Document/Exhibit Description Pages Size
1: 10-K Annual Report 21 121K
2: EX-3 Ex-3(A) Articles of Incorporation 12± 48K
3: EX-3 Ex-3(B) Bylaws 24± 58K
4: EX-10 Ex-10.E Incentive Plan 6± 20K
5: EX-10 Ex-10.K Bonus Plan 5± 23K
6: EX-10 Ex-10.M Directors Plan 6± 26K
7: EX-11 Statement re: Computation of Earnings Per Share 2± 9K
8: EX-13 Annual or Quarterly Report to Security Holders 32± 131K
9: EX-22 EX-22 Subsidiaries 1 5K
10: EX-23 EX-23 Consent of Auditors 1 7K
EX-13 — Annual or Quarterly Report to Security Holders
Exhibit Table of Contents
FINGERHUT COMPANIES, INC. AND SUBSIDIARIES
FIVE YEAR SUMMARY OF SELECTED CONSOLIDATED FINANCIAL DATA
(In thousands of dollars, except per share data)
[Enlarge/Download Table]
For the fiscal year ended
December 31, December 25, December 27, December 28, December 29,
1993 1992 1991 1990 1989
Earnings data:
Revenues $ 1,807,908 $ 1,606,114 $ 1,428,428 $ 1,247,997 $ 1,110,518
Earnings before taxes $ 111,879 $ 93,930 $ 81,398 $ 74,139 $ 61,596
Net earnings $ 75,328 $ 61,806 $ 53,558 $ 47,715 $ 39,427
Net earnings as a percent of revenues 4.2% 3.8% 3.7% 3.8% 3.6%
Per share:
Earnings (a) $ 1.50 $ 1.19 $ 1.07 $ .98
Dividends declared (a) $ .16 $ .16 $ .16 $ .08
At fiscal year-end
Financial position data:
Total assets $ 971,977 $ 925,649 $ 801,999 $ 651,162 $ 497,818
Total current debt $ 305 $ 333 $ 62,853 $ 87,284 $ 4,713
Long-term debt and capitalized lease, less
current portion $ 246,820 $ 247,190 $ 119,164 $ 15,015 $ 21,566
Total stockholders' equity $ 472,389 $ 399,591 $ 384,149 $ 318,600 $ 295,840
<FN>
(a) Based on a weighted average of 50,101,739, 51,937,936, 49,960,546 and
48,565,694 shares of common stock and common stock equivalents for the
fiscal years ended December 31, 1993, December 25, 1992, December 27,
1991 and December 28, 1990, respectively. Prior to 1990, the Company
was privately held; accordingly, no earnings per share or dividend
disclosure was made for 1989.
On September 3, 1993, the Company sold certain assets of COMB. In
addition, the Company sold certain assets of FDC, a subsidiary of Figi's,
effective as of December 31, 1993, and has signed a letter of intent to
sell the remaining assets of Figi's. The Company anticipates finalizing
this transaction in early 1994. The effects of these transactions were
recorded in 1993.
Bar Graph depicting Price/Earnings Ratio for the last four years:
1993 18.8
1992 12.6
1991 12.2
1990 8.2
Bar Graph depicting Book Value/Share for the last four years:
1993 $10.24
1992 $ 8.73
1991 $ 8.06
1990 $ 6.93
FINGERHUT COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
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, from variations in
dates of holidays and the timing of the quarter ends resulting from a 52/53
week fiscal year. Fiscal year 1993 included 53 weeks compared to 52 weeks
in both 1992 and 1991. In addition, the individual cost components (product
cost, administrative and selling expenses, and provision for uncollectible
accounts) and gross margin as a percent of net sales may vary from period to
period due to the different types of products, mail programs and customers
promoted.
Highlights of operations:
For the fiscal year ended
1993 1992 1991
Percent of net sales
------------------------
Finance income, net 10.6% 9.2% 8.7%
Product cost 50.3 48.4 47.3
Administrative and selling expenses 37.9 38.0 37.9
Provision for uncollectible accounts 11.9 12.7 13.6
Percent of revenues
------------------------
Discount on sale of accounts receivable 1.5% 1.4% 1.7%
Interest expense, net 1.9 2.1 1.7
Earnings before taxes 6.2 5.8 5.7
Provision for income taxes 2.0 2.0 2.0
Net earnings 4.2 3.8 3.7
Bar Graph depicting Working Capital for the last four years (in millions):
1993 $449.2
1992 $413.0
1991 $298.2
1990 $174.4
1993 COMPARED WITH 1992
In 1993, the Company achieved record levels of net earnings and revenues.
Operating results reflected strong performance from Fingerhut Corporation's
("Fingerhut") existing customer list and new customer acquisition programs
as well as improved earnings performance from the Company's other
subsidiaries. The results included higher fulfillment costs and a planned
increase in depreciation expense.
Certain assets of COMB Corporation ("COMB"), a subsidiary of the Company,
were sold on September 3, 1993. In addition, the Company sold certain
assets of FDC, Inc., a subsidiary of Figi's Inc. ("Figi's"), effective as of
December 31, 1993 and has signed a letter of intent to sell the remaining
assets of Figi's. The Company anticipates finalizing this transaction in
early 1994. The effects of these transactions were recorded in 1993 and did
not have a material impact on earnings.
Fiscal 1993 net sales were $1.634 billion compared to $1.471 billion for
1992, an increase of 11% or 15% excluding COMB. Fingerhut had net sales of
$1.414 billion compared to $1.216 billion in 1992, a 16% increase. Net
sales from Fingerhut's existing customer list increased 21% to $1.171
billion from $970 million for 1992 primarily as a result of increased
mailings and higher sales per mailing. Net sales from Fingerhut's new
customer acquisition programs were $243 million compared to $246 million in
1992. During 1993, Fingerhut acquired approximately 190 thousand more new
customers than it did in the prior year. Net sales from USA Direct
Incorporated ("USA Direct") were $70 million compared to $59 million for the
prior year. Net sales from Figi's were $66 million compared to $76 million
in 1992 as a result of a planned reduction in mailings. Net sales from COMB
(which was sold on September 3, 1993) were $65 million compared to $103
million for the full year of 1992.
Net finance income for the year was $173.9 million compared to $135.5
million in 1992. The improvement in finance income was primarily due to
increased sales from Fingerhut's existing customers and lengthened payment
plans.
Product cost for the year was $821.4 million, or 50.3% of net sales,
compared to $711.8 million, or 48.4% of net sales, for the prior year. The
increase as a percent of net sales resulted primarily from the price/value
strategy implemented in the fall of 1992 and, to a lesser extent, higher
fulfillment costs, partially offset by the sale of COMB (which had higher
product cost as a percent of net sales).
Administrative and selling expenses for 1993 were $619.0 million, or 37.9%
of net sales, compared to $558.4 million, or 38.0% of net sales, in the
prior year. Planned higher depreciation costs were more than offset by
improved sales per advertising dollar from Fingerhut's existing and new
customers, an increased proportion of sales from Fingerhut's existing
customers (which have a lower advertising cost as a percent of net sales)
and, to a much lesser extent, improved performance of Montgomery Ward
Direct.
The provision for uncollectible accounts was $194.5 million, or 11.9% of net
sales, compared with $186.4 million, or 12.7% of net sales for the prior
year. The decrease in the percent of net sales was due to lower delinquency
rates on sales from Fingerhut's new customer acquisition programs and an
increase in the proportion of sales from Fingerhut's existing customers
(which have a lower provision for uncollectible accounts as a percent of net
sales), partially offset by the sale of COMB (which had a lower provision
for uncollectible accounts as a percent of net sales).
Discount on sale of accounts receivable for the year was $26.7 million
compared to $22.3 million for 1992, resulting from an increase in sales from
Fingerhut's existing customers and, accordingly, in the amount of accounts
receivable sold, partially offset by lower average commercial paper rates in
1993.
Net interest expense for the year was $34.5 million compared to $33.3
million in the prior year. The increase was primarily attributable to
interest expense on borrowings related to the Company's repurchase of stock
in December 1992 and the replacement of current debt with higher rate
long-term debt agreements, partially offset by the expiration of $160
million of interest rate swap agreements on June 30, 1993.
The effective tax rate for 1993 was 32.7% compared with 34.2% in the prior
year. As a result of the Omnibus Budget Reconciliation Act of 1993, the
Company recognized a one-time benefit of $2.0 million on the Company's
deferred tax asset and, due to higher rates under the Act, the Company
increased its provision for income taxes by $1.1 million. In addition, the
Company recognized a favorable cumulative effect of $0.3 million due to the
adoption of FAS 109 in the first quarter of 1993.
The above factors resulted in record net earnings for 1993 of $75.3 million,
or $1.50 per share, compared with $61.8 million, or $1.19 per share, for
1992, an increase in earnings per share of 26%.
1992 COMPARED WITH 1991
In 1992, the Company achieved record levels of net earnings and revenues,
primarily from improved customer response during the fourth quarter.
Fingerhut implemented its price/value strategy in the fall of 1992 which
lowered selected retail prices across all product lines (reducing gross
margins) and lengthened selected payment plans, both of which were designed
to increase customer response, thereby reducing advertising expense as a
percent of net sales.
The Company's net sales in 1992 were $1.471 billion compared to $1.315
billion in 1991, an increase of 12%. Net sales from Fingerhut were $1.216
billion compared to $1.075 billion in 1991, an increase of 13%. Net sales
from Fingerhut's existing customer list increased more than 12% as a result
of increased mailings and list growth, partially offset by lower sales per
mailing. Net sales from Fingerhut's new customer acquisition programs
increased 16% primarily due to the shift in 1992 to catalogs and other
multiproduct offerings from mass media promotions. COMB's net sales were
$103 million compared to $123 million in 1991 and net sales from Figi's were
$76 million compared to $89 million in the prior year. The decreases for
COMB and Figi's were due to planned reductions or elimination of mailings to
certain customer segments, which were partially offset by improved sales per
mailing. Net sales from USA Direct were $59 million compared to $7 million
in 1991, its start-up year.
Net finance income for the year increased to $135.5 million from $113.8
million in 1991, primarily due to increased sales from Fingerhut's existing
customer list and new customer acquisition programs, lengthened payment
plans offered to Fingerhut's customers and an increase in the percent of
accounts receivable sold.
Product cost was $711.8 million or 48.4% of 1992 net sales compared to
$621.5 million or 47.3% of net sales for the prior year. The increase as a
percent of net sales was largely due to the price/value strategy implemented
in the fall of 1992 and, to a lesser extent, the higher shipping labor costs
related to the start-up of the Tennessee distribution center.
Bar Graph depicting Market Value for the last four years (in millions):
1993 $1,298
1992 $ 683
1991 $ 623
1990 $ 368
Administrative and selling expenses increased to $558.4 million or 38.0% of
net sales from $497.8 million or 37.9% of net sales in the prior year
primarily due to increased mailings to Fingerhut's customer list and higher
promotional expenses for USA Direct. Fingerhut experienced lower sales per
advertising dollar spent on its existing customer list during the first
three quarters, partially offset by improved sales per advertising dollar
spent on its existing customer list in the fourth quarter and improved sales
per advertising dollar spent on its new customer acquisition programs. In
addition, the Company's share of the start-up pre-tax loss of the Montgomery
Ward Direct joint venture was included in administrative expenses.
Provision for uncollectible accounts was $186.4 million, or 12.7% of net
sales, in 1992, compared with $179.1 million, or 13.6% of net sales, in
1991. The decrease as a percent of net sales was primarily due to
improvements in Fingerhut's new customer acquisition programs as well as
improvements in Figi's and COMB. The dollar increase was primarily due to
higher revenues.
Discount on sale of accounts receivable for the year was $22.3 million
compared to $24.5 million for 1991. The decrease was due to lower average
commercial paper rates in 1992, partially offset by an increase in the
average amount of accounts receivable sold.
Net interest expense for the current year was $33.3 million compared to
$24.2 million last year. The increase of $9.1 million was attributable to
amounts payable under the interest rate swap agreements, which were entered
into in the second quarter of 1990 to provide a fixed 9.5% rate of interest
on $260.0 million, as well as higher average borrowings.
The provision for income taxes in both 1992 and 1991 was 34.2% of earnings
before taxes.
The above factors resulted in record net earnings for 1992 of $61.8 million,
an increase of 15%, or $1.19 per share, compared to net earnings of $53.6
million, or $1.07 per share, in 1991.
Bar Graph depicting Total Assets for the last four years (in millions):
1993 $972.0
1992 $925.6
1991 $802.0
1990 $651.2
LIQUIDITY AND CAPITAL RESOURCES
The Company funds its operations through internally generated funds, the
sale of accounts receivable pursuant to the Receivables Transfer Agreement,
borrowings under the Revolving Credit Facility, issuance of long-term debt
and issuance of common stock.
Under the Receivables Transfer Agreement, Fingerhut sells, on a continuous
basis, an undivided interest in a pool of customer accounts receivable
subject to meeting certain eligibility requirements. Proceeds received from
these sales were $829.0 million as of December 31, 1993 and $653.0 million
as of December 25, 1992. The Receivables Transfer Agreement was amended and
restated in July 1993 to increase the aggregate commitments under the
Agreement from $700.0 million to $900.0 million through the addition of a
third purchaser of receivables under the Agreement. On March 14, 1994, the
expiration date of the Receivables Transfer Agreement was extended to July
29, 1994. The Company believes a replacement of the Receivables Transfer
Agreement will be completed prior to the expiration date and on acceptable
terms.
In October 1993, the Company amended and restated its Revolving Credit
Facility. The amended and restated facility provides for aggregate
commitments of $250.0 million, which includes the issuance of up to $125.0
million in letters of credit. As of December 31, 1993 and December 25,
1992, the Company had no borrowings under the Revolving Credit Facility but
had outstanding letters of credit of $42.6 million and $48.2 million,
respectively. A total of $125.0 million of the commitment matures in
October 1994 and the remaining $125.0 million matures in October 1997. The
Company believes a replacement of the October 1994 maturity will be
completed prior to the expiration date and on acceptable terms.
In August 1993, the Company issued $45.0 million of 6.83% Senior Unsecured
Notes, Series C, due August 2000, through a private placement with
institutional investors. The proceeds were used to refinance a $45.0
million term loan that had been used to finance the repurchase of Company
common stock in December 1992. The Company had an aggregate amount of fixed
rate notes outstanding of $245.0 million as of December 31, 1993 and $200.0
million as of December 25, 1992.
The Company generated $10.0 million in cash from operations in 1993 compared
to $102.2 million in 1992. This net $92.2 million decrease in cash from
operations resulted from increased working capital requirements which more
than offset the $13.5 million increase in earnings and $11.7 million
increase in non-cash depreciation expense. The most significant items
affecting working capital were increases in customer accounts receivable and
inventory and decreases in accounts payable. The change in customer
accounts receivable from a $10.7 million source of cash in 1992 to a $41.6
million use of cash in 1993 resulted from increased sales to existing
customers in 1993 which, unlike 1992, were not offset by the increase in the
percent of accounts receivable sold as a result of the 1992 amendment to the
Receivables Transfer Agreement. Inventories increased $27.7 million in 1993
primarily due to higher purchases reflecting planned increases in future
sales. The $27.3 million decrease in accounts payable compared to the $23.9
million increase in 1992 was due to the additional week of activity during
1993 and the timing of purchases and disbursements.
The Company's use of cash for investment activities of $51.8 million in 1993
was consistent with the 1992 level. It was partially offset in 1993 by the
$26.9 million in proceeds received from business divestitures during the
year.
In 1994, the Company has obligations to provide up to an additional $5.0
million of capital to Montgomery Ward Direct. At December 31, 1993, the
Company's aggregate capital investment in Montgomery Ward Direct was $5.0
million.
During 1991, the Company began a long-range plan to replace and enhance its
management information systems. The Company anticipates continued
significant expenditures over the next several years, a portion of which
will be capitalized. The capitalized expenditures for 1993, 1992 and 1991
were approximately $28.9 million, $24.2 million and $31.1 million,
respectively. Depreciation began in 1992 as the projects were completed.
Future annual expenditures are expected to be in the range of the previous
three years.
The lessor of certain office and warehouse facilities leased by the Company
has the right to require the Company to purchase those facilities for
approximately $15.2 million in 1994. The Company believes that the lessor
will exercise this right in 1994.
The Company believes it will have sufficient funds available to meet current
and future commitments. For further discussion of the above financing
arrangements, see the Notes to Consolidated Financial Statements.
On January 20, 1994, the Company declared a cash dividend of $.04 per share,
or an aggregate of $1.8 million, payable on February 24, 1994 to the
shareholders of record as of the close of business on February 3, 1994.
EFFECTS OF INFLATION AND FOREIGN EXCHANGE
Since the Company's inventory turns approximately four times a year, the
product cost reported in the financial statements, on a first-in, first-out
basis, would not have been materially different from the product cost at
current prices. Also, since the Company does not rely on any particular
product group or brand, management believes that the Company can adjust its
product mix to reduce the effects of price changes on its overall
merchandise base.
Due to the timing of the Company's promotions, the Company is generally able
to reflect cost increases and decreases resulting from the effects of
inflation and foreign currency fluctuations in its selling prices. In
addition, most foreign purchase orders are denominated in U.S. dollars.
Accordingly, the results of operations for the periods discussed have not
been significantly affected by these factors.
Bar Graph depicting Stockholders' Equity for the last four years (in millions):
1993 $472.4
1992 $399.6
1991 $384.1
1990 $318.6
FINGERHUT COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands of dollars, except per share data)
[Enlarge/Download Table]
For the fiscal year ended
December 31, December 25, December 27,
1993 1992 1991
Revenues:
Net sales $ 1,634,009 $ 1,470,628 $ 1,314,636
Finance income, net 173,899 135,486 113,792
--------- --------- ---------
1,807,908 1,606,114 1,428,428
Costs and expenses:
Product cost 821,357 711,764 621,531
Administrative and selling expenses 619,009 558,416 497,770
Provision for uncollectible accounts 194,494 186,372 179,085
Discount on sale of accounts receivable 26,713 22,325 24,460
Interest expense, net 34,456 33,307 24,184
--------- --------- ---------
1,696,029 1,512,184 1,347,030
--------- --------- ---------
Earnings before taxes 111,879 93,930 81,398
Provision for income taxes 36,551 32,124 27,840
--------- --------- ---------
Net earnings $ 75,328 $ 61,806 $ 53,558
========= ========= =========
Earnings per share $ 1.50 $ 1.19 $ 1.07
========= ========= =========
Weighted average shares 50,101,739 51,937,936 49,960,546
========== ========== ==========
See accompanying Notes to Consolidated Financial Statements.
FINGERHUT COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(In thousands of dollars)
[Enlarge/Download Table]
December 31, December 25,
1993 1992
ASSETS
Current assets:
Cash and cash equivalents $ 66,571 $ 86,682
Customer accounts receivable, net 333,543 320,692
Inventories, net 149,389 147,415
Promotional material 56,083 49,649
Deferred income taxes 68,404 69,368
Other 8,218 8,308
----------- -----------
Total current assets 682,208 682,114
Property and equipment, net 182,510 167,697
Excess of cost over fair value of net assets acquired, net 43,977 47,506
Customer lists, net 10,067 15,692
Other assets 53,215 12,640
----------- -----------
$ 971,977 $ 925,649
=========== ===========
LIABILITIES
Current liabilities:
Accounts payable $ 120,307 $ 151,419
Accrued payroll and employee benefits 36,545 36,098
Other accrued liabilities 49,639 60,546
Current portion of long-term debt 305 333
Current income taxes payable 26,179 20,717
----------- -----------
Total current liabilities 232,975 269,113
Long-term debt, less current portion 246,820 247,190
Deferred income taxes 15,459 5,940
Other non-current liabilities 4,334 3,815
----------- -----------
499,588 526,058
STOCKHOLDERS' EQUITY
Preferred stock - -
Common stock 461 458
Additional paid-in capital 254,984 250,153
Earnings reinvested 216,944 148,980
----------- -----------
Total stockholders' equity 472,389 399,591
----------- -----------
$ 971,977 $ 925,649
=========== ===========
See accompanying Notes to Consolidated Financial Statements.
FINGERHUT COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(In thousands of dollars)
[Enlarge/Download Table]
Common stock Additional
Number of Par paid-in Earnings
shares value capital reinvested Total
Balance, December 28, 1990 46,000,000 $ 460 $ 234,678 $ 83,462 $ 318,600
Sale of stock 1,500,000 15 17,904 - 17,919
Exercise of stock options 165,400 2 1,440 - 1,442
Cash dividends paid - - - (7,370) (7,370)
Net earnings - - - 53,558 53,558
---------- ------ --------- --------- ---------
Balance, December 27, 1991 47,665,400 477 254,022 129,650 384,149
Stock repurchase (3,000,000) (30) (15,315) (29,655) (45,000)
Stock retirement (523,382) (5) (2,673) (5,173) (7,851)
Exercise of stock options 1,609,380 16 14,119 - 14,135
Cash dividends paid - - - (7,648) (7,648)
Net earnings - - - 61,806 61,806
---------- ------ --------- --------- ---------
Balance, December 25, 1992 45,751,398 458 250,153 148,980 399,591
Exercise of stock options 397,050 3 4,831 - 4,834
Cash dividends paid - - - (7,364) (7,364)
Net earnings - - - 75,328 75,328
---------- ------ --------- --------- ---------
Balance, December 31, 1993 46,148,448 $ 461 $ 254,984 $ 216,944 $ 472,389
=========== ======= ========== ========== ==========
See accompanying Notes to Consolidated Financial Statements.
FINGERHUT COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of dollars)
[Enlarge/Download Table]
For the fiscal year ended
December 31, December 25, December 27,
1993 1992 1991
Cash flows from operating activities:
Net earnings $ 75,328 $ 61,806 $ 53,558
Adjustments to reconcile net earnings to
net cash provided (used) by operating activities:
Depreciation and amortization 29,708 18,019 17,193
Change in assets and liabilities,
excluding the effects of business
divestitures:
Customer accounts receivable, net (41,621) 10,718 (95,371)
Inventories, net (27,739) (26,954) 11,933
Promotional material and
other current assets (9,872) (6,425) (2,430)
Accounts payable (27,374) 23,899 2,756
Accrued payroll and employee benefits 3,279 3,488 7,339
Other accrued liabilities (8,504) 3,247 (2,643)
Current income taxes payable 8,914 13,372 (4,764)
Deferred and other income taxes 6,980 13,073 (1,348)
Other 909 (11,995) (1,523)
----------- ----------- -----------
Net cash provided (used) by operating
activities 10,008 102,248 (15,300)
----------- ----------- -----------
Cash flows from investing activities:
Additions to property and equipment (51,771) (50,900) (71,493)
Proceeds from business divestitures 26,889 - -
----------- ----------- -----------
Net cash used by investing activities (24,882) (50,900) (71,493)
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from long-term debt 45,000 135,000 110,000
Repayments of long-term debt and
capitalized lease (45,402) (280) (5,282)
Revolving credit facility - (57,000) (25,000)
Stock repurchase/redemption - (45,000) -
Issuance of common stock 2,529 1,036 19,361
Cash dividends paid (7,364) (7,648) (7,370)
----------- ----------- -----------
Net cash (used) provided by financing activities (5,237) 26,108 91,709
----------- ----------- -----------
Net (decrease) increase in cash and cash
equivalents (20,111) 77,456 4,916
Cash and cash equivalents at beginning
of year 86,682 9,226 4,310
----------- ----------- -----------
Cash and cash equivalents at end of year $ 66,571 $ 86,682 $ 9,226
============ ============ ============
Supplemental noncash investing and financing activities:
Fixed assets retired under capital lease $ - $ 11,064 $ -
Capital lease retired $ - $ 12,214 $ -
Noncash retirement of common stock $ - $ 7,851 $ -
Noncash exercise of stock options $ - $ 7,851 $ -
Tax benefit from exercise of
non-qualified stock options $ 2,305 $ 5,248 $ -
The Company included in cash and cash equivalents liquid investments with maturities of fifteen days
or less.
See accompanying Notes to Consolidated Financial Statements.
FINGERHUT COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION
Fingerhut Companies, Inc. (the "Company") is a multi-media direct
marketing company selling a broad range of products and services to
consumers via catalogs, television and other media.
Prior to 1990, the Company was privately held, primarily by a wholly
owned subsidiary of The Travelers Inc. ("Travelers"), formerly
Primerica Corporation. In May 1990, the Company became a publicly held
company upon completion of a secondary public offering in which
Travelers sold 12,690,000 shares of common stock. In April 1991,
December 1991 and December 1992, Travelers sold additional shares of
common stock in secondary public offerings. In December 1991, the
Company completed a stock offering in which the Company sold 1,500,000
shares of common stock.
In December 1992, the Company repurchased 3,000,000 shares of its
common stock at a price of $15.00 per share or an aggregate amount of
$45.0 million.
In January 1993, Travelers sold its remaining shares of the Company's
stock. At December 27, 1991 and December 28, 1990, Travelers owned
approximately 42% and 71% of the common stock of the Company,
respectively.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The Consolidated Financial Statements include the accounts of the
Company and its wholly owned subsidiaries and the Company's investment
in and 50% share of net earnings or losses of Montgomery Ward Direct,
after elimination of all material intercompany transactions and
balances. The Company's principal subsidiaries are Fingerhut
Corporation and USA Direct Incorporated. COMB Corporation was sold as
of September 3, 1993, FDC, Inc., a subsidiary of Figi's Inc.
("Figi's"), was sold as of December 31, 1993 and the Company has signed
a letter of intent to sell the remaining assets of Figi's (see Note
13).
The Consolidated Financial Statements have been restated to reflect the
stock split in July 1993 (see Note 15).
Reclassifications have been made to prior years' Consolidated Financial
Statements whenever necessary to conform to the current year's
presentation.
Fiscal Year
The fiscal year ended December 31, 1993 included 53 weeks and the
fiscal years ended December 25, 1992 and December 27, 1991 included 52
weeks.
Revenue Recognition
Most sales are made on the installment contract basis. Finance income
on installment contracts (net of estimated returns and exchanges,
allowances, uncollectible amounts and collection costs) is recognized
using an effective interest method over the weighted average of the
contract periods (which approximates fifteen months) or when collected,
whichever is faster. When accounts receivable are sold (see Note 3),
finance income, net, is recognized.
Sales are recorded at the time of shipment and a provision for
anticipated merchandise returns, net of exchanges, is recorded based
upon historical experience. The provision charged against sales for
1993, 1992 and 1991 amounted to $253.2 million, $218.5 million and
$200.6 million, respectively.
Amounts billed to customers for shipping and handling of orders are
netted against the associated costs.
Earnings Per Share
Earnings per share is computed by dividing net earnings by the weighted
average shares of common stock and common stock equivalents outstanding
during the year. The dilutive effect of the potential exercise of
outstanding options to purchase shares of common stock is calculated
using the treasury stock method.
Inventories
Inventories, principally merchandise, are stated at the lower of cost
(as determined on a first-in, first-out basis) or market.
Promotional Material
The cost of promotional material is deferred and expensed over the
period during which the orders are expected, generally one to four
months. Promotional material primarily includes the cost of paper,
printing, postage, free gifts and television production costs.
Property and Equipment
Property and equipment are stated at cost and depreciated or amortized
on a straight-line basis over their estimated economic useful lives (30
years for buildings; 5 years for software, 3 to 10 years for machinery
and equipment, furniture and fixtures; and over the estimated useful
life of the property or the life of the lease, whichever is shorter,
for leasehold improvements). The Company capitalizes software
developed for internal use that represents major enhancements and
replacements of operating and management information systems.
Excess of Cost Over Fair Value of Net Assets Acquired
The excess of cost over fair value of net assets acquired is amortized
on a straight-line basis over 40 years.
Customer Lists
The ongoing cost of developing and maintaining customer lists is
charged to operations as incurred. Customer lists obtained by the
acquisition of a business are capitalized at fair market value and
amortized over their estimated useful lives, approximately fifteen
years.
Income Taxes
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109 ("FAS 109"), "Accounting for Income
Taxes". Under the guidelines of FAS 109, the Company provides for
deferred taxes on the temporary differences between the financial
statement carrying amounts and the tax bases of assets and liabilities
that will result in future taxable or deductible amounts. The Company
provides for deferred taxes at the enacted tax rate that is expected to
apply when the temporary differences reverse.
3. SALE OF ACCOUNTS RECEIVABLE
The Receivables Transfer Agreement allows Fingerhut to sell, on a
continuous basis, an undivided interest in a pool of customer accounts
receivables, subject to meeting certain eligibility requirements. The
aggregate commitments available under the Agreement total $900.0
million. On March 14, 1994, the expiration date for the entire
facility was extended to July 29, 1994. The Company believes a
replacement of the Receivables Transfer Agreement will be completed
prior to the expiration date and on acceptable terms.
In 1993, the proceeds received by Fingerhut from the sale of accounts
receivable were approximately 77% (80% in 1992) of the net book value
of the accounts receivable in which the purchasers have an undivided
interest. The remaining 23% (20% in 1992) represents a holdback and a
discount on the receivables that have been sold and in which the
purchasers have an undivided interest. The holdback represents the
difference between the expected cash proceeds to be collected on the
purchasers' undivided interest in the pool of accounts receivable sold
(based on Fingerhut's historical collection experience) and the initial
cash proceeds paid to Fingerhut at the time of the sale by the
purchasers under the terms of the Receivable Transfer Agreement. The
holdback was approximately $227.0 million at December 31, 1993 and
$148.0 million at December 25, 1992, and is included on the Company's
Statements of Financial Position under "Customer accounts receivable,
net". The proceeds from the accounts receivable sold were $829.0
million and $653.0 million at December 31, 1993 and December 25, 1992,
respectively.
A credit risk exists for losses on receivables in which the purchasers
have an undivided interest, up to the holdback amount. Any losses
beyond that level are the responsibility of the purchasers.
"Discount on sale of accounts receivable" is comprised of the discount
due or paid the purchasers, related to the accounts receivable sold and
the administrative fees associated with the Receivables Transfer
Agreement. The discount is determined under the Receivables Transfer
Agreement and approximates the prevailing short-term commercial paper
rate for high grade unsecured notes plus administrative fees. The
rates (including administrative fees) applicable to receivables sold as
of December 31, 1993 and December 25, 1992 were 4.0% and 4.2%,
respectively.
In 1992, an amendment to the Receivable Transfer Agreement improved the
coverage ratio compared to the 1991 terms, which had the effect of
increasing the cash proceeds generated by the sale by approximately
$51.0 million as of December 25, 1992. Without the additional $51.0
million of proceeds, approximately $4.1 million less finance income
would have been recognized, partially offset by approximately $0.9
million less "Discount on sale of accounts receivable".
The Company has included in "Other accrued liabilities" the estimated
expenses related to the subsequent collections of the receivables sold
($15.0 and $11.8 million for 1993 and 1992, respectively).
4. CUSTOMER ACCOUNTS RECEIVABLE
Substantially all of the Company's customer accounts receivable were
generated by Fingerhut. Fingerhut uses fixed term, fixed payment
installment plans with terms generally up to 24 months (excluding
deferred billing periods of up to approximately four months) and
finance charge rates ranging from 18% to 24.9%. Customer accounts
receivable are classified as current assets and include some which are
due after one year, consistent with industry practice. Customer
accounts receivable consists of the following:
[Download Table]
(In thousands of dollars) 1993 1992
Due from customers $ 466,390 $ 457,485
Reserve for uncollectible accounts, net of
anticipated recoveries (70,011) (81,074)
Reserve for returns and exchanges (18,988) (16,919)
Other reserves (19,135) (22,341)
--------- ---------
Net collectible amount 358,256 337,151
Unearned finance income (24,713) (16,459)
--------- ---------
Customer accounts receivable, net $ 333,543 $ 320,692
========= =========
Other reserves consist primarily of allowances for anticipated
adjustments of finance charges billed to customers (due to earlier
than scheduled payment) and anticipated costs required to collect
customer accounts.
The Company's customer base is dispersed throughout the United States.
As a consequence, concentrations of credit risk are limited.
5. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
[Download Table]
(In thousands of dollars) 1993 1992
Land and improvements $ 4,387 $ 4,951
Buildings and leasehold improvements 56,309 60,470
Construction in progress 11,618 1,745
Machinery and equipment 74,390 62,754
Software 76,082 55,262
Other, principally furniture and fixtures 12,150 15,277
--------- ---------
234,936 200,459
Less: Accumulated depreciation (39,076) (29,852)
Accumulated amortization of software (13,350) (2,910)
--------- ---------
$ 182,510 $ 167,697
========= =========
The capitalized software amortization expense recorded in 1993 and 1992
was $10.5 million and $2.9 million, respectively. There was no
software amortization expense in 1991 as the software became
operational in 1992.
6. REVOLVING CREDIT FACILITY
The Revolving Credit Facility was amended and restated in October 1993.
The amended facility provides for aggregate commitments of $250.0
million, which includes the issuance of up to $125.0 million in letters
of credit. A total of $125.0 million of the commitment matures on
October 19, 1994 and the remaining $125.0 million matures on October
19, 1997. Prior to the amendment, the facility provided for borrowings
of up to $110.0 million in the form of revolving loans and up to $70.0
million in letters of credit. The proceeds of borrowings under the
Revolving Credit Facility are to be used by the Company to provide for
working capital and for other general corporate purposes. The
Company's obligations under the Revolving Credit Facility are secured
by a pledge of the capital stock of substantially all its subsidiaries.
In the event of certain defaults under the Revolving Credit Facility,
the Company's obligations thereunder may also be secured by inventory
and certain accounts receivable. The following is a summary of the
Revolving Credit Facility:
[Download Table]
(In thousands of dollars) 1993 1992 1991
Balance at end of year $ - $ - $ 57,000
Interest rate at year-end 6.0% 6.0% 6.5%
Maximum month-end borrowing during the year $ 8,000 $ 84,000 $ 91,000
Average daily borrowing during the year $ 1,364 $ 36,503 $ 34,632
Weighted average interest rate during the year 6.0% 6.3% 8.3%
7. LONG-TERM DEBT
Long-term debt and related maturity dates are as follows:
[Download Table]
(In thousands of dollars) 1993 1992
Private placements:
Senior Notes Maturity date Interest rate
Series A June 1996 9.81% $ 65,000 $ 65,000
Series B December 1997 10.12% 25,000 25,000
Series C August 1996 9.74% 20,000 20,000
Series D August 1996 6.96% 15,000 15,000
Series A Unsecured June 2002 8.92% 60,500 60,500
Series B Unsecured June 2004 8.92% 14,500 14,500
Series C Unsecured August 2000 6.83% 45,000 -
[Download Table]
Term loan for stock repurchase (paid in full August 1993;
interest at prime which was 6% at December 25, 1992) - 45,000
Other indebtedness (due in various installments through
November 2014; interest at varying rates ranging from
4.14% to 8.5% at December 31, 1993) 2,125 2,523
--------- ---------
247,125 247,523
Current portion of long-term debt (305) (333)
--------- ---------
$ 246,820 $ 247,190
========= =========
The Senior Notes are secured to the same extent as the Revolving Credit
Facility.
Scheduled annual maturities due on long-term debt at December 31, 1993
were as follows:
(In thousands of dollars)
1994 $ 305
1995 $ 328
1996 $100,046
1997 $ 25,046
1998 $ 46
Thereafter $121,354
The Senior Notes contain covenants restricting the payment of
dividends. The maximum amount of dividends the Company was permitted
to pay at December 31, 1993 was $75.9 million.
8. FAIR VALUE OF FINANCIAL INSTRUMENTS
This note discloses the fair value of all financial instruments, both
assets and liabilities, recognized and not recognized, in the
Consolidated Statements of Financial Position for which it is
practicable to estimate fair value.
Quoted market prices generally are not available for all the Company's
financial instruments. Accordingly, fair values are based on judgments
regarding current economic conditions, risk characteristics of various
financial instruments and other factors. These estimates involve
uncertainties and matters of judgement, and therefore, cannot be
determined with precision. Changes in assumptions could significantly
affect the estimates.
A description of the methods and assumptions used to estimate the fair
value of each class of the Company's financial instruments is as
follows:
Cash and cash equivalents, Accounts payable, Accrued payroll and
employee benefits and Other accrued liabilities
The carrying amounts approximate fair value due to the short maturity
of these instruments.
Customer accounts receivable, net
As the average collection period for these exceeds 90 days, the
discounted present value of expected future cash flows from the
collection of the receivables and related deferred finance income were
calculated and it was determined that the carrying amount approximates
fair value.
Receivables Transfer Agreement
The carrying amount approximates fair value, as it was determined that
"Customer accounts receivable, net" approximates fair value and the
discount on the sale of accounts receivable approximates the prevailing
short-term commercial paper rate for high grade unsecured notes plus an
administrative fee.
Long-term debt
The fair value of the Company's long-term debt was estimated based on
the amount of future cash flows associated with each instrument
discounted using the current rates offered to the Company for similar
debt instruments of comparable maturity.
Interest rate swap agreements
The fair value of interest rate swap agreements were obtained from
dealer quoted prices. These values represent the estimated amount the
Company would pay to terminate the agreements, taking into
consideration current interest rates and the current creditworthiness
of the counterparties.
The estimated fair values of the Company's financial instruments are
summarized as follows:
[Enlarge/Download Table]
1993 1992
(In thousands of dollars) Carrying Estimated Carrying Estimated
amount fair value amount fair value
Cash and cash equivalents $ 66,571 $ 66,571 $ 86,682 $ 86,682
Receivables Transfer Agreement (proceeds) $ 829,000 $ 829,000 $ 653,000 $ 653,000
Long-term debt $ 247,125 $ 268,611 $ 247,523 $ 261,000
Interest rate swap agreements
in a net payable position $ - $ 3,000 $ - $ 12,000
9. INTEREST EXPENSE
Net interest expense was as follows:
[Download Table]
(In thousands of dollars) 1993 1992 1991
Interest expense $ 34,852 $ 33,537 $ 24,266
Interest income 396 230 82
-------- -------- --------
Net interest expense $ 34,456 $ 33,307 $ 24,184
======== ======== ========
The Company paid interest of $45.1 million in 1993, $30.4 million in
1992 and $15.5 million in 1991.
As part of its program to manage interest rate fluctuations, Fingerhut
entered into interest rate swap agreements during 1990 totalling
$260.0 million. The agreements exchange a variable rate, which
approximates the prevailing short-term commercial paper rate, for a
fixed interest rate of 9.5%. $160.0 million of the interest rate swap
agreements expired on June 30, 1993. The remaining $100.0 million
expires on June 30, 1994.
10. OPERATING LEASES AND LETTERS OF CREDIT
Rental expense for both cancelable and noncancelable operating leases,
(principally for office and warehouse facilities and computer
equipment) for the fiscal years 1993, 1992 and 1991 was $39.1 million,
$34.1 million and $25.8 million, respectively. Future minimum annual
rentals at December 31, 1993, under noncancelable operating leases are
as follows:
(In thousands of dollars)
1994 $27,511
1995 $23,608
1996 $15,066
1997 $ 9,537
1998 $ 2,484
Thereafter $13,804
The Company leases certain office and warehouse facilities (the
"properties") from an affiliated company of Travelers. Effective
January 1, 1990, the leases were renegotiated to provide for a term of
17 years, with rental payments subject to increases every three years.
Annual rental expense for 1993, 1992 and 1991 was $1.7 million. The
lessor will have the right to require the Company to purchase the
properties in 1994 and 2007. The Company believes that the lessor
will exercise this right in 1994. The operating leases also provide
that, during the remainder of the lease term, the Company will have
both an option to purchase the properties and a right of first
refusal.
The outstanding portion of open letters of credit, primarily
established to facilitate international merchandise purchases, was not
reflected in the accompanying financial statements and aggregated
$42.6 million at December 31, 1993.
11. EMPLOYEE BENEFIT PLANS
The Company maintains two noncontributory, defined benefit pension
plans which cover substantially all full-time nonunion employees. The
plans provide monthly retirement benefits to eligible participants
based upon years of service and level of compensation. The Company's
funding policy is to make an annual contribution equal to, or
exceeding, the minimum required by the Employee Retirement Income
Security Act of 1974. The actuarial present value of the benefit
obligation and the funded status of the plans were as follows:
[Download Table]
(In thousands of dollars) 1993 1992
Actuarial present value of benefit obligations:
Vested benefits $13,520 $ 9,837
Non-vested benefits 968 547
------- -------
Accumulated benefit obligation 14,488 10,384
Effect of future compensation increases 9,887 7,423
------- -------
Projected benefit obligation 24,375 17,807
Plan assets at fair value 13,646 11,645
------- -------
Unfunded projected benefit obligation 10,729 6,162
Unrecognized prior service cost (319) (339)
Unrecognized net loss (3,633) (225)
------- -------
Accrued pension cost $ 6,777 $ 5,598
======== ========
Plan assets at December 31, 1993 and December 25, 1992 were primarily
invested in an equity fund.
The actuarial present value of the projected benefit obligations
represents the present value of benefits to be paid in the future
under current provisions of the plan based on accumulated service to
date and assuming future annual pay increases of 5.5% in 1993 and
1992. Projected benefits have been discounted using rates of 7.25%
and 8.25% for 1993 and 1992, respectively. In determining pension
expense, the assumed long-term rate of return on plan assets was 9.5%
for 1993, 1992 and 1991. The Company's nonunion pension plans have
vesting periods of five years.
The components of pension expense for nonunion employees were as
follows:
[Download Table]
(In thousands of dollars) 1993 1992 1991
Benefit earned during the period $ 1,984 $ 1,655 $ 1,292
Interest accrued on projected benefit
obligation 1,448 1,237 1,067
Actual return on assets (1,577) (1,420) (1,046)
Deferred gain 472 467 236
Amortization of prior service costs 20 20 20
-------- -------- --------
Pension expense for the period $ 2,347 $ 1,959 $ 1,569
======== ======== ========
Additionally, the Company participates in a multi-employer pension
plan for all union employees. The plan provides monthly retirement
benefits to eligible participants based upon years of service. The
plan is funded with contributions made in accordance with negotiated
labor contracts. The pension expense related to this plan for 1993,
1992 and 1991 was $1.3 million, $0.8 million and $0.7 million,
respectively.
The Company also has several defined contribution plans (some of which
have, or are limited to, 401(K) provisions) covering substantially all
nonunion employees. Employer contributions to the plans are
discretionary and are determined by the Board of Directors for each of
the individual companies. The maximum contribution allowed is 15% of
each participant's eligible compensation. The cost to the Company of
these plans was $14.1 million, $12.9 million and $11.0 million for
1993, 1992 and 1991, respectively.
In 1993, the Company adopted Statement of Financial Accounting
Standards No. 106, "Employers' Accounting for Postretirement Benefits
Other Than Pensions". This statement requires recognition, during
employees' service with the Company, of the cost of their retiree
health and life insurance benefits. The Company elected to
immediately recognize the cumulative effect of the change in
accounting for post retirement benefits of $0.4 million (pretax
effect).
Statement of Financial Accounting Standards No. 112 ("FAS 112"),
"Employers' Accounting for Postemployment Benefits" is required to be
adopted in the first quarter of 1994. The Company believes that, when
adopted, the impact of FAS 112 will not be significant.
12. INCOME TAXES
As discussed in Note 2, Summary of Significant Accounting Policies,
the Company adopted FAS 109 as of January 1, 1993. The cumulative
benefit of this change in accounting for income taxes of $0.3 million
was reported in "Provision for income taxes" in the 1993 Consolidated
Statement of Earnings. Prior years' financial statements have not
been restated to apply the provisions of FAS 109.
The provision for income taxes consisted of the following:
(In thousands of dollars) 1993 1992 1991
Currently payable:
Federal $ 23,407 $ 32,318 $ 20,728
State 611 1,281 1,486
Deferred 12,533 (1,475) 5,626
--------- --------- ---------
$ 36,551 $ 32,124 $ 27,840
========= ========= =========
The Company's effective income tax rate differed from the U.S. federal
statutory rate as follows:
[Download Table]
1993 1992 1991
U.S. federal statutory rate 35.0% 34.0% 34.0%
State income taxes, net of federal tax benefit .5 .9 1.2
Effect of change in federal tax rate on net
deferred income tax asset (1.7) - -
Other, net (1.1) (.7) (1.0)
------ ------ ------
Effective income tax rate 32.7% 34.2% 34.2%
====== ====== ======
The "Other, net" tax rate in 1993 and 1992 was composed of
miscellaneous items none of which were individually significant. The
"Other, net" tax rate in 1991 of (1.0%) resulted primarily from the
favorable resolution of certain issues related to prior years' tax
returns.
The current and long-term deferred income tax asset and liability
included in the Consolidated Statements of Financial Position as of
December 31, 1993 were composed of the following:
(In thousands of dollars) 1993
Current and long-term deferred income tax
asset resulting from future deductible
temporary differences are:
Accounts receivable reserves $ 130,438
Yield reserve 5,025
Inventory capitalization 4,301
Inventory obsolescence reserves 6,749
Other 16,674
----------
$ 163,187
==========
Current and long-term deferred income
tax liability resulting from future
taxable temporary differences are:
Accelerated depreciation and
amortization $ (28,867)
Deferred finance income (62,394)
Deferred advertising (5,700)
Other (13,281)
----------
$(110,242)
==========
Management believes, based on the Company's history of prior operating
earnings and its expectations for the future, that operating income of
the Company will be sufficient to fully utilize the deferred tax
assets included in its financial statements.
The deferred tax provisions for 1992 and 1991 resulted from temporary
differences in the reporting of income and expenses for financial
statement and tax purposes. Prior to the adoption of FAS 109, the tax
effects of the temporary differences arising in each year were as
follows:
[Download Table]
(In thousands of dollars) 1992 1991
Accounts receivable reserves $(14,247) $(10,802)
Deferred finance income 9,359 4,613
Capitalized software 4,868 7,791
Inventory obsolescence (3,942) (1,131)
Inventory capitalization (721) 427
Discount on sale of accounts receivable (75) 2,059
Purchase accounting restructure reserve 465 848
Other 2,818 1,821
--------- ---------
$ (1,475) $ 5,626
========= =========
The deferred tax asset at December 25, 1992 related principally to
temporary differences resulting from recording accounts receivable
reserves for financial statement purposes that were not yet deductible
for tax purposes.
The Company paid income taxes (net of refunds) of $21.5 million, $4.8
million and $33.3 million during 1993, 1992 and 1991, respectively.
These payments of income taxes included a refund from Travelers during
1993 of $0.6 million and payments to Travelers during 1992 and 1991 of
$9.0 million and $0.2 million, respectively. The 1992 payments to
Travelers consisted of $2.9 million for interest and $6.1 million for
income taxes related to Internal Revenue Service audits of prior
years' tax returns. These amounts resulted in the creation of a
current deferred tax asset or were accrued at December 27, 1991, in
current taxes payable. During the time that Travelers owned 80% or
more of the Company, income taxes were calculated substantially on a
stand alone basis under an income tax allocation agreement with
Travelers.
13. BUSINESS DIVESTITURES
On September 3, 1993, the Company sold certain assets of COMB. In
addition, the Company sold certain assets of FDC, a subsidiary of
Figi's, effective as of December 31, 1993, and has signed a letter of
intent to sell the remaining assets of Figi's. The Company
anticipates finalizing this transaction in early 1994. The effects of
the Figi's transactions were recorded in the fourth quarter. The net
financial results of these divestitures did not have a material impact
on earnings. COMB, FDC and Figi's had aggregate net sales of $146.9
million in 1993.
Included in other assets as of December 31, 1993 were the net amounts
anticipated to be received from the sale of Figi's.
14. RELATED PARTY TRANSACTIONS
The Company purchased a portion of its umbrella/excess liability
insurance coverage from Travelers until December 5, 1991. In 1992 and
1991, the Company paid Travelers $1.7 million and $1.0 million,
respectively, which related primarily to retrospectively-rated workers
compensation insurance which the Company obtained through Travelers
prior to April 1, 1989. These payments were under an agreement with
Travelers which also calls for ongoing reimbursement for all
retrospectively-rated policies.
For other related party transactions, the following list details the
subject and Note reference:
Operating leases Note 10
Income taxes Note 12
Stockholders' equity - stock
redemption Note 15
15. STOCKHOLDERS' EQUITY
The Company currently has 100,000,000 authorized shares of $.01 par
value common stock of which 46,148,448 and 45,751,398 were issued and
outstanding as of December 31, 1993 and December 25, 1992,
respectively. 5,000,000 shares of $.01 par value preferred stock are
authorized, none of which have been issued.
In July 1993, the Board of Directors declared a two-for-one stock
split effected in the form of a 100% stock dividend. Par value
remained at $.01 per share. All share and per share amounts have been
restated to retroactively reflect the stock split.
The Fingerhut Companies, Inc. Stock Option Plan provides certain
management of the Company with options to purchase up to 7,768,000
shares of common stock of which 124,850 were available for grant at
December 31, 1993. The options are granted at the fair market value
at the date of grant. The options become exercisable in five equal
annual installments beginning on the first anniversary of the date of
grant. Unexercised options will be cancelled ten years and one month
after the date of grant. Certain options are subject to acceleration
if management is terminated without cause.
The Fingerhut Companies, Inc. Performance Enhancement Investment Plan
("PEIP Plan") provides certain management of the Company with the
right to purchase options to acquire up to 3,000,000 shares of common
stock, of which 659,924 were available for grant at December 31, 1993.
Under the PEIP Plan, management will be offered the opportunity to
purchase option units, each consisting of four options to purchase
common stock, with exercise prices of 110%, 120%, 130% and 140%,
respectively, of the fair market value at the time of grant. The
options are offered at prices determined by the Company on the grant
date. The options granted in 1993 become exercisable in four equal
installments beginning on January 1, 1995. Unexercised options will
be repurchased on the earlier of the optionee's termination of
employment or the seventh anniversary of the grant date.
The Fingerhut Companies, Inc. 1992 Stock Option and Long-Term
Incentive Plan provides certain management of the Company with options
to purchase up to 523,382 shares of common stock. In 1992, the
Company granted the Chairman and Chief Executive Officer non-qualified
options to purchase 523,382 shares of common stock with an option
price of $15.00, the fair market value at the date of grant. In
November 1993, 50% of these options became exercisable, 50% become
exercisable in November 1994 and all expire in December 1999.
In December 1992, the Chairman and Chief Executive Officer exercised
options to purchase 1,439,180 shares by tendering to the Company
523,382 shares of the Company's stock at the market value of $15.00
per share.
The following table summarizes the activity of the stock option plans:
[Download Table]
Non-qualified stock
option shares Option
Outstanding Exercisable prices
Balance at December 28, 1990 7,559,250 1,336,250 $ 5.45-$11.37
Granted 364,000 - 7.44- 15.12
Cancelled/forfeited (361,200) - 5.45- 13.50
Exercisable - 1,453,450 5.45- 11.37
Exercised (165,400) (165,400) 5.45- 10.87
----------- ----------- --------------
Balance at December 27, 1991 7,396,650 2,624,300 5.45- 15.12
Granted 826,382 - 12.37- 17.50
Cancelled/forfeited (269,300) - 5.45- 15.75
Exercisable - 1,438,250 5.45- 15.12
Exercised (1,609,380) (1,609,380) 5.45- 10.50
----------- ----------- --------------
Balance at December 25, 1992 6,344,352 2,453,170 5.45- 17.50
Granted 2,652,076 - 15.12- 34.25
Cancelled/forfeited (264,600) - 5.45- 28.04
Exercisable - 1,720,441 5.45- 17.50
Exercised (397,050) (397,050) 5.45- 15.56
----------- ----------- --------------
Balance at December 31, 1993 8,334,778 3,776,561 $ 5.45-$34.25
=========== =========== ==============
In connection with the December 1992 secondary public offering, the
Company repurchased 3,000,000 shares of its common stock from a
subsidiary of Travelers at $15.00 per share, or an aggregate amount of
$45.0 million.
The Company received net proceeds of $17.9 million from the sale of
1,500,000 shares of common stock in the December 1991 stock offering.
16. OTHER DISCLOSURES
Administrative and selling expenses included promotional material and
advertising expenses of $391.0 million, $371.9 million and $328.1
million for 1993, 1992 and 1991, respectively.
Amortization expense relating to the excess of cost over fair value of
net assets acquired was $1.3 million for 1993, 1992 and 1991.
Accumulated amortization was $6.3 million and $5.3 million at December
31, 1993 and December 25, 1992, respectively.
Amortization expense relating to customer lists was $1.5 million for
1993, 1992 and 1991. Accumulated amortization was $5.0 million and
$5.8 million at December 31, 1993 and December 25, 1992, respectively.
17. CONTINGENCIES
The Company is a party to various claims, legal actions, sales tax
disputes and other complaints arising in the ordinary course of
business. In the opinion of management, any losses which may occur
are adequately covered by insurance, are provided for in the financial
statements, or are without merit and the ultimate outcome of these
matters will not have a material effect on the financial position or
operations of the Company.
18. SUBSEQUENT EVENTS
On January 10, 1994, the Company concluded the sale of certain assets
of FDC.
On January 20, 1994, the Company declared a cash dividend of $.04 per
share, or an aggregate of $1.8 million, payable on February 24, 1994
to shareholders of record as of the close of business on February 3,
1994.
On March 14, 1994, the Receivables Transfer Agreement was extended to
July 29, 1994.
FINGERHUT COMPANIES, INC. AND SUBSIDIARIES
REPORT OF MANAGEMENT
To the Shareholders of Fingerhut Companies, Inc.:
The Company is responsible for the information presented in this
annual report. The consolidated financial statements contained
herein were prepared in accordance with generally accepted
accounting principles and were based on informed judgments and
management's best estimates where appropriate. Financial
information elsewhere in this annual report is consistent with that
contained in the consolidated financial statements.
The Company maintains a system of internal controls designed to
provide reasonable assurance, at suitable costs, that assets are
safeguarded and transactions are executed in accordance with
established procedures. The system of internal controls includes a
Code of Corporate Business Conduct, widely communicated to
employees, which is designed to require them to maintain high
ethical standards in their conduct of Company affairs, written
procedures that provide for appropriate evidence of authority and a
program of internal audit with management follow-up.
The Company's consolidated financial statements have been audited
by KPMG Peat Marwick, independent certified public accountants,
whose appointment was ratified by shareholder vote at the 1993
annual shareholders' meeting. Their audit was conducted in
accordance with generally accepted auditing standards. As part of
their audit of the Company's 1993 consolidated financial
statements, our independent accountants considered the Company's
system of internal controls structure to the extent they deemed
necessary to determine the nature, timing and extent of their audit
tests.
The Audit Committee of the Board of Directors is composed entirely
of independent directors. This Committee supervises and reviews
the Company's accounting practices, recommends to the Board the
independent auditors, reviews the audit plans, scope, findings,
reports and recommendations and reviews the Company's financial
controls, procedures and practices. The independent public
accountants and the internal auditors have free access to the Audit
Committee without management present.
/s/ Theodore Deikel
Theodore Deikel
Chairman of the Board,
Chief Executive Officer and President
/s/ Daniel J. McAthie
Daniel J. McAthie
Senior Vice President
Chief Financial Officer and Treasurer
---------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of Fingerhut Companies,
Inc.:
We have audited the accompanying consolidated statements of
financial position of Fingerhut Companies, Inc. and Subsidiaries
(the "Company") as of December 31, 1993 and December 25, 1992 and
the related consolidated statements of earnings, changes in
stockholders' equity and cash flows for each of the fiscal years in
the three-year period ended December 31, 1993. These consolidated
financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated
financial position of Fingerhut Companies, Inc. and Subsidiaries as
of December 31, 1993 and December 25, 1992, and the results of
their operations and their cash flows for each of the fiscal years
in the three-year period ended December 31, 1993 in conformity with
generally accepted accounting principles.
/s/KPMG Peat Marwick
Minneapolis, Minnesota
January 28, 1994, except as to the first paragraph of Note 3 and
the third paragraph of Note 18 which are as of March 14, 1994.
FINGERHUT COMPANIES, INC. AND SUBSIDIARIES
QUARTERLY FINANCIAL AND STOCK DATA (UNAUDITED)
Quarterly Financial -- Fiscal Year Summaries
[Enlarge/Download Table]
(In thousands of dollars, 1993
except per share data) First Second Third Fourth Total
Revenues $ 371,807 $ 420,835 $ 379,313 $ 635,953 $1,807,908
Gross margin (a) $ 169,371 $ 187,269 $ 162,944 $ 293,068 $ 812,652
Net earnings $ 7,764 $ 12,976 $ 13,759 $ 40,829 $ 75,328
Earnings per share $ .16 $ .26 $ .27 $ .81 $ 1.50
1992
First Second Third Fourth Total
Revenues $ 309,472 $ 359,073 $ 353,189 $ 584,380 $1,606,114
Gross margin (a) $ 153,134 $ 167,866 $ 165,888 $ 271,976 $ 758,864
Net earnings $ 9,590 $ 11,235 $ 5,609 $ 35,372 $ 61,806
Earnings per share $ .18 $ .22 $ .11 $ .69 $ 1.19
(a) Gross margin is equal to net sales less product cost.
Stock Data
The Company's common stock is traded under the symbol "FHT" on the
New York Stock Exchange. As of February 28, 1994, there were 516
holders of record of the Company's common stock.
[Download Table]
1993
First Second Third Fourth Year
Common stock price:
High $ 20-3/8 $ 22-1/2 $ 29-1/8 $ 30-5/8 $ 30-5/8
Low $ 14-7/8 $ 19-1/8 $ 21-1/8 $ 24 $ 14-7/8
Dividends paid $ .04 $ .04 $ .04 $ .04 $ .16
1992
First Second Third Fourth Year
Common stock price:
High $ 18 $ 16-1/4 $ 15-7/8 $ 16-1/2 $ 18
Low $ 13-7/8 $ 13-3/4 $ 13-3/8 $ 12-5/8 $ 12-5/8
Dividends paid $ .04 $ .04 $ .04 $ .04 $ .16
Dividend Policy
The Company intends to pay regular quarterly cash dividends and
expects to retain a substantial portion of its net earnings to fund
future growth. The declaration and payment of dividends will be
subject to the discretion of the Board of Directors, and there can be
no assurance that any dividends will be paid in the future. In
determining whether to pay dividends (as well as the amount and timing
thereof), the Board of Directors will consider a number of factors
including the Company's results of operations, financial condition,
future capital requirements and any applicable restrictive provisions
in any financing agreements. See Note 7 for dividend restrictions.
Independent Auditors' Report
The Board of Directors
Fingerhut Companies, Inc.:
Under date of January 28, 1994, we reported on the consolidated statements of
financial position of Fingerhut Companies, Inc. and subsidiaries as of
December 31, 1993 and December 25, 1992, and the related consolidated
statements of earnings, changes in stockholders' equity and cash flows for
each of the years in the three-year period ended December 31, 1993, as
contained in the 1993 annual report to stockholders. These consolidated
financial statements and our report thereon are incorporated by reference in
the annual report on Form 10-K for the year 1993. In connection with our
audits of the aforementioned consolidated financial statements, we have also
audited the related financial statement schedule as listed in the accompanying
index. This financial statement schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion on this financial
statement schedule based on our audits.
In our opinion, such financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.
/s/KPMG Peat Marwick
Minneapolis, Minnesota
January 28, 1994, except as to the first paragraph
of Note 3 and the third paragraph of Note 18 which
are as of March 14, 1994.
SCHEDULE VIII
FINGERHUT COMPANIES, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1993, DECEMBER 25, 1992
AND DECEMBER 27, 1991
(In thousands of dollars)
[Enlarge/Download Table]
Additions
charged to
Balance at cost, Balance at
beginning expenses, end
Description of period revenues Deductions of period
Accounts receivable reserves:
1993 $120,334 $646,702 $658,902 (a) $108,134
1992 $115,616 $576,234 $571,516 (a) $120,334
1991 $102,868 $515,271 $502,523 (a) $115,616
Inventory reserves:
1993 $ 15,184 $ 21,260 $ 17,116 (b) $ 19,328
1992 $ 16,775 $ 16,666 $ 18,257 (b) $ 15,184
1991 $ 16,890 $ 14,056 $ 14,171 (b) $ 16,775
<FN>
(a) Primarily represents reductions in the reserves for actual returns and
exchanges, allowances, uncollectible amounts (net of recoveries) and
collection costs. And also, includes the reserves related to the accounts
receivable sold under the Receivables Transfer Agreement.
(b) Primarily represents inventory sold to liquidators and returned to vendors.
Dates Referenced Herein and Documents Incorporated by Reference
This ‘10-K’ Filing | | Date | | Other Filings |
---|
| | |
| | 10/19/97 |
| | 1/1/95 |
| | 10/19/94 |
| | 7/29/94 |
| | 6/30/94 |
Filed on: | | 3/31/94 | | DEF 14A |
| | 3/14/94 |
| | 2/28/94 |
| | 2/24/94 |
| | 2/3/94 |
| | 1/28/94 |
| | 1/20/94 |
| | 1/10/94 |
For Period End: | | 12/31/93 |
| | 9/3/93 |
| | 6/30/93 |
| | 1/1/93 |
| | 12/25/92 |
| List all Filings |
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