Annual Report — Form 10-K
Filing Table of Contents
Document/Exhibit Description Pages Size
1: 10-K Annual Report 39± 167K
2: EX-10 Material Contract 63± 197K
3: EX-10 Material Contract 5± 20K
4: EX-10 Material Contract 25± 94K
5: EX-10 Material Contract 5± 19K
6: EX-11 Statement re: Computation of Earnings Per Share 1 7K
7: EX-13 Annual or Quarterly Report to Security Holders 49± 202K
8: EX-21 Subsidiaries of the Registrant 1 8K
9: EX-23 Consent of Experts or Counsel 1 8K
10: EX-27 Financial Data Schedule (Pre-XBRL) 1 9K
11: EX-27 Financial Data Schedule (Pre-XBRL) 1 11K
12: EX-27 Financial Data Schedule (Pre-XBRL) 1 10K
13: EX-99 Miscellaneous Exhibit 6± 32K
EX-99 — Miscellaneous Exhibit
Exhibit 99
CAUTIONARY STATEMENT
REGARDING FORWARD-LOOKING STATEMENTS
Fingerhut Companies, Inc. (the "Company") desires to take
advantage of the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995 and is filing this
cautionary statement in connection with such safe harbor
legislation. The Company's Form 10-K, the Company's Annual
Report to Shareholders, any Form 10-Q or Form 8-K filed by the
Company or any other written or oral statements made by or on
behalf of the Company may also include forward-looking statements
that reflect the Company's current views with respect to future
events and financial performance. The words "believe," "expect,"
"anticipate," "intends," "estimate," "forecast," "project" and
similar expressions identify forward-looking statements.
The Company wishes to caution investors that any forward-
looking statements made by or on behalf of the Company are
subject to uncertainties and other factors that could cause
actual results to differ materially from such statements. These
uncertainties and other factors include, but are not limited to
the factors listed below (many of which have been discussed in
the Company's prior filings with the Securities and Exchange
Commission). Though the Company has attempted to list
comprehensively these important factors, the Company wishes to
caution investors that other factors may in the future prove to
be important in affecting the Company's results of operations and
financial condition. New factors emerge from time to time and it
is not possible for management to predict all of such factors,
nor can it assess the impact of each such factor on the business
or the extent to which any factor, or combination of factors, may
cause actual results to differ materially from those contained in
any forward-looking statements.
Investors are further cautioned not to place undue reliance
on such forward-looking statements as they speak only of the
Company's views as of the date the statement was made. The
Company undertakes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new
information, future events or otherwise.
Importance of Fourth Quarter; Fluctuations in Quarterly Operating
Results
The Company's business is subject to seasonal variations in
demand that the Company believes are generally associated with
the direct marketing and retail industries. Historically, the
Company has realized a significant portion of its sales and net
earnings during the fourth quarter. Over the past several years,
the Company has observed that customers waited until later in the
fourth quarter to order merchandise from the Company's catalogs,
following a trend that has affected the retail industry as a
whole. The Company's annual results could be adversely affected
if the Company's sales were to be substantially below seasonal
norms during the fourth quarter of any year. In addition to
seasonal variations, the Company experiences variances in
quarterly results from year to year that result from changes in
the timing of its promotions and the types of customers and
products promoted and, to some extent, variations in dates of
holidays and the timing of quarter ends.
Holding Company Structure; Effective Subordination
The Company is a holding company and substantially all of
its consolidated assets are held by its subsidiaries.
Accordingly, the cash flow of the Company and the consequent
ability to service its debt, are dependent upon the earnings of
such subsidiaries. Furthermore, the Company's rights, and the
rights of its creditors, to participate in the assets of any
subsidiary upon the subsidiary's liquidation or reorganization
will be subject to the prior claims of such subsidiary's
creditors, except to the extent that the Company may itself be a
creditor with recognized claims against the subsidiary, in which
case the claims of the Company would still be effectively
subordinate to any security interest in, or mortgages or other
liens on, the assets of such subsidiary and would be subordinate
to any indebtedness of such subsidiary senior to that held by the
Company. The Company may borrow up to $200 million under its
existing amended credit facility. All of the available $200 million
under this credit facility is guaranteed by Fingerhut Corporation
("Fingerhut"). At the present time, Metris Companies Inc. ("Metris"),
an 83% owned subsidiary of the Company, may borrow up to $300 million
under its revolving credit facility. Should the Spin Off occur, it is
expected that this guarantee will be released on or before the Spin Off.
All of the available $300 million under this facility is also guaranteed
by Fingerhut. In addition, as of December 26, 1997, the Company had
outstanding $245 million aggregate principal amount of outstanding senior
notes, which are also guaranteed by Fingerhut and Metris had outstanding
$100 million aggregate principal amount of outstanding senior notes,
which are guaranteed by a subsidiary of Metris.
The Company announced in October 1997 that its Board of Directors
had approved the filing of an application with the Internal Revenue
Service (the "IRS") for a ruling on a tax-free distribution to shareholders
of the Company of all of the Company's ownership in Metris (the "Spin-Off").
The Company filed the ruling request with the IRS on October 23, 1997.
The proposed Spin Off, anticipated in 1998, is subject to approval of the
Company's Board of Directors and the receipt of a ruling from the IRS, and
is subject to market conditions. There can be no assurance that the
Spin Off will be consummated. Should the Spin Off not occur, other
actions such as the Company's sale of Metris shares in the open market
and/or Metris' issuance of additional shares via a public offering
will be considered.
Increases in Postal, Paper and Freight Costs
The Company mails its catalogs and ships most of its
merchandise through the United States Postal Service.
The Company anticipates that postage costs will
increase in 1998, however, the amount of such increase and
the implementation date is currently unknown. Additional
increases in postal rates or paper costs may have a material
adverse impact on the Company's results of operations to the
extent that the Company is unable to offset such increase by
raising selling prices or by implementing more efficient mailing,
delivery and order fulfillment systems. Increases in fuel costs
could also adversely affect the Company's costs of incoming and
outgoing freight.
Funding and Securitization Considerations
The Company depends heavily upon the securitization of its
subsidiaries' accounts receivable and credit card loans to fund
its operations and to date has been able to complete
securitization transactions on terms that it believes are
favorable. There can be no assurance, however, that the
securitization market will continue to offer attractive funding
alternatives. In addition, the Company's ability to securitize
the assets of its subsidiaries depends on the continued
availability of credit enhancement on acceptable terms and the
continued favorable legal, regulatory, accounting and tax
environment for securitization transactions. While the Company
does not at present foresee any significant problems in any of
these areas, any such adverse change could force the Company to
rely on other potentially more expensive funding sources. Adverse
changes in the performance of the securitized assets of the
Company's subsidiaries, including increased delinquencies and
losses, could result in a downgrade or withdrawal of the ratings
on the outstanding certificates under these securitization
transactions or cause early amortization of such certificates.
This could jeopardize the ability of the Company's subsidiaries
to effect other securitization transactions on acceptable terms,
thereby decreasing the Company's liquidity and forcing the
Company to rely on other funding sources to the extent available.
The Company's financial statements reflect the treatment of
securitization transactions as sales for accounting purposes under
FAS125. Any change in such accounting treatment could have a
material effect on the Company's financial statements.
Consumer Spending
The Company is not immune to the cyclical nature of consumer
spending and payments. The success of the Company's operations
depends upon a number of economic conditions affecting disposable
consumer income such as employment, business conditions, interest
rates and taxation. Adverse changes in these economic conditions
may restrict consumer spending. There can be no assurance that
weak economic conditions or changes in the retail environment or
other economic factors that have an impact on the level of
consumer spending would not have a material adverse impact on the
Company. In addition, the Company's business depends on customer
response to its solicitations and marketing programs. A material
decrease in response levels would have a significant impact on
profitability.
Credit Risks
The Company is subject to all of the risks associated with
unsecured credit transactions, including (1) the risk of
increasing delinquencies and credit losses during economic
downturns, (2) the risk that an increasing number of customers
will default on the payment of their outstanding balances or seek
protection under bankruptcy laws, resulting in accounts being
charged off as uncollectible, (3) the risk of fraud and (4) in
the case of revolving credit accounts, the risk that increases in
discretionary repayment of account balances by customers will
result in diminished finance charges or other income. Also,
general economic factors, such as the rate of inflation,
unemployment levels and interest rates may affect the Company's
target market customers (moderate income consumers) more severely
than other market segments. In addition, approximately 42% of
Metris' credit card portfolio, as of the date hereof, consists
of accounts that have been generated in the last 18 months and
over 19% were originated within the last 6 months. As a result,
there can be no assurance as to the levels of delinquencies and
losses that can be expected over time with respect to such
portfolio. Until the accounts become seasoned, it is likely
that the levels of delinquencies and losses will increase as
the average age of Metris' accounts increases. Any material
increases in delinquencies and losses above management's expectations
would have a material adverse impact on the Company's results of
operations and financial condition.
Interest Rate Risk
Fingerhut National Bank's closed-end credit card loans and
Fingerhut's remaining closed-end installment sales contracts are
fixed-priced, fixed-term contracts. Fingerhut National Bank's
revolving credit card accounts currently have finance charge rates
of prime plus 16.4 percent. The Company intends to manage interest
rate risk through asset and liability management. Fluctuations in
interest rates may adversely affect the Company's cost of funds.
Regulatory Matters
The Company's business is subject to regulation by a variety
of state and federal laws and regulations related to advertising,
offering and extending credit, charging and collecting state
sales/use taxes and product safety. The Company's practices in
certain of these areas are subject to periodic inquiries and
proceedings by various regulatory agencies. None of these actions
has had a material adverse effect upon the Company. While the
Company believes it is in material compliance with all such laws
and regulations, if the Company is found not to be in compliance
with any such laws and regulations, it could become subject to
cease and desist orders, injunctive proceedings, obligations to
collect additional sales and use taxes, obligations for prior
uncollected sales and use taxes, civil fines and other penalties.
The occurrence of any of the foregoing could adversely affect the
Company's results of operations and financial condition.
Until January 1997, Fingerhut extended credit for its
customers purchases. Fingerhut relied on the Minnesota "time-price"
doctrine in establishing and collecting installment payments on
products sold in many states. Under this doctrine, the difference
between the time price and cash price for the same goods is not
treated as interest subject to regulation under laws governing the
extension of credit. Certain individuals who purchased goods from
Fingerhut filed suit challenging the applicability of the
time-price doctrine to Fingerhut's business.
Direct Merchants Credit Card Bank, National Association
("Direct Merchants Bank") and Fingerhut National Bank are subject
to numerous federal and state consumer protection laws that
impose requirements related to offering and extending credit. The
United States Congress and the states may enact laws and
amendments to existing laws to regulate further the credit card
industry or to reduce finance charges or other fees or charges
applicable to credit card and other consumer revolving loan
accounts. Such laws, as well as any new laws or rulings that may
be adopted, may adversely affect the ability of Direct Merchants
Bank and Fingerhut National Bank to collect on account balances
or maintain previous levels of periodic rate finance charges and
other fees and charges with respect to the accounts. Any failure
by the Company to comply with such legal requirements also could
adversely affect its ability to collect the full amount of the
account balances. Fingerhut National Bank and Direct Merchants
Bank are also subject to regulation by the Federal Reserve Board,
the Federal Deposit Insurance Corporation and the Office of the
Comptroller of the Currency. Such regulations include limitations
on the extent to which Fingerhut National Bank or Direct
Merchants Bank can finance or otherwise supply funds to their
respective affiliates through dividends, loans or otherwise.
Changes in federal and state bankruptcy and debtor relief
laws also could adversely affect the Company if such changes
result in, among other things, additional administrative expenses
and accounts being written off as uncollectible.
Foreign Suppliers
Fingerhut purchases, directly or indirectly, a significant
portion (approximately 46% in fiscal 1997) of its merchandise
from foreign suppliers. Although substantially all of the
Company's foreign purchases are denominated in U.S. dollars, the
Company is subject to the risks of doing business abroad,
including increases in import duties, decreases in quotas,
adverse fluctuations in currency exchange rates, increased
customs regulations and political turmoil. The occurrence of any
of the foregoing could adversely affect the Company's earnings.
Competition
The direct marketing industry includes a wide variety of
specialty and general merchandise retailers and is both highly
fragmented and highly competitive. The Company's Direct-to-the
Consumer Marketing segment sells its products to customers in all
states of the United States and competes in the purchase and sale
of merchandise with all retailers, including general and
specialty catalog marketers, television shopping marketers,
retail department stores, discount department stores and variety
stores, many of which are national chains. The loss of any
significant portion of the Company's market share to other
retailers could adversely affect the Company's earnings.
As a marketer of consumer credit products, Metris faces
increasing competition from numerous providers of financial
services, many of which have greater resources than Metris. In
particular, Metris' credit card business competes with national,
regional and local bank card issuers as well as issuers of other
general purpose credit cards, such as American Express, Discover
Card and Diners Club. Many of these issuers are substantially
larger and have more seasoned credit card portfolios than the
Company and often compete for customers by offering lower
interest rates or fee levels. In general, customers are attracted
to credit card issuers largely on the basis of price, credit
limit and other product features and customer loyalty is often
limited.
Dates Referenced Herein
| This ‘10-K’ Filing | | Date | | Other Filings |
|---|
| |  |
| Filed on: | | 3/25/98 | | None on these Dates |
| For Period End: | | 12/31/97 |
| | 12/26/97 |
| | 10/23/97 |
| List all Filings |
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