<PAGE>

                                                                  CONFORMED COPY

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549
                                    FORM 10-K
                                   (Mark One)

        [X]     ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                EXCHANGE  ACT OF 1934

        For the fiscal year ended ....................JANUARY 1, 2000

                                    OR

        [ ]     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                SECURITIES EXCHANGE ACT OF 1934

        For the transition period from ................ to ..................
        Commission file number ..............................0-16126

                                  SPIEGEL, INC.
             (Exact name of registrant as specified in its charter)

                   DELAWARE                              36-2593917
          (State of Incorporation)                    (I.R.S. Employer
                                                     Identification No.)

              3500 LACEY ROAD                            60515-5432
          DOWNERS GROVE, ILLINOIS                        (Zip Code)
         (Address of principal executive offices)

        Registrant's telephone number, including area code (630) 986-8800

        SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:  None
        SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

                        CLASS A NON-VOTING COMMON STOCK,
                           PAR VALUE, $1.00 PER SHARE
                                (TITLE OF CLASS)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES  X   NO
                                       ---     ---

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.
           ----

On March 17, 2000, the aggregate market value of Class A non-voting common stock
held by non-affiliates (based on the closing price reported by NASDAQ National
Market on that date) was $112,498,030. The number of shares outstanding of the
issuer's Class A non-voting common stock at March 17, 2000 was 14,849,244.

The Class B voting common stock is not publicly traded and is 99.9% held by
affiliates. The number of shares outstanding of the issuer's Class B voting
common stock at March 17, 2000 were 117,009,869.

DOCUMENTS INCORPORATED BY REFERENCE: NONE



<PAGE>

                                     PART I

ITEM 1.  BUSINESS

GENERAL DEVELOPMENT OF BUSINESS
Spiegel, Inc. ("The Spiegel Group" or "the Company") and its predecessors date
from 1865. The Company was incorporated under the laws of Delaware in 1965.
Spiegel Holdings, Inc., a Delaware corporation ("SHI"), currently holds 99.9
percent of the Company's Class B voting common stock, affording SHI control of
the Company.

In 1988, the Company acquired Eddie Bauer, Inc. and certain related Canadian
assets (collectively, "Eddie Bauer").

In 1990, the Company acquired First Consumers National Bank ("FCNB"). FCNB is a
special-purpose bank specializing in the issuance of credit cards.

In 1993, the Company acquired New Hampton, Inc. ("New Hampton"). In 1995, New
Hampton's name was changed to Newport News, Inc. ("Newport News").

In 1997, the Company incorporated its Spiegel Catalog division ("Spiegel") as a
separate subsidiary parallel to Eddie Bauer and Newport News. This was done to
provide greater clarity between the Spiegel brand name and the corporate entity.

NARRATIVE DESCRIPTION OF BUSINESS (dollars in thousands)
The Spiegel Group is a leading, international specialty retailer that offers
merchandise and credit services through a merchandising segment and a bankcard
segment.

                              MERCHANDISING SEGMENT

PRINCIPAL PRODUCTS, SERVICES, AND REVENUE SOURCES. The merchandising segment is
an aggregation of the Company's Eddie Bauer, Spiegel and Newport News
subsidiaries which distribute apparel, home furnishings and other merchandise
through catalogs, e-commerce sites and retail stores. These businesses are
supported by the Company's FCNB Preferred charge programs. In 1999, revenue
related to the sale of merchandise comprised approximately 95 percent of the
merchandising segment's total revenue. The remainder was contributed by finance
revenue generated from FCNB Preferred charge programs, including net gains
recognized in conjunction with the securitization of customer receivables.

         PRODUCTS
         The merchandising segment has two principal product categories: apparel
         and home furnishings and other merchandise. The components of net sales
         by product category for the last three years were:

<TABLE>
<CAPTION>

                                1999       1998       1997
                               ------     ------     ------
<S>                              <C>        <C>        <C>
Apparel                           79%        80%        79%
Home furnishings
     and other merchandise        21         20         21
                               ------     ------     ------
                                 100%       100%       100%

</TABLE>

         The apparel category includes a wide array of men's and women's
         private-label and branded merchandise in various styles, including
         seasonal product offerings. Home furnishings range from traditional to
         contemporary styles, including accent pieces, decorative accessories,
         bedding and bath, kitchen accessories and small appliances, home
         electronics, window treatments and rugs. The other merchandise category
         includes items such as fitness and personal care equipment, toys,
         cameras and luggage.

                                       2

<PAGE>

         CREDIT SERVICES
         In an effort to build brand loyalty and to provide additional
         convenience for its customers, the Company offers credit programs to
         qualifying customers in the form of its FCNB Preferred charge card. The
         card is imprinted with a Spiegel, Eddie Bauer or Newport News logo
         depending on the source of the original application for credit. This
         card allows a customer to purchase products from any Company affiliate,
         regardless of the imprint on the card. FCNB is the issuer of the FCNB
         Preferred charge card. The accounts are serviced through FCNB's
         headquarters located in Beaverton, Oregon.

         At January 1, 2000, FCNB Preferred charge customer receivables serviced
         were $1,668,878. Approximately 39 percent of total net sales in 1999
         were made on FCNB Preferred charge cards, including approximately 78
         percent of Spiegel net sales, 21 percent of Eddie Bauer net sales, and
         57 percent of Newport News net sales. The lower percentage of Eddie
         Bauer sales made on the FCNB Preferred charge card is primarily
         attributable to the relatively higher percentage of retail store sales
         at Eddie Bauer. Catalogs generally have a higher percentage of sales
         made on credit compared to retail stores.

         Deterioration in the credit market, increases in credit account
         charge-offs and interest rate fluctuations all represent risks to the
         profitability of the FCNB Preferred charge programs.

The following is a discussion of the merchant divisions included in the
merchandising segment that offer the products and services described above:

         EDDIE BAUER

         Eddie Bauer is a leading specialty retailer serving the active, casual
         lifestyle needs of men and women through the sale of high quality
         private-label apparel, accessories and home furnishings. Eddie Bauer
         markets its products through stores, catalogs and e-commerce sites.
         Total net sales were $1,789,096 and $1,709,610 for the years ended
         January 1, 2000 and January 2, 1999, respectively. Approximately 74
         percent of total net sales for Eddie Bauer are retail and outlet store
         sales. A key strategy for Eddie Bauer is to leverage synergies between
         its multiple distribution channels, maximizing cross-promotional
         opportunities. This strategy includes: referring retail customers to
         catalog stations within stores for additional merchandise and size
         options; utilizing the catalog customer database to help identify
         potential store locations; using catalog space to advertise the retail
         concept and e-commerce sites; and utilizing retail store mailing lists
         to help build the catalog customer file.

         Eddie Bauer's apparel category comprised 86 percent of its total net
         sales in 1999. Eddie Bauer presents its active, casual apparel and
         related accessories through its trademark Eddie Bauer sportswear
         stores, catalogs and the eddiebauer.com and eddiebaueroutlet.com
         e-commerce sites. The apparel category includes full seasonal
         collections of fine quality sportswear and dress casual, outerwear,
         footwear and accessories. Eddie Bauer presents its comfortable, relaxed
         home furnishings and decor for the bed and bath through its Eddie Bauer
         HOME retail stores, catalogs and on its e-commerce sites.

                                       3

<PAGE>

         In 1993, Eddie Bauer entered into a joint-venture arrangement with
         Otto-Sumisho, Inc. (a joint venture company of Otto Versand, a related
         party, and Sumitomo Corporation) to sell its full line of Eddie Bauer
         sportswear products through retail stores and catalogs in Japan. There
         are currently 35 such stores. During 1995, Eddie Bauer entered into an
         agreement with Heinrich Heine GmbH and Sport-Scheck GmbH (both
         subsidiaries of Otto Versand) to form a joint venture to sell Eddie
         Bauer products through retail stores and catalogs in Germany. There are
         currently nine such stores. In 1996, Eddie Bauer entered into a
         joint-venture agreement with Grattan plc (a subsidiary of Otto Versand)
         to sell Eddie Bauer products through retail stores and catalogs in the
         United Kingdom. There are currently seven such stores, all of which
         will be closed in spring 2000 in conjunction with the discontinuation
         of the Grattan plc joint venture. The United Kingdom market will
         continue to be serviced through the joint venture with Heinrich Heine
         GmbH and Sport-Scheck GmbH.

         Eddie Bauer has also capitalized on selected licensing opportunities,
         including a current arrangement with Ford Motor Company, which uses the
         Eddie Bauer name and logo on special series Ford vehicles, as well as
         arrangements with The Lane Company (a division of Furniture Brands
         International); Signature Eyewear, Inc.; Cosco, Inc., a manufacturer of
         infant and juvenile car seats and strollers; Baby Boom Consumer
         Products, Inc., a manufacturer of infant products; Imperial Wall
         Coverings; and Giant Bicycle, Inc.

              EDDIE BAUER RETAIL DIVISION

              At January 1, 2000, Eddie Bauer operated a total of 532 stores:
              479 retail stores and 53 outlets. There are 492 stores located in
              the United States and 40 stores in Canada. Of the stores open at
              January 1, 2000, 39 were Eddie Bauer HOME. The average Eddie Bauer
              store is approximately 7,200 gross square feet. Eddie Bauer's
              retail stores are generally located in upscale regional malls or
              in high traffic metropolitan areas. Eddie Bauer also opens stores
              in certain smaller markets where it believes a concentration of
              its target customers exists. Eddie Bauer believes that these
              markets have the potential to contribute store profit margins
              comparable to the existing store base. Eddie Bauer outlet stores,
              which offer overstock, end-of-season and other merchandise, are
              located predominantly in outlet malls and strip centers and
              generally in areas not served by its core specialty retail stores.

              In 1999, Eddie Bauer slowed its new-store growth pace, opening a
              net of 9 stores compared to 39 in 1998. In 2000, Eddie Bauer plans
              to increase its store count to approximately 565, in addition to
              expanding and updating 40 existing stores. The average cost of
              opening a typical new Eddie Bauer store in 1999, including
              inventory, furniture and fixtures, pre-opening expenses and
              leasehold improvements (net of landlord construction allowances)
              was approximately $720. Eddie Bauer's ability to open and operate
              new stores profitably is dependent on the availability of suitable
              store locations, the negotiation of acceptable lease terms, Eddie
              Bauer's financial resources and its ability to control the
              operational aspects and personnel requirements of its growth.

              EDDIE BAUER CATALOG DIVISION

              The Eddie Bauer catalog division distributed 97 million catalogs
              in 1999 and at January 1, 2000 had approximately 3.4 million
              active customers (customers who have purchased within the last 18
              months.) As a corollary to its retail operations, Eddie Bauer
              catalog concepts include its trademark Eddie Bauer sportswear
              catalog and Eddie Bauer HOME catalogs, as well as its largest
              catalog, Eddie Bauer Resource. Eddie Bauer actively pursues new
              customers within its target market through initiatives such as
              list rentals, utilizing names of its store customers and Internet
              marketing programs.

                                       4

<PAGE>

         SPIEGEL

         Spiegel has positioned itself as the Lifestyle Resource for the Working
         Woman. Spiegel serves its customers by offering an extensive array of
         fashionable apparel, home furnishings and other merchandise through its
         trademark semiannual catalog, seasonal and specialty catalogs, and the
         spiegel.com e-commerce site. Spiegel offers overstock, end-of-season
         and other merchandise through its Ultimate Outlet stores, predominately
         located in outlet malls, catalogs and the ultimate-outlet.com
         e-commerce site. Total net sales were $716,555 and $586,873 for the
         years ended January 1, 2000 and January 2, 1999, respectively. Sales
         through catalog offerings comprise approximately 86 percent of total
         net sales. Spiegel distributed over 129 million catalogs in 1999 and at
         January 1, 2000 had approximately 3.0 million active customers
         (customers who have purchased within the last 18 months.)

         Spiegel's apparel merchandise, which represented 55 percent of net
         sales in 1999, includes private-label and branded merchandise.
         Private-label merchandise is developed by in-house product design teams
         based on emerging fashion trends and customer research. Spiegel's home
         furnishings and other merchandise, which represented 45 percent of net
         sales in 1999, are a mixture of private-label and branded merchandise
         ranging from traditional to contemporary styles, including accent
         pieces, decorative accessories, bedding and bath, kitchen accessories
         and small appliances, home electronics, window treatments and rugs.

         NEWPORT NEWS

         Newport News is a specialty catalog business offering fashionable,
         moderately priced women's apparel and home furnishings. Total net sales
         were $410,804 for the year ended January 1, 2000, compared to $345,473
         for the year ended January 2, 1999. Newport News distributed 212
         million catalogs in 1999 and at January 1, 2000 had approximately 3.9
         million active customers (customers who have purchased within the last
         18 months). In 1999, Newport News launched an e-commerce site,
         newport-news.com, to broaden its sales and marketing reach.

         The Newport News apparel category comprised 89 percent of its sales in
         1999. Although Newport News specializes in swimwear and jeans, all
         women's apparel categories, including footwear, are well represented.
         The Newport News home furnishings category consists primarily of bed,
         bath and decorative accessories.

PRODUCT DEVELOPMENT AND SOURCING

The merchandising segment's product development and sourcing teams are a
significant element of its private-label merchandise strategy. Manufacturers are
selected based on their ability to produce high quality product on a
cost-effective basis. Product design teams select and source fabrics to be
delivered to manufacturers along with product patterns, specifications and
templates used for cutting fabric and other pre-production work. Prototype
samples are submitted to the merchant divisions for final production approval to
ensure manufacturer compliance with specifications.

The Company does not have any manufacturing facilities; all production is done
by third-party contractors. The product development and sourcing teams closely
monitor the timeliness of manufacturers' delivery to the Company's distribution
facilities and provide them with packaging information. The Company believes
this strategy permits maximum flexibility, enhanced inventory management and
consistent quality control without the risks associated with operating its own
manufacturing facilities.

                                       5

<PAGE>

MERCHANDISE

The merchant divisions sell domestically produced and imported merchandise,
which is purchased in the open market from approximately 2,500 suppliers, none
of which supplied as much as 5 percent of the merchandise purchased during 1999.
A significant amount of the dollar value of merchandise purchased is imported
directly from the Far East and Europe. Consequently, the Company is subject to
the risks generally associated with conducting business abroad. The Company's
business could be affected by economic events or political instability that
might affect imports, including duties, quotas and work stoppages. To date,
these factors have not caused any material disruption to the Company's
operations. As with other companies that denominate purchases in dollars,
declines in the dollar relative to foreign currencies could over time increase
the cost to the Company of merchandise purchased in foreign countries, which
could adversely affect the Company's results of operations. The Company is
unable to predict the effect, if any, of the above; however, the Company
believes this risk exists for many other retailers.

LICENSES AND TRADEMARKS

The Company's merchandising divisions utilize trademarks and tradenames
including "Spiegel", "Eddie Bauer", "Newport News" and "Easy Style." The Company
also is licensed to sell goods under the "Together!" and "Apart" labels. The
Company utilizes numerous other trademarks and tradenames, however, believes
that the loss or abandonment of the above named trademarks, tradenames or
licenses would have the most significant effect on its business.

SEASONALITY OF BUSINESS

The merchant divisions, like other retailers, have experienced and expect to
continue to experience seasonal fluctuations in merchandise sales and net
earnings. Historically, a significant amount of the merchandising segment's net
sales and a majority of its net earnings have been realized during the fourth
quarter. If sales were materially different from seasonal norms during the
fourth quarter, the merchandising segment's annual operating results could be
materially affected. Accordingly, results for the individual quarters are not
necessarily indicative of the results to be expected for the entire year.

COMPETITION

The markets in which the merchant divisions participate are highly competitive
and served by a significant number of retailers including direct marketers,
traditional department stores, so-called "off-price" and discount retailers and
specialty chains. Success is highly dependent upon the merchant group's ability
to maintain its existing customers, solicit new customers, identify distinct
fashion trends and continue to address the lifestyle needs and style preferences
of its customers. The Company believes it is positioned to compete effectively
in all channels of distribution, including stores, catalog and the emerging
e-commerce market, supported by its strong infrastructure.

EMPLOYEES

During 1999, the merchandising segment employed between approximately 11,100 and
14,900 full-time equivalent employees, depending on the time of year, reflecting
the seasonality of the merchandising business and the fluctuations in its
workforce during the year. At February 26, 2000, the merchandising segment
employed approximately 12,100 full-time equivalent employees.

                                       6

<PAGE>

Spiegel is a party to a collective bargaining agreement with the Warehouse, Mail
Order, Office, Technical and Professional Employees Union, Local 743, affiliated
with the International Brotherhood of Teamsters, Chauffeurs, Warehousemen and
Helpers of America ("Local 743"). Local 743 represents approximately 60
full-time employees under an agreement that expires on February 28, 2001. In
addition, Spiegel is party to a separate agreement with Local 743 which expires
on May 31, 2000 that covers approximately 80 full-time equivalent Chicago-area
Spiegel outlet store employees.

The Company considers its relations with its employees to be good and has never
experienced any material interruption of operations due to labor disagreements
with its employees.

PROPERTIES

The Company's corporate headquarters and Spiegel operations are located in
leased office space in Downers Grove, Illinois. The Company owns its Westmont,
Illinois corporate data center.

The following information is specific to the merchandising segment: In addition
to the office space mentioned above, Spiegel leases a customer order center in
Wichita, Kansas and a customer service facility in Rapid City, South Dakota.
Eddie Bauer occupies office space in nine buildings located in and around
Redmond, Washington; two of which are owned and seven of which are under lease.
Newport News leases office space in New York, New York, in addition to leasing a
facility in Hampton, Virginia where its order taking, customer service and
administrative functions are performed.

All retail store locations are also leased, with the exception of a downtown
Chicago Eddie Bauer store. A typical store lease is for a term of 10 years, with
options for renewal.

The Spiegel and Eddie Bauer retail and catalog distribution functions are
performed in two owned facilities in Groveport and Columbus, Ohio. An additional
retail distribution facility is leased in Toronto, Canada to support the Eddie
Bauer retail stores located in Canada. The Newport News distribution function is
performed in an owned facility in Newport News, Virginia.

The Company considers its present space and facilities under development
generally adequate for anticipated future requirements.

                                BANKCARD SEGMENT

Managed through FCNB, the Company's special-purpose bank, the bankcard business
markets various MasterCard and Visa programs nationwide from FCNB's leased
headquarters in Beaverton, Oregon (suburban Portland). The Company's bankcard
portfolio includes secured cards, co-branded cards and affinity cards, such as
the FCNB MasterCard, the FCNB Visa, the Spiegel MasterCard, the Eddie Bauer
MasterCard and the Adelante MasterCard. The bankcard segment's revenue is
comprised primarily of finance revenue and credit-related fees generated from
the bankcard credit programs and includes net gains recognized in conjunction
with the securitization of bankcard receivables.

At January 1, 2000, bankcard receivables serviced were $712,276, representing
approximately 574,000 active accounts. The credit market is highly competitive
and is served by numerous lenders. The bankcard segment's ability to compete in
this environment is dependent on its ability to develop credit programs that
attract and retain credit customers. The bankcard segment has capitalized on
bankcard programs that offer customized service to targeted niches in the credit
industry, which contributed to its significant growth in 1999.

In 2000, the bankcard segment intends to continue to grow its portfolio through
initiatives aimed at customer acquisition and retention and increasing average
account balances. This will entail the continued development and marketing of
customized bankcard credit programs, including programs specific to the
Company's merchant divisions.

                                       7

<PAGE>

During 1999, FCNB employed an average of approximately 852 employees. At
February 26, 2000, FCNB employed approximately 1,040 full-time equivalent
employees, a reflection of the growth of the bankcard business.

Deterioration in the credit market, increases in credit account charge-offs and
interest rate fluctuations all represent risks to the profitability of the
Company's bankcard credit operations.

FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
Information regarding revenue, operating income and assets of the Company's
merchandising and bankcard segments for each of the three fiscal years ended
January 1, 2000, January 2, 1999 and January 3, 1998, is incorporated herein by
reference to Note 10 "Segment Reporting" of Part II, Item 8 "Notes to
Consolidated Financial Statements" of this Form 10-K. For additional
information, see also the above description of business and Part II, Item 7
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

ITEM 2. PROPERTIES

Information regarding the principal properties of the Company is incorporated
herein by reference to page 7 of Item 1 hereof.

ITEM 3. LEGAL PROCEEDINGS

The Company is routinely involved in a number of legal proceedings and claims
which cover a wide range of matters. In the opinion of management, the outcome
of these matters is not expected to have any material adverse effect on the
consolidated financial position or results of operations of the Company.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

                                       8

<PAGE>

                                     PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

MARKET INFORMATION

The Class A non-voting common stock is traded on NASDAQ's National Market
System. The ticker symbol is SPGLA. Daily trading information is listed in the
stock tables carried by major newspapers as "SPIEGEL." See Item 8 "Selected
Quarterly Financial Data" for information on the high and low sale prices of the
Class A non-voting common stock.

On March 17, 2000, the closing market price of the Class A non-voting common
stock, as quoted on the NASDAQ National Market System, was $7 5/8 per share.

The Class B voting common stock is not publicly traded. Therefore, no market
value information is readily available on this class of stock. However, the
Company believes the value of the Class B voting common stock approximates the
market value of the Class A non-voting common stock as both classes of stock are
equal in all respects, with the exception of voting rights.

HOLDERS

There were approximately 8,500 Class A non-voting common stockholders as of
March 17, 2000. The Company believes that certain of the outstanding shares of
Class A non-voting common stock are held by nominees for an unknown number of
beneficial stockholders.

The Class B voting common stock of the Company is privately held. As of the date
hereof, there were two Class B voting common stockholders.

DIVIDENDS

In December 1995, the Company discontinued payment of all cash dividends.
Certain restrictions on dividend payments exist under the Company's debt
covenants based on financial results. The Company evaluates its dividend policy
on an ongoing basis.

                                       9

<PAGE>


ITEM 6. FIVE-YEAR SELECTED FINANCIAL DATA
($000s omitted, except per share amounts)

<TABLE>
<CAPTION>

                                1999          1998          1997          1996          1995
                         -----------  ------------  ------------  ------------  ------------
<S>                      <C>           <C>           <C>           <C>           <C>
EARNINGS DATA
Net sales and
 other revenues          $ 3,210,225   $ 2,935,411   $ 3,056,834   $ 3,014,620   $ 3,184,184
Earnings (loss) before
 income taxes                137,127        18,110       (49,406)      (21,276)      (15,807)
Net earnings (loss) (1)       85,330         3,270       (33,021)      (13,389)       (9,481)
Net earnings (loss) per
 common share (1)
  Basic and diluted             0.65          0.03         (0.28)        (0.12)        (0.09)
Cash dividends per
 common share            $         -   $         -   $         -   $         -   $      0.20


BALANCE SHEET AND
 CASH FLOW DATA
Current assets           $ 1,664,144   $ 1,255,494   $ 1,244,823   $ 1,231,535   $ 1,559,909
Total assets               2,242,040     1,857,260     1,949,554     1,945,625     2,273,982
Current liabilities          858,919       663,251       637,222       697,250       668,229
Long-term debt,
 excluding current
  maturities                 566,572       523,036       713,750       676,656     1,014,692
Stockholders' equity         725,140       637,267       565,600       519,695       533,792
Net additions to
 property and equipment       38,484        28,610        55,047        45,698       131,229
Depreciation and
 amortization            $    94,683   $    88,547   $    88,062   $    95,278   $    79,047

</TABLE>

(1) In 1998, net earnings includes a charge of $8,535, or $0.06 per share, for
    the redemption of subsidiary preferred stock.

                                       10

<PAGE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
          OF OPERATIONS ($000s omitted, except per share amounts)

RESULTS OF OPERATIONS
Net earnings for fiscal 1999 were $85,330, or $0.65 per share basic and diluted,
a significant improvement compared to net earnings of $3,270, or $0.03 per
share, in fiscal 1998 and a net loss of $33,021, or $0.28 per share, in fiscal
1997. The results were favorably impacted by net pretax gains related to the
sale of receivables of $15,760 in 1999, $45,328 in 1998, and $75,141 in 1997.
Net earnings in 1998 also included the redemption of subsidiary preferred stock,
which reduced net earnings $8,535, or $0.06 per share. Excluding the impact of
the above non-comparable items, 1999 net earnings increased more than $93
million over 1998. The considerable improvement in 1999 operating results was
driven primarily by stronger customer response to merchandise offerings and
gross margin improvements in the Company's merchandising segment.

MERCHANDISING SEGMENT

<TABLE>
<CAPTION>

                                           1999             1998             1997
                                     -----------      -----------      -----------
<S>                                  <C>              <C>              <C>
Retail net sales                     $1,395,155       $1,331,476       $1,353,142
Catalog net sales                     1,442,429        1,291,857        1,476,163
E-commerce net sales                     78,871           18,623            5,992
                                     -----------      -----------      -----------
Total net sales                       2,916,455        2,641,956        2,835,297
Finance revenue                         166,344          138,033          132,030
Other revenue                            46,553           42,222           43,244
                                     -----------      -----------      -----------
Total revenue                        $3,129,352       $2,822,211       $3,010,571
                                     -----------      -----------      -----------
Operating income                     $  189,960       $   21,601       $    2,314
                                     -----------      -----------      -----------
% change:

Total net sales                              10%              (7)%             (1)%
Comparable store sales                        6%              (9)%             (3)%
Total revenue                                11%              (6)%              1 %
                                     -----------      -----------      -----------
Gross margin % to total net sales          36.4%            31.6 %           31.5 %
SG&A % to total revenue                    34.7%            35.2 %           35.4 %
                                     -----------      -----------      -----------

</TABLE>

1999 COMPARED WITH 1998
Merchandising operating income increased substantially in 1999 to $189,960, a
$168,359 improvement over 1998 results. Every division made a positive
contribution to operating income, supported by profitable growth in the FCNB
Preferred credit operations. The key factor contributing to the progress in the
merchandising segment was significantly improved gross margin performance on
increased sales, particularly at Eddie Bauer and Spiegel. In addition, the
expense ratio declined due to the higher revenue base and cost-containment
initiatives.

Total merchandising revenue increased $307,141, or 11 percent, in 1999 compared
to 1998. The growth in revenue was primarily attributed to a 10 percent increase
in net sales, coupled with an increase in revenue from the FCNB Preferred charge
programs.

                                       11

<PAGE>

The net sales improvement included a 5 percent increase in retail net sales and
a 12 percent increase in catalog net sales driven by favorable customer response
to refined product offerings. Growth in e-commerce sales at all merchant
divisions also contributed to the favorable net sales results. Retail net sales
results included a 6 percent increase in Eddie Bauer comparable-store sales,
slightly offset by a decrease in outlet store sales. The increase in retail net
sales reflects positive customer response to stronger, more-focused merchandise
offerings and an improved inventory position compared to the prior year. Growth
in catalog net sales was driven by solid sales increases at Spiegel and Newport
News, slightly offset by a decrease at Eddie Bauer. Eddie Bauer sales generated
through catalog media were lower than the prior year, reflecting a planned
decrease in pages circulated to marginal customers, partially offset by gains in
productivity.

Finance revenue for 1999 was 21 percent higher than the prior year primarily due
to growth in the portfolio as well as improved productivity. The average
receivable level in the FCNB Preferred charge portfolio was 9 percent above 1998
due to higher sales at the merchant divisions accompanied by an increase in
customer utilization of Preferred charge programs. Additionally, the Preferred
charge programs realized improved yields and lower charge-offs from reduced
delinquencies, resulting in an increase in the net excess recognized in finance
revenue from off-balance-sheet receivables. Finance revenue included net pretax
gains on the sale of receivables of $18,918 in 1999 compared to $11,757 in 1998.

Merchandising gross profit margin on net sales increased 480 basis points to
36.4 percent in 1999 from 31.6 percent in 1998. The improved margin performance,
driven by Spiegel and Eddie Bauer, resulted from strong customer response to
merchandise offerings and in turn, lower markdowns compared to the prior year.

The selling, general and administrative expense ratio benefited from the
substantial increase in revenue, ending 1999 at 34.7 percent of total revenue, a
50 basis point improvement over 1998. Stringent cost controls and a higher level
of sales productivity on catalog mailings drove the ratio improvement.
Offsetting the improvement somewhat was incremental expense recorded to increase
the provision for doubtful accounts due to the substantial growth in the FCNB
Preferred credit receivable portfolio. Additionally, the ratio declined despite
non-recurring charges taken, primarily in the fourth quarter of 1999, to
recognize the disposition of certain assets. These non-recurring charges
increased SG&A expense by approximately $22 million, or 70 basis points, in 1999
and included costs associated with the closure of seven Eddie Bauer stores in
the United Kingdom as well as the write-off of certain assets, primarily
leasehold improvements, at Eddie Bauer and Spiegel.

1998 COMPARED WITH 1997
Merchandising operating income increased in 1998 to $21,601, a $19,287
improvement over 1997. Excluding the impact of receivable sales, the comparable
operating income improved by $71,343. Key factors contributing to the progress
in the merchandising segment included the improving performance of Spiegel,
solid sales and earnings growth at Newport News and the earnings contribution
realized from the FCNB Preferred charge programs. Although Eddie Bauer recorded
a profitable year in 1998, lower operating income compared to 1997 somewhat
offset the above improvements.

Total merchandising revenue declined 6 percent in 1998 compared to 1997, driven
by lower retail and catalog net sales. Slightly offsetting the decline in sales
was higher finance revenue generated in 1998 from the FCNB Preferred charge
programs.

Retail net sales were down primarily due to the decline in Eddie Bauer's
comparable-store sales, offset somewhat by sales contributed by new stores.
Retail net sales were negatively impacted by lackluster customer response to
merchandise, which led to increased promotional activity. Additionally,
unseasonably warm weather during most of the fourth quarter dampened the demand
for outerwear and other cold-weather related products. Lower catalog net sales
resulted from a reduction in catalog pages circulated by Spiegel and lower
customer response to Eddie Bauer's catalog mailings, particularly in
cold-weather related products. Partially offsetting the catalog net sales
decline was solid sales growth at Newport News.

                                       12

<PAGE>

FCNB Preferred charge finance revenue included net pretax gains on the sale of
receivables of $11,757 in 1998 compared to $63,813 in 1997. Excluding the impact
of receivable gains, finance revenue was $126,276 and $68,217 in 1998 and 1997,
respectively. This increase resulted from the improved performance of the FCNB
Preferred charge portfolio, as well as from pricing changes implemented in late
1997.

Gross margin improved slightly in 1998 over the prior year due to margin rate
improvements at Spiegel and Newport News, driven primarily by a shift in sales
mix toward higher margin items and better product sourcing. These improvements
were substantially offset by a margin decline at Eddie Bauer resulting from a
higher level of markdowns taken to manage inventories. Consolidated merchandise
inventories at January 2, 1999 were 4 percent lower than the year-end level in
1997, even though Eddie Bauer increased its store base by 47 stores.

Despite a decline in revenue, the selling, general and administrative expense
ratio improved slightly over last year. This improvement resulted primarily from
higher catalog sales productivity at Spiegel and Newport News, offset somewhat
by lower productivity on Eddie Bauer's catalog sales. The SG&A ratio also
benefited from favorable charge-off experience in the FCNB Preferred charge
portfolio. In addition, SG&A expense in 1997 included a charge of approximately
$16 million to provide for the estimated impact of certain repositioning
activities at Spiegel. The Company expended approximately $3.5 million related
to these activities in 1997, utilizing the remaining balance in 1998.

BANKCARD SEGMENT

<TABLE>
<CAPTION>

                                              1999              1998             1997
                                         ----------         ---------        ---------
<S>                                      <C>               <C>              <C>
Total revenue                            $  80,873         $ 113,200        $  46,263

Operating income                         $  21,242         $  70,344        $  22,685
                                         ----------         ---------        ---------

</TABLE>

1999 COMPARED WITH 1998
Bankcard revenue from owned receivables declined 29 percent in 1999 compared to
the prior year. Overall, bankcard revenue from serviced receivables grew by 45
percent in 1999. However, recognized revenue decreased compared to last year,
primarily due to the sale of receivables. While revenue in 1998 was favorably
impacted by a net pretax gain on the sale of receivables of $33,571, revenue in
1999 was reduced by $3,158 reflecting minor revisions in the assumptions
utilized to calculate receivable gains. Excluding the impact of receivable
sales, 1999 bankcard revenue increased 6 percent over 1998 driven by a 52
percent increase in the average level of receivables in the portfolio.

Bankcard operating income declined in 1999 compared to the prior year
primarily due to lower revenue. This performance reflects non-comparable
items that benefited the prior year results, including the aforementioned
gain recognition and the impact of certain bankcard test programs initiated
in late 1997 and early 1998. Operating income in 1998 benefited from these
programs, while the 1999 results reflect an increase in the charge-offs
experienced in the test program component of the receivable portfolio.
Excluding these non-comparable items, bankcard earnings increased over the
prior year, reflecting strong growth and favorable operating trends.

                                       13

<PAGE>

1998 COMPARED WITH 1997
Bankcard operating performance improved dramatically in 1998 compared to 1997.
Diversification in the bankcard credit programs, including the addition of
certain test programs, drove substantial increases in the bankcard receivable
portfolio, positioning it well for future growth. Bankcard revenue of $113,200
in 1998 represented a 145 percent increase over 1997. Excluding the impact of
net receivable gains of $33,571 in 1998 and $11,328 in 1997, revenue increased
128 percent in 1998 compared to 1997, driven by the growth in the portfolio and
pricing changes implemented in late 1997. Operating income in 1998 benefited
from market- and risk-based pricing strategies, enhanced credit scoring
initiatives, tightened expense controls, as well as the growth in the portfolio
and receivable gains.

INTEREST EXPENSE
The Company continued to benefit from lower average debt levels, a reflection of
stronger operating results and improved utilization of working capital. Interest
expense declined in 1999 to $66,711 from $67,733 in 1998 and $68,098 in 1997.
Average debt was $784,962, $853,749, and $877,698 in 1999, 1998 and 1997,
respectively.

INCOME TAXES
The effective tax rate in 1999 was 37.8 percent compared to 34.8 percent in 1998
and 33.2 percent in 1997. State tax rates have been affected by changes in
earnings mix among the Company's various divisions. The Company assesses its
effective tax rate on a continual basis.

LIQUIDITY AND CAPITAL RESOURCES

The Company has historically met its operating and cash requirements through
funds generated from operations, the securitization of customer accounts
receivable and the issuance of debt and common stock. Total customer receivables
sold were $1,639,981 at January 1, 2000 and $1,420,730 at January 2, 1999.

Net cash used in operating activities totaled $149,193 for the year ended
January 1, 2000 compared to net cash provided by operating activities of
$168,704 for the year ended January 2, 1999. The increase in cash used in
operations over the prior year was driven by significant increases in
receivables. Cash utilized to fund receivable growth, net of cash provided by
the related securitization activities, totaled $411,660 in 1999 compared to
$64,558 of net cash provided in the prior year. Improved sales performance
coupled with higher credit penetration drove growth in the FCNB Preferred credit
portfolio. The bankcard portfolio increased due to growth in existing credit
programs. Excluding receivables, net cash provided by operating activities
increased $158,321 over the prior year period. This improvement was driven by
significantly better operating results, including the utilization of the net
operating loss carryforward recorded in 1998. Also contributing to the
improvement were increases in accrued liabilities, primarily associated with
earnings-related incentive programs, and additional payables resulting from the
issuance of jumbo certificates of deposit to third-party investors by FCNB, the
Company's special-purpose bank.

Net additions to property and equipment were $38,484 and $28,610 in 1999 and
1998, respectively. Eddie Bauer retail store expansion and remodeling comprised
more than half of the capital spending in 1999 and a majority of the spending in
1998. The remainder of the 1999 capital spending was primarily related to
information technology upgrades and distribution facility improvements.

                                       14

<PAGE>

The Company maintains restricted cash accounts as necessary, representing
reserve funds used as credit enhancement for specific classes of investor
certificates issued in certain asset-backed securitization transactions. These
restricted cash accounts are included in other assets in the Company's
consolidated balance sheets. In 1998, restricted cash of $49,400 was released to
the Company when the related asset-backed securitizations matured. The remaining
balance of restricted cash was $10,192 at January 1, 2000.

As of January 1, 2000, total debt was $781,036 compared to $608,750 as of
January 2, 1999. The Company realized increases in total debt in 1999, driven by
funding requirements to support customer receivable growth. As debt reduction
remains a primary objective, the Company will continue to utilize asset-backed
securitization of receivables as a financing resource to manage debt and help
fund the growth of its credit businesses.

In 1998, the Company issued 13,526,571 shares of Class B voting common stock to
its majority shareholder, Spiegel Holdings, Inc. The net proceeds of $69,993
received were used primarily to fund working capital and investing needs.

In March 1994 and December 1995, Newport News issued shares of non-voting
redeemable preferred stock to certain directors and executive officers of the
Company, its subsidiaries and Otto Versand. All outstanding shares were redeemed
in 1998 for $12,236. The excess of the redemption price over the carrying value
of the preferred stock reduced 1998 net earnings by $8,535 and the related basic
and diluted net earnings per common share by $0.06.

The Company believes that its cash on hand, together with cash flows anticipated
to be generated from operations, borrowings under its existing credit
facilities, securitization of customer receivables and other available sources
of funds, will be adequate to fund the Company's capital and operating
requirements for the foreseeable future.

MARKET RISK
The Company is exposed to market risk from changes in interest rates and, to a
lesser extent, foreign currency exchange rate fluctuations. In seeking to
minimize risk, the Company manages exposure through its regular operating and
financing activities and, when deemed appropriate, through the use of derivative
financial instruments. The Company does not use financial instruments for
trading or other speculative purposes and is not party to any leveraged
financial instruments.

INTEREST RATES
The Company manages interest rate exposure through a mix of fixed- and
variable-rate financings. The Company is generally able to meet certain targeted
objectives through its direct borrowings, a significant portion of which are
fixed-rate obligations. Accordingly, the interest rate risk to the Company is
minimal. Substantially all of the Company's variable-rate exposure relates to
changes in the one-month LIBOR rate. If the one-month LIBOR rate had changed by
50 basis points, the Company's 1999 interest expense would have changed by
approximately $1,514. In addition, derivative financial instruments are utilized
occasionally to reach the Company's targeted objectives. Interest rate swaps may
be used to minimize interest rate exposure when appropriate based on market
conditions. The use of interest rate swaps is minimal, and as of January 1,
2000, the notional amount totaled $64,286.

In conjunction with its asset-backed securitizations, the Company recognizes
gains representing the present value of estimated future cash flows the Company
expects to receive over the estimated outstanding securitization period. Certain
estimates inherent in determining the present value of these estimated future
cash flows are influenced by factors outside the Company's control, including
the impact of interest rate fluctuations on variable-rate instruments. As a
result, estimates could materially change in the near term and affect the
carrying value of these receivables from the trust.

The Company believes that its interest rate exposure management policies,
including the use of derivative financial instruments, are adequate to limit any
material market risk exposure to its consolidated financial statements at
January 1, 2000.

                                       15

<PAGE>

FOREIGN CURRENCY EXCHANGE RATES
The Company is subject to foreign currency exchange risk related to its Canadian
operations, as well as its joint venture investments in Germany and Japan. The
Company is party to certain transactions with the above joint ventures that are
denominated in foreign currencies. The Company monitors the exchange rates
related to these currencies on a continual basis and will enter into forward
derivative contracts for foreign currency when deemed advantageous based on
current pricing and historical information. The Company believes that its
foreign exchange risk and the effect of this hedging activity are not material
due to the size and nature of the above operations.

YEAR 2000

The Company completed remediation and testing in advance of December 31, 1999
and entered the new year well prepared for the Year 2000 date change. The
initial rollover period was successful with only incidental problems
encountered, none of which had a material impact on business operations. No
internal business interruption was experienced and initial communication with
critical vendors indicates that there will be little, if any, disruption in the
flow of goods and services to the Company.

The direct costs associated with the Year 2000 initiative were approximately
$5,000, $3,800 and $1,200 in 1999, 1998 and 1997, respectively. The Company does
not expect to experience any material residual effects or costs related to the
Year 2000 compliance issue in the future.

ACCOUNTING STANDARDS

Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities," establishes accounting and
reporting standards for derivatives and for hedging activities. As issued, SFAS
No. 133 was effective for all quarters of all years beginning after June 15,
1999. In June 1999, SFAS No. 137 was issued, effectively deferring the date of
required adoption of SFAS No. 133 to quarters of all years beginning after June
15, 2000. The Company is studying the statement to determine its effect on the
consolidated financial position or results of operations, if any. The Company
will adopt SFAS No. 133, as required, in fiscal year 2001.

FORWARD-LOOKING STATEMENTS

This report contains statements that are forward-looking within the meaning of
applicable federal securities laws and are based upon the Company's current
expectations and assumptions, which are subject to a number of risks and
uncertainties that could cause actual results to differ materially from those
anticipated. Potential risks and uncertainties include, but are not limited
to, factors such as the financial strength and performance of the retail and
direct marketing industry, changes in consumer spending patterns, dependence
on the securitization of accounts receivable to fund operations, state and
federal laws and regulations related to offering and extending credit, risks
associated with collections on the Company's credit card portfolios, interest
rate fluctuations, postal rate increases, paper or printing costs, the
success of planned merchandising, advertising, marketing and promotional
campaigns, and other factors that may be described in the Company's other
filings with the Securities and Exchange Commission.

ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Information contained in Part II, Item 7. under the caption "Market Risk" on
pages 15-16 of this Form 10-K is incorporated herein by reference.

                                       16

<PAGE>


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
        CONSOLIDATED BALANCE SHEETS
($000s omitted, except per share amounts)

<TABLE>
<CAPTION>

                                                   January 1,       January 2,
                                                        2000             1999
                                                ------------     ------------
<S>                                              <C>               <C>
ASSETS
Current assets:
  Cash and cash equivalents                      $    46,023       $   91,200
  Receivables, net                                   971,566          544,146
  Inventories                                        499,413          490,915
  Prepaid expenses                                   101,915           93,390
  Refundable income taxes                              3,830            9,897
  Deferred income taxes                               41,397           25,946
                                                 ------------     ------------
    Total current assets                           1,664,144        1,255,494
Property and equipment, net                          333,852          359,361
Intangible assets, net                               148,143          153,146
Other assets                                          95,901           89,259
                                                 ------------     ------------
Total assets                                     $ 2,242,040      $ 1,857,260
                                                 ============     ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:

  Current maturities of debt                     $   214,464      $    85,714
  Accounts payable and accrued liabilities           644,455          577,537
                                                 ------------     ------------
    Total current liabilities                        858,919          663,251
Long-term debt, excluding current maturities         566,572          523,036
Deferred income taxes                                 91,409           33,706
                                                 ------------     ------------
    Total liabilities                              1,516,900        1,219,993
                                                 ------------     ------------
Stockholders' equity:

 Class A non-voting common stock, $1.00 par
   value; authorized 16,000,000 shares;
   14,849,244 shares issued and outstanding
   at January 1, 2000; 14,747,844 shares
   issued and outstanding at January 2, 1999          14,849           14,748
 Class B voting common stock, $1.00 par value;
   authorized 121,500,000 shares; 117,009,869
   shares issued and outstanding at
   January 1, 2000 and January 2, 1999               117,010          117,010
 Additional paid-in capital                          328,984          328,489
 Accumulated other comprehensive loss                 (2,608)          (4,555)
 Retained earnings                                   266,905          181,575
                                                 ------------     ------------
    Total stockholders' equity                       725,140          637,267
                                                 ------------     ------------
Total liabilities and stockholders' equity       $ 2,242,040      $ 1,857,260
                                                 ============     ============

</TABLE>

See accompanying notes to consolidated financial statements.

                                       17

<PAGE>

CONSOLIDATED STATEMENTS OF EARNINGS
Years ended ($000s omitted, except per share amounts)

<TABLE>
<CAPTION>

                                        January 1,      January 2,      January 3,
                                             2000            1999            1998
                                      ------------    ------------    ------------
<S>                                   <C>             <C>             <C>
NET SALES AND OTHER REVENUES

Net sales                             $ 2,916,455     $ 2,641,956     $ 2,835,297
Finance revenue                           245,999         251,233         178,293
Other revenue                              47,771          42,222          43,244
                                      ------------    ------------    ------------
                                        3,210,225       2,935,411       3,056,834

COST OF SALES AND OPERATING EXPENSES
Cost of sales, including buying
  and occupancy expenses                1,855,853       1,807,569       1,941,307
Selling, general and
  administrative expenses               1,150,534       1,041,999       1,096,835
                                      ------------    ------------    ------------
                                        3,006,387       2,849,568       3,038,142

Operating income                          203,838          85,843          18,692
Interest expense                           66,711          67,733          68,098
                                      ------------    ------------    ------------
Earnings (loss) before
    income taxes                          137,127          18,110         (49,406)
Income tax provision (benefit)             51,797           6,305         (16,385)
                                      ------------    ------------    ------------
Earnings (loss) before redemption
  of subsidiary preferred stock            85,330          11,805         (33,021)
Redemption of subsidiary
  preferred stock                               -           8,535               -
                                      ------------    ------------    ------------
Net earnings (loss)                   $    85,330     $     3,270     $   (33,021)
                                      ============    ============    ============
EARNINGS PER COMMON SHARE
 Net earnings (loss) per
   common share
     Basic and diluted                $      0.65     $      0.03     $     (0.28)
                                      ============    ============    ============

</TABLE>

See accompanying notes to consolidated financial statements.

                                       18

<PAGE>

CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended ($000s omitted)

<TABLE>
<CAPTION>

                                                January 1,      January 2,       January 3,
                                                      2000            1999             1998
                                              ------------     ------------     ------------
<S>                                           <C>              <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings (loss)                           $    85,330      $     3,270      $   (33,021)
Adjustments to reconcile net earnings to
  net cash provided by (used in)
  operating activities:
  Depreciation and amortization                    94,683           88,547           88,062
  Net gains on sale of receivables                (15,760)         (45,328)         (75,141)
Change in assets and liabilities, net
 of effects of acquisition:
    (Increase) decrease in receivables, net      (411,660)          64,558           17,007
    (Increase) decrease in inventories             (8,498)          17,841           (6,547)
    Increase in prepaid expenses                   (8,525)          (4,253)          (4,504)
    Increase (decrease) in accounts payable
      and accrued liabilities                      66,918           43,215          (38,028)
    Increase (decrease) in income taxes            48,319              854           (8,724)
                                              ------------     ------------     ------------
    Net cash provided by (used in)
     operating activities                        (149,193)         168,704          (60,896)
                                              ------------     ------------     ------------
CASH FLOWS FROM INVESTING ACTIVITIES

Net additions to property and equipment           (38,484)         (28,610)         (55,047)
Net (additions to) reductions in other assets     (32,329)          43,027          (23,655)
                                              ------------     ------------     ------------
  Net cash provided by (used in)
   investing activities                           (70,813)          14,417          (78,702)
                                              ------------     ------------     ------------
CASH FLOWS FROM FINANCING ACTIVITIES

Issuance of debt                                  258,000           25,000          105,000
Payment of debt                                   (85,714)        (232,900)         (74,298)
Issuance of Class A common shares                     596              466              228
Issuance of Class B common shares                       -           69,993           69,972
                                              ------------     ------------     ------------
Net cash provided by (used in)
  financing activities                            172,882         (137,441)         100,902
                                              ------------     ------------     ------------
Effect of exchange rate changes on cash             1,947           (2,062)            (639)
                                              ------------     ------------     ------------
  Net change in cash and cash equivalents         (45,177)          43,618          (39,335)
Cash and cash equivalents at
  beginning of year                                91,200           47,582           86,917
Cash and cash equivalents at                  ------------     ------------     ------------
  at end of year                              $    46,023      $    91,200      $    47,582
                                              ============     ============     ============
SUPPLEMENTAL CASH FLOW INFORMATION
 Cash paid during the year for:
    Interest                                  $    68,414      $    68,973      $    69,806
                                              ------------     ------------     ------------
    Income taxes                              $     4,764      $     5,631      $    16,262
                                              ------------     ------------     ------------

</TABLE>

See accompanying notes to consolidated financial statements.

                                       19

<PAGE>

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
($000s omitted, except per share amounts)

<TABLE>
<CAPTION>

                                                                                                Accumulated
                                           Class A        Class B    Additional                       other
                                        non-voting         voting       paid-in     Retained  comprehensive
                              Total   common stock   common stock       capital     earnings           loss
                           --------    -----------   -----------     ----------    ---------    -----------
<S>                        <C>         <C>           <C>             <C>           <C>           <C>
BALANCES AT
  DECEMBER 28, 1996        $519,695    $    14,618   $    93,142     $  211,828    $ 211,326     $  (11,219)
Comprehensive income
 Net loss                   (33,021)             -             -              -      (33,021)             -
 Foreign currency
  translation                  (639)             -             -              -            -           (639)
 Adjustment to minimum
  pension liability
  (net of taxes
   of $6,243)                 9,365              -             -              -            -          9,365
                           --------
Total comprehensive income  (24,295)
Issuance of 42,060
  Class A common shares         228             42             -            186            -              -
Issuance of 10,341,644
  Class B common shares      69,972              -        10,341         59,631            -              -
                           --------    -----------   -----------     ----------    ---------    -----------
BALANCES AT
  JANUARY 3, 1998           565,600         14,660       103,483        271,645      178,305         (2,493)
Comprehensive income
 Net income                   3,270              -             -              -        3,270              -
 Foreign currency
  translation                (2,062)             -             -              -            -         (2,062)
                           --------
Total comprehensive income    1,208
Issuance of 87,380
  Class A common shares         466             88             -            378            -              -
Issuance of 13,526,571
  Class B common shares      69,993              -        13,527         56,466            -              -
                           --------    -----------   -----------     ----------    ---------    -----------
BALANCES AT
  JANUARY 2, 1999           637,267         14,748       117,010        328,489      181,575         (4,555)
Comprehensive income
 Net income                  85,330              -             -              -       85,330              -
 Foreign currency
  translation                 1,947              -             -              -            -          1,947
                           --------
Total comprehensive income   87,277
Issuance of 101,400
  Class A common shares         596            101             -            495            -              -
                           --------    -----------   -----------     ----------    ---------    -----------
BALANCES AT
  JANUARY 1, 2000          $725,140    $    14,849   $   117,010     $  328,984    $ 266,905    $   (2,608)
                           ========    ===========   ===========     ==========    =========    ==========

</TABLE>

See accompanying notes to consolidated financial statements.

                                       20


<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000s omitted, except per share amounts)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NATURE OF OPERATIONS
Spiegel, Inc. and its subsidiaries are referred to throughout this report as
"The Spiegel Group," "the Group" or "the Company." The Spiegel Group is a
leading international specialty retailer marketing fashionable apparel and home
furnishings through catalogs, five e-commerce sites and more than 560 specialty
retail and outlet stores. The Company operates a special-purpose bank that
offers private-label FCNB Preferred charge programs to customers of its merchant
divisions and markets various bankcard credit programs nationwide.

USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts in the financial statements and accompanying notes.
Actual results could differ from those estimates.

PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Spiegel, Inc. and
its wholly owned subsidiaries. All significant intercompany transactions and
accounts have been eliminated in consolidation. The Company's joint venture
investments in Germany, Japan and the United Kingdom with affiliated companies
of Otto Versand, a related party, are accounted for using the equity method as
they are less than 50 percent owned. The operating results of these entities are
not material to the Company. In 1999, a $5,000 charge was recorded representing
the Company's proportionate share of the costs estimated to discontinue the
United Kingdom joint venture.

FISCAL YEAR
The Company's fiscal year ends on the Saturday closest to December 31. Fiscal
years 1999 and 1998 each consisted of 52 weeks and ended on January 1, 2000 and
January 2, 1999, respectively. Fiscal year 1997 consisted of 53 weeks and ended
on January 3, 1998.

REVENUE RECOGNITION
The Company records revenue at the point of sale for retail stores and at the
time of shipment for catalog and e-commerce sales. The Company provides for
returns at the time of sale based upon projected merchandise returns. Finance
revenue on customer installment accounts receivables owned is recorded as income
when earned. The Company recognizes gains on the sale of customer receivables.
These gains are recorded as finance revenue in the Consolidated Statements of
Earnings.

CASH AND CASH EQUIVALENTS
Cash equivalents represent short-term, highly liquid investments with original
maturities of three months or less.

MARKETABLE SECURITIES
Marketable securities consist of the retained certificates issued by a trust in
conjunction with the securitization of the Company's customer receivables. These
debt securities, classified as trading and stated at fair market value, are
included in the Company's balance sheet under "Receivables, net."

INVENTORIES
Inventories, principally merchandise available for sale, are stated at the lower
of cost or market. Cost is determined primarily by the average cost method or by
the first-in, first-out method.

                                       21

<PAGE>

ADVERTISING COSTS
Costs incurred for the production and distribution of direct response catalogs
are capitalized and amortized over the expected lives of the catalogs, which are
less than one year. Unamortized costs as of January 1, 2000 and January 2, 1999
were $40,615 and $41,273, respectively, and are included in prepaid expenses.
All other advertising costs for catalog, e-commerce and retail operations are
expensed as incurred. Total advertising expense, including the above mentioned
catalog costs, was $417,100, $389,130, and $454,240 in 1999, 1998 and 1997,
respectively.

STORE PRE-OPENING COSTS
Pre-opening costs for new stores are charged to operations as incurred.

PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation of property and equipment is computed using the
straight-line method over the estimated useful lives of the assets. Depreciable
lives range from 5 to 40 years for buildings and improvements and 3 to 10 years
for furniture and equipment. Leasehold improvements are amortized over the
lesser of the term of the lease or asset life.

LONG-LIVED ASSETS
The Company reviews long-lived assets for impairment whenever events or changes
in circumstances indicate that the carrying amount of such assets may not be
recoverable. An impairment loss is recognized when estimated future cash flows
expected to result from use of the assets are less than the carrying amount.
Impairment losses resulting from these reviews have not been significant.

INTANGIBLE ASSETS
Intangible assets represent principally trademarks and the excess of cost over
the fair market value of net assets of businesses purchased. On an annual basis,
the Company amortizes these intangibles on a straight-line basis in relation to
the anticipated benefits to be derived from the businesses acquired, not to
exceed 40 years. Total accumulated amortization of these intangibles was $78,966
and $71,647 at January 1, 2000 and January 2, 1999, respectively. Management
periodically considers whether there has been a permanent impairment in the
value of goodwill and trademarks by evaluating various factors, including
current and projected future operating results and cash flows. The Company does
not believe there has been any material impairment in the carrying value of its
goodwill and trademarks.

FOREIGN CURRENCY TRANSLATION
The financial statements of the Company's Canadian subsidiary and international
joint ventures are translated into U.S. dollars using the exchange rate in
effect at the end of the fiscal year for assets and liabilities and the exchange
rates in effect at month-end for results of operations. The related unrealized
gains or losses resulting from translation are reflected as a component of
accumulated other comprehensive income in stockholders' equity. Foreign currency
transaction gains and losses are included in the consolidated statements of
earnings as incurred.

DERIVATIVE FINANCIAL INSTRUMENTS
The Company selectively uses non-leveraged, off-balance-sheet derivative
instruments primarily to manage its market- and interest-rate risk, and does not
hold derivative positions for trading purposes. Current derivative positions
consist of non-leveraged, off-balance-sheet interest rate swaps that are
accounted for by recording the net interest paid as interest expense on a
current basis. The Company also uses foreign currency forward contracts to
manage exchange rate risk related to specific transactions with its
international joint venture operations. The change in fair value of these
short-term forward contracts is recognized in income when the related foreign
currency transaction occurs and is not considered significant.

                                       22

<PAGE>

FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial assets and liabilities are recorded in the consolidated balance sheets
at historical cost, which approximates fair value. The methods and assumptions
used to estimate the fair value of receivables including amounts related to
securitizations are discussed in Note 2. The fair value of long-term debt and
related derivative financial instruments is discussed in Note 5.

SYSTEMS DEVELOPMENT COSTS
Significant systems development costs are capitalized and amortized on a
straight-line basis over a three-year period. Costs, net of amortization,
included in other assets as of January 1, 2000 and January 2, 1999 were $29,201
and $26,721, respectively. Related amortization expense recognized in 1999, 1998
and 1997 was $12,856, $11,223 and $16,038, respectively. Costs associated with
the Company's Year 2000 remediation efforts were expensed as incurred.

CREDIT CARD FEES AND DEFERRED EXPENSES
Annual credit card fees and credit card origination expenses are deferred, on a
net basis, and amortized on a straight-line basis over one year.

EMPLOYEE PENSION PLANS
Company policy is to, at a minimum, fund the pension plans to meet the
requirements of the Employee Retirement Income Security Act of 1974 (ERISA).

STOCK-BASED COMPENSATION
The Company has elected to continue to account for stock-based compensation
using the intrinsic value method as discussed in Note 6.

INCOME TAXES
Deferred tax assets and liabilities are determined based on differences between
financial reporting and tax bases of assets and liabilities and are measured
using the enacted tax rates and laws that will be in effect when the differences
are expected to reverse. The Company is included in the consolidated federal
income tax return of Spiegel, Inc.'s majority shareholder, Spiegel Holdings,
Inc. (SHI). Pursuant to a tax reimbursement agreement with SHI, the Company
records provisions for income tax expense as if it were a separate taxpayer.

EARNINGS PER COMMON SHARE
Basic earnings per common share (EPS) is computed by dividing net earnings by
the weighted average number of both classes of common shares outstanding during
the year. Diluted EPS assumes the exercise of employee stock options when there
is income from continuing operations and the average market price of the common
shares exceeds the options' exercise price. The dilutive effect of the potential
exercise of options, if any, is reflected in diluted EPS using the treasury
stock method.

The computation of diluted EPS excludes options to purchase 350,570, 1,151,575
and 1,227,010 shares of common stock that were outstanding at year-end 1999,
1998 and 1997, respectively, because the options' exercise prices were greater
than the average market price of the common shares. Additionally, when income
from continuing operations is a loss, inclusion of options in the computation of
diluted EPS will result in an antidilutive per share amount. Therefore, 166,690
potentially dilutive options were not included in the computation of diluted EPS
in 1997.

RECLASSIFICATIONS
Certain prior year amounts have been reclassified from amounts previously
reported to conform with the 1999 presentation.

                                       23

<PAGE>

2. RECEIVABLES

Receivables consist primarily of FCNB Preferred charge receivables generated in
connection with the sale of the Company's merchandise as well as receivable
balances generated from the bankcard credit programs offered by the Company's
special-purpose bank. At January 1, 2000, customer receivables serviced were
$2,381,154, of which 70 percent related to the Company's FCNB Preferred charge
programs. The Company's customer base is diverse in terms of both geographic and
demographic coverage. Due to the revolving nature of the credit card portfolio,
management believes that the current carrying value of credit card receivables
approximates fair value. The average interest rate collected on the receivables
approximates the current market rates on new accounts. The allowance for credit
card losses is based upon management's evaluation of the collectability of
credit card receivables after giving consideration to current delinquency data,
historical loss experience and general economic conditions. This allowance is
continually reviewed by management.

Receivables consist of the following:

<TABLE>
<CAPTION>

                                                          1999             1998
                                                   ------------     ------------
<S>                                                <C>              <C>
Composition of Customer Receivable Portfolio:
  Receivables serviced                             $ 2,381,154      $ 1,787,890
  Receivables sold                                  (1,639,981)      (1,420,730)
                                                   ------------     ------------
Receivables owned                                      741,173          367,160
                                                   ------------     ------------
Composition of Receivables Owned:
Retained certificates                                  323,337          239,828
Receivables with no certificates issued                417,836          127,332
                                                   ------------     ------------
Receivables owned                                      741,173          367,160

Receivables from trust                                 156,229          140,469
Receivables owned, at fair market value            ------------     ------------
  before allowances                                    897,402          507,629
Less allowance for returns on FCNB Preferred
  charge sales                                         (28,496)         (22,246)
Less allowance for doubtful accounts                   (23,738)          (8,857)
Other trade receivables, net                           126,398           67,620
                                                   ------------     ------------
Receivables, net                                   $   971,566      $   544,146
                                                   ============     ============

</TABLE>

The Company routinely transfers portions of its customer receivables to trusts
that, in turn, sell certificates representing undivided interests in the trusts
to investors. The receivables are sold without recourse, and accordingly, no bad
debt reserve related to the receivables sold is maintained. In addition to the
certificates sold, an additional class of investor certificates, currently
retained by the Company, was issued by the trust in certain transactions.

The Company recognizes gains on its securitization of customer receivables. Net
gains of $15,760 and $45,328 were recorded as finance revenue in 1999 and 1998,
respectively, representing the present value of estimated future cash flows the
Company will receive over the estimated outstanding period of the asset
securitization. These future cash flows consist of an estimate of the excess of
finance charges and fees over the sum of the return paid to certificate holders,
contractual servicing fees, and credit losses along with the future finance
charges and principal collections related to interests in the customer
receivables retained by the Company. These estimates are calculated utilizing
the current performance trends of the receivable portfolios. Certain estimates
inherent in determining the present value of these estimated future cash flows
are influenced by factors outside the Company's control, and, as a result, could
materially change in the near term.

                                       24

<PAGE>

The Company also maintains restricted cash accounts as necessary representing
reserve funds used as credit enhancement for specific classes of investor
certificates issued in certain asset-backed securitization transactions. The
value of these funds is included in the Company's balance sheet under "other
assets" and totaled $10,192 at January 1, 2000 and January 2, 1999.

3. PROPERTY AND EQUIPMENT

Property and equipment consist of the following:

<TABLE>
<CAPTION>

                                                            1999              1998
                                                       ----------        ----------
<S>                                                    <C>               <C>
Land                                                   $  19,450         $  19,450
Buildings and improvements                               146,819           145,589
Equipment                                                256,988           249,935
Leasehold improvements                                   170,751           179,836
                                                       ----------        ----------
                                                         594,008           594,810
Less accumulated depreciation and amortization          (282,781)         (247,627)
                                                       ----------        ----------
                                                         311,227           347,183
Construction in process                                   22,625            12,178
                                                       ----------        ----------
Property and equipment, net                            $ 333,852         $ 359,361
                                                       ==========        ==========

</TABLE>

4. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

Accounts payable and accrued liabilities consist of the following:

<TABLE>
<CAPTION>

                                                            1999              1998
                                                       ----------        ----------
<S>                                                    <C>               <C>
Trade payables                                         $ 225,859         $ 218,427
Deposits                                                  79,475            57,982
Gift certificates and
  other customer credits                                  49,183            41,436
Salaries, wages and employee benefits                     91,377            57,740
General taxes                                             87,413           103,890
Allowance for future returns                              34,525            33,222
Other liabilities                                         76,623            64,840
                                                       ----------        ----------
Total accounts payable and accrued liabilities         $ 644,455         $ 577,537
                                                       ==========        ==========

</TABLE>

                                       25

<PAGE>

5. DEBT

The following is a summary of the Company's debt:

<TABLE>
<CAPTION>

                                                           1999                1998
                                                      ----------         -----------
<S>                                                  <C>                 <C>
Notes payable:
  Revolving credit agreement                         $  258,000          $        -
  Term loan agreements, 6.59% to 9.70%,
   due March 17, 2000 through March 31, 2005            334,286             420,000
Subordinated notes, 7.54% to 9.12%,
  due June 30, 2000                                     128,750             128,750
Secured notes, 7.25% to 7.35%,
  due November 15, 2001 through
  November 15, 2005                                      60,000              60,000
                                                      ----------         -----------
  Total debt                                            781,036             608,750
Less current maturities of debt                        (214,464)            (85,714)
                                                     -----------         -----------
Total debt, excluding current maturities             $  566,572          $  523,036
                                                     ===========         ===========

</TABLE>

The Company has a $500,000 revolving credit agreement with a group of banks that
expires on July 27, 2003. Fees are variable and are based on the total
commitment. Borrowings under this commitment averaged $224,300 with a maximum of
$409,700 during 1999. The effective annual interest rate was 6.61 percent in
1999, excluding the previously mentioned commitment fees.

Interest rate swap contracts are used selectively to hedge the underlying
interest risks on various term loans. At January 1, 2000, these interest rate
swap agreements had effective and termination dates from March 1995 to March
2005. The notional principal amounts of these agreements totaled $64,286 and
$70,000 at the end of 1999 and 1998, respectively. At January 1, 2000 and
January 2, 1999, the fair value of these swap agreements was $1,414 and $6,232,
respectively. These values were obtained from financial institutions and
represent the estimated amount the Company would pay to terminate the
agreements, taking into consideration current interest rates and risks of the
transactions. The counterparties are expected to fully perform under the terms
of the agreements, thereby mitigating the risk from these transactions. These
interest rate swaps in total increased interest expense by $1,194, $1,264 and
$1,291 in 1999, 1998 and 1997, respectively.

Additionally, the Company has letter of credit facilities to support the
purchase of inventories. Letter of credit commitments outstanding were $84,064
and $87,307 at January 1, 2000 and January 2, 1999, respectively. At January 1,
2000, there was an additional $115,936 of commitments available for the issuance
of letters of credit. The Company also had an available undrawn standby letter
of credit facility at January 1, 2000, totaling approximately $7,100 to support
a leasing arrangement.

The fair value of the Company's long-term debt, based upon the discounting of
future cash flows using the Company's borrowing rate for loans of comparable
maturity, approximates the carrying value of such debt at January 1, 2000.

Aggregate maturities of long-term debt are as follows:

<TABLE>
<CAPTION>

Fiscal Year                                  Amount
-----------                               ----------
<S>                                       <C>
2000                                      $ 214,464
2001                                        107,714
2002                                         65,214
2003                                        328,214
2004                                         47,714
and thereafter                               17,716
                                          ----------
Total debt                                $ 781,036
                                          ==========

</TABLE>

                                       26

<PAGE>

6. EMPLOYEE BENEFIT PLANS

STOCK OPTION PLAN
The Spiegel, Inc. Salaried Employee Incentive Stock Option Plan, established in
1998 to replace an expiring plan, provides for the issuance of options to
purchase up to 1,000,000 shares of Class A non-voting common stock to certain
salaried employees. Under the plan, participants are granted options to purchase
shares of the specified stock at the fair market value at the date of grant. The
options are exercisable at the rate of 20 percent per year. At January 1, 2000,
options outstanding under the current plan and the expired plan were 389,500 and
501,580, respectively. The Company also has a non-qualified stock option plan in
place for certain former employees. Options are transferred from the qualified
plan to the non-qualified plan 90 days after the date of separation. Options
outstanding under the non-qualified plan were 315,000 at January 1, 2000. The
following presentations of total options outstanding include all aforementioned
stock option plans.

A summary of the changes in the options outstanding is as follows:

<TABLE>
<CAPTION>

                                                                       Average
                                              Shares       Amount        Price
                                            ----------   ----------   ----------
<S>                                         <C>          <C>          <C>
Outstanding at December 28, 1996            1,516,320    $  13,072    $    8.62
  Granted                                     134,500          659         4.90
  Exercised                                   (42,060)        (228)        5.41
  Canceled                                   (225,060)      (2,076)        9.22
                                            ----------   ----------   ----------
Outstanding at January 3, 1998              1,383,700       11,427         8.26
  Granted                                     174,000        1,044         6.00
  Exercised                                   (87,380)        (466)        5.33
  Canceled                                   (266,860)      (2,264)        8.48
                                            ----------   ----------   ----------
Outstanding at January 2, 1999              1,203,460        9,741         8.09
  Granted                                     223,000        1,539         6.90
  Exercised                                  (101,400)        (596)        5.87
  Canceled                                   (118,980)      (1,121)        9.42
                                            ----------   ----------   ----------
OUTSTANDING AT JANUARY 1, 2000              1,206,080    $   9,563    $    7.93
                                            ==========   ==========   ==========

</TABLE>

Total stock options authorized but unissued at January 1, 2000 were 610,500.

The following table summarizes information about options outstanding and
exercisable at January 1, 2000:

<TABLE>
<CAPTION>

                             Options Outstanding                        Options Exercisable
                 -----------------------------------------------  ------------------------------
Range of                      Weighted-average
Exercise              Number         Remaining  Weighted-average       Number  Weighted-average
  Prices         Outstanding  Contractual Life    Exercise Price  Exercisable    Exercise Price
---------------- ------------ ----------------  ----------------  ------------ -----------------
<S>               <C>            <C>                <C>              <C>            <C>
$ 4.00 to $ 7.99    834,080      7.1 years          $ 6.46           360,380        $ 6.54
$ 8.00 to $11.99    326,000      2.5 years          $ 9.66           306,000        $ 9.64
$12.00 to $23.00     46,000      2.2 years          $22.25            46,000        $22.25
                  ---------                                          -------
                  1,206,080      5.7 years          $ 7.93           712,380        $ 8.89
                  =========                                          =======

</TABLE>

                                       27

<PAGE>

The Company follows the disclosure provisions of SFAS No. 123. Accordingly, no
compensation expense has been recognized for the stock option activity. If
compensation expense had been determined based on the estimated fair value of
the options at the grant date as prescribed by SFAS No. 123, the proforma effect
on the Company's net income would have been a reduction of $372, $274 and $223
in 1999, 1998 and 1997, respectively. The fair value of each option granted is
estimated on the date of grant using the Black-Scholes option-pricing model. The
resulting compensation expense was amortized over the vesting period.

The option grant fair values and assumptions used to determine such values are
as follows:

<TABLE>
<CAPTION>

Options granted during                      1999       1998       1997
---------------------------                ------     ------     ------
<S>                                       <C>        <C>        <C>
Weighted-average fair value
  at grant date                           $ 3.66     $ 2.46     $ 2.18
Assumptions:
  Risk free interest rate                   6.42%      4.50%      5.75%
  Expected dividend yield                   1.58%      3.60%      1.85%
  Expected volatility                      63.14%     60.26%     53.15%
  Expected term (in years)                   5.0        5.0        5.0

</TABLE>

RETIREMENT PLANS
The Company's retirement plans consist of noncontributory defined benefit
pension plans and contributory defined benefit health care and life insurance
plans. The Company also sponsors a noncontributory supplemental retirement
program for certain executives and other defined contribution plans, including
401(K) plans, a profit sharing plan and thrift plans. In 1998, the Company
recognized additional costs associated with the curtailment of retirement plans,
including special termination benefits, due to the consolidation of certain
operations. The cost of these programs and the balances of plan assets and
obligations are shown below:

<TABLE>
<CAPTION>

                                        Pension Benefits             Other Benefits
                                           1999      1998            1999      1998
                                        --------  --------        --------  --------
<S>                                     <C>       <C>             <C>       <C>
ASSETS AND OBLIGATIONS
Change in benefit obligation:
  Beginning of year                     $59,038   $57,663         $ 9,909   $ 9,472
    Service cost                            253       358             422       438
    Interest cost                         3,946     3,998             689       644
    Actuarial (gain)loss                   (466)      918            (616)      975
    Benefits paid                        (7,586)   (5,933)           (656)     (714)
    Curtailment                               -     1,780               -         -
    Special termination benefits              -       254               -         -
    Plan amendments                         612         -               -      (906)
                                        --------  --------        --------  --------
  End of year                            55,797    59,038           9,748     9,909
                                        --------  --------        --------  --------
Fair value of plan assets:
  Beginning of year                      61,430    61,668               -         -
    Actual return on plan assets          7,508     3,097               -         -
    Employer contributions                    -     2,598             656       714
    Benefits paid                        (7,586)   (5,933)           (656)     (714)
                                        --------  --------        --------  --------
  End of year                            61,352    61,430               -         -
                                        --------  --------        --------  --------
Net amount recognized:
Funded Status                             5,555     2,392          (9,748)   (9,909)
Unrecognized net actuarial loss           6,354     9,527           2,118     2,884
Unrecognized transition obligation
  and prior service cost                  1,036       637          (1,131)   (1,219)
                                        --------  --------        --------  --------
Prepaid (accrued) benefit cost          $12,945   $12,556         $(8,761)  $(8,244)
                                        ========  ========        ========  ========

</TABLE>

                                       28

<PAGE>

<TABLE>
<CAPTION>

                                          1999         1998        1997
                                       --------     --------    --------
<S>                                    <C>          <C>         <C>
EXPENSE
Pension:
Service cost                           $   253      $   358     $   397
Interest cost                            3,946        3,998       4,580
Expected return on plan assets          (5,289)      (5,379)     (4,032)
Amortization of transition obligation      212          212         528
Recognized net actuarial loss              489          204       1,024
Amortization of prior service cost           -            -           -
Loss due to curtailment                      -        1,957           -
                                       --------     --------    --------
Total pension cost                        (389)       1,350       2,497
                                       --------     --------    --------
Health care and life insurance:
Service cost                               422          439         393
Interest cost                              689          644         727
Recognized net actuarial loss              150           72         112
Amortization of prior service cost         (88)         (18)        (18)
Loss due to curtailment                      -            -          23
                                       --------     --------    --------
Total health care and life insurance     1,173        1,137       1,237
                                       --------     --------    --------

Defined contribution plans              25,950       15,325      14,740
                                       --------     --------    --------
Total retirement plan expense          $26,734      $17,812     $18,474
                                       ========     ========    ========

ACTUARIAL ASSUMPTIONS
Expected return on plan assets               9%           9%          9%
Health care trend rate                       7            8           9
Discount rate                             7.75            7        7.25

</TABLE>

For measurement purposes, a 7 percent annual rate of increase in the per capita
cost of covered health care benefits (i.e., health care cost trend rate) was
assumed for 1999. The rate was assumed to decrease to 6 percent in the year 2000
and remain at that level thereafter. Assumed health care cost trend rates have a
significant effect on the amounts reported for the health care plans. A
one-percentage-point increase in assumed health care cost trend rates would
increase the accumulated postretirement benefit obligation and related expense
by $500 and $93, respectively. A one-percentage-point decrease in assumed health
care cost trend rates would decrease the accumulated postretirement benefit
obligation and related expense by $482 and $84, respectively.

                                       29

<PAGE>

7. COMMITMENTS AND CONTINGENCIES

LITIGATION
The Company is routinely involved in a number of legal proceedings and claims
that cover a wide range of matters. In the opinion of management, the outcome of
these matters is not expected to have any material adverse effect on the
consolidated financial position or results of operations of the Company.

LEASE COMMITMENTS
The Company leases office facilities, distribution centers, retail store space
and data processing equipment. Lease terms are generally 10 years and many
contain renewal options. Many of the retail store leases provide for minimum
annual rentals plus additional rentals based upon percentages of sales, which
range from 3 to 5 percent. The Company also sublets certain leased office space
to unrelated third parties. Rent expense consisted of the following:

<TABLE>
<CAPTION>

                                            1999        1998        1997
                                        ---------   ---------   ---------
<S>                                     <C>         <C>         <C>
Minimum rentals                         $147,869    $139,798    $135,264
Percentage rentals                         1,079       1,836       2,340
Less sublease income                      (3,680)       (569)          -
                                        ---------   ---------   ---------
Net rental expense                      $145,268    $141,065    $137,604
                                        =========   =========   =========

</TABLE>

Future minimum rental payments required under operating leases that have initial
or remaining noncancelable lease terms in excess of one year as of January 1,
2000 are as follows:

<TABLE>
<CAPTION>

Fiscal Year                                  Amount
-----------                               ----------
<S>                                       <C>
2000                                      $ 134,753
2001                                        114,390
2002                                        100,694
2003                                         95,406
2004                                         86,636
and thereafter                              309,409
                                          ----------
Total minimum lease payments                841,288
Less minimum sublease income                (42,691)
                                          ----------
Net minimum lease payments                $ 798,597
                                          ==========

</TABLE>

                                       30

<PAGE>

8. INCOME TAXES

Earnings (loss) before income taxes is composed of the following:

<TABLE>
<CAPTION>

                       1999           1998           1997
                   ---------     ----------     ----------
<S>                <C>            <C>           <C>
Domestic           $137,201       $ 19,247      $ (57,510)
Foreign                 (74)        (1,137)         8,104
                   ---------     ----------     ----------
Total              $137,127       $ 18,110      $ (49,406)
                   =========     ==========     ==========

</TABLE>

The components of income tax expense (benefit) are as follows:

<TABLE>
<CAPTION>

                      1999           1998            1997
                  ---------      ---------      ----------
<S>               <C>            <C>             <C>
Current:
  Federal         $  7,028       $  4,247        $ (5,975)
  State              2,277         (1,536)           (896)
  Foreign              240         (1,092)          3,894
                  ---------      ---------       ---------
Total Current        9,545          1,619          (2,977)
                  ---------      ---------       ---------
Deferred:

  Federal           38,867          7,275         (10,548)
  State              3,620         (3,197)         (2,633)
  Foreign             (235)           608            (227)
                  ---------      ---------       ---------
Total Deferred      42,252          4,686         (13,408)
                  ---------      ---------       ---------
                  $ 51,797       $  6,305        $(16,385)
                  =========      =========       =========

</TABLE>


The differences between the provision (benefit) for income taxes at the
statutory rate and the amounts shown in the consolidated statements of earnings
are as follows:

<TABLE>
<CAPTION>

                                      1999                1998                 1997
                                Amount  Percent     Amount  Percent      Amount  Percent

                              --------- --------  --------- --------  --------- ---------
<S>                           <C>          <C>    <C>          <C>    <C>         <C>
Statutory rate                $ 47,994     35.0%  $  6,339     35.0%  $(17,292)   (35.0)%
State income tax (net of
  federal income tax benefit)    3,475      2.5         91      0.5       (241)    (0.5)
Amortization of non-
  deductible goodwill
  and other items                1,179      0.9      1,031      5.7      1,548      3.1
Changes in estimates of
  previously provided taxes          -        -       (756)    (4.2)         -        -
Tax Credits                       (851)    (0.6)      (400)    (2.2)      (400)    (0.8)
                              --------- --------  --------- --------  --------- --------
Effective tax rate            $ 51,797     37.8%  $  6,305     34.8%  $(16,385)   (33.2)%
                              ========= ========  ========= ========  ========= =========

</TABLE>

                                       31

<PAGE>

Significant components of the Company's deferred tax assets and liabilities are
as follows:

<TABLE>
<CAPTION>

                                                  1999           1998
                                              ---------      ---------
<S>                                           <C>            <C>
Deferred tax assets:
  Allowance for doubtful accounts             $ 10,270       $  5,283
  Allowance for the gross profit
    on estimated future returns                 12,681         10,759
  Facilities reserve                             4,196          2,265
  Compensated absences accruals                  4,197          4,382
  Reserve for self insurance                     1,423          1,145
  Reserve for inventory losses                  10,156         10,013
  Postretirement benefit obligation              3,537          3,412
  Capitalized overhead in inventory              3,610          1,249
  Net operating loss carryforward                    -         58,821
  Other                                          6,307          3,453
                                              ---------      ---------
                                                56,377        100,782
                                              ---------      ---------
Deferred tax liabilities:
  Property and equipment                        32,435         40,841
  Prepaid and deferred expenses                  6,861          5,948
  Gains on sale of accounts receivable          57,320         51,801
  Earned but unbilled finance charges            4,647          6,196
  Deferred rent obligation                       5,126          3,756
                                              ---------      ---------
                                               106,389        108,542

                                              ---------      ---------
Net deferred tax liabilities                  $ 50,012       $  7,760
                                              =========      =========

</TABLE>

Management believes that realization of the deferred tax assets through future
taxable earnings or alternative tax strategies is more likely than not.

9. STOCKHOLDERS' EQUITY

The Company discontinued payment of all cash dividends in 1995. Certain
restrictions on dividend payments exist under the Company's debt covenants based
on financial results. The Company will evaluate its dividend policy on an
ongoing basis.

In 1998 and 1997, the Company issued 13,526,571 and 10,341,644 shares of Class B
voting common stock, respectively, to its majority shareholder, Spiegel
Holdings, Inc. The net proceeds of $69,993 and $69,972 received in 1998 and
1997, respectively, were used primarily to fund working capital and investing
needs.

10. SUBSIDIARY PREFERRED STOCK

In March 1994 and December 1995, Newport News issued shares of non-voting
redeemable preferred stock to certain directors and executive officers of the
Company, its subsidiaries and Otto Versand. All outstanding shares were redeemed
in April 1998 for $12,236. The excess of the redemption price over the carrying
value of the preferred stock reduced net earnings by $8,535 and the related
basic and diluted net earnings per common share by $0.06.

                                       32

<PAGE>

11. SEGMENT REPORTING

Management reviews results of operations before the impact of interest and
income taxes. The Company segregates its operations for this review based on
products and services offered and includes a merchandising segment and a
bankcard segment. Substantially all of the Company's operations are in the
United States, with a small Eddie Bauer retail operation in Canada.

The accounting policies of the segments are the same as those described in the
summary of significant accounting policies. All intersegment transactions are
accounted for as if with a third party. All expenses for support functions are
allocated to each segment based on an equitable division of costs.

The merchandising segment is an aggregation of Eddie Bauer, Spiegel and Newport
News. These divisions offer apparel, home furnishings and other merchandise
through catalogs, e-commerce sites and retail stores. The merchandising segment
also includes the results of the FCNB Preferred charge programs, which provide
private-label credit services to customers of the merchant divisions.

The bankcard segment represents the bankcard operations of First Consumers
National Bank (FCNB), the Company's special-purpose bank.

                                       33

<PAGE>

BUSINESS SEGMENT COMPARISONS

<TABLE>
<CAPTION>

                                                1999             1998             1997
                                         ------------    -------------    -------------
<S>                                      <C>              <C>             <C>
Revenue:
  Merchandising                          $ 3,129,352      $ 2,822,211     $  3,010,571
  Bankcard                                    80,873          113,200           46,263
                                         ------------    -------------    -------------
Total revenue                            $ 3,210,225      $ 2,935,411     $  3,056,834
                                         ------------    -------------    -------------
Operating income:
  Merchandising                          $   189,960      $    21,601     $      2,314
  Bankcard                                    21,242           70,344           22,685
                                         ------------    -------------    -------------
Total segment operating income               211,202           91,945           24,999
Premium on acquisitions                       (7,364)          (6,102)          (6,307)
                                         ------------    -------------    -------------
Total operating income                       203,838           85,843           18,692
Interest expense                              66,711           67,733           68,098
                                         ------------    -------------    -------------
Earnings before income taxes             $   137,127      $    18,110     $    (49,406)
                                         ============    =============    =============

Assets:
  Merchandising                          $ 1,769,333      $ 1,527,024     $  1,637,761
  Bankcard                                   317,166          167,331          142,786
  Premium on acquisitions                    155,541          162,905          169,007
                                         ------------    -------------    -------------
Total assets                             $ 2,242,040      $ 1,857,260     $  1,949,554
                                         ============    =============    =============
Depreciation and amortization:
  Merchandising                          $    85,429      $    80,896     $     80,110
  Bankcard                                     1,890            1,549            1,645
  Premium on acquisitions                      7,364            6,102            6,307
                                         ------------    -------------    -------------
Total depreciation and amortization      $    94,683      $    88,547     $     88,062
                                         ============    =============    =============
Net additions to property and equipment:
  Merchandising                          $    33,789      $    28,414     $     54,662
  Bankcard                                     4,695              196              385
                                         ------------    -------------    -------------
Total net additions to property
  and equipment                          $    38,484      $    28,610     $     55,047
                                         ============    =============    =============

</TABLE>

Segment assets, revenue and operating results reflect the impact of the
securitization of customer receivables. Non-cash net gains on the sale of FCNB
Preferred charge customer receivables of $18,918 and $11,757 were included in
the merchandising segment in 1999 and 1998, respectively. In 1999, the bankcard
segment included a $3,158 non-cash net reduction of gains on the sale of
bankcard receivables. In 1998, the bankcard segment included non-cash net gains
on the sale of bankcard receivables of $33,571.

                                       34

<PAGE>

STATEMENT OF MANAGEMENT RESPONSIBILITY

We have prepared the accompanying consolidated financial statements and related
information for the fiscal years 1999, 1998 and 1997. The opinion of the
Company's independent auditors, KPMG LLP, on those financial statements follows.
The primary responsibility for the integrity and objectivity of the financial
information included in this annual report rests with management. Such
information was prepared in accordance with generally accepted accounting
principles appropriate in the circumstances, based on our best estimates and
judgments and giving due consideration to materiality.

The Company maintains an internal control structure that is adequate to provide
reasonable assurance that assets are safeguarded from loss or unauthorized use,
and that produces records adequate for preparation of financial information.
There are limits inherent in all systems of internal control structures based on
the recognition that the cost of such a structure should not exceed the benefits
to be derived. In addition, the Company maintains an internal audit department
to review the adequacy, application and compliance of the internal control
structure.

KPMG LLP, independent auditors, has been engaged to audit the consolidated
financial statements and to render an opinion as to their conformity with
generally accepted accounting principles. They conducted their audit in
accordance with generally accepted auditing standards. Those standards require
that they plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. KPMG LLP is
a member of the SEC Practice Section of the American Institute of Certified
Public Accountants.

The Board of Directors pursues its responsibility for these financial statements
through its audit committee, composed of directors who are not employees of
Spiegel or its subsidiaries, which meets periodically with both management and
the independent auditors to ensure that each is carrying out its
responsibilities. KPMG LLP and the internal audit department have free access to
the audit committee, with and without the presence of management.

                                       35

<PAGE>

REPORT OF INDEPENDENT AUDITORS

THE STOCKHOLDERS AND BOARD OF DIRECTORS OF SPIEGEL, INC.:

We have audited the accompanying consolidated balance sheets of Spiegel, Inc.
and subsidiaries as of January 1, 2000 and January 2, 1999, and the related
consolidated statements of earnings, stockholders' equity and cash flows for
each of the years in the three-year period ended January 1, 2000. 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 financial position of Spiegel, Inc. and
subsidiaries as of January 1, 2000 and January 2, 1999, and the results of their
operations and their cash flows for each of the years in the three-year period
ended January 1, 2000 in conformity with generally accepted accounting
principles.




/s/ KPMG LLP

Chicago, Illinois
February 9, 2000

                                       36

<PAGE>

SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
($000s omitted, except per share amounts)

<TABLE>
<CAPTION>

1999                           First          Second           Third          Fourth     Total Year
---------------------    ------------    ------------    ------------    ------------   ------------
<S>                     <C>             <C>             <C>             <C>            <C>
Net sales and
 other revenues         $    625,177    $    751,953    $    706,630    $  1,126,465   $  3,210,225
Operating income (loss)       (2,728)         43,027          24,701         138,838        203,838
Net earnings (loss)          (10,012)         16,480           4,193          74,669         85,330
Net earnings (loss)
 per common share
   Basic and diluted    $      (0.08)   $       0.13    $       0.03    $       0.57   $       0.65
Weighted average
  common shares
  outstanding            131,788,511     131,801,423     131,805,972     131,856,825    131,813,183

MARKET PRICE DATA
  High                  $         10    $      9 1/4    $    10 9/16    $     15 1/8   $    15 1/8
  Low                   $      5 3/8    $          5    $      7 3/4    $          6   $         5



1998                           First          Second           Third          Fourth     Total Year
---------------------    ------------    ------------    ------------    ------------   ------------
Net sales and
 other revenues         $    590,553    $    684,046    $    643,968    $  1,016,844   $  2,935,411
Operating income (loss)      (23,763)         11,244           9,938          88,424         85,843
Net earnings (loss)(1)       (23,133)        (10,909)         (4,216)         41,528          3,270
Net earnings (loss)
 per common share (1)
   Basic and diluted    $      (0.19)   $      (0.08)   $      (0.03)   $       0.32   $       0.03
Weighted average
 common shares
 outstanding             119,484,137     131,712,229     131,713,833     131,715,391    128,656,398

MARKET PRICE DATA
 High                   $     6         $    7 15/16     $     7 1/4     $    10 7/8   $     10 7/8
 Low                    $     3 9/16    $     4 9/16     $     3 3/8     $     2 3/8   $      2 3/8


</TABLE>

(1) In 1998, second quarter and total year net earnings includes a charge of
    $8,535, or $0.06 per share, for the redemption of subsidiary preferred
    stock.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE

None.

                                       37

<PAGE>

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

DIRECTORS

The following persons are the directors of the Company.

<TABLE>
<CAPTION>

                                                                                                                                Year
                                                                                                                          Elected as
Name                                             Age      Offices with Registrant or Other (4)                              Director
----------------------                           ---      ------------------------------------------                      ----------
<S>                                              <C>      <C>                                                                   <C>
Dr. Michael Otto (1)                             56       Chairman of the Board of Directors                                    1982
                                                          and Chairman of the Board of Directors
                                                          of Otto Versand (GmbH & Co)

Thomas Bohlmann                                  54       Board of Directors and Director, Planning                             1989
                                                          and Control of Otto Versand (GmbH & Co)(1989)

Dr. Michael E. Crusemann (2)(3)                  54       Board of Directors and Director, Finance                              1994
                                                          of Otto Versand (GmbH & Co) and Chief
                                                          Financial Officer of Otto Versand Group
                                                          (1994)

Richard T. Fersch (4)                            50       President and Chief Executive Officer,                                1996
                                                          Eddie Bauer

Hans Jorg Hammer                                 60       Retired.  Prior to October 1999 was a                                 1991
                                                          member of the Board of Directors and Director,
                                                          Personnel of Otto Versand (GmbH & Co)

Horst R. Hansen (2)                              65       Retired.  Prior to March 1994 was a member                            1982
                                                          of the Board of Directors and Director,
                                                          Finance of Otto Versand (GmbH & Co) and Chief
                                                          Financial Officer of Otto Versand Group

John W. Irvin (4)                                52       President and Chief Executive Officer,                                1996
                                                          Spiegel

George D. Ittner (4)                             56       President and Chief Executive Officer,                                1998
                                                          Newport News

Siegfried Kockmann                               60       Board of Directors and Director,                                      1997
                                                          Organizational and Systems Planning of
                                                          Otto Versand (GmbH & Co)(1982)

Michael R. Moran (1)(3)(4)                       53       Chairman of the Office of the President and                           1997
                                                          Chief Legal Officer

Dr. Peter Muller (2)                             58       Retired.  Prior to January 1998 was a                                 1985
                                                          member of the Board of Directors and
                                                          Director, Advertising and Marketing of
                                                          Otto Versand (GmbH & Co)

</TABLE>

                                       38

<PAGE>

<TABLE>

<S>                                              <C>      <C>                                                                   <C>
Gert Rietz                                       53       Board of Directors and Director, Merchandise                          1997
                                                          of Otto Versand (GmbH & Co)(1989)

James W. Sievers (3)(4)                          57       Office of the President, Chief Financial                              1997
                                                          Officer

Dr. Peer Witten                                  54       Board of Directors and Director,                                      1991
                                                          Operations of Otto Versand (GmbH & Co) (1984)

Martin Zaepfel (1)                               56       Deputy Chairman of the Board of Directors                             1996
                                                          of Otto Versand (GmbH & Co) and Director,
                                                          Marketing and Advertising of Otto Versand
                                                          (GmbH & Co)(1998); Board of Directors and
                                                          Director, Merchandise of Otto Versand
                                                          (GmbH & Co)(1988)

</TABLE>

(1) Member of Board Committee (Executive Committee)
(2) Member of Audit Committee
(3) Member of Finance Committee
(4) The business experience during the last five years of directors who are
    executive officers of the Company is detailed along with the listing of
    executive officers that follows.

The terms of all the above-named directors expire on the date of the next annual
meeting of the stockholders which is to be held in April, 2000.

Dr. Michael Otto was a member of the Board of Directors and Director,
Merchandise of Otto Versand for ten years prior to March 1, 1981.

There is no family relationship between any of the directors.

                                       39

<PAGE>

EXECUTIVE OFFICERS

The following persons are the executive officers and certain significant
employees of the Company:

<TABLE>
<CAPTION>

                                                                    Positions and Offices Held
                                                          (all positions and offices are of the Company
Name                                             Age                unless otherwise indicated)
----------------------                           ---      ----------------------------------------------
<S>                                              <C>      <C>
EXECUTIVE OFFICERS OF SPIEGEL, INC.:

Michael R. Moran                                 53       Chairman (1998) of the Office of the President
                                                          (1997) and Chief Legal Officer (1997); Senior Vice
                                                          President, Secretary & General Counsel (1996);
                                                          Vice President, Secretary & General Counsel (1988);
                                                          and Director (1997)

James W. Sievers                                 57       Office of the President (1997) and Chief Financial
                                                          Officer (1994); Senior Vice President, Finance
                                                          (1995); and Director (1997)

Richard T. Fersch                                50       President (1992) and Chief Executive Officer
                                                          (1997), Eddie Bauer; and Director (1994)

John W. Irvin                                    52       President (1996) and Chief Executive Officer
                                                          (1997), Spiegel Catalog; Senior Vice President,
                                                          General Merchandise Manager of Mervyn's (a division
                                                          of Dayton Hudson Corporation) (1992);
                                                          and Director (1996)

George D. Ittner                                 56       President (1992) and Chief Executive Officer
                                                          (1997), Newport News; and Director (1998)

Jon K. Nordeen                                   44       Senior Vice President (2000) and Chief Information
                                                          Officer (1996); Director of Application Development
                                                          of Dayton Hudson Corporation (1995)

John R. Steele                                   47       Vice President (1995) and Treasurer (1993)


CERTAIN SIGNIFICANT EMPLOYEES:

Gregory R. Aube                                  47       President (1995) and Chief Executive Officer (1999)
                                                          of FCNB

Richard M. Lauer                                 45       President and Chief Executive Officer of DFS
                                                          (1999); Senior Vice President of DFS (1999); Vice
                                                          President, Operations of DFS (1998); Vice
                                                          President, Engineering and Systems Services of DFS
                                                          (1996); and Director, Information Services of DFS
                                                          (1995)

</TABLE>

The terms of all the above-named officers expire on the date of the next annual
meeting of the Board of Directors which is to be held in April, 2000.

There is no family relationship between any of the officers.

                                       40

<PAGE>

ITEM 11.  EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE

The following table sets forth all compensation paid or accrued by the Company
for the years ended January 1, 2000, January 2, 1999 and January 3, 1998 to or
on behalf of each of the five most highly compensated key policy-making
executive officers of the Company.

<TABLE>
<CAPTION>

                                   Annual Compensation          Stock
Name and                      ----------------------------     Options     LTIP
Principal                      Salary    Bonus     Other (2)   Granted   Payout (1)
Position                Year     ($)      ($)        ($)         (#)        ($)
-------------------    ------ -------- ----------  ---------  ----------  ----------
<S>                     <C>   <C>      <C>         <C>          <C>        <C>
Michael R. Moran        1999  $400,006 $  466,650  $260,923     20,000     $      -
Chairman of the Office  1998   318,462    267,436    90,717     15,000      242,300
of the President and    1997   260,000    150,000    86,695     10,000            -
Chief Legal Officer
and Director

James W. Sievers        1999  $364,000 $  429,150  $253,609     20,000     $      -
Office of the           1998   343,077    224,077    72,686     15,000      243,700
President, Chief        1997   310,000    150,000    89,879     10,000            -
Financial Officer
and Director

Richard T. Fersch       1999  $796,156 $1,114,185  $387,280     20,000     $      -
President and Chief     1998   750,000          -   105,265     15,000            -
Executive Officer of    1997   650,000    243,700   102,951     10,000            -
Eddie Bauer and
Director

John W. Irvin           1999  $523,088 $  590,650  $327,981     20,000     $      -
President and Chief     1998   500,000    300,000    94,956     15,000      331,000
Executive Officer of    1997   475,000    213,750    92,662     10,000            -
Spiegel and Director

George D. Ittner        1999  $423,346 $  428,313  $ 55,007     20,000     $      -
President and Chief     1998   400,000    377,610    27,108     15,000      368,932
Executive Officer of    1997   374,736    175,000    57,906     25,000            -
Newport News and
Director

</TABLE>


(1)      Certain executives of the Company earned long-term incentive bonuses in
         1998. This long-term incentive plan covered the operating and financial
         performance of the individual divisions for 1997 and 1998, with the
         payout formula heavily weighted to the 1998 performance.

(2)      The following tables summarize all other compensation for the years
         ended January 1, 2000, January 2, 1999 and January 3, 1998:

                                       41

<PAGE>

<TABLE>
<CAPTION>

                           Retirement
         Name               Benefits        Other             Total
     -------------------- ------------ ---------------  --------------
<S>  <C>                   <C>          <C>               <C>
1999 Michael R. Moran      $ 208,745    $   52,178        $ 260,923
     James W. Sievers        199,244        54,365          253,609
     Richard T. Fersch       333,322        53,958          387,280
     John W. Irvin           249,966        78,015          327,981
     George D. Ittner         43,013        11,994           55,007


1998 Michael R. Moran      $   27,069   $   63,648        $  90,717
     James W. Sievers          29,162       43,524           72,686
     Richard T. Fersch         63,750       41,515          105,265
     John W. Irvin             42,500       52,456           94,956
     George D. Ittner           3,200       23,908           27,108


1997 Michael R. Moran      $   22,600    $  64,095        $  86,695
     James W. Sievers          27,100       62,779           89,879
     Richard T. Fersch         57,700       45,251          102,951
     John W. Irvin             41,950       50,712           92,662
     George D. Ittner           5,476       52,430           57,906

</TABLE>

                                       42

<PAGE>

OPTION GRANTS TABLE

The following table sets forth grants of stock options to the named executive
officers during the year ended January 1, 2000 and the potential realizable
value of the grants assuming that the market price of the underlying stock
appreciates in value from the date of grant to the end of the option term at the
stipulated annual rates of 5% and 10%:

<TABLE>
<CAPTION>

                    Number
                      of                                            Potential Realizable
                  Securities   Percent of                             Value at Assumed
                    Under-   Total Options                         Annual Rates of Stock
                    lying     Granted to    Exercise                 Price Appreciation
                    Options    Employees     Price    Expiration         for Option
Name                Granted    in 1999       ($/sh)      Date        5% ($)     10% ($)
------------------ --------- -------------  -------- -----------   --------   ---------
<S>                  <C>          <C>         <C>      <C>          <C>        <C>
Michael R. Moran     20,000       9.0%        6.90     12/31/09     86,787     219,936

James W. Sievers     20,000       9.0%        6.90     12/31/09     86,787     219,936

Richard T. Fersch    20,000       9.0%        6.90     12/31/09     86,787     219,936

John W. Irvin        20,000       9.0%        6.90     12/31/09     86,787     219,936

George D. Ittner     20,000       9.0%        6.90     12/31/09     86,787     219,936

</TABLE>

The stock options granted become exercisable at the rate of 20 percent per year
from the date of the grant.

AGGREGATED OPTION EXERCISES IN 1999 AND JANUARY 1, 2000 OPTION VALUES

The following table sets forth shares acquired on exercise and stock option
values at January 1, 2000:

<TABLE>
<CAPTION>

                                                         Number of Securities                     Value of Unexercised
                                                        Underlying Unexercised                    In-the-Money Options
                            Shares                           Options at                                   at
                           Acquired                        January 1, 2000                         January 1, 2000
                              On          Value        Exercise-       Unexercise-              Exercise-     Unexercise-
      Name                 Exercise      Realized        able             able                     able          able
---------------------      --------   -----------      ---------        ----------             -----------    ----------
<S>                        <C>        <C>              <C>               <C>                       <C>           <C>
Michael R. Moran           8,000      $ 7,575          38,000            41,500                    $11,732       $27,836

James W. Sievers           8,000      $14,700          38,000            42,000                    $10,357       $27,852

Richard T. Fersch              -            -          80,400            52,000                    $16,359       $28,102

John W. Irvin                  -            -          43,000            62,000                    $11,619       $27,789

George D. Ittner               -            -          25,000            50,000                    $24,532       $47,002

</TABLE>

COMPENSATION OF DIRECTORS

The Company pays an annual fee of $10,000 to its independent directors and
reimburses any reasonable out-of-pocket expenses incurred by all directors in
attending meetings.

                                       43

<PAGE>

EMPLOYMENT AGREEMENTS

The Company has an employment agreement with Richard T. Fersch, President and
Chief Executive Officer of Eddie Bauer, the term of which extends through
December 31, 2002. The annual base salary under this agreement is $1,000,000 per
year. The agreement also entitles Mr. Fersch to receive an annual bonus based
upon the financial performance of Eddie Bauer. The bonus opportunity for the
remaining three years of the agreement is 100 percent of base salary. During all
three remaining years of this agreement, Mr. Fersch is guaranteed 50 percent of
the eligible bonus opportunity.

The Company has an employment agreement with John W. Irvin, President and Chief
Executive Officer of Spiegel, the term of which extends through December 31,
2001. The current annual base salary under this agreement is $550,000. The
agreement entitles Mr. Irvin to receive an annual bonus based on the financial
performance of Spiegel.

The Company has an employment agreement with George D. Ittner, President and
Chief Executive Officer of Newport News, the term of which extends through
August 31, 2000. The current annual base salary under this agreement is
$450,000. The agreement entitles Mr. Ittner to receive an annual bonus based on
the financial performance of Newport News.

The Company has an employment agreement with Michael R. Moran, Chairman of the
Office of the President and Chief Legal Officer, the term of which extends
through December 31, 2001. The current annual base salary under this agreement
is $425,000. The agreement entitles Mr. Moran to receive an annual bonus based
on the combined financial performance of The Spiegel Group divisions.

The Company has an employment agreement with James W. Sievers, Office of the
President and Chief Financial Officer, the term of which extends through
December 31, 2001. The current annual base salary under this agreement is
$400,000. The agreement entitles Mr. Sievers to receive an annual bonus based on
the combined financial performance of The Spiegel Group divisions.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The Board Committee, which determines executive officer compensation, consists
of Dr. Michael Otto, Martin Zaepfel, and Michael Moran. Mr. Moran also serves as
the Chairman of the Office of the President of the Company.

EMPLOYEE BENEFITS

               STOCK OPTION PLAN

               The Spiegel, Inc. Salaried Employee Incentive Stock Option Plan
               is administered by a Stock Option Committee consisting of three
               members of the Company's Board of Directors who are not salaried
               employees of the Company or its participating subsidiaries and
               who are appointed to the Committee periodically. Certain salaried
               employees of the Company are eligible to participate in the plan.
               Options are granted to those eligible employees as determined by
               the Stock Option Committee. The Stock Option Committee also has
               authority to determine the number of shares and terms consistent
               with the plan with respect to each option. Options granted under
               the plan relate to the Class A non-voting common stock of the
               Company. The maximum number of shares which may be issued under
               the current plan is 1,000,000. The participants' options become
               exercisable at the rate of 20 percent per year. The options
               expire ten years after the date of grant of options. The option
               price upon exercise of the option is the fair market value of the
               shares on the date of grant of the option. Options granted under
               the plan are not transferable or assignable other than by will or
               by the laws of descent and distribution. Stock options
               outstanding under the above plan were 389,500 at January 1, 2000.

                                       44

<PAGE>

               In addition to the stock option plan discussed above, 501,580
               shares were outstanding at January 1, 2000 under a plan that
               expired in 1998. These options were issued under the same terms
               as the plan currently in place. The Company also has a
               non-qualified stock option plan in place for certain former
               employees. Options are granted under this non-qualified plan at
               the discretion of the Board of Directors. Options outstanding
               under the non-qualified plan were 315,000 at January 1, 2000.

               The average per share price of stock options granted during the
               year was $6.90. Net cash realized with respect to the exercise of
               options during the year was approximately $596,000.

               SPIEGEL GROUP VALUE IN PARTNERSHIP PROFIT SHARING AND 401(K)
               SAVINGS PLAN

               The Company maintains two consolidated Profit Sharing and 401(k)
               Savings Plans for employees of Spiegel (Catalog and corporate),
               Eddie Bauer, FCNB, and Distribution Fulfillment Services ("DFS").
               Participation commences on the beginning of a quarter following
               one year of continuous service. The Company and participating
               subsidiaries contribute annually to the accounts of eligible
               participants a percentage of considered compensation based on the
               Spiegel, Inc. consolidated earnings before income taxes plus any
               other amounts determined by the Company's Board of Directors. A
               minimum contribution of 4 percent of eligible considered
               compensation will be made, but in no event will the total
               contribution exceed the maximum amount deductible for Federal
               income tax purposes. Company contributions and forfeitures are
               allocated among eligible participants in proportion to considered
               compensation.

               Employees may also contribute up to 10 percent of their base
               compensation to the 401(k) plan through payroll deductions.
               Employee contributions are made on a pretax basis under Section
               401(k) of the Internal Revenue Code. The Company matches salaried
               employee contributions dollar for dollar up to the first 3
               percent of base compensation and 50 cents for each dollar
               contributed up to the next 3 percent. The Company matches hourly
               employee contributions 25 cents for each dollar contributed up to
               6 percent of base compensation. The Company's matching
               contributions, however, may not exceed the amount deductible
               under the Internal Revenue Code. A participant can make
               nondeductible after-tax contributions to the plan of up to 5
               percent of their considered compensation, subject to special
               limitations imposed by the Internal Revenue Code thereon.

               All contributions and investments are held in a trust for the
               benefit of plan participants. All employees who participate in
               the plan are 100 percent vested in their contributions and
               earnings thereon but become vested in the Company's matching
               contribution and earnings thereon at a rate based on years of
               service, with full vesting after a maximum of seven years.
               Participants are permitted to borrow from their account, but may
               have only one outstanding loan at a time. Repayment is made
               through payroll deductions. Participants who suffer a financial
               hardship as defined by the Internal Revenue Code and who are not
               eligible for a loan may withdraw amounts from the plan while
               still employed. In addition, participants may annually receive a
               distribution of their after-tax contributions. All participants
               may request a distribution of the full value of their accounts
               under the plan upon retirement after age 62 or permanent
               disability and the vested portion of their accounts on other
               termination of employment. The full value of a deceased
               participant's account is distributable to his beneficiaries.
               Distributions are made in a lump sum.

                                       45

<PAGE>

               NEWPORT NEWS, INC. RETIREMENT SAVINGS PLAN

               Newport News has a retirement savings plan covering its
               associates. Associates become eligible to participate immediately
               upon starting employment. Associates may elect to contribute up
               to 10 percent of their compensation to the plan on a pre-tax
               basis under Section 401(k) of the Internal Revenue Code. The
               associate also may elect to make nondeductible after-tax
               contributions to the plan of up to 5 percent of their
               compensation. The company matches contributions at a rate of 50
               percent of the first 4 percent of compensation contributed. The
               company matching contributions, however, may not exceed the
               amount deductible under the Internal Revenue Code.

               All contributions and investments are held in a trust for the
               benefit of plan participants. All employees who participate in
               the plan are 100 percent vested in their contributions and
               earnings thereon but become vested in the Company's matching
               contribution and earnings thereon at a rate based on years of
               service, with full vesting after a maximum of seven years.
               Participants are permitted to borrow from their account, but may
               have only one outstanding loan at a time. Repayment is made
               through payroll deductions. Participants who suffer a financial
               hardship as defined by the Internal Revenue Code and who are not
               eligible for a loan may withdraw amounts from the plan while
               still employed. In addition, participants may annually receive a
               distribution of their after-tax contributions. All participants
               may request a distribution of the full value of their accounts
               under the plan upon retirement after age 62 or permanent
               disability and the vested portion of their accounts on other
               termination of employment. The full value of a deceased
               participant's account is distributable to his beneficiaries.
               Distributions are made in a lump sum.

               SPIEGEL, INC., SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN

               The Company maintains an unfunded supplemental retirement plan
               for the benefit of certain employees covered by the retirement
               plans described above (the "profit sharing and thrift plans")
               whose benefits under the profit sharing and thrift plans are
               reduced by application of Sections 401(a)(17) and 402(g)of the
               Internal Revenue Code. If a participant's annual additions under
               the profit sharing and thrift plans are reduced by reason of
               special limitations of the Internal Revenue Code, the Company
               will make an annual contribution to a grantor trust in the amount
               of the reduction. Supplemental benefits under the supplemental
               retirement plan are payable in cash at the same time and in the
               same manner as the participant's employer account under the
               profit sharing and thrift plans except no payments are made prior
               to death, disability or reaching retirement age.

               SPLIT DOLLAR LIFE INSURANCE PROGRAM

               The Company maintains a split dollar life insurance program
               covering certain executives of the Company. A covered employee
               may apply for an individual life insurance policy on his life in
               a face amount equal to three times his base salary. The employee
               pays a portion of the annual premium approximately equal to the
               after tax cost of an equivalent amount of term life insurance.
               The balance of the premium due (if any) is paid by the Company.
               The Company owns a part of the cash value equal to its payments
               and is beneficiary for that amount. The employee names his own
               beneficiary and collaterally assigns the policy to the Company to
               the extent of the Company's payments. Cash value and dividends
               accumulate tax-free and all amounts in excess of the Company's
               payments belong to the employee. On the death of the employee,
               any amounts due to the Company are paid with the balance of the
               proceeds distributed as directed by the employee.

                                       46

<PAGE>

               EXECUTIVE BONUS AND INCENTIVE PLANS

               The Company maintains various annual bonus plans for certain of
               its executives, designed to reward performance. The Company's
               annual payment of bonuses is based upon the attainment of
               pre-determined annual operating and financial performance
               objectives. In addition, the Company periodically offers a
               long-term incentive bonus plan. Payment of long-term incentive
               bonuses is based on the attainment of pre-determined operating
               and financial performance objectives that span more than one
               year. Expense related to the above bonus plans approximated $38
               million in 1999.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

a.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS

Spiegel Holdings, Inc. (SHI) holds 99.9 percent of the Company's Class B voting
common stock. The following table sets forth certain information with respect to
the number of shares of Class B voting common stock owned by SHI, which is the
only stockholder beneficially owning more than 5 percent of the Class B voting
common stock. SHI is a holding company whose principal asset is stock of the
Company. The total number of holders of the Company's Class B voting common
stock as of March 17, 2000, was two.

<TABLE>
<CAPTION>

                                                                             Percentage of
                                                                              outstanding
                                    Number of            Title of             Class B voting
Name and Address                    shares(1)            class                common stock
-------------------------      --------------            --------            ---------------
<S>                            <C>                       <C>                    <C>
Spiegel Holdings, Inc.(2)      116,957,089               Class B                99.9%
The Corporation                                          voting
  Trust Center                                           common
1209 Orange Street                                       stock
Wilmington, DE 19801

</TABLE>


(1)      The shares are owned of record and beneficially, with sole investment
         and voting power. However, see note (2) below.

(2)      In excess of 50 percent of the common stock of SHI is beneficially
         owned by Dr. Michael Otto, who controls the manner in which SHI votes
         its Class B voting common stock of the Company in all matters,
         including the election of directors. Dr. Otto is a director of the
         Company. No officers or other directors of the Company are Class B
         stockholders of record or beneficial stockholders thereof.

b. SECURITY OWNERSHIP OF MANAGEMENT

As of March 17, 2000, certain members of the Company's Board of Directors, and
the directors and officers of the Company as a group, owned shares of the
Company's Class A non-voting common stock as indicated in the following table:

                                       47

<PAGE>

<TABLE>
<CAPTION>

                                     Amount and
                Name of              Nature of
 Title        Beneficial             Beneficial       Acquirable        Percent
of Class        Owner                Ownership (1)  Within 60 Days      of Class
--------   --------------------      -------------  --------------   ------------
                                         (I)              (II)           (III)
<S>                                     <C>             <C>                <C>
Class A    Gregory A. Aube               6,254           4,600             *

Class A    Richard T. Fersch            84,000          80,400             *

Class A    John W. Irvin                73,000          53,000             *

Class A    George D. Ittner             27,400          25,000             *

Class A    Richard M. Lauer                300             300             *

Class A    Michael R. Moran             58,000          38,000             *

Class A    Dr. Peter Muller             10,000               -             *

Class A    Jon K. Nordeen                1,200           1,200             *

Class A    Gert Rietz                   29,500               -             *

Class A    James W. Sievers (2)         46,000          38,000             *

Class A    John R. Steele                2,550           2,300             *

Class A    All directors and           338,204         242,800           2.2%
           officers as a group
           (19 persons)

</TABLE>

(1) As shown in Column II, in the case of Company officers, portions of the
shares indicated as beneficially owned are actually shares attributable to
unexercised and unexpired options for Class A non-voting common stock granted by
the Company to such officers, which are exercisable as of, or first become
exercisable within 60 days after, March 17, 2000.

(2) Section 16(a) Beneficial Ownership Reporting Compliance:
As required by the Securities Exchange Act of 1934, as amended, the Company
notes that Mr. James Sievers reported on a Form 4 filed late one transaction
involving the purchase of Class A non-voting common stock in an open market
transaction in January 1999.

* Less than 1%.

                                       48

<PAGE>

ITEM 13.  CERTAIN TRANSACTIONS

Otto Versand (GmbH & Co) ("Otto Versand"), a privately-held German partnership,
acquired the Company in 1982. In April 1984, Otto Versand transfered its
interest in the Company to its partners and designees. Otto Versand and the
Company have entered into certain agreements seeking to benefit both parties by
providing for the sharing of expertise. The following is a summary of such
agreements and certain other transactions:

The Company utilizes the services of Otto Versand International (GmbH) as a
buying agent for the Company in Hong Kong, Taiwan, Korea, India, Italy,
Indonesia, Singapore, Thailand and Turkey. Otto Versand International (GmbH) is
a wholly owned subsidiary of Otto Versand. Buying agents locate suppliers,
inspect goods to maintain quality control, arrange for appropriate documentation
and, in general, expedite the process of procuring merchandise in these areas.
Under the terms of its arrangements, the Company paid $4,994,000, $4,035,000 and
$4,050,000 in 1999, 1998 and 1997, respectively. The arrangements are indefinite
in term but may generally be canceled by either party upon one year written
notice.

The Company has an agreement with Together, Ltd., a United Kingdom company,
which gives the Company the exclusive right to market "Together!" merchandise by
catalog and in retail stores. Otto Versand owns Together, Ltd. Commission
expenses incurred on this account were $2,949,000, $2,697,000 and $3,171,000 in
1999, 1998 and 1997, respectively. These expenses include certain production
services, the cost of which would normally be borne by the Company, including
design of the product, color separation, catalog copy and layout, identification
of suggested manufacturing sources and test marketing information.

In 1993, the Company formed a joint venture with Otto-Sumisho, Inc. (a joint
venture company of Otto Versand and Sumitomo Corporation) and entered into
license agreements to sell Eddie Bauer products through retail stores and
catalogs in Japan. The Company believes that the terms of the arrangement are no
less favorable to Eddie Bauer than would be the case in an arrangement with an
unrelated third party. There were 35 stores open in Japan as of January 1, 2000.
To date, Eddie Bauer has contributed $9,290,436 to the project and in 1994,
received a $2,500,000 licensing fee for the use of its name. Eddie Bauer
received $5,007,000, $4,547,000 and $4,272,000 in royalty income on retail and
catalog sales during 1999, 1998 and 1997, respectively. Eddie Bauer income of
$553,000 in 1999, income of $275,000 in 1998 and a loss of $31,000 in 1997 for
its equity share of the joint venture.

During 1995, Eddie Bauer formed a joint venture with Heinrich Heine GmbH and
Sport-Scheck GmbH (both subsidiaries of Otto Versand) and entered into license
agreements to sell Eddie Bauer products through retail stores and catalogs in
Germany. The Company believes that the terms of the arrangement are no less
favorable to Eddie Bauer than would be the case in an arrangement with an
unrelated third party. There were nine stores open in Germany as of January 1,
2000. Eddie Bauer has contributed $9,923,467 to the project and has received
$1,000,000 in licensing fees for the use of its name. Eddie Bauer received
$1,449,000, $1,033,000 and $756,000 in royalty income on retail and catalog
sales during 1999, 1998 and 1997, respectively. Eddie Bauer recorded
approximately $2,559,000, $4,394,000 and $1,642,000 of losses for its equity
share of the joint venture during 1999, 1998 and 1997, respectively.

During 1996, Eddie Bauer formed a joint venture with Grattan plc (a subsidiary
of Otto Versand)and entered into license agreements to sell Eddie Bauer products
through retail stores and catalogs in the United Kingdom. The Company believes
that the terms of the arrangement were no less favorable to Eddie Bauer than
would be the case in an arrangement with an unrelated third party. There were
seven stores open in the United Kingdom as of January 1, 2000, all of which will
be closed in spring 2000 in conjunction with the discontinuation of the joint
venture. To date, Eddie Bauer has contributed $4,584,880 to the project and
received a licensing fee of $666,667 in 1998 for the use of its name. In
addition, Eddie Bauer received $481,000, $209,000 and $41,000 in 1999, 1998 and
1997, respectively, in royalty income on retail and catalog sales. Eddie Bauer
recorded losses of approximately $3,166,000, $2,685,000 and $956,000 in 1999,
1998 and 1997, respectively, for its equity share of the joint venture.
Additionally, a $5,000,000 charge was recorded

                                       49

<PAGE>

in 1999 representing the Company's equity share of the costs estimated to
discontinue the joint venture.

In 1993, Eddie Bauer entered into an agreement with Eddie Bauer International,
Ltd. (EBI) (a subsidiary of Otto Versand) whereby the latter acts as buying
agent in Asia (EBI-Hong Kong) and, as of 1997, in the Americas (EBI-Miami). The
buying agents contact suppliers, inspect goods and handle shipping documentation
for Eddie Bauer. The Company believes that the terms of the arrangements are no
less favorable to Eddie Bauer than would be the case in an arrangement with an
unrelated third party. The Company paid $20,030,000, $20,173,000 and $22,900,000
to EBI-Hong Kong for these services in 1999, 1998 and 1997, respectively. The
Company paid EBI-Miami $4,151,000 and $3,226,000 for these services in 1999 and
1998. Additionally in 1998, the Company received $3,750,000 from EBI-Miami in
exchange for services rendered to EBI-Miami. These services related to the
startup of EBI-Miami's operations and included general consulting and training.

The Company is included in the consolidated federal income tax return of SHI.
Pursuant to a tax reimbursement agreement with SHI, the Company records
provisions for income tax expense as if it were a separate taxpayer.

                                       50
<PAGE>

                                     PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS OF FORM 8-K

<TABLE>
<CAPTION>

                                                                       PAGE
<S>      <C>                                                             <C>
A.       1.     FINANCIAL STATEMENTS

                Consolidated Balance Sheets                              17
                Consolidated Statements of Earnings                      18
                Consolidated Statements of Cash Flows                    19
                Consolidated Statements of Stockholders' Equity          20
                Notes to Consolidated Financial Statements               21-34
                Report of Independent Auditors                           36
                Selected Quarterly Financial Data                        37


         2.     FINANCIAL STATEMENT SCHEDULE

                Independent Auditors' Report on Schedule                 53
                Schedule II--Valuation and Qualifying Accounts           54


                Schedules not listed above are omitted because of
                absence of conditions under which they are required or
                because the required information is included in the
                financial statements submitted.

</TABLE>

                                       51

<PAGE>

         3.     EXHIBITS

<TABLE>
<CAPTION>

         Exhibit
         Number            Description of Exhibit
<S>       <C>              <C>
          3(a)             Restated Certificate of Incorporation of the
                           Registrant (i)

          3(b)             By-Laws of the Registrant (i)

          4                Revised Specimen Stock Certificate (ii)

          10(a)            Spiegel, Inc., Semi-Monthly Salaried Employees
                           Incentive Stock Option Plan (File No. 33-69937)
                           replacing (File No. 33-15936) and post-effective
                           Amendment No. 1 thereto, and the Company's
                           registration statements on Form S-8 and
                           post-effective amendments thereto (File No. 33-19663,
                           33-32385, 33-38478, 33-44780, 33-56200, 33-51755 and
                           33-65469) (iii)

          10(b)            Spiegel, Inc., Supplemental Retirement Benefit Plan
                           (iv)

          21               List of subsidiaries of the Registrant

          23               Consent of KPMG LLP

          24               Powers of Attorney (iv)

          27               Financial Data Schedule

</TABLE>

         (i)        Filed as an Exhibit to or part of the Company's Registration
                    Statement on Form S-3 (File No. 33-50739) and hereby
                    incorporated by reference herein.

         (ii)       Filed as an Exhibit to the 1988 10-K.

         (iii)      Filed as an Exhibit to or part of the Company's Registration
                    Statement on Form S-8 (File No. 33-69937, 33-19663,
                    33-32385, 33-38478, 33-44780, 33-56200 and 33-51755) and
                    hereby incorporated by reference herein.

         (iv)       Filed as an Exhibit to or part of the Company's Registration
                    Statements on Form S-1 (File No. 33-15936) and hereby
                    incorporated by reference herein.

         B.         REPORTS ON FORM 8-K

                    None.

                                       52

<PAGE>

         INDEPENDENT AUDITORS' REPORT ON SCHEDULE

         The Board of Directors and Stockholders
         Spiegel, Inc.:

         Under date of February 9, 2000, we reported on the consolidated balance
         sheets of Spiegel, Inc. and subsidiaries as of January 1, 2000 and
         January 2, 1999, and the related consolidated statements of earnings,
         stockholders' equity and cash flows for each of the years in the
         three-year period ended January 1, 2000, which are included elsewhere
         herein. In connection with our audits of the aforementioned
         consolidated financial statements, we also audited the related
         consolidated financial statement schedule. 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 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 LLP
                                                 KPMG LLP

         Chicago, Illinois
         February 9, 2000

                                       53

<PAGE>

                                                                     SCHEDULE II

                         SPIEGEL, INC. AND SUBSIDIARIES
                        VALUATION AND QUALIFYING ACCOUNTS
                               FOR THE YEARS ENDED
                                 ($000s omitted)

<TABLE>
<CAPTION>

                                                       January 1,    January 2,    January 3,
                                                         2000          1999          1998
                                                       ----------    ----------    ----------
<S>                                                    <C>           <C>           <C>
         ALLOWANCE FOR DOUBTFUL ACCOUNTS

         Balance at beginning of year                  $   11,843     $ 14,922     $ 14,830
           Charged to earnings                             42,590       29,837       13,521
           Reduction for receivables sold                 (17,416)     (10,791)        (235)
           Accounts written off, net of
             recoveries                                    (9,975)     (22,125)     (13,194)
                                                       ----------    ---------   ----------
           Balance at end of year                      $   27,042    $  11,843   $   14,922
                                                       ==========    =========   ==========

</TABLE>

                                       54

<PAGE>

                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, Spiegel, Inc. has duly caused this Annual Report on Form 10-K to be
signed on its behalf by the undersigned, thereunto duly authorized, on March 24,
2000.

                                  SPIEGEL, INC.

                                  By:   /s/ Michael R. Moran
                                        Michael R. Moran, Chairman of the Office
                                        of the President and Chief Legal Officer
                                        (Principal Operating Executive Officer)

                                        /s/ James W. Sievers
                                        James W. Sievers, Office of the
                                        President and Chief Financial Officer
                                        (Principal Operating Executive Officer
                                        and Principal Financial Officer)

                                        /s/ D. Skip Behm
                                        D. Skip Behm, Vice President, Controller
                                        (Principal Accounting Officer)

                                       55

<PAGE>

Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of
Spiegel, Inc. and in the capacities indicated on March 24, 2000.

<TABLE>
<CAPTION>

         Signature                             Title
--------------------------      ------------------------------------------


<S>                              <C>
/s/ Michael R. Moran             Chairman of the Office of the President and
--------------------------       Chief Legal Officer (Principal Operating
Michael R. Moran                 Executive Officer) and Director

/s/ James W. Sievers             Office of the President, Chief Financial
--------------------------       Officer (Principal Operating Executive
James W. Sievers                 Officer and Principal Financial Officer) and
                                 Director

/s/ Thomas Bohlmann              Director
--------------------------
Thomas Bohlmann

/s/ Dr. Michael E. Crusemann     Director
--------------------------
Dr. Michael E. Crusemann

/s/ Richard T. Fersch            Director
--------------------------
Richard T. Fersch

/s/ John W. Irvin                Director
--------------------------
John W. Irvin

/s/ George D. Ittner             Director
--------------------------
George D. Ittner

/s/ Martin Zaepfel               Director
--------------------------
Martin Zaepfel

</TABLE>

                                       56