- - -
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended May 31, 1994
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
OR
For the transition period from to
Commission file number #1-8484
Heilig-Meyers Company
(Exact name of registrant as specified in its charter)
Virginia 54-0558861
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
2235 Staples Mill Road, Richmond, Virginia 23230
(Address of principal executive offices) (Zip Code)
(804) 359-9171
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed
since last report.)
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 the number of shares outstanding of each of the issuer's classes of
common stock, as of July 1, 1994.
48,434,823 shares of Common Stock, $2.00 par value.
<PAGE>
HEILIG-MEYERS COMPANY
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Earnings for
Three Months Ended May 31, 1994
and May 31, 1993 (Unaudited). . . . . . . . . . .3
Consolidated Balance Sheets as of
May 31, 1994, and February 28, 1994 (Unaudited). . . . . . 4
Consolidated Statements of Cash Flows for
Three Months Ended May 31, 1994 and
May 31, 1993 (Unaudited) . . . . . . . . . . . . . . . . . 5
Notes to Consolidated Financial Statements (Unaudited) . . 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations. . . . . . . 7
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits - see Index to Exhibits . . . . . . . . . . . .13
b. There were no reports on Form 8-K filed
during the quarter ended May 31, 1994.
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HEILIG-MEYERS COMPANY
CONSOLIDATED STATEMENTS OF EARNINGS
(Amounts in thousands except per share data)
(Unaudited)
Three Months Ended
May 31,
1994 1993
Revenues:
Sales $223,181 $156,025
Other income 45,666 30,736
Total revenues 268,847 186,761
Costs and Expenses:
Costs of sales 141,271 97,231
Selling, general and
administrative 81,239 55,792
Interest 7,101 6,127
Provision for doubtful
accounts 10,080 6,709
Total costs and expenses 239,691 165,859
Earnings before provision for
income taxes 29,156 20,902
Provision for income taxes 10,846 7,441
Net earnings $ 18,310 $ 13,461
Net earnings per share of common
stock:
Primary and fully diluted $0.37 $0.29
Cash dividends per share of
common stock $0.06 $0.05
See notes to consolidated financial statements.
<PAGE>
HEILIG-MEYERS COMPANY
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands except par value data)
(Unaudited)
May 31, February 28,
1994 1994
ASSETS
Current assets:
Cash $ 6,388 $ 6,295
Accounts receivable, net 520,672 535,437
Other receivables 19,606 17,988
Inventories 193,195 184,216
Other 26,501 21,366
Total current assets 766,362 765,302
Property and equipment, net 170,816 168,142
Other assets 111,264 106,741
$1,048,442 $1,040,185
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 131,400 $ 172,600
Long-term debt due within
one year 34,351 37,718
Accounts payable 69,803 69,045
Accrued expenses 49,131 32,764
Total current liabilities 284,685 312,127
Long-term debt 266,572 248,635
Deferred income taxes 47,906 46,194
Commitments --- ---
Stockholders' equity:
Preferred stock, $10 par value --- ---
Common stock, $2 par value 96,870 96,846
Capital in excess of par value 119,022 118,400
Retained earnings 233,387 217,983
Total stockholders' equity 449,279 433,229
$1,048,442 $1,040,185
See notes to consolidated financial statements.<PAGE>
HEILIG-MEYERS COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
Three Months Ended
May 31,
1994 1993
Cash flows from operating activities:
Net earnings $ 18,310 $ 13,461
Adjustments to reconcile net
earnings to net cash used by
operating activities:
Depreciation and amortization 6,148 4,740
Provision for doubtful accounts 10,080 6,709
Other, net (75) 27
Change in operating assets and
liabilities net of the effects
of acquisitions:
Accounts receivable (46,140) (35,743)
Sale of accounts receivable 50,000 - - -
Other receivables (1,618) 2,757
Inventories (7,436) (14,004)
Prepaid expenses (5,972) (1,866)
Accounts payable 758 (4,927)
Accrued expenses 18,046 4,471
Net cash provided/(used)
by operating activities 42,101 (24,375)
Cash flows from investing activities:
Acquisitions, net of cash acquired (5,543) (4,778)
Additions to property and equipment (6,781) (5,896)
Disposals of property and equipment 123 707
Miscellaneous investments (917) (2,056)
Net cash used by investing
activities (13,118) (12,023)
Cash flows from financing activities:
Issuance of common stock 646 75,590
Net decrease in notes payable (96,200) (26,100)
Proceeds from long-term debt 80,000 - - -
Payments of long-term debt (10,430) (10,455)
Dividends paid (2,906) (2,078)
Net cash provided/(used)
by financing activities (28,890) 36,957
Net increase in cash 93 559
Cash at beginning of period 6,295 3,868
Cash at end of period $ 6,388 $ 4,427
See notes to consolidated financial statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
.A. The accompanying consolidated financial statements of Heilig-Meyers
Company have not been audited by independent accountants, except
for the balance sheet at February 28, 1994. These financial
statements have been prepared in accordance with regulations of the
Securities and Exchange Commission in regard to quarterly (interim)
reporting. In the opinion of management, the financial information
presented reflects all adjustments, comprised only of normal
recurring accruals, which are necessary for a fair presentation of
the results for the interim periods. Significant accounting
policies and accounting principles have been consistently applied
in both the interim and annual consolidated financial statements.
Certain notes and the related information have been condensed or
omitted from the interim financial statements presented in this
Quarterly Report on Form 10-Q. Therefore, these financial
statements should be read in conjunction with the Company's 1994
Annual Report on Form 10-K. The results for the first quarter of
fiscal year 1995 are not necessarily indicative of future financial
results.
B. On April 6, 1994, the Board of Directors declared a cash dividend
of $0.06 per share which was paid on May 21, 1994, to stockholders
of record on April 27, 1994.
C. Subsequent to May 31, 1994, the Company received a commitment to
borrow $25,000,000 at an interest rate of 7.62% from an insurance
company. The proceeds will be used to reduce notes payable to
banks. As a result, the Company reclassified $25,000,000 of notes
payable as long-term debt on the accompanying May 31, 1994, balance
sheet.
D. During the quarter the Company amended two asset securitization
agreements involving the sale of accounts receivable. The
amendments increased the contract amounts from $40 million and $50
million to $60 million and $80 million, respectively. The amended
agreements have lives of 54 and 42 months, respectively.
E. Accounts receivable are shown net of the allowance for doubtful
accounts and unearned finance income. The allowance for doubtful
accounts was $33,171,000 and $28,497,000 and unearned finance
income was $47,641,000 and $49,420,000 at May 31, 1994, and
February 28, 1994, respectively.
F. The Company made income tax payments of $823,000 and $1,870,000
during the three months ended May 31, 1994, and May 31, 1993,
respectively.
G. The Company made interest payments of $5,586,000 and $4,484,000
during the three months ended May 31, 1994, and May 31, 1993,
respectively.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
The following discussion should be read in conjunction with the financial
statements and notes to the financial statements included in Item 1 of this
document, and with the Company's audited financial statements and notes
thereto for the fiscal year ended February 28, 1994.
RESULTS OF OPERATIONS
Total revenues for the quarter rose 44.0% to $268.8 million from $186.8
million in the prior year. Net earnings increased 36.0% to $18.3 million or
$0.37 per share compared to $13.5 million or $0.29 per share in the prior
year.
Sales for the first quarter increased 43.0% to $223.2 million from
$156.3 million in the first quarter of the prior year. Stores which were
operated by the company one year ago (comparable stores) contributed 10.0%
while new stores contributed the remaining 33.0% of the 43.0% total sales
increase. Management attributes the favorable comparable store sales
increase to the continued focus on operational enhancements such as targeted
customer advertising and improved merchandising programs. Included in the
33.0% new store increase are sales of $25.8 million from the recently
acquired southwest and west coast stores. The performance of the southwest
and west coast stores was consistent with management's expectations.
As a percentage of sales, other income increased to 20.5% from 19.7% in
the prior year. The increase is the result of the delayed recognition of
finance income from strong fiscal 1994 sales, earned over the average
contract stretch.
Costs of sales increased to 63.3% from 62.3% in the prior year. Gross
margins were down due to the use of more promotional pricing to stimulate
sales as well as oversold promotional items being replaced with higher cost
goods which were sold at the promotional prices. Occupancy expense remained
consistent, as a percentage of sales, with the prior year quarter. Delivery
expense decreased slightly as a percentage of sales due to economies of scale
efficiencies recognized with the higher sales volume. Management expects
costs of sales to continue to be higher than in the prior year due to ongoing
promotional pricing and slightly higher costs associated with the transition
of the recently acquired southwest and west coast stores as distribution
operations are implemented.
Selling, general and administrative expense increased as a percentage of
sales to 36.4% from 35.8% in the prior year. Advertising costs increased as
a result of the Company's increased use of institutional advertising methods
such as television and radio, especially in the larger city markets.
Salaries increased slightly as a result of additional promotional monies
being paid to store personnel in order to stimulate sales. However, these
increases were partially offset by leverage on the higher sales volume in
data processing expenses, depreciation and other miscellaneous costs.
Management believes that selling, general and administrative expense will
show slight increases over the prior year, as a percentage of sales, for the
remainder of fiscal 1995 due to the transitional expenses relating to the
implementation of Heilig-Meyers systems in the recently acquired southwest
and west coast stores.
Interest expense decreased as a percentage of sales from 3.9% in the
first quarter of fiscal 1994 to 3.2% in the first quarter of fiscal 1995
primarily due to the decrease in weighted average long-term interest rates
from 9.1% to 8.2%. The Company is focusing on structuring its debt portfolio
to contain a higher percentage of long-term fixed rate debt than in the prior
year. This strategy is designed to minimize the Company's exposure to
changes in short-term interest rates. Currently only approximately 19% of
debt obligations, or approximately 9% of total capital, are in variable rate
instruments. As a result, fluctuations of interest rates throughout the
remainder of the fiscal year are not expected to have a significant impact on
consolidated net earnings. Subsequent to May 31, 1994, the Company received
a long-term commitment to borrow $25.0 million at an interest rate of 7.62%.
The proceeds will be used to reduce notes payable. Accordingly, the Company
reclassified $25.0 million of notes payable as long-term debt on the May 31,
1994, balance sheet included in Item 1 of this document.
The provision for doubtful accounts increased as a percentage of sales
to 4.5% from 4.3% in the quarter of the previous fiscal year. An increase
in the portfolio loss rate in relation to the growing accounts receivable
base caused the increase.
The tax rate in effect for fiscal 1995 is 37.2% compared to 35.6% for
the first quarter of fiscal 1994. The increase is primarily due to the
enactment of The Omnibus Reconciliation Act of 1993 in the second quarter of
fiscal 1994, which increased the Company's federal tax rate, and an increase
in the Company's state taxes relating to the entrance into new states bearing
higher tax rates.
LIQUIDITY AND CAPITAL RESOURCES
The Company increased its cash position $93,000 to $6,388,000 at May 31,
1994, from $6,295,000 at February 28, 1994, compared to an increase of
$559,000 in the comparable period a year ago.
Net cash inflow from operating activities was $42.1 million, compared to
a net cash outflow of $24.4 million in the comparable period of the prior
year. The Company traditionally produces a deficit in cash flow from
operations because it extends credit to its customers. The positive cash
flow from operations during the first quarter of fiscal year 1995 was due to
the amendment of two asset securitization agreements involving the sale of an
additional $50.0 million of accounts receivable. Accounts receivable net of
the securitization transactions increased due to the continued increases in
credit sales. During the quarter net cash outflows for inventories decreased
as compared to the prior year. As a result of the high sales volume in the
quarter and management's efforts to improve inventory turns, total company
inventory per store has decreased approximately 4.1%. Inventory turns have
increased to 2.6 at May 1994 from 2.4 at May 1993. The increase in accrued
expenses was mainly attributable to a higher income tax liability resulting
from higher effective tax rate and higher state tax rates. Continued
extension of credit and related increases in customer accounts receivable
combined with an increase in inventory levels associated with the addition of
new stores and a new distribution center opening in Fontana, California, will
likely produce negative cash flow from operations in the forthcoming fiscal
1995 quarters.
Investing activities produced negative cash flows of $13.1 million
during the first quarter of fiscal 1995 as compared to $12.0 million in the
prior year. Additions to property and equipment increased slightly compared
to the same period in the prior year as the Company continues the remodeling
of new and existing stores. The Company expects total capital spending for
fiscal 1995 to be stable both as a percentage of sales and assets compared to
the prior fiscal year. Capital expenditures will continue to be financed by
cash flows from operations supplemented by external sources of funds.
Financing activities produced negative cash flows of $28.9 million
during the first quarter of fiscal 1995 as compared to a $37.0 million
positive cash flow in the prior year. This decrease in cash flow is mainly
due to a common stock offering in the prior year which resulted in proceeds
of $74.5 million. During the most recent quarter, the Company received $80.0
million in relation to a long-term borrowing at an interest rate of 6.9%.
The $80.0 million in proceeds was used to reduce notes payable. The Company
has lines of credit through ten banks totaling $324.0 million of which
$167.6 million was unused at May 31, 1994.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Heilig-Meyers Company
(Registrant)
Date: July 11, 1994 /s/Joseph R. Jenkins
Joseph R. Jenkins
Executive Vice President
Principal Financial Officer
Date: July 11, 1994 /s/William J. Dieter
William J. Dieter
Senior Vice President - Accounting
Principal Accounting Officer
<PAGE>
INDEX TO EXHIBITS
11. Computation of Per Share Earnings................................ 13
<PAGE>
EXHIBIT 11
HEILIG-MEYERS COMPANY
COMPUTATION OF PER SHARE EARNINGS
(Amounts in thousands except per share data)
Three Months Ended
May 31, May 31,
1994 1993
Primary Earnings Per Share:
Average number of
shares outstanding 48,431 44,776
Net effect of stock
options 1,590 1,363
Average number of
shares as adjusted 50,021 46,139
Net earnings $18,310 $13,461
Per share amount $ .37 $ .29
Fully Diluted Earnings Per Share:
Average number of
shares outstanding 48,431 44,776
Net effect of stock
options 1,590 1,433
Average number of
shares as adjusted 50,021 46,209
Net earnings $18,310 $13,461
Per share amount $ .37 $ .29
Earnings Per Common Share:
Earnings per common share is computed by dividing net earnings by the
weighted average number of shares of common stock and common stock
equivalents outstanding during the year. The Company has issued stock
options, which are the Company's only common stock equivalent, at exercise
prices ranging from $5.52 to $35.06.
