<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 2, 1999
                                       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

                              S P I E G E L, I N C.
             (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 18, 1999, 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 $94,653,105. The number of shares outstanding of the
issuer's Class A non-voting common stock at March 18, 1999 were 14,791,544.

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 18, 1999 were 117,009,869.

DOCUMENTS INCORPORATED BY REFERENCE: NONE


<PAGE>


                                                       PART I
ITEM 1.  BUSINESS

GENERAL DEVELOPMENT OF BUSINESS
Spiegel, Inc. ("Spiegel" or the "Company") and its predecessors date from 1865.
In 1965, the Company was incorporated under the laws of Delaware. In 1982, the
Company was purchased by Otto Versand (GmbH & Co) ("Otto Versand"), a
privately-held German partnership that is one of the largest catalog
merchandisers in the world, selling its products principally in Europe and Asia.
In 1984, all of the capital stock of the Company was transferred to the partners
of Otto Versand or their designees resulting in common ownership for Spiegel and
Otto Versand. In this transaction, 65% of the capital stock of the Company was
transferred to Spiegel Holdings, Ltd., an Illinois limited partnership, whose
general partner was Dr. Werner Otto. Since 1984, additional shares of the
Company's capital stock have been acquired by Spiegel Holdings, Ltd. and its
successor. In 1986, Spiegel Holdings, Ltd. was converted to Spiegel Holdings,
Inc., a Delaware corporation ("SHI"). Prior to the Company's 1987 initial public
offering of Class A non-voting common stock, all of Spiegel's existing capital
stock was converted into Class B voting common stock. SHI currently holds 99.9%
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 limited to the issuance of credit cards.

In 1993, the Company acquired substantially all of the assets of New Hampton,
Inc. ("New Hampton") through a bankruptcy proceeding. In 1995, New Hampton's
name was changed to Newport News, Inc. ("Newport News").

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

NARRATIVE DESCRIPTION OF BUSINESS (Dollars in thousands)
Spiegel is a leading, international specialty retailer that, together with its
subsidiaries, 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 Catalog and Newport News
subsidiaries which distribute apparel, home furnishings and other merchandise
through catalogs, Internet sites and retail stores. These businesses are
supported by the Company's FCNB Preferred charge programs. In 1998, revenue
related to the sale of merchandise comprised approximately 95% of the
merchandising segment's total revenue. The remainder was contributed by finance
revenue generated from FCNB Preferred charge programs, including incremental
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>
                                               1998         1997          1996
                                               ----         ----          ----

               <S>                             <C>          <C>           <C>
               Apparel                           80%          79%         74%
               Home furnishings
                    and other merchandise        20           21          26 
                                                ----         ----        ----
                                                100%         100%        100% 
                                                ----         ----        ----
                                                ----         ----        ----
</TABLE>


                                       2
<PAGE>



         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, home electronics, window treatments 
         and rugs. The other merchandise category includes items such as 
         fitness and personal care equipment, toys, cameras and luggage.

         CREDIT SERVICES
         In an effort to build brand loyalty and to provide additional
         convenience for its customers, the Company offers credit programs to
         qualifying catalog and retail customers in the form of its FCNB
         Preferred charge card. The card is imprinted with a Spiegel Catalog,
         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 2, 1999, FCNB Preferred charge customer receivables serviced
         were $1,343,417. Approximately 34% of 1998's total net sales were made
         on FCNB Preferred charge cards, including approximately 73% of Spiegel
         Catalog net sales, 19% of Eddie Bauer net sales, and 50% of Newport
         News net sales. The lower percentage of Eddie Bauer sales made on the
         FCNB Preferred charge card is attributable primarily 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 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 major operations 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 the Internet. Total
         net sales were $1,709,610 and $1,750,991 for the years ended January 2,
         1999 and January 3, 1998, respectively. Approximately 73% of total net
         sales for Eddie Bauer are retail and outlet sales. A key strategy for
         Eddie Bauer is to leverage synergies between its retail, catalog and
         Internet channels maximizing opportunities for cross-promotion. 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 the Internet
         site; and utilizing retail store mailing lists to help build the
         catalog customer file.

         Eddie Bauer's apparel category comprised 86% of its total net sales in
         1998. Eddie Bauer presents its active, casual apparel and related
         accessories primarily through its trademark Eddie Bauer sportswear
         stores and catalogs. In addition, the apparel category also includes
         AKA EDDIE BAUER, which features dress sportswear and accessories for
         men and women; and EBTEK, which provides a line of performance active
         wear. Eddie Bauer presents its casual home furnishings, linens and
         decorative accessories through its Eddie Bauer HOME retail stores and
         catalogs.

         In 1993, Eddie Bauer entered into a joint-venture arrangement with
         Otto-Sumisho, Inc. (a joint venture company of Otto Versand and
         Sumitomo Corporation) to sell its full line of Eddie Bauer sportswear
         products through retail stores and catalogs in 



                                       3
<PAGE>

         Japan. There are currently 33 such stores. During 1995, Eddie Bauer
         entered into an agreement with Handelsgesellschaft 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 Gratten plc (a
         subsidiary of Otto Versand) to sell Eddie Bauer products through retail
         stores and catalogs in the United Kingdom. There are currently six such
         stores. 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; Imperial
         Wall Coverings; and Giant Bicycle, Inc.

              EDDIE BAUER RETAIL DIVISION

              At January 2, 1999, Eddie Bauer operated a total of 555 stores;
              507 retail stores and 48 outlets. There are 515 stores located in
              the United States and 40 stores in Canada. Of the stores open at
              January 2, 1999, 40 were Eddie Bauer HOME Collection and 34 were
              AKA EDDIE BAUER stores. A typical Eddie Bauer store is
              approximately 6,700 gross square feet. Eddie Bauer's retail stores
              are generally located in upscale regional malls or in high traffic
              metropolitan areas. Eddie Bauer has also begun to open 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 and end-of-season merchandise, are located predominantly
              in outlet malls and strip centers and generally in areas not
              served by its core specialty retail stores.

              Growth in the retail division has been due principally to new
              store openings. Net store openings in 1998 and 1997, respectively,
              were 47 and 65. In 1999, the Company plans to slow its new-store
              growth pace. The average cost of opening a typical new Eddie Bauer
              store in 1998, including inventory, furniture and fixtures,
              pre-opening expenses and leasehold improvements (net of landlord
              construction allowances) was approximately $700. 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 over 105 million
              catalogs in 1998 and at January 2, 1999 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, Eddie Bauer HOME and AKA EDDIE BAUER, as well
              as its largest catalog, Eddie Bauer Resource, combining all of its
              specialty concepts in a single catalog. Eddie Bauer also actively
              pursues new customers within its target market through initiatives
              including list rentals and utilizing names of its retail store
              customers.

         SPIEGEL CATALOG

         Spiegel Catalog has positioned itself as the lifestyle resource for the
         working woman. Spiegel Catalog 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 Internet sites. Spiegel Catalog also operates
         Ultimate Outlet stores, predominately located in outlet malls, which
         offer overstock and end-of-season merchandise. Total net sales were
         $586,873 and $769,225 for the years ended January 2, 1999 and January
         3, 1998, respectively. Sales through catalog offerings comprise nearly
         87% of the total net sales. Spiegel Catalog distributed over 112
         million catalogs in 1998 and at January 2, 1999 had 



                                       4
<PAGE>

         approximately 3.3 million active customers (customers who have
         purchased within the last 18 months.)

         Spiegel Catalog's apparel merchandise, which represented 49% of its net
         sales in 1998, includes private-label and branded merchandise.
         Private-label merchandise is developed by its in-house product design
         teams based on emerging fashion trends and customer research. Spiegel
         Catalog's home furnishings and other merchandise, which represented 51%
         of its net sales in 1998, are a mixture of private-label and branded
         merchandise ranging from traditional to contemporary styles, including
         accent pieces, decorative accessories, bedding and bath, home
         electronics, window treatments and rugs.

         NEWPORT NEWS

         Newport News, acquired by the Company in 1993, is a specialty 
         catalog business offering fashionable, moderately priced women's 
         apparel and home furnishings. Newport News' net sales were $345,473 
         for the year ended January 2, 1999, compared to $315,081 for the 
         year ended January 3, 1998. In 1998, Newport News distributed 183 
         million catalogs. Newport News had a customer base of 3.7 million 
         active customers (customers who have purchased within the last 18 
         months) at January 2, 1999. In 1999, Newport News plans to launch a 
         Web site to broaden its sales and marketing reach.

         The Newport News apparel category comprises a majority of its sales.
         Although the largest categories are swimwear and dresses, 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 merchandise businesses 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.

MERCHANDISE

The merchandising businesses sell domestically produced and imported
merchandise, which is purchased in the open market from approximately 2,800
suppliers, none of which supplied as much as 5% of the merchandise purchased
during 1998. 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 of 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.



                                       5
<PAGE>


LICENSES AND TRADEMARKS

The Company's merchandising businesses utilize trademarks and tradenames
including "Spiegel", "Eddie Bauer", "AKA EDDIE BAUER", "Eddie Bauer HOME",
"EBTEK", "Newport News", and "easy style." The Company is also 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 merchandising businesses, 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 merchandising businesses participate are highly
competitive and served by a significant number of catalog companies and
retailers including traditional department stores, so-called "off-price" and
discount retailers and specialty chains. Success is highly dependent upon the
merchandising group's ability to maintain its existing customers, solicit new
customers, identify distinct fashion trends and continue to address the needs
and fashion tastes of its customers.

EMPLOYEES

During 1998, the merchandising segment employed between approximately 11,500 and
14,500 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 27, 1999, the merchandising segment
employed approximately 11,200 full-time equivalent employees.

Spiegel Catalog 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 70 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 60 full-time equivalent Chicago-area Spiegel Catalog 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 Catalog 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 Catalog 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.



                                       6
<PAGE>

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 Catalog 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.

Newport News owns approximately 62 acres of vacant land in Hampton, Virginia
adjacent to its distribution facility. At present, there are no plans to expand
upon this vacant land. The Company is exploring other alternatives for the
property.

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 Pink Ribbon Spiegel MasterCard, and the
Eddie Bauer MasterCard. The bankcard segment's revenue is comprised of finance
revenue and credit related fees generated from the bankcard credit programs and
includes incremental gains recognized in conjunction with the securitization of
bankcard receivables.

At January 2, 1999, bankcard receivables serviced were $444,472, representing
approximately 428,000 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 which offer customized service to under-serviced niches in the
credit industry, which contributed to its significant growth in 1998.

In 1999, 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 merchandising businesses.

During 1998, FCNB employed an average of approximately 850 employees. At
February 27, 1999, FCNB employed approximately 930 full-time equivalent
employees, a reflection of the growth of the bankcard business.

Deterioration in the credit market, increases in 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 revenues, operating income and assets of the Company's
merchandising and bankcard segments for each of the three fiscal years ended
January 2, 1999, January 3, 1998 and December 28, 1997, 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."



                                       7
<PAGE>




ITEM 2.  PROPERTIES

Information regarding the principal properties of the Company is incorporated
herein by reference to pages 6 to 7 of Item 1 hereof.


ITEM 3.  LEGAL PROCEEDINGS

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.


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 18, 1999, the closing market price of the Class A non-voting common
stock, as quoted on the NASDAQ National Market System, was $6 7/16 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 11,400 Class A non-voting common stockholders as of
March 18, 1999. 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. No cash dividends were paid in the years ended January 2,
1999 and January 3, 1998.


                                       9
<PAGE>



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


<TABLE>
<CAPTION>

                                1998          1997          1996          1995           1994
EARNINGS DATA            ------------  ------------ ------------  ------------  ------------
<S>                      <C>           <C>          <C>           <C>           <C>        
Net sales and
 other revenues          $ 2,935,411   $ 3,056,834   $ 3,014,620   $ 3,184,184    $ 3,015,985
Earnings (loss) before
 income taxes                 18,110       (49,406)      (21,276)      (15,807)        47,246
Net earnings (loss) (1)  $     3,270   $   (33,021)  $   (13,389)  $    (9,481)   $    25,100
Net earnings (loss) per
 common share (1)
  Basic and diluted      $      0.03   $     (0.28)  $     (0.12)  $     (0.09)   $      0.23
Cash dividends per
 common share            $         -   $         -   $         -   $      0.20    $      0.20


BALANCE SHEET AND CASH FLOW DATA
Current assets           $ 1,255,494   $ 1,244,823   $ 1,231,535   $ 1,559,909    $ 1,928,172
Total assets               1,857,260     1,949,554     1,945,625     2,273,982      2,560,287
Current liabilities          663,251       637,222       697,250       668,229        630,828
Long-term debt,
 excluding current
  maturities                 523,036       713,750       676,656     1,014,692      1,300,364
Stockholders' equity     $   637,267   $   565,600   $   519,695   $   533,792    $   576,735
Net additions to
 property and equipment  $    28,610   $    55,047   $    45,698   $   131,229    $    84,191
Depreciation and
 amortization            $    88,547   $    88,062   $    95,278   $    79,047    $    60,555
</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.




                                       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

For the fiscal year ended January 2, 1999, net earnings were $3,270, or $0.03
per common share, basic and diluted. Net earnings in 1998 included the
redemption of subsidiary preferred stock in the second quarter, which decreased
net earnings per common share $0.06 for the year. Earnings before redemption of
subsidiary preferred stock totaled $11,805, or $0.09 per share, compared to net
losses of $33,021, or $0.28 per share, in 1997 and $13,389, or $0.12 per share,
in 1996. The 1998 fiscal year results included incremental pretax gains on the
sale of receivables totaling $45,328, or $0.23 per share, compared to $75,141,
or $0.43 per share, in 1997. No comparable gains were recognized in fiscal year
1996. Excluding the impact of receivable gains, fiscal year 1998 operating
income increased nearly $97 million over 1997, driven by improvements in both
the merchandising and bankcard segments.


MERCHANDISING SEGMENT

<TABLE>
<CAPTION>
                                           1998                 1997               1996
                                    -------------        -------------      ------------
<S>                                 <C>                  <C>                <C>       
Retail net sales                     $1,331,476           $1,353,142         $1,233,859
 Comp store % change                         (9)%                 (3)%                0%
Catalog net sales                     1,310,480            1,482,155          1,616,696
                                    -------------        -------------      ------------
Total net sales                       2,641,956            2,835,297          2,850,555
Finance revenue                         138,033              132,030             65,159
Other revenue                            42,222               43,244             52,791
                                    -------------        -------------      -------------
Total revenue                        $2,822,211           $3,010,571         $2,968,505
                                    -------------        -------------      -------------
 % change                                  (6.3)%                1.4%             (5.7)%
Gross margin %
 to total net sales                        31.6%                31.5%              34.1%
SG&A % to total revenue                    35.2%                35.4%              35.2%
Operating income                     $   21,601           $    2,314         $   45,430
                                    -------------        -------------     --------------
</TABLE>



1998 COMPARED WITH 1997
Total merchandising revenue declined in 1998 compared to 1997, driven by lower
retail and catalog net sales, slightly offset by higher finance revenue
generated from the Company's private-label 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 Catalog 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. FCNB Preferred charge finance
revenue included incremental 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 $126,273 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.


                                       11
<PAGE>

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

Gross margin improved slightly in 1998 over the prior year due to margin rate
improvements at Spiegel Catalog 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 were 4% lower than the year-end level in
1997, even though Eddie Bauer increased its store base by 47 stores.

In spite of lower revenues, the selling, general and administrative expense rate
improved slightly over last year. This improvement resulted primarily from
higher catalog sales productivity at Spiegel Catalog 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. Stringent cost controls continue to be a focus across all
merchandising divisions. 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 Catalog. During 1997, the Company expended
approximately $3.5 million related to these activities. The remaining balance of
the reserve was utilized in 1998.


1997 COMPARED WITH 1996
Total merchandising revenue increased in 1997 compared to 1996, as growth in
retail net sales coupled with higher FCNB Preferred charge finance revenue
offset declines in catalog net sales. The retail net sales increase was driven
by a higher number of stores open in 1997 compared with 1996. Comparable-store
sales declined from 1996 levels resulting from weakness in fall-season sales due
to lower than expected demand for cold-weather related products. Catalog net
sales declined in 1997 compared to 1996 driven by a 24% decrease in Spiegel
Catalog net sales, which were affected by lower catalog productivity, reduced
circulation, and the continued effect of tightened credit policies in the FCNB
Preferred charge programs. Somewhat offsetting the decline in sales at Spiegel
Catalog were catalog net sales improvements at Newport News and the continued
growth of Eddie Bauer's catalog operations. FCNB Preferred charge finance
revenue included incremental pretax gains on the sale of receivables of $63,813
in 1997. No comparable gain was recorded in 1996. Excluding the impact of
receivable gains, finance revenue was $68,217 in 1997 compared to $65,159 in
1996. Other revenue declined to $43,244 in 1997 from $52,791 the previous year
primarily due to the sale of the Company's information and technology subsidiary
in the first quarter of 1996, the results of which were previously included in
the merchandising segment.

Merchandising operating income declined in 1997 to $2,314, including the
above-mentioned receivable gains of $63,813. Results for the year were
disappointing, driven by the continued decline in sales and productivity at
Spiegel Catalog. Spiegel Catalog repositioned its operations in 1997 to create
more focused, targeted catalog offerings and improve performance. The
performance of Eddie Bauer and Newport News somewhat offset the declines at
Spiegel Catalog.

Gross margins declined in 1997, driven by a higher level of markdown activity
experienced at Spiegel Catalog as part of its continuing efforts to reposition
its merchandise assortment and eliminate products inconsistent with its
merchandising plans. Through its 1997 repositioning, Spiegel Catalog began its
effort to strengthen its private-label offerings and develop a more profitable
product mix aimed at improving margins. Eddie Bauer also contributed to the
gross margin rate decline with increased promotional activity in the fourth
quarter due largely to lower than expected demand for cold-weather related
products. The Company effectively managed consolidated inventory risk, ending
the year at $508,756, only 1% over the 1996 year-end level despite below-plan
sales and the addition of 65 Eddie Bauer retail stores.



                                       12
<PAGE>

The selling, general and administrative expense ratio was negatively impacted in
1997 by the higher expense ratio experienced at Spiegel Catalog, the result of
lower productivity from catalog offerings as well as approximately $16 million
in expenses associated with its repositioning. This repositioning included a 15%
corporate work force reduction at Spiegel Catalog, the closing of two telephone
sales centers, and the movement of certain operational units to the corporate
headquarters. The impact of Spiegel Catalog on the ratio was offset somewhat by
greater expense leverage from Newport News and Eddie Bauer compared to 1996.
Newport News generated a significant improvement in catalog productivity, while
Eddie Bauer realized better expense leverage in total. In addition, the ratio
benefited from lower charge-offs realized in the FCNB Preferred charge portfolio
and the incremental pretax gain from the sale of receivables of $63,813 included
in finance revenue in 1997. By comparison, the 1996 ratio was favorably impacted
by the reversal of approximately $24 million of the provision for doubtful
accounts on sold customer receivables, as well as the gain of approximately $8
million realized on the sale of the Company's information technology subsidiary
in the first quarter.


BANKCARD SEGMENT

<TABLE>
<CAPTION>

                                              1998              1997             1996
                                       ------------      ------------     ------------
<S>                                    <C>               <C>              <C>     
Finance revenue                          $ 113,200          $ 46,263         $ 46,115
SG&A % to finance revenue                     37.9%             51.0%            50.9%
Operating income                         $  70,344          $ 22,685         $ 22,638
                                       ------------      ------------     ------------
</TABLE>


1998 COMPARED WITH 1997
Bankcard operating performance improved dramatically in 1998 compared to prior
years. Diversification in the bankcard credit programs drove substantial
increases in the bankcard receivable portfolio, positioning it well for future
growth. Bankcard finance revenue of $113,200 in 1998 represented a 145% increase
over 1997. Excluding the impact of incremental receivable gains of $33,571 in
1998 and $11,328 in 1997, finance revenue increased 128% 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.


1997 COMPARED WITH 1996
Bankcard finance revenue and operating income in 1997 included $11,328 in
incremental receivable gains. No comparable gains were recorded in 1996.
Excluding the impact of incremental receivable gains, 1997 bankcard finance
revenue was $34,935. The decrease from 1996 was due to a higher average level of
receivables sold in 1997, offset somewhat by a 14% increase in the total
bankcard portfolio and a slightly higher finance yield due primarily to pricing
changes implemented in late 1997.

Excluding the above-mentioned receivable gain, 1997 operating income was also
lower than 1996. This decrease was primarily due to increased acquisition and
marketing expenditures to support the bankcard programs. Additionally, higher
charge-offs in the secured card programs negatively impacted operating
performance. During 1997, in response to these higher charge-offs, the Company
tightened credit criteria in certain programs and adopted more aggressive
collection strategies.




                                       13
<PAGE>




INTEREST EXPENSE

The Company continued to benefit from lower average debt levels, as interest
expense declined in 1998 to $67,733 from $68,098 in 1997 and $82,677 in 1996.
Average debt was $853,749, $877,698, and $1,089,056 in 1998, 1997 and 1996,
respectively. The trend in lower average debt levels resulted primarily from the
improvement in cash flow from operations, increased efficiency in asset-backed
securitization programs, as well as the net proceeds of $69,993 and $69,972 from
the issuance of Class B voting stock in 1998 and 1997, respectively.


INCOME TAXES

The effective tax rate in 1998 was 34.8% compared to 33.2% in 1997 and 37.1% in
1996. State tax rates have been affected by changes in earnings mix among the
Company's various business units. 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 $1,420,730 at January 2, 1999 and $1,292,713 at January 3, 1998.

Net cash provided by operating activities increased nearly $230 million in 1998
compared to 1997. This increase was due to several factors including
significantly improved operating results, the overall level of receivables and
strong inventory control. Additionally, the Company also brought its bankcard
secured deposit processing in-house, providing approximately $57 million in
additional cash. Receivables and the related securitization activity had a
significant impact on net cash provided by operating activities. Net cash
provided by securitization of customer receivables was $128,017 in 1998 compared
to $171,017 of net cash used in 1997 to reduce securitization levels. Net cash
used to fund increases in credit portfolios was $63,459 in 1998 compared to net
cash provided by decreases in the FCNB Preferred charge portfolio of $188,024 in
1997.

Net additions to property and equipment were $28,610 and $55,047 in fiscal 1998
and 1997, respectively. Capital spending, primarily related to Eddie Bauer
retail store expansion and remodeling, decreased in 1998 compared to 1997,
driven by a lower number of Eddie Bauer store openings in the period. Eddie
Bauer ended the year with 555 stores, increasing its store base by 47 stores in
1998 compared to the net addition of 65 stores in 1997.

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
asset-backed securitizations requiring credit enhancement matured. The remaining
balance of restricted cash was $10,192 at January 2, 1999.

As of January 2, 1999, total debt was $608,750 compared to $816,650 as of
January 3, 1998. In 1998, the Company successfully achieved its objective to
continue to decrease total debt outstanding. Debt reduction remains a primary
objective of the Company.

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.

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 



                                       14
<PAGE>

$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 for the year.

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 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.

The Company manages interest rate exposure through its mix of fixed and variable
rate financing of owned receivables, asset-backed securitizations and other
assets. The Company is generally able to meet certain targeted objectives
through direct fixed and variable rate borrowings. However, on occasion,
derivative financial instruments are utilized to reach these 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 2, 1999, the notional amount totaled $70,000. The
Company also entered into a short-term interest rate lock in 1998 to hedge an
anticipated securitization transaction, which was subsequently completed in
February 1999. The notional amount of this interest rate lock was $250,000 at
January 2, 1999.

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, and, as a
result, could materially change in the near term and affect the carrying value
of these receivables.

The Company believes that its interest rate exposure management policies,
including the use of derivative financial instruments, is adequate to limit any
material market risk exposure to its consolidated financial statements at
January 2, 1999.


YEAR 2000

The Company continues to take the appropriate steps to minimize the threat of
any material technical failure relating to Year 2000 compliance issues. A series
of comprehensive plans, covering the renovation of internal systems, outside
vendor readiness and testing are in place and are being executed in accordance
with prescribed time tables.

The renovation phase is progressing, with over 80% of our internal hardware and
software systems and facilities Year 2000 compliant as of January 2, 1999.
Systems yet to be renovated include those that are dependent on minor third
party vendor software upgrades, systems that have been targeted for replacement
or renovation in 1999 and will be compliant upon installation, and off-the-shelf
PC hardware and software that can be purchased and installed in a short period
of time. At this point, it is anticipated that 90% of the Company's internal
systems will be Year 2000 compliant by the end of the first quarter 1999, 98% at
mid-year and 100% at the end of the third quarter. Contingency plans are
currently in place in order to mitigate the impact of possible system failure.
These plans also include contingencies for the renovation of existing systems in
the event that replacement systems cannot be installed in a timely manner.
Generally, individual systems are being tested as they are renovated. A fully
integrated system test is scheduled to commence in January 1999, lasting
approximately six months. Systems not yet renovated will be added to this
integrated test as renovation is completed.



                                       15
<PAGE>

The Company has also implemented a comprehensive plan to communicate to all
critical vendors and suppliers the expectation that they attain Year 2000
compliance in a timely manner. To date, the Company has received responses from
over 80% of these critical vendors and is aggressively pursuing those who have
not responded or have responded in an unsatisfactory manner. Contingency plans
have been put in place to provide alternate solutions if the progress of certain
vendors and suppliers is deemed questionable so as not to jeopardize the
Company's ability to service customers.

The direct costs associated with the Year 2000 initiative are expected to range
between $8,000 and $10,000. These costs, totaling $4,800 through January 2,
1999, are funded through current operations and expensed as incurred.

Risks associated with Year 2000 failures range from sporadic delays of limited
scope all the way to an extended impairment of the Company's merchandise
receipt, distribution and billing capabilities. While difficult to predict, the
most reasonably likely scenario will include some sporadic delays of limited
scope. While the Company believes it is acting prudently in addressing the Year
2000 issue, it is impossible for any company to ensure complete Year 2000
compliance. While it is certainly possible that there may be litigation arising
from the Year 2000 conversion, at this time the Company does not anticipate, nor
can it estimate, any costs associated with such litigation.


ACCOUNTING STANDARDS

Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities," effective for all fiscal
quarters of fiscal years beginning after June 15, 1999, establishes accounting
and reporting standards for derivatives and for hedging activities. 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 2000.

The Accounting Standards Executive Committee of the American Institute of
Certified Public Accountants issued Statements of Position (SOP) 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use" and No. 98-5, "Reporting on the Costs of Start-up Activities." The
adoption of these new accounting rules in fiscal year 1999 is not anticipated to
have a material impact on the Company's financial position or results of
operations.


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. Such forward-looking statements are subject to a
number of risks and uncertainties that could cause actual results to differ
materially from those anticipated, including but not limited to, 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, the impact of competitive activities, inventory
risks due to shifts in the market demand, risks associated with collections on
the Company's credit card portfolios, interest rate fluctuations, and postal
rate, paper or printing cost increases, as well as other risks indicated in
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
page 15 of this Form 10-K is incorporated herein by reference.


                                       16
<PAGE>


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

<TABLE>
<CAPTION>

                                                   January 2,       January 3,
                                                        1999             1998
                                                 ------------     ------------
<S>                                              <C>              <C>        
ASSETS
Current assets:
  Cash and cash equivalents                      $    91,200      $    47,582
  Receivables, net                                   544,146          563,376
  Inventories                                        490,915          508,756
  Prepaid expenses                                    93,390           89,137
  Refundable income taxes                              9,897            6,064
  Deferred income taxes                               25,946           29,908
                                                 ------------     ------------
    Total current assets                           1,255,494        1,244,823
Property and equipment, net                          359,361          394,822
Intangible assets, net                               153,146          159,016
Other assets                                          89,259          150,893
                                                 ------------     ------------
                                                 $ 1,857,260      $ 1,949,554  
                                                 ------------     ------------
                                                 ------------     ------------

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Current maturities of debt                     $    85,714      $   102,900
  Accounts payable                                   287,585          238,723
  Accrued liabilities:
    Salaries and wages                                46,301           37,305
    General taxes                                    103,890          120,345
    Allowance for returns                             33,222           37,094
    Other accrued liabilities                        106,539          100,855
                                                 ------------     ------------
    Total current liabilities                        663,251          637,222
Long-term debt, excluding current maturities         523,036          713,750
Deferred income taxes                                 33,706           32,982
                                                 ------------     ------------
    Total liabilities                              1,219,993        1,383,954
                                                 ------------     ------------
Stockholders' equity:
 Class A non-voting common stock, $1.00 par 
  value; authorized 16,000,000 shares;
  14,747,844 shares issued and outstanding 
  at January 2, 1999; 14,660,464 shares
  issued and outstanding at January 3, 1998           14,748           14,660
 Class B voting common stock, $1.00 par value;
   authorized 121,500,000 shares; 117,009,869
   shares issued and outstanding at
   January 2, 1999; 103,483,298 shares issued
   and outstanding at January 3, 1998                117,010          103,483
  Additional paid-in capital                         328,489          271,645
  Accumulated other comprehensive income              (4,555)          (2,493)
  Retained earnings                                  181,575          178,305
                                                 ------------     ------------
    Total stockholders' equity                       637,267          565,600
                                                 ------------     ------------
                                                 $ 1,857,260      $ 1,949,554  
                                                 ------------     ------------
                                                 ------------     ------------
</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 2,      January 3,    December 28,
                                       1999            1998            1996
                                ------------    ------------    ------------
<S>                             <C>             <C>             <C>        
NET SALES AND OTHER REVENUES
Net sales                       $ 2,641,956     $ 2,835,297     $ 2,850,555
Finance revenue                     251,233         178,293         111,274
Other revenue                        42,222          43,244          52,791
                                ------------    ------------    ------------
                                  2,935,411       3,056,834       3,014,620

COST OF SALES AND OPERATING EXPENSES
Cost of sales, including buying
  and occupancy expenses          1,807,569       1,941,307       1,877,859
Selling, general and
  administrative expenses         1,041,999       1,096,835       1,075,360
                                ------------    ------------    ------------
                                  2,849,568       3,038,142       2,953,219
Operating income                     85,843          18,692          61,401
Interest expense                     67,733          68,098          82,677
                                ------------    ------------    ------------
Earnings (loss) before
    income taxes                     18,110         (49,406)        (21,276)
Income tax provision (benefit)        6,305         (16,385)         (7,887)
                                ------------    ------------    ------------
Earnings (loss) before redemption
  of subsidiary preferred stock      11,805         (33,021)        (13,389)
Redemption of subsidiary
  preferred stock                     8,535               -               -
                                ------------    ------------    ------------
Net earnings (loss)             $     3,270     $   (33,021)    $   (13,389)
                                ------------    ------------    ------------
                                ------------    ------------    ------------
EARNINGS PER COMMON SHARE
 Net earnings (loss) per
   common share
     Basic and diluted          $      0.03     $     (0.28)    $     (0.12)
                                ------------    ------------    ------------
                                ------------    ------------    ------------
</TABLE>


See accompanying notes to consolidated financial statements.



                                       18
<PAGE>


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


<TABLE>
<CAPTION>
                                                January 2,      January 3,       December 28,
                                                      1999            1998               1996
                                              ------------     ------------     -------------
<S>                                           <C>              <C>              <C>        
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings (loss)                           $     3,270      $   (33,021)       $  (13,389)
Adjustments to reconcile net earnings to
  net cash provided by (used in)
  operating activities:
  Depreciation and amortization                    88,547           88,062            95,278
  Incremental gains on sale of receivables        (45,328)         (75,141)                -
Change in assets and liabilities,
    net of effects of acquisition:
    Increase (decrease) in sold
      customer receivables                        128,017         (171,017)          283,730
    (Increase) decrease in receivables, net       (63,459)         188,024           (26,493)
    (Increase) decrease in inventories             17,841           (6,547)           70,168
    (Increase) decrease in prepaid expenses        (4,253)          (4,504)           16,691
    Increase (decrease) in accounts payable        48,862          (32,250)           14,446
    Increase (decrease) in accrued liabilities     (5,646)          (5,778)           15,717
    Increase (decrease) in income taxes               853           (8,724)           14,539
                                              ------------     ------------     -------------
    Net cash provided by (used in)
     operating activities                         168,704          (60,896)          470,687
                                              ------------     ------------     -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Net additions to property and equipment           (28,610)         (55,047)          (45,698)
Net (additions to) reductions in other assets      43,027          (23,655)          (39,965)
                                              ------------     ------------     -------------
  Net cash provided by (used in)
   investing activities                            14,417          (78,702)          (85,663)
                                              ------------     ------------     -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of debt                                   25,000          105,000           111,250
Payment of debt                                  (232,900)         (74,298)         (451,666)
Issuance of Class A common shares                     466              228                80
Issuance of Class B common shares                  69,993           69,972                 -
                                              ------------     ------------     -------------
Net cash provided by (used in)
  financing activities                           (137,441)         100,902          (340,336)
                                              ------------     ------------     -------------
Effect of exchange rate changes on cash            (2,062)            (639)              (73)
                                              ------------     ------------     -------------
  Net change in cash and cash equivalents          43,618          (39,335)           44,615
Cash and cash equivalents at
  beginning of year                                47,582           86,917            42,302
Cash and cash equivalents at                  ------------     ------------     -------------
 at end of year                               $    91,200      $    47,582       $    86,917
                                              ------------     ------------     -------------
                                              ------------     ------------     -------------
SUPPLEMENTAL CASH FLOW INFORMATION
 Cash paid during the year for:
    Interest                                  $    68,973      $    69,806       $    84,428
                                              ------------     ------------     -------------
    Income taxes                              $     5,631      $    16,262       $     6,500
                                              ------------     ------------     -------------
</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        income
                           -------- ------------ ------------- ----------- ---------- ----------
<S>                        <C>      <C>          <C>           <C>         <C>        <C>      
BALANCES AT
  DECEMBER 30, 1995        $533,792   $14,605   $     93,142   $  211,761  $ 224,715  $(10,431)
Comprehensive income
 Net loss                   (13,389)        -              -            -    (13,389)        -
 Foreign currency               (73)        -              -            -          -       (73)
 Adjustment to minimum
  pension liability
  (net of tax benefit
   of $523)                    (715)        -              -            -          -      (715)
                           --------
Total comprehensive income  (14,177)
Issuance of 13,560
  Class A common shares          80        13              -           67          -         -
                           -------- ----------- -------------  ---------- ----------  ---------
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              (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            (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) 
                           -------- ----------- -------------  ---------- ----------  ---------
                           -------- ----------- -------------  ---------- ----------  ---------
</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. is a leading international specialty retailer, marketing
fashionable apparel and home furnishings through catalogs, Internet sites and
more than 550 specialty retail stores. The Company also offers private-label
FCNB Preferred charge programs to customers of its merchandising businesses and
operates a special-purpose bank that 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 (the Company). 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 results of these entities are not material to the Company.

FISCAL YEAR
The Company's fiscal year ends on the Saturday closest to December 31. Fiscal
years 1998 and 1996 each consisted of 52 weeks and ended on January 2, 1999 and
December 28, 1996, 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 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 in accordance with
Statement of Financial Accounting Standards (SFAS) No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities."
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 2, 1999 and January 3, 1998
were $41,273 and $37,988, respectively, and are included in prepaid expenses.
All other advertising costs for both catalog and retail operations are expensed
as incurred. Total advertising expense, including the above mentioned catalog
costs, was $389,130, $454,240 and $448,700 for fiscal years 1998, 1997 and 1996,
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.

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 $71,647
and $65,777 at January 2, 1999 and January 3, 1998, 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, where the
Canadian dollar is considered the functional currency, 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 to manage its market and interest rate risk, and does not hold
derivative positions for trading purposes. Current derivative positions consist
primarily 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. In 1998, the company entered into a short-term interest rate lock
to hedge an anticipated securitization transaction, which was subsequently
completed in February 1999. Gains or losses resulting from market movements
related to these transactions are not recognized at January 2, 1999. The
resulting gain related to the interest rate lock will be deferred in the
February 1999 balance sheet and recognized in earnings over the life of the
transaction.

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 4.



                                       22
<PAGE>



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 2, 1999 and January 3, 1998 were $26,721
and $26,726, respectively. Related amortization expense recognized in fiscal
years 1998, 1997 and 1996 was $11,223, $16,038 and $15,809, respectively. Costs
associated with the Company's Year 2000 remediation efforts are 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 5.

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.

In 1998, options to purchase 1,175,265 shares of common stock at prices ranging
from $4.47 to $22.25 were not included in the computation of diluted EPS because
the options' exercise prices were greater than the average market price of the
common shares. 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 and 846,895 potentially dilutive options were
not included in the computation of diluted EPS in fiscal years 1997 and 1996,
respectively.

RECLASSIFICATIONS
Certain prior year amounts have been reclassified from amounts previously
reported to conform with the 1998 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 2, 1999, customer receivables serviced were
$1,787,890, of which 75% related to the Company's FCNB Preferred charge program.
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>
                                                          1998             1997
                                                   -----------     ------------
<S>                                                <C>              <C>        
Composition of Customer Receivable Portfolio:
  Receivables serviced                             $ 1,787,890      $ 1,683,783
  Receivables sold                                  (1,420,730)      (1,292,713)
                                                   -----------     ------------
Receivables owned, at certificate value                367,160          391,070
                                                   -----------     ------------
Composition of Receivables Owned:
Retained certificates                                  239,828          145,732
Receivables with no certificates issued                127,332          245,338
                                                   -----------     ------------
Receivables owned, at certificate value                367,160          391,070

Receivables from trust                                 140,469           95,141
Receivables owned, at fair market value            -----------     ------------
  before allowances                                    507,629          486,211
Less allowance for returns on FCNB Preferred
  charge sales                                         (22,246)         (21,247)
Less allowance for doubtful accounts                    (8,857)         (11,757)
Other trade receivables, net                            67,620          110,169
                                                   -----------     ------------
Receivables, net                                   $   544,146      $   563,376
                                                   -----------     ------------
                                                   -----------     ------------
</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 net 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 accounts for these asset-backed securitizations in accordance with
SFAS No. 125, which requires that the Company recognize gains on its
securitization of customer receivables. Incremental gains of $45,328 and $75,141
were recorded as finance revenue in fiscal year 1998 and 1997, 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 and $59,592 at January 2, 1999 and January 3, 1998,
respectively. In 1998, restricted cash of $49,400 was released to the Company
when the asset-backed securitizations requiring credit enhancement matured.


3. PROPERTY AND EQUIPMENT

Property and equipment consist of the following:

<TABLE>
<CAPTION>
                                                            1998              1997
                                                       ---------        ----------
<S>                                                    <C>              <C>      
Land                                                   $  19,450         $  19,813
Buildings and improvements                               145,589           151,297
Equipment                                                249,935           242,774
Leasehold improvements                                   179,836           169,401
                                                       ---------        ----------
                                                         594,810           583,285
Less accumulated depreciation and amortization          (247,627)         (205,534)
                                                       ---------        ----------
                                                         347,183           377,751
Construction in process                                   12,178            17,071
                                                       ---------        ----------
Property and equipment, net                            $ 359,361         $ 394,822
                                                       ---------        ----------
                                                       ---------        ----------
</TABLE>



                                       25
<PAGE>


4. DEBT

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

<TABLE>
<CAPTION>

                                                           1998                1997
                                                     ----------         -----------
<S>                                                  <C>                 <C>       
Notes payable:
  Revolving credit agreement                         $        -          $  105,000
  Term loan agreements, 6.59% to 9.70%,
   due March 17, 1999 through March 31, 2005            420,000             522,900
Subordinated notes, 6.96% to 9.35%,
  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                                            608,750             816,650
Less current maturities of debt                         (85,714)           (102,900)
                                                     ----------         -----------
Total debt, excluding current maturities             $  523,036          $  713,750
                                                     ----------         -----------
                                                     ----------         -----------
</TABLE>


The Company has a revolving credit agreement with a group of banks that expires
on March 26, 2000. In 1998, the related $515,000 commitment was permanently
reduced to $350,000 in conjunction with the additional sales of bankcard
receivables totaling $165,000. Fees are variable based on the total commitment.
Borrowings under this commitment averaged $180,944 with a maximum of $336,000
during 1998. The effective annual interest rate was 6.7% in 1998, excluding the
previously mentioned commitment fees.

The Company selectively uses interest rate swap contracts to hedge the
underlying interest risks on various term loans. At January 2, 1999, these
interest rate swap agreements had effective and termination dates from March
1995 to March 2005. The notional principal amounts of these agreements totaled
$70,000 at the end of fiscal year 1998 and 1997. At January 2, 1999 and January
3, 1998, the fair value of these swap agreements was $6,232 and $4,631,
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 $1,264, $1,291 and
$1,008 in fiscal year 1998, 1997 and 1996, respectively. In 1998, the Company
entered into a short-term interest rate lock to hedge an anticipated
transaction, which was subsequently completed in February 1999. The notional
principal amount of the interest rate lock was $250,000 at January 2, 1999,
which approximated its fair value at that date.

Additionally, the Company has letter of credit facilities to support the
purchase of inventories. Letter of credit commitments outstanding were $87,307
and $95,008 at January 2, 1999 and January 3, 1998, respectively. At January 2,
1999, there was an additional $112,693 of commitments available for the issuance
of letters of credit. The Company also had an available undrawn standby letter
of credit facility at January 2, 1999, totaling approximately $10,300 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 2, 1999.

Aggregate maturities of long-term debt for the five fiscal years subsequent to
January 2, 1999 are as follows: 1999, $85,714; 2000, $214,464; 2001, $107,714;
2002, $65,214; 2003, $70,214; and thereafter, $65,430.



                                       26
<PAGE>


5.  EMPLOYEE BENEFIT PLANS

STOCK OPTION PLAN
The current 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% per year. At January 2,
1999, options outstanding under the current plan and the expired plan were
174,000 and 671,460, 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 358,000 at
January 2, 1999. The following presentations of total options outstanding
include all aforementioned stock option plans.

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 pro-forma
effect on the Company's net income would have been a reduction of $223 and $275
in fiscal year 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. A risk-free discount rate of 4.50%, an expected life of 5 years for the
grants and a volatility of 60% and 53% were assumed for grants in 1998 and 1997,
respectively. Dividend yields of 3.7% and 1.8% were assumed for the 1998 and
1997 valuations, respectively. The weighted-average fair value of stock options
granted during the years ended January 2, 1999 and January 3, 1998,
respectively, were $2.46 and $2.18.

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

<TABLE>
<CAPTION>

                                               Shares       Amount    Average Price
                                           ----------   ----------    -------------
<S>                                        <C>          <C>        <C>         
Outstanding at December 30, 1995            1,363,260    $  11,940     $       8.76
  Granted                                     195,500        1,526             7.80
  Exercised                                   (13,560)         (80)            5.92
  Canceled                                    (28,880)        (314)           10.85
                                           ----------   ----------    -------------
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
                                           -----------   ---------    -------------
                                           -----------   ---------    -------------
</TABLE>

Total stock options authorized but unissued at January 2, 1999 were 826,000.



                                       27
<PAGE>


The following table summarizes information about options outstanding and
exercisable at January 2, 1999:

<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    748,980     6.4 years            $ 6.23          383,380         $ 6.43
$ 8.00 to $11.99    400,980     2.8 years            $ 9.69          358,800         $ 9.65
$12.00 to $23.00     53,500     3.0 years            $22.25           53,500         $22.25
                 ----------                                       ------------
                  1,203,460     5.1 years            $ 8.09          795,680         $ 8.95
                 ----------                                       ------------
                 ----------                                       ------------
</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. The Company has 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
                                          1998      1997            1998      1997
                                         --------  -------        --------  -------
<S>                                     <C>       <C>            <C>       <C>    
ASSETS AND OBLIGATIONS
Change in benefit obligation:
  Beginning of year                     $57,663   $60,031         $ 9,472   $ 9,705
    Service cost                            358       397             438       393
    Interest cost                         3,998     4,580             644       727
    Actuarial (gain)loss                    918       432             975      (577)
    Benefits paid                        (5,933)   (7,777)           (714)     (776)
    Curtailment                           1,780         -               -         -
    Special termination benefits            254         -               -         -
    Plan amendments                           -         -            (906)        -
                                        --------  -------        --------  --------
  End of year                            59,038    57,663           9,909     9,472
                                        --------  -------        --------  --------
Fair value of plan assets:
  Beginning of year                      61,668    47,205               -         -
    Actual return on plan assets          3,097    12,595               -         -
    Employer contributions                2,598     9,645             714       776
    Benefits paid                        (5,933)   (7,777)           (714)     (776)
                                        --------  -------        --------  --------
  End of year                            61,430    61,668               -         -
                                        --------  -------        --------  --------

Funded Status                             2,392     4,005          (9,909)   (9,472)
Unrecognized net actuarial loss           9,527     6,453           2,884     1,981
Unrecognized transition obligation
  and prior service cost                    637       850          (1,219)     (331)
                                        --------  -------        --------  --------
Prepaid (accrued) benefit cost          $12,556   $11,308         $(8,244)  $(7,822)
                                        --------  -------        --------  --------
                                        --------  -------        --------  --------
</TABLE>


                                       28
<PAGE>


<TABLE>
<CAPTION>

                                          1998         1997        1996
                                       --------     --------   --------
<S>                                    <C>          <C>        <C>    
EXPENSE
Pension:
Service cost                            $  358      $   397     $   647
Interest cost                            3,998        4,580       4,298
Expected return on plan assets          (5,379)      (4,032)     (3,614)
Amortization of transition obligation      212          528         581
Recognized net actuarial loss              204        1,024         847
Amortization of prior service cost           -            -           7
Loss due to curtailment                      -            -       1,625
                                       --------     --------   --------
Total pension cost                        (607)       2,497       4,391
                                       --------     --------   --------
Health care and life insurance:
Service cost                               439          393         727
Interest cost                              644          727         827
Recognized net actuarial loss               72          112          91
Amortization of prior service cost         (18)         (18)        145
Loss due to curtailment                      -           23           -
                                       --------     --------   --------
Total health care and life insurance     1,137        1,237       1,790
                                       --------     --------   --------

Defined contribution plans              15,325       14,740      13,783
                                       --------     --------   --------
Total retirement plan expense          $15,855      $18,474     $19,964
                                       --------     --------   --------
                                       --------     --------   --------

ACTUARIAL ASSUMPTIONS
Expected return on plan assets               9%           9%          9%
Health care trend rate                       8            9          10
Discount rate                                7         7.25           8
</TABLE>



For measurement purposes, an 8% annual rate of increase in the per capita cost
of covered health care benefits (i.e., health care cost trend rate) was assumed
for 1998. The rate was assumed to decrease 1% per year to 6% 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 $645 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 $583 and $83, respectively.




                                       29
<PAGE>



6. COMMITMENTS AND CONTINGENCIES

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%. The Company also sublets certain leased office space to
unrelated third parties. Rent expense consisted of the following:

<TABLE>
<CAPTION>
                                            1998        1997        1996
                                        ---------   --------   ---------
<S>                                     <C>         <C>         <C>     
Minimum rentals                         $139,798    $135,264    $125,704
Percentage rentals                         1,836       2,340       2,469
Less sublease income                        (569)          -           -
                                        ---------   --------   ---------
Net rental expense                      $141,065    $137,604    $128,173
                                        ---------   --------   ---------
                                        ---------   --------   ---------
</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 2,
1999 are as follows:

<TABLE>
<CAPTION>
           Fiscal Year                                 Amount
           -----------                               ---------
           <S>                                       <C>     
           1999                                      $131,360
           2000                                       123,030
           2001                                       105,732
           2002                                        95,784
           2003                                        90,449
           and thereafter                             358,323
                                                     ---------
           Total minimum lease payments               904,678
           Less minimum sublease income                (4,196)
                                                     ---------
           Net minimum lease payments                $900,482
                                                     ---------
                                                     ---------
</TABLE>

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.


                                       30
<PAGE>



7. INCOME TAXES

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

<TABLE>
<CAPTION>
                       1998             1997           1996
                   ---------       ----------      ----------
<S>                <C>             <C>             <C>       
Domestic           $ 19,247        $ (57,510)      $ (25,307)
Foreign              (1,137)           8,104           4,031
                   ---------       ----------      ----------
Total              $ 18,110        $ (49,406)      $ (21,276)
                   ---------       ----------      ----------
                   ---------       ----------      ----------
</TABLE>


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

<TABLE>
<CAPTION>
                                                 1998          1997         1996
                                             ---------    ---------   ---------
<S>                                          <C>          <C>         <C>      
Current:
  Federal                                    $  4,247      $ (5,975)    $(12,311)
  State                                        (1,536)         (896)         700
  Foreign                                      (1,092)        3,894        2,277
                                             ---------     ---------    ---------
Total Current                                   1,619        (2,977)      (9,334)
                                             ---------     ---------    ---------
Deferred:
  Federal                                       7,275       (10,548)       2,811
  State                                        (3,197)       (2,633)        (931)
  Foreign                                         608          (227)        (433)
                                             ---------     ---------    ---------
Total Deferred                                  4,686       (13,408)       1,447
                                             ---------     ---------    ---------
                                             $  6,305      $(16,385)    $ (7,887)
                                             ---------     ---------    ---------
                                             ---------     ---------    ---------
</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>

                                     1998                1997                1996
                                Amount  Percent     Amount   Percent    Amount   Percent
                              --------- --------  --------- --------  --------- --------
<S>                           <C>       <C>       <C>       <C>       <C>       <C>    
Statutory rate                $  6,339     35.0%  $(17,292)  (35.0)%  $ (7,447)  (35.0)%
State income tax (net of
  federal income tax benefit)       91      0.5       (241)   (0.5)     (1,391)   (6.5)
Amortization of non-
  deductible goodwill
  and other items                1,031      5.7      1,548     3.1       1,601     7.5
Changes in estimates of
  previously provided taxes       (756)    (4.2)         -       -           -       -
Tax Credits                       (400)    (2.2)      (400)   (0.8)       (650)   (3.1)
                              --------- --------  --------- --------  --------- --------
Effective tax rate            $  6,305     34.8%  $(16,385)  (33.2)%  $ (7,887)  (37.1)%
                              --------- --------  --------- --------  --------- --------
                              --------- --------  --------- --------  --------- --------
</TABLE>



                                       31
<PAGE>


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

<TABLE>
<CAPTION>

                                                  1998           1997
                                              ---------      ---------
<S>                                           <C>            <C>     
Deferred tax assets:
  Allowance for doubtful accounts             $  5,283       $  6,369
  Allowance for the gross profit
    on estimated future returns                 10,759         10,810
  Facilities reserve                             2,265          4,979
  Compensated absences accruals                  4,382          4,395
  Reserve for self insurance                     1,145          1,340
  Reserve for inventory losses                  10,013          9,915
  Postretirement benefit obligation              3,412          3,232
  Capitalized overhead in inventory              1,249          3,957
  Net operating loss carryforwards              58,821         49,167
  Other                                          3,453          2,462
                                              ---------      ---------
                                               100,782         96,626
                                              ---------      ---------
Deferred tax liabilities:
  Property and equipment                        40,841         46,337
  Prepaid and deferred expenses                  5,948          8,386
  Gains on sale of accounts receivable          51,801         34,412
  Earned but unbilled finance charges            6,196          5,843
  Deferred rent obligation                       3,756          3,331
  Other                                              -          1,391
                                              ---------      ---------
                                               108,542         99,700
                                              ---------      ---------
Net deferred tax liabilities                  $  7,760       $  3,074
                                              ---------      ---------
                                              ---------      ---------
</TABLE>

The Company has net operating loss (NOL) carryforwards of $147,627, due to
expire in the years 2012 and 2013. Although realization is not assured for
deferred tax assets, management believes it is more likely than not that they
will be realized through future taxable earnings or alternative tax strategies.


8. 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.


9. 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>



10. 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 Catalog and
Newport News. These businesses offer apparel, home furnishings and other
merchandise through catalogs, the Internet and retail stores, and are supported
by the Company's FCNB Preferred charge card, which can be used interchangeably
by Eddie Bauer, Spiegel Catalog and Newport News customers.

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>
                                                1998            1997            1996
                                         -----------     -----------     -----------
<S>                                      <C>             <C>             <C>        
Revenues:
  Merchandising                          $ 2,822,211     $ 3,010,571     $ 2,968,505
  Bankcard                                   113,200          46,263          46,115
                                         -----------     -----------     -----------
Total revenues                             2,935,411       3,056,834       3,014,620
                                         -----------     -----------     -----------
Operating income
  Merchandising                               21,601           2,314          45,430
  Bankcard                                    70,344          22,685          22,638
                                         -----------     -----------     -----------
Total segment operating income                91,945          24,999          68,068
Premium on acquisitions                       (6,102)         (6,307)         (6,667)
                                         -----------     -----------     -----------
Total operating income                        85,843          18,692          61,401
Interest expense                              67,733          68,098          82,677
                                         -----------     -----------     -----------
Earnings before income taxes             $    18,110     $   (49,406)    $   (21,276)
                                         -----------     -----------     -----------
                                         -----------     -----------     -----------

Assets:
  Merchandising                          $ 1,527,024     $ 1,637,761     $ 1,709,664
  Bankcard                                   167,331         142,786          60,647
  Premium on acquisitions                    162,905         169,007         175,314
                                         -----------     -----------     -----------
Total assets                               1,857,260       1,949,554       1,945,625
                                         -----------     -----------     -----------
                                         -----------     -----------     -----------

Depreciation and amortization
  Merchandising                               80,896          80,110          85,929
  Bankcard                                     1,549           1,645           2,682
  Premium on acquisitions                      6,102           6,307           6,667
                                         -----------     -----------     -----------
Total depreciation and amortization           88,547          88,062          95,278
                                         -----------     -----------     -----------
                                         -----------     -----------     -----------

Net additions to property and equipment:
  Merchandising                               28,414          54,662          44,881
  Bankcard                                       196             385             817
                                         -----------     -----------     -----------
Total net additions to property
  and equipment                          $    28,610     $    55,047     $    45,698
                                         -----------     -----------     -----------
                                         -----------     -----------     -----------
</TABLE>


Segment assets, revenues and operating results reflect the impact of the
securitization of customer receivables. Non-cash incremental gains on the sale
of FCNB Preferred charge customer receivables of $11,757 and $63,813 were
included in the merchandising segment in fiscal year 1998 and 1997,
respectively. Included in the bankcard segment were non-cash incremental gains
of $33,571 and $11,328 in fiscal year 1998 and 1997, respectively.



                                       34
<PAGE>



STATEMENT OF MANAGEMENT RESPONSIBILITY

We have prepared the accompanying consolidated financial statements and related
information for the fiscal years 1998, 1997 and 1996. 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 2, 1999 and January 3, 1998, and the related
consolidated statements of earnings, stockholders' equity and cash flows for
each of the years in the three-year period ended January 2, 1999. 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 2, 1999 and January 3, 1998, and the results of their
operations and their cash flows for each of the years in the three-year period
ended January 2, 1999 in conformity with generally accepted accounting
principles.




/s/ KPMG LLP
-----------------

Chicago, Illinois
February 10, 1999



                                       36
<PAGE>


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


<TABLE>
<CAPTION>
1998                      First            Second          Third            Fourth       Total Year
------------------     ------------     ------------    ------------     ------------    -----------
<S>                    <C>              <C>             <C>              <C>             <C>        
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>



<TABLE>
<CAPTION>
1997                       First           Second           Third           Fourth       Total Year
------------------     ------------     ------------    ------------     ------------    -----------
<S>                    <C>              <C>             <C>              <C>             <C>        
Net sales and
 other revenues        $  601,812       $   696,243     $  646,963       $ 1,111,816     $ 3,056,834
Operating income (loss)   (39,863)           (3,365)       (10,394)           72,314          18,692
Net earnings (loss)    $  (31,209)      $   (13,483)    $  (20,195)      $    31,866     $   (33,021)
Net earnings (loss)
 per common share
   Basic and diluted   $    (0.28)      $     (0.11)    $    (0.17)      $      0.27     $     (0.28)
Weighted average
  common shares
  outstanding         110,261,774       118,106,457    118,112,697       118,143,431     116,193,587

MARKET PRICE DATA
  High                $     7 7/8       $     7 5/8     $    7 1/2       $     7 1/4     $     7 7/8
  Low                 $     6 1/2       $     5 3/4     $    6           $     4 3/4     $     4 3/4
</TABLE>


(1) In 1998, second quarter and total year net earnings include 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)                             55       Chairman of the Board of Directors                          1982
                                                          and Chairman of the Board of Directors
                                                          of Otto Versand (GmbH & Co)

Thomas Bohlmann                                  53       Board of Directors and Director, Planning                    1989
                                                          and Control of Otto Versand (GmbH & Co)(1989)

Dr. Michael E. Cruesemann (2)(3)                 53       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)                            49       President and Chief Executive Officer,                       1996
                                                          Eddie Bauer

Hans Jorg Hammer                                 59       Board of Directors and Director, Personnel                   1991
                                                          of Otto Versand (GmbH & Co)(1991)

Horst R. Hansen (2)                              64       Retired.  Prior to March 1994 was a member                   1982
                                                          of the Board of Directors and Director,
                                                          Finance, and Chief Financial Officer
                                                          of Otto Versand Group

John W. Irvin (4)                                51       President and Chief Executive Officer,                       1996
                                                          Spiegel Catalog

George D. Ittner (4)                             55       President and Chief Executive Officer,                       1998
                                                          Newport News

Siegfried Kockmann                               59       Board of Directors and Director,                             1997
                                                          Organizational and Systems Planning of
                                                          Otto Versand (GmbH & Co)(1982)

Michael R. Moran (1)(3)(4)                       52       Office of the President, Chairman and                        1997
                                                          Chief Legal Officer

Dr. Peter Mueller (2)                            57       Retired.  Prior to December 1997 was a                       1985
                                                          member of the Board of Directors and
                                                          Director, Advertising and Marketing of
                                                          Otto Versand (GmbH & Co)
</TABLE>



                                       38
<PAGE>

<TABLE>
<CAPTION>
<S>                                              <C>      <C>                                                             <C> 

Gert Rietz                                       52       Board of Directors and Director, Merchandise                    1997
                                                          of Otto Versand (GmbH & Co)(1989)

James W. Sievers (3)(4)                          56       Office of the President, Chief Financial                        1997
                                                          Officer

Dr. Peer Witten                                  53       Board of Directors and Director,                                1991
                                                          Operations of Otto Versand (GmbH & Co) for
                                                          at least the last five years

Martin Zaepfel (1)                               55       Vice Chairman of the Board of Directors of                      1996 
                                                          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, 1999.

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)
----------------------                           ---      --------------------------------------------------

EXECUTIVE OFFICERS OF SPIEGEL, INC.:

<S>                                              <C>   <C>
Michael R. Moran                                 52    Office of the President (1997), Chairman (1998),                            
                                                       and Chief Legal Officer (1997); Senior Vice
                                                       President, Secretary & General Counsel (1996);
                                                       Vice President, Secretary & General Counsel
                                                       (1988); and Director (1997)

James W. Sievers                                 56    Office of the President (1997) and Chief Financial                          
                                                       Officer (1994); Senior Vice President, 
                                                       (1995); Vice President, Finance (1990);
                                                       and Director (1997)

Richard T. Fersch                                49    President (1992) and Chief Executive Officer (1997), Eddie
                                                          Bauer; and Director (1994)

John W. Irvin                                    51    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                                 55    President (1992) and Chief Executive Officer (1997),
                                                          Newport News; and Director (1998)

Jon K. Nordeen                                   43    Vice President and Chief Information Officer
                                                       (1996); Director of Application Development of
                                                       Dayton Hudson Corporation (1995); Director of
                                                       Application Development, Department Store Division
                                                       of Dayton Hudson Corporation (1987)
 
John R. Steele                                   46    Vice President (1995) and Treasurer (1993)


CERTAIN SIGNIFICANT EMPLOYEES:

Gregory R. Aube                                  46    President of FCNB (1995); General Counsel and
                                                       Corporate Secretary of FCNB (1989)

Michael L. Wilson                                44    President of DFS (1996); Director, Logistics of
                                                       Eddie Bauer (1995); Vice President, Retail
                                                       Distribution of DFS (1993)
</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, 1999.

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 2, 1999, January 3, 1998 and December 28, 1996 to or
on behalf of each of the six 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 (3)
Position                Year     ($)       ($)       ($)          (#)        ($)
-------------------    ------ --------  --------  ---------  ----------  ----------

<S>                     <C>   <C>       <C>       <C>        <C>         <C>     
Michael R. Moran        1998  $318,462  $267,436  $101,783     15,000     $242,300
Office of the           1997   260,000   150,000    94,456     10,000            -
President, Chairman,    1996   210,000    23,464    90,635      5,000            -
Chief Legal Officer
and Director

James W. Sievers        1998  $343,077  $224,077  $ 91,924     15,000     $243,700
Office of the           1997   310,000   150,000   103,765     10,000            -
President, Chief        1996   270,000    23,464    95,151      5,000            -
Financial Officer
and Director

Harold S. Dahlstrand(1) 1998  $332,039  $230,236  $ 75,015          -     $238,700
Retired.  Former Vice   1997   290,000   150,000    99,357     10,000            -
Chairman, Chief Human   1996   230,000   123,464    80,056      7,500            -
Resources Officer and
Chairperson of the Office
of the President

Richard T. Fersch       1998  $750,000  $      -  $174,531     15,000     $      -
President and Chief     1997   650,000   243,700   157,789     10,000            -
Executive Officer of    1996   600,000   702,000   150,387     10,000            -
Eddie Bauer and Director

John W. Irvin           1998  $500,000  $300,000  $140,408     15,000     $331,000
President and Chief     1997   475,000   213,750   126,945     10,000            -
Executive Officer of    1996   300,000   100,000    88,649     60,000            -
Spiegel Catalog and
Director

George D. Ittner        1998  $400,000  $377,610  $ 33,078     15,000     $368,932
President and Chief     1997   374,736   175,000    57,906     25,000            -
Executive Officer of    1996   366,045    50,000    49,601      5,000            -
Newport News and
Director
</TABLE>


(1)      Harold S. Dahlstrand retired from the Company and the Board of
         Directors in November 1998. As part of his retirement agreement, Mr.
         Dahlstrand will receive $761,600 over the two year period ending
         December 30, 2000.

(2)      The following tables summarize all other compensation for the years
         ended January 2, 1999, January 3, 1998 and December 28, 1996:

(3)      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 businesses over the last two
         years, with the payout formula heavily weighted to the 1998 
         performance.



                                       41
<PAGE>


<TABLE>
<CAPTION>

                                    Retirement   Car Allowance/  Life Insurance
                  Name               Benefits        Other       Premiums Paid      Total
              -------------------- ------------ ---------------  -------------- ------------

         <S>                       <C>          <C>              <C>            <C>       
         1998 Michael R. Moran      $   27,069   $   63,648        $  11,066      $  101,783
              James W. Sievers          29,162       43,524           19,238          91,924
              Harold S. Dahlstrand      24,699       45,165            5,151          75,015
              Richard T. Fersch         63,750       41,515           69,266         174,531
              John W. Irvin             42,500       52,456           45,452         140,408
              George D. Ittner           3,200       23,908            5,970          33,078


         1997 Michael R. Moran      $   22,600    $  64,095        $   7,761      $   94,456
              James W. Sievers          27,100       62,779           13,886         103,765      
              Harold S. Dahlstrand      25,300       64,055           10,002          99,357
              Richard T. Fersch         57,700       45,251           54,838         157,789
              John W. Irvin             41,950       50,712           34,283         126,945
              George D. Ittner           5,476       52,430                -          57,906


         1996 Michael R. Moran      $   18,210    $  61,593        $  10,832      $   90,635
              James W. Sievers          23,670       53,102           18,379          95,151      
              Harold S. Dahlstrand      20,030       46,184           13,842          80,056
              Richard T. Fersch         53,700       41,710           54,977         150,387
              John W. Irvin                  -       49,476           39,173          88,649
              George D. Ittner           3,791       43,835            1,975          49,601
</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 2, 1999 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 1998       ($/sh)      Date        5% ($)     10% ($)
------------------ --------- -------------  -------- -----------   --------   ---------

<S>                <C>       <C>            <C>      <C>           <C>        <C>    
Michael R. Moran     15,000       8.6%        6.00     12/31/08     56,601     143,437

James W. Sievers     15,000       8.6%        6.00     12/31/08     56,601     143,437

Harold S. Dahlstrand      -         -            -            -          -           -

Richard T. Fersch    15,000       8.6%        6.00     12/31/08     56,601     143,437

John W. Irvin        15,000       8.6%        6.00     12/31/08     56,601     143,437

George D. Ittner     15,000       8.6%        6.00     12/31/08     56,601     143,437
</TABLE>


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


                                       43
<PAGE>


AGGREGATED OPTION EXERCISES IN 1998 AND JANUARY 2, 1999 OPTION VALUES

The following table sets forth shares acquired on exercise and stock option
values at January 2, 1999:

<TABLE>
<CAPTION>
                                       Number of Securities     Value of Unexercised
                                      Underlying Unexercised    In-the-Money Options
                   Shares                  Options at                     at
                  Acquired               January 2, 1999            January 2, 1999
                     On      Value    Exercise-  Unexercise-     Exercise-   Unexercise-
      Name        Exercise  Realized    able         able          able        able
----------------  --------  --------  ---------  ----------    -----------   -----------

<S>               <C>       <C>       <C>        <C>           <C>           <C>    
Michael R. Moran     6,000   $48,125    43,500      30,000        $ 1,700       $ 6,800

James W. Sievers         -         -    45,000      31,000        $ 1,700       $ 6,800

Harold S. Dahlstrand 1,200   $ 7,875    60,500           -        $ 8,500             -

Richard T. Fersch        -         -    69,400      51,000        $ 1,700       $ 6,800

John W. Irvin            -         -    26,000      59,000        $ 1,700       $ 6,800

George D. Ittner         -         -    14,000      41,000        $ 4,250       $17,000
</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.



                                       44
<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 $850,000 in
1999, and escalates to $1,000,000 in the year 2000. The agreement also entitles
Mr. Fersch to receive an annual bonus based upon the financial performance of
Eddie Bauer. The bonus opportunity for 1999 is 95% of base salary. The bonus
opportunity for the remaining three years of the agreement is 100% of base
salary. During all four remaining years of this agreement, Mr. Fersch is
guaranteed 50% of the eligible bonus opportunity.

The Company has an employment agreement with John W. Irvin, President and Chief
Executive Officer of Spiegel Catalog, the term of which extends through December
31, 2001. The current annual base salary under this agreement is $525,000. The
agreement entitles Mr. Irvin to receive an annual bonus based on the financial
performance of Spiegel Catalog.

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
$425,000. The agreement entitles Mr. Ittner to receive an annual bonus based on
the financial performance of Newport News.

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 Chairperson of the Office of the President of the Company.

EMPLOYEE BENEFITS

               STOCK OPTION PLAN

               The current 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 Spiegel and its
               subsidiaries 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% 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 174,000 at January 2, 1999.

               In addition to the current stock option plan discussed above,
               671,460 shares were outstanding at January 2, 1999 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 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 358,000 at January
               2, 1999.

               The average per share price of stock options granted during the
               year was $6.00. Net cash realized with respect to the exercise of
               options during the year was approximately $466,000.



                                       45
<PAGE>



               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 plan 7% of the first $100
               million of Spiegel consolidated earnings before income taxes,
               plus 6% of the second $100 million of Spiegel consolidated
               earnings before income taxes, plus 4% of Spiegel consolidated
               earnings before income taxes in excess of $200 million plus any
               other amounts determined by the Company's Board of Directors. A
               minimum contribution of 4% 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% 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% of
               base compensation and 50 cents for each dollar contributed up to
               the next 3%. The Company matches hourly employee contributions 25
               cents for each dollar contributed up to 6% 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% 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 after one year of service are 100% 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 receive 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 RETIREMENT BENEFIT PLAN

               The Company maintains an unfunded supplemental retirement plan
               for the benefit of certain employees covered by the Spiegel Group
               Value in Partnership Profit Sharing and 401(k) Savings Plan
               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 the 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.


                                       46
<PAGE>



               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 up 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.

               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. For 1998, approximately $17,800,000 was earned under both
               these bonus plans.

               NEWPORT NEWS, INC. RETIREMENT SAVINGS PLAN

               Newport News has a retirement savings plan covering its
               associates. Associates become eligible as of the beginning of the
               calendar quarter following completion of one year of service.
               Associates may elect to contribute up to 10% of their
               compensation to the plan on a pre-tax basis under Section 401(k)
               of the Internal Revenue Code. The associate may also elect to
               make nondeductible after-tax contributions to the plan of up to
               5% of their compensation. The company matches contributions at a
               rate of 50% of the first 4% of compensation contributed. The
               company matching contributions, however, may not exceed the
               amount deductible under the Internal Revenue Code.

               Contributions are held in trust for the benefit of the plan
               participants. A participant receives the full amount in this
               account under the plan (including investment earnings) on
               termination of employment by reason of retirement (as defined in
               the plan document), or disability. Upon death, the full value of
               the participant's account is distributable to their beneficiary.
               On any other termination of employment, a participant is 100%
               vested at all times in the portion of his account attributable to
               pre-tax contributions, and is vested in the company's matching
               contributions and earnings thereon, at a rate based on years of
               service, with full vesting after a maximum of five years.
               Distributions are made on a lump sum basis. Participants are
               permitted to borrow from their account, but may only have one
               loan outstanding at a time. Participants suffering certain
               financial hardships may request an inservice withdrawal of prior
               contributions.

                                       47
<PAGE>


ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

A.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS

Spiegel Holdings, Inc. (SHI) holds 99.9% 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% 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
18, 1999, 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% 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. Under rules and regulations promulgated by the
         Securities and Exchange Commission, Dr. Otto may be deemed to
         beneficially own all the shares of the Company owned by SHI. 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 18, 1999, 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:

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 18, 1999.



                                       48
<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>             <C>
Class A    Gregory A. Aube               3,761           2,400             *

Class A    Richard T. Fersch            73,000          69,400             *

Class A    John W. Irvin                46,000          36,000             *

Class A    George D. Ittner             16,400          14,000             *

Class A    Michael R. Moran             55,500          35,500             *

Class A    Dr. Peter Mueller            10,000               -             *

Class A    Jon K. Nordeen                  400             400             *

Class A    Gert Rietz (2)               29,500               -             *

Class A    James W. Sievers             45,000          37,000             *

Class A    John R. Steele                1,750           1,500             *

Class A    Michael L. Wilson             2,438           2,400             *

Class A    All directors and           283,749         198,600           1.9%
           officers as a group
           (19 persons)
</TABLE>

(1)      Includes shares which may be acquired within 60 days under the
         Company's Stock Option Plan.

(2)      Section 16(a) Beneficial Ownership Reporting Compliance: As required by
         the Securities Exchange Act of 1934, as amended, the Company notes that
         Mr. Gert Rietz 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 October 1998.

*        Less than 1%.



                                       49
<PAGE>


ITEM 13.  CERTAIN TRANSACTIONS

Since its acquisition of the Company in 1982, and following the transfer of its
interest therein to its partners and designees in April 1984, 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 $4,035,000 in 1998,
$4,050,000 in 1997, and $3,917,000 in 1996. The arrangements are indefinite in
term but may generally be canceled by either party upon one year's 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 $2,697,000, $3,171,000 and $3,870,000 in
1998, 1997 and 1996, 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 33 stores open in Japan as of January 2, 1999.
To date, Eddie Bauer has contributed $6,472,027 to the project and in 1994,
received a $2,500,000 licensing fee for the use of its name. Eddie Bauer
received $4,547,000, $4,272,000 and $3,981,000 in royalty income on retail and
catalog sales during 1998, 1997 and 1996, respectively. Eddie Bauer recorded
income of approximately $275,000 in 1998, a loss of $31,000 in 1997, and income
of $406,000 in 1996 for its equity share of the joint venture.

During 1995, Eddie Bauer formed a joint venture with Handelsgesellschaft
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 2, 1999. Eddie Bauer has contributed $3,482,401 to the
project and has received $1,000,000 in licensing fees for the use of its name.
Eddie Bauer received $1,033,000, $756,000 and $773,000 in royalty income on
retail and catalog sales during 1998, 1997 and 1996, respectively. Eddie Bauer
recorded approximately $4,394,000, $1,642,000 and $707,000 of losses for its
equity share of the joint venture during 1998, 1997 and 1996, respectively.

During 1996, Eddie Bauer formed a joint venture with Gratten 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 are no less favorable to Eddie Bauer than
would be the case in an arrangement with an unrelated third party. There were
six stores open in the United Kingdom as of January 2, 1999. Eddie Bauer has
contributed $2,617,240 to the project and received a licensing fee of $666,667
in 1998 for the use of its name. In addition, Eddie Bauer received $209,000 and
$41,000 in 1998 and 1997, respectively, in royalty income on retail and catalog
sales. Eddie Bauer recorded losses of approximately $2,685,000 and $956,000 in
1998 and 1997, respectively, for its equity share of 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 



                                       50
<PAGE>

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 $20,173,000, $22,900,000 and $14,476,000 to EBI-Hong
Kong for these services in 1998, 1997 and 1996, respectively. The Company paid
EBI-Miami $3,226,000 for these services in 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.

In March 1994, Newport News issued 113 shares of non-voting preferred stock to
ten directors and ten other executive officers of the Company and nine executive
officers and directors of Newport News and Otto Versand for $40,000 per share.
Each participant was eligible to purchase up to four shares. In December 1995,
an additional seven shares were offered to four executive officers from Newport
News and Eddie Bauer at $43,000 per share. At year-end 1997, 92 shares were
outstanding, including 85 shares from the initial issuance, held by the
following individuals with the number of shares indicated by parentheses
following each name: Dr. Michael Otto (4); Thomas Bohlmann (3); Hans-Christoph
Fischer (4); Hans-Jorg Hammer (4); Dr. Peter Mueller (4); Peer Witten(4); 
John J. Shea (4); Harold S. Dahlstrand (4); James J. Broderick (4); Robert E. 
Conradi (4); Michael R. Moran (4); Georgia L. Shonk-Simmons (4); James W. 
Sievers (4); Karl A. Steigerwald (4); George D. Ittner (4); James W. Brewster 
(4); Geralyn M. Madonna (2); Gerhard Hocht (4); Siegfried Kockmann (4); Gert 
Rietz (4); Martin Zaepfel (4) Dr. Michael Cruesemann (4); Martin Smith (1); 
David Knoll (1); Charles Krieg (1); and Richard Fersch (4). All 92 
outstanding shares were redeemed by the Company for $12,236,000, or $133,000 
per share, in April 1998. The redemption price per share was determined by an 
independent valuation consultant and reflected the fair market value at that 
date.

In March 1997, the Company issued 10,341,644 shares of Class B voting common
stock for $69,972,000 to its majority shareholder, Spiegel Holdings, Inc. The
Company issued an additional 13,526,571 shares of Class B voting common stock
for $69,993,000 to Spiegel Holdings, Inc. in March 1998. The proceeds from these
issuances, net of related costs, were used to fund working capital and investing
needs.

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.





                                       51
<PAGE>

                                                 PART IV

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

<TABLE>
<CAPTION>

                                                                                                 PAGE
<S>              <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                                 54
                        Schedule II--Valuation and Qualifying Accounts                           55

</TABLE>

                        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.



                                       52
<PAGE>



                 3.     EXHIBITS
<TABLE>
<CAPTION>

                 Exhibit
                 Number            Description of Exhibit


                 <S>               <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.










                                       53
<PAGE>


         INDEPENDENT AUDITORS' REPORT ON SCHEDULE

         The Board of Directors and Stockholders
         Spiegel, Inc.:

         Under date of February 10, 1999, we reported on the consolidated
         balance sheets of Spiegel, Inc., and subsidiaries as of January 2, 1999
         and January 3, 1998, and the related consolidated statements of
         earnings, stockholders' equity, and cash flows for each of the years in
         the three-year period ended January 2, 1999, 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
                                                           --------------

         Chicago, Illinois
         February 10, 1999



                                       54
<PAGE>


                                                                     SCHEDULE II


                         SPIEGEL, INC. AND SUBSIDIARIES

                        VALUATION AND QUALIFYING ACCOUNTS
                               FOR THE YEARS ENDED
                                 ($000s omitted)


<TABLE>
<CAPTION>

                                                       January 2,     January 3,   December 28,
                                                         1999          1998          1996
                                                      -----------   ------------  ------------

         ALLOWANCE FOR DOUBTFUL ACCOUNTS

         <S>                                          <C>            <C>            <C>      
         Balance at beginning of year                 $  14,922      $  14,830      $  40,832
           Charged to earnings                           29,837         13,521         22,593
           Reduction for receivables sold               (10,791)          (235)       (23,861)
           Accounts written off, net of
             recoveries                                 (22,125)       (13,194)       (24,734)
                                                      ----------     ----------     ----------
           Balance at end of year                     $  11,843      $  14,922      $  14,830
                                                      ----------     ----------     ----------
                                                      ----------     ----------     ----------
</TABLE>




                                       55
<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 25, 1999.

                                                   SPIEGEL, INC.

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

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

         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 25, 1999.


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



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




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





                                       56
<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 25, 1999.


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



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



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



         /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




                                       57