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 November 30, 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 January 1, 1996.
48,571,571 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 Nine Months Ended November 30, 1995
and November 30, 1994 (Unaudited) 3
Consolidated Balance Sheets as of
November 30, 1995, and February 28, 1995 (Unaudited) 4
Consolidated Statements of Cash Flows for
Nine Months Ended November 30, 1995 and
November 30, 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 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 November 30, 1995.
<Page 2>
HEILIG-MEYERS COMPANY
CONSOLIDATED STATEMENTS OF EARNINGS
(Amounts in thousands except per share data)
(Unaudited)
Three Months Ended Nine Months Ended
November 30, November 30,
1995 1994 1995 1994
Revenues:
Sales $317,670 $264,114 $853,994 $710,654
Other income 57,809 50,975 165,316 142,401
Total revenues 375,479 315,089 1,019,310 853,055
Costs and Expenses:
Costs of sales 209,231 168,164 558,689 454,680
Selling, general and
administrative 122,836 95,564 323,979 258,998
Interest 10,105 8,676 30,075 23,667
Provision for doubtful
accounts 20,458 12,783 46,830 33,071
Total costs and expenses 362,630 285,187 959,573 770,416
Earnings before provision for
income taxes 12,849 29,902 59,737 82,639
Provision for income taxes 4,092 11,131 21,193 30,742
Net earnings $ 8,757 $ 18,771 $ 38,544 $ 51,897
Net earnings per share of common
stock:
Primary $0.18 $0.38 $0.78 $1.04
Fully Diluted $0.18 $0.38 $0.77 $1.04
Cash dividends per share of
common stock $0.07 $0.06 $0.21 $0.18
See notes to consolidated financial statements.
<Page 3>
HEILIG-MEYERS COMPANY
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands except par value data)
(Unaudited)
November 30, February 28,
1995 1995
ASSETS
Current assets:
Cash $ 11,079 $ 10,360
Accounts receivable, net 576,463 538,208
Other receivables 22,939 13,231
Inventories 299,145 253,529
Other 40,336 37,354
Total current assets 949,962 852,682
Property and equipment, net 222,879 203,201
Excess costs over net assets acquired, net 170,340 153,054
$1,343,181 $1,208,937
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 219,800 $ 139,800
Long-term debt due within
one year 17,894 28,125
Accounts payable 111,557 87,523
Accrued expenses 71,154 43,138
Total current liabilities 420,405 298,586
Long-term debt 352,775 370,432
Deferred income taxes 50,605 49,529
Stockholders' equity:
Preferred stock, $10 par value --- ---
Common stock, $2 par value 97,138 97,096
Capital in excess of par value 120,746 120,129
Retained earnings 301,512 273,165
Total stockholders' equity 519,396 490,390
$1,343,181 $1,208,937
See notes to consolidated financial statements.
<Page 4>
HEILIG-MEYERS COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
Nine Months Ended
November 30,
1995 1994
Cash flows from operating activities:
Net earnings $ 38,544 $ 51,897
Adjustments to reconcile net
earnings to net cash used by
operating activities:
Depreciation and amortization 22,479 17,746
Provision for doubtful accounts 46,830 33,071
Other, net (303) (310)
Change in operating assets and
liabilities net of the effects
of acquisitions:
Accounts receivable (186,862) (152,319)
Sale of accounts receivable 100,000 100,000
Other receivables (10,431) 4,652
Inventories (30,200) (44,903)
Prepaid expenses (5,295) (13,343)
Accounts payable 24,034 27,877
Accrued expenses 22,450 8,991
Net cash provided
by operating activities 21,246 33,359
Cash flows from investing activities:
Acquisitions, net of cash acquired (11,945) (28,962)
Additions to property and equipment (44,269) (48,923)
Disposals of property and equipment 2,862 4,264
Miscellaneous investments (8,551) (1,358)
Net cash used by investing
activities (61,903) (74,979)
Cash flows from financing activities:
Net increase (decrease) in notes payable 79,200 (41,700)
Proceeds from long-term debt --- 115,000
Payments of long-term debt (27,888) (21,500)
Issuance of common stock 262 1,298
Dividends paid (10,198) (8,721)
Net cash provided
by financing activities 41,376 44,377
Net increase in cash 719 2,757
Cash at beginning of period 10,360 6,295
Cash at end of period $ 11,079 $ 9,052
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 third quarter of fiscal year 1996 are
not necessarily indicative of future financial results.
B. On October 18, 1995, the Board of Directors declared a cash dividend of
$0.07 per share which was paid on November 25, 1995, to stockholders of
record on November 8, 1995.
C. Accounts receivable are shown net of the allowance for doubtful accounts
and unearned finance income. The allowance for doubtful accounts was
$67,273,000 and $46,678,000 and unearned finance income was $66,825,000
and $54,554,000 at November 30, 1995, and February 28, 1995,
respectively.
D. The Company made income tax payments of $22,956,000 and $27,711,000
during the nine months ended November 30, 1995, and November 30, 1994,
respectively.
E. The Company made interest payments of $11,084,000 and $23,589,000 during
the nine months ended November 30, 1995, and November 30, 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 19.2% to $375.5 million from $315.1
million in the prior year. Net earnings decreased 53.3% to $8.8 million (or
$0.18 per share) from $18.8 million (or $0.38 per share) in the prior year.
Sales for the third quarter increased 20.3% to $317.7 million from $264.1
million in the third quarter of the prior year. For the nine month period ended
November 30, 1995, sales increased 20.2% to $854.0 million from $710.7 million
in the prior year. Comparable store sales increased 0.2% and 1.7% compared to
9.2% and 8.0% for the three and nine months ended November 30, 1995 and 1994,
respectively. The Company's southwestern stores, consisting mainly of the
stores acquired from McMahan's Furniture Company in January 1994, provided
10.5% and 10.6% of total sales for the three and nine months ended
November 30, 1995, respectively. The Company's Puerto Rican stores provided
9.0% and 7.3% of total sales for the three and nine months ended
November 30, 1995, respectively. Sales increases for Continental U.S.
operations were below Management's expectations due to an overall sluggish
retail environment. Overall sales increases for the three and nine months
ended November 30, 1995 were due to increased volume with an immaterial
impact from price changes.
As a percentage of sales, other income decreased during the third quarter
to 18.2% from 19.3% in the prior year quarter. For the nine months ended
November 30, 1995, other income decreased, as a percentage of sales, to 19.4%
from 20.0% in the prior year. The decrease in both periods is primarily the
result of lower finance income as a percentage of sales. Finance income has
increased at a lower rate than sales due to a larger pool of securitized
accounts receivable compared to the prior year. Interest costs related to
securitized receivables, which are based on the dollar value of accounts
receivable sold to third parties, are netted against finance income.
Proceeds from securitized accounts receivable are generally used by the
Company to lower debt levels.
Costs of sales increased during the quarter to 65.9% of sales from 63.7%
in the prior year quarter. Increased promotional pricing and loss of sales
leverage on fixed-type expenses such as occupancy costs and depreciation
charges related to store and distribution system enhancements accounted for
the increase to costs of sales during the third quarter ended November 30,
1995. For the nine month period ended November 30, 1995, costs of sales
were 65.4% compared to 64.0% in the prior year. This increase is mainly due
to loss of sales leverage on occupancy and delivery costs. In addition, the
promotional pricing incurred in the second and third quarters of fiscal 1996
have also increased costs of sales for the nine months ended November 30, 1995.
Selling, general and administrative expense increased as a percentage of
sales to 38.7% from 36.2% in the prior year quarter. For the nine month period
ended November 30, 1995, selling, general and administrative expense was 37.9%
compared to 36.4% in the prior year. The increase in both periods is primarily
the result of additional promotional activity initiated during the first three
quarters of fiscal 1996 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 decreased to 3.2% of sales in the third quarter of fiscal
1996 from 3.3% of sales in the third quarter of the prior year. For the nine
month period ended November 30, 1995, interest expense increased to 3.5% of
sales from 3.3% of sales in the prior year. For the quarter, weighted
average long-term debt increased to $374.7 million from $299.3 million in the
prior year. Weighted average long-term interest rates were 7.9% in the third
quarter compared to 7.9% in the prior year quarter. Weighted average
short-term debt decreased to $176.6 million from $239.5 million in the prior
year. Weighted average short-term interest rates increased to 6.2% from 5.3%
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 for the third quarter, as a
percentage of sales, to 6.4% from 4.8% in the prior year. For the nine month
period ended November 30, 1995, the provision increased to 5.5% from 4.7% 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). Should the trend in
current sales and portfolio loss rates continue, Management anticipates an
increase to the provision, as a percentage of sales, in the fourth quarter of
fiscal year 1996 compared to the same period of the prior year. 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 35.7% compared to 36.9%
for fiscal 1995. This decrease in the income tax rate is primarily the result
of higher fixed dollar income tax credits in the current year and the lower
effective tax rate on the Company's Puerto Rican earnings compared to the
Company as a whole. This change in the annual effective income tax rate
resulted in an effective tax rate of 31.8% for the third quarter ended
November 30, 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company increased its cash position $0.7 million to $11.1 million at
November 30, 1995, from $10.4 million at February 28, 1995, compared to an
increase of $2.8 million in the comparable period a year ago.
Net cash inflow from operating activities was $21.2 million, compared to
a net cash inflow of $33.4 million in the comparable period of the prior year.
The Company traditionally produces a deficit in cash flow from operations
because it extends credit to its customers. However, the Company periodically
sells accounts receivable with limited recourse which provides additional
positive cash flows from operating activities. 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 asset securitization agreements during the
first and third quarters of the prior year involving the sale of $100.0
million (in total) in accounts receivable. As a result, both the nine months
ended November 30, 1995 and November 30, 1994 produced positive cash flows
from operations. During the first nine months of fiscal 1996, accounts
receivable, prior to the effect of securitizations, increased due to a 20.2%
increase in sales. During the first nine 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 California distribution
center in the prior year. The utilization of inventory management techniques
such as Just-In-Time inventory resulted in slightly higher inventory turns
and a decrease in the growth of inventory levels for the nine months ended
November 30, 1995 compared to the prior year. Continued extension of credit
and related increases in customer accounts receivable will likely produce
negative cash flow from operations in the fourth quarter of fiscal 1996.
<Page 8>
Investing activities produced negative cash flows of $61.9 million during
the first nine months of fiscal 1996 as compared to negative cash flows of $75.0
million in the prior year. Cash outflows for acquisitions decreased to $11.9
million during the first nine months of fiscal 1996 from $29.0 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 positive cash flows of $41.4 million during
the first nine months of fiscal 1996 as compared to a $44.4 million positive
cash flow in the prior year. The positive cash flow from financing
activities in the current year is primarily due to an increase in notes
payable. During the first nine months of the prior year, the Company
received $115.0 million from long-term borrowings, the proceeds of which were
used to reduce notes payable and resulted in a positive cash flow from
financing activities for the period. During the second quarter of fiscal
1996, the Company replaced $300.0 million of previously existing lines of
credit with a new $400.0 million revolving credit facility, of which $215.0
million was unused at November 30, 1995. The Company also had uncommitted
lines of credit totalling $45.0 million of which $20.0 million was unused at
November 30, 1995.
OUTLOOK
The Company expects the sluggish retail environment experienced during the
first nine months of fiscal 1996 to continue during the remainder of fiscal
1996. Therefore, management expects the promotional environment to continue
through the fourth quarter which could have an effect on gross margin
percentages. For the month ended December 31, 1995, sales increased 20.0%
over the same period last year, however comparable store sales decreased
appoximately 2.3%. 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>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Heilig-Meyers Company
(Registrant)
Date: January 12, 1996 /s/Joseph R. Jenkins
Joseph R. Jenkins
Executive Vice President
Principal Financial Officer
Date: January 12, 1996 /s/William J. Dieter
William J. Dieter
Senior Vice President,
Accounting and Principal
Accounting Officer
<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 November 30, 1995.
INDEX TO EXHIBITS
Page
Exhibit 11. Computation of Per Share Earnings 12
Exhibit 27. Financial Data Schedule 13
<Page 11>
EXHIBIT 11
HEILIG-MEYERS COMPANY
COMPUTATION OF PER SHARE EARNINGS
(Amounts in thousands except per share data)
Three Months Ended Nine Months Ended
November 30, November 30, November 30, November 30,
1995 1994 1995 1994
Primary Earnings Per Share:
Average number of
shares outstanding 48,555 48,456 48,554 48,443
Net effect of stock
options 1,044 1,542 1,139 1,594
Average number of
shares as adjusted 49,599 49,998 49,694 50,037
Net earnings $ 8,757 $18,771 $38,544 $51,898
Per share amount $ .18 $ .38 $ .78 $ 1.04
Fully Diluted Earnings Per Share:
Average number of
shares outstanding 48,555 48,456 48,554 48,443
Net effect of stock
options 1,044 1,542 1,195 1,594
Average number of
shares as adjusted 49,599 49,998 49,749 50,037
Net earnings $ 8,757 $18,771 $38,544 $51,898
Per share amount $ .18 $ .38 $ .77 $ 1.04
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
November 30, 1995 were not included in the earnings per share calculation.
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