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 November 30, 1994 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 #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 January 1, 1995.
48,485,306 shares of Common Stock, $2.00 par value.
<PAGE>
HEILIG-MEYERS COMPANY
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Statements of Earnings for
Three Months and Nine Months Ended
November 30, 1994 and November 30, 1993 . . . . . . . . . .3
Consolidated Balance Sheets As of
November 30, 1994 and February 28, 1994 . . . . . . . . . .4
Consolidated Statements of Cash Flows for
Nine Months Ended November 30, 1994 and
November 30, 1993 . . . . . . . . . . . . . . . . . . . . .5
Notes to Consolidated Financial Statements . . . . . . . . 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . . . .7
PART II. OTHER INFORMATION
Item 5. Other Information. . . . . . . . . . . . . . . . . . . . .13
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits. . . . . . . . . . . . . . . . . . . . . . . 14
b. There were no reports on Form 8-K filed
during the quarter ended November 30, 1994.
<PAGE>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
HEILIG-MEYERS COMPANY
CONSOLIDATED STATEMENTS OF EARNINGS
(Amounts in thousands except per share data)
(Unaudited)
Three Months Ended Nine Months Ended
November 30, November 30,
1994 1993 1994 1993
Revenues:
Sales $264,114 $194,364 $710,654 $521,967
Other income 50,975 36,035 142,401 99,886
Total revenues 315,089 230,399 853,055 621,853
Costs and Expenses:
Costs of sales 168,164 121,523 454,680 329,340
Selling, general and
administrative 95,564 69,272 258,998 186,648
Interest 8,676 6,032 23,667 17,912
Provision for doubtful
accounts 12,783 8,747 33,071 23,005
Total costs and expenses 285,187 205,574 770,416 556,905
Earnings before provision for
income taxes 29,902 24,825 82,639 64,948
Provision for income taxes 11,131 8,962 30,742 24,207
Net earnings $ 18,771 $ 15,863 $ 51,897 $ 40,741
Net earnings per share of common
stock:
Primary $0.38 $0.32 $1.04 $0.84
Fully diluted $0.38 $0.32 $1.04 $0.83
Cash dividends per share of
common stock $0.06 $0.05 $0.18 $0.15
See notes to the consolidated financial statements.
<PAGE>
HEILIG-MEYERS COMPANY
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands except par value data)
(Unaudited)
November 30, February 28,
1994 1994
ASSETS
Current assets:
Cash $ 9,052 $ 6,295
Accounts receivable, net 563,176 535,437
Other receivables 12,558 17,988
Inventories 232,208 184,216
Other 33,314 21,366
Total current assets 850,308 765,302
Property and equipment, net 200,601 168,142
Other assets 123,969 106,741
$1,174,878 $1,040,185
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 210,900 $ 172,600
Long-term debt due within
one year 44,192 37,718
Accounts payable 96,922 69,045
Accrued expenses 39,036 32,764
Total current liabilities 391,050 312,127
Long-term debt 255,661 248,635
Deferred income taxes 50,464 46,194
Commitments --- ---
Stockholders' equity:
Preferred stock, $10 par value --- ---
Common stock, $2 par value 96,927 96,846
Capital in excess of par value 119,617 118,400
Retained earnings 261,159 217,983
Total stockholders' equity 477,703 433,229
$1,174,878 $1,040,185
See notes to the consolidated financial statements.
<PAGE>
HEILIG-MEYERS COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
Nine Months Ended
November 30,
1994 1993
Cash flows from operating activities:
Net earnings $ 51,897 $ 40,741
Adjustments to reconcile net
earnings to net cash used by
operating activities:
Depreciation and amortization 17,746 15,014
Provision for doubtful accounts 33,071 23,005
Other, net (310) (179)
Change in operating assets and
liabilities net of the effects
of acquisitions:
Accounts receivable (152,319) (141,784)
Sale of accounts receivable 100,000 0
Other receivables 4,652 2,128
Inventories (44,903) (31,412)
Prepaid expenses (13,343) (1,519)
Accounts payable 27,877 10,147
Accrued expenses 8,991 10,266
Net cash provided (used)
by operating activities 33,359 (73,593)
Cash flows from investing activities:
Acquisitions, net of cash acquired (28,962) (14,947)
Additions to property and equipment (48,923) (29,852)
Disposals of property and equipment 4,264 1,295
Miscellaneous investments (1,358) (2,775)
Net cash used by investing
activities (74,979) (46,279)
Cash flows from financing activities:
Issuance of common stock 1,298 77,176
Increase(decrease) in notes payable, net (41,700) 40,300
Proceeds from long-term debt 115,000 30,000
Payments of long-term debt (21,500) (21,518)
Dividends paid (8,721) (6,882)
Net cash provided by financing
activities 44,377 119,076
Net increase (decrease) in cash 2,757 (796)
Cash at beginning of period 6,295 3,868
Cash at end of period $ 9,052 $ 3,072
See notes to the consolidated financial statements.<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. The accompanying unaudited consolidated financial statements have
been prepared by the Company in accordance with regulations of the Securities
and Exchange Commission in regard to quarterly 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. These statements should
be read in conjunction with the consolidated financial statements and notes
to consolidated financial statements included in the February 28, 1994,
Annual Report to Stockholders and other current year 10-Q filings.
Significant accounting policies and accounting principles have been
consistently applied in both the interim and annual consolidated financial
statements. Details in the notes have not changed except as described in the
following paragraphs.
B. On October 19, 1994, the Board of Directors declared a cash dividend
of $.06 per share which was paid on November 26, 1994, to stockholders of
record on November 9, 1994.
C. During the quarter, the Company entered into an asset securitization
agreement in which $50 million was received for the sale of accounts
receivable. The agreement has a 365-day life which may be extended by
agreement of the parties.
D. Accounts receivable are shown net of the allowance for doubtful
accounts and unearned finance income. The allowance for doubtful accounts
was $42,529,000 and $28,497,000 and unearned finance income was $52,390,000
and $49,420,000 at November 30, 1994, and February 28, 1994, respectively.
E. The Company made income tax payments of $27,711,000 and $20,286,000
during the nine months ended November 30, 1994, and November 30, 1993,
respectively.
F. The Company made interest payments of $23,589,000 and $16,090,000
during the nine months ended November 30, 1994, and November 30, 1993,
respectively.
G. The unamortized excess of purchase price over fair market value of
the net assets acquired for all acquisitions was $109,245,000 and $93,654,000
at November 30, 1994, and February 28, 1994, respectively. This increase is
primarily the result of the acquisition of certain assets relating to 92
stores of McMahan's Furniture Company on January 1, 1994.<PAGE>
Item 2. 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 36.8% to $315.1 million from $230.4
million in the prior year. Net earnings increased 18.3% to $18.8 million or
$0.38 per share compared to $15.9 million or $0.32 per share in the prior
year. For the nine months ended November 30, 1994, total revenues increased
by 37.2% to $853.1 million from $621.9 million in the prior year. Net
earnings increased 27.4% to $51.9 million or $1.04 per share from $40.7
million or $0.83 per share in the prior year.
Sales for the third quarter increased 35.9% to $264.1 million from
$194.4 million in the third quarter of the prior year. Stores which were
operated by the Company one year ago (comparable stores) contributed a 9.2%
increase while new stores contributed the remaining 26.7% of the 35.9% total
sales increase. For the nine-month period ended November 30, 1994, sales
increased 36.1% to $710.7 million from $522.0 million in the prior year with
sales in comparable stores increasing 8.0%. The midwestern and northern area
stores, those located in Illinois, Iowa, Missouri, Ohio, and Pennsylvania had
the largest sales percentage increases for the second consecutive quarter.
Many of these stores are two to three years old. Sales for the southwestern
stores were $26.4 million for the quarter ended November 30, 1994, and $75.6
million for the nine months ended November 30, 1994. The performance of
these stores, which were acquired in January of 1994, was consistent with
management's expectations.
For the quarter ended November 30, 1994, other income increased to 19.3%
of sales from 18.5% in the prior year. For the nine-month period ended
November 30, 1994, other income increased to 20.0% of sales from 19.1% in the
prior year. The increases are primarily the result of the delayed
recognition of finance income from strong credit sales which is earned over
the average contract stretch. In addition, the southwestern stores are
contributing higher finance income, as a percentage of sales, due to a longer
contract stretch and slightly higher average percentage rates.
Costs of sales for the quarter ended November 30, 1994, increased to
63.7% of sales compared to 62.5% in the prior year. For the nine-month
period, costs of sales increased to 64.0% compared to 63.1% in the prior
year. Gross margins decreased due to continued promotional pricing in order
to stimulate sales. The southwestern stores experienced lower gross margins
due to a sales mix weighted more heavily to electronics and appliances, which
are traditionally lower margin lines. Occupancy and delivery expenses
increased slightly as a percentage of sales due to higher costs associated
with the southwestern stores and the operation of the Fontana, California
Distribution Center. In the fourth quarter, management expects costs of
sales to continue to be higher than in the prior year, primarily due to
ongoing company-wide promotional pricing as well as higher costs, as a
percentage of sales, associated with the operation of the Fontana, California
distribution center.
Selling, general and administrative expense increased as a percentage of
sales during the quarter to 36.2% from 35.6% in the prior year. For the nine
months ended November 30, 1994, selling, general and administrative expense
increased to 36.4% from 35.8%. Advertising costs increased over the prior
year quarter as a result of the Company's continued increase in the use of
media advertising methods such as radio and television, especially in its
larger city markets. The additional promotions associated with the
introduction of the Heilig-Meyers name in the former McMahan's markets also
contributed to the advertising increase. This conversion to the Heilig-
Meyers name was completed during the quarter. The increase in advertising
during the quarter was partially offset by a decrease in salaries, as a
percentage of sales, as base salaries gained leverage from higher sales
volume. Miscellaneous administrative expenses, resulting from duplicate
costs incurred between the Company's east coast office and the acquired west
coast facilities, increased slightly over the prior year quarter. In the
fourth quarter, management expects selling, general and administrative costs
to continue to show increases over the prior year primarily due to additional
advertising Company-wide. Transitional expenses associated with the
implementation of Heilig-Meyers systems in the southwestern stores will also
continue to contribute to this increase.
Interest expense increased during the quarter to 3.3% of sales from 3.1%
in the prior year. For the nine months ended November 30, 1994, interest
expense decreased to 3.3% from 3.4% in the prior year. The increase in the
quarter is primarily due to the overall rise in debt levels associated with
the growth in inventories and accounts receivable. Also contributing to the
quarter increase is the rise in weighted average short term rates to 5.3%
from 3.5% in the prior year. However, the effect of the increase in short-
term rates was somewhat offset by a decrease in weighted average long-term
rates to 7.9% from 8.8% in the prior year. During the year the Company has
received $115 million in proceeds from long-term debt borrowings at a
weighted average interest rate of 7.2% while repaying $21.5 million of long-
term debt which had a weighted average interest rate of 9.8%. The increasing
long-term debt levels are a result of the Company's strategy to structure its
debt portfolio with a higher percentage of long-term fixed rate debt to
minimize the Company's exposure to future short-term interest rate
fluctuations. As a result, fluctuations of interest rates during the
remainder of the fiscal year are not expected to have a significant impact on
consolidated net earnings. At the end of the quarter ended November 30,
1994, the Company entered into an asset securitization agreement in which it
sold $50 million of accounts receivable with limited recourse. The proceeds
were used to reduce notes payable.
During the quarter, the provision for doubtful accounts increased as a
percentage of sales to 4.8% from 4.5% in the prior year. The provision for
doubtful accounts for the nine-month period ended November 30, 1994,
increased to 4.7% from 4.4%. An increase in the portfolio loss rate applied
to a growing accounts receivable base caused the increases in the quarter and
the nine months ended November 30, 1994.
The tax rate in effect for fiscal 1995 is 37.2% compared to 37.3% for
the first nine months of the prior year. During the second quarter of the
prior year the Omnibus Reconciliation Act of 1993 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 increased its cash position $2.8 million to $9.1 million at
November 30, 1994, from $6.3 million at February 28, 1994, compared to a
decrease of $796,000 in the comparable period a year ago.
Net cash inflow from operating activities was $33.4 million compared to
a net cash outflow of $73.6 million in the comparable period a year ago. The
Company traditionally produces a deficit in cash flow from operations because
it extends credit to its customers. During the third quarter, the Company
entered into an asset securitization agreement in which $50 million was
received for the sale of accounts receivable. Additionally, two amendments,
involving the sale of an additional $50 million of accounts receivable, were
made in the first quarter of fiscal 1995 to asset securitization agreements.
Thus, total proceeds from the sale of accounts receivable were $100 million
for the nine months ended November 30, 1994, which is creating the positive
cash flow from operations. During the nine months ended November 30, 1994,
cash outflows for inventories increased as compared to the prior year. The
increase is attributable to the addition of the Fontana Distribution Center,
new store openings and new products added to the electronics line. Inventory
turns have remained constant at approximately 2.5 as compared to the prior
year. Offsetting the inventory change was a reduction in cash outflows
resulting from timing differences of the quarter-end cutoff of accounts
payable disbursements. Continued extension of credit and related increases
in customer accounts receivable will likely cause net cash flows from
operations to be negative in future periods. However, the Company
periodically sells accounts receivable, with limited recourse, which
provides additional positive cash flows to improve net cash flows from
operating activities.
Investing activities produced negative cash flows of $75.0 million
during the nine months ended November 30, 1994, as compared to $46.3 million
in the prior year. Cash flows for additions to property and equipment
increased as compared to the prior year as the Company continues the
remodeling of new and existing stores and expands its prototype store
program. During the quarter ended November 30, 1994, the Company completed
the expansion of the Rocky Mount, North Carolina, Russellville, Alabama, and
Mount Sterling, Kentucky distribution centers. This expansion provides each
of these three distribution centers with an additional 100,000 square feet of
space. Also during the quarter, the Company completed the installation of
Heilig-Meyers store signs in all 91 of the southwestern stores. Cash flows
for acquisitions increased to $29.0 million from $14.9 million in the prior
year. The increase is primarily due to the purchase of nine stores from
Nelson Brothers Furniture Corporation of Chicago, Illinois, for approximately
$18.0 million during the second quarter of the current fiscal year.
Capital expenditures will continue to be financed by external sources of
funds and cash flows from operations.
Financing activities produced positive cash flows of $44.4 million
during the nine months ended November 30, 1994, as compared to $119.1 million
for the same period in the prior year. During the nine months of fiscal
1995, the Company has received $115 million in long-term borrowings in three
separate transactions of $80.0 million, $25.0 million and $10.0 million at
interest rates of 6.9%, 7.6% and 8.3% respectively. All long-term proceeds
were 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
access to a variety of external capital sources to finance asset growth and
plans to continue to finance accounts receivable, inventories and future
expansion with cash flow from operations supplemented by other sources of
capital. The Company has lines of credit through 11 banks totaling $300.0
million of which $89.1 million was unused at November 30, 1994.
<PAGE>
PART II OTHER INFORMATION
Item 5. Other Information
Subsequent to the quarter ended November 30, 1994, the Company executed
a definitive purchase agreement with various entities comprising Berrios
Enterprises of Caguas, Puerto Rico, and their stockholders to purchase certain
assets related to the operation of 17 stores. Berrios is primarily a small-
town retailer of home furnishings with a heavy concentration of sales on in-
house credit. Berrios sales for the twelve months ended August 31, 1994,
were approximately $65 million. All of the assets to be acquired are located
in Puerto Rico. The purchase price for the assets, consisting primarily of
accounts receivable, inventory and furniture, fixtures and equipment is
expected to be approximately $85 million. The Company plans to finance this
purchase through external sources. The Company will lease a majority of the
real property associated with this acquisition directly from Berrios, and
will assume existing leases on the remaining properties. This acquisition is
subject to certain conditions and is expected to close in February 1995.
<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
November 30, 1994
<PAGE>
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: January 13, 1995 /s/ Joseph R. Jenkins
Joseph R. Jenkins
Executive Vice President
Principal Financial Officer
Date: January 13, 1995 /s/ William J. Dieter
William J. Dieter
Senior Vice President - Accounting
Principal Accounting Officer
<PAGE>
EXHIBIT 11
HEILIG-MEYERS COMPANY
COMPUTATION OF PER SHARE EARNINGS
(Amounts in thousands except per share data)
Three Months Ended Nine Months Ended
November 30, November 30, November 30, November 30,
1994 1993 1994 1993
Primary Earnings Per Share:
Average number of
shares outstanding 48,456 48,057 48,443 46,946
Net effect of stock
options 1,542 1,855 1,594 1,689
Average number of
shares as adjusted 49,998 49,912 50,037 48,635
Net earnings $18,771 $15,863 $51,897 $40,741
Per share amount $ .38 $ .32 $ 1.04 $ .84
Fully Diluted Earnings Per Share:
Average number of
shares outstanding 48,456 48,057 48,443 46,946
Net effect of stock
options 1,542 1,933 1,594 1,967
Average number of
shares as adjusted 49,998 49,990 50,037 48,913
Net earnings $18,771 $15,863 $51,897 $40,741
Per share amount $ .38 $ .32 $ 1.04 $ .83
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 current year periods.
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