UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended August 31, 1995 or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number #1-8484
Heilig-Meyers Company
(Exact name of registrant as specified in its charter)
Virginia 54-0558861
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2235 Staples Mill Road, Richmond, Virginia 23230
(Address of principal executive offices) (Zip Code)
(804) 359-9171
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed
since last report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of October 1, 1995.
48,561,996 shares of Common Stock, $2.00 par value.
<PAGE 1>
HEILIG-MEYERS COMPANY
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Earnings for
Three and Six Months Ended August 31, 1995
and August 31, 1994 (Unaudited) 3
Consolidated Balance Sheets as of
August 31, 1995, and February 28, 1995 (Unaudited) 4
Consolidated Statements of Cash Flows for
Six Months Ended August 31, 1995 and
August 31, 1994 (Unaudited) 5
Notes to Consolidated Financial Statements (Unaudited) 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 10
Item 4. Submission of Matters to a Vote of Security Holders 10
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits - see Index to Exhibits 11
b. There were no reports on Form 8-K filed
during the quarter ended August 31, 1995.
<PAGE 2>
HEILIG-MEYERS COMPANY
CONSOLIDATED STATEMENTS OF EARNINGS
(Amounts in thousands except per share data)
(Unaudited)
Three Months Ended Six Months Ended
August 31, August 31,
1995 1994 1995 1994
Revenues:
Sales $270,356 $223,359 $536,324 $446,540
Other income 54,505 45,760 107,508 91,426
Total revenues 324,861 269,119 643,832 537,966
Costs and Expenses:
Costs of sales 179,853 145,244 349,458 286,515
Selling, general and
administrative 103,018 82,195 201,143 163,434
Interest 10,453 7,890 19,970 14,991
Provision for doubtful
accounts 13,859 10,208 26,373 20,288
Total costs and expenses 307,183 245,537 596,944 485,228
Earnings before provision for
income taxes 17,678 23,582 46,888 52,738
Provision for income taxes 6,362 8,765 17,107 19,611
Net earnings $ 11,316 $ 14,817 $ 29,781 $ 33,127
Net earnings per share of common
stock:
Primary and fully diluted $0.23 $0.30 $0.60 $0.66
Cash dividends per share of
common stock $0.07 $0.06 $0.14 $0.12
See notes to consolidated financial statements.
<PAGE 3>
HEILIG-MEYERS COMPANY
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands except par value data)
(Unaudited)
August 31, February 28,
1995 1995
ASSETS
Current assets:
Cash $ 11,870 $ 10,360
Accounts receivable, net 492,489 538,208
Other receivables 16,587 13,231
Inventories 275,459 253,529
Other 47,918 37,354
Total current assets 844,323 852,682
Property and equipment, net 216,401 203,201
Excess costs over net assets acquired, net 164,500 153,054
$1,225,224 $1,208,937
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 150,000 $ 139,800
Long-term debt due within
one year 17,912 28,125
Accounts payable 81,476 87,523
Accrued expenses 51,797 43,138
Total current liabilities 301,185 298,586
Long-term debt 359,084 370,432
Deferred income taxes 51,105 49,529
Stockholders' equity:
Preferred stock, $10 par value --- ---
Common stock, $2 par value 97,118 97,096
Capital in excess of par value 120,584 120,129
Retained earnings 296,148 273,165
Total stockholders' equity 513,850 490,390
$1,225,224 $1,208,937
See notes to consolidated financial statements.
<PAGE 4>
HEILIG-MEYERS COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
Six Months Ended
August 31,
1995 1994
Cash flows from operating activities:
Net earnings $ 29,781 $ 33,127
Adjustments to reconcile net
earnings to net cash used by
operating activities:
Depreciation and amortization 14,298 11,992
Provision for doubtful accounts 26,373 20,288
Other, net --- (81)
Change in operating assets and
liabilities net of the effects
of acquisitions:
Accounts receivable (81,373) (86,230)
Sale of accounts receivable 100,000 50,000
Other receivables (4,079) (425)
Inventories (7,814) (42,194)
Prepaid expenses (12,390) (11,988)
Accounts payable (6,047) 11,189
Accrued expenses 5,808 (5,885)
Net cash provided/(used)
by operating activities 64,557 (20,207)
Cash flows from investing activities:
Acquisitions, net of cash acquired (9,644) (26,523)
Additions to property and equipment (32,666) (26,553)
Disposals of property and equipment 1,220 234
Miscellaneous investments (3,913) (1,846)
Net cash used by investing
activities (45,003) (54,688)
Cash flows from financing activities:
Net increase (decrease) in notes payable 10,200 (10,500)
Proceeds from long-term debt 0 105,000
Payments of long-term debt (21,561) (15,227)
Issuance of common stock 116 1,151
Dividends paid (6,799) (5,813)
Net cash (used)/provided
by financing activities (18,044) 74,611
Net (decrease)/increase in cash 1,510 (284)
Cash at beginning of period 10,360 6,295
Cash at end of period $ 11,870 $ 6,011
See notes to consolidated financial statements.
<PAGE 5>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. The accompanying consolidated financial statements of Heilig-Meyers
Company have not been audited by independent accountants, except for the
balance sheet at February 28, 1995. These financial statements have
been prepared in accordance with regulations of the Securities and
Exchange Commission in regard to quarterly (interim) reporting. In the
opinion of management, the financial information presented reflects all
adjustments, comprised only of normal recurring accruals, which are
necessary for a fair presentation of the results for the interim periods.
Significant accounting policies and accounting principles have been
consistently applied in both the interim and annual consolidated financial
statements. Certain notes and the related information have been condensed
or omitted from the interim financial statements presented in this
Quarterly Report on Form 10-Q. Therefore, these financial statements
should be read in conjunction with the Company's 1995 Annual Report on
Form 10-K. The results for the second quarter of fiscal year 1996 are not
necessarily indicative of future financial results.
B. On June 21, 1995, the Board of Directors declared a cash dividend of $0.07
per share which was paid on August 26, 1995, to stockholders of record on
July 19, 1995.
C. During the second quarter of fiscal year 1996, the Company sold accounts
receivable through an asset securitization totaling $100.0 million.
D. Accounts receivable are shown net of the allowance for doubtful accounts
and unearned finance income. The allowance for doubtful accounts was
$43,550,000 and $46,678,000 and unearned finance income was $52,653,000
and $54,554,000 at August 31, 1995, and February 28, 1995, respectively.
E. The Company made income tax payments of $12,812,000 and $21,314,000
during the three months ended August 31, 1995, and August 31, 1994,
respectively.
F. The Company made interest payments of $9,380,000 and $12,685,000 during
the three months ended August 31, 1995, and August 31, 1994, respectively.
<PAGE 6>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
The following discussion should be read in conjunction with the
consolidated financial statements and notes to the consolidated financial
statements included in Item 1 of this document, and with the Company's audited
consolidated financial statements and notes thereto for the fiscal year ended
February 28, 1995.
RESULTS OF OPERATIONS
Total revenues for the quarter rose 20.7% to $324.9 million from $269.1
million in the prior year. Net earnings decreased 23.6% to $11.3 million (or
$0.23 per share) from $14.8 million (or $0.30 per share) in the prior year.
Sales for the second quarter increased 21.0% to $270.4 million from $223.4
million in the second quarter of the prior year. For the six month period ended
August 31, 1995, sales increased 20.1% to $536.2 million from $446.5 million in
the prior year. Comparable store sales were 3.1% and 2.8% compared to 6.1% and
7.4% for the three and six months ended August 31, 1995 and 1994,
respectively. The Company's southwestern stores, consisting mainly of the
stores acquired from McMahan's Furniture Company in January 1994, provided
11.0% of total sales for the second quarter of fiscal 1996, or $30.3 million,
representing a 25.0% increase over the prior year quarter. The Company's
recently acquired Puerto Rican stores provided 6% of total sales during the
second quarter, or $16.7 million. Sales increases were below Management's
expectations due to an overall sluggish retail environment. Overall sales
increases for the three and six months ended August 31, 1995 were due to
increased volume with an immaterial impact from price changes.
As a percentage of sales, other income decreased during the second quarter
to 20.2% from 20.5% in the prior year quarter. For the six months ended August
31, 1995, other income decreased, as a percentage of sales, to 20.0% from 20.5%
in the prior year. The decrease in both periods is primarily the result of
higher interest costs associated with a larger pool of securitized receivables
and lower than expected sales in the first and second quarters. Interest costs
related to securitized receivables, which are based on the dollar value of
receivables sold to third parties, are netted against finance income. Proceeds
from securitized receivables are generally used by the Company to lower debt
levels.
Costs of sales increased during the quarter to 66.5% of sales from 65.0%
in the prior year quarter. In an effort to stimulate sales, the Company
increased promotional pricing during the quarter. This accounted for
approximately 1.0 percentage point of the increase in cost of sales, with the
remaining increase resulting from loss of sales leverage on fixed type expenses
such as occupancy costs. For the six month period ended August 31, 1995, costs
of sales were 65.1% compared to 64.2% in the prior year. This increase is
mainly due to loss of sales leverage on occupancy and delivery costs for the
six months ended August 31, 1995.
Selling, general and administrative expense increased as a percentage of
sales to 38.1% from 36.8% in the prior year quarter. For the six month period
ended August 31, 1995, selling, general and administrative expense was 37.5%
compared to 36.6% in the prior year. The increase in both periods is primarily
the result of additional promotional activity initiated during the first and
second quarters in an effort to stimulate sales. In addition, the increase was
also due to a loss of sales leverage on certain fixed type expenses such as
salaries and related costs.
<PAGE 7>
Interest expense increased to 3.9% of sales in the second quarter of
fiscal 1996 from 3.5% of sales in the second quarter of the prior year. For
the six month period ended August 31, 1995, interest expense increased to
3.7% from 3.4% in the prior year. The increase in both periods is primarily
the result of higher long-term debt levels. For the quarter, weighted
average long-term debt increased to $386.2 million from $286.8 million in the
prior year. Weighted average long-term interest rates remained the same at
7.9% compared to the prior year quarter. Weighted average short-term debt
increased to $208.0 million from $183.0 million in the prior year. Weighted
average short-term interest rates increased to 6.3% from 4.7% in the prior
year. The Company continues to focus on structuring its debt portfolio to
contain a higher percentage of long-term fixed rate debt. This strategy is
designed to minimize the Company's exposure to changes in short-term interest
rates.
The provision for doubtful accounts increased in the second quarter, as a
percentage of sales, to 5.1% from 4.6% in the prior year. For the six months
ended August 31, 1995, the provision increased to 4.9% from 4.5% in the prior
year. The increase in both periods was the result of a rise in the portfolio
loss rate and related write-offs associated with the growing accounts receivable
base (prior to the effect of securizations). As a result of current trends, the
Company anticipates an increase to the provision, as a percentage of sales, in
the remaining fiscal 1996 quarters. The extension of credit is constantly
monitored by management to minimize the portfolio loss rate.
The income tax rate in effect for fiscal 1996 is 36.5% compared to 36.9%
for fiscal 1995. This decrease in the income tax rate is the result of larger
fixed dollar income tax credits in the current year and the lower effective tax
rate of the Company's Puerto Rican operations.
LIQUIDITY AND CAPITAL RESOURCES
The Company increased its cash position $1.5 million to $11.9 million at
August 31, 1995, from $10.4 million at February 28, 1995, compared to a decrease
of $.3 million in the comparable period a year ago.
Net cash inflow from operating activities was $64.6 million, compared to
a net cash outflow of $20.2 million in the comparable period of the prior year.
The Company traditionally produces a deficit in cash flow from operations
because it extends credit to its customers. However, during the second
quarter of fiscal 1996, the Company entered into an asset securitization
agreement involving the sale of $100.0 million of accounts receivable.
Likewise, the Company entered into an asset securitization agreement during
the first quarter of the prior year involving the sale of $50.0 million in
accounts receivable. During the first six months of fiscal 1996, accounts
receivable, prior to the effect of securitizations, grew at a slower rate due
to a lower year-to-date sales growth of 21.0% in fiscal 1996 versus a
year-to-date sales growth of 36.3% in the prior year. During the first six
months of fiscal 1996, net cash outflows for inventories decreased as
compared to the prior year. This decrease is mainly due to the addition of
the Fontana Distribution Center in the prior year as well as fewer stores
being opened in the six months ended August 31, 1995 (41 versus 44 in the
prior year). Also contributing to the decrease in growth of inventory
levels are slightly higher inventory turns compared to the prior year and
increased utilization of inventory management techniques such as Just-In-Time
inventory. Continued extension of credit and related increases in customer
accounts receivable, combined with expected increases to inventory levels in
preparation for the upcoming holiday selling season, will likely produce
negative cash flow from operations in the forthcoming fiscal 1996 quarters.
However, the Company periodically sells accounts receivable with limited
recourse which provides additional positive cash flows from operating
activities.
<PAGE 8>
Investing activities produced negative cash flows of $45.0 million during
the first six months of fiscal 1996 as compared to negative cash flows of $54.7
million in the prior year. During the first six months of fiscal 1996, the
Company began construction of twelve new prototype stores (versus eight in the
prior year period) and completed three prototype stores initiated at the end
of fiscal 1995. Continuing its store remodeling program, the Company
remodeled 54 existing stores (versus 28 in the prior year period) during the
six months ended August 31, 1995. Cash outflows for acquisitions decreased
to $9.6 million during the first six months of fiscal 1996 from $26.5 million
in the prior year. This decrease is primarily due to the prior year purchase
of nine stores from Nelson Brothers Furniture Corporation of Chicago,
Illinois, which included $12.9 million of accounts receivable. The Company
expects total capital spending for fiscal 1996 to be stable as a percentage
of both sales and assets compared to the prior fiscal year. Capital
expenditures will continue to be financed by cash flows from operations,
supplemented by funds from external sources.
Financing activities produced negative cash flows of $18.0 million during
the first six months of fiscal 1996 as compared to a $74.6 million positive cash
flow in the prior year. During the same period in the prior year, the Company
received $105 million from a long-term borrowing, the proceeds of which were
used to reduce notes payable. Excluding this $105 million from the long-term
borrowing, the prior year period produced negative cash flows of $30.4 million
compared to negative cash flows of $18.0 million during the current year
period. This decrease in negative cash flows is mainly due to the increase
in notes payable in the current year period. During the second quarter of
fiscal 1996, the Company entered into a five year, $400.0 million revolving
credit facility, of which $265.0 million was unused at August 31, 1995. This
credit facility replaced previously existing lines of credit totaling $300.0
million.
OUTLOOK
The Company expects the sluggish retail environment experienced during the
first half of fiscal 1995 to continue during the third quarter. For the month
ended September 30, 1995, sales increased 14.9% over the same period last year.
Comparable store sales for the month ended September 30, 1995 were -0.9%. In an
effort to stimulate sales in the third and fourth quarters, Management expects
the need to continue its strategy of increased promotional pricing which could
have an effect on gross margin percentages. Management is confident that the
Company's core strategy of focusing on its small-town market niche while
providing a broad selection of merchandise, flexible in-house credit and
emphasizing customer service provides a strong foundation for continued
long-term success.
<PAGE 9>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
As previously reported in its Annual Report on Form 10K, the Company is involved
in cases regarding credit insurance premiums and non-filing fees charged by
the Company on certain transactions. The plaintiffs are alleging that the
Company's charging of these fees violate certain state and federal statutes
and are seeking statutory damages and unspecified punitive damages. One of
these cases, Leverett et al v. Heilig-Meyers Furniture 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 moved to dismiss the case and for summary
denial of the class certification motion. On September 18, 1995, the Court
granted the Company's motion for denial of class certification and has
granted summary dismissal on two of the three counts brought by the
plaintiff. As a result, the Company anticipates the amount involved in the
resolution of this matter will be negligible. The Company is also party to
Inman, et al v. Heilig-Meyers Furniture Company, et al (filed on May 12, 1994
in the Circuit Court of Fayette County, Alabama), in which a class consisting
of certain of its Alabama customers has been conditionally certified. The
plaintiffs seek compensatory and punitive damages related to the Company's
charges for certain credit insurance products. The Company and plaintiff had
reached a preliminary settlement in an amount not significant to the Company.
However, the plaintiffs have reneged on this agreement. The Company intends
to vigorously defend this case.
Item 4. Submission of Matters to a Vote of Security Holders.
(a) The Annual Meeting of the Company's shareholders was held June 21,
1995.
(c)(i) The shareholders approved the ratification of the selection of
Deloitte & Touche LLP as accountants and auditors for the Company
for the current fiscal year. The ratification was approved by the
following vote:
FOR - 41,074,480
AGAINST - 31,918
ABSTAIN - 57,116
(c)(ii) The shareholders of the Company also elected a board of twelve
directors for one-year terms. The elections were approved by the
following vote:
Directors For Withheld
William C DeRusha 40,921,629 241,885
Troy A. Peery, Jr. 40,926,561 236,953
Alexander Alexander 41,042,411 121,103
Robert L. Burrus, Jr. 40,483,906 679,608
Aurthur D. Charpentier 41,046,036 117,478
Benjamin F. Edwards, III 41,045,736 117,778
Alan G. Fleisher 41,031,356 132,158
Nathaniel Krumbein 40,908,073 255,441
Hyman Meyers 40,905,238 258,276
S. Sidney Meyers 40,907,836 255,678
Lawrence N. Smith 41,044,536 118,978
George A. Thornton, III 41,044,236 119,278
<PAGE 10>
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits. See INDEX TO EXHIBITS
(b) There were no reports on Form 8-K filed during the quarter
ended August 31, 1995.
<PAGE 11>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Heilig-Meyers Company
(Registrant)
Date: October 16, 1995 s/s/Joseph R. Jenkins
Joseph R. Jenkins
Executive Vice President
Principal Financial Officer
Date: October 16, 1995 s/s/William J. Dieter
William J. Dieter
Senior Vice President,
Accounting and Principal
Accounting Officer
<PAGE 12>
INDEX TO EXHIBITS
Page
Exhibit 11. Computation of Per Share Earnings 14
Exhibit 27. Financial Data Schedule 15
<PAGE 13>
EXHIBIT 11
HEILIG-MEYERS COMPANY
COMPUTATION OF PER SHARE EARNINGS
(Amounts in thousands except per share data)
Three Months Ended Six Months Ended
August 31, August 31, August 31, August 31,
1995 1994 1995 1994
Primary Earnings Per Share:
Average number of
shares outstanding 48,554 48,441 48,554 48,436
Net effect of stock
options 1,296 1,479 1,188 1,578
Average number of
shares as adjusted 49,850 49,920 49,742 50,014
Net earnings $11,316 $14,817 $29,781 $33,127
Per share amount $ .23 $ .30 $ .60 $ .66
Fully Diluted Earnings Per Share:
Average number of
shares outstanding 48,554 48,441 48,554 48,436
Net effect of stock
options 1,296 1,479 1,270 1,578
Average number of
shares as adjusted 49,850 49,920 49,824 50,014
Net earnings $11,316 $14,817 $29,781 $33,127
Per share amount $ .23 $ .30 $ .60 $ .66
Earnings Per Common Share:
Earnings per common share is computed by dividing net earnings by the weighted
average number of shares of common stock and common stock equivalents
outstanding during the year. The Company has issued stock options, which are
the Company's only common stock equivalent, at exercise prices ranging from
$5.52 to $35.06. Stock options which were antidilutive for the period ended
August 31, 1995 were not included in the earnings per share calculation.
<PAGE 14>
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