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UNITED STATES
SECURITIES AND EXCHANGE COMMMISSION
Washington, D.C. 20549
FORM 10-Q
(▇▇▇▇ One)
/X/ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarter ended September 30, 1995
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 ▇▇-▇▇▇▇▇▇▇
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
(Address of principal executive offices) (Zip Code)
708-986-8800
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check ▇▇▇▇ 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 8, 1995 are as follows:
Class A non-voting common stock, $1.00 par value
14,604,844 shares
Class B voting common stock, $1.00 par value
93,141,654 shares.
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SPIEGEL, INC. AND SUBSIDIARIES
Due to the seasonality of the registrant's business, the results for the three
and nine month periods are not necessarily indicative of the results for the
year. The financial statements have been prepared from the books and records of
the registrant. They reflect all adjustments which are, in the opinion of
management, necessary to a fair presentation of the results for the interim
periods. These financial statements should be read in conjunction with the
consolidated financial statements and the notes thereto included in the
registrant's Annual Report on Form 10-K, which includes financial statements
for the year ended December 31, 1994.
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Consolidated Balance Sheets, September 30, 1995 and December 31, 1994
Consolidated Statements of Earnings,
Three and Nine Months Ended September 30, 1995 and October 1, 1994
Consolidated Statements of Cash Flows,
Three and Nine Months Ended September 30, 1995 and October 1, 1994
Notes to Consolidated Financial Statements
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
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Spiegel, Inc. and Subsidiaries
Consolidated Balance Sheets
($000s omitted, except per share amounts)
September 30, 1995 and December 31, 1994
(unaudited)
September 30, December 31,
1995 1994
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ASSETS
Current assets:
Cash and cash equivalents $ 32,092 $ 33,439
Receivables, net 848,160 1,125,728
Inventories 708,514 597,781
Prepaid expenses:
Catalog advertising 60,214 51,524
Other 36,931 29,446
Deferred income tax benefit 96,377 70,484
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Total current assets 1,782,288 1,908,402
Property and equipment, net 401,912 335,103
Intangibles, net 176,966 180,446
Other assets 157,261 136,336
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$ 2,518,427 $ 2,560,287
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LIABILITIES and STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt,including current maturities $ 302,260 $ 80,320
Accounts payable 218,307 265,752
Indebtedness to related parties-current 52,743 --
Accrued liabilities:
Salaries and wages 20,717 31,114
General taxes 109,567 118,266
Other accrued liabilities 99,980 132,894
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Total current liabilities 803,574 628,346
Long-term debt, excluding current maturities 1,150,911 1,300,364
Deferred income taxes 52,310 52,360
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Total liabilities 2,006,795 1,981,070
Stockholders' equity:
Class A non-voting common stock,
$1.00 par value; authorized 16,000,000
shares; issued 14,604,844 shares
at September 30, 1995 and 15,065,244 at
December 31, 1994 14,605 15,065
Class B voting common stock,
$1.00 par value; authorized 94,000,000
shares; issued 93,141,654 shares
at September 30, 1995 and December 31, 1994 93,142 93,142
Additional paid-in capital 211,761 215,800
Retained earnings 192,124 255,210
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Total stockholders' equity 511,632 579,217
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$ 2,518,427 $ 2,560,287
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[FN]
See accompanying notes to consolidated financial statements.
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Spiegel, Inc. and Subsidiaries
Consolidated Statements of Earnings
($000s omitted, except per share amounts)
Fiscal Periods Ended September 30, 1995 and October 1, 1994
(unaudited)
Three Months Ended None Months Ended
September 30, October 1, September 30, October 1,
1995 1994 1995 1994
----------- ----------- ----------- -----------
Net sales and other revenues:
Net sales $ 619,632 $ 565,806 $1,837,252 $1,715,179
Finance revenue 49,390 58,771 158,719 173,978
Other revenue 16,901 24,787 68,859 57,418
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685,923 649,364 2,064,830 1,946,575
Cost of sales and operating expenses:
Cost of sales, including buying and
occupancy expenses 431,399 384,107 1,274,601 1,145,691
Selling, general and administrative
expenses 268,297 238,244 797,214 713,156
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699,696 622,351 2,071,815 1,858,847
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Operating income (loss) (13,773) 27,013 (6,985) 87,728
Interest expense 26,358 22,034 76,217 59,532
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Earnings (loss) before income taxes (40,131) 4,979 (83,202) 28,196
Income tax provision (benefit) (17,513) 2,181 (36,309) 12,350
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Net earnings (loss) $ (22,618) $ 2,798 $ (46,893) $ 15,846
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Net earnings (loss) per common share $ (0.21) $ 0.03 $ (0.43) $ 0.15
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Weighted average number of common
shares outstanding 107,736,680 108,197,629 107,868,490 108,180,484
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----------- ----------- ----------- -----------
See accompanying notes to consolidated financial statements.
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Spiegel, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
($000s omitted)
Nine Months Ended September 30, 1995 and October 1, 1994
(unaudited)
Nine Months Ended
September 30, October 1,
1995 1994
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Net cash provided by (used in) operating activities $ 10,427 $ (191,255)
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Cash flows from investing activities:
Net additions to property and equipment (101,868) (58,142)
Net additions to other assets (13,715) (30,134)
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Net cash used in investing activities (115,583) (88,276)
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Cash flows from financing activities:
Borrowings of debt 306,351 288,198
Payments of debt (181,851) (7,600)
Dividends paid (16,192) (16,227)
Issuance of common stock 0 6,894
Repurchase of common stock (4,742) 0
Exercise of stock options 243 342
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Net cash provided by financing activities (103,809) 271,607
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Net change in cash and cash equivalents (1,347) (7,924)
Cash and cash equivalents at beginning of period 33,439 47,389
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Cash and cash equivalents at end of period $ 32,092 $ 39,465
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Supplemental cash flow information:
Cash paid during the year for:
Interest $ 72,132 $ 52,738
Income taxes $ 5,351 $ 59,885
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See accompanying notes to consolidated financial statements.
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Spiegel, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
($000s omitted, except share amounts)
(unaudited)
(1) Adjustments
The financial statements reflect all adjustments, consisting only of normal
accruals, which are, in the opinion of management, necessary to a fair
presentation of the results for the periods presented.
(2) Reclassifications
Certain prior year amounts have been reclassified to conform to the
current presentation.
(3) Receivables
During the first quarter of 1995, the Company transferred portions of its
customer receivables to a trust which, in turn, sold certificates
representing undivided interests in the trust to investors. Certificates sold
were $350,000. This transaction increased other revenue by $18,637 in the
first quarter. The Company owns the remaining undivided interest in the trust
not represented by the certificates and will continue to service all
receivables for the trust.
(4) Treasury Stock
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. As discussed in the 1994 Annual Report on Form 10-K, the Executive
Committee of the Board of Directors approved the purchase and retirement of
up to 500,000 shares.
(5) Indebtedness to related parties - current
During the third quarter of 1995, the Company received a subordinated loan
from 3 Suisses BVG (a wholly owned subsidiary of ▇▇▇▇ Versand) for 75 million
Deutschemarks payable by December 31, 1995 bearing interest at a rate of 4.7%.
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Item 2.
Management's Discussion and Analysis
of Financial Condition and Results of Operations
(000's omitted except per share amounts)
Results of Operations
Three Months Ended September 30, 1995 As Compared To Three Months
Ended October 01, 1994
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Net sales for the three months ended September 30, 1995, were $619,632, a 10%
increase from $565,806 for the three months ended October 1, 1994. This
increase in the quarter was driven by retail sales which were 23% above the
third quarter 1994 levels. ▇▇▇▇▇ ▇▇▇▇▇ had 395 stores at the end of the
third quarter of 1995 as compared to 328 at the same time in 1994. ▇▇▇▇▇
▇▇▇▇▇ comparable store sales increased 4% for the quarter. Catalog sales
increased 2% for the quarter as compared to 1994 despite a reduction in the
number of catalogs circulated.
Finance revenues decreased 16% during the quarter due primarily to a net
decrease in the receivables owned by the Company. There were $830,000 and
$480,000 of receivables sold at September 30, 1995 and October 1, 1994,
respectively. Other revenue for the third quarter of 1994 includes a gain
of $10,658 recognized on the sale of $150,000 of Preferred Card receivables
in September, 1994.
The gross profit margin on net sales was 30.4% and 32.1% for the three month
periods ended September 30, 1995 and October 1, 1994, respectively. Catalog
margins declined from 1994 reflecting the effects from a shift in the mix of
catalog sales towards home products as a result of weaker apparel sales.
Home products generally carry a lower gross profit margin than apparel. The
overall decline in gross profit margin for the quarter is also effected by a
higher level of retail sales generated from the outlet divisions at lower
gross profit margins.
Selling, general and administrative expenses as a percentage of total
revenues for the three months ended September 30, 1995 and October 1, 1994
were 39.1% and 36.7%, respectively. This increase is due to the results of
the Company's proprietary credit card, (the Preferred Card). The Company has
experienced higher delinquencies and account charge-offs primarily due to the
current credit card industry trends toward higher delinquencies and account
charge-offs as well as the rapid growth of the Preferred Card portfolio. As
a result of the Company's aggressive new credit customer acquisition
programs, the portfolio mix has shifted toward higher levels of new credit
accounts which typically carry a higher initial credit risk than the more
matured segment of the portfolio. The Company increased its provision for
doubtful accounts during the third quarter of 1995 due to the higher
delinquency rates. In addition, the selling, general and administrative
expense ratio was favorably impacted in the third quarter of 1994 by the
effects of the sale of customer accounts receivable. Since there was no sale
of customer receivables in the third quarter of 1995, the ratio was not
similarly affected. These increases were slightly offset by improvements in
some operating selling, general and administrative expense ratios.
Interest expense for the three months ended September 30, 1995 increased 20%
to $26,358 compared to $22,034 for the three months ended October 1, 1994.
This increase is due to higher average debt levels as well as higher overall
effective interest rates.
Nine Months Ended September 30, 1995 Compared With Nine Months Ended October
1, 1994
Net sales for the nine months ended September 30, 1995 increased 7% to
$1,837,252 compared to $1,715,179 for the nine months ended October 1, 1994.
While total catalog sales remained relatively flat for the first nine months
of 1995 as compared to the same period of 1994, total retail sales increased
approximately 21%. This increase in retail sales was fueled primarily by an
increase in the number of total ▇▇▇▇▇ ▇▇▇▇▇ retail stores to 395 at September
30, 1995 from 328 at October 1, 1994. ▇▇▇▇▇ ▇▇▇▇▇ comparable store sales
increased 1% during the nine months ended September 30, 1995 as compared to
1994.
Finance revenues decreased 9% during the nine month period ended September
30,1995 as compared to the same period of 1994 due to the decrease of
receivables owned by the Company as noted above. Other revenue for the first
nine months of 1995 includes a gain of $18,637 recognized on the sale of
$350,000 of Preferred Card receivables in March, 1995, and other revenue for
the first nine months of 1994 includes a gain of $10,658 recognized on the
sale of $150,000 of Preferred Card receivables in September, 1994.
The gross profit margin on net sales declined to 30.6% for the nine months
ended September 30, 1995 compared to 33.2% for the comparable 1994 period.
This decline is the result of several factors including a higher level of
retail sales generated from the outlet divisions, a shift in the mix of
catalog sales towards lower gross profit margin home products as a result of
weaker apparel sales, and aggressive markdowns taken in the first quarter to
liquidate excess inventories remaining from 1994.
Selling, general and administrative expenses as a percentage of total
revenues were 38.6% for the nine months ended September 30, 1995 and 36.6%
for the comparable period in 1994. There are several issues impacting this
increase on a year-to-date basis for 1995. The costs of producing and
mailing catalogs has increased due to significantly higher paper costs and
the postal rate increase effected in January, 1995. Also, the Company
incurred higher warehouse related costs during the first half of 1995 during
the transition of Spiegel catalog operations to the new distribution facility
in Groveport, Ohio. The operating efficiencies from this facility are
beginning to be realized and are expected to improve during the higher volume
holiday season. Finally, as discussed above, the increased credit card
charge-off rate particularly in the third quarter has resulted in additional
selling, general and administrative expenses for the Company.
The 28% increase in interest expense for the nine months ended September 30,
1995 as compared to the nine months ended October 1, 1994 is driven by higher
debt levels throughout the year as well as higher interest rates.
Seasonality and Quarterly Fluctuations:
The Company, like other retailers, experiences seasonal fluctuations in its
merchandise sales and net income. Historically, a disproportionate amount of
the Company's net sales and a majority of its net earnings have been realized
during the fourth quarter. Accordingly, the results for the individual
quarters are not necessarily indicative of the results to be expected for the
entire year.
Liquidity and Capital Resources:
The Company has historically met its operating and cash requirements through
funds generated from operations, the issuance of debt and the sale of
customer accounts receivable. Total customer receivables sold were $830,000
at September 30, 1995 and $480,000 at December 31, 1994.
Net cash provided by operating activities was $10,427 for the nine month
period ended September 30,1995 as compared to net cash used of $191,255 for
the nine month period ended October 1, 1994. The net cash proceeds from the
sales of $350,000 and $150,000 of accounts receivable were reported as
operating cash flows in the nine months ended September 30, 1995 and October
1, 1994, respectively. During the first nine months of 1995, significant
uses of cash for operating activities were funding seasonal increases in
inventory and receivables, and decreases in accounts payable and other
accrued liabilities as well as the Company's net loss.
Net additions to property and equipment for the nine months ended September
30, 1995 were $101,868 consisting primarily of capital spending related to
the new retail distribution facility in Columbus, OH, continued ▇▇▇▇▇ ▇▇▇▇▇
retail store expansion, and the construction of a corporate headquarters
addition at ▇▇▇▇▇ ▇▇▇▇▇.
The Company purchased and retired 500,000 shares of Class A Non-Voting Common
Stock at a total cost of $4,742 during the first nine months of 1995. The
shares were purchased at market value, and they represent less than one
percent of the Company's total shares outstanding. No additional shares are
currently approved for repurchase.
During the nine months ended September 30, 1995, the Company incurred
approximately $7,700 of expenditures related to the $39,000 nonrecurring
charge taken in 1993. The charge provided for the estimated impact of
closing certain of the Company's existing catalog distribution facilities.
Expenditures incurred during the first nine months of 1995 were primarily for
certain employee termination benefits as well as inventory transfers from
Spiegel warehouse operations in Chicago to the new facility in Groveport,
Ohio. The remaining balance of the reserve at September 30, 1995, was
$8,200.
The Company believes that its cash on hand, together with cash flows
anticipated to be generated from operations, borrowings under its existing
credit facilities and other available sources of credit, will be adequate to
fund the Company's capital and operating requirements for the foreseeable
future.
In March, 1995, SFAS 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 Company has not yet adopted this policy and is not required to adopt it
until the 1996 fiscal year. However, management believes that the effects of
adoption of this statement will be immaterial.
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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.
Signature Title Date
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/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ Senior Vice President November 14, ▇▇▇▇
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ (Chief Financial Officer)