SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________________
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended 1-8668
December 31, 1993 Commission file number
____________________
FINGERHUT COMPANIES, INC.
(Exact name of registrant as specified in its charter)
Minnesota 41-1396490
(State of Incorporation) (I.R.S. Employer Identification
No.)
4400 Baker Road, Minnetonka, Minnesota 55343
(Address of principal executive offices)
(612) 932-3100
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
Common Stock, $.01 Par Value New York Stock Exchange, Inc.
Securities registered pursuant to section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
and (2) has been subject to such filing requirements for the past
90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of Registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
As of February 28, 1994, 46,255,948 shares of the Registrant's
Common Stock were outstanding and the aggregate market value of
Common Stock held by non-affiliates of the Registrant on that
date was approximately $1,269,791,862 based upon the New York
Stock Exchange closing price on February 28, 1994.
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the Annual Report to Shareholders for the
fiscal year ended December 31, 1993, are incorporated by
reference in Parts II and IV.
Certain portions of the Proxy Statement for the Annual Meeting of
Shareholders of Fingerhut Companies, Inc. to be held on May 12,
1994, which will be filed with the Securities and Exchange
Commission within 120 days after December 31, 1993, are
incorporated by reference in Part III.
<PAGE>2
TABLE OF CONTENTS
PART I
Page
Item 1. Business 3
Item 2. Properties 13
Item 3. Legal Proceedings 13
Item 4. Submission of Matters to a
Vote of Security Holders 13
PART II
Item 5. Market for Registrant's Common
Equity and Related Stockholder Matters 14
Item 6. Selected Financial Data 14
Item 7 Management's Discussion and
Analysis of Financial
Condition and Results of Operations 14
Item 8. Financial Statements and
Supplementary Data 14
Item 9. Changes in and Disagreements
with Accountants on Accounting and
Financial Disclosure 14
PART III
Item 10. Directors and Executive Officers
of the Registrant 15
Item 11. Executive Compensation 15
Item 12. Security Ownership of
Certain Beneficial
Owners and Management 15
Item 13. Certain Relationships and
Related Transactions 15
PART IV
Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K 16
Signatures 18
Exhibit Index 20
<PAGE>3
PART I
Item 1. Business
General
Fingerhut Companies, Inc. (the "Company") is a multi-media
direct marketing company that sells a broad range of products and
services directly to consumers via catalogs, television and other
media. The Company had 1993 revenues of $l.808 billion. Its
principal subsidiaries are Fingerhut Corporation ("Fingerhut")
and USA Direct Incorporated ("USA Direct"). Fingerhut has been
in the direct mail marketing business for over 40 years and sells
general merchandise using catalogs and other direct marketing
solicitations. Fingerhut's merchandise includes a broad mix of
quality brand name and private label products, many of which are
specially manufactured or packaged to appeal to its customers.
Fingerhut's net sales were $1.414 billion in 1993. USA Direct
markets products through program-length (typically 30 minutes)
direct response television advertisements. USA Direct's 1993 net
sales were $70 million. The Company, through subsidiaries,
operates a joint venture with Montgomery Ward & Co.,
Incorporated. The joint venture does business as "Montgomery
Ward Direct" and sells general merchandise using specialty
catalogs. The Company accounts for its investment in Montgomery
Ward Direct using the equity method of accounting.
During 1993, the Company sold certain subsidiaries that did
not fit into its long-term strategic direction. The Company sold
the assets of COMB Corporation ("COMB") in September 1993 and
sold the assets of FDC, Inc. ("FDC"), a subsidiary of Figi's Inc.
("Figi's"), effective as of December 31, 1993. In addition, the
Company has signed a letter of intent to sell Figi's and
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. COMB, Figi's and FDC had
aggregate net sales of $147 million in 1993.
The Company is the successor to the business of several
related companies, the first of which was a partnership formed in
1948. Fingerhut became a publicly held corporation in 1970 and
was acquired by a predecessor of The Travelers Inc. ("Travelers")
in 1979. The Company was incorporated in 1978 in connection with
Traveler's acquisition of Fingerhut. In May 1990, the Company
became a publicly held company upon completion of a public
offering of a portion of the common stock held by Travelers
(which at that time held substantially all of the Company's
common stock). Travelers reduced its ownership to zero through
subsequent public offerings and sales in 1991, 1992 and 1993,
including the Company's December 1992 repurchase of 3.0 million
shares of its common stock from a wholly owned subsidiary of
Travelers.
Unless the context otherwise indicates, references to the
Company refer to Fingerhut Companies, Inc. and its subsidiaries.
Fingerhut Corporation
Introduction
Fingerhut, one of the largest catalog marketers in the United
States, sells general merchandise and financial service products
to moderate income consumers. The median age of Fingerhut's
customers is slightly lower than the national average and young
families are a significant portion of its customer base.
Fingerhut offers extended payment terms on all purchases under
fixed term, fixed payment installment contracts and makes
substantially all of its sales on credit utilizing its own
closed-end credit. It is the only large general merchandise
retailer that serves this market exclusively through direct
marketing. Fingerhut has used its extensive database, credit
programs and proprietary database segmentation software to
establish a dominant position in this market, with a large base
of loyal, repeat customers. Fingerhut has an active customer
base of approximately 6.6 million repeat customers. Repeat
customers account for approximately 80% of Fingerhut's net sales.
<PAGE>4
Marketing
Marketing activities are divided into three primary programs:
new customer acquisition, a transitional program and existing
customer programs. During 1993, Fingerhut mailed approximately
476 million catalogs and other promotions to existing and
prospective customers.
Fingerhut's new customer acquisition program is designed to
identify and attract new customers on a cost-effective basis.
The primary sources of new customers are rented lists,
advertisements in magazines and newspapers, television, catalog
requests and other direct marketing solicitations. Fingerhut
mails product offerings to prospective customers and adds them to
its data base as responses are received. Over the past two
years, Fingerhut's new customer acquisition programs have
increased the use of catalogs and other multi-product offerings
and emphasized more variety and higher priced products. These
programs are intended to identify and target new customers who
will become long-term Fingerhut customers. New customers account
for approximately 20% of Fingerhut's net sales.
The decisions on which prospective customers to solicit,
which products to offer and which media to use are based upon the
projected long-term profitability and internal rates of return of
the program. Maintaining acceptable financial rates of return on
new customers depends on balancing the cost of acquisition of new
customers with their long-term profitability to Fingerhut. To
determine whether the cost to obtain new customers is acceptable,
Fingerhut maintains a system that monitors profitability by
source of new customers, by type of product and by type of
promotional media. Fingerhut also continuously tests various
media, products, offerings and incentives and analyzes the
results in order to maximize the effectiveness of its customer
acquisition efforts.
After first-time buyers commence payments on their initial
purchases, they are placed into a transitional program. The
amount of time a first-time buyer remains in a transitional
program and the number and type of products he or she is offered
depends on the buyer's purchasing and payment practices. A
customer is placed on Fingerhut's promotable customer list after
demonstrating his or her creditworthiness.
Fingerhut reaches its existing customers through extensive
promotional mailing efforts, primarily catalogs, and through
telemarketing. In 1993, Fingerhut mailed 128 different catalogs
and other promotions to its established customers. These
mailings included general merchandise catalogs, specialty
catalogs, small and large multi-product mailers and single
product promotions. Fingerhut currently has four outbound phone
centers from which calls are made to its customers ("outbound
telemarketing"). Approximately 7% of Fingerhut's 1993 revenues
were generated by outbound telemarketing.
Management believes that the key factors in maximizing the
profitability of its existing customer list are developing
long-term repeat buyers and balancing customer response with
appropriate credit losses and customer return rates for each
segment of its customer list. Fingerhut promotes customer
satisfaction and loyalty by extending credit; by using a number
of marketing devices, including targeted promotions, deferred
payments, 30-day free home trials, a "satisfaction assured"
policy, free gifts, merchandise giveaways, and personalized
mailings; and by offering attractive brand name and private label
merchandise.
Fingerhut is a leader in the development and use of
information-based marketing concepts and management believes that
Fingerhut's extensive data base and proprietary data base
segmentation software afford it a significant competitive
advantage within its market niche. The data base contains names,
addresses, behavioral characteristics, general demographic
information, information provided by the customer and information
on the sources of the customers' initial responses. The data
base is continually updated as new information is obtained.
Credit Management
Fingerhut generally does not require its customers to provide
traditional credit information in order to approve purchases on
credit. Instead of using traditional credit applications,
Fingerhut has developed sophisticated and highly automated
proprietary techniques for evaluating the creditworthiness of new
<PAGE>5
and existing customers and for selecting those customers who will
receive various categories of mailings. Management believes that
Fingerhut's more than 40 years' experience in the mail order
business, its data base containing purchase and payment histories
of more than 25 million people and its significant investment in
computer technology and proprietary analytical models give
Fingerhut a unique ability to analyze the creditworthiness of
customers in its market. The goal of the analysis is not to
achieve the lowest possible credit losses but to balance credit
losses and return rates with customer response, thereby
optimizing profitability. Consequently, Fingerhut's planned
credit losses typically are higher than other direct mail and
retail companies.
Once a customer places an order, Fingerhut employs
proprietary techniques designed to identify customers whose
orders can be automatically shipped, customers from whom
additional information, including credit applications, must be
obtained and reviewed and customers to whom credit is declined.
After purchases are shipped, customer payments are continuously
monitored to identify credit problems as early as possible.
Fingerhut has a flexible policy of working with certain
delinquent customers, including adjusting their payment
schedules, which Fingerhut believes reduces default rates and
maintains customer loyalty.
Substantially all of Fingerhut's sales are made utilizing its
own closed-end credit program, which uses fixed term, fixed
payment installment plans. Monthly payments are made by
customers and processed by Fingerhut through the use of coupons
contained in payment books delivered with each order shipment.
Payment terms to existing customers generally range from 4 to 24
monthly payments, with payment terms of up to 36 payments for
selected merchandise. In addition, a majority of sales are to
customers who receive a deferred payment option, which extends
the due date of the first payment by approximately four months.
Many customers pay their accounts in full before the end of the
scheduled payment term.
Merchandising
Fingerhut offers a broad mix of brand name and private label
consumer products, including electronics, housewares, home
textiles, apparel, furniture, home accessories, jewelry, sporting
goods and toys, tools, automotive, lawn and garden, and financial
service products. In 1993, Fingerhut offered over 15,000
different products. Fingerhut's sales mix by product category
for 1993 is shown in the following table:
Fingerhut Corporation Product Mix
1993
Percent of Sales
Electronics 20
Housewares 18
Home Textiles 18
Apparel 10
Furniture/Home Accessories 9
Jewelry 8
Leisure 8
Tools/Automotive/Lawn & Garden 6
Financial Service Products and Other 3
100%
Fingerhut selects merchandise to be offered to its customers
by evaluating historical product and category demand and
analyzing emerging merchandise trends in conjunction with
proprietary marketing information. Fingerhut is constantly
developing unique brand name and private label product groupings,
such as coordinated kitchen ensembles, coordinated bed and bath
ensembles and tool sets, targeted to appeal to its customers and
to add value and/or style to its merchandise.
<PAGE> 6
Fingerhut's general merchandise catalogs are updated and
published throughout the year and feature a wide array of
products. Specialty catalogs mailed to targeted portions of
Fingerhut's customer list permit Fingerhut to expand the product
selection and intensify the growth opportunities for certain
product categories. These specialty catalogs include spring and
fall gift, outdoor living, jewelry, electronics,
domestics/housewares, apparel, unique gift merchandise, juvenile
furnishings and toys, products for seniors, outerwear, linens and
a new handyman catalog.
Fingerhut also offers its customers various financial service
products, including credit insurance for life, property and
disability, extended property insurance, accidental death,
hospital income, whole life, and term life insurance.
Additionally, merchandise service contracts are sold to customers
that extend a manufacturer's warranty on labor and parts.
Additional programs are being tested and, if successful, will be
expanded in the near future.
Management Information Systems
Fingerhut pioneered the use of information-based marketing
concepts in the mail order industry, using computer technology
and related software developed by the Company. The Company
continues to be highly dependent on information systems and its
computer operations are among the largest and most sophisticated
in the direct marketing industry. Management believes that these
operations, combined with Fingerhut's extensive data base and
advanced information systems, have been key factors in its growth
and profitability.
In 1993, the Company announced the development of a new
consumer database marketing system called Profile 2000. The
Company believes that Profile 2000, which will use client/server
technology, will offer greater speed, flexibility and efficiency.
The system is expected to be on-line by the end of 1995, assuming
satisfactory completion of the initial test phase. In addition,
the Company is developing a new on-line credit granting system
called Frontier 2000.
Fingerhut's management information systems provide data
processing capabilities to Fingerhut, USA Direct and Montgomery
Ward Direct and support all areas of the Company, including
marketing, credit, order fulfillment, customer service, inventory
control and finance. Fingerhut's management information systems
currently operate on mainframe computers connected to on-line
terminals and client-server systems used in all aspects of the
Company's business.
Preparation and Mailing of Promotional Materials
Fingerhut performs a large portion of the production process
for its promotional materials in house. The creative department
uses desktop publishing for the design and production of all
Fingerhut's mailings. A substantial portion of the color
photographs used in Fingerhut's catalogs and other marketing
materials are taken at the Company's in-house photo studio and
Fingerhut prepares color separations for approximately 40% of
its promotional materials. In addition, Fingerhut has two eight
color web printing presses for in-house printing of approximately
half of its catalog "wraps", the personalized outside cover used on
Fingerhut catalogs. Substantially all of the Company's
promotional materials, except the wraps, are printed at outside
vendors.
Fingerhut's mailing operations are designed to provide the
flexibility and rapid response time required to keep pace with
its changing marketing and merchandising needs. Fingerhut has
two mailing facilities in Minnesota that cut, fold, insert, sort
and deliver to the post office its single and multiple product
promotions. For catalog mailings, Fingerhut personalizes the
catalog wraps and delivers them to its outside printers
pre-sorted for mailing.
The Company substantially reduces mailing costs by
effectively using discounts offered by the United States Postal
Service ("USPS") from the basic postal rates. For example,
Fingerhut sorts mailings by zip code to the carrier route level
and also prints the "zip plus four" barcode to obtain optimum
postal discounts, resulting in savings not always available to
smaller direct mail companies. The Company will adopt new
innovations in mail processing techniques, as appropriate, and
believes that the increasing cost and complexity of the postal
<PAGE>7
rate structure will strengthen the long-term competitive position
of larger, more sophisticated mail order firms such as Fingerhut.
Order Processing and Fulfillment
Fingerhut provides order processing and fulfillment services
for USA Direct and Montgomery Ward Direct. Most of Fingerhut's
customer orders are received by mail, while the majority of USA
Direct's and Montgomery Ward Direct's customers place their
orders by telephone. Fingerhut also offers its customers the
option to place orders by telephone in selected promotions. The
Company has two phone centers dedicated to handling incoming
telephone orders from Fingerhut and Montgomery Ward Direct
customers. USA Direct uses outside "800" number services to
handle its incoming telephone orders. In 1993, Fingerhut
processed approximately 24 million Fingerhut, USA Direct and
Montgomery Ward Direct orders and approximately 50 million
Fingerhut and USA Direct customer payments.
In 1993, Fingerhut shipped approximately 28 million
Fingerhut, USA Direct and Montgomery Ward Direct packages from
its warehouse and distribution facilities in Minnesota and
Tennessee. In order to minimize shipping costs, packages are
trucked to drop points throughout the country where they enter
the USPS or the United Parcel Service systems for delivery to the
customer. In addition, Fingerhut offers optional Federal
Expressr delivery in certain of its promotions.
Customer Service
Management has continued its strong emphasis on customer
service and retention. In 1993, the Company implemented phase
one of a new Customer Contact System. For inbound callers, the
system consolidates data from several databases into one format
that puts more information on the telephone representative's
screen, facilitating faster order taking and better customer
service. Management expects that these changes will result in
increased effectiveness in handling customer communications, a
higher overall level of customer satisfaction and improved
customer retention.
USA Direct Incorporated
USA Direct markets specially selected products through 30-
minute direct response television advertisements commonly known
as "infomercials." These advertisements provide entertaining and
informative product demonstrations of specially selected products
and often feature a well known entertainer or other recognized
individual. USA Direct's advertisements are distributed through
cable networks and broadcast television stations.
USA Direct promotes payment by major credit card and also
offers its customers the option to pay for their purchases by
credit card installment billing ranging from three to ten
installments. USA Direct features a 30-day refund policy on all
of its products. Products featured in USA Direct's television
advertisements are later included in Fingerhut's and Montgomery
Ward Direct's catalogs and identified "As seen on TV." In
addition, USA Direct may receive royalties on successful products
later sold in non-affiliated retail stores.
During 1993, USA Direct marketed 19 different products
through direct response television advertisements, generating
approximately 800,000 orders. These products included, among
others, the Susan Powter's Stop the Insanity, the Pump-N-Seal,
the Bissellr Little Green Clean Machine and the Body By Jaker
Firm Flex. USA Direct's sales mix by product category in 1993
was: 45% health and beauty, 40% fitness and 15% housewares. USA
Direct's net sales were approximately $70 million in 1993.
<PAGE>8
Montgomery Ward Direct
The Company has a joint venture limited partnership with
Montgomery Ward & Co., Incorporated ("Montgomery Ward"). The
partnership is structured as a Delaware limited partnership in
which the Company and Montgomery Ward, through subsidiaries, each
have a 50% interest and conducts business under the name
"Montgomery Ward Direct".
Montgomery Ward Direct is a specialty catalog business
targeted to a demographic market with annual income generally
exceeding the national average household income and using credit
policies and marketing techniques that differ from those of
Fingerhut. Montgomery Ward Direct mails its catalogs primarily
to Montgomery Ward credit card holders and accepts payment
through bank and Montgomery Ward credit cards. Receivables
generated by sales made through the Montgomery Ward credit card
are sold through Montgomery Ward to Montgomery Ward Credit
Corporation in accordance with a previously existing agreement
between Montgomery Ward and Montgomery Ward Credit Corporation.
Montgomery Ward and the Company have agreed that the
partnership will be, subject to certain exceptions, the exclusive
vehicle for each to conduct the business of the partnership.
During such time as the Company or one of its subsidiaries is a
partner and for a period of up to three years thereafter
(depending on the circumstance), the Company's direct mail
marketing activities will be limited, with certain exceptions, to
the extent that they would compete with the partnership. The
business conducted by the partnership is not expected to
materially affect the businesses of Fingerhut or USA Direct.
Montgomery Ward provides, without cost to the partnership,
the use of the Montgomery Wardr tradename, certain information
related to its active credit card account holders and has agreed
to provide similar information with respect to future Montgomery
Ward credit card account holders. Fingerhut provides certain
customer names and certain creative, buying, order processing,
customer service, computer services and warehousing services and
facilities. Fingerhut generally is reimbursed by the partnership
only for its incremental costs incurred in providing the services
and facilities. The Company and Montgomery Ward have each agreed
to indemnify the other party and the partnership against any loss
or damage arising out of violations by such party of its
agreements with respect to the provision of such tradename,
information, services and facilities, as the case may be.
The partnership may be terminated by either Fingerhut or
Montgomery Ward upon five years' notice, which may not be given
prior to the tenth anniversary of the partnership. Montgomery
Ward and the Company have certain rights to acquire the interest
of the other in the partnership in the event of a default by the
other party or a transaction in which either Montgomery Ward or
the Company acquires, is acquired by or becomes an affiliate of,
certain competing companies. In such event, the obligations of
Fingerhut and Montgomery Ward to provide services and customer
account lists (and, in the case of Montgomery Ward, the trade
name "Montgomery Ward") will terminate following certain
transition periods varying from one year to five years, depending
on the circumstances.
The Company and Montgomery Ward each contributed an initial
$5 million to the partnership's capital. Each also has
obligations to provide a maximum additional $5 million in 1994.
From time to time, the Company and Montgomery Ward have made
short-term working capital loans to Montgomery Ward Direct. At
December 31, 1993, the Company's aggregate cash investment in
Montgomery Ward Direct was $5 million. The Company accounts for
Montgomery Ward Direct using the equity method of accounting;
accordingly, 50% of Montgomery Ward Direct's profits or losses
are recorded in administrative expenses included in
"Administrative and selling expenses" in the Company's
Consolidated Statements of Earnings contained in the Company's
consolidated financial statements.
In 1993, Montgomery Ward Direct mailed 94 million catalogs to
an active customer list of 1.3 million people. Its 1993 net
sales were $116 million. As described above, these sales are not
included in the Company's net sales.
<PAGE>9
Other Business Activities
The Company derives additional revenues from manufacturing
plastic products and wholesaling excess merchandise. Taken
together, such activities accounted for less than 1% of the
Company's 1993 net sales.
Divested Subsidiaries
Certain assets and liabilities of COMB Corporation ("COMB"),
a subsidiary of the Company, were sold on September 3, 1993. In
addition, the Company sold certain assets and liabilities of FDC,
Inc. ("FDC"), a subsidiary of Figi's Inc. ("Figi's"), effective
as of December 31, 1993 and has signed a letter of intent to sell
substantially all the remaining assets and liabilities of Figi's.
The Company anticipates finalizing this transaction in early
1994. These businesses did not fit into the Company's long-term
strategic direction. COMB, Figi's, and FDC had net sales of $147
million in 1993. The effects of these transactions were recorded
in 1993 and did not have a material impact on 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 sells its
products to customers in all states of the United States and
competes in the purchase and sale of merchandise with all
retailers. Fingerhut's traditional principal competitor in the
general merchandise direct marketing business is J.C. Penney
Company, Inc., which operates a large number of retail stores in
addition to its mail order businesses and generates substantial
catalog sales at its retail premises in addition to direct mail
marketing. Fingerhut also competes with retail department
stores, discount department stores and variety stores, many of
which are national chains, for the general merchandise spending
of its customers.
The principal methods of competition within the direct
marketing industry and in the Company's market segments include
purchasing convenience, extension of credit, customer service,
free trial and merchandise value. The Company believes that it
is able to compete on the strength of its marketing strategy
despite strong competitive pressures. Although barriers to
entering the direct marketing business are minimal and many new
companies have entered and may continue to enter the industry in
competition with the Company, a substantial capital investment
would be required to develop customer databases and software
capabilities comparable to those of the Company. The Company
believes that these assets are necessary to compete effectively
in the Company's market niche, where the predictability of
response rates and combined credit and return losses is critical.
Other Information
Seasonality
The Company's business is seasonal. In 1993, approximately
35% of the Company's net sales and approximately 54% of its net
earnings occurred in the fourth quarter. 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 resulting from a 52/53 week year.
Accordingly, the results of interim periods are not necessarily
indicative of the results for the year.
Costs of Mailing
In 1993, the Company spent an aggregate of $236 million on
postage (including the cost of parcel shipments that were passed
on to customers) of which 46% was attributable to parcel
shipments, 45% was attributable to the mailing of promotional
materials and 9% was attributable to various correspondence with
customers. As is customary in the direct mail industry, the
Company passes on the cost of parcel shipments directly to the
customer as part of the shipping and handling charge. The costs
of mailing promotional material and certain other correspondence
>page>10
(including postage) are not directly passed on to customers, but
are considered in the Company's overall product pricing and
mailing strategies.
Vendor Relations
The Company purchases products from approximately 2,500
different suppliers and maintains strong relations with its
vendors. In 1993, the top ten vendors accounted for
approximately 22% of the Company's total merchandise purchases,
with Thomson Consumer Electric Inc., Springs Industries Inc. and
Regency Bedspread Corporation each accounting for approximately
3% of the total merchandise purchases.
The Company maintains close relations with overseas
representatives in Hong Kong, Taiwan, Korea, Philippines,
Thailand and Europe. In 1993, approximately 19% of the Company's
merchandise was imported directly from foreign vendors and
approximately 27% was purchased through importers.
Employees
As of December 31, 1993, the Company had approximately 8,500
employees, of whom approximately 2,600 were represented by the
Northern District Joint Board or the Southern Regional Joint
Board of the Amalgamated Clothing and Textile Workers Union. The
Company's principal collective bargaining agreements expire on
February 1, 1996 and February 2, 1997. The Company considers its
relations with its employees and the union to be good.
Trademarks and Tradenames
The Company has registered and continues to register, when
appropriate, various trademarks, tradenames and service marks
used in connection with its business and for private label
marketing of certain of its products. The Company considers its
various trademarks and service marks to be readily identifiable
with, and valuable to its business.
Governmental Matters
The Company's business is subject to regulation by a variety
of state and federal laws and regulations related to, among other
things, advertising, time payment pricing, offering and extending
of credit, charging and collecting state sales and 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. In addition, the
operations of Fingerhut have been subject to certain federal and
state consent decrees, the most recent dating back to 1978.
These decrees regulate the manner in which products and gifts may
be described by the Company and specific aspects of credit,
advertising and merchandise substitution policies. The Company
does not consider the existence of these decrees to be a
significant impediment to its profitability or operations.
From time to time the Company has received notices and
inquiries from states with respect to collection of use taxes for
sales to residents of these states. To the extent that any
states are successful in such claims, the Company's cost of doing
business could be increased, although it does not believe any
increase would be material.
Fingerhut relies 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 the cash price for the same goods is not treated
as interest subject to regulation under laws governing the
extension of credit. In other states, Fingerhut is subject to
regulations that limit maximum finance charges and require
refunding of finance charges to customers under certain
circumstances. Fingerhut believes that its time payment pricing
and credit practices are in compliance with applicable state
requirements. Any change of law that would negatively affect
Fingerhut's pricing policies could have an adverse effect on the
Company's profitability.
<PAGE>11
In November 1989, the Attorney General of the State of
Vermont instituted an action against Fingerhut in Vermont
Superior Court asserting that the finance charge rates charged by
Fingerhut in connection with Fingerhut's sales of products to
residents of that state exceed the rate permitted under Vermont
law. During 1993, the court granted the Company's motion for
summary judgment and dismissed the action.
Executive Officers of the Registrant
Name Age Present Office
Theodore Deikel 58 Chairman of the Board,
Chief Executive Officer
and President
Rakesh K. Kaul 42 Executive Vice President
and Chief Administrative
Officer
Gregory D. Lerman 48 Executive Vice President,
Merchandising
Elizabeth A. Bothereau 42 Senior Vice President,
Consumer, Corporate and
Environmental Affairs
William J. Colucci 51 Senior Vice President,
Human Resources
John K. Ellingboe 43 Senior Vice President,
New Business Development,
General Counsel and
Secretary
Glenn L. Habern 49 Senior Vice President and
Chief Information Officer
Richard B. Hoffmann 47 Senior Vice President,
Credit
Andrew V Johnson 38 Senior Vice President,
Marketing
Arthur Kapplow, Jr. 46 Senior Vice President,
Merchandising
Daniel J. McAthie 43 Senior Vice President,
Chief Financial Officer
and Treasurer
Richard L. Tate 48 Senior Vice President,
Merchandising
Michael N. Albrecht 38 Vice President,
Corporate Controller
and Investor Relations
Ronald N. Zebeck 39 President, Fingerhut
Financial Services
Corporation
Theodore Deikel has been Chairman of the Board, Chief
Executive Officer and President since 1989. From 1985 until
rejoining the Company, Mr. Deikel served as Chairman and CEO of
CVN Companies, Inc. ("CVN"), a direct marketing company using
television and direct mail. From 1979 to 1983, Mr. Deikel was
Executive Vice President of American Can Company (a predecessor
to Travelers) and Chairman of American Can Company's specialty
<PAGE>12
retailing division, which included the Company, The Musicland
Group, Inc. and Pickwick Distribution Companies. In addition,
Mr. Deikel was Chief Executive Officer of Fingerhut from 1975 to
1983.
Rakesh K. Kaul has been Executive Vice President and Chief
Administrative Officer since January 1992. Prior to joining the
Company, Mr. Kaul held several positions at Shaklee Corporation,
a direct marketing company: he was Chief Financial and Strategy
Officer from 1990 to April 1991 and Senior Vice President,
Corporate Development and Planning from 1989 to 1990.
Gregory D. Lerman has been Executive Vice President,
Merchandising since 1989. From 1983 until joining the Company,
Mr. Lerman was Senior Vice President, Merchandising and
Television at CVN.
Elizabeth A. Bothereau has been Senior Vice President,
Consumer, Corporate and Environmental Affairs of the Company
since October 1993. Prior to that time, she was Vice President,
Consumer and Environmental Affairs of the Company from January
1991 to October 1993; Director, Business Development of Fingerhut
from June 1990 to January 1991; Senior Vice President,
Administration of MedTrac, a health care cost containment
company, from July 1989 to June 1990; and Vice President,
Marketing of IAC/American Group Benefit Services, a third party
benefits administration company, in 1988-89.
William J. Colucci was hired as Senior Vice President, Human
Resources of the Company in November 1993. For more than five
years before joining the Company, Mr. Colucci was the Vice
President of Personnel for IBM U.S.A., and most recently the
President of Workforce Solutions, an IBM Company providing human
resource services and programs.
John K. Ellingboe has been Senior Vice President, Business
Development, since October 1993, General Counsel of the Company
since June 1990 and Secretary of the Company since April 1990.
Prior to that time he was a shareholder of Briggs and Morgan,
Professional Association, a law firm, from 1987 to April 1990.
Glenn L. Habern has been Senior Vice President and Chief
Information Officer of the Company since April 1991. Mr. Habern
was a Partner and was Director of Retail Systems Consulting of
Ernst & Young, independent accountants, from 1987 to April 1991.
Richard B. Hoffmann has been Senior Vice President, Credit of
the Company since October 1993. Prior to that time, he was Vice
President, Credit of the Company from November 1989 to October
1993 and was Vice President, Credit of CVN prior to joining the
Company.
Andrew V Johnson has been Senior Vice President, Marketing of
the Company since January 1993. Prior to that time, he was Vice
President, Marketing of the Company from November 1989 to January
1993 and held various marketing positions at Fingerhut prior to
1989.
Arthur Kapplow, Jr. became Senior Vice President,
Merchandising of the Company in March 1994 after joining the
Company as Vice President, Merchandising, Jewelry in October
1992. Prior to that time, he was Corporate Merchandising
Manager, Jewelry, Accessories, Cosmetics of J. C. Penney Co.
Daniel J. McAthie became Senior Vice President, Chief
Financial Officer and Treasurer of the Company in January 1994.
Prior to that time he was Vice President and Treasurer of the
Company from June 1990 to December 1993 and Vice President and
Treasurer of CVN from 1987 to 1990.
James B. Moran has been Senior Vice President, Operations
since January 1992 and was Senior Vice President, Subsidiaries
from September 1991 to January 1992. From 1988 until joining the
Company, Mr. Moran was President and Chief Executive Officer of
Tru-Part Manufacturing, a wholesale distributing company.
Richard L. Tate has been Senior Vice President, Merchandising
of the Company since October 1993. Prior to that time he was
Vice President, Merchandising of the Company from December 1989
to October 1993. He was Vice President, Merchandising of CVN
from March to December, 1989.
<PAGE>13
Michael N. Albrecht joined the Company as Vice President,
Corporate Controller in June 1993 and became Vice President,
Corporate Controller and Investor Relations in January 1994.
Prior to that time he was Vice President, Controller of Lord &
Taylor, a retail department store division of the May Department
Stores Co. ("May Co."), from May 1989 until joining the Company
and held various other positions with May Co. from 1981 to 1989.
Ronald N. Zebeck was hired as President of Fingerhut
Financial Services Corporation in March 1994. He was Managing
Director, GM Card Operations of General Motors Corporation from
1991 to 1993 and director of marketing of Advanta Corporation
from 1987 to 1991.
Officers of the Company are elected by, and hold office at
the will of, the Board of Directors and do not serve a "term of
office" as such.
Item 2. Properties
The Company's executive and administrative offices and
warehouse and distribution facilities are located in a number of
facilities in Minnesota and Tennessee. The total facilities
presently used by the Company's continuing operations have an
aggregate of approximately 4.2 million square feet. Of these,
Fingerhut owns buildings in St. Cloud with an aggregate of
approximately one million square feet, in Alexandria with an
aggregate of approximately 51,000 square feet, and in Mora with
approximately 160,000 square feet and Tennessee Distribution,
Inc., a subsidiary of the Company, owns a one million square foot
warehouse and distribution facility near Bristol, Tennessee,
which was completed in 1992.
The Company leases the remainder of the facilities it uses,
which consist of office, operations and warehouse space,
including a 194,000 square foot office building in Minnetonka.
The Company has both an option to purchase and a right of first
refusal on certain office and warehouse facilities and the lessor
has the right to require the Company to purchase those facilities
for approximately $15 million in 1994.
In order to meet its 1994 requirements and to accommodate
future growth, the Company is constructing a 540,000 square foot
expansion to its St. Cloud distribution center and is also
planning to build or acquire one or more additional warehouse and
distribution facilities in future years.
Item 3. Legal Proceedings
The Company is a party to various claims, legal actions,
sales/use tax disputes and other complaints arising in the
ordinary course of business. In the opinion of management, any
losses that 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.
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote of security holders during
the fourth quarter of the Company's fiscal year ended December
31, 1993.
<PAGE>14
PART II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters
The information required by this item is set forth in
"Quarterly Financial and Stock Data" on page 55 of the Company's
Annual Report to Shareholders for the fiscal year ended December
31, 1993 (the "1993 Annual Report") and is incorporated herein by
reference.
Item 6. Selected Financial Data
The information required by this item is set forth under the
caption "Five Year Summary of Selected Consolidated Financial
Data" on page 37 of the 1993 Annual Report and is incorporated
herein by reference.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
The information required by this item is set forth under the
caption "Management's Discussion and Analysis of Results of
Operations and Financial Condition" on pages 38 to 41 of the 1993
Annual Report and is incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data
The audited Consolidated Financial Statements of the
Registrant and independent auditors' report thereon and the
unaudited Quarterly Financial and Stock Data set forth on pages
42 to 55 of the 1993 Annual Report are incorporated herein by
reference.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
None
<PAGE>15
PART III
Item 10. Directors and Executive Officers of the Registrant
The information required by this item with respect to
directors is set forth under "Proposal 1: Election of Directors"
in the Company's proxy statement for the annual meeting of
shareholders to be held on May 12, 1994, which will be filed
within 120 days of December 31, 1993 (the "Proxy Statement") and
is incorporated herein by reference. The information required by
this item with respect to executive officers is, pursuant to
instruction 3 of Item 401(b) of Regulation S-K, set forth in Part
I of this Form 10-K under "Business--Executive Officers of the
Registrant." The information required by this item with respect
to reports required to be filed under Section 16(a) of the
Securities Exchange Act of 1934 is set forth under "Security
Ownership of Certain Beneficial Owners and Management" in the
Proxy Statement and is incorporated by reference.
Item 11. Executive Compensation
The information required by this item is set forth under
"Executive Compensation" in the Proxy Statement and is
incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners
and Management
The information required by this item is set forth under
"Security Ownership of Certain Beneficial Owners and Management"
in the Proxy Statement and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
The information required by this item is set forth under
"Arrangements and Transactions with Related Parties" in the Proxy
Statement and is incorporated herein by reference.
With the exception of the information incorporated by
reference in Items 10-13 above, the Proxy Statement is not to be
deemed filed as part of this Form 10-K.
<PAGE>16
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K
(a) The following documents are made part of this report:
1. Consolidated Financial Statements.
The following consolidated financial statements, the
related notes and the report of the Company's
independent auditors are incorporated herein by
reference from the 1993 Annual Report as part of
this report at Item 8 hereof:
Independent Auditors' Report dated 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.
Consolidated Statements of Earnings for the three
fiscal years ended December 31, 1993.
Consolidated Statements of Financial Position at
December 31, 1993 and December 25, 1992.
Consolidated Statements of Changes in
Stockholders' Equity for the three fiscal years
ended December 31, 1993.
Consolidated Statements of Cash Flows for the
three fiscal years ended December 31, 1993.
Notes to Consolidated Financial Statements.
With the exception of the foregoing information and
the information incorporated by reference in Items 5-
8 of this Part II, the 1993 Annual Report is not to
be deemed filed as part of this Form 10-K.
2. Financial Statement Schedule: The following schedule
for the three years ended December 31, 1993 is
included in this Form 10-K:
Independent Auditors' Report on consolidated
financial statement schedule dated 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 - Valuation and Qualifying Accounts.
Certain schedules have been omitted because they are
not required under the related instructions or are
inapplicable, or because the required information is
included elsewhere in the financial statements or
related notes.
(b) Reports on Form 8-K: None
(c) Exhibits: See Exhibit Index on page 19 of this Report.
<PAGE>17
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 on the 30th day of March, 1994.
FINGERHUT COMPANIES, INC.
(Registrant)
By /s/ Theodore Deikel
Theodore Deikel
Chairman of the Board, Chief
Executive Officer and President
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of Fingerhut Companies, Inc., the Registrant, and in
the capacities and on the dates indicated.
Signature Title Date
Principal executive Chairman of the Board, March 30, 1994
officer and director: Chief Executive Officer
and President
/s/ Theodore Deikel
Theodore Deikel
Principal financial
officer: Senior Vice President, March 30, 1994
Chief Financial Officer,
and Treasurer
/s/ Daniel J. McAthie
Daniel J. McAthie
Principal accounting
officer: Vice President, March 30, 1994
Corporate Controller and
Investor Relations
/s/ Michael N. Albrecht
Michael N. Albrecht
<PAGE>18
Directors:
/s/ Wendell R. Anderson Director March 30, 1994
Wendell R. Anderson
/s/ Edwin C. Gage Director March 30, 1994
Edwin C. Gage
/s/ Stanley S. Hubbard Director March 24, 1994
Stanley S. Hubbard
/s/ Richard M. Kovacevich Director March 22, 1994
Richard M. Kovacevich
/s/ Dudley C. Mecum Director March 21, 1994
Dudley C. Mecum
<PAGE>19
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
Articles of Incorporation and Bylaws
3.a Amended and Restated Articles of
Incorporation of the Registrant
(restated in electronic format as
amended to July 29, 1993).
3.b Bylaws of the Registrant
(restated in electronic format as
amended to July 29, 1993).
Material Contracts
10.a Second Amended and Restated
Receivables Transfer Agreement
dated as of July 9, 1993 among
Fingerhut Corporation, as
Transferor, Ciesco, L.P. and
Matterhorn Capital Corporation
and Enterprise Funding
Corporation, as Investors and
Citibank, N.A. and Citicorp North
America, Inc. as Agent (the
"Primary Transfer Agreement")
(Incorporated by reference to
Exhibit 10(a)(iv) to Registrant's
Quarterly Report on Form 10-Q
(File No. 1-8668) for the fiscal
quarter ended June 25, 1993).
10.b Second Amended and Restated
Receivables Transfer Agreement
dated as of July 9, 1993 among
Fingerhut Corporation as
Transferor and Citibank, N.A. and
Citicorp North America, Inc. as
Agent (the "Secondary Transfer
Agreement") (Incorporated by
reference to Exhibit l0(b)(iv) to
Registrant's Quarterly Report on
Form 10-Q (File No. 1-8668) for
the fiscal quarter ended June 25,
1993).
10 Six Lease and Option
Agreements, each effective
January 1, 1990, and each between
the Registrant and Transport Life
Insurance Company (Incorporated
by reference to Exhibit 10(c) to
Registrant's Registration
Statement on Form S-1 (No.
33-33923)).
10.d* Fingerhut Corporation Profit
Sharing Plan 1989 Revision
(Incorporated by reference to
Exhibit 10(d) to Registrant's
Registration Statement on Form
S-1 (No. 33-33923)).
10.e* Fingerhut Companies, Inc. and
Subsidiaries 1994 Key Management
Incentive Bonus Plan for
Designated Corporate Officers.
<PAGE>20
10.f* Fingerhut Corporation Pension
Plan 1990 Revision (Incorporated
by reference to Exhibit 10(f) to
Registrant's Registration
Statement on Form S-1 (No.
33-33923)).
10.g* Fingerhut Companies, Inc.
Stock Option Plan (Incorporated
by reference to Exhibit 10(h) to
Registrant's Registration
Statement on Form S-1 (No.
33-33923)).
10.h* Agreement among the
Registrant, Primerica Corporation
and Theodore Deikel dated
November 2, 1989 (Incorporated by
reference to Exhibit 10(i) to
Registrant's Registration
Statement on Form S-1 (No.
33-33923)).
10.i* Form of Employment Agreement
between the Registrant and
certain Executive Vice Presidents
dated November 22, 1989
(Incorporated by reference to
Exhibit 10(k) to Registrant's
Registration Statement on Form
S-1 (No. 33-33923)).
10.j* Fingerhut Companies, Inc. 1992
Long-Term Incentive and Stock
Option Plan. (Incorporated by
reference to (Exhibit 10(j) to
Registrant's Annual Report on
Form 10-K (File No. 1-8668) for
the fiscal year ended December
25, 1992).
10.k* Fingerhut Companies, Inc. and
Subsidiaries Annual Incentive
Bonus Plan for Designated
Corporate Officers.
10.l* Fingerhut Companies, Inc.
Performance Enhancement
Investment Plan. (Incorporated
by reference to Exhibit 10(l) to
Registrant's Annual Report on
Form 10-K (File No. 1-8668) for
the fiscal year ended December
25, 1992).
10.m* Fingerhut Companies, Inc.
Directors' Retainer Stock
Deferral Plan.
10.n Amended and Restated
Revolving Credit and Letter of
Credit Facility dated as of
October 20, 1993, among Fingerhut
Companies, Inc., the Guarantors
party thereto, the Lenders party
thereto, the Issuing Banks party
thereto, Chemical Bank as Agent
and NationsBank of North Carolina
N.A. (Incorporated by reference
to Exhibit 10.n to Registrant's
Quarterly Report on Form 10-Q
(File No. 1-8668) for the fiscal
quarter ended September 24,
1993).
10.o Form of Purchase Agreement
dated as of January 14, 1991,
relating to the sale of
$65,000,000 of 9.81% Senior
Notes, Series A, due June 30,
1996 and $25,000,000 of 10.12%
Senior Notes, Series B, due
December 30, 1997 (Incorporated
by reference to Exhibit 10(o) to
Registrant's Annual Report on
Form 10-K (File No. 1-8668) for
the fiscal year ended December
28, 1990).
(i) First Amendment Agreement dated as
of March 1, 1992. (Incorporated
by reference to Exhibit 10(o)(i)
to Registrant's Annual Report on
Form 10-K (File No. 1-8668) for
the fiscal year ended December
27, 1991).
10.p Purchase Agreement dated as of
February 15, 1991, relating to
the sale of $20,000,000 of 9.74%
Senior Notes, Series C, due
August 15, 1996 (Incorporated by
reference to Exhibit 10(p) to
Registrant's Annual Report on
Form 10-K (File No. 1-8668) for
the fiscal year ended December
28, 1990).
(i) First Amendment Agreement dated as
of March 1, 1992. (Incorporated
by reference to Exhibit 10(p)(i)
to Registrant's Annual Report on
Form 10-K (File No. 1-8668) for
the fiscal year ended December
27, 1991).
10.q Purchase Agreement dated as of
January 15, 1992, relating to the
sale of $15,000,000 of 6.96%
Senior Notes, Series D, due
August 15, 1996. (Incorporated
by reference to Exhibit 10(q) to
Registrant's Annual Report on
Form 10-K (File No. 1-8668) for
the fiscal year ended December
27, 1991).
<PAGE>21
(i) First Amendment Agreement dated as
of March 1, 1992. (Incorporated
by reference to Exhibit 10(q)(i)
to registrant's Annual Report on
From 10-K (File No. 1-8668) for
the fiscal year ended December
27, 1991).
10.r Pledge Agreement dated as of
March 20, 1992, securing the
Company's obligations under the
Credit Agreement and its Senior
Notes, Series A, B, C and D.
(Incorporated by reference to
Exhibit 10(r) to Registrant's
Annual Report on Form 10-K (File
No. 1-8668 for the fiscal year
ended December 27, 1991).
10.s Purchase Agreement dated as of
June 15, 1992, relating to the
sale of $60,500,000 of 8.92%
Senior Unsecured Notes, Series A,
due June 15, 2002 and $14,500,000
of 8.92% Senior Unsecured Notes,
Series B, due June 15, 2004
(Incorporated by reference to
Exhibit 10(s) to Registrant's
Quarterly Report on form 10-Q
(File No. 1-8668) for the fiscal
quarter ended June 26, 1992.
10.t Purchase Agreement dated as of
August 1, 1993, relating to the
sale of $45,000,000 of 6.83%
Senior Unsecured Notes, Series C,
due August 1, 2000 (Incorporated
by reference to Exhibit 10.t to
Registrant's Quarterly Report on
Form 10-Q (File 1-8668) for the
fiscal quarter ending September
24, 1993).
<PAGE>22
Other Exhibits
11 Computation of Earnings per Share
13 Pages 37 to 55 of the 1993 Annual
Report to Shareholders. The 1993
Annual Report shall not be deemed
to be filed with the Commission
except to the extent that
information is specifically
incorporated herein by reference.
Exhibit 13 also includes a
financial statement schedule, and
independent auditors' report
thereon, that was not part of the
1993 Annual Report.
22 Subsidiaries of the Registrant
23 Consent of KPMG Peat Marwick
______
* Management contract or compensatory plan or arrangement
required to be filed as an exhibit pursuant to Item 14(c) of Form
10-K.
EXHIBIT 3.a
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
FINGERHUT COMPANIES, INC.
ARTICLE I
The name of the Corporation is Fingerhut Companies, Inc.
ARTICLE II
The address of the registered office of the Corporation
in the State of Minnesota is 4400 Baker Road, Minnetonka,
Minnesota 55343.
ARTICLE III
The purpose of the Corporation is to engage in any
lawful act or activity for which a corporation may now or
hereafter be organized under the Minnesota Business Corporation
Act.
ARTICLE IV
A. The total number of shares of stock that the
Corporation shall have authority to issue is 105,000,000 shares,
consisting of 100,000,000 shares of common stock, par value $.01
per share (the "Common Stock"), and 5,000,000 shares of preferred
stock, par value $.01 per share (the "Preferred Stock").
B. Shares of the Preferred Stock may be issued from
time to time in one or more classes or series, each of which class
or series shall have such distinctive designation or title as
shall be fixed by the Board of Directors of the Corporation (the
"Board of Directors") prior to the issuance of any shares thereof.
Each such class or series of Preferred Stock shall have such
voting powers, full or limited, or no voting powers, and such
preferences and relative, participating, optional, conversion, or
other special rights and such qualifications, limitations or
restrictions thereof, as shall be stated in the resolution or
resolutions providing for the issue of such class or series of
Preferred Stock as may be adopted from time to time by the Board
of Directors prior to the issuance of any shares thereof pursuant
to the authority hereby expressly vested in it, all in accordance
with the laws of the State of Minnesota. The Board of Directors
is further authorized to increase or decrease the authorized
number of shares of any series (but not below the number of shares
of that series issued) subsequent to the issuance of shares of
that series.
C. Subject to the provisions of any applicable law or
except as otherwise provided by the resolution or resolutions
providing for the issue of any series of Preferred Stock, the
holders of outstanding shares of Common Stock shall exclusively
possess voting power for the election of directors and for all
other purposes, each holder of record of shares of Common Stock
being entitled to one vote for each share of Common Stock standing
in his name on the books of the Corporation.
D. Except as provided by the resolution or resolutions
providing for the issue of any series of Preferred Stock, there
shall be no cumulative voting by the holders of the Common Stock
or by the holders of any class or series of Preferred Stock.
E. Except as provided by the resolution or resolutions
providing for the issue of any series of Preferred Stock, the
shareholders shall have no preemptive right to subscribe for or
otherwise acquire any new or additional shares of stock of the
Corporation of any class whether now authorized or authorized
hereafter, or any options or warrants to purchase, to subscribe
for or otherwise acquire any such new or additional shares of any
class, or any shares, bonds, notes, debentures, or other
securities convertible into or carrying options or warrants to
purchase, to subscribe for or otherwise acquire any such new or
additional shares of any class.
F. The Board of Directors shall have the sole power to
issue shares of Common Stock or any class or series of Preferred
Stock.
ARTICLE V
The business and affairs of the Corporation shall be
managed by or under the direction of the Board of Directors
consisting of not less than three directors nor more than eleven
directors, the exact number of directors to be determined from
time to time by resolution adopted by a majority of the entire
Board of Directors then in office. The directors shall be divided
into three classes, designated Class I, Class II and Class III.
Each class shall consist, as nearly as may be possible, of one
third of the total number of directors constituting the entire
Board of Directors. The term of the initial Class I directors
shall terminate on the date of the 1991 annual meeting of
shareholders; the term of the initial Class II directors shall
terminate on the date of the 1992 annual meeting of shareholders
and the term of the initial Class III directors shall terminate on
the date of the 1993 annual meeting of shareholders. At each
annual meeting of shareholders beginning in 1991, successors to
the class of directors whose term expires at that annual meeting
shall be elected for a three-year term. If the number of
directors is changed, any increase or decrease shall be
apportioned among the classes so as to maintain the number of
directors in each class as nearly equal as possible, and any
additional directors of any class elected to fill a vacancy
resulting from an increase in such class shall hold office for a
term that shall coincide with the remaining term of that class,
but in no case will a decrease in the number of directors shorten
the term of any incumbent director. A director shall hold office
until the annual meeting for the year in which his term expires
and until his successor shall be elected and shall qualify,
subject, however, to prior death, resignation, retirement,
disqualification or removal from office. Any vacancy on the Board
of Directors that results from an increase in the number of
directors shall be filled by a majority of the entire Board of
directors then in office, and any vacancy occurring for any other
reason may be filled by a majority of the directors then in
office, even if less than a quorum, or by a sole remaining
director. Any director elected to fill a vacancy shall hold
office for a term that shall coincide with the term of the class
to which such director shall have been elected.
Notwithstanding the foregoing, whenever the holders of
any one or more classes or series of Preferred Stock issued by the
Corporation shall have the right, voting separately by class or
series, to elect directors at an annual or special meeting of
shareholders, the elections, terms of office, filling of vacancies
and other features of such directorships shall be governed by the
terms of these Amended and Restated Articles of Incorporation or
the resolution or resolutions providing for the issue of any such
class or series, and such directors so elected shall not be
divided into classes pursuant to this Article V unless expressly
provided by such terms.
ARTICLE VI
Subject to the rights, if any, of the holders of shares
of a class or series of Preferred Stock then outstanding, any or
all of the directors of the Corporation may be removed from office
at any time, but only for cause and only by the affirmative vote
of the holders of a majority of the outstanding shares of the
Corporation entitled to vote generally in the election of
directors, all of such shares being considered for purposes of
this Article VI as a single class.
ARTICLE VII
A. In addition to any affirmative vote required by
law or these Amended and Restated Articles of Incorporation or the
Bylaws of the Corporation, and except as otherwise expressly
provided in Section B of this Article VII, a Business Combination
(as hereinafter defined) with, or proposed by or on behalf of, any
Interested Shareholder (as hereinafter defined), or any Affiliate
or Associate (as hereinafter defined) of any Interested
Shareholder or any person who thereafter would be an Affiliate or
Associate of such Interested Shareholder shall require the
affirmative vote of not less than sixty-six and two-thirds percent
(66-2/3%) of the votes entitled to be cast by the holders of all
the then outstanding shares of Voting Stock (as hereinafter
defined) voting together as a single class, excluding Voting Stock
beneficially owned by such Interested Shareholder. Such
affirmative vote shall be required notwithstanding the fact that
no vote may be required, or that a lesser percentage or separate
class vote may be specified, by law or in any agreement with any
national securities exchange or otherwise.
B. The provisions of Section A of this Article VII
shall not be applicable to any particular Business Combination,
and such Business Combination shall require only such affirmative
vote, if any, as is required by law or by any other provision of
these Amended and Restated Articles of Incorporation or the Bylaws
of the Corporation, or any agreement with any national securities
exchange, if all of the conditions specified in either of the
following Paragraphs 1 or 2 are met or, in the case of a Business
Combination not involving the payment of consideration to the
holders of the Corporation's outstanding Capital Stock (as
hereinafter defined), if the condition specified in the following
Paragraph 1 is met:
1. The Business Combination shall have been approved,
either specifically or as a transaction which is within an
approved category of transactions, by a majority (whether or not
such approval is made prior to or subsequent to the acquisition
of, or announcement or public disclosure of the intention to
acquire, beneficial ownership of the Voting Stock that caused the
Interested Shareholder to become an Interested Shareholder) of the
Continuing Directors (as hereinafter defined).
2. All of the following conditions shall have been
met:
(a) The aggregate amount of cash and the Fair
Market Value, as of the date of the consummation of the Business
Combination, of consideration other than cash to be received per
share by holders of shares of any class or series of outstanding
Capital Stock shall be at least equal to the highest amount
determined under clauses (i), (ii), (iii) and (iv) below:
(i) (if applicable) the highest per share
price (including any brokerage commissions, transfer taxes
and soliciting dealers' fees) paid by or on behalf of the
Interested Shareholder for any share of such class or series
of Capital Stock in connection with the acquisition by the
Interested Shareholder of beneficial ownership of shares of
such class or series of Capital Stock (x) within the two-year
period immediately prior to the first public announcement of
the proposed Business Combination (the "Announcement Date")
or (y) in the transaction in which it became an Interested
Shareholder, whichever is higher, in either case as adjusted
for any subsequent stock split, stock dividend, subdivision
or reclassification with respect to such class or series of
Capital Stock;
(ii) the Fair Market Value per share of
such class or series of Capital Stock on the Announcement
Date or on the date on which the Interested Shareholder
became an Interested Shareholder (the "Determination Date"),
whichever is higher, as adjusted for any subsequent stock
split, stock dividend, subdivision or reclassification with
respect to such class or series of Capital Stock;
(iii) (if applicable) the highest
preferential amount per share to which the holders of shares
of such class or series of Capital Stock would be entitled in
the event of any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Corporation
regardless of whether the Business Combination to be
consummated constitutes such an event; and
(iv) an amount which bears the same or
greater percentage to the Fair Market Value of such class of
Voting Stock on the Announcement Date as the highest per
share price in 2(a)(i) above bears to the Fair Market Value
of such class of Voting Stock on the date of the commencement
of the acquisition of such Voting Stock by such Interested
Shareholder.
The provisions of this Paragraph 2 shall be required to
be met with respect to every class or series of outstanding
Capital Stock, whether or not the Interested Shareholder has
previously acquired beneficial ownership of any shares of a
particular class or series of Capital Stock.
(b) The consideration to be received by holders
of a particular class or series of outstanding Capital Stock shall
be in cash or in the same form as previously has been paid by or
on behalf of the Interested Shareholder in connection with its
direct or indirect acquisition of beneficial ownership of shares
of such class or series of Capital Stock. If the consideration so
paid for shares of any class or series of Capital Stock varied as
to form, the form of consideration for such class or series of
Capital Stock shall be either cash or the form used to acquire
beneficial ownership of the largest number of shares of such class
or series of Capital Stock previously acquired by the Interested
Shareholder.
(c) After the Determination Date and prior to the
consummation of such Business Combination: (i) except as approved
by a majority of the Continuing Directors, there shall have been
no failure to declare and pay at the regular date therefor any
full quarterly dividends (whether or not cumulative) payable in
accordance with the terms of any outstanding Capital Stock; (ii)
there shall have been no reduction in the annual rate of dividends
paid on the Common Stock (except as necessary to reflect any stock
split, stock dividend or subdivision of the Common Stock), except
as approved by a majority of the Continuing Directors; (iii) there
shall have been an increase in the annual rate of dividends paid
on the Common Stock as necessary to reflect any reclassification
(including any reverse stock split), recapitalization,
reorganization or any similar transaction that has the effect of
reducing the number of outstanding shares of Common Stock, unless
the failure so to increase such annual rate is approved by a
majority of the Continuing Directors; and (iv) such Interested
Shareholder shall not have become the beneficial owner of any
additional shares of Capital Stock except as part of the
transaction that results in such Interested Shareholder becoming
an Interested Shareholder and except in a transaction that, after
giving effect thereto, would not result in any increase in the
Interested Shareholder's percentage beneficial ownership of any
class or series of Capital Stock.
(d) A proxy or information statement describing
the proposed Business Combination and complying with the
requirements of the Securities Exchange Act of 1934, as amended,
and the rules and regulations thereunder (the "Exchange Act") (or
any subsequent provisions replacing such Exchange Act, rules or
regulations) shall be mailed to all shareholders of the
Corporation at least 30 days prior to the consummation of such
Business Combination (whether or not such proxy or information
statement is required to be mailed pursuant to the Exchange Act or
subsequent provisions). The proxy or information statement shall
contain on the first page thereof, in a prominent place, any
statement as to the advisability (or inadvisability) of the
Business Combination that the Continuing Directors, or any of
them, may choose to make and, if deemed advisable by a majority of
the Continuing Directors, the opinion of an investment banking
firm selected by the majority of the Continuing Directors as to
the fairness (or unfairness) of the terms of the Business
Combination from a financial point of view to the holders of the
outstanding shares of Capital Stock other than the Interested
Shareholder and its Affiliates or Associates, such investment
banking firm to be paid a reasonable fee for its services by the
Corporation.
(e) Such Interested Shareholder shall not have
made any material change in the Corporation's business or equity
capital structure without the approval of a majority of the
Continuing Directors.
C. The following definitions shall apply with respect
to this Article VII:
1. The term "Business Combination" shall mean:
(a) any merger or consolidation of the Corporation
or any Subsidiary (as hereinafter defined) with (i) any Interested
Shareholder or (ii) any other company (whether or not itself an
Interested Shareholder) which is or after such merger or
consolidation would be an Affiliate or Associate of an Interested
Shareholder; or
(b) any sale, lease, exchange, mortgage, pledge,
transfer or other disposition of security arrangement, investment,
loan, advance, guarantee, arrangement to purchase, agreement to
pay, extension of credit, joint venture participation or other
arrangement (in one transaction or a series of transactions) with
or for the benefit of any Interested Shareholder or any Affiliate
or Associate of any Interested Shareholder involving any assets,
securities or commitments of the Corporation, any Subsidiary or
any Interested Shareholder or any Affiliate or Associate of any
Interested Shareholder which (except for any arrangement, whether
as employee, consultant or otherwise, other than as a director,
pursuant to which any Interested Shareholder or any Affiliate or
Associate thereof shall, directly or indirectly, have any control
over or responsibility for the management of any aspect of the
business or affairs of the Corporation, which arrangements are
included in this definition of Business Combination, without
regard to the value tests set forth below), together with all
other such arrangements (including all contemplated future
events), has an aggregate Fair Market Value and/or involves
aggregate commitments of $10,000,000 or more or constitutes more
than 5 percent of the book value of the total assets (in the case
of transactions involving assets or commitments other than capital
stock) or 5 percent of the shareholders' equity (in the case of
transactions in Capital Stock) of the entity in question (the
"Substantial Part"), as reflected in the most recent fiscal year-
end consolidated balance sheet of such entity existing at the time
the shareholders of the Corporation would be required to approve
or authorize the Business Combination involving the assets,
securities and/or commitments constituting any Substantial Part;
or
(c) the adoption of any plan or proposal for the
liquidation or dissolution of the Corporation or for any amendment
to the Corporation's Bylaws; or
(d) any reclassification of securities (including
any reverse stock split), or recapitalization of the Corporation,
or any merger or consolidation of the Corporation with any of its
Subsidiaries or any other transaction (whether or not with or
otherwise involving an Interested Shareholder) that has the
effect, directly or indirectly, of increasing the proportionate
share of any class or series of Capital Stock, or any securities
convertible into Capital Stock or into equity securities of any
Subsidiary, that is beneficially owned by any Interested
Shareholder or any Affiliate or Associate of any Interested
Shareholder; or
(e) any agreement, contract or other arrangement
providing for any one or more of the actions specified in the
foregoing clauses (a) through (d).
2. The term "Capital Stock" shall mean all capital
stock of the Corporation authorized to be issued from time to time
under Article IV of these Amended and Restated Articles of
Incorporation, and the term "Voting
Stock" shall mean all Capital Stock which by its terms may be
voted on all matters submitted to shareholders of the Corporation
generally.
3. The term "person" shall mean any individual, firm,
company or other entity and shall include any group comprised of
any person and any other person with whom such person or any
Affiliate or Associate of such person has any agreement,
arrangement or understanding, directly or indirectly, for the
purpose of acquiring, holding, voting or disposing of Capital
Stock.
4. The term "Interested Shareholder" shall mean any
shareholder other than the Corporation or any Subsidiary, any
shareholder (or any Affiliate of such shareholder to which such
shareholder's shares shall have been transferred) owning, at the
time of the filing of these Amended and Restated Articles of
Incorporation, ten percent (10%) or more of the Common Stock of
the Corporation then outstanding, and other than any profit-
sharing, pension, employee stock option or other employee benefit
plan of the Corporation or any Subsidiary or any trustee of or
fiduciary with respect to any such plan when acting in such
capacity, who after the effective date of these Amended and
Restated Articles of Incorporation acquires or announces or
publicly discloses a plan or intention to acquire the beneficial
ownership of Voting Stock representing ten percent (10%) or more
of the votes entitled to be cast by the holders of all then
outstanding shares of Voting Stock. The number (appropriately
adjusted to reflect any stock dividend, split-up, reorganization,
combination or reclassification of the outstanding shares of
Capital Stock of the Corporation including recapitalization as a
result of any merger or consolidation) of shares of Voting Stock
beneficially owned by a person on such effective date shall be
subtracted from such person's beneficial ownership of Voting Stock
for purposes of determining whether such person is an Interested
Shareholder.
5. A person shall be a "beneficial owner" of any
Capital Stock (a) which such person or any of its Affiliates or
Associates beneficially owns, directly or indirectly; (b) which
such person or any of its Affiliates or Associates has, directly
or indirectly, (i) the right to acquire (whether such right is
exercisable immediately or subject only to the passage of time),
pursuant to any agreement, arrangement or understanding or upon
the exercise of conversion rights, exchange rights, warrants or
options, or otherwise, or (ii) the right to vote pursuant to any
agreement, arrangement or understanding; or (c) which is
beneficially owned, directly or indirectly, by any other person
with which such person or any of its Affiliates or Associates has
any agreement, arrangement or understanding for the purpose of
acquiring, holding, voting or disposing of any shares of Capital
Stock. For the purposes of determining whether a person is an
Interested Shareholder pursuant to Paragraph 4 of this Section C,
the number of shares of Capital Stock deemed to be outstanding
shall include shares deemed beneficially owned by such person
through application of this Paragraph 5 of this Section C, but
shall not include any other shares of Capital Stock that may be
issuable pursuant to any agreement, arrangement or understanding,
or upon exercise of conversion rights, warrants or options, or
otherwise.
6. The terms "Affiliate" and "Associate" shall have
the respective meanings ascribed to such terms in Rule 12b-2 under
the Exchange Act as in effect on the date of filing these Amended
and Restated Articles of Incorporation (the term "registrant" in
said Rule 12b-2 meaning in this case the Corporation).
7. The term "Subsidiary" shall mean any company of
which a majority of any class of equity security is beneficially
owned by the Corporation; provided, however, that for purposes of
the definition of Interested Shareholder set forth in Paragraph 4
of this Section C, the term "Subsidiary" shall mean only a company
of which a majority of each class of equity security is
beneficially owned by the Corporation.
8. The term "Continuing Director" shall mean any
member of the Board of Directors, while such person is a member of
the Board of Directors, who is not an Affiliate or Associate or
representative of the Interested Shareholder and was a member of
the Board of Directors prior to the time that the Interested
Shareholder became an Interested Shareholder, and any successor of
a Continuing Director while such successor is a member of the
Board of Directors, who is not an Affiliate or Associate or
representative of the Interested Shareholder and is recommended or
elected to succeed the Continuing Director by a majority of the
Continuing Directors.
9. The term "Fair Market Value" shall mean (a) in the
case of cash, the amount of such cash; (b) in the case of stock,
the highest closing sale price during the 30-day period
immediately preceding the date in question of a share of such
stock on the Composite Tape for New York Stock Exchange- Listed
Stocks, or, if such stock is not quoted on the Composite Tape, on
the New York Stock Exchange, or, if such stock is not listed on
such Exchange, on the principal United States securities exchange
registered under the Exchange Act on which such stock is listed,
or, if such stock is not listed on any such exchange, the highest
closing bid quotation with respect to a share of such stock during
the 30-day period preceding the date in question on the National
Association of Securities Dealers, Inc. Automated Quotations
System or any similar system then in use, or if no such quotations
are available, the Fair Market Value on the date in question of a
share of such stock as determined by a majority of the Continuing
Directors in good faith, and (c) in the case of property other
than cash or stock, the Fair Market Value of such property on the
date in question as determined in good faith by a majority of the
Continuing Directors.
10. In the event of any Business Combination in which
the Corporation survives, the phrase "consideration other than
cash to be received" as used in Paragraph 2(a) of Section B of
this Article VII shall include the shares of Common Stock and/or
the shares of any other class or series of Capital Stock retained
by the holders of such shares.
D. A majority of the Continuing Directors shall have
the power and the duty to determine for the purposes of this
Article VII, on the basis of information known to them after
reasonable inquiry, all questions under this Article VII,
including, without limitation, (a) whether a person is an
Interested Shareholder (in which case such a person under
consideration by the Board of Directors shall be considered an
Interested Shareholder for the purposes of determining which
members of the Board of Directors are Continuing Directors
entitled to make such determination), (b) the number of shares of
Capital Stock or other securities beneficially owned by any
person, (c) whether a person is an Affiliate or Associate of
another, (d) whether a Proposed Action (as hereinafter defined) is
with, or proposed by, or on behalf of an Interested Shareholder or
an Affiliate or Associate of the Interested Shareholder, (e)
whether the assets that are the subject of any Business
Combination have, or the consideration to be received for the
issuance or transfer of securities by the Corporation or any
Subsidiary in any Business Combination has, an aggregate Fair
Market Value of $10,000,000 or more, and (f) whether the assets or
securities that are the subject of any Business Combination
constitute a Substantial Part. Any such determination made in
good faith shall be binding and conclusive on all parties.
E. Nothing in this Article VII shall be construed to
relieve any Interested Shareholder from any fiduciary obligation
imposed by law.
F. The fact that any Business Combination complies
with the provisions of Section B of this Article VII shall not be
construed to impose any fiduciary duty, obligation or
responsibility on the Board of Directors, or any member thereof,
to approve such Business Combination or recommend its adoption or
approval to the shareholders of the Corporation, nor shall such
compliance limit, prohibit or otherwise restrict in any manner the
Board of Directors, or any member thereof, with respect to
evaluations of or actions and responses taken with respect to such
Business Combination.
G. For the purposes of this Article VII, a Business
Combination or any proposal to amend, repeal or adopt any
provision of these Amended and Restated Articles of Incorporation
inconsistent with this Article VII (collectively, "Proposed
Action") is presumed to have been proposed by, or on behalf of, an
Interested Shareholder or an Affiliate or Associate of an
Interested Shareholder or a person who thereafter would become
such if (1) after the Interested Shareholder became such, the
Proposed Action is proposed following the election of any Director
of the Corporation who, with respect to such Interested
Shareholder, would not qualify to serve as a Continuing Director
or (2) such Interested Shareholder, Affiliate, Associate or person
votes for or consents to the adoption of any such Proposed Action,
unless as to such Interested Shareholder, Affiliate, Associate or
person, a majority of the Continuing Directors makes a good faith
determination that such Proposed Action is not proposed by or on
behalf of such Interested Shareholder, Affiliate, Associate or
person, based on information known to them after reasonable
inquiry.
H. For the purposes of this Article VII, any action,
approval or determination to be taken, extended or made by the
Continuing Directors or by a majority of the Continuing Directors
may be taken, extended or made regardless of whether the number of
the then existing Continuing Directors constitutes a quorum of the
entire Board of Directors.
I. Notwithstanding any other provision of these
Amended and Restated Articles of Incorporation or the Bylaws of
the Corporation (and notwithstanding the fact that a lesser
percentage or separate class vote may be specified by law, these
Amended and Restated Articles of Incorporation or the Bylaws of
the Corporation), the affirmative vote of the holders of record of
at least sixty-six and two-thirds percent (66-2/3%) of the votes
entitled to be cast by the holders of all of the then outstanding
shares of Voting Stock, voting together as a single class, shall
be required to approve any proposal to alter, amend or repeal this
Article VII or to adopt any provision inconsistent therewith;
provided, however, that if such proposal is by or on behalf of an
Interested Shareholder or an Affiliate or Associate of an
Interested Shareholder, approval of such proposal shall require
the affirmative vote of the holders of record of at least sixty-
six and two-thirds percent (66-2/3%) of the votes entitled to be
cast by the holders of all the then outstanding shares of Voting
Stock, voting together as a single class, excluding Voting Stock
beneficially owned by such Interested Shareholder; provided,
however, that this Section I shall not apply to, and such sixty-
six and two-thirds percent (66-2/3%) vote shall not be required
for, any alteration, amendment, repeal or adoption unanimously
recommended by the Board of Directors if all of such directors are
persons who would be eligible to serve as Continuing Directors
within the meaning of Section C, Paragraph 8 of this Article VII.
ARTICLE VIII
To the fullest extent permitted by the Minnesota
Business Corporation Act, as the same now exists or may hereafter
be amended, no director of the Corporation shall be personally
liable to the Corporation or its shareholders for monetary damages
for any breach of fiduciary duty by such a director as a director.
No amendment to or repeal of this Article VIII shall apply to or
have any effect on the liability or alleged liability of any
director of the Corporation for or with respect to any acts or
omissions of such director occurring prior to such amendment or
repeal.
ARTICLE IX
The Corporation shall be subject to the provisions of
Section 302A.671 of the Minnesota Business Corporation Act, as the
same now exists or may hereafter be amended.
ARTICLE X
In furtherance and not in limitation of the powers
conferred upon it by the laws of the State of Minnesota, and
except as provided to the contrary by the Minnesota Business
Corporation Act or the Bylaws, the Board of Directors shall have
the power to adopt, amend, alter or repeal the Corporation's
Bylaws by the affirmative vote of the entire Board.
Notwithstanding any other provision of these Amended and Restated
Articles of Incorporation or the Corporation's Bylaws, the
affirmative vote of sixty-six and two-thirds percent (66-2/3%) of
the voting power of the shares entitled to vote generally at an
election of directors shall be required to amend, alter or repeal
Section 9 of Article II or Section 10 of Article III, of the
Bylaws of the Corporation.
EXHIBIT 3.b
BYLAWS
OF
FINGERHUT COMPANIES, INC.
(hereinafter called the "Corporation")
ARTICLE I
OFFICES
Section 1. Registered Office. The registered office
of the Corporation shall be in the City of Minnetonka, County of
Hennepin, State of Minnesota.
Section 2. Other Offices. The Corporation may also
have offices at such other places both within and without the
State of Minnesota as the Board of Directors may from time to time
determine.
ARTICLE II
MEETINGS OF SHAREHOLDERS
Section 1. Place of Meetings. Meetings of the
shareholders for the election of directors or for any other
purpose shall be held at such time and place, either within or
without the State of Minnesota, as shall be designated from time
to time by the Board of Directors and stated in the notice of the
meeting or in a duly executed waiver of notice thereof.
Section 2. Annual Meetings. The Annual Meetings of
Shareholders shall be held on such date and at such time as shall
be designated from time to time by the Board of Directors and
stated in the notice of the meeting, at which meetings the
shareholders shall elect by a plurality vote a Board of Directors
and transact such other business as may properly be brought before
the meeting. Written notice of the Annual Meeting, stating the
place, date and hour of the meeting, shall be given to each
shareholder entitled to vote at such meeting not less than ten nor
more than sixty days before the date of the meeting.
Section 3. Special Meetings. Unless otherwise
prescribed by law or by the Amended and Restated Articles of
Incorporation, Special Meetings of Shareholders, for any purpose
or purposes, may be called by either (i) the Chairman of the
Board, if there be one, (ii) the Chief Executive Officer, or (iii)
the Secretary, if there be one, and shall be called by any such
officer at the request in writing of a majority of the Board of
Directors or at the request in writing of shareholders owning a
majority of the capital stock of the Corporation issued and
outstanding and entitled to vote at such meeting. Such request
shall state the purpose or purposes of the proposed meeting.
Written notice of a Special Meeting, stating the place, date and
hour of the meeting and the purpose or purposes for which the
meeting is called, shall be given not less than ten nor more than
sixty days before the date of the meeting to each shareholder
entitled to vote at such meeting.
Section 4. Quorum. Except as otherwise provided by
law or by the Amended and Restated Articles of Incorporation, the
holders of a majority of the capital stock issued and outstanding
and entitled to vote at any meeting of shareholders, present in
person or represented by proxy, shall constitute a quorum at all
meetings of the shareholders for the transaction of business
thereat. If however, such quorum shall not be present or
represented at any meeting of the shareholders, the shareholders
entitled to vote thereat, present in person or represented by
proxy, shall have power to adjourn the meeting from time to time,
without notice other than announcement at the meeting, until a
quorum shall be present or represented. At such adjourned meeting
at which a quorum shall be present or represented, any business
may be transacted that might have been transacted at the meeting
as originally noticed. If the adjournment is for more than thirty
days, or if after the adjournment a new record date is fixed for
the adjourned meeting, a notice of the adjourned meeting shall be
given to each shareholder entitled to vote at the meeting.
Section 5. Voting. Unless otherwise required by law,
the Amended and Restated Articles of Incorporation or these
Bylaws, any question properly brought before any meeting of
shareholders shall be decided by the vote of the holders of a
majority of the stock represented and entitled to vote thereat.
Each shareholder represented at a meeting of shareholders shall be
entitled to cast one vote for each share of the capital stock
entitled to vote thereat held by such shareholder. Such votes may
be cast in person or by proxy, but no proxy shall be voted on or
after eleven months from its date, unless such proxy provides for
a longer period.
Section 6. Consent of Shareholders in Lieu of Meeting.
Unless otherwise provided in the Amended and Restated Articles of
Incorporation, any action required or permitted to be taken at any
Annual or Special Meeting of Shareholders of the Corporation, may
be taken without a meeting, without prior notice and without a
vote, if a consent in writing, setting forth the action so taken,
shall be signed by all the holders of outstanding stock entitled
to vote on such action.
Section 7. Share Register. The Corporation shall keep
at its principal executive office, at the offices of the person or
entity designated from time to time as the transfer agent of the
Corporation for purposes of maintaining a record of transfers of
capital stock of the Corporation, or at another place or places
within the United States determined by the Board of Directors, a
share register not more than one year old, containing the names
and addresses of the shareholders and the number and classes of
shares held by each shareholder and a record of the dates on which
certificates or transaction statements representing shares were
issued.
Section 8. Stock Ledger. The stock ledger of the
Corporation shall be the only evidence as to who are the
shareholders entitled to examine the stock ledger, the list
required by Section 7 of this Article II or the books of the
Corporation, or to vote in person or by proxy at any meeting of
shareholders.
Section 9. Notice of Shareholder Business. At any
Annual Meeting, only such business shall be conducted as shall
have been brought before the Annual Meeting by or at the direction
of the Board of Directors or by any shareholder who complies with
the procedures set forth in this Section 9.
Except as otherwise provided by the Amended and Restated
Articles of Incorporation or by law, the only business that shall
be conducted at any Annual Meeting of the Shareholders shall (i)
have been specified in the written notice of the meeting (or any
supplement thereto) given as provided in Article II, Section 2, of
these Bylaws, (ii) be brought before the meeting at the direction
of the Board of Directors or the presiding officer of the meeting
or (iii) be otherwise properly brought before the meeting by a
shareholder. In addition to any other applicable requirements,
including (without limitation) requirements imposed by federal
securities laws pertaining to proxies, for business to be properly
brought before an Annual Meeting by a shareholder, the business
must have been specified in a written notice (a "Shareholder
Meeting Notice") given to the Corporation, in accordance with all
of the following requirements, by or on behalf of any shareholder
who shall have been a shareholder of record on the record date for
such meeting and who shall continue to be entitled to vote
thereat. Each Shareholder Meeting Notice must be delivered
personally, or be mailed by first-class United States mail,
postage prepaid, to and received by, the Secretary of the
Corporation, at the principal executive offices of the
Corporation, not less than 50 days nor more than 75 days prior to
the Annual Meeting; provided, however, that in the event that less
than 65 days' notice or prior public disclosure of the date of the
Annual Meeting is given or made to shareholders, notice by the
shareholder to be timely must be received not later than the close
of business on the tenth day following the day on which such
notice of the date of the Annual Meeting was mailed or such public
disclosure was made. Each Shareholder Meeting Notice shall set
forth: (i) a description of each item of business proposed to be
brought before the meeting; (ii) the name and address of the
shareholder proposing to bring such item of business before the
meeting; (iii) the class and number of shares of stock held of
record, owned beneficially and represented by proxy by such
shareholder as of the record date for the meeting (if such date
shall then have been made publicly available) and as of the date
of such Shareholder Meeting Notice; and (iv) all other information
that would be required to be included in a proxy statement filed
with the Securities and Exchange Commission if, with respect to
any such item of business, such shareholder were a participant in
a solicitation subject to Section 14 of the Securities Exchange
Act of 1934, as amended. No business shall be brought before any
meeting of shareholders of the Corporation otherwise than as
provided in this paragraph or in Article II, Section 10, of these
Bylaws.
Nothing in this Section 9 shall be deemed to preclude
discussion by any shareholder of any business properly brought
before the Annual Meeting.
The presiding officer of an Annual Meeting shall, if
the facts warrant, determine and declare to the meeting that
business was not properly brought before the meeting in accordance
with the foregoing procedures, and if he should so determine, he
shall so declare to the meeting, and any such business not
properly brought before the meeting, shall not be transacted.
Section 10. Written Ballots. Voting at meetings of
shareholders need not be by written ballot, except with respect to
the election of directors, and need not be conducted by inspectors
of election, unless other-wise required by law or unless the
presiding officer of the meeting shall so determine or
shareholders represented in person or by proxy at the meeting
holding at least ten percent (10%) of the shares entitled to vote
at the meeting so demand. Each vote taken by written ballot shall
contain the name of the shareholder or proxy voting, the number of
shares represented and such other information as may be required
under procedures established for the meeting by the presiding
officer, and shall be counted by an inspector or inspectors
appointed by the presiding officer.
ARTICLE III
DIRECTORS
Section 1. Number and Election of Directors. The
Board of Directors shall consist of the number of directors set in
accordance with the Amended and Restated Articles of
Incorporation. Any director may resign at any time by giving
written notice to the Chairman of the Board, if there be one, the
Chief Executive Officer or the Secretary. Directors need not be
shareholders.
Section 2. Duties and Powers. The business of the
Corporation shall be managed by or under the direction of the
Board of Directors, which may exercise all such powers of the
Corporation and do all such lawful acts and things as are not by
statute, by the Amended and Restated Articles of Incorporation or
by these Bylaws directed or required to be exercised or done by
the shareholders.
Section 3. Meetings. The Board of Directors of the
Corporation may hold meetings, both regular and special, either
within or without the State of Minnesota. Regular meetings of the
Board of Directors may be held without notice at such time and at
such place as may from time to time be determined by the Board of
Directors. Special meetings of the Board of Directors may be
called by the Secretary when and as he shall be so requested to do
in writing by the Chairman of the Board, if there be one, the
Chief Executive Officer or any three directors. Notice thereof,
stating the place, date and hour of the meeting, shall be given to
each director either by mail not less than forty-eight (48) hours
before the date of the meeting, by telephone or telegram on twenty-
four (24) hours' notice, or on such shorter notice as the person
or persons calling such meeting may deem necessary or appropriate
in the circumstances.
Section 4. Quorum. Except as may be otherwise
specifically provided by law, the Amended and Restated Articles of
Incorporation or these Bylaws, at all meetings of the Board of
Directors, a majority of the entire Board of Directors shall
constitute a quorum for the transaction of business and the act of
a majority of the directors present at any meeting at which there
is a quorum shall be the act of the Board of Directors, except
that an act of the Board of Directors shall not in any event be
taken by the affirmative vote of less than one-third of the total
number of directors constituting the entire Board of Directors.
If a quorum shall not be present at any meeting of the Board of
Directors, the directors present thereat may adjourn the meeting
from time to time, without notice other than announcement at the
meeting, until a quorum shall be present.
Section 5. Actions of Board Without Meeting. Unless
otherwise provided by the Amended and Restated Articles of
Incorporation or these Bylaws, any action required or permitted to
be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting if all the
members of the Board of Directors or committee, as the case may
be, consent thereto in writing, and the writing or writings are
filed with the minutes of proceedings of the Board of Directors or
committee.
Section 6. Meetings by Means of Conference Telephone.
Unless otherwise provided by the Amended and Restated Articles of
Incorporation or these Bylaws, members of the Board of Directors
of the Corporation, or any committee designated by the Board of
Directors, may participate in a meeting of the Board of Directors
or such committee by means of a conference telephone or similar
communications equipment, by means of which all persons
participating in the meeting can hear each other, and
participation in a meeting pursuant to this Section 6 shall
constitute presence in person at such meeting.
Section 7. Committees. The Board of Directors may, by
resolution passed by a majority of the entire Board of Directors,
designate one or more committees, each committee to consist of one
or more of the directors of the Corporation. The Board of
Directors may designate one or more directors as alternate members
of any committee, who may replace any absent or disqualified
member at any meeting of any such committee. In the absence or
disqualification of a member of a committee, and in the absence of
a designation by the Board of Directors of an alternate member to
replace the absent or disqualified member, the member or members
thereof present at any meeting and not disqualified from voting,
whether or not he or they constitute a quorum, may unanimously
appoint another member of the Board of Directors to act at the
meeting in the place of any absent or disqualified member. Any
committee, to the extent allowed by law and provided for in the
resolution establishing such committee, shall have and may
exercise all the powers and authority of the Board of Directors in
the management of the business and affairs of the Corporation.
Each committee shall keep regular minutes and report to the Board
of Directors when required.
Section 8. Compensation. The directors may be paid
their expenses, if any, of attendance at each meeting of the Board
of Directors and may be paid a fixed sum for attendance at each
meeting of the Board of Directors or a stated salary as director.
No such payment shall preclude any director from serving the
Corporation in any other capacity and receiving compensation
therefor. Members of special or standing committees may be
allowed like compensation for attending committee meetings.
Section 9. Interested Directors. No contract or
transaction between the Corporation and one or more of its
directors or officers, or between the Corporation and any other
corporation, partnership, association, or other organization in
which one or more of its directors or officers are directors or
officers, or have a financial interest, shall be void or voidable
solely for this reason, or solely because the director or officer
is present at or participates in the meeting of the Board of
Directors or committee thereof that authorizes the contract or
transaction, or solely because his or their votes are counted for
such purpose, if (i) the material facts as to his or their
relationship or interest and as to the contract or transaction are
disclosed or are known to the Board of Directors or the committee,
and the Board of Directors or committee in good faith authorizes
the contract or transaction by the affirmative votes of a majority
of the Board of Directors on the committee, but the interested
directors as directors shall not be counted in determining the
presence of a quorum and shall not vote; or (ii) the material
facts as to his or their relationship or interest and as to the
contract or transaction are disclosed or are known to the
shareholders entitled to vote thereon, and the contract or
transaction is specifically approved in good faith by (a) the
holders of two-thirds of the voting power of the shares entitled
to vote that are owned by persons other than the interested
director or directors, or (b) the unanimous affirmative vote of
the holders of all outstanding shares, whether or not entitled to
vote; or (iii) the contract or transaction is fair as to the
Corporation as of the time it is authorized, approved or ratified
by the Board of Directors, a committee thereof or the
shareholders.
Section 10. Nomination of Director. Except as
otherwise fixed pursuant to Article IV of the Amended and Restated
Articles of Incorporation of the Corporation relating to the
rights of the holders of any one or more classes or series of
Preferred Stock issued by the Corporation, acting separately by
class or series, to elect, under specified circumstances,
directors at a meeting of shareholders, nominations for election
to the Board of Directors at a meeting of shareholders may be made
by the Board of Directors or by any shareholder of the Corporation
entitled to vote for election of directors at such meeting. Such
nominations, other than those made by the Board of Directors,
shall be made by notice in writing delivered personally, or mailed
by first-class United States mail, postage prepaid, to and
received by the Secretary of the Corporation, at the principal
executive offices of the Corporation, not less than 50 days nor
more then 75 days prior to any meeting of shareholders called for
the election of directors; provided, however, that if less than 65
days' notice or prior public disclosure of the date of the meeting
is given or made to shareholders, such nomination shall have been
mailed or delivered to the Secretary of the Corporation not later
than the close of business on the tenth day following the day on
which the notice of meeting was mailed or such public disclosure
was made. Such notice shall set forth: (i) the name and address
of the shareholder who intends to make the nomination and of the
person or persons to be nominated; (ii) the class and number of
shares of stock held of record, owned beneficially and represented
by proxy by such shareholder as of the record date for the meeting
(if such date shall then have been made publicly available) and as
of the date of such notice; (iii) a representation that the
shareholder is a holder of record of stock of the Corporation
entitled to vote at such meeting and that the shareholder intends
to appear in person or by proxy at the meeting to nominate the
person or persons specified in the notice; (iv) a description of
all arrangements or understandings between such shareholder and
each nominee and any other person or persons (naming such person
or persons) which the nomination or nominations are to be made by
such shareholder; (v) such other information regarding each
nominee proposed by such shareholder as would be required to be
disclosed in solicitations for proxies for election of directors
pursuant to the proxy rules of the Securities and Exchange
Commission; and (vi) the written consent of such person to serve
as a director of the Corporation if so elected. The presiding
officer of the meeting may refuse to acknowledge the nomination of
any person not made in compliance with the foregoing procedure.
ARTICLE IV
OFFICERS
Section 1. General. The officers of the Corporation
shall be chosen by the Board of Directors and shall be a Chief
Executive Officer and Chief Financial Officer, however designated.
The Board of Directors, in its discretion, may also choose a
Chairman of the Board (who must be a director), Secretary,
Treasurer and one or more Vice Presidents, Assistant Secretaries,
Assistant Treasurers and other officers. Any number of offices
may be held by the same person, unless otherwise prohibited by
law, the Certificate of Incorporation or these Bylaws. The
officers of the Corporation need not be shareholders of the
Corporation, nor, except in the case of the Chairman of the Board
of Directors, need such officers be directors of the Corporation.
Section 2. Election. The Board of Directors, at its
first meeting held after each Annual Meeting, shall elect the
officers of the Corporation who shall hold their offices for such
terms and shall exercise such powers and perform such duties as
shall be determined from time to time by the Board of Directors;
and all officers of the Corporation shall hold office until their
successors are chosen and qualified, or until their earlier
resignation or removal. Any officer elected by the Board of
Directors may be removed at any time by the affirmative vote of a
majority of the Board of Directors. Any vacancy occurring in any
office of the Corporation shall be filled by the Board of
Directors. The salaries of all officers of the Corporation shall
be fixed by the Board of Directors.
Section 3. Voting Securities owned by the Corporation.
Powers of attorney, proxies, waivers of notice of meeting,
consents and other instruments relating to securities owned by the
Corporation may be executed in the name of and on behalf of the
Corporation by the Chief Executive Officer or any Vice President,
and any such officer may, in the name of and on behalf of the
Corporation, take all such action as any such officer may deem
advisable to vote in person or by proxy at any meeting of security
holders of any corporation in which the Corporation may own
securities and at any such meeting shall possess and may exercise
any and all rights and powers incident to the ownership of such
securities and which, as the owner thereof, the Corporation might
have exercised and possessed if present. The Board of Directors
may, by resolution, from time to time confer like powers upon any
other person or persons.
Section 4. Chairman of the Board. The Chairman of the
Board, if there be one, shall preside at all meetings of the
shareholders and of the Board of Directors. Except where by law
the signature of the Chief Executive Officer is required, the
Chairman of the Board of Directors shall possess the same power as
the Chief Executive Officer to sign all contracts, certificates
and other instruments of the Corporation that may be authorized by
the Board of Directors. During the absence or disability of the
Chief Executive Officer, the Chairman of the Board shall exercise
all the powers and discharge all the duties of the Chief Executive
Officer. The Chairman of the Board of Directors shall also
perform such other duties and may exercise such other powers as
from time to time may be assigned to him by these Bylaws or by the
Board of Directors.
Section 5. Chief Executive Officer. The Chief Executive
Officer shall, subject to the control of the Board of Directors
and, if there be one, the Chairman of the Board, have general
supervision of the business of the Corporation and shall see that
all orders and resolutions of the Board of Directors are carried
into effect. He shall execute all bonds, mortgages, contracts and
other instruments of the Corporation requiring a seal, under the
seal of the Corporation, except where required or permitted by law
to be otherwise signed and executed and except that the other
officers of the Corporation may sign and execute documents when so
authorized by these Bylaws, the Board of Directors or the Chairman
of the Board. In the absence or disability of the Chairman of the
Board, or if there be none, the Chief Executive Officer shall
preside at all meetings of the shareholders and the Board of
Directors. The Chief Executive Officer shall also perform such
other duties and may exercise such other powers as from time to
time may be assigned to him by these Bylaws or by the Board of
Directors.
Section 6. Vice Presidents. At the request of the
Chief Executive Officer or in his absence or in the event of his
inability or refusal to act (and if there be no Chairman of the
Board), the Vice President or the Vice Presidents (if there is
more than one in the order designated by the Board of Directors),
shall perform the duties of the Chief Executive Officer, and when
so acting, shall have all the powers of and be subject to all the
restrictions upon the Chief Executive Officer. Each Vice
President shall perform such other duties and have such other
powers as the Board of Directors from time to time may prescribe.
If there be no Chairman of the Board and no Vice President, the
Board of Directors shall designate the officer of the Corporation
who, in the absence of the Chief Executive Officer or in the event
of the inability or refusal of the Chief Executive Officer to act,
shall perform the duties of the Chief Executive Officer, and when
so acting, shall have all the powers of and be subject to all the
restrictions upon the Chief Executive Officer.
Section 7. Secretary. The Secretary shall attend all
meetings of the Board of Directors and all meetings of
shareholders and record all the proceedings thereat in a book or
books to be kept for that purpose; the Secretary shall also
perform like duties for the standing committees when required.
The Secretary shall give, or cause to be given, notice of all
meetings of the shareholders and Special Meetings of the Board of
Directors and shall perform such other duties as may be prescribed
by the Board of Directors or Chief Executive Officer, under whose
supervision he shall be. If the Secretary shall be unable or
shall refuse to cause to be given notice of all meetings of the
shareholders and Special Meetings of the Board of Directors, and
if there be no Assistant Secretary, then either the Board of
Directors or the Chief Executive Officer may choose another
officer to cause such notice to be given. The Secretary shall
have custody of the seal of the Corporation and the Secretary or
any Assistant Secretary, if there be one, shall have authority to
affix the same to any instrument requiring it, and when so
affixed, it may be attested by the signature of the Secretary or
by the signature of any such Assistant Secretary. The Board of
Directors may give general authority to any other officer to affix
the seal of the Corporation and to attest the affixing by his
signature. The Secretary shall see that all books, reports,
statements, certificates and other documents and records required
by law to be kept or filed are properly kept or filed, as the case
may be.
Section 8. Treasurer. The Treasurer shall have the
custody of the corporate funds and securities and shall keep full
and accurate accounts of receipts and disbursements in books
belonging to the Corporation and shall deposit all moneys and
other valuable effects in the name and to the credit of the
Corporation in such depositories as may be designated by the Board
of Directors. The Treasurer shall disburse the funds of the
Corporation as may be ordered by the Board of Directors, taking
proper vouchers for such disbursements, and shall render to the
Chief Executive Officer and the Board of Directors, at its regular
meetings, or when the Board of Directors so requires, an account
of all his transactions as Treasurer and of the financial
condition of the Corporation. If required by the Board of
Directors, the Treasurer shall give the Corporation a bond in such
sum and with such surety or sureties as shall be satisfactory to
the Board of Directors for the faithful performance of the duties
of his office and for the restoration to the Corporation, in case
of his death, resignation, retirement or removal from office, of
all books, papers, vouchers, money and other property of whatever
kind in his possession or under his control belonging to the
Corporation.
Section 9. Assistant Secretaries. Except as may be
otherwise provided in these Bylaws, Assistant Secretaries, if
there be any, shall perform such duties and have such powers as
from time to time may be assigned to them by the Board of
Directors, the Chief Executive Officer, any Vice President, if
there be one, or the Secretary, and in the absence of the
Secretary or in the event of his disability or refusal to act,
shall perform the duties of the Secretary, and when so acting,
shall have all the powers of and be subject to all the
restrictions upon the Secretary.
Section 10. Assistant Treasurers. Assistant
Treasurers, if there be any, shall perform such duties and have
such powers as from time to time may be assigned to them by the
Board of Directors, the Chief Executive Officer, any Vice
President, if there be one, or the Treasurer, and in the absence
of the Treasurer or in the event of his disability or refusal to
act, shall perform the duties of the Treasurer, and when so
acting, shall have all the powers of and be subject to all the
restrictions upon the Treasurer. If required by the Board of
Directors, an Assistant Treasurer shall give the Corporation a
bond in such sum and with such surety or sureties as shall be
satisfactory to the Board of Directors for the faithful
performance of the duties of his office and for the restoration to
the Corporation, in case of his death, resignation, retirement or
removal from office, of all books, papers, vouchers, money and
other property of whatever kind in his possession or under his
control belonging to the Corporation.
Section 11. Other Officers. Such other officers as
the Board of Directors may choose shall perform such duties and
have such powers as from time to time may be assigned to them by
the Board of Directors. The Board of Directors may delegate to
any other officer of the Corporation the power to choose such
other officers and to prescribe their respective duties and
powers.
ARTICLE V
STOCK
Section 1. Form of Certificates. Every holder of
stock in the Corporation shall be entitled to have a certificate
signed in the name of the Corporation by (i) the Chairman of the
Board, the Chief Executive Officer or a Vice President and (ii)
the Treasurer or an Assistant Treasurer, or the Secretary or an
Assistant Secretary of the Corporation, certifying the number of
shares owned by him in the Corporation.
Section 2. Signatures. Where a certificate is
countersigned by (i) a transfer agent other than the Corporation
or its employee or (ii) a registrar other than the Corporation or
its employee, any other signature on the certificate may be a
facsimile. In case any officer, transfer agent or registrar who
has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent
or registrar before such certificate is issued, it may be issued
by the Corporation with the same effect as if he were such
officer, transfer agent or registrar at the date of issue.
Section 3. Lost Certificates. The Board of Directors
may direct a new certificate to be issued in place of any
certificate theretofore issued by the Corporation alleged to have
been lost, stolen or destroyed, upon the making of an affidavit of
that fact by the person claiming the certificate of stock to be
lost, stolen or destroyed. When authorizing such issue of a new
cer-tificate, the Board of Directors may, in its discretion and as
a condition precedent to the issuance thereof, require the owner
of such lost, stolen or destroyed certificate, or his legal
representative, to advertise the same in such manner as the Board
of Directors shall require and/or to give the Corporation a bond
in such sum as it may direct as indemnity against any claim that
may be made against the Corporation with respect to the
certificate alleged to have been lost, stolen or destroyed.
Section 4. Transfers. Stock of the Corporation shall
be transferable in the manner prescribed by law and in these
Bylaws. Transfers of stock shall be made on the books of the
Corporation only by the person named in the certificate or by his
attorney lawfully constituted in writing and upon the surrender of
the certificate therefor, which shall be canceled before a new
certificate shall be issued.
Section 5. Record Date. In order that the Corporation
may determine the shareholders entitled to notice of or to vote at
any meeting of shareholders or any adjournment thereof, or
entitled to express consent to corporate action in writing without
a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise
any rights in respect of any change, conversion or exchange of
stock, or for the purpose of any other lawful action, the Board of
Directors may fix, in advance, a record date, which shall not be
more than sixty (60) days nor less than ten days before the date
of such meeting, nor more than sixty (60) days prior to any other
action. A determination of shareholders of record entitled to
notice of or to vote at a meeting of shareholders shall apply to
any adjournment of the meeting; provided, however, that the Board
of Directors may fix a new record date for the adjourned meeting.
Section 6. Beneficial Owners. The Corporation shall
be entitled to recognize the exclusive right of a person
registered on its books as the owner of shares to receive
dividends and to vote as such owner, and to hold liable for calls
and assessments a person registered on its books as the owner of
shares, and shall not be bound to recognize any equitable or other
claim to or interest in such share or shares on the part of any
other person, whether or not it shall have express or other notice
thereof, except as otherwise provided by law.
ARTICLE VI
NOTICES
Section 1. Notices. Whenever written notice is
required by law the Amended and Restated Articles of Incorporation
or these Bylaws, to be given to any director, member of a
committee or shareholder, such notice may be given by mail,
addressed to such director, member of a committee or shareholder,
at his address as it appears on the records of the Corporation,
with postage thereon prepaid, and such notice shall be deemed to
be given at the time when the same shall be deposited in the
United States mail. Written notice may also be given personally
or by telegram, telex or cable.
Section 2. Waivers of Notice. Whenever any notice is
required by law, the Amended and Restated Articles of
Incorporation or these Bylaws, to be given to any director, member
of a committee or shareholder, a waiver thereof in writing,
signed, by the person or persons entitled to said notice, whether
before or after the time stated therein, shall be deemed
equivalent thereto.
ARTICLE VII
GENERAL PROVISIONS
Section 1. Dividends. Dividends upon the capital
stock of the Corporation, subject to the provisions of the Amended
and Restated Articles of Incorporation, if any, may be declared by
the Board of Directors at any regular or Special Meeting, and may
be paid in cash, in property, or in shares of the capital stock.
Before payment of any dividend, there may be set aside out of any
funds of the Corporation available for dividends such sum or sums
as the Board of Directors from time to time, in its absolute
discretion, deems proper as a reserve or reserves to meet
contingencies, or for equalizing dividends, or for repairing or
maintaining any property of the Corporation, or for any proper
purpose, and the Board of Directors may modify or abolish any such
reserve.
Section 2. Disbursements. All checks or demands for
money and notes of the Corporation shall be signed by such officer
or officers or such other person or persons as the Board of
Directors may from time to time designate.
Section 3. Fiscal Year. The fiscal year of the
Corporation shall be a 52 or 53-week year ending on the last
Friday of each calendar year or as may be determined by resolution
of the Board of Directors.
Section 4. Corporate Seal. If so directed by the
Board of Directors, the Corporation may use a corporate seal. The
failure to use such seal, however, shall not affect the validity
of any documents executed on behalf of the Corporation. The seal
need only include the word "seal", but it may also include, at the
discretion of the Board of Directors, such additional wording as
is permitted by law.
ARTICLE VIII
INDEMNIFICATION
Section 1. Indemnification of Directors and Officers.
The Corporation shall indemnify, to the fullest extent permissible
under the Minnesota Business Corporation Act, any person, and the
heirs and personal representatives of such person, against any and
all judgments, fines, amounts paid in settlement and costs and
expenses, including attorneys' fees, actually and reasonably
incurred by or imposed upon such person in connection with, or
resulting from any claim, action, suit or proceeding (civil,
criminal, administrative or investigative) in which such person is
a party or is threatened to be made a party by reason of such
person being or having been a director or officer of the
Corporation, or of another corporation, joint venture, trust or
other organization in which such person serves as a director or
officer at the request of the Corporation or by reason of such
person being or having been an administrator or a member of any
board or committee of this Corporation, or of any such other
organization.
Section 2. Indemnification of Employees and Agents.
The Corporation may, to the extent authorized from time to time by
the Board of Directors, provide rights to indemnification and to
the advancement of ex-penses to employees and agents of the
Corporation similar to those conferred in this Article VIII to
directors and officers.
Page 7
EXHIBIT 10.e
FINGERHUT COMPANIES, INC.
AND SUBSIDIARIES
1994 KEY MANAGEMENT INCENTIVE BONUS PLAN
Participation in this Plan is limited to officers of Fingerhut
Companies, Inc. and subsidiaries recommended by the Executive
Compensation Committee and approved by the Chief Executive
Officer. The intent of the Plan is to pay bonus amounts at goal
ranging from 75% to 125% of base salary. The bonus amounts are
based on: (1) targeted bonus, (2) Company financial performance,
and (3) achievement of individual objectives. For members of the
Management Committee and Senior Vice Presidents at goal, 80% of
targeted bonus amount will be determined by Company financial
performance and 20% will be determined by achievement of
individual objectives. For Vice Presidents, 50% of the targeted
bonus amount will be determined by Company financial performance
and 50% will be determined by achievement of individual
objectives. In the event of above goal Company performance, the
Company performance factor will be increased in accordance with
Schedules B or C, as applicable.
This Plan will be effective for fiscal years commencing January
1, 1994 and later but the Company may change, modify or terminate
the Plan at any time. Schedules B and C of the Plan will be
revised each fiscal year to reflect the Company's fiscal year
goals. Prior to the start of each fiscal year the Executive
Compensation Committee will review the Plan and the revised
Schedules B and C.
Eligibility
1. Participation in the Plan is limited to officers of Fingerhut
Companies, Inc. and subsidiaries who are recommended by the
Executive Compensation Committee and approved by the Chief
Executive Officer and who are not participants in the Annual
Incentive Bonus Plan.
2. No bonus award will be made if a participant leaves the
employ of the Company prior to the last day of the
measurement period. The only exceptions to this will be for
death, retirement, disability, or transfer to an affiliate
company and in these situations a prorated bonus award will
be made. In the event of a prorated award, the participant
may be paid a bonus for the time during the bonus period that
he or she was a participant. In the event of an involuntary
termination, the Executive Compensation Committee will have
complete discretion to pay or not pay a bonus and to adjust
the bonus amount in whatever way the Committee deems
appropriate.
3. A new participant who becomes eligible to participate in the
Plan during a bonus period may be paid a bonus in proportion
to the time during the bonus period that he or she was a
participant. A participant whose position and targeted bonus
percentage changes during the year shall receive an adjusted
bonus based on performance in each position held and
proportional in amount to the period each position was held.
This adjustment will apply to both Company and individual
performance objectives.
Definition of Salary
1. Salary shall be defined as paid base wages during the fiscal
year exclusive of any benefits and other payments.
2. Bonus amounts paid under the Plan shall be included for
purposes of determining benefits from the Fingerhut
Corporation Pension and Profit Sharing Plans.
Payment
1. The formula yielding the individual bonus payment for all other
participants will be as follows:
Paid Base Targeted (Company Individual) Bonus
Wages X Bonus* X (Performance + Performance)
= Amount
(Factor ** Factor***)
*See Schedule A **See Schedule B or C ***See Schedule D
Example - At Goal Performance
- Executive Vice President earns $280,000 salary
- Targeted bonus is 125%
- Company performance factor is achieved at goal (i.e. 80%)
- Individual performance rating is 15
Salary X 125% X (80% + 15%) = Bonus
$280,000 $350,000 95% = $332,500
Example - Above Goal Performance
- Executive Vice President earns $280,000 salary
- Targeted bonus is 125%
- Company performance factor is achieved above goal at 95%
- Individual performance rating is 15.
Salary X 125% X (95% + 15%) = Bonus
$280,000 $350,000 110% = $385,000
Example - Below Goal Performance
- Executive Vice President earns $280,000 salary
- Targeted bonus is 125%
- Company performance factor is achieved below goal at
70%
- Individual performance rating is 15
Salary x 125% x (70% + 15%)= Bonus
$280,000 $350,000 85% = $297,500
2. In the event the minimum Plan threshold is not attained, a
special Discretionary Fund will be established in an amount equal
to 10% of the annualized salaries of all Plan participants. This
fund may or may not be paid out, as determined at the discretion
of the Executive Compensation Committee and approved by the Chief
Executive Officer.
3. Payment of bonus awards will be made in cash and will include
required payroll deductions after the actual results have been
reviewed by the Chief Financial Officer and approved by the Chief
Executive Officer. The bonus payment will occur as soon as
possible after the approval date.
4. The Plan is self-funding. Thus, the financial objectives of the
Company must be met after the effect of any bonus payments.
5. The Chief Executive Officer may make discretionary bonus payments
to participants over and above the defined formula for (1)
extraordinary performance or (ii) in other cases, upon the
recommendation of the Executive Compensation Committee where
determined by the Committee to be warranted.
6. If significant unforeseen results effect the Company's business
positively or negatively during the year, that were not included
in the Company performance goal for the year, the financial
performance goal may be adjusted to reflect the effects of such
unplanned events. Such unplanned situations shall include but
are not limited to:
A. Unplanned acquisitions/new business ventures
B. Unplanned divestitures
C. The inclusion or exclusion of new participants under the
Plan as mentioned in items A and B.
The Executive Compensation Committee will make a recommendation
on the appropriate adjustment of such unplanned situation on this
Plan, which will be decided by the Chief Executive Officer.
Approvals
1. The head of each Department will recommend individual objectives
at the start of the measurement period. Each Officer will
recommend and justify to the Executive Compensation Committee
objectives and performance factors for participating officers.
The Executive Compensation Committee will review the objectives
and performance factors, approve them, and forward to the Chief
Executive Officer. The decision of the Chief Executive Officer
will be final, conclusive and binding with respect to
establishment of objectives and performance of the participants.
2. Achievement of objectives ratings of the participants will be
reviewed, recommended, and submitted by the appropriate officer
to the Executive Compensation Committee. Final determination and
approval of satisfaction of Plan objectives and bonus amounts
will be by the Chief Executive Officer.
3. The administration of the Key Management Incentive Bonus Plan is
the responsibility of the Executive Compensation Committee.
FINGERHUT COMPANIES, INC.
AND SUBSIDIARIES
GUIDELINES FOR ESTABLISHING INDIVIDUAL
PERFORMANCE OBJECTIVES
1. Key Management Incentive Bonus Plan (KMIBP) participants will
meet with the appropriate Officer prior to the beginning of the
measurement period to discuss specific results to be achieved
during the year.
2. The participant will then draft and submit to the Officer goals
to be accomplished during the year. These objectives must be
written on the KMIBP form (see attached). The participant and
Officer will then recommend achievement rating points to each
objective. Points assigned should reflect the priority of the
objective; i.e. higher priority objectives should carry more
points. Achievement rating points assigned must total 20 for
Management Committee members and Senior Vice Presidents and total
50 for the Vice Presidents.
3. Characteristics of Well Developed Objectives - To be meaningful,
individual performance objectives should be:
Challenging - The objective should present a challenge to the
participant.
Attainable - The objective should be both realistic and
achievable.
Measurable - The objective should be as specific and quantitative
as possible. It should be expressed in tangible and measurable
terms. If it is not quantifiable, the results of the achievement
should be verifiable.
Relevant - There should be a clear and direct relationship
between the objective and the Company's goals.
4. Performance objectives require the approval of the Executive
Compensation Committee and the Chief Executive Officer prior to
formal communication to the participants. The Chief Executive
Officer reserves the right to add, delete, or change recommended
objectives.
5. At the end of each quarter, and at fiscal year end, the
participant and appropriate Officer will review results against
objectives. The final rating at the end of the measurement
period will determine the bonus amount paid.
Schedule A
FINGERHUT COMPANIES, INC.
AND SUBSIDIARIES
1994 KEY MANAGEMENT INCENTIVE BONUS PLAN
Job Level
Targeted Bonus Schedule
Job Level Targeted Bonus Percentage
Executive Vice Presidents 125% of Paid Base
Wages
Senior Vice Presidents 100% of Paid Base Wages
Vice Presidents 75% of Paid Base Wages
SCHEDULE D
FINGERHUT COMPANIES, INC.
AND SUBSIDIARIES
1994 KEY MANAGEMENT INCENTIVE BONUS PLAN
INDIVIDUAL OBJECTIVES
PERFORMANCE FACTOR - EXECUTIVE VICE PRESIDENTS
AND SENIOR VICE PRESIDENTS
1 to 20 Points
Maximum Performance
Factor Possible - 20 Points
PERFORMANCE FACTOR - VICE PRESIDENTS
1 to 50 Points
Maximum Performance
Factor Possible - 50 Points
No payout may occur for Individual Objectives unless the Company
performance minimum pre-tax consolidated earnings amount of
$xxx.xxx million is achieved.
(ltr/94bonus1)
EXHIBIT 10.k
FINGERHUT COMPANIES, INC.
AND SUBSIDIARIES
ANNUAL INCENTIVE BONUS PLAN
FOR DESIGNATED CORPORATE OFFICERS
1. Definitions. When the following terms are used herein
with initial capital letters, they shall have the following
meanings:
1.1. Base Pay - a specific dollar amount identified in
Schedule X.
1.2. Compensation Committee - a committee comprised
solely of two or more "outside directors" of Fingerhut
Companies, Inc. which satisfies the requirements of
Section 162(m) of the Code; provided, however, that
until the first meeting of shareholders of the Company
at which directors are to be elected that occurs after
July 1, 1994, the Compensation Committee may be
composed of two or more disinterested directors within
the meaning of Rule 16b-3 promulgated under the
Securities Exchange Act of 1934.
1.2. Code - the Internal Revenue Code of 1986, as it
may be amended from time to time, and any proposed,
temporary or final Treasury Regulations promulgated
thereunder.
1.3. Company - Fingerhut Companies, Inc., a Minnesota
corporation, and any of its affiliates that adopt this
Plan.
1.4. Participant - the Chairman and Chief Executive
Officer, and any of the Executive Vice Presidents or
Senior Vice Presidents of the Company who are
designated by the Compensation Committee prior to the
start of a Performance Period as Participants in this
Plan.
1.5. Performance Period - the twelve consecutive month
period which coincides with the Company's fiscal year.
1.6. Targeted Bonus Percentage - the percentage
identified in Schedule Y.
1.7. Company Performance Factor - a percentage
identified in Schedule Z. The Company Performance
Factor shall be directly and specifically tied to one
or more of the following business criteria: the
Company's consolidated pre-tax earnings, net revenues,
net earnings, operating income, earnings before
interest and taxes, cash flow, return on equity, return
on net assets employed or earnings per share for the
applicable Performance Period, all as computed in
accordance with generally accepted accounting
principles as in effect from time to time and as
applied by the Company in the preparation of its
financial statements and subject to such other special
rules and conditions as the Compensation Committee may
establish at the beginning of the applicable
Performance Period. Such Performance Factors shall
constitute the sole business criteria upon which the
performance goals under this Plan shall be based.
2. Administration.
2.1. Compensation Committee. The Plan shall be
administered by the Compensation Committee.
2.2. Determinations made prior to each Performance
Period. Prior to each Performance Period, or solely in this
case of the Performance Period which begins January 1, 1994,
prior to April 1, 1994, the Compensation Committee shall:
(a) designate Participants for that Performance
Period;
(b) determine each Participant's Base Pay for the
Performance Period by amending (in writing) Schedule X;
(c) establish Targeted Bonus Percentages for the
Performance Period by amending (in writing) Schedule Y;
(d) establish Company Performance Factors for the
Performance Period by amending (in writing) Schedule Z.
2.3. Certification. Following the close of each
Performance Period and prior to payment of any bonus under
the Plan, the Compensation Committee must certify in writing
that the Company Performance Factor and all other factors
upon which a bonus is based have been attained.
2.4. Shareholder Approval. The material terms of this
Plan shall be disclosed to and approved by shareholders of
the Company in accordance with Section 162(m) of the Code.
No bonus shall be paid under this Plan unless such
shareholder approval has been obtained.
3. Bonus Payment.
3.1. Formula. Each Participant shall receive a bonus
payment for each Performance Period in an amount not greater
than:
(a) the Participant's Base Pay for the
Performance Period, multiplied by
(b) the Participant's Targeted Bonus Percentage
for the Performance Period, multiplied by
(c) the Participant's Company Performance Factor
for the Performance Period.
3.2. Limitations.
(a) No payment if Performance Factor not
achieved. In no event shall any Participant receive a bonus
payment hereunder if the Performance Factor and all other
factors on which the bonus payment is based is not achieved
during the Performance Period.
(b) No payment in excess of preestablished
amount. No Participant shall receive a payment under this
Plan for any Performance Period in excess of $1.5 million.
(c) Compensation Committee may reduce bonus
payment. The Compensation Committee retains sole discretion
to reduce the amount of or eliminate any bonus otherwise
payable under this Plan.
4. Benefit Payments.
4.1. Time and Form of Payments. Subject to any
deferred compensation election pursuant to any such plans of
the Company, benefits shall be paid to the Participant in
one or more cash payments as soon as determined by the
Compensation Committee after it has certified that the
Company Performance Factor and all other factors upon which
the bonus payment for the Participant is based have been
attained.
4.2. Nontransferability. Participants and
beneficiaries shall not have the right to assign, encumber
or otherwise anticipate the payments to be made under this
Plan, and the benefits provided hereunder shall not be
subject to seizure for payment of any debts or judgments
against any Participant or any beneficiary.
4.3. Tax Withholding. In order to comply with all
applicable federal or state income tax laws or regulations,
the Company may take such action as it deems appropriate to
ensure that all applicable federal or state payroll,
withholding, income or other taxes, which are the sole and
absolute responsibility of a Participant, are withheld or
collected from such Participant.
5. Amendment and Termination. The Compensation Committee
may amend this Plan prospectively at any time and for any
reason deemed sufficient by it without notice to any person
affected by this Plan and may likewise terminate or curtail
the benefits of this Plan both with regard to persons
expecting to receive benefits hereunder in the future and
persons already receiving benefits at the time of such
action.
6. Miscellaneous.
6.1. Effective Date. January 1, 1994.
6.2. Term of the Plan. Unless the Plan shall have been
discontinued or terminated, the Plan shall terminate on
December 31, 1998. No bonus shall be granted after the
termination of the Plan; provided, however, that a payment
with respect to a Performance Period which begins before
such termination may be made thereafter. In addition, the
authority of the Compensation Committee to amend the Plan,
shall extend beyond the termination of the Plan.
6.3. Headings. Headings are given to the Sections and
subsections of the Plan solely as a convenience to
facilitate reference. Such headings shall not be deemed in
any way material or relevant to the construction or
interpretation of the Plan or any provision thereof.
6.4. Applicability to Successors. This Plan shall be
binding upon and inure to the benefit of the Company and
each Participant, the successors and assigns of the Company,
and the beneficiaries, personal representatives and heirs of
each Participant. If the Company becomes a party to any
merger, consolidation or reorganization, this Plan shall
remain in full force and effect as an obligation of the
Company or its successors in interest.
6.5. Employment Rights and Other Benefit Programs.
The provisions of this Plan shall not give any Participant
any right to be retained in the employment of the Company.
In the absence of any specific agreement to the contrary,
this Plan shall not affect any right of the Company, or of
any affiliate of the Company, to terminate, with or without
cause, the participant's employment at any time. This Plan
shall not replace any contract of employment, whether oral
or written, between the Company and any Participant, but
shall be considered a supplement thereto. This Plan is in
addition to, and not in lieu of, any other employee benefit
plan or program in which any Participant may be or become
eligible to participate by reason of employment with the
Company. Receipt of benefits hereunder shall have such
effect on contributions to and benefits under such other
plans or programs as the provisions of each such other plan
or program may specify.
6.6. No Trust or Fund Created. This Plan shall not
create or be construed to create a trust or separate fund of
any kind or a fiduciary relationship between the Company or
any affiliate and a Participant or any other person. To the
extent that any person acquires a right to receive payments
from the Company or any affiliate pursuant to this Plan,
such right shall be no greater than the right of any
unsecured general creditor of the Company or of any
affiliate.
6.7. Governing Law. The validity, construction and
effect of the Plan or any bonus payable under the Plan shall
be determined in accordance with the laws of the State of
Minnesota.
6.8. Severability. If any provision of the Plan is or
becomes or is deemed to be invalid, illegal or unenforceable
in any jurisdiction such provision shall be construed or
deemed amended to conform to applicable laws, or if it
cannot be so construed or deemed amended without, in the
determination of the Compensation Committee, materially
altering the purpose or intent of the Plan, such provision
shall be stricken as to such jurisdiction, and the remainder
of the Plan shall remain in full force and effect.
6.9. Qualified Performance-Based Compensation. All of
the terms and conditions of the Plan shall be interpreted in
such a fashion as to qualify all compensation paid hereunder
as qualified performance-based compensation within the
meaning of Section 162(m) of the Code.
SCHEDULE X
BASE PAY FOR PERFORMANCE PERIOD
BEGINNING ON ___________ AND ENDING ON ___________
Job Title [or name] Base Pay
SCHEDULE Y
TARGETED BONUS PERCENTAGE FOR PERFORMANCE PERIOD
BEGINNING ON ___________ AND ENDING ON ___________
Job Title Targeted Bonus Percentage
SCHEDULE Z
COMPANY PERFORMANCE TARGETS FOR PERFORMANCE PERIOD
BEGINNING ON ___________ AND ENDING ON ___________
EXHIBIT 10.m
FINGERHUT COMPANIES, INC.
DIRECTORS' RETAINER STOCK DEFERRAL PLAN
Section 1. Establishment. Fingerhut Companies, Inc.
hereby establishes the "FINGERHUT COMPANIES INC. DIRECTORS'
RETAINER STOCK DEFERRAL PLAN" for Eligible Directors of the
Company. The purpose of the Plan is to advance the interests of
the Company and its shareholders by increasing the proprietary
interests of non-employee directors in the Company's long-term
success and their identification with the interests of the
Company's shareholders by providing them with the opportunity to
defer and convert all or a portion of their retainer fees for
service as a director into Common Stock for payment upon a
specified future date or event.
Section 2. Effective Date. The Plan shall become
effective immediately upon its approval by the Board of
Directors, subject to approval by the Company's shareholders.
Section 3. Definitions.
(a) Change in Control. "Change in Control" shall mean
the occurrence of any of the following events: (i) any "person"
(together with its "affiliates" and "associates") becoming the
"beneficial owner" (each term as defined in the Securities
Exchange Act of 1934, as amended, or the rules and regulations
promulgated thereunder) of 30% or more of the voting power of all
outstanding securities of the Company entitled to vote for the
election of directors of the Company, unless a majority of the
Board of Directors as constituted prior to that time have
determined in their sole discretion that, for purposes of the
Plan, a Change in Control of the Company has not occurred; (ii)
as a result of or in connection with any cash tender offer,
merger or other business combination, sale of assets or contested
election of directors, or any combination of the foregoing, the
persons who were members of the Board of Directors of the Company
immediately prior to such event shall cease to constitute a
majority of the Company's Board of Directors; or (iii) the Board
of Directors or shareholders of the Company approve an agreement
providing for a transaction in which the Company will cease to be
an independent publicly-owned corporation or the occurrence of a
sale or other disposition of all or substantially all of the
assets of the Company.
(b) Common Stock. "Common Stock" shall mean the
common stock, $.01 par value, of the Company.
(c) Company. "Company" shall mean Fingerhut
Companies, Inc., a Minnesota corporation, and its successors and
assigns.
(d) Deferred Stock Account. "Deferred Stock Account"
shall have the meaning given in Section 6 of the Plan.
(e) Election Agreement. "Election Agreement" shall
have the meaning set forth in Section 5 of the Plan.
(f) Eligible Director. "Eligible Director" shall mean
any present or future member of the Board of Directors of the
Company who is not an employee or officer of the Company or of
any subsidiary of the Company.
(g) Market Price. "Market Price" shall mean the
closing price per share of the Common Stock as reported on the
New York Stock Exchange on the day of the required calculation
or, if there were no Common Stock transactions on the New York
Stock Exchange on such day, on the next preceding day on which
there were Common Stock transactions.
(h) Participant. "Participant" shall mean an Eligible
Director who has executed and delivered an Election Agreement to
the Company.
(i) Payment Date. The term "Payment Date" shall mean
the earliest to occur of the following dates: (i) the date of
the Participant's Retirement; (ii) the date (if any) specified in
the Participant's Election Agreement; (iii) the date of the
Participant's death; or (iv) the date of a Change in Control.
(j) Plan. "Plan" shall mean the Fingerhut Companies,
Inc. Directors' Deferred Retainer Plan, as it may be amended from
time to time.
(k) Plan Year. "Plan Year" shall mean the year
commencing on the date of the annual meeting of the shareholders
of the Company and ending on the day before the next succeeding
annual meeting of shareholders.
(l) Retainer Fee. "Retainer Fee" shall mean the
annual retainer fixed by the Board of Directors from time to time
for service on the Board of Directors of the Company. The term
"Retainer Fee" does not include any amounts payable with respect
to service as chairperson of any committee of the Board of
Directors or attendance at any meeting of the Board of Directors
or any committee.
(m) Retirement. "Retirement" shall mean the date on
which a Participant ceases to be a member of the Board of
Directors of the Company for any reason other than death.
Section 4. Deferral of Retainer. Subject to the
availability of shares of Common Stock under the Plan, an
Eligible Director may elect to defer, in the form of shares of
Common Stock, all or a portion of his Retainer Fee payable
following the effectiveness of such election made pursuant to
Section 5.
Section 5. Election to Participate. An Eligible
Director becomes a Participant in the Plan by filing a written
election ("the Election Agreement") with the Company before the
beginning of the Plan Year to which the election relates. Any
person who becomes an Eligible Director during a Plan Year, and
who was not an Eligible Director prior to the beginning of such
Plan Year, may file an Election Agreement to participate in the
Plan for such Plan Year before his or her term begins. The
Election Agreement shall specify the amount to be deferred,
expressed as a percent of the Retainer Fee, and the Payment Date
with respect to the deferred amounts. The Election Agreement
shall continue until the Participant terminates or modifies such
election by filing a new Election Agreement with the Company. An
Election Agreement, once made by the Participant, shall be
irrevocable with respect to all Retainer Fees otherwise payable
in cash while such Election Agreement is in effect. No Election
Agreement, or any modification or termination thereof, shall
apply to any portion of the Retainer Fee otherwise payable within
six months of the date of such Election Agreement, modification
or termination.
Section 6. Deferred Stock Account.
(a) Establishment of Account. The Company shall
establish and maintain a Deferred Stock Account for each
Participant, which shall reflect all entries required to be made
pursuant to the terms and conditions of the Plan and the
Participant's Election Agreement. Credits made pursuant to this
Section 6 shall be reflected on the books and records of the
Company as an obligation to issue and deliver a number of shares
of Common Stock on the specified Payment Date. No stock
certificate shall be created or registered until the Payment Date
and the Participant generally shall not have any of the rights
and privileges of a stockholder with respect to such share
credits, except as provided in Section 6(c) and Section 6(d)
below.
(b) Deferred Stock Credits. As of each date that all
or any portion of the Retainer Fee would otherwise be payable to
a Participant, the Company shall credit to such Participant's
Deferred Stock Account a number of shares (rounded to the nearest
one-hundredth of a share) equal to the deferred amount of the
Participant's Retainer Fee, as specified in his or her then
effective Election Agreement, divided by the Market Price on such
day.
(c) Dividend Credits. Each time a cash dividend is
paid on the Common Stock, the Company shall credit to each
Participant's Deferred Stock Account that number of shares
(rounded to the nearest one-hundredth of a share) determined by
multiplying the dividend amount per share by the total number of
shares credited to the Participant's Deferred Stock Account as of
the record date for such dividend and dividing the product by the
Market Price on the dividend payment date.
(d) Adjustments for Certain Changes in Capitalization.
If the Company shall at any time change the rights and privileges
of its outstanding shares of Common Stock or increase or decrease
the number of such shares by means of the payment of a stock
dividend or any other distribution upon such shares payable in
stock or through a stock split, subdivision, consolidation, combination,
reclassification, or recapitalization involving the Common Stock,
then the numbers, rights and privileges of the shares issuable
under the Plan shall be increased, decreased or changed in like
manner as if such shares had been issued and outstanding, fully
paid and nonassessable at the time of such occurrence.
(e) Account Statement. The Company shall provide each
Participant with an annual statement indicating the number of
shares credited to his or her Deferred Stock Account as of the
end of the preceding Plan Year.
(f) No Forfeiture. Shares credited to a Participant's
Deferred Stock Account shall not be subject to forfeiture for any
reason.
Section 7. Payment of Deferred Stock Account.
(a) General. Credits to a Participant's Deferred
Stock Account shall be payable in whole shares of Common Stock on
or promptly after the applicable Payment Date. Any fractional
share amounts will be paid in cash equal to the Market Value on
the Payment Date multiplied by the fractional share amount.
(b) Death. If the Payment Date is the result of the
Participant's death, the shares of Common Stock required to be
delivered under the Plan shall be promptly issued in the name of,
and be delivered to, the executor or administrator of the
Participant's estate.
(c) Change of Control. If the Payment Date is the
result of a Change of Control, the credits to a Participant's
Deferred Stock Account as of the day immediately prior to the
effective date of the event constituting the Change of Control
shall be paid in full in whole shares of Common Stock (together
with cash in lieu of a fractional share) on such date.
Section 8. Administration. The Plan shall be
administered by the Compensation Committee of the Board of
Directors of the Company (the "Committee"). The Committee shall
have the full power and authority to prescribe, amend and rescind
rules and regulations relating to the Plan, establish procedures
deemed appropriate for its administration, and make any and all
other determinations that may be necessary or advisable for its
effective administration. All questions of interpretation of the
Plan shall be determined by the Committee, and such determination
shall be final and binding upon all persons having an interest in
the Plan. The Committee, however, shall have no power to
determine the number, timing or value of shares to be credited to
any Participant's Deferred Stock Account.
Section 9. "Top Hat" Plan. The Plan is intended to be,
for purposes of Titles I and IV of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), an unfunded plan for
the benefit of a selected group of non-employee management
persons.
Section 10. Status of Account. Credits made to a
Participant's Deferred Stock Account, shall not give the
Participant or his or her beneficiary any right, title or
interest in and to any specific assets of the Company. A
Participant shall not have any voting rights or any other rights
as a shareholder (except as expressly set forth in Section 6)
until the shares credited to his or her Deferred Stock Account
are distributed in Common Stock. The Deferred Stock Account is
not intended to be a trust account or escrow account for the
benefit of a Participant or any other person or an asset
segregation for the benefit of a Participant or any other person.
The Company shall not be required to reserve or otherwise set
aside funds or shares of Common Stock for the payment of its
obligation hereunder. Benefits payable under the Plan shall be
an unsecured obligation of the Company.
Section 11. Amendment or Termination. The Committee may,
at any time and from time to time, terminate the Plan or make
such amendments as it deems advisable; provided, however, that no
such termination or amendment shall adversely affect or impair
the rights of a Participant with respect to share credits in his
or her Deferred Stock Account unless such Participant shall
consent in writing to such termination or amendment.
Notwithstanding the foregoing, no such amendment shall be
effective without the approval of the Company's shareholders if
such approval is then required pursuant to Rule 16b-3 under the
Securities Exchange Act of 1934 (the "1934 Act") or the
applicable rules of any securities exchange.
Section 12. Stock Subject to Plan. The maximum number of
shares of Common Stock that may be issued under the Plan shall be
50,000 shares, subject to adjustment upon changes in the
capitalization of the Company as provided in Section 6(d) of the
Plan.
Section 13. Non-Plan Deferral Arrangements. The Company
does not intend that this Plan preclude it from implementing
additional deferred compensation arrangements.
Section 14. Future Director Terms. Nothing in this Plan
or in any Election Agreement shall obligate a director to
continue as such or to accept any nomination for a future term as
a director of the Company or require the Company to nominate or
cause the nomination of the director for a future term as a
director of the Company.
Section 15. No Alienation. The right of a Participant to
receive shares of Common Stock or any other amounts under the
Plan shall not be transferable or assignable, other than by will
or the laws of descent and distribution, and no part of such
amount shall be subject to attachment or other legal process.
Section 16. Withholding. The Company is entitled to
withhold and deduct from any amounts due to a Participant all
legally required amounts necessary to satisfy any federal, state
or local withholding and employment-related taxes arising
directly or indirectly in connection with the Plan or any
Election Agreement, and the Company may require the Participant
to remit promptly to the Company the amount of such taxes before
taking any future actions with respect to the Participant's
Deferred Stock Account or Election Agreement.
Exhibit 11
FINGERHUT COMPANIES, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
FOR THE PERIODS ENDED DECEMBER 31, 1993, DECEMBER 25, 1992
AND DECEMBER 27, 1991
(In thousands of dollars, except per share data)
<TABLE>
<CAPTION>
1993 1992 1991
<S> <C> <C> <C>
Primary
Net earnings (a) $75,328 $61,806 $53,558
=========== =========== ===========
Weighted average shares of common stock outstanding 46,019,158 47,717,432 46,175,380
Common stock equivalents 4,082,581 4,220,504 3,785,166
___________ ___________ ___________
Weighted average shares of common stock and common
stock equivalents (b) 50,101,739 51,937,936 49,960,546
=========== =========== ===========
Primary earnings per share of common stock and
common stock equivalents (a / b) $1.50 $1.19 $1.07
=========== =========== ===========
Fully Diluted
Net earnings (c) $75,328 $61,806 $53,558
=========== =========== ===========
Weighted average shares of common stock outstanding 46,019,158 47,717,432 46,175,380
Common stock equivalents 4,611,732 4,239,634 3,978,136
___________ ___________ ___________
Weighted average shares of common stock and common
stock equivalents (d) 50,630,890 51,957,066 50,153,516
=========== =========== ===========
Fully diluted earnings per share of common stock
and common stock equivalents (c / d) $1.49 $1.19 $1.07
=========== =========== ===========
</TABLE>
Common stock equivalents for primary earnings per share are computed by the
treasury stock method using the average market price.
Common stock equivalents for fully diluted earnings per share are computed by
the treasury stock method using the ending market price or the average of the
fully diluted monthly amounts, whichever is higher.
Share and per share data were restated for the two-for-one stock split effective
July 29, 1993.
FINGERHUT COMPANIES, INC. AND SUBSIDIARIES
FIVE YEAR SUMMARY OF SELECTED CONSOLIDATED FINANCIAL DATA
(In thousands of dollars, except per share data)
<TABLE>
<CAPTION>
For the fiscal year ended
December 31, December 25, December 27, December 28, December 29,
1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C>
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.
</TABLE>
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)
<TABLE>
<CAPTION>
For the fiscal year ended
December 31, December 25, December 27,
1993 1992 1991
<S> <C> <C> <C>
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.
</TABLE>
FINGERHUT COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(In thousands of dollars)
<TABLE>
<CAPTION>
December 31, December 25,
1993 1992
<S> <C> <C>
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.
</TABLE>
FINGERHUT COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(In thousands of dollars)
<TABLE>
<CAPTION>
Common stock Additional
Number of Par paid-in Earnings
shares value capital reinvested Total
<S> <C> <C> <C> <C> <C>
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.
</TABLE>
FINGERHUT COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of dollars)
<TABLE>
<CAPTION>
For the fiscal year ended
December 31, December 25, December 27,
1993 1992 1991
<S> <C> <C> <C>
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.
</TABLE>
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:
<TABLE>
<CAPTION>
(In thousands of dollars) 1993 1992
<S> <C> <C>
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
========= =========
</TABLE>
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:
<TABLE>
<CAPTION>
(In thousands of dollars) 1993 1992
<S> <C> <C>
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
========= =========
</TABLE>
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:
<TABLE>
<CAPTION>
(In thousands of dollars) 1993 1992 1991
<S> <C> <C> <C>
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%
</TABLE>
7. LONG-TERM DEBT
Long-term debt and related maturity dates are as follows:
<TABLE>
<CAPTION>
(In thousands of dollars) 1993 1992
Private placements:
Senior Notes Maturity date Interest rate
<S> <C> <C> <C> <C>
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 -
</TABLE>
<TABLE>
<S> <C> <C>
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
========= =========
</TABLE>
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:
<TABLE>
<CAPTION>
1993 1992
(In thousands of dollars) Carrying Estimated Carrying Estimated
amount fair value amount fair value
<S> <C> <C> <C> <C>
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
</TABLE>
9. INTEREST EXPENSE
Net interest expense was as follows:
<TABLE>
<CAPTION>
(In thousands of dollars) 1993 1992 1991
<S> <C> <C> <C>
Interest expense $ 34,852 $ 33,537 $ 24,266
Interest income 396 230 82
-------- -------- --------
Net interest expense $ 34,456 $ 33,307 $ 24,184
======== ======== ========
</TABLE>
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:
<TABLE>
<CAPTION>
(In thousands of dollars) 1993 1992
<S> <C> <C>
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
======== ========
</TABLE>
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:
<TABLE>
<CAPTION>
(In thousands of dollars) 1993 1992 1991
<S> <C> <C> <C>
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
======== ======== ========
</TABLE>
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:
<TABLE>
<CAPTION>
1993 1992 1991
<S> <C> <C> <C>
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%
====== ====== ======
</TABLE>
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:
<TABLE>
<CAPTION>
(In thousands of dollars) 1992 1991
<S> <C> <C>
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
========= =========
</TABLE>
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:
<TABLE>
<CAPTION>
Non-qualified stock
option shares Option
Outstanding Exercisable prices
<S> <C> <C> <C>
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
=========== =========== ==============
</TABLE>
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
<TABLE>
<CAPTION>
(In thousands of dollars, 1993
except per share data) First Second Third Fourth Total
<S> <C> <C> <C> <C> <C>
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.
</TABLE>
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.
<TABLE>
<CAPTION>
1993
First Second Third Fourth Year
<S> <C> <C> <C> <C> <C>
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
</TABLE>
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)
<TABLE>
<CAPTION>
Additions
charged to
Balance at cost, Balance at
beginning expenses, end
Description of period revenues Deductions of period
<S>
Accounts receivable reserves:
<C> <C> <C> <C> <C>
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.
</TABLE>
Exhibit 22
SUBSIDIARIES OF FINGERHUT COMPANIES, INC.*
Names State of Incorporation
Fingerhut Corporation Minnesota
Fingerhut Financial Services Corporation Minnesota
Tennessee Distribution, Inc. Minnesota
USA Direct Incorporated Minnesota
*The names of certain subsidiaries have been omitted because
considered in the aggregate as a single subsidiary, they would
not constitute a significant subsidiary.
sr-927
Exhibit 23
Consent of Independent Certified Public Accountants
The Board of Directors
Fingerhut Companies, Inc.:
We consent to incorporation by reference in the registration
statement (No. 33-38988) on Form S-8 of Fingerhut Companies, Inc.
and subsidiaries of our reports dated January 28, 1994, except as
to the first paragraph of note 3 and the third paragraph of note
10 which are as of March 14, 1994, relating to the consolidated
statements of financial position of Fingerhut Companies, Inc. as
of December 31, 1993, and December 25, 1992 and the related
consolidated statements of earnings, changes in stockholders'
equity and cash flows and the related financial statement
schedule for each of the years in the three-year period ended
December 31, 1993, which reports appear in the December 31, 1993
annual report on Form 10-K of Fingerhut Companies, Inc.
KPMG Peat Marwick
Minneapolis, Minnesota
March 30, 1994
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