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 August 31, 1994
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commision 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 October 1, 1994.
48,449,773 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 and Six Months Ended
August 31, 1994 and August 31, 1993 (Unaudited). . . . . . . . . 3
Consolidated Balance Sheets
August 31, 1994 and February 28, 1994 (Unaudited). . . . . . . . 4
Consolidated Statements of Cash Flows for
Six Months Ended August 31, 1994 and
August 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 4. Submission of Matters to a Vote of
Security Holders . . . . . . . . . . . . . . . . . . . . . . . .12
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . .13
b. There were no reports on Form 8-K filed
during the quarter ended August 31, 1994.
<PAGE>
PART I FINANCIAL INFORMATION
HEILIG-MEYERS COMPANY
CONSOLIDATED STATEMENTS OF EARNINGS
(Amounts in thousands except per share data)
(Unaudited)
Three Months Ended Six Months Ended
August 31, August 31,
1994 1993 1994 1993
Revenues:
Sales $223,359 $171,578 $446,540 $327,603
Other income 45,760 33,115 91,426 63,851
Total revenues 269,119 204,693 537,966 391,454
Costs and Expenses:
Costs of sales 145,244 110,586 286,515 207,817
Selling, general and
administrative 82,195 61,584 163,434 117,376
Interest 7,890 5,753 14,991 11,880
Provision for doubtful
accounts 10,208 7,549 20,288 14,258
Total costs and expenses 245,537 185,472 485,228 351,331
Earnings before provision for
income taxes 23,582 19,221 52,738 40,123
Provision for income taxes 8,765 7,804 19,611 15,245
Net earnings $ 14,817 $ 11,417 $ 33,127 $ 24,878
Net earnings per share of common
stock:
Primary and fully diluted $0.30 $0.23 $0.66 $0.52
Cash dividends per share of
common stock $0.06 $0.05 $0.12 $0.10
See notes to consolidated financial statements.
<PAGE>
HEILIG-MEYERS COMPANY
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands except par value data)
(Unaudited)
August 31, February 28,
1994 1994
ASSETS
Current assets:
Cash $ 6,011 $ 6,295
Accounts receivable, net 562,098 535,437
Other receivables 18,413 17,988
Inventories 231,414 184,216
Other 32,319 21,366
Total current assets 850,255 765,302
Property and equipment, net 186,875 168,142
Other assets 116,030 106,741
$1,153,160 $1,040,185
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 242,100 $ 172,600
Long-term debt due within
one year 43,827 37,718
Accounts payable 80,234 69,045
Accrued expenses 24,755 32,764
Total current liabilities 390,916 312,127
Long-term debt 252,299 248,635
Deferred income taxes 48,251 46,194
Commitments --- ---
Stockholders' equity:
Preferred stock, $10 par value --- ---
Common stock, $2 par value 96,900 96,846
Capital in excess of par value 119,497 118,400
Retained earnings 245,297 217,983
Total stockholders' equity 461,694 433,229
$1,153,160 $1,040,185
See notes to consolidated financial statements.<PAGE>
HEILIG-MEYERS COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
Six Months Ended
August 31,
1994 1993
Cash flows from operating activities:
Net earnings $ 33,127 $ 24,878
Adjustments to reconcile net
earnings to net cash used by
operating activities:
Depreciation and amortization 11,992 9,865
Provision for doubtful accounts 20,288 14,258
Other, net ( 81) ( 49)
Change in operating assets and
liabilities net of the effects
of acquisitions:
Accounts receivable (86,230) (78,016)
Sale of accounts receivable 50,000 --
Other receivables ( 425) (1,245)
Inventories (42,194) (16,328)
Prepaid expenses (11,988) (1,571)
Accounts payable 11,189 4,296
Accrued expenses (5,885) (2,811)
Net cash used by operating
activities (20,207) (46,723)
Cash flows from investing activities:
Acquisitions, net of cash acquired (26,523) (12,983)
Additions to property and equipment (26,553) (17,854)
Disposals of property and equipment 234 1,004
Miscellaneous investments (1,846) (2,344)
Net cash used by investing
activities (54,688) (32,177)
Cash flows from financing activities:
Issuance of common stock 1,151 76,663
(Decrease)/Increase in notes payable, net (10,500) 12,100
Proceeds from long-term debt 105,000 10,000
Payments of long-term debt (15,227) (15,260)
Dividends paid (5,813) (4,479)
Net cash provided by financing
activities 74,611 79,024
Net (decrease)/increase in cash (284) 124
Cash at beginning of period 6,295 3,868
Cash at end of period $ 6,011 $ 3,992
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 second quarter of
fiscal year 1995 are not necessarily indicative of future financial
results.
B. On June 15, 1994, the Board of Directors declared a cash dividend of
$0.06 per share which was paid on August 20, 1994, to stockholders of
record on July 14, 1994.
C. During the first quarter of fiscal 1995, 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.
D. Accounts receivable are shown net of the allowance for doubtful accounts
and unearned finance income. The allowance for doubtful accounts was
$31,235,000 and $28,497,000 and unearned finance income was $51,155,000
and $49,420,000 at August 31, 1994, and February 28, 1994, respectively.
E. The Company made income tax payments of $21,314,000 and $13,123,000
during the six months ended August 31, 1994, and August 31, 1993,
respectively.
F. The Company made interest payments of $12,685,000 and $11,957,000 during
the six months ended August 31, 1994, and August 31, 1993, respectively.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
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 31.5% to $269.1 million from $204.7
million in the prior year. Net earnings increased 29.8% to $14.8 million or
$0.30 per share compared to $11.4 million or $0.23 per share in the prior
year. For the six months ended August 31, 1994, total revenues increased by
37.4% to $538.0 million from $391.5 million in the prior year. Net earnings
increased 33.2% to $33.1 million from $24.9 million in the prior year.
Sales for the second quarter increased 30.2% to $223.4 million from
$171.6 million in the second quarter of the prior year. Stores which were
operated by the Company one year ago (comparable stores) contributed a 6.1%
increase while new stores contributed the remaining 24.1% of the 30.2% total
sales increase. For the six month period ended August 31, 1994, sales
increased 36.3% to $446.5 million from $327.6 million in the prior year with
sales in comparable stores increasing 7.4%. The northern and midwest area
stores,those located in Ohio, Pennsylvania, Iowa, Missouri and Illinois,
had the largest sales increases for the quarter. Many of these stores are
two to three years old. Sales for the recently acquired southwest stores
(the former McMahan's) were $23.4 million for the quarter ended August 31,
1994, and $49.2 million for the six months ended August 31, 1994.
The performance of the southwest stores was consistent with management's
expectations.
<PAGE>
As a percentage of sales, other income increased to 20.5% from 19.3% and
to 20.5% from 19.5% for the three months and six months ended August 31,
1994, respectively. The increases are primarily the result of the delayed
recognition of finance income, from strong fiscal 1994 sales, which is earned
over the average contract stretch. In addition, the southwest stores
are contributing higher finance income, as a percentage of sales,
due to a longer contract stretch and slightly higher average percentage rate.
Costs of sales for the quarter ended August 31, 1994, increased to 65.0%
of sales compared to 64.5% in the prior year. For the six month period,
costs of sales were 64.2% compared to 63.4% in the prior year. Gross margins
decreased due to continued promotional pricing in an effort to stimulate sales.
The southwest stores experience lower gross margins due to a sales mix
weighted more heavily to electronics and appliances. Occupancy expense
increased slightly as a percentage of sales due to costs associated with the
southwest stores and the opening of the Fontana, California Distribution
Center. As of September 1, 1994, the Fontana Distribution Center
is servicing all 91 southwest stores. Delivery costs may increase slightly
during the second half of the fiscal year due to the Fontana Distribution
Center having higher operating costs, as a percentage of sales, during the
transition period. As a result, management expects overall costs of sales to
continue to be slightly higher in the second half of the year than in the
prior year due to higher costs associated with the southwest operations as
well as ongoing company-wide promotional pricing.
Selling, general and administrative expense increased as a percentage of
sales during the quarter to 36.8% from 35.9% in the prior year. For the six
months ended August 31, 1994, selling, general and administrative expense
increased to 36.6% from 35.8%. Advertising costs increased approximately 1.0%
of sales compared to the prior year quarter. This increase is the result of
the Company's increased use of institutional advertising methods such as radio
and television, especially in the larger city markets. Store level radio and
newspaper advertising also increased to stimulate sales. Miscellaneous
administrative expenses, resulting from duplicate costs incurred in the east
coast and southwest offices, increased slightly over the prior year but were
offset by leverage gained from higher sales volume on certain fixed items
such as depreciation and amortization. Management expects selling, general
and administrative expenses to continue to show increases over the prior
year due to additional advertising Company-wide, forthcoming advertising
costs associated with the introduction of the Heilig-Meyers name in the
recently acquired southwest market and transitional expenses associated with
the implementation of Heilig-Meyers systems in the southwest stores.
Interest expense increased during the quarter to 3.5% of sales from 3.4%
in the prior year. For the six months ended August 31, 1994, interest expense
decreased to 3.4% of sales from 3.6% in the prior year. The increase in the
quarter is primarily due to an overall increase in debt levels associated
with growth in accounts receivable and inventory. Long-term debt levels
have increased over the prior year as the Company is focusing on structuring
its debt portfolio to contain a high percentage of long-term fixed rate debt
to minimize the Company's exposure to short-term interest rate fluctuations.
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. The Company reduced its borrowings in the prior year quarter
with $74.5 million in proceeds from a common stock offering. Weighted
average short-term rates for the quarter increased to 4.7% from 3.5% in the
prior year. Weighted average long-term rates for the quarter decreased to
7.9% from 9.0% in the prior year.
During the quarter, the provision for doubtful accounts increased as a
percentage of sales to 4.6% from 4.4% in the prior year. The provision for
doubtful accounts for the six months ended August 31, 1994, increased to 4.5%
from 4.4%. An increase in the portfolio loss rate applied to a growing
accounts receivable base caused the increases.
The tax rate in effect for fiscal 1995 is 37.2% compared to 38.0% for
the first six months of the prior year. During the second quarter of the
prior year the Omnibus Reconciliation Act of 1993 ("the Budget Act") was
signed into law. The Company was required to adjust its deferred income tax
balance to reflect the higher tax rate and recognize the effects of that
adjustment in the prior year second quarter.
LIQUIDITY AND CAPITAL RESOURCES
The Company decreased its cash position $284,000 to $6,011,000 at August
31, 1994, from $6,295,000 at February 28, 1994, compared to an increase of
$124,000 in the comparable period a year ago.
Net cash outflow from operating activities was $20.2 million, compared
to $46.7 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. During the first quarter of fiscal 1995, the
Company amended two of its 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
increase in credit sales. During the first six months of fiscal year 1995,
net cash outflows for inventories increased as compared to the prior
year. This increase is attributable to the addition of the Fontana
Distribution Center, early purchasing for the upcoming holiday selling season
and new store openings. The overall increase in inventory from August 31,
1993, to August 31, 1994, is due to the addition of two distribution centers
and 148 new stores. Inventory turns for the year have remained constant at
2.4 as compared to the prior year. Continued extension of credit and related
increases in customer accounts receivable will likely produce negative cash
flow from operations in the forthcoming quarters of fiscal 1995.
Investing activities produced negative cash flows of $54.7 million
during the first six months of fiscal 1995 as compared to $32.2 million in
the prior year. Cash flows for acquisitions increased to $26.5 million
from $13.0 million in the prior year. The increase is primarily due to the
purchase of nine stores from Nelson Brothers Furniture Corporation of Chicago,
Illinois, which included approximately $12.9 million of accounts receivable.
During the first half of the prior year the Company only purchased $2.3
million of accounts receivable through acquisitions. Cash flows for
additions to property and equipment increased as compared to prior
year as the Company continues the remodeling of new and existing stores.
The Company is also expanding the Rocky Mount, North Carolina, the
Russellville, Alabama and the Mount Sterling, Kentucky distribution centers.
The expansion of these distribution centers is expected to be completed
during the third quarter of the current fiscal year and will provide each
with an additional 100,000 square feet of space. Capital expenditures will
continue to be financed by cash flows from operations supplemented by
external sources of funds.
Financing activities produced positive cash flows of $74.6 million
during the first six months of fiscal 1995 as compared to $79.0 million in
the prior year. During the current fiscal year the Company has received
$105.0 million in long-term borrowings in two separate transactions of $80.0
million and $25.0 million at interest rates of 6.9% and 7.6% respectively.
The $105 million in proceeds was used to reduce notes payable. In the prior
year the Company received $74.5 million in proceeds from a common stock
offering. The Company has lines of credit through 11 banks totaling $300.0
million of which $57.9 million was unused at August 31, 1994. <PAGE>
PART II OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
(a) The annual meeting of the Company's shareholders was held June 15,
1994.
(c)(i) At such annual meeting, the shareholders of the Company approved an
amendment to the Company's Amended and Restated Articles of
Incorporation to increase the number of shares of common stock
which the Company is authorized to issue to 250,000,000. The
holders of the Company's outstanding common stock were entitled to
vote on the amendment. The amendment was approved by the following
vote:
FOR - 35,686,537
AGAINST - 7,831,848
ABSTAIN - 98,688
(c)(ii) The shareholders approved the ratification of the selection of
Deloitte & Touche as accountants and auditors for the Company for
the current fiscal year. The ratification was approved by the
following vote:
FOR - 43,470,425
AGAINST - 31,491
ABSTAIN - 115,157
(c)(iii) The shareholders of the Company approved the adoption of the 1994
Stock Option Plan. The adoption was approved by the following
vote:
FOR - 40,768,759
AGAINST - 2,732,790
ABSTAIN - 115,524
(c)(iv) The shareholders of the Company also elected a board of twelve
directors for one-year terms. The elections were approved by the
following vote:
Directors For Withheld
William C. DeRusha 43,445,161 171,912
Troy A. Peery, Jr. 43,445,409 171,664
Alexander Alexander 43,525,984 91,089
Robert L. Burrus, Jr. 43,444,524 172,549
Arthur D. Charpentier 43,527,924 89,149
Benjamin F. Edwards III 43,522,349 94,724
Alan G. Fleischer 43,512,300 104,773
Nathaniel Krumbein 43,441,921 175,172
Hyman Meyers 43,443,038 174,035
S. Sidney Meyers 43,442,777 174,296
Lawrence N. Smith 43,528,767 88,306
George A. Thornton III 43,527,137 89,936
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 11 Computation of Per Share Earnings
Exhibit 27 Financial Data Schedule
(b) There were no reports on Form 8-K filed during the quarter ended
August 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: October 13, 1994 /s/Joseph R. Jenkins
Joseph R. Jenkins
Executive Vice President
Principal Financial Officer
Date: October 13, 1994 /s/William J. Dieter
William J. Dieter
Senior Vice President - Accounting
Principal Accounting Officer
Exhibit 11
HEILIG-MEYERS COMPANY
COMPUTATION OF PER SHARE EARNINGS
(Amounts in thousands except per share data)
Three Months Ended Six Months Ended
August 31, August 31, August 31, August 31,
1994 1993 1994 1993
Primary Earnings Per Share:
Average number of
shares outstanding 48,441 48,017 48,436 46,396
Net effect of stock
options 1,479 1,655 1,578 1,575
Average number of
shares as adjusted 49,920 49,672 50,014 47,971
Net earnings $14,817 $11,417 $33,127 $24,878
Per share amount $ .30 $ .23 $ .66 $ .52
Fully Diluted Earnings Per Share:
Average number of
shares outstanding 48,441 48,017 48,436 46,396
Net effect of stock
options 1,479 1,837 1,578 1,857
Average number of
shares as adjusted 49,920 49,854 50,014 48,253
Net earnings $14,817 $11,417 $33,127 $24,878
Per share amount $ .30 $ .23 $ .66 $ .52
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. Stock options priced at $35.06 were
not included in the earnings per share calculation as they were antidilutive
during the period.
Exhibit 27 Financial Data Schedule
