ 81,318 $ 57,766
------------- ------------ ------------- ------------
% change:
Total net sales 1% 15% 5% 11%
Comparable-store sales -15% 9% -7% 7%
Total revenue 2% 15% 6% 11%
------------- ------------ ------------- ------------
Gross profit margin
(% of total net sales) 34.7% 34.7% 36.1% 34.2%
SG&A expenses
(% of total revenue) 39.4% 36.5% 37.5% 36.2%
Operating income
(% of total revenue) 0.5% 3.1% 3.8% 2.8%
------------- ------------ ------------- ------------
</TABLE>
For the 13-week period, operating income for the merchandising segment was
$3,374 compared to $21,617 for the prior year period. Positive sales growth
and margin performance at Newport News and Spiegel were offset by declines at
Eddie Bauer and a lower contribution from the FCNB Preferred credit operation.
For the 39-week period, operating income increased 41% to $81,318, from
$57,766 for the prior year period. The year-to-date period reflects the
continued strong performance of Newport News and Spiegel, somewhat offset by
declines at Eddie Bauer.
Total merchandising revenue increased 2% in the third quarter to $700,174,
resulting from a 1% increase in net sales and a 12% increase in finance
revenue. The 1% net sales increase in the third quarter included an 11%
increase in direct net sales offset by a 9% decline in retail store net sales.
Total merchandising revenue increased 6% in the 39-week period, resulting from
a 5% increase in net sales and a 19% increase in finance revenue. The 5%
increase in net sales for the 39-week period included a 13% increase in direct
net sales, offset by a 4% decline in retail store net sales.
The direct sales channel is comprised of catalog and e-commerce sales.
E-commerce net sales drove the increase in direct sales, rising 218% in the
third quarter and 303% in the 39-week period over the prior year periods.
Catalog net sales increased 1% in the third quarter and 4% for the 39-week
period, as strong sales growth at Newport News and Spiegel was substantially
offset by declines at Eddie Bauer. Newport News and Spiegel continue to
benefit from positive customer response to merchandise offerings on increased
catalog circulation. Retail store net sales declined 9% in the quarter,
reflecting a 15% decline in Eddie Bauer comparable store sales, partially
offset by higher outlet store sales. For the 39-week period, Eddie Bauer
comparable-store sales were 7% lower than last year.
9
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FCNB Preferred credit finance revenue increased 12% to $46,545 for the third
quarter from the comparable prior-year period. For the 39-week period,
finance revenue increased 19% to $139,780 from $117,082 in the prior year
period. The increase in finance revenue was primarily attributable to an
increase in average receivables owned, reflecting sales growth at Newport News
and Spiegel accompanied by an increase in customer utilization of the
private-label credit programs. An improved finance charge yield on average
receivables serviced, which resulted from variable-rate pricing, was more
than offset by lower credit fees and an increase in finance charge and credit
fee write-offs. Residual interest income was negatively impacted by an
increase in credit losses on securitized receivables compared to last year.
The Company sold an additional $67,578 and $222,579 of receivables in the
13- and 39-week periods, respectively. Gains related to the sale of
receivables in the quarter were more than offset by losses recorded to
adjust residual interests to fair value, resulting in a net decrease to
finance revenue of $59. For the 39-week period, securitization income added
$13,588 to finance revenue compared to $1,959 for the prior year.
Gross profit margin on net sales for the merchandising segment was 34.7%
in the third quarter, flat to the comparable prior year period. Margin growth
achieved by Newport News and Spiegel was offset by lower margins at Eddie
Bauer. The favorable margin performance at Newport News and Spiegel resulted
primarily from higher initial profits. In addition to benefiting from a shift
in sales mix towards higher-margin apparel and private-label products, Spiegel
also achieved margin growth from stronger customer response to merchandise
offerings and, in turn, lower markdowns compared to last year. Eddie Bauer
experienced lower margins in the quarter due to higher markdowns taken to
sell through slow-moving merchandise. For the 39-week period, gross profit
margin on net sales increased to 36.1% from 34.2% in the comparable 1999
period reflecting the margin improvement at Newport News and Spiegel.
For the third quarter, the selling, general and administrative (SG&A) expense
ratio increased 290 basis points to 39.4% of total revenue compared to 36.5%
in the same period last year. For the 39-week period, the SG&A ratio increased
130 basis points to 37.5% of total revenue compared to 36.2% in the same period
last year. The increase resulted primarily from the lack of operating expense
leverage at Eddie Bauer due to lower sales, and included higher credit losses
experienced in the FCNB Preferred credit portfolio.
Bankcard segment:
<TABLE>
<CAPTION>
Thirteen Weeks Ended Thirty-nine Weeks Ended
---------------------------- ---------------------------
September 30, October 2, September 30, October 2,
2000 1999 2000 1999
------------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
Total revenue $ 57,429 $ 20,311 $ 123,549 $ 53,347
Operating income $ 40,557 $ 4,987 $ 66,726 $ 10,405
------------- ------------ ------------- ------------
</TABLE>
Bankcard revenue increased 183% to $57,429 for the third quarter, compared to
$20,311 for the prior year period. The growth in revenue was primarily
attributable to a 60% increase in average receivables owned, higher
securitization income and an improved yield. Residual interest income was
negatively impacted in the quarter by an increase in interest payable to
investors on variable-rate securitizations. The yield on average receivables
serviced benefited from variable-rate pricing, offset slightly by lower credit
fee income. The securitization of $130,000 of customer receivables in the
third quarter, combined with gains taken to adjust residual interests to fair
value, added $15,567 of securitization income to finance revenue.
Comparatively, the 1999 third quarter revenue was reduced by $566, as gains
related to new securitizations were more than offset by adjustments to record
residual interests to fair value.
10
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For the 39-week period, bankcard revenue increased 132% to $123,549, compared
to $53,347 for the prior-year period. The growth in revenue was primarily
attributable to a 69% increase in average receivables owned, higher
securitization income and an increase in residual interest income. While the
finance charge yield on average receivables serviced benefited from
variable-rate pricing, the net yield declined somewhat due to lower credit fee
income. Residual interest income increased significantly compared to the prior
year, as the comparable 1999 period was negatively impacted by an increase in
credit losses related to certain bankcard test programs. Securitization of
$224,000 of customer receivables in the 39-week period, combined with gains
taken to adjust residual interests to fair value, added $25,575 of
securitization income to finance revenue. Comparatively, the 1999 period
revenue was reduced by $566, as gains related to new securitizations in the
quarter were more than offset by adjustments to record residual interests to
fair value.
For the 13-week period, operating income for the bankcard segment was $40,557,
compared to $4,987 for the prior-year period. For the 39-week period,
operating income increased to $66,726 from $10,405 for the prior-year period.
In addition to the above described revenue growth, the bankcard segment
continues to benefit from improved credit loss rates and delinquency trends,
due in part to a shift in the portfolio mix to lower-risk credit products
relative to the prior year.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically met its operating and cash requirements through
funds generated from operations, the securitization of customer accounts
receivable and the issuance of debt and common stock. Total customer
receivables sold were $2,086,560 at September 30, 2000, $1,411,980 at
October 2, 1999 and $1,639,981 at January 1, 2000.
Net cash used by operating activities totaled $136,994 and $316,285 for the
39-week periods ended September 30, 2000 and October 2, 1999, respectively.
Cash provided by securitization activity increased $455,329 over the prior-year
period, minimizing the need to fund the significant growth in customer
receivables through other sources. Excluding receivables, net cash flow from
operations improved $30,262 compared to the prior year. Favorable operating
results and cash provided by the issuance of jumbo certificates of deposit by
the Company's special purpose bank drove the improvement, offset somewhat by
increased investment in inventories to support sales growth and targeted
servicing levels. Total inventories ended the period 11% higher than last
year levels.
Net cash used in investing activities totaled $71,154 for the 39-week period
compared to $34,707 in the same period last year. Expenditures in the current
year were comprised primarily of Eddie Bauer retail store expansion and
remodeling, distribution facility upgrades and information technology-related
projects. Expenditures in the comparable 1999 period were primarily related to
Eddie Bauer retail store expansion and remodeling and information-technology
related projects.
In April 2000, the Company announced it would resume regular quarterly dividend
payments of $0.04 per share. On May 15, 2000, the Company made a quarterly
dividend payment totaling $5,274 to shareholders of record on May 8, 2000.
On August 21, 2000, the Company made a quarterly dividend payment totaling
$5,274 to shareholders of record on August 14, 2000.
The Company believes that its cash on hand, together with cash flows
anticipated to be generated from operations, borrowings under existing credit
facilities, securitizations of customer receivables and other available sources
of funds, will be adequate to fund the Company's capital and operating
requirements for the foreseeable future.
11
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MARKET RISK
The Company is exposed to market risk from changes in interest rates, the
securitization of customer receivables and, to a lesser extent, foreign
currency exchange rate fluctuations. In seeking to minimize risk, the Company
manages exposure through its regular operating and financing activities and,
when deemed appropriate, through the use of derivative financial instruments.
The Company does not use financial instruments for speculative purposes and is
not party to any leveraged financial instruments.
Interest rates:
The Company manages interest rate exposure through a mix of fixed- and
variable-rate financings. The Company is generally able to meet certain
targeted objectives through its direct borrowings. Substantially all of the
Company's variable-rate exposure relates to changes in the one-month LIBOR
rate. If the one-month LIBOR rate had changed by 50 basis points, the
Company's third quarter 2000 interest expense would have changed by
approximately $672. In addition, the Company occasionally utilizes derivative
financial instruments to reach its targeted objectives. Interest rate swaps
may be used to minimize interest rate exposure when appropriate based on market
conditions. The notional amounts of the Company's interest rate swap
agreements totaled $58,571 at September 30, 2000.
The Company believes that its interest rate exposure management policies,
including the use of derivative financial instruments, are adequate to manage
market risk exposure.
Securitizations:
In conjunction with its asset-backed securitizations, the Company recognizes
gains representing the present value of estimated future cash flows the Company
will receive over the estimated outstanding period of the asset securitization.
These future cash flows consist of an estimate of the excess of finance charges
and fees over the sum of the return paid to certificate holders, contractual
servicing fees, and credit losses along with the future finance charges and
principal collections related to interests in the customer receivables retained
by the Company. These estimates are calculated utilizing the current
performance trends of the receivable portfolios. Certain estimates inherent
in determining the present value of these estimated future cash flows are
influenced by factors outside the Company's control, and, as a result, could
materially change in the near term.
Foreign currency exchange rates:
The Company is subject to foreign currency exchange risk related to its
Canadian operations, as well as its joint venture investments in Germany and
Japan. The Company is party to certain transactions with the above joint
ventures that are denominated in foreign currencies. The Company monitors the
exchange rates related to these currencies on a continual basis and will
enter into forward derivative contracts for foreign currency when deemed
advantageous based on current pricing and historical information. The
Company believes that its foreign exchange risk and the effect of this
hedging activity are not material due to the size and nature of the above
operations.
ACCOUNTING STANDARDS
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities," and No. 138, "Accounting for
Certain Derivative Instruments and Certain Hedging Activities," establish
accounting and reporting standards for derivatives and for hedging activities.
As issued, SFAS No. 133 was effective for all fiscal quarters of all fiscal
years beginning after June 15, 1999. In June 1999, SFAS No. 137 was issued,
effectively deferring the date of required adoption of SFAS No. 133 to fiscal
quarters of all fiscal years beginning after June 15, 2000. Due to its limited
use of derivative instruments, the Company does not expect the adoption of the
above standards to have a material effect on the consolidated results of
operations or financial position. The Company will adopt SFAS No. 133 and
SFAS No. 138, as required, in fiscal year 2001.
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Statement of Financial Accounting Standards (SFAS) No. 140, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities," supercedes SFAS No. 125. SFAS 140 requires additional
disclosures relating to securitized financial assets, retained interests in
securitized financial assets, and collateral for fiscal years ending after
December 15, 2000. In addition, SFAS No. 140 establishes new conditions for an
entity to be a qualifying special purpose entity and clarifies under what
conditions a transferor has retained effective control over transferred assets.
The updated rules for transfers of financial assets are effective for transfers
occurring after March 31, 2001 and generally do not affect the accounting for
previous transfers. Early adoption of the new rules is not allowed. The Company
has not yet determined what impact SFAS No. 140 might have on its consolidated
financial position and results of operations.
FORWARD-LOOKING STATEMENTS
This report contains statements that are forward-looking within the meaning of
applicable federal securities laws and are based upon the Company's current
expectations and assumptions, which are subject to a number of risks and
uncertainties that could cause actual results to differ materially from those
anticipated. Potential risks and uncertainties include, but are not limited
to, factors such as the 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, risks
associated with collections on the Company's credit card portfolios, interest
rate fluctuations, postal rate increases, paper and printing costs, 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 Annual Report on Form 10-K.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SPIEGEL, INC.
<TABLE>
<CAPTION>
Signature Title Date
------------------------- -------------------------- ----------------
<C> <S> <C>
/s/ James W. Sievers Office of the President and November 14, 2000
James W. Sievers Chief Financial Officer
(Principal Operating
Executive Officer and
Principal Financial
and Accounting Officer)
</TABLE>
