UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
X Annual report pursuant to Section 13 or 15 (d) of the Securities Exchange
Act of 1934 [Fee Required]
For the fiscal year ended February 28, 1995 or
Transition report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934 [No Fee Required]
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)
Registrant's telephone number, including area code: (804) 359-9171
Securities registered pursuant to Section 12(b) of the Act:
Title of each Class Name of each exchange on which registered
Common Stock, $2.00 New York Stock Exchange
Par Value Pacific Stock Exchange
Rights to purchase Preferred New York Stock Exchange
Stock, Series A, $10.00 Pacific Stock Exchange
Par Value
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 of 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 the
filing requirements for at least the past 90 days. Yes X No .
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (Sec. 229.405 of this chapter) 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. [ ]
The aggregate market value of the voting stock held by non-affiliates of
the registrant as of May 5, 1995 was approximately $989,186,812.
This figure was calculated by multiplying (i) the closing sales price of
the registrant's common stock on the New York Stock Exchange on May 5, 1995 by
<PAGE 1>
(ii) the number of shares of the registrant's common stock not held by the
officers or directors of the registrant or any persons known to the registrant
to own more than five percent of the outstanding common stock of the
registrant. Such calculation does not constitute an admission or
determination that any such officer, director or holder of more than five
percent of the outstanding common stock of the registrant is in fact an
affiliate of the registrant.
As of May 5, 1995, there were outstanding 48,549,046 shares of the
registrant's common stock, $2.00 par value.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Proxy Statement for its Annual Meeting of
Shareholders scheduled for June 21, 1995, are incorporated by reference into
Part III.
<PAGE 2>
INDEX
PART 1
ITEM 1. BUSINESS Page
A. Introduction 4
B. Industry Segments 5
C. Nature of Business
General 5
Competition 5
D. Store Operations
General 6
Merchandising 6
Advertising and Promotion 7
Distribution 8
Credit Operations 8
Customer Service 9
Puerto Rican Operations 9
E. Corporate Expansion 10
F. Other Factors Affecting the Business of Heilig-Meyers
Suppliers 10
Service Marks, Trademarks and Franchise Operations 10
Seasonality 11
Employees 11
Foreign Operations and Export Sales 11
ITEM 2. PROPERTIES 11
ITEM 3. LEGAL PROCEEDINGS 11
ITEM 4. SUBMISSION of MATTERS to a VOTE of SECURITY HOLDINGS 12
PART II
ITEM 5. MARKET for REGISTRANT'S COMMON EQUITY and
RELATED STOCKHOLDER MATTERS 15
ITEM 6. SELECTED FINANCIAL DATA 16
ITEM 7. MANAGEMENT'S DISCUSSION and ANALYSIS of
FINANCIAL CONDITION and RESULTS of OPERATIONS 18
ITEM 8. FINANCIAL STATEMENTS and SUPPLEMENTARY DATA 22
ITEM 9. CHANGES in and DISAGREEMENTS with ACCOUNTANTS
on ACCOUNTING and FINANCIAL DISCLOSURE 40
PART III
ITEM 10. DIRECTORS and EXECUTIVE OFFICERS of the REGISTRANT 41
ITEM 11. EXECUTIVE COMPENSATION 41
ITEM 12. SECURITY OWNERSHIP of CERTAIN BENEFICIAL OWNERS
and MANAGEMENT 41
ITEM 13. CERTAIN RELATIONSHIPS and RELATED TRANSACTIONS 41
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, and
REPORTS on FORM 8-K 41
<PAGE 3>
PART 1
ITEM 1. BUSINESS
A. Introduction
Heilig-Meyers Company (the "registrant"), which together with its
predecessors and subsidiaries is sometimes hereinafter referred to as the
"Company," is engaged primarily in the retail sale of home furnishings. The
Company's predecessors are numerous Virginia and North Carolina corporations,
the first of which was incorporated in 1940, and all of which were merged
into Heilig-Meyers Company, a North Carolina corporation, in March 1970,
which in turn was merged into the registrant, a Virginia corporation, in
June 1972.
The Company has grown in recent years, in part, through a series of
acquisitions. The following represent the largest acquisitions in the last five
years. In August 1991, certain assets of 21 stores were acquired from
WCK, Inc., trading as Danley Furniture. In January 1992, the Company
acquired the assets of 13 stores from Gibson McDonald Furniture Company. In
October 1992, the Company acquired the assets of 14 stores from Wolf
Furniture Enterprises, Inc. In June 1993, the Company acquired the assets of
11 stores from L. Fish, Inc. In January 1994, the Company acquired certain
assets relating to 92 stores of McMahan's Furniture Company. In August 1994,
the Company acquired the assets of 9 stores from Nelson Brothers Furniture
Company. Most recently, in February 1995, the Company purchased certain
assets relating to the operations of 17 stores owned by Berrios Enterprises
of Caguas, Puerto Rico.
Stores obtained through acquisitions are transitioned to full use of the
Company's systems and operating methodologies over a period of time. For most
acquisitions, this transition period is short and insignificant to total Company
operations. However, due to the size and geographics of the McMahan's
acquisition in January 1994, its transition period has been longer than previous
acquisitions. As a result, implementation of the Company's distribution and
advertising programs began in the second and third quarters of fiscal 1995,
respectively. Likewise, implementation of the Company's point-of-sale system
began in the third quarter of fiscal 1995. This system as well as all other
transitional programs implemented at the former McMahan's stores are expected
to be completed in the first half of fiscal 1996.
In contrast, the Company plans minimal changes to the overall operations
of the stores obtained from Berrios Enterprises in February 1995, all of which
are located in Puerto Rico. These stores will retain the Berrios name and will
operate as a separate subsidiary of the Company known as HMPR, Inc. See
"Puerto Rican Operations" for further discussion of this acquisition.
Except as otherwise noted, the remainder of Part 1, Item I, included
herein, addresses the Company's operating policies relating to all stores,
excluding those stores located in Puerto Rico. For a discussion of the
Company's business and its development during the fiscal year ended February
28, 1995, see "C. Nature of Business."
<PAGE 4>
B. Industry Segments
The Company considers that it is engaged primarily in one line of business,
the sale of home furnishings, and has one reportable industry segment.
Accordingly, data with respect to industry segments has not been separately
reported herein.
C. Nature of Business
General
The Company is one of the nation's largest publicly held specialty
retailers of furniture with 662 stores (as of May 5, 1995), 645 of which are
located in 24 states and 17 of which are located in Puerto Rico. The Company's
stores are primarily located in small towns and rural markets in the Southeast,
Midwest, West and Southwest of the continental United States.
The Company's operating strategy includes:
* Offering a broad selection of affordably priced home furnishings
including furniture, consumer electronics, appliances, bedding and
floor coverings
* Locating stores primarily in small towns and rural markets which are
at least 25 miles from a metropolitan area
* Offering in-house credit programs to provide flexible financing to
its customers
* Utilizing a central distribution system to ensure prompt merchandise
delivery
* Emphasizing customer service, including repair service for consumer
electronics and other mechanical items, and free delivery
The Company believes this strategy of offering selection, credit, delivery and
service typically allows it to have the largest market share among home
furnishings retailers in most of its small-town markets.
Competition
The retail home furnishings industry is a highly competitive and fragmented
market. Heilig-Meyers, as a whole, competes with large chains, independent
stores, discount stores, furniture stores, specialty stores and others, some of
which have financial resources greater than those of the Company, and some of
which derive revenues from the sale of products other than home furnishings.
The Company believes that locating stores in small towns and rural markets
provides an important competitive advantage. Currently, 79% of all stores
are located in towns with populations under 50,000 and more than 25 miles
from a metropolitan market. As the majority of other furniture chains
locate their stores in larger cities, competition in these small towns
largely comes from locally-owned store operations which generally lack the
financial strength to compete effectively with the Company.
Due to volume purchasing, the Company believes it is generally able to
offer merchandise at lower prices than its competitors, especially local
independent and regional specialty furniture retailers. In addition, management
believes that it offers a broader selection of merchandise than many of its
competitors. Consequently, the Company believes that its stores generally have
the largest market share among furniture retailers in their areas. This market
leadership, combined with the relatively stable business environment and the
collective economic diversity of these small towns, has contributed to sales and
earnings growth, even in slow economic times.
<PAGE 5>
Based on its experience, the Company believes its competitive environment
is comparable in all geographic regions in which it operates. Therefore, the
Company does not believe that a regional analysis of its competitive market is
meaningful at this time.
D. Store Operations
General
The Company's stores generally range in size from 10,000 to 35,000 square
feet, with the average being approximately 20,000 square feet. A store's
attached or nearby warehouse usually measures from 3,000 to 5,000 square feet.
A typical store is designed to give the customer an urban shopping experience in
a rural location. During the last three years, the Company revitalized its
prototype store construction program. The first new prototype stores opened in
fiscal 1993. The Company added 3 of these stores in fiscal 1994, 7 in fiscal
1995 and plans at least 12 more for fiscal 1996. The prototype stores feature
the latest technology in display techniques and construction efficiencies.
Certain features of these prototype stores are incorporated into other locations
through the Company's ongoing remodeling program. The Company's existing store
remodeling program, under which each store is remodeled on a rotational basis,
assures that all stores have a fresh look and up-to-date displays. During
fiscal 1995, the Company remodeled 38 existing stores and approximately 50
additional remodelings are planned for fiscal 1996.
Operations of the Company are led by the Executive Vice President of
Operations, Senior Vice President of Operations, and seven Regional Vice
Presidents of Operations. Six of the Regional Vice Presidents serve as the link
between the corporate office and 31 Division Supervisors, each of whom is
generally responsible for 12 to 24 stores comprising East Coast operations. The
remaining Regional Vice President serves as a link between the corporate office
and 13 Division Supervisors who combine to oversee 94 stores comprising West
Coast operations. Store managers report to their respective Division
Supervisors and are eligible to receive an incentive bonus based on monthly
and annual store performance.
The Company has an extensive in-house education program to train new
employees in its operations and to keep current employees informed of the
Company's policies. This training program also emphasizes sales productivity,
credit extension and collection, and store administration. The training program
utilizes the publication of detailed store manuals, internally produced training
videotape and Company-conducted classes for employees. The Company also has an
in-store manager training program which provides potential managers hands-on
experience in all aspects of store operations. Management believes that the
Company's ongoing education program will provide a sufficient number of
qualified personnel for its new stores.
In recent years, the Company has enhanced operating systems to increase the
availability and effectiveness of management information and to provide a
foundation for planned future growth. In fiscal 1994, the Company installed a
new sales analysis and inventory control system. This system provides
management ready access to all levels of sales and inventory data, enabling
better management of promotional events, closer evaluation of results by
product and operating region and providing an opportunity for improved
inventory availability and turnover. In fiscal 1995, the Company continued
improvements to inventory management by use of just-in-time ordering and
backhauling. Also, during the year the Company completed a conversion to
updated hardware, which is expected to improve the response time of existing
programs and is expected to provide a foundation for numerous system
enhancements in the future, including satellite communications.
Merchandising
The Company's merchandising strategy is to offer a broad selection of
<PAGE 6>
affordably priced home furnishings, including furniture and accessories,
consumer electronics, appliances, bedding, and other items such as jewelry,
small appliances and seasonal goods. During the fiscal year ended
February 28, 1995, approximately 59% of the Company's sales were derived from
furniture and accessories; 11% from consumer electronics; 8.0% from
appliances; 10% from bedding; with the remaining 12% being divided among
other items such as jewelry, small appliances and seasonal goods. These
percentages have not varied significantly over the past three fiscal years.
The Company carries a wide variety of items within each merchandise
category to appeal to individual tastes and preferences. A store will typically
display up to approximately 3,400 SKU's, depending on its floor space. The
Company believes this broad selection of products has enabled it to expand its
customer base and increase repeat sales to existing customers. By carrying
seasonal merchandise (heaters, air conditioners, lawn mowers, outdoor furniture,
etc.), the Company has been able to moderate seasonal fluctuations in sales
common to its industry.
While the basic merchandise mix remained fairly constant during fiscal
1995, the Company continued to refine its merchandise selections to capitalize
on variations in customer preferences. Changes in the merchandise lineup
included improved offerings at higher price points to serve the broad range of
customers that have begun frequenting our stores in certain markets and
introduction of a new product, the Digital Satellite System. Also during fiscal
1995, the Company consolidated east and west coast merchandising departments so
that the efficiencies of centralized buying now benefit all stores coast to
coast. The Company also continued to consolidate and strengthen its vendor
relationships. In addition to providing purchasing advantages, these
relationships provide warehousing and distribution arrangements which improve
inventory management.
Advertising and Promotion
The Company designs, prepares and mails centrally from its corporate
headquarters its direct mail circulars, which account for approximately 49% of
the Company's advertising expenses. The Company currently distributes over 160
million direct mail circulars annually. These include monthly circulars sent by
direct mail to over ten million households on its mailing list and special
private sale circulars mailed to over two million of these households each
month, as well as during special promotional periods.
In addition to the Company's utilization of direct mail circulars,
television and radio commercials are produced centrally and aired in 99% of the
Company's markets. Newspaper and radio advertising is placed largely at the
store level. In fiscal 1995, the Company began utilizing Spanish television and
radio in selected markets with significant Hispanic populations. The Company
also regularly conducts approximately 40 company-wide promotional events each
year. In addition to these events, individual stores periodically conduct
promotional events locally. Besides the conventional marketing techniques noted
above, Heilig-Meyers has sought alternative methods to increase the Company's
name recognition and customer appeal. In fiscal 1995, the Company continued its
sponsorship of the Heilig-Meyers NASCAR Racing Team. Management believes this
program has enhanced the Company's name recognition among the millions of NASCAR
fans in its market areas.
During fiscal 1995, the Company continued utilizing market segmentation
techniques (begun in fiscal 1994) to identify prospective customers by matching
their demographics to those of existing customers. Management believes ongoing
<PAGE 7>
market research and improved mailing techniques enhance the Company's ability to
place circulars in the hands of potential customers most likely to make a
purchase. The Company believes that the availability, as well as affordability
of credit are key determinants in the purchase decision, and therefore, promotes
credit availability by disclosing monthly payment terms in its circulars.
Historically, expenses for advertising and promotion have been between 6% and 8%
of sales.
Distribution
With the opening of the Fontana Distribution Center in Fontana, California,
in June 1994, the Company currently operates seven distribution centers. The
other six distribution centers are located in Orangeburg, South Carolina; Rocky
Mount, North Carolina; Russellville, Alabama; Mount Sterling, Kentucky;
Thomasville, Georgia; and Moberly, Missouri. In fiscal 1995, the Company
expanded the Rocky Mount, Russellville, and Mount Sterling distribution centers
to meet increased volume demands. These additions added the equivalent of one
distribution center. For similar reasons, the Company plans a 150,000 square
foot addition to the Moberly distribution center in fiscal 1996 and will be
conducting site selections for additional distribution centers warranted by
additional growth. Currently, the Company's distribution network has the
capacity to service over 750 stores.
The Company utilizes several sophisticated design and management techniques
to increase the operational efficiency of its distribution network. These
include cantilever racking and computer-controlled random-access inventory
storage. Use of direct shipping and backhauling from vendors has also enhanced
distribution efficiency. Backhauling from vendors is the transportation of
purchased inventory to the distribution center while returning from normal store
deliveries. The Company now backhauls approximately 13% of its purchased
inventory. Also, all custom cut carpet is now shipped directly from the vendor
to each store, eliminating the need to maintain carpet inventory at the
distribution centers.
Typically, each store is within 250 miles of one of the distribution
centers. The Company operates a fleet of trucks which delivers merchandise to
each store at least twice a week. The Company believes the use of the
distribution centers enables it to make available a broader selection of
merchandise, to reduce inventory requirements at individual stores, to benefit
from volume purchasing, to provide prompt delivery to customers and to minimize
freight costs.
Credit Operations
The Company believes that offering flexible, in-house credit is an
important part of its business strategy which provides a significant competitive
advantage. Because credit is administered at the store level, terms can
generally be tailored to meet the customer's ability to pay. Each store has a
credit manager who, under the store manager's supervision, is responsible for
extending and collecting that store's accounts in accordance with corporate
guidelines. Because Company representatives work with customers on a local
level, they can often extend credit, without significantly increasing the risk
of nonpayment, to customers who do not qualify for credit under bank card
programs or from competitors who typically use strict, impersonal credit
extension models.
The Company believes its credit program fosters customer loyalty and repeat
business. Historically, approximately 80% of the Company's sales have been made
on credit, principally through installment sales. Although the Company extends
credit for terms up to 24 months, the average term of the installment obligation
for the fiscal year ended February 28, 1995, was approximately 17 months. The
Company accepts major credit cards in all of its stores and, in addition, offers
a revolving credit program featuring its private label credit card. The Company
promotes this program by direct mailings to revolving credit customers of
<PAGE 8>
acquired stores and potential new customers in targeted areas. Credit extension
and collection of revolving accounts are handled centrally from the Company's
credit center located at its corporate office.
Revenue is recognized on installment and credit sales upon approval and
establishment of a delivery date, which does not materially differ from
recognition at time of shipment. Sales returns prior to shipment date have been
immaterial. Finance charges are included in revenues on a monthly basis as
earned. During fiscal 1995, finance income amounted to $163,114,000 or
approximately 17.1% of total revenues. The Company is unable to estimate
accurately the contribution of its financing operations to net income because
the Company does not specifically allocate various costs and expenses of
operations between retail sales and credit operations.
The Company offers, but does not require, property, life and disability (in
certain states) insurance with its credit sales. The Company acts as an agent
in the selling of credit insurance.
Customer Service
The Company believes that customer service is an important element for
success in the retail furniture business and therefore provides a broad range of
services to its customers. These include free home delivery and set-up in the
home, as well as liberal policies with respect to exchanges and returns. In
addition, the Company sells service agreements on certain merchandise sold in
its stores. The Company sells substantially all of its service policies to
third parties and recognizes service policy income on these at the time of
sale. In prior years, the Company retained a portion of its service policies
and deferred recognition of the related income along with the direct cost of
acquiring the contracts. Income on these contracts is being earned over the
life of the service policies.
In addition, the Company provides repair services on virtually all consumer
electronics and mechanical items sold in its stores. The Company operates
service centers in Fayetteville, North Carolina, Moberly, Missouri and Fontana,
California. The Fayetteville Service Center occupies approximately 40,000
square feet and has the capacity to process 1,800 repair jobs a week. The
Moberly Service Center occupies 40,000 square feet adjacent to the Moberly,
Missouri Distribution Center and has the capacity to process 2,000 repair
jobs a week. In February 1995, the Company opened its third service center in
Fontana, California. This service center occupies 15,000 square feet and has
the capacity to process 500 repair jobs a week. The service centers provide
service for all consumer electronic items, most mechanical items (except
major appliances which are serviced locally) and watches. The service
centers are also authorized to perform repair work under certain
manufacturers' warranties. Service center trucks visit stores weekly,
allowing one week turnaround on most repair orders. The Company believes this
level of service is not otherwise available in the small towns in which it
operates.
Puerto Rican Operations
With the acquisition of Berrios Enterprises in February of 1995, the
Company has 17 stores in Puerto Rico. Puerto Rico has a population of 3.5
million and is approximately 3,425 square miles according to the 1990 census.
These stores will continue to operate under the Berrios name with core
operations substantially unchanged. The stores range in size from 7,000 to
63,000 square feet, with the average store being approximately 18,000 square
feet. These stores are serviced by a distribution system that offers both
stores and customers quality service. A facility of approximately 200,000
square feet serves as both a warehouse and home delivery center. Next day
delivery is provided to customers making cash purchases and second day
delivery to customers making credit purchases.
<PAGE 9>
E. Corporate Expansion
The Company has grown from 304 stores at February 28, 1990, to 647 stores
at February 28, 1995. Over this time period, the Company has expanded from its
traditional Southeast operating region into the Midwest, West, Southwest, and
for the first time, outside the continental United States into Puerto Rico.
In August 1994, the Company increased its presence in the Midwest with the
purchase of certain assets relating to 9 stores of Nelson Brothers Furniture.
Most recently, in February 1995, the Company acquired certain assets relating
to 17 stores of Berrios Enterprises based in Caguas, Puerto Rico.
The Company currently operates stores in Alabama, Arizona, Arkansas,
California, Colorado, Florida, Georgia, Illinois, Indiana, Iowa, Kentucky,
Mississippi, Missouri, Nevada, North Carolina, New Mexico, Ohio, Pennsylvania,
South Carolina, Tennessee, Texas, Virginia, West Virginia, Wisconsin and Puerto
Rico. Growth in the number of stores comes primarily from three sources:
acquisition of chains or independent stores, refurbishing of existing retail
space and new construction. During the fiscal year ended February 28, 1995, the
Company added 81 stores and closed 4 stores for a net increase of 77 stores. Of
these, 17 are in Puerto Rico, 15 are in Illinois, 13 are in Ohio, 9 are in Iowa,
4 are in Mississippi, 4 are in Missouri, 3 are in Alabama, 3 are in Florida, 3
are in Indiana, 2 are in Georgia, 2 are in Pennsylvania, 1 is in Arizona, 1 is
in Nevada, 1 is in South Carolina, 1 is in Virginia, 1 is in West Virginia and
1 is in Wisconsin. During fiscal 1995, 2 stores in Illinois, 1 in Arizona and 1
in South Carolina were closed. Of the 81 new stores, 36 were existing furniture
stores acquired by the Company in separate transactions, 38 were operations
begun by the Company in vacant buildings previously owned by others and 7 were
prototype stores built according to the Company's specifications.
The Company constantly evaluates opportunities for further expansion of its
business. The Company plans to add approximately 50 stores in the continental
U.S. during fiscal 1996 by seeking acquisitions of existing businesses,
obtaining and renovating existing retail space or constructing new prototype
stores in selected small towns. In addition, the Company plans to add two
new stores in Puerto Rico during fiscal 1996. All new stores are expected to
be located in areas contiguous to the Company's existing store locations. In
selecting new locations, the Company intends to follow its established
strategy of generally locating stores within 250 miles of a company
distribution center and in towns with populations of 5,000 to 50,000 and over
25 miles from the closest metropolitan market. The Company believes that it
has substantial growth potential in its present and contiguous market areas.
F. Other Factors Affecting the Business of Heilig-Meyers
Suppliers
During the fiscal year ended February 28, 1995, the Company's ten largest
suppliers accounted for approximately 31% of merchandise purchased. The Company
has no long-term contracts for the purchase of merchandise. In the past, the
Company has not experienced difficulty in obtaining satisfactory sources of
supply and believes that adequate alternative sources of supply exist for the
types of merchandise sold in its stores. Neither the Company nor its officers
or directors have an interest, direct or indirect, in any of its suppliers of
merchandise other than minor investments in publically held companies.
Service Marks, Trademarks and Franchise Operations
The marks "Heilig-Meyers", "MacSaver", "MacSaver, design of a Scotsman",
other marks acquired through various acquisitions and the Company's distinctive
logo are federally registered service marks of the Company. The Company has
registrations for numerous other trademarks and service marks routinely used in
the Company's business. These registrations can be kept in force in perpetuity
<PAGE 10)
through continued use of the marks and timely applications for renewal.
The Company has applied for registration of the mark "Berrios" and other
trademarks and service marks for use in connection with its stores in Puerto
Rico.
Seasonality
Quarterly fluctuations in the Company's sales are insignificant.
Employees
As of February 28, 1995, the Company employed 12,510 persons full- or part-
time in the continental United States, of whom 11,901 worked in the Company's
stores, distribution centers and service centers, with the balance in the
Company's corporate offices and two California offices. As of February 28,
1995, Heilig-Meyers' subsidiary, HMPR, Inc., employed 553 persons full- or
part-time in Puerto Rico, of whom 311 worked in the stores and distribution
center, with the balance in the corporate office. The Company is not a party
to any union contract and considers its relations with its employees to be
excellent.
Foreign Operations and Export Sales
The Company has no foreign operations and makes no export sales.
ITEM 2. PROPERTIES
As of February 28, 1995, 404 of the Company's stores (continental U.S.
only) are on a single level with approximately 80% of floor space devoted to
sales and 20% used as a warehouse primarily for merchandise being prepared for
delivery and for items customers carry with them. These stores are typically
located away from the center of town. The remaining 226 stores (continental
U.S. only) generally are in older two- or three-level buildings in downtown
areas. Usually there is no warehouse space in these older buildings and the
stores' warehouses are located in nearby buildings. Of the 17 stores located
in Puerto Rico, two are single level with the remaining stores occupying
multi-level dwellings. Two of these stores occupy more than one building.
As of February 28, 1995, the Company owned 80 of its stores, three of its
distribution centers and the Fayetteville, North Carolina Service Center. The
Company leases the remaining stores, the remaining distribution centers, the two
California offices and its corporate headquarters located at 2235 Staples Mill
Road, Richmond, Virginia. Rentals generally are fixed without reference to
sales volume although some leases provide for increased rent due to increases
in taxes, insurance premiums or both. Some renewal options are tied to
changes in the Consumer Price Index. Total rental payments for properties
for the fiscal year ended February 28, 1995, were approximately $34,637,000.
All vehicles placed in service after March 14, 1990, a majority of the
distribution centers' material handling equipment placed in service after
February 27, 1991 and a majority of the Company's data processing equipment
are also leased. The Company believes that its facilities are adequate at
present levels of operations.
ITEM 3. LEGAL PROCEEDINGS
The Company is currently involved in three cases regarding non-filing fees
charged by the Company on certain credit transactions. Non-filing fees are used
to obtain insurance in lieu of filing a financing statement to perfect a
security interest in connection with a credit transaction. The plaintiffs in
the cases are alleging that the Company's charging of the non-filing fees
violates certain state and federal statutes and are seeking statutory damages
and unspecified punitive damages. The plaintiffs in the Alabama and Georgia
cases are seeking statewide class certification and the plaintiffs in the
Mississippi case are requesting certification of a class in all states except
Alabama and Georgia.
<PAGE 11>
Whitson et al v. Heilig-Meyers Furniture Company was filed in the Circuit
Court of Calhoun County, Alabama on December 30, 1993 and was subsequently
removed to the United States District Court for the Northern District of
Alabama (Eastern Division). The Company anticipates that the Court will
schedule a hearing within the next six months to determine the fairness of a
proposed settlement on this case. Leverett et al v. Heilig-Meyers Company was
filed on September 22, 1994 in the Superior Court of Richmond County, Georgia
and was subsequently removed to the United States District Court for the
Southern District of Georgia. The Company has moved to dismiss the case and
for summary denial of the class certification motion. These motions are
currently pending before the Court. Kirby et al v. Heilig-Meyers Furniture
Company and Heilig-Meyers Company was filed in the United States District
Court for the Southern District of Mississippi (Hattiesburg District) on
April 10, 1995. The Company intends to vigorously defend both this case and
the Georgia case.
In addition, the Company is party to various legal actions and
administrative proceedings and subject to various claims arising in the
ordinary course of business, including claims related to its charges in
connection with credit sales.
Based on the best information presently available, the Company believes
that the disposition of these matters will not have a material adverse effect
on the financial position of the Company.
ITEM 4. SUBMISSION of MATTERS to a VOTE of SECURITY HOLDERS
None.
<PAGE 12>
Executive Officers of the Registrant
The following table sets forth certain information with respect to the
executive officers of the Company as of May 5, 1995:
Positions with the Company
or Principal Occupation for
Years with the Past Five Years and
Name Age the Company Other Information
William C. DeRusha 45 26 Chairman of the Board since
April 1986. Chief Executive
Officer since April 1984.
Director since January 1983.
Troy A. Peery, Jr. 49 23 President since April 1986.
Chief Operating Officer since
December 1987. Director since
April 1984.
James F. Cerza, Jr. 47 7 Executive Vice President,
since April 1995. Executive
Vice President, Operations from
August 1989 to April 1995.
Joseph R. Jenkins 49 7 Executive Vice President and
Chief Financial Officer since
January 1988.
James R. Riddle 53 10 Executive Vice President, since
April 1995. Executive Vice
President, Marketing from
January 1988 to April 1995.
William J. Dieter 55 22 Senior Vice President,
Accounting since April 1986.
Chief Accounting Officer
since 1975. Controller from
1975 to April 1990.
Roy B. Goodman 38 15 Senior Vice President, Finance;
Secretary and Treasurer since
April 1995. Vice President,
Secretary and Treasurer from
1987 to April 1995.
William E. Helms 46 16 Senior Vice President,
Corporate Expansion since
May 1987.
<PAGE 13>
Curtis C. Kimrell 49 4 Senior Vice President,
Operations since April
1995. Regional Vice President
from March 1994 to April
1995. Division Supervisor
from 1991 to March 1994.
President of Danley Furniture
from 1985 to 1991.
H.C. Poythress 52 3 Senior Vice President,
Advertising since March
1993. Vice President,
Advertising from July 1991 to
March 1993. Vice President,
Advertising, Lowes, Inc.
prior to July 1991.
Ronald M. Ragland 53 31 Senior Vice President,
Human Resources and
Training, since March 1993.
Vice President, Human
Resources and Training
from April 1985 to March 1993.
John H. Sniffin 53 26 Senior Vice President,
Government Relations, since
August 1992. Senior Vice
President, Merchandising
Administration from March
1989 to August 1992. Vice
President, Merchandising
Administration from December
1986 to March 1989.
A. R. Weiler 59 Senior Vice President,
Merchandising since April
1995. Chairman and CEO of
Chittenden & Eastman from
May 1992 to February 1995.
President and CEO of Chittenden
& Eastman from 1982 to May 1992.
<PAGE 14>
PART II
Item 5. MARKET for REGISTRANT'S COMMON EQUITY and RELATED STOCKHOLDER MATTERS.
The Company's common stock is traded on the New York and Pacific Stock
Exchanges under the symbol HMY. The table below sets forth the high and low
prices as reported on the New York Stock Exchange Composite Tape, and dividend
information for each of the last eight fiscal quarters. Prices and dividends
have been adjusted for a three-for-two stock split distributed in July 1993.
Fiscal Year High Low Dividends
1995
4th Quarter $ 29 $ 23 3/8 $ .06
3rd Quarter 30 5/8 24 3/8 .06
2nd Quarter 30 1/4 23 1/4 .06
1st Quarter 36 25 .06
1994
4th Quarter $ 39 $ 31 7/8 $ .05
3rd Quarter 36 29 1/8 .05
2nd Quarter 31 1/2 23 1/8 .05
1st Quarter 25 19 3/8 .05
There were approximately 1,700 shareholders of record as of February 28,
1995.
The Company has paid cash dividends in every year since fiscal 1976. The
Board of Directors intends to continue its present policy of paying regular
quarterly dividends when justified by the financial condition of the Company.
The amount of future dividends, if any, will depend upon general business
conditions, earnings, capital requirements and such other factors as the
Board may deem relevant. The Company's payment of dividends is restricted,
under certain covenants in loan agreements, to $116,236,000 plus 75% of net
earnings adjusted for dividend payouts subsequent to February 28, 1995.
<PAGE 15>
Item 6. SELECTED FINANCIAL DATA.
FISCAL YEAR 1995 1994 1993 1992 1991
(Dollar amounts in thousands except per share data)
Earnings Statement Data:
Sales $ 956,004 $723,633 $549,660 $436,664 $376,701
Annual growth in sales 32.1% 31.7% 25.9% 15.9% 13.9%
Other income $ 196,135 $140,156 $107,883 $ 83,229 $ 71,050
Total revenues 1,152,139 863,789 657,543 519,893 447,751
Annual growth in revenue 33.4% 31.4% 26.5% 16.1% 13.8%
Costs of sales $ 617,839 $460,284 $351,361 $276,971 $238,107
Gross profit margin 35.4% 36.4% 36.1% 36.6% 36.8%
Selling, general and
administrative expense $ 350,093 $260,161 $200,071 $160,393 $136,430
Interest expense 32,889 23,834 23,084 21,389 26,037
Provision for doubtful
accounts 45,419 32,356 24,185 20,298 16,299
Provision for income taxes 39,086 32,158 20,833 13,858 9,996
Effective income tax rate 36.9% 36.9% 35.4% 33.9% 32.4%
Earnings margin (1) 7.0% 7.6% 6.9% 6.2% 5.5%
Cumulative effect of
accounting change --- --- --- --- ($2,552)
Net earnings $ 66,813 $54,996 $38,009 $26,984 $18,330
Earnings per share (1):
Primary 1.34 1.12 0.84 0.64 0.58
Fully diluted 1.34 1.12 0.83 0.63 0.57
Net earnings per share:
Primary 1.34 1.12 0.84 0.64 0.51
Fully diluted 1.34 1.12 0.83 0.63 0.51
Cash dividends per share 0.24 0.20 0.16 0.14 0.13
Balance Sheet Data:
Total assets $1,208,937 $1,049,633 $766,485 $636,576 $520,461
Average assets per store 1,869 1,841 1,803 1,702 1,616
Accounts receivable, net 538,208 535,437 397,974 315,949 234,638
Inventories 253,529 184,216 131,889 119,803 113,945
Property and equipment,
net 203,201 168,142 126,611 108,758 97,803
Additions to property
and equipment 49,101 36,252 27,426 24,010 12,510
Short-term debt 167,925 210,318 163,171 42,086 96,021
Long-term debt 370,432 248,635 176,353 226,112 164,369
Average debt per store 832 805 799 717 809
Stockholders' equity 490,390 433,229 305,555 263,928 185,175
Stockholders' equity
per share 10.10 8.95 6.87 6.07 5.19
Other Financial Data:
Working Capital $ 554,096 $453,175 $322,796 $355,975 $233,720
Current ratio 2.9 2.4 2.3 4.1 2.6
Debt to equity ratio 1.10 1.06 1.11 1.02 1.41
Debt to debt and equity 52.3% 51.4% 52.6% 50.4% 58.4%
Rate of return on
average assets (1)(2) 7.8% 7.7% 7.5% 7.1% 7.5%
Rate of return on
average equity (1) 14.5% 14.9% 13.3% 12.0% 11.7%
Number of stores 647 570 425 374 322
Number of employees 13,063 10,536 7,850 6,700 5,910
Average sales per employee $ 81 $ 79 $ 76 $ 69 $ 67
<PAGE 16>
SELECTED FINANCIAL DATA, cont.
FISCAL YEAR 1995 1994 1993 1992 1991
(Dollar amounts in thousands except per share data)
Weighted average common
shares outstanding:
(in thousands)
Primary 49,954 49,103 45,356 42,123 35,991
Fully diluted 49,954 49,281 45,644 42,417 36,242
Price range on common
stock per share:
High $ 36 $ 39 $22 3/8 $14 5/8 $ 8 7/8
Low 23 1/4 19 3/8 10 5/8 7 3/4 4 3/4
Close 23 5/8 33 19 7/8 14 1/8 7 3/4
Per share amounts reflect three-for-two stock splits distributed in
January 1992, November 1992, and July 1993.
(1) Calculated before cumulative effect of accounting changes.
(2) Calculated using earnings before interest, net of tax.
<PAGE 17>
Item 7. MANAGEMENT'S DISCUSSION and ANALYSIS of FINANCIAL
CONDITION and RESULTS of OPERATIONS
RESULTS OF OPERATIONS
Highlights of operations expressed as a percentage of sales are as follows:
Fiscal Year
1995 1994 1993
Other income 20.5% 19.4% 19.6%
Costs of sales 64.6 63.6 63.9
Selling, general and
administrative expense 36.6 36.0 36.4
Interest expense 3.4 3.3 4.2
Provision for doubtful
accounts 4.8 4.5 4.4
Earnings before provision for
income taxes 11.1 12.0 10.7
Provision for income taxes 4.1 4.4 3.8
Net earnings 7.0 7.6 6.9
Revenues
Sales for fiscal 1995 compared to the two previous periods are shown below:
Fiscal Year
1995 1994 1993
Sales (in thousands) $956,004 $723,633 $549,660
Percentage increase over
prior period 32.1% 31.7% 25.9%
Portion of increase from existing
(comparable ) stores 6.1 12.1 10.1
Portion of increase from new stores 26.0 19.6 15.8
The Company's fiscal 1995 consolidated net sales increased 32.1% to $956.0
million compared with a 31.7% and a 25.9% increase in fiscal years 1994 and
1993, respectively. The Company's older eastern stores provided 89% of total
sales for fiscal 1995, or $849.4 million, representing a 20% increase over
fiscal 1994. The stores located in Iowa, Ohio, Illinois, Missouri and
Pennsylvania had the largest overall sales increases. The Company's
southwestern stores, most of which were acquired through the purchase of
certain assets of McMahan's Furniture Company in January 1994, added $103.0
million of sales, or 11% of the total sales. The Company's 17 Puerto Rico
stores, acquired on February 1, 1995, from Berrios Enterprises ("Berrios") of
Caguas, Puerto Rico, contributed $3.6 million in sales.
The Company attributes the growth in sales over the past three fiscal years
primarily to an increase in volume in both comparable stores and new stores.
The Company's pricing structure has remained relatively constant over the
past three fiscal years; therefore, the impact of price changes on sales
volumes has been immaterial. Continuing operational improvements, the
opening of approximately 50 new stores, sales from the recently acquired
Puerto Rico stores and an anticipated moderate industry-wide sales increase
(see "Industry Outlook") should result in favorable sales increases for the
Company in fiscal 1996.
During fiscal 1995, other income increased to 20.5% of sales from 19.4%
of sales for fiscal 1994. Finance income, the major component of other income,
is recognized over the lives of installment contracts which are approximately
17 months. During a period of moderate comparable stores sales growth, preceded
<PAGE 18>
by periods of high comparable stores sales growth, finance income will typically
increase as a percentage of sales as finance income dollars continue to be
earned on previous periods' sales. Comparable stores sales growth for fiscal
1995 was 6.1% compared to 12.1% and 10.1% in fiscal 1994 and 1993,
respectively. As a result, finance income increased as a percentage of sales
in fiscal 1995. In addition, the southwestern stores are contributing higher
finance income, as a percentage of sales, due to a longer contract life and
slightly higher average annual percentage rates. Other income, as a
percentage of sales, for fiscal 1994 decreased as compared to fiscal 1993.
Finance income decreased in fiscal 1994, as a percentage of sales, due to the
lagging effect of recognizing income in conjunction with accelerated
comparable stores sales growth in fiscal 1994.
Costs and Expenses
In fiscal 1995, costs of sales increased, as a percentage of sales, to
64.6% from 63.6% in fiscal year 1994. The Company's gross margins decreased as
selling prices were lowered in order to stimulate sales. As a percentage of
sales, occupancy costs remained relatively constant. Delivery costs, as a
percentage of sales, increased primarily due to higher distribution costs
associated with the southwestern stores and also due to slightly higher costs
associated with home deliveries in the major metropolitan markets. Costs of
sales decreased to 63.6% of sales from 63.9% in fiscal year 1994 as compared
with fiscal year 1993. Improved merchandise buying, warehousing refinements
and less promotional pricing during fiscal 1994, as compared with fiscal
1993, created the improvement. Management is focusing on improving margins
during fiscal 1996, however the improvements may be partially offset by the
anticipated dilutive effect of the Berrios stores' lower margins and the full
year costs of the Fontana, California, distribution center.
Selling, general and administrative expense increased to 36.6% of sales in
fiscal year 1995 from 36.0% of sales in fiscal 1994. Advertising expense
increased approximately 1.0% of sales which was primarily attributable to higher
costs associated with the use of television and radio mediums for the Company's
recently acquired stores in major metropolitan markets such as Chicago and
Cleveland. Also, advertising costs increased as the result of the introduction
of the Heilig-Meyers name in the six new states and corresponding markets of the
Company's southwestern stores, which were acquired in January, 1994. The
increase in advertising was partially offset by decreases, as a percentage of
sales, in salaries and related expenses and other selling, general and
administrative expenses due to the growing sales volume. During fiscal 1994,
selling, general and administrative expense decreased to 36.0% from 36.4% in
fiscal 1993. Efficiencies in the Company's direct mail circular program
combined with leverage on other selling and administrative expenses from
higher sales volumes created the improvement. For fiscal 1996, management
expects selling, general and administrative expense to decrease slightly as a
percentage of sales due to anticipated increased efficiencies in advertising
and overhead expenses.
Interest expense increased to 3.4% of sales in fiscal 1995 from 3.3% of
sales in fiscal 1994. The increase is primarily the result of higher weighted
average short-term interest rates combined with higher weighted average debt
levels. Weighted average short-term interest rates increased to 5.1% in fiscal
1995 from 3.5% in fiscal 1994 and weighted average short-term borrowings
increased $71.0 million. Weighted average long-term interest rates decreased to
7.9% from 8.8% in fiscal year 1994. Weighted average long-term debt levels
increased by $67.7 million during fiscal 1995. The Company continues to focus
on structuring its debt portfolio to contain a higher percentage of long-term
fixed rate debt to minimize the Company's exposure to future short-term interest
rate fluctuations. As an additional means of managing the risk of unfavorable
interest rate movements, the Company has entered into interest rate swap
agreements; however, these agreements have not had a significant impact on the
Company's financial position or results of operations. Interest expense for
fiscal 1994 was 3.3% of sales as compared to 4.2% of sales in fiscal 1993. The
decrease in fiscal 1994 was primarily attributable to a decline in the Company's
<PAGE 19>
weighted average short-term and long-term interest rates for that period.
Management anticipates higher interest expense for fiscal 1996, as a percentage
of sales, due to an expected rise in interest rates as well as higher debt
levels associated with the Company's growth.
The provision for doubtful accounts increased to 4.8% of sales in fiscal
1995 from 4.5% of sales in fiscal 1994. A rise in the portfolio loss rate,
during fiscal 1995, applied to the growing accounts receivable base caused the
increase. The extension of credit is constantly monitored by management to
minimize the portfolio loss rate. Management anticipates a slight increase in
the provision for doubtful accounts in fiscal 1996. The provision for doubtful
accounts increased slightly during fiscal 1994 to 4.5% of sales from 4.4% of
sales in 1993.
Total portfolio write-offs for fiscal 1995, 1994 and 1993 were $51.7
million, $32.9 million and $25.5 million, respectively. Of these amounts, $7.6
million, $3.2 million and $3.0 million were for purchased receivables.
Management believes that the allowance for doubtful accounts of $46.7 million at
February 28, 1995, is adequate.
Provision for Income Taxes and Net Earnings
The effective tax rate for fiscal 1995 and 1994 was 36.9% compared to 35.4%
for fiscal 1993. During fiscal 1994, the Omnibus Reconciliation Act of 1993
("the Budget Act") was signed into law. The Budget Act includes an increase in
the corporate income tax rate to 35.0% from 34.0% retroactive to January 1,
1993. The Company was required to adjust its deferred income tax balance to
reflect the higher tax rate and recognize the effects of the adjustment
during the second quarter of fiscal 1994.
Net earnings for fiscal 1995 increased to $66.8 million from $55.0 million
for fiscal 1994. As a percentage of sales, profit margin decreased to 7.0% for
fiscal 1995 from 7.6% for fiscal 1994. The decrease is mostly attributable to
the decline in gross margins and the increase in selling, general and
administrative expense relating to advertising. As a percentage of sales,
profit margin increased to 7.6% for fiscal 1994 from 6.9% for fiscal 1993.
Lower interest expense, selling, general and administrative expense and costs
of sales, as a percentage of sales, contributed to the improvement for fiscal
1994.
LIQUIDITY AND CAPITAL RESOURCES
The Company increased its cash position $4.1 million to $10.4 million at
February 28, 1995, from $6.3 million at February 28, 1994.
Net cash inflow from operating activities was $114.2 million for fiscal
1995 compared to a net cash outflow of $74.8 million for fiscal 1994. The
Company traditionally produces a deficit in cash flow from operations because it
extends credit to its customers. However, during fiscal 1995, the Company
received proceeds of $178.8 million from the sale of accounts receivable that
was partially offset by cash outflows for growth in inventories. Inventories
increased during fiscal 1995 due to the addition of the Fontana, California,
distribution center and the opening of 77 stores. In fiscal 1994, the deficit
in cash flow was largely due to growth in accounts receivable and inventories.
Accounts receivable increased due to a higher volume of credit sales. Inventory
growth was the result of the addition of the Moberly, Missouri, distribution
center and the opening of 145 stores. Continued extension of credit and related
increases in customer accounts receivable, as well as increases in inventory
related to expansion, will likely cause negative net cash flows from operations
in future periods. However, as noted above, the Company periodically sells
accounts receivable, as a source of liquidity, providing additional positive
cash flows to improve net cash flows from operating activities.
<PAGE 20>
Investing activities produced negative cash flows of $179.9 million in
fiscal 1995 and $114.9 million in fiscal 1994. Capital spending, associated
with an aggressive expansion program, increased during fiscal 1995. The Company
acquired certain assets relating to the operation of 17 stores from various
corporate entities comprising Berrios Enterprises for approximately $99.0
million. The purchase price was financed with proceeds from two long-term notes
of $60.0 million and $15.0 million with interest rates of 9.0% and 8.8%,
respectively. The remaining portion of the purchase price was financed through
the Company's lines of credit with banks. During fiscal 1995, the Company also
purchased certain assets relating to nine stores from Nelson Brothers Furniture
Company of Chicago, Illinois, for approximately $18.0 million. Also during
fiscal 1995, the Company expanded the Rocky Mount, North Carolina, Russellville,
Alabama and Mount Sterling, Kentucky, distribution centers. Total expenditures
for this expansion was approximately $8.2 million. Approximately 100,000 square
feet of space was added at each of the three distribution centers. In fiscal
1996, the Company plans to expand the Moberly, Missouri, distribution facility
by 150,000 square feet to accommodate sales growth in existing stores and new
stores which will be served by this distribution center. The Company plans to
open approximately 50 new stores in fiscal 1996 as well as continue its existing
store remodeling program. Capital expenditures will continue to be financed by
external sources of funds and cash flows from operations.
Financing activities provided a positive net cash flow of $69.8 million in
fiscal 1995 as compared to $192.1 million in fiscal 1994. During fiscal 1995,
the Company reduced its notes payable to banks by $112.8 million compared to an
increase of $139.2 in fiscal 1994, while proceeds from long-term debt issuances
increased to $230.0 million from $30.0 million in fiscal 1994. During fiscal
1994, the Company received $74.5 million in proceeds from a common stock
offering which were used to repay indebtedness in that fiscal year. 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 from operations supplemented by other sources of capital.
The Company has lines of credit through eleven banks totaling $375.0 million
of which $235.2 million was unused at February 28, 1995.
Total debt as a percentage of debt and equity was 52.3% at February 28,
1995, compared to 51.4% and 52.6% at February 28, 1994 and 1993, respectively.
The current ratio was 2.9 at February 28, 1995, compared to 2.4 and 2.3 for
February 28, 1994 and 1993, respectively.
Industry Outlook
Industry experts are forecasting that the home furnishings industry will
grow at a slower rate in calendar 1995 as compared to the past two calendar
years as a result of rising interest rates, lower home sales and housing
starts and a slower growth in the U.S. economy. However, given the small-town
market niche in which the majority of Company's stores operate, it is
management's opinion that industry trends are not necessarily indicative of
Company trends. The Company has posted same store sales and net earnings
growth over the last fifteen-year period which included periods of rising and
falling interest rates and both sluggish and robust periods of housing
activity. Therefore, industry projections do not necessarily predict or
reflect future operating results of the Company.
<PAGE 21>
INDEPENDENT AUDITOR'S REPORT
To the Stockholders and Board of Directors
Heilig-Meyers Company
Richmond, Virginia
We have audited the accompanying consolidated balance sheets of Heilig-Meyers
Company and subsidiaries as of February 28, 1995 and 1994, and the related
consolidated statements of earnings, stockholders' equity, and cash flows for
each of the three years in the period ended February 28, 1995. Our audits also
included the financial statement schedule listed in the Index at Item 14(a) 2.
These financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on the financial statements and financial statement schedule based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standands. 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, such consolidated financial statements present fairly, in all
material respects, the financial position of Heilig-Meyers Company and
subsidiaries as of February 28, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years in the period ended
February 28, 1995 in conformity with generally accepted accounting principles.
Also, in our opinion, such financial statement 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.
Deloitte & Touche LLP
Richmond, Virginia
March 22, 1995
<PAGE 22>
Item 8. FINANCIAL STATEMENTS and SUPPLEMENTARY DATA
CONSOLIDATED STATEMENTS OF EARNINGS
(Amounts in thousands except per share data)
FISCAL YEAR 1995 1994 1993
Revenues:
Sales $ 956,004 $ 723,633 $ 549,660
Other income 196,135 140,156 107,883
Total revenues 1,152,139 863,789 657,543
Costs and expenses:
Costs of sales 617,839 460,284 351,361
Selling, general and administrative 350,093 260,161 200,071
Interest 32,889 23,834 23,084
Provision for doubtful accounts 45,419 32,356 24,185
Total costs and expenses 1,046,240 776,635 598,701
Earnings before provision for income taxes 105,899 87,154 58,842
Provision for income taxes 39,086 32,158 20,833
Net earnings $ 66,813 $ 54,996 $ 38,009
Net earnings per share:
Primary $ 1.34 $ 1.12 $ .84
Fully diluted $ 1.34 $ 1.12 $ .83
Weighted average common shares outstanding:
Primary 49,954 49,103 45,356
Fully diluted 49,954 49,281 45,644
Cash dividends per share of common stock $ .24 $ .20 $ .16
See notes to consolidated financial statements.
<PAGE 23>
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands except par value data)
FEBRUARY 28, 1995 1994
Assets
Current assets:
Cash $ 10,360 $ 6,295
Accounts receivable, net 538,208 535,437
Other receivables 13,231 17,988
Inventories 253,529 184,216
Other 37,354 30,814
Total current assets 852,682 774,750
Property and equipment, net 203,201 168,142
Excess costs over net
assets acquired, net 153,054 106,741
$ 1,208,937 $ 1,049,633
Liabilities And Stockholders' Equity
Current liabilities:
Notes payable $ 139,800 $ 172,600
Long-term debt due within one year 28,125 37,718
Accounts payable 87,523 69,045
Accrued expenses 43,138 42,212
Total current liabilities 298,586 321,575
Long-term debt 370,432 248,635
Deferred income taxes 49,529 46,194
Stockholders' equity:
Preferred stock, $10 par value -- --
Common stock, $2 par value 97,096 96,846
Capital in excess of par value 120,129 118,400
Retained earnings 273,165 217,983
Total stockholders' equity 490,390 433,229
$ 1,208,937 $ 1,049,633
See notes to consolidated financial statements.
<PAGE 24>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Amounts in thousands)
Number of
Common
Shares Common Excess of Retained Stockholders'
Outstanding Stock Par Value Earnings Equity
Balances at February 29, 1992
as previously reported 19,326 $ 38,652 $ 83,942 $141,338 $263,932
Adoption of new income tax
accounting standard -- -- -- (4) (4)
Balance as restated 19,326 38,652 83,942 141,334 263,928
Cash dividends -- -- -- (7,053) (7,053)
Exercise of stock options,net 531 1,063 9,608 -- 10,671
Three-for-two stock split 9,791 19,581 (19,581) -- --
Net earnings -- -- -- 38,009 38,009
Balances at February 28, 1993 29,648 59,296 73,969 172,290 305,555
Cash dividends -- -- -- (9,303) (9,303)
Exercise of stock options, net 470 940 6,578 -- 7,518
Issuance of stock 2,300 4,600 69,863 -- 74,463
Three-for-two stock split 16,005 32,010 (32,010) -- --
Net earnings -- -- -- 54,996 54,996
Balances at February 28, 1994 48,423 96,846 118,400 217,983 433,229
Cash dividends -- -- -- (11,631) (11,631)
Exercise of stock options, net 125 250 1,729 -- 1,979
Net earnings -- -- -- 66,813 66,813
Balances at February 28, 1995 48,548$ 97,096 $120,129 $273,165 $490,390
See notes to consolidated financial statements
<PAGE 25>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
FISCAL YEAR 1995 1994 1993
Cash flows from operating activities:
Net earnings $ 66,813 $ 54,996 $ 38,009
Adjustments to reconcile net earnings
to net cash used by operating activities:
Depreciation and amortization 23,878 20,627 16,141
Provision for doubtful accounts 45,419 32,356 24,185
Other, net (406) 28 (286)
Change in operating assets and
liabilities, net of the effects
of acquisitions:
Accounts receivable (171,137) (173,995) (102,135)
Sale of accounts receivable 178,778 0 0
Other receivables 3,237 (4,708) 1,575
Inventories (44,206) (25,460) (9,659)
Prepaid expenses (9,067) (13,922) (3,482)
Accounts payable 18,098 18,379 10,088
Accrued expenses 2,767 16,925 2,428
Net cash provided (used)
by operating activities 114,174 (74,774) (23,136)
Cash flows from investing activities:
Acquisitions, net of cash acquired (132,158) (75,473) (25,638)
Additions to property and equipment (49,101) (36,252) (27,426)
Disposals of property and equipment 4,583 1,350 6,248
Miscellaneous investments (3,184) (4,531) (3,937)
Net cash used by
investing activities (179,860) (114,906) (50,753)
Cash flows from financing activities:
Issuance of stock 1,979 81,981 10,671
Proceeds from long-term debt 230,000 30,000 85,000
Increase (decrease) in notes payable, net(112,800) 139,200 (100)
Payments of long-term debt (37,797) (49,771) (13,574)
Dividends paid (11,631) (9,303) (7,053)
Net cash provided by
financing activities 69,751 192,107 74,944
Net increase in cash 4,065 2,427 1,055
Cash at beginning of year 6,295 3,868 2,813
Cash at end of year $ 10,360 $ 6,295 $ 3,868
See notes to consolidated financial statements.
<PAGE 26>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of Heilig-Meyers
Company and its subsidiaries (the "Company"), all of which are wholly owned.
All material intercompany balances and transactions have been eliminated.
Segment Information
The Company considers that it is engaged primarily in one line of business,
the sale of home furnishings. Accordingly, data with respect to industry
segments have not been separately reported herein.
Accounts Receivable
In accordance with customary trade practice, payments on accounts
receivable due after one year are included in current assets. Provisions for
doubtful accounts are made to maintain an adequate allowance to cover
anticipated losses. The Company reviews customer accounts on an individual
basis in reaching decisions regarding methods of collection or write-off of
doubtful accounts. Generally, accounts on which payments have not been
received for six months are charged to the allowance for doubtful accounts.
Inventories
Merchandise inventories are stated at the lower of cost or market as
determined by the average cost method. Inventory costs include certain
warehouse and delivery expenses.
Property and Equipment
Additions to property and equipment, other than capital leases, are
recorded at cost and, when applicable, include interest incurred during the
construction period. Capital leases are recorded at the lesser of fair value or
the discounted present value of the minimum lease payments.
Depreciation is computed by the straight-line method. Capital leases and
leasehold improvements are amortized by the straight-line method over the
shorter of the estimated useful life of the asset or the term of the lease. The
estimated useful lives are 7 to 45 years for buildings, 3 to 10 years for
fixtures, equipment and vehicles, and 10 to 15 years for leasehold improvements.
Excess Costs over Net Assets Acquired
Excess costs over net assets acquired are being amortized over periods not
exceeding 40 years using the straight-line method. The Company evaluates excess
costs over net assets acquired for recoverability and makes adjustments as
deemed necessary. Cash surrender value of life insurance and miscellaneous
investments are also included in this category; however, their balances are
not material.
Stockholders' Equity
The Company is authorized to issue 250,000,000 shares of $2 par value
common stock. At February 28, 1995, and 1994, there were 48,548,000 and
48,423,000 shares outstanding, respectively. The Company is authorized to issue
3,000,000 shares of $10 par value preferred stock. To date, none of these
shares have been issued.
<PAGE 27>
Accounting Changes
Effective March 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109 ("SFAS 109"), "Accounting for Income Taxes."
Accordingly, the consolidated financial statements for fiscal year 1993 have
been restated.
Effective March 1, 1993, the Company also adopted Statement of Financial
Accounting Standards No. 106 ("SFAS 106"), "Employers' Accounting for
Postretirement Benefits Other Than Pensions." The implementation of SFAS 106
had no effect on net earnings in fiscal year 1994.
Revenues and Costs of Sales
Other income consists primarily of finance and other income earned on
accounts receivable. Finance charges were $163,114,000, $115,532,000 and
$91,111,000 during fiscal 1995, 1994 and 1993, respectively. The Company sells
substantially all of its service policies to third parties and recognizes
service policy income on these at the time of sale. In prior years, the
Company retained a portion of its service policies and deferred recognition
of the related income along with the direct cost of acquiring the contracts.
Income on these contracts is being earned over the life of the service
policies. Costs of sales includes occupancy and delivery expenses.
Income Taxes
Effective March 1, 1993, the Company adopted SFAS 109 which utilizes the
liability method in accounting for income taxes. Under this method, 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. Prior to the adoption of SFAS 109, income tax expense was
determined using the deferred method. Deferred tax expense was based on items
of income and expense that were reported in different years in the financial
statements and tax returns and were measured at the tax rate in effect in the
year the difference originated.
In adoption, the Company elected to restate the prior year consolidated
financial statements. The retroactive application of SFAS 109 did not have a
material effect on net earnings or earnings per share for the period ended
February 28, 1993. The cumulative effect on retained earnings as of
February 29,1992, was also not material.
Earnings and Dividends Per Share
Primary and fully diluted earnings per share of common stock are calculated
by dividing net earnings by the weighted average number of common shares and
common stock equivalents (stock options) outstanding during the year.
Interest Rate Swap Agreements
The Company has entered into several interest rate swap agreements ("swap
agreements") as a means of managing its interest rate exposure. These
agreements in effect convert a portion of the Company's floating rate debt
and floating rate asset securitizations to fixed rates by exchanging floating
rate payments for fixed rate payments. The differential to be paid or
received on these agreements is accrued and is recognized as an adjustment to
interest expense. The related amount of payable to or receivable from
counterparties is recorded as an adjustment to accrued interest expense.
<PAGE 28>
Asset Securitizations
The Company, as a means of financing its growth, has sold a portion of its
accounts receivable. The Company continues to service these accounts and has
provided the buyer with recourse, up to established limits, upon the
determination of uncollectibility. A reserve was established at the time of
sale to provide for this contingent liability and is adjusted periodically.
This reserve is included in the allowance for doubtful accounts.
Fiscal Year
Fiscal years are designated in the consolidated financial statements by the
calendar year in which the fiscal year ends. Accordingly, results for fiscal
years 1995, 1994 and 1993 represent the years ended February 28, 1995, 1994 and
1993, respectively. Certain amounts in the 1994 and 1993 consolidated financial
statements have been reclassified to conform to the 1995 presentation.
<PAGE 29>
(2) Expansion
On February 1, 1995, the Company acquired certain assets relating to the
operation of 17 stores from various corporate entities comprising Berrios
Enterprises ("Berrios") of Caguas, Puerto Rico. All 17 stores are located in
Puerto Rico. The purchase price for these assets was approximately
$99,000,000. The estimated excess of purchase price over the fair market
value of the net assets acquired from Berrios as of February 28, 1995, was
$16,094,000. As the acquisition date was close to fiscal year end, excess
costs over net assets acquired may be adjusted in fiscal 1996; however, any
adjustments are not expected to be significant. The unaudited consolidated
results of operations on a proforma basis as though Berrios had been acquired
as of the beginning of fiscal years 1995 and 1994 are as follows:
1995 1994
(Amounts in thousands except per share data)
Total revenues $1,227,737 $935,743
Net income 69,680 57,343
Net earnings per share:
Primary and fully diluted 1.40 1.17
The proforma information is presented for comparative purposes only and is
not necessarily indicative of the operating results that would have occurred had
the Berrios acquisition been consummated as of the above dates, nor is it
necessarily indicative of future operating results.
During the fiscal year, the Company also acquired the assets of nine stores
from Nelson Brothers Furniture Company for $18,038,000 and the assets of four
stores from Ohio Furniture Company for $1,979,000. The excess costs over net
assets acquired related to these two acquisitions were not significant.
In fiscal 1994, the Company acquired certain assets relating to 92 stores
of McMahan's Furniture Company ("McMahan's"). The purchase price, net of
accounts receivable and real estate, was $58,432,000. Accounts receivable of
$104,343,000 were securitized and purchased by an unaffiliated party. The
Company is acting as servicer for these accounts. The real estate associated
with 70 stores was purchased by an unaffiliated entity for $59,218,000, and the
Company has entered into an operating lease on these properties. The Company
assumed the leases on the remaining store properties. The unamortized excess of
purchase price over the fair market value of the net assets acquired from
McMahan's as of February 28, 1995, was $37,880,000 which included adjustments of
$16,831,000 in fiscal 1995. The unaudited consolidated results of operations on
a proforma basis as though McMahan's had been acquired as of the beginning of
fiscal years 1994 and 1993 are as follows:
1994 1993
(Amounts in thousands except per share data)
Total revenues $ 965,208 $ 770,198
Net income 58,518 37,207
Net earnings per share:
Primary and fully diluted 1.19 0.82
The proforma information is presented for comparative purposes only and is
not necessarily indicative of the operating results that would have occurred had
the McMahan's acquisition been consummated as of the above dates, nor is it
necessarily indicative of future operating results.
Also during fiscal year 1994, the Company also acquired assets of 11 stores
from L. Fish, Inc. for $6,033,000. All acquisitions have been accounted for by
the purchase method and, accordingly, operations subsequent to the respective
<PAGE 30>
acquisition dates have been included in the accompanying consolidated financial
statements.
The Company amortizes the excess of purchase price over fair market value
of net assets acquired on a straight-line basis over periods not exceeding 40-
years. The unamortized excess of purchase price of over the fair market value
of the net assets acquired for all acquisitions was $135,753,000 and
$93,654,000, net of accumulated amortization of $11,576,000 and $8,868,000,
at February 28, 1995, and 1994, respectively.
(3) Accounts Receivable
Accounts receivable are shown net of the allowance for doubtful accounts
and unearned finance income. The allowance for doubtful accounts was
$46,678,000 and $28,497,000 and unearned finance income was $54,554,000 and
$49,420,000 at February 28, 1995 and 1994, respectively. Accounts receivable
having balances due after one year were $123,123,000 and $124,966,000 at
February 28, 1995 and 1994, respectively.
Credit operations are generally maintained at each store to evaluate the
credit worthiness of its customers and to manage the collection process.
Furthermore, the Company generally requires down payments on credit sales and
offers credit insurance to its customers, both of which lessen credit risk. The
Company operates its 647 stores throughout 24 states and Puerto Rico and,
therefore, is not dependent on a given industry or business for its customer
base and has no significant concentration of credit risk.
In the normal course of business, the Company is a party to financial
instruments with off-balance-sheet risk in order to meet its financing needs and
to reduce its exposure to interest rate fluctuations. These financial
instruments include asset securitizations and interest rate swaps.
The Company is participating in five asset securitization agreements in
which it has sold accounts receivable to third parties. These agreements
provide third parties limited recourse against the Company and are subject to
sales price adjustments resulting from floating interest rates. As discussed
below, the Company has entered into interest rate swap agreements to minimize
price fluctuations caused by interest rate changes. Two of these
securitizations were modified in fiscal 1995 to increase the contract amounts
to $60,000,000 and $80,000,000 from $40,000,000 and $50,000,000, respectively
and to extend the terms to 65 and 41 months, respectively.
The Company has maintained its fixed rates, via swap agreements, on the
original $90,000,000 of securitized receivables. The rate on the incremental
$50,000,000 is variable based on LIBOR.
A third securitization totaling $99,041,000 ($104,343,000 in fiscal 1994)
was extended to 29 months during 1995. This securitization's rate is tied to
commercial paper and is subject to market rates. The recourse provision
relating to these three securitizations are limited each month to 20% of the
third parties' interest in the pool as of the related settlement date. A fourth
securitization involving the sale of revolving receivables totaling $51,401,000
($42,854,000 in 1994) has an estimated life of approximately 18 months. The
Company has maintained its fixed rate via swap agreements on the first
$45,000,000 while any excess has a variable rate based on LIBOR. Accounts which
are delinquent in excess of six months within the revolving securitization are
repurchased by the Company. Recourse under this agreement is limited to
approximately 15% of the pool balance.
The Company entered into a new securitization of installment receivables
during fiscal 1995 with a contract amount of $125,533,000 and a life of 29
<PAGE 31>
months. The rate on this securitization is variable based on commercial paper
and is subject to market rates. The recourse provision relating to this
securitization is limited to 25% of the third parties' interest in the pool as
of the related settlement date. The rates in effect and the related swap rates
at the end of fiscal 1995 and 1994 were:
1995 1994
(Amounts in thousands)
Securitization Securitization Swap Securitization Securitization Swap
Amount Rate Rate Amount Rate Rate
$ 60,000 6.7% * 6.4% $ 40,000 3.8% 6.4%
80,000 6.7% * 7.1% 50,000 3.8% 7.1%
99,041 6.0% -- 104,343 3.2% --
51,401 6.3% 6.7% 42,854 3.4% 5.9%
125,533 6.1% -- -- -- --
* Applies to original securitization amounts only
Payments under all recourse provisions have never exceeded the reserve.
Earnings from asset securitizations were $8,884,000 in fiscal 1995.
(4) Property and Equipment
Property and equipment consists of the following:
1995 1994
(Amounts in thousands)
Land and buildings $ 75,002 $ 69,848
Fixtures, equipment and vehicles 82,761 74,883
Leasehold improvements 116,016 90,151
Construction in progress 22,896 12,404
296,675 247,286
Less accumulated depreciation 93,474 79,144
$203,201 $168,142
(5) Notes Payable and Long-Term Debt
The Company maintains principal relationships with eleven banks which have
approved $375,000,000 for short-term borrowings, of which $235,200,000 was
unused at February 28, 1995. These approvals are renewable annually. The
Company's maximum short-term borrowings were $278,300,000 during fiscal 1995 and
$270,800,000 during fiscal 1994. The average daily short-term debt outstanding
for fiscal 1995 was $221,330,000 compared to $150,377,000 for fiscal 1994. The
approximate weighted average interest rates were 5.1%, 3.5% and 4.0% in fiscal
1995, 1994 and 1993, respectively.
At February 28, 1995, the Company had $139,800,000 of outstanding short-
term borrowings compared to $172,600,000 at February 28, 1994. The average
interest rate on this debt was approximately 6.4% at February 28, 1995, and 3.6%
and 3.5% at February 28, 1994 and 1993, respectively. There were no
compensating balance requirements.
Subsequent to February 28, 1994, the Company received commitments to borrow
$80,000,000 at an interest rate of 6.9% from two insurance companies. The
proceeds were used to reduce notes payable to banks. As a result, the Company
classified $80,000,000 of notes payable to banks as long-term debt on the
accompanying February 28, 1994, consolidated balance sheet.
<PAGE 32>
Long-term debt consists of the following:
1995 1994
(Amounts in thousands)
Notes payable to insurance
companies and banks, maturing
through 2002, interest ranging
from 4.3% to 12.8%, unsecured $392,243 $278,996
Notes, collateralizing industrial
development revenue bonds,
maturing through 2004, interest
ranging from a floating rate of
60% of prime to an 8.5% fixed rate 2,475 3,013
Capital lease obligations, maturing
through 2006, interest ranging
from 76% of prime to 12.9% 3,166 3,590
Term loans, maturing through 2007,
interest ranging to 9.8%,
primarily collateralized
by deeds of trust 673 754
398,557 286,353
Less amounts due within one year 28,125 37,718
$370,432 $248,635
Principal payments are due for the four years after February 29, 1996 as
follows: 1997, $17,895,000; 1998, $99,327,000; 1999, $20,943,000; and 2000,
$170,659,000. The aggregate net carrying value of property and equipment
collateralized at February 28, 1995, was $9,327,000.
Notes payable to insurance companies contain certain restrictive
covenants. Under these covenants, the payment of cash dividends is limited
to $116,236,000 plus 75% of net earnings adjusted for dividend payouts
subsequent to February 28, 1995. Other covenants relate to the maintenance
of working capital, net earnings coverage of fixed charges, limitations on
total and funded indebtedness and maintenance of stockholders' equity.
Interest payments of $30,303,000, $24,486,000, and $22,418,000, net of
capitalized interest of $1,751,000, $1,057,000 and $453,000, were made during
fiscal 1995, 1994 and 1993, respectively.
(6) Income Taxes
The Company adopted the provisions of SFAS 109 in March 1993, and elected
to apply these provisions retroactively to the period ended February 28, 1993.
The retroactive application of SFAS 109 did not have a material impact on net
earnings or net earnings per share for the period ended February 28, 1993. The
cumulative effect of retroactive application of SFAS 109 did not have a material
impact on retained earnings at February 29, 1992.
The provision for income taxes consists of:
1995 1994 1993
(Amounts in thousands)
Current:
Federal $23,282 $24,633 $15,355
State 3,595 3,245 1,572
26,877 27,878 16,927
Deferred:
Federal 10,242 3,712 3,261
State 1,967 568 645
12,209 4,280 3,906
$39,086 $32,158 $20,833
<PAGE 33>
The income tax effects of temporary differences that gave rise to
significant portions of the net deferred tax liability as of February 28, 1995
and 1994, consist of the following:
1995 1994
(Amounts in thousands)
Deferred tax assets:
Allowance for doubtful accounts $ 8,026 $ 6,148
Accrued liabilities 3,334 1,228
Deferred revenue 696 1,579
12,056 8,955
Deferred tax liabilities:
Excess costs over net assets acquired 39,612 29,418
Costs capitalized on constructed assets 4,178 3,572
Asset securitizations 5,649 2,098
Inventory 3,262 2,760
Depreciation 3,754 4,095
Other 2,908 3,758
59,363 45,701
47,307 36,746
Balance sheet classification:
Other current assets 2,222 9,448
Deferred income tax liability 49,529 46,194
$ 47,307 $ 36,746
A reconciliation of the statutory federal income tax rate to the Company's
effective rate is provided below:
1995 1994 1993
Statutory federal income tax rate 35.0% 35.0% 34.0%
State income taxes, net of federal
income tax benefit 3.3 2.8 2.5
Tax credits (1.9) (2.0) (1.2)
Effect of income tax rate changes
on deferred taxes -- 0.9 --
Other, net 0.5 0.2 0.1
36.9% 36.9% 35.4%
Income tax payments of $28,966,000, $18,686,000 and $11,462,000 were made
during fiscal 1995, 1994 and 1993, respectively.
(7) Retirement Plans
The Company has a qualified profit sharing and retirement savings plan,
which includes a cash deferred arrangement under Section 401(k) of the Internal
Revenue Code (the "Code") and covers substantially all the Company's employees.
Eligible employees may elect to contribute specified percentages of their
compensation to the plan. The Company guarantees a dollar-for-dollar match on
the first two percent of the employee's compensation contributed to the plan.
The Company will make an additional matching contribution if and to the extent
that four percent of the Company's estimated consolidated income before taxes
exceeds the two percent dollar-for-dollar match described above. The Company
may, at the discretion of its Board of Directors, make additional Company
matching contributions subject to certain limitations. The plan may be
terminated at the discretion of the Board of Directors. If the plan is
terminated, the Company will not be required to make any further contributions
to the plan and participants will become 100% vested in any Company
<PAGE 34>
contributions made to the plan. The plan expense recognized in fiscal 1995,
1994 and 1993 was $4,505,000, $3,631,000 and $2,475,000, respectively.
In addition, a non-qualified supplemental profit sharing and retirement
savings plan was established as of March 1, 1991, for the purpose of providing
deferred compensation for certain employees whose benefits and contributions
under the qualified plan are limited by the Code. The deferred compensation
expense recognized in fiscal 1995 and 1994 was $386,000 and $160,000,
respectively.
The Company has an executive income continuation plan which covers certain
executive officers. The plan is intended to provide certain supplemental
preretirement death benefits and retirement benefits to its key executives. In
the event an executive dies prior to age 65 in the employment of the Company,
the executive's beneficiary will receive annual benefits of 100% of salary for a
period of one to two years and/or 50% of salary for a period of eight years. If
the executive retires at age 65, either the executive or his beneficiary will
receive an annual retirement benefit of 20% to 25% of the executive's salary
increased 4% annually for a period of 15 years. This plan has been funded
through the purchase of life insurance contracts covering the executives and
owned by the Company. For fiscal 1995, 1994 and 1993, there was no charge to
earnings.
(8) Stock Options and Grants
Under the Company's Long-Term Incentive Award Plan, 506,250 shares of the
Company's common stock have been reserved for issuance. The Company provides
for a combination of restricted stock and cash awards to key management
employees. There was no provision required in fiscal 1995, 1994 and 1993.
The 1983, 1990 and 1994 Stock Option Plans provide that key employees of
the Company are eligible to receive common stock options (at no less than fair
market value at the date of grant) and stock appreciation rights. Under these
plans, 7,093,750 shares have been authorized to be reserved for issuance. The
following table summarizes stock option activity for fiscal 1995 and 1994.
Shares and prices have been adjusted to reflect the three-for-two stock split in
July 1993.
Shares
Under Option Exercise Price
Outstanding at March 1, 1993 3,008,381 $ 5.52 to $20.29
Granted 1,099,500 $20.83 to $35.06
Exercised (504,609) $ 5.52 to $20.29
Outstanding at February 28, 1994 3,603,272 $ 5.52 to $35.06
Granted 600,500 $25.13 to $27.00
Exercised (128,043) $ 5.52 to $20.29
Outstanding at February 28, 1995 4,075,729 $ 5.52 to $35.06
Options are exercisable at such times as specified by the Compensation
Committee of the Board of Directors and generally if not exercised, expire ten
years from the date of grant. At February 28, 1995, options for 3,334,019
shares of common stock were exercisable.
(9) Commitments and Contingencies
Leases
The Company has entered into noncancellable lease agreements with initial
terms ranging from 1 to 25 years for certain stores, warehouses and the
<PAGE 35>
corporate office. Certain leases include renewal options ranging from 1
to 10 years and/or purchase provisions, both of which may be exercised at the
Company's option. Most of the leases are gross leases under which the lessor
pays the taxes, insurance and maintenance costs. The following capital
leases are included in the accompanying consolidated balance sheets:
1995 1994
(Amounts in thousands)
Land and buildings $6,426 $6,426
Fixtures and equipment 675 675
7,101 7,101
Less accumulated depreciation
and amortization 3,086 2,856
$4,015 $4,245
Capitalized lease amortization is included in depreciation expense.
Future minimum lease payments under capital leases and operating leases
having initial or remaining noncancellable lease terms in excess of one year at
February 28, 1995, are as follows:
Capital Operating
Fiscal Years Leases Leases
(Amounts in thousands)
1996 $ 678 $ 36,847
1997 657 34,351
1998 620 28,712
1999 597 24,361
2000 558 19,198
After 2000 1,383 58,860
Total minimum lease payments 4,493 $202,329
Less:
Executory costs 128
Imputed interest 1,199
Present value of minimum
lease payments $3,166
Total rental expense under operating leases for fiscal 1995, 1994 and 1993
was $50,855,000, $35,989,000 and $27,299,000, respectively. Contingent rentals
and sublease rentals are negligible.
Payments to affiliated entities under capital and operating leases were
$856,000 for fiscal 1995, which included payments to limited partnerships in
which the Company has equity interests. Lease payments to affiliated entities
for fiscal 1994 and 1993 were $852,000 and $1,675,000, respectively.
Litigation
The Company is party to various legal actions and administrative
proceedings and subject to various claims arising in the ordinary course of
business. Based on the best information presently available, the Company
believes that the disposition of these matters will not have a material adverse
effect on the financial position of the Company.
<PAGE 36>
(10) Fair Value of Financial Instruments
The estimated fair values of financial instruments have been determined by
the Company using available market information. The estimates are not
necessarily indicative of the amounts the Company could realize in a current
market exchange. The use of different market assumptions and/or estimation
methodologies may have a material effect on the estimated fair value amounts.
The estimated fair values of the Company's financial instruments at
February 28, 1995 and 1994, are as follows:
1995 1994
Carrying Fair Carrying Fair
Amount Value Amount Value
(Amounts in thousands)
Assets
Cash and cash equivalents $ 10,360 $ 10,360 $ 6,295 $ 6,295
Accounts receivable 538,208 538,208 535,437 535,437
Liabilities
Accounts payable 87,523 87,523 69,045 69,045
Notes payable 139,800 139,800 172,600 172,600
Long-term debt 398,557 406,946 286,353 299,778
Off-balance-sheet
financial instruments
Interest rate swaps
agreements:
Assets -- 7,434 -- 3,674
Liabilities -- 2,585 -- 8,297
The following methods and assumptions were used to estimate the fair value
of each class of financial instrument shown above:
Cash and Accounts Receivables
The carrying amount approximates fair value because of the short-term
maturity of these assets.
Accounts Payable and Notes Payable
The carrying value approximates fair value because of the short-term
maturity of these liabilities.
Long-Term Debt
The fair value of the Company's long-term debt is based on the discounted
cash flow of that debt, using current rates and remaining maturities.
Interest Rate Swap Agreements
The fair value of the Company's interest rate swap agreements is the
estimated amount that the Company would receive or pay upon termination of
agreements, based on estimates obtained from the counterparies. These
agreements are not held for trading purposes, but rather to hedge interest
rate risk.
<PAGE 37>
(11) Derivative Financial Instruments
The Company uses derivative financial instruments in the form of interest
rate swap agreements primarily to convert floating rate notes payable and
floating rate asset securitizations to fixed rates. The notional amounts of
these swap agreements at February 28, 1995, were as follows:
1995 1994
(Amounts in thousands)
Notes Payable and other $178,300 $ --
Securitized receivables $165,000 $135,000
Interest rates that the Company paid per these swap agreements were fixed
at an average rate of 6.1% at February 28, 1995. At February 28, 1994, rates
were fixed at an average of 6.4%. The variable rates received per these
agreements were tied to LIBOR and averaged 6.2% and 3.7% at February 28, 1995
and 1994, respectively. Resulting changes in interest are recorded as
increases or decreases to interest expense. The accrued interest liability
is correspondingly increased or decreased. The term for these agreements
ranges from 2 to 5 years.
The Company believes its risk of credit-related losses resulting from
nonperformance by a counterparty is remote. The amount of any such loss would
be limited to a small percentage of the notional amount of each swap. As a
means of reducing this risk, the Company as a matter of policy only enters into
transactions with counterparties rated "A" or higher. The Company does not mark
its swaps to market and therefore does not record a gain or loss with interest
rate changes. Gains on disposals of swaps are recognized over the remaining
life of the swap. Losses on disposals, which have been none to date, would be
recognized immediately.
All swaps are held for purposes other than trading.
<PAGE 38>
(12) Quarterly Financial Data (Unaudited)
The following is a summary of quarterly financial data for fiscal 1995 and
1994:
Three Months Ended
May August November February
31 31 30 28
(Amounts in thousands except per share data)
1995
Revenues $268,847 $269,119 $315,089 $299,084
Gross profit (1) 81,910 78,115 95,950 82,192
Earnings before taxes 29,156 23,582 29,902 23,261
Net earnings 18,310 14,817 18,771 14,917
Earnings per share of
common stock:
Primary and
fully diluted 0.37 0.30 0.38 0.30
Cash dividends per share
of common stock 0.06 0.06 0.06 0.06
1994
Revenues $186,761 $204,693 $230,399 $241,936
Gross profit (1) 58,794 60,992 72,841 70,722
Earnings before taxes 20,902 19,221 24,825 22,206
Net earnings 13,461 11,417 15,863 14,255
Earnings per share of
common stock:
Primary and
fully diluted (2) 0.29 0.23 0.32 0.28
Cash dividends per share
of common stock (2) 0.05 0.05 0.05 0.05
(1)Gross profit is sales less costs of sales.
(2)Per share amounts reflect three-for-two stock split in July 1993.
<PAGE 39>
Item 9. CHANGES in and DISAGREEMENTS with ACCOUNTANTS on ACCOUNTING
and FINANCIAL DISCLOSURE
<PAGE 40>
None.
PART III
In accordance with general instruction G(3) of Form 10-K, the information
called for by Items 10, 11, 12 and 13 of Part III is incorporated by reference
from the registrant's definitive Proxy Statement for its Annual Meeting of
Shareholders scheduled for June 21, 1995, except for information concerning the
executive officers of the registrant which is included in Part I of this report
under the caption "Executive Officers of the Registrant."
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) 1. Financial Statements
The following consolidated financial statements of Heilig-Meyers
Company and Subsidiaries included in the registrant's 1995 Annual
Report to Shareholders are included in item 8 herein:
Independent Auditors' Report
Consolidated Balance Sheets -
February 28, 1995 and February 28, 1994
Consolidated Statements of Earnings -
Year Ended February 28, 1995,
Year Ended February 28, 1994, and
Year Ended February 28, 1993
Consolidated Statements of Stockholders' Equity -
Year Ended February 28, 1995,
Year Ended February 28, 1994, and
Year Ended February 28, 1993
Consolidated Statements of Cash Flows -
Year Ended February 28, 1995,
Year Ended February 28, 1994, and
Year Ended February 28, 1993
Notes to Consolidated Financial Statements
<PAGE 41>
(a) 2. Financial Statement Schedules: The financial statement
schedules required by this item are listed below.
Independent Auditors' Report on Schedules included in Item 8
herein.
Schedule II - Valuation and Qualifying Accounts
Schedules other than those listed above have been omitted
because they are not applicable or are not required or
because the required information is included in the
financial statements or notes thereto.
(a) 3. Exhibits required to be filed by Item 601 of Regulation
S-K.
See INDEX TO EXHIBITS
(b) 1. Reports on Form 8-K Filed During Last Quarter of Year Ended
February 28, 1995.
None.
<PAGE 42>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
Date: May 26, 1995 by /s/William C. DeRusha
William C. DeRusha
Chairman of the Board
and Chief Executive 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 the
registrant and in the capacities and on the dates indicated.
Date: May 26, 1995 /s/William C. DeRusha
William C. DeRusha
Chairman of the Board
Principal Executive Officer
Date: May 26, 1995 /s/Joseph R. Jenkins
Joseph R. Jenkins
Executive Vice President
Principal Financial Officer
Date: May 26, 1995 /s/William J. Dieter
William J. Dieter
Senior Vice President,
Accounting and Principal
Accounting Officer
Date: May 23, 1995 /s/Alexander Alexander
Alexander Alexander, Director
Date: May 26, 1995 /s/Robert L. Burrus, Jr.
Robert L. Burrus, Jr., Director
<PAGE 43>
Date: May 23, 1995 /s/Arthur D. Charpentier
Arthur D. Charpentier, Director
Date: May 26, 1995 /s/Benjamin F. Edwards, III
Benjamin F. Edwards, III, Director
Date: May 23, 1995 /s/Alan G. Fleischer
Alan G. Fleischer, Director
Date: May 26, 1995 /s/Nathaniel Krumbein
Nathaniel Krumbein, Director
Date: May 26, 1995 /s/Hyman Meyers
Hyman Meyers, Director
Date: May 26, 1995 /s/S. Sidney Meyers
S. Sidney Meyers, Director
Date:
Troy A. Peery, Jr., Director
Date: May 23, 1995 /s/Lawrence N. Smith
Lawrence N. Smith, Director
Date: May 26, 1995 /s/George A. Thornton, III
George A. Thornton, III, Director
<PAGE 44>
HEILIG-MEYERS COMPANY AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(Amounts in thousands)
Column A Column B Column C Column D Column E
Write-off
Balance at Charged Charged and Purchased Balance
Beginning To Costs To Other Repossession Accounts at Close
of Period & Expenses Accounts Losses Receivable of Period
Description
Allowance for
Doubtful Accounts:
Year Ended
February 28,
1995 $28,497 $42,951 $ 806(A) $45,735 $7,595(C) $46,678
$25,286(B)
Year Ended
February 28,
1994 $20,781 $32,356 $ 430(A) $29,713 $3,200(C) $28,497
$7,843(B)
Year Ended
February 28,
1993 $17,014 $24,185 $ 352(A) $22,534 $2,968(C) $20,781
$4,732(B)
(A) Represents recoveries on accounts previously written off.
(B) Allowance applicable to purchased accounts receivable.
(C) Deductions from reserve applicable to purchased accounts receivable, as
follows:
1995 1994 1993
Write-offs of Uncollectible Accounts $7,595 $3,200 $2,968
<PAGE 45>
Index to Exhibits
3. Articles of Incorporation and Bylaws.
a. Registrant's Restated Articles of Incorporation filed as Exhibit
3(a) to Registrant's Annual Report on Form 10-K for the fiscal year
ended February 28, 1990 are incorporated herein by this reference.
b. Articles of Amendment to Registrant's Restated Articles of
Incorporation filed as Exhibit 4 to Registrant's Form 8 (Amendment
No. 5 to Form 8-A filed April 26, 1983) filed August 6, 1992 are
incorporated herein by this reference.
c. Articles of Amendment to Registrant's Restated Articles of
Incorporation filed as Exhibit 3(c) to Registrant's Annual Report on
Form 10-K for the fiscal year ended February 28, 1993 are
incorporated herein by this reference.
d. Articles of Amendment to Registrant's Restated Articles of
Incorporation.
e. Registrant's Amended Bylaws filed as Exhibit 3(b) to Registrant's
Annual Report on Form 10-K for the fiscal year ended February 29,
1988 are incorporated herein by this reference.
4. Instruments defining the rights of security holders, including indentures.
a. The long-term debt as shown on the consolidated balance sheet of the
Registrant at February 28, 1995 includes various obligations each of
which is evidenced by an instrument authorizing an amount that is
less than 10% of the total assets of the registrant and its
subsidiaries on a consolidated basis. The documents evidencing
these obligations are accordingly omitted pursuant to Regulation S-
K, Item 601(b)(4)(iii) and will be furnished to the Commission upon
request.
10. Contracts
a. Four leases dated as of December 27, 1976 between Hyman Meyers,
Agent, and the Registrant, filed as Exhibit 10(a)(2) - Exhibit
10(a)(5) to Registrant's Annual Report on Form 10-K for the fiscal
year ended February 28, 1989, are incorporated herein by this
reference.
b. The following Agreements filed as Exhibits 10(b) through 10(f) to
Registrant's Annual Report on Form 10-K for the fiscal year ended
February 28, 1991 are incorporated herein by this reference:
(1) Lease dated as of January 1, 1980 between Hyman Myers, Agent,
and the Registrant.
(2) Lease dated November 1, 1970 between Hyman Meyers, Agent, and
the Registrant as successor in interest to Heilig-Meyers
Company of Greenville, Inc.
(3) Lease dated April 15, 1971 between Meyers-Thornton Investment
Co. and the Registrant as successor in interest to Meyers-
Thornton Corporation.
(4) Lease dated June 28, 1971 between Meyers-Thornton Investment
<PAGE 46>
Company and the Registrant as successor in interest to Meyers-
Thornton Corporation.
(5) Lease dated December 1, 1972 between Meyers-Thornton
Investment Company and the Registrant.
c. The following Agreements (originally filed as exhibits to
Registrant's Annual Report on Form 10-K for the fiscal year ended
March 31, 1982) were refiled as Exhibits 10(c)(1)-(3) to
Registrant's Annual Report on Form 10-K for the fiscal year ended
February 28, 1993 and are incorporated herein by reference:
(1) Executive Employment and Deferred Compensation Agreement made
January 12, 1982 between Hyman Meyers and the Registrant.
(2) Executive Employment and Deferred Compensation Agreement made
January 12, 1982 between S. Sidney Meyers and the Registrant.
(3) Executive Employment and Deferred Compensation Agreement made
January 12, 1982 between Nathaniel Krumbein and the
Registrant.
d. Employees' Profit Sharing Retirement Plan, amended and restated,
effective as of March 1, 1989 filed as Exhibit 10(d) to Registrant's
Annual Report on Form 10-K for the fiscal year ended February 28,
1993 is incorporated herein by this reference.*
e. First Amendment, dated as of June 15, 1992, to the Heilig-Meyers
Employees' Profit Sharing Retirement Plan, amended and restated,
effective as of March 1, 1989, filed as Exhibit 10(e) to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
February 28, 1993 is incorporated herein by this reference.*
f. Addendum to Lease and Contract dated February 26, 1973 amending
Lease Contract dated April 15, 1971 between Meyers-Thornton
Investment Co. and the Company as successor in interest to Meyers-
Thornton Corporation (see Exhibit 10(c)(2)), filed as Exhibit 10(k)
to Registrant's Registration Statement on Form S-2 (No. 2-81775) is
incorporated herein by this reference.
g. The following Agreements filed as Exhibits 19(a) through 19(c) to
Registrant's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1984 are incorporated herein by this reference:
(1) Agreement made as of May 4, 1984 to amend Executive Employment
and Deferred Compensation Agreement between Hyman Meyers and
Registrant.*
(2) Agreement made as of May 4, 1984 to amend Executive Employment
and Deferred Compensation Agreement between S. Sidney Meyers
and Registrant.*
(3) Agreement made as of May 4, 1984 to amend Executive Employment
and Deferred Compensation Agreement between Nathaniel Krumbein
and Registrant.*
h. Agreement made as of September 15, 1989 to amend Executive
Employment and Deferred Compensation Agreement between Hyman Meyers
and Registrant filed as Exhibit 10(i) to the Registrant's Annual
Report on Form 10-K for the fiscal year ended February 28, 1990 is
incorporated herein by this reference.*
<PAGE 47>
i. Agreement made as of September 15, 1989 to amend Executive
Employment and Deferred Compensation Agreement between S. Sidney
Meyers and Registrant filed as Exhibit 10(j) to the Registrant's
Annual Report on Form 10-K for the fiscal year ended
February 28, 1990 is incorporated herein by this reference.*
j. Agreement made as of September 15, 1989 to amend Executive
Employment and Deferred Compensation Agreement between Nathaniel
Krumbein and Registrant filed as Exhibit 10(k) to the Registrant's
Annual Report on Form 10-K for the fiscal year ended February 28,
1990 is incorporated herein by this reference.*
k. Deferred Compensation Agreement between Robert L. Burrus, Jr. and
the Registrant filed as Exhibit 10(o) to the Registrant's Annual
Report on Form 10-K for the fiscal year ended February 28, 1987 is
incorporated herein by this reference.*
l. Amendment dated September 15, 1989 to the Deferred Compensation
Agreement between Robert L. Burrus, Jr. and the Registrant filed as
Exhibit 10(m) to Registrant's Annual Report on Form 10-K for the
fiscal year ended February 28, 1990 is incorporated herein by this
reference.*
m. Deferred Compensation Agreement between Lawrence N. Smith and the
Registrant filed as Exhibit 10(p) to the Registrant's Annual Report
on Form 10-K for the fiscal year ended February 28, 1987 is
incorporated herein by this reference.*
n. Amendment dated September 15, 1989 to Deferred Compensation
Agreement between Lawrence N. Smith and the Registrant filed as
Exhibit 10(o) to Registrant's Annual Report on Form 10-K for the
fiscal year ended February 28, 1990 is incorporated herein by this
reference.*
o. Deferred Compensation Agreement between George A. Thornton, III and
the Registrant filed as Exhibit 10(q) to the Registrant's Annual
Report on Form 10-K for the fiscal year ended February 28, 1987 is
incorporated herein by this reference.*
p. Amendment dated September 15, 1989 to Deferred Compensation
Agreement between George A. Thornton, III and the Registrant filed
as Exhibit 10(q) to Registrant's Annual Report on Form 10-K for the
fiscal year ended February 28, 1990 is incorporated herein by this
reference.*
q. Employees Supplemental Profit Sharing and Retirement Savings Plan
filed as Exhibit 10(q) to Registrant's Annual Report on Form 10-K
for the fiscal year ended February 28, 1993 is incorporated herein
by this reference.*
r. Registrant's 1983 Stock Option Plan, as amended, filed as Exhibit C
to Registrant's Proxy Statement dated May 9, 1988 for its Annual
Meeting of Stockholders held on June 22, 1988 is incorporated herein
by this reference.*
s. Amendments to Registrant's 1983 Stock Option Plan, as amended, filed
as Exhibit 10(t) to Registrant's Annual Report on Form 10-K for the
fiscal year ended February 28, 1990 is incorporated herein by this
reference.*
t. Registrant's 1990 Stock Option Plan, as amended filed as Exhibit
<PAGE 48>
10(t) to Registrant's Annual Report on Form 10-K for the fiscal year
ended February 28, 1993 is incorporated herein by this reference.*
u. Registrant's 1994 Stock Option Plan, as amended, filed as Exhibit A
to Registrant's Proxy Statement dated May 3, 1994 for its Annual
Meeting of Stockholders held on June 15, 1994 is incorporated herein
by this reference.*
v. Registrant's Executive Severance Plan effective as of September 15,
1989 filed as Exhibit 10(v) to Registrant's Annual Report on Form
10-K for the fiscal year ended February 28, 1990 is incorporated
herein by this reference.*
w. Form of Executive Supplemental Retirement Agreement between the
Registrant and each of William C. DeRusha, Troy A. Peery, Jr., James
F. Cerza, Jr., Joseph R. Jenkins, James R. Riddle, and five other
executive officers, filed as Exhibit 10(p) to the Registrant's
Annual Report on Form 10-K for the fiscal year ended February 28,
1989 is incorporated herein by this reference.*
x. Amendment dated September 15, 1989 to Executive Supplemental
Retirement Agreement between William C. DeRusha and the Registrant
filed as Exhibit 10(x) to the Registrant's Annual Report on Form 10-
K for the fiscal year ended February 28, 1990 is incorporated herein
by this reference.*
y. Amendment dated September 15, 1989 to Executive Supplemental
Retirement Agreement between Troy A. Peery, Jr. and the Registrant
filed as Exhibit 10(y) to the Registrant's Annual Report on Form 10-
K for the fiscal year ended February 28, 1990 is incorporated herein
by this reference.*
z. Form of Amendment to Form of Executive Supplemental Retirement
Agreement between the Registrant and each of James F. Cerza, Jr.,
Joseph R. Jenkins and James R. Riddle and five other executive
officers filed as Exhibit 10(p) to the Registrant's Annual Report on
Form 10-K for the fiscal year ended February 28, 1989 is
incorporated herein by this reference.*
aa. Form of Amendment to Form of Executive Supplemental Retirement
Agreement between the Registrant and each of two executive officers
filed as Exhibit 10(aa) to the Registrant's Annual Report on Form
10-K for the fiscal year ended February 28, 1990 is incorporated
herein by this reference.*
bb. Employment Agreement dated October 20, 1988 between William C.
DeRusha and the Registrant, filed as Exhibit 10(q) to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
February 28, 1989 is incorporated herein by this reference.*
cc. Agreement made as of September 11, 1989 to amend the Employment
Agreement dated October 20, 1988 between William C. DeRusha and the
Registrant filed as Exhibit 10(cc) to the Registrant's Annual Report
on Form 10-K for the fiscal year ended February 28, 1990 is
incorporated herein by this reference.*
dd. Employment Agreement dated October 20, 1988 between Troy A. Peery,
Jr. and the Registrant, filed as Exhibit 10(r) to Registrant's
Annual Report on Form 10-K for the fiscal year ended February 28,
1989 is incorporated herein by this reference.*
ee. Agreement made as of September 11, 1989 to amend the Employment
<PAGE 49>
Agreement dated October 20, 1988 between Troy A. Peery, Jr. and the
Registrant filed as Exhibit 10(ee) to the Registrant's Annual Report
on Form 10-K for the fiscal year ended February 28, 1990 is
incorporated herein by this reference.*
ff. The following Agreements filed as Exhibits 10 (ii) through 10 (kk)
to the Registrant's Annual Report on Form 10-K for fiscal year ended
February 28, 1991 are incorporated herein by this reference:
(1) Employment Agreement dated April 10, 1991 between Joseph R.
Jenkins and the Registrant.*
(2) Employment Agreement dated April 10, 1991 between James C.
Cerza, Jr. and the Registrant.*
(3) Employment Agreement dated April 10, 1991 between James R.
Riddle and the Registrant.*
gg. Carve Out Life Insurance Plan filed as Exhibit 10(ff) to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
February 28, 1993 is incorporated herein by this reference.*
hh. Amendment, dated as of August 18, 1993, to the Heilig-
Meyers Company Severance Plan filed as exhibit 10(hh) to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
February 28, 1994 is incorporated herein by this reference.*
ii. 1988 Deferred Compensation Agreement for Outside Directors between
George A. Thornton, III and the Registrant filed as exhibit 10(ii)
to the Registrant's Annual Report on Form 10-K for the fiscal year
ended February 28, 1994 is incorporated herein by this reference.*
jj. Amendment, dated as of April 18, 1994, to the 1986 Heilig-Meyers
Company Deferred Compensation Agreement for Outside Director between
George A. Thornton, III and the Registrant filed as exhibit 10(jj)
to the Registrant's Annual Report on Form 10-K for the fiscal year
ended February 28, 1994 is incorporated herein by this reference.*
kk. Amendment, dated as of April 18, 1994, to the 1990 Heilig Meyers
Company Deferred Compensation Agreement for Outside Director between
George A. Thornton, III and the Registrant filed as exhibit 10(kk)
to the Registrant's Annual Report on Form 10-K for the fiscal year
ended February 28, 1994 is incorporated herein by this reference.*
ll. Letter Agreement, dated August 26, amending employment
agreement between Joseph R. Jenkins and the Registrant filed as
exhibit 10(ll) to the Registrant's Annual Report on Form 10-K for the
fiscal year ended February 28, 1994 is incorporated herein by this
reference.*
mm. Letter Agreement, dated August 26, amending employment agreement
between James R. Riddle and the Registrant filed as exhibit 10(mm)
to the Registrant's Annual Report on Form 10-K for the fiscal year
ended February 28, 1994 is incorporated herein by this reference.*
nn. Letter Agreement, dated August 26, amending employment agreement
between James F. Cerza and the Registrant filed as exhibit 10(nn) to
the Registrant's Annual Report on Form 10-K for the fiscal year ended
February 28, 1994 is incorporated herein by this reference.*
11. Computation of per share earnings for the fiscal years ended February 28,
1995, February 28, 1994 and February 28, 1993.
<PAGE 50>
21. Subsidiaries of registrant.
23. Consents of experts and counsel.
a. Consent of Deloitte & Touche to incorporation by reference of
Accountants' Reports into Registrant's Registration Statements on
Form S-8.
27. Financial Data Schedule
* Management contract or compensatory plan or arrangement of the Company
required to be filed as an exhibit.
<PAGE 51>
Exhibit 3(d)
HEILIG-MEYERS COMPANY
ARTICLES OF AMENDMENT
1. Name. The name of the corporation is Heilig-Meyers Company.
2. The Amendment. The Amendment, a copy of which is attached hereto,
deletes the first paragraph of Article III of the Restated Articles of
Incorporation and substitutes, in lieu thereof, a new paragraph and increases
the number of shares of Common Stock which the Company is authorized to issue.
3. Board Action. The Board of Directors adopted the proposed Amendment
at its meeting held on February 9, 1994, and directed that the proposed
Amendment be submitted to the shareholders of the Company at a meeting to be
held June 15, 1994.
4. Shareholder Action.
(a) Notive of the meeting, together with a copy of the proposed Amendment,
was given in the manner prescribed by the Virginia Stock Corporation Act ot all
shareholders of record entitled to such notice.
(b) On the record date, the total number of shares of common shares
outstanding and entitled to vote on the Amendment were 48,433,223.
(c) On June 15, 1994, the meeting of shareholders was held and the
Amendment proposed by the Board of Directors was adopted.
(d) The total number of votes cast for the Amendment was 35,686,537 and
against the Amendment was 7,831,848. The number of votes cast for the Amendment
was sufficient for its approval.
5. Certificate Required by Law. These Articles of Amendment contain all
of the information required by Section 13.1-710 of the Code of Virginia and
this paragraph constitutes the Certificate required by that Section.
Dated: June 27, 1994 HEILIG-MEYERS COMPANY
By: /s/William C. DeRusha
William C. DeRusha
Chairman and Chief
Executive Officer
Amendment
Paragraph I of Article III is deleted and the following inserted in lieu
thereof:
The aggregate number of shares of capital stock which the Corporation
shall have authority to issue is 3,000,000 shares of Preferred Stock, par
value $10.00 per share, and 250,000,000 shares of Common Stock, par value
$2.00 per share.
<PAGE 52>
COMMONWEALTH OF VIRGINIA
STATE CORPORATION COMMISSION
The State Corporation Commission has found the accompanying articles submitted
on behalf of
HEILIG-MEYERS COMPANY
to comply with the requirements of law, and confirms payment of all related
fees.
Therefore, it is ORDERED that this
CERTIFICATE OF AMENDMENT
be issued and admitted to record with the articles of amendment in the Office
of the Clerk of the Commission, effective June 29, 1994 at 02:25 PM.
The corporation is granted the authority conferred on it by law in accordance
with the articles, subject to the conditions and restrictions imposed by law.
STATE CORPORATION COMMISSION
By /s/T.V. Morrison Jr.
Commissioner
<PAGE 53>
EXHIBIT 11
COMPUTATION OF PER SHARE EARNINGS
FISCAL YEAR ENDED
February 28, February 28, February 28,
1995 1994 1993
Primary Earnings Per Share:
Average number
shares outstanding 48,458,905 47,292,368 43,999,398
Net effect of stock
options 1,494,894 1,810,937 1,356,205
Average number of
shares as adjusted 49,953,799 49,103,305 45,355,603
Net earnings $66,813,000 $54,996,000 $38,009,000
Per share amount $1.34 $1.12 $.84
Fully Diluted Earnings Per Share:
Average number of
shares outstanding 48,458,905 47,292,368 43,999,398
Net effect of stock
options 1,494,894 1,988,509 1,643,622
Average number of
shares as adjusted 49,953,799 49,280,878 45,643,020
Net earnings $66,813,000 $54,996,000 $38,009,000
Per share amount $1.34 $1.12 $.83
Earnings Per Common Share
Earnings per common share is computed by dividing net income by the weighted
number of shares of common stock and common stock equivalents outstanding during
each period. The Company has issued stock options, which are the Company's only
common stock equivalents, at exercise prices ranging currently from $5.52 to
$35.06. All shares and prices reflect three-for-two common stock splits
distributed in November 1992 and July 1993.
<PAGE 54>
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
Heilig-Meyers Furniture Company, incorporated under the laws of North Carolina;
HMPR, Inc., incorporated under the laws of Puerto Rico;
MacSaver Financial Services, Inc., incorporated under the laws of Delaware;
MacSaver Insurance Company, Ltd., incorporated under the laws of Bermuda.
<PAGE 55>
EXHIBIT 23(a)
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in (i) the Registration Statements
No. 2-96961 and No. 33-28095 on Form S-8 and related Prospectus of Heilig-Meyers
Company relating to Common Stock issued and issuable under the 1983 Stock
Option Plan on the Company, (ii) the Registration Statements No. 33-35263, No.
33-50086 and No. 33-64616 on Form S-8 and related Prospectus of Heilig-Meyers
Company relating to Common Stock issued and issuable under the 1990 Stock
Option Plan of the Company and related Prospectus of the Company, (iii) the
Registration Statement No. 33-43791 on Form S-8 relating to the Heilig-Meyers
Company Employee Stock Purchase Plan and related Prospectus of the Company
and (iv) Registration Statement No. 33-54261 on Form S-8 and related Prospectus
of Heilig-Meyers Company relating to Common Stock issued and issuable under
the 1994 Stock Option Plan of the Company of our report dated March 22, 1995
on the consolidated financial statements and schedule of Heilig-Meyers Company
and subsidiaries, as listed under Items 14(a) (1) and (2), both appearing in
the Annual Report on Form 10-K of Heilig-Meyers Company for the year ended
February 28, 1995.
/s/ Deloitte & Touche LLP
Richmond, Virginia
May 26, 1995
<PAGE 56>
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> FEB-28-1995
<PERIOD-END> FEB-28-1995
<CASH> 10360000
<SECURITIES> 0
<RECEIVABLES> 584886000
<ALLOWANCES> 46678000
<INVENTORY> 253529000
<CURRENT-ASSETS> 852682000
<PP&E> 296675000
<DEPRECIATION> 93474000
<TOTAL-ASSETS> 1208937000
<CURRENT-LIABILITIES> 298586000
<BONDS> 370432000
<COMMON> 97096000
0
0
<OTHER-SE> 393294000
<TOTAL-LIABILITY-AND-EQUITY> 1208937000
<SALES> 956004000
<TOTAL-REVENUES> 1152139000
<CGS> 617839000
<TOTAL-COSTS> 617839000
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<LOSS-PROVISION> 45419000
<INTEREST-EXPENSE> 32889000
<INCOME-PRETAX> 105899000
<INCOME-TAX> 39086000
<INCOME-CONTINUING> 66813000
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