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 May 31, 1996 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 July 1, 1996.
48,604,804 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 Months Ended May 31, 1996
and May 31, 1995 (Unaudited) 3
Consolidated Balance Sheets as of
May 31, 1996, and February 29, 1996 (Unaudited) 4
Consolidated Statements of Cash Flows for
Three Months Ended May 31, 1996 and
May 31, 1995 (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
b. There were no reports on Form 8-K filed
during the quarter ended May 31, 1996. 11
<page 2>
HEILIG-MEYERS COMPANY
CONSOLIDATED STATEMENTS OF EARNINGS
(Amounts in thousands except per share data)
(Unaudited)
Three Months Ended
May 31,
1996 1995
Revenues:
Sales $300,691 $265,968
Other income 57,223 53,003
Total revenues 357,914 318,971
Costs and Expenses:
Costs of sales 193,714 169,604
Selling, general and
administrative 115,458 98,125
Interest 10,591 9,517
Provision for doubtful
accounts 18,943 12,514
Total costs and expenses 338,706 289,760
Earnings before provision for
income taxes 19,208 29,211
Provision for income taxes 6,837 10,745
Net earnings $ 12,371 $ 18,466
Net earnings per share of common
stock:
Primary and fully diluted $0.25 $0.37
Cash dividends per share of
common stock $0.07 $0.07
See notes to consolidated financial statements.
<page 3>
HEILIG-MEYERS COMPANY
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands except par value data)
(Unaudited)
May 31, February 29,
1996 1996
ASSETS
Current assets:
Cash $ 10,640 $ 16,017
Accounts receivable, net 541,526 518,969
Other receivables 15,777 13,638
Inventories 321,125 293,191
Other 56,604 53,501
Total current assets 945,672 895,316
Property and equipment, net 224,395 216,059
Excess costs over net assets acquired, net 182,424 177,585
$1,352,491 $1,288,960
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 221,300 $ 190,000
Long-term debt due within
one year 17,814 17,812
Accounts payable 114,289 87,739
Accrued expenses 76,554 71,916
Total current liabilities 429,957 367,467
Long-term debt 344,991 352,631
Deferred income taxes 49,267 49,879
Stockholders' equity:
Preferred stock, $10 par value --- ---
Common stock, $2 par value 97,190 97,143
Capital in excess of par value 121,046 120,769
Retained earnings 310,040 301,071
Total stockholders' equity 528,276 518,983
$1,352,491 $1,288,960
See notes to consolidated financial statements.
<page 4>
HEILIG-MEYERS COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
Three Months Ended
May 31,
1996 1995
Cash flows from operating activities:
Net earnings $ 12,371 $ 18,466
Adjustments to reconcile net
earnings to net cash used by
operating activities:
Depreciation and amortization 7,999 7,440
Provision for doubtful accounts 18,943 12,514
Other, net (176) (51)
Change in operating assets and
liabilities net of the effects
of acquisitions:
Accounts receivable (42,555) (37,679)
Other receivables (2,139) (5,425)
Inventories (24,885) (6,179)
Prepaid expenses (3,797) (5,227)
Accounts payable 26,550 (729)
Accrued expenses 3,462 8,021
Net cash used
by operating activities (4,227) (8,849)
Cash flows from investing activities:
Acquisitions, net of cash acquired (2,088) (706)
Additions to property and equipment (15,251) (17,144)
Disposals of property and equipment 353 834
Miscellaneous investments (4,670) (1,829)
Net cash used by investing
activities (21,656) (18,845)
Cash flows from financing activities:
Net increase in notes payable 31,300 42,200
Payments of long-term debt (7,638) (7,661)
Issuance of common stock 246 25
Dividends paid (3,402) (3,400)
Net cash provided
by financing activities 20,506 31,164
Net (decrease) increase in cash (5,377) 3,470
Cash at beginning of period 16,017 10,360
Cash at end of period $ 10,640 $ 13,830
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 29, 1996. 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 1996 Annual Report on
Form 10-K. The results for the first quarter of fiscal year 1997 are not
necessarily indicative of future financial results.
B. On April 3, 1996, the Board of Directors declared a cash dividend of
$0.07 per share which was paid on May 18, 1996, to stockholders of
record on April 24, 1996.
C. Accounts receivable are shown net of the allowance for doubtful accounts
and unearned finance income. The allowance for doubtful accounts was
$70,134,000 and $64,714,000 and unearned finance income was $62,409,000
and $60,114,000 at May 31, 1996, and February 29, 1996, respectively.
D. The Company made income tax payments of $0 and $505,000 during the three
months ended May 31, 1996, and May 31, 1995, respectively.
E. The Company made interest payments of $9,577,000 and $9,779,000 during
the three months ended May 31, 1996, and May 31, 1995, 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 29, 1996.
RESULTS OF OPERATIONS
Total revenues for the quarter rose 12.2% to $357.9 million from $319.0
million in the prior year. Net earnings decreased 33.0% to $12.4 million (or
$0.25 per share) from $18.5 million (or $0.37 per share) in the prior year.
Sales for the first quarter of fiscal 1997 increased 13.1% to $300.7
million from $266.0 million in the first quarter of the prior year. The overall
increase in sales was attributable to an increase of 76 stores from May 31, 1995
to May 31, 1996, and a comparable store sales increase of 2.2% for the three
months ended May 31, 1996. The Company's Eastern stores provided 81% of total
sales for the first quarter of fiscal 1997, or $242.9 million, representing an
9.1% increase in sales over the same period of the prior year. The Company's
West stores added $33.9 million, or 11% of total sales, representing a 27.5%
increase over the same period of the prior year. The Company's 30 Puerto Rican
stores contributed $24.0 million, or 8% of total sales. Overall sales increases
for the three months ended May 31, 1996 were due to increased volume with an
immaterial impact from price changes.
As a percentage of sales, other income decreased during the first quarter
to 19.0% from 19.9% in the prior year quarter. This decrease 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 64.4% of sales from 63.8%
in the prior year quarter. Loss of leverage on certain fixed-type expenses such
as occupancy due to lower comparable store sales and normal year over year
increases to certain fixed-type costs were the primary reason for this
increase. Slightly lower raw margins, due in part to stronger sales of lower
margin merchandise compared to the prior year, also contributed to this
increase.
Selling, general and administrative expense increased as a percentage of
sales to 38.4% from 36.9% in the prior year quarter. This increase was due
primarily to additional costs incurred as a result of increased emphasis on
monitoring and collecting installment accounts receivable, costs associated with
additional investments in infrastructure to support Puerto Rican operations,
including nine stores acquired in October 1995, and a loss of leverage on fixed-
type expenses due to lower comparable store sales compared to the prior year
period. The impact of these increases was partially offset by reduced
advertising expense, as a percentage of sales, compared to the prior year
period.
Interest expense decreased to 3.5% of sales in the first quarter of fiscal
1997 from 3.6% of sales in the first quarter of the prior year. The decrease is
mainly due to lower long-term debt levels. For the quarter, weighted average
long-term debt decreased to $364.4 million from $392.6 million in the prior
year. Weighted average long-term interest rates decreased to 7.8% from 7.9%
in the prior year period. Weighted average short-term debt increased to
<page 7>
$180.6 million from $151.8 million in the prior year. Weighted average
short-term interest rates decreased to 5.7% from 6.4% in the prior year. The
Company expects 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 first quarter, as a
percentage of sales, to 6.3% from 4.7% in the prior year quarter. The increase
was the result of the lagging effects of a rise in the portfolio loss rate and
related write-offs experienced in the third and fourth quarters of fiscal year
1996. The credit extension and collection process is constantly monitored by
management to minimize the portfolio loss rate.
The income tax rate in effect for the first quarter of fiscal 1997 was
35.6% compared to 36.8% for the first quarter of fiscal 1996. This decrease in
the income tax rate is primarily the result of higher fixed dollar income tax
credits in the current year (as a percentage of pretax income) and the lower
effective tax rate on the Company's Puerto Rican earnings compared to the
Company as a whole.
LIQUIDITY AND CAPITAL RESOURCES
The Company decreased its cash position $5.4 million to $10.6 million at
May 31, 1996, from $16.0 million at February 29, 1996, compared to an increase
of $3.5 million in the comparable period a year ago.
Net cash outflow from operating activities was $4.2 million, compared to
a net cash outflow of $8.8 million in the comparable period of the prior year.
The Company traditionally produces a deficit in cash flow from operating
activities because it extends credit to its customers. An increase in accounts
receivable due to a 13.1% increase in sales during the quarter led to the net
cash outflow during the first quarter of fiscal 1997. During the quarter,
inventory levels rose primarily due to the new stores added in addition to
certain new merchandise items being added to store line-ups. This increase in
inventory was offset by a corresponding increase to the Company's payable
accounts. Continued extension of credit and related increases in customer
accounts receivable will likely produce negative cash flow from operations in
the upcoming fiscal 1997 quarters. However, the Company periodically sells
accounts receivable as a source of liquidity, providing additional positive
cash flows from operating activities.
Investing activities produced negative cash flows of $21.7 million during
the first quarter of fiscal 1997 compared to negative cash flows of $18.8
million in the prior year first quarter. The increase in negative cash flows
from investing activities is primarily due to increased funding of certain
miscellaneous investments made during the first quarter of fiscal 1997. The
Company expects total capital spending for fiscal 1997 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 $20.5 million during
the first quarter of fiscal 1997 compared to a $31.2 million positive cash flow
in the prior year first quarter. The positive cash flow from financing
activities in both the current and prior year quarters was due to an increase in
notes payable. The Company has a $400.0 million revolving credit facility, of
which $230.0 million was unused at May 31, 1996. The Company also has lines of
credit with banks, totaling $60.0 million, of which $8.7 was unused at May 31,
1996. In addition, the Company has a commitment from a bank to borrow $60.0
million for five years, if necessary.
<page 8>
OUTLOOK
The retail furniture environment showed only minimal improvement during
the first quarter of fiscal 1997 and thus the Company is anticipating
marginal same store sales increases in the upcoming quarters. However,
during the first quarter of fiscal 1997, the underlying trends in costs of
sales and selling, general and administrative expense showed improvement (as
a percentage of sales) as compared to the third and fourth quarters of the
prior fiscal year. These improvements were the result of the Company's
disciplined promotional strategy and related focus on merchandising
margins and cost control. The Company anticipates these improving trends
will continue and result in favorable year over year improvements to costs of
sales and selling, general and administrative expense (as a percentage of
sales) in the third and fourth quarters of this fiscal year.
Certain statements included in the above discussion are not based on
historical facts, but are forward-looking statements that are based upon a
number of assumptions concerning future conditions that may ultimately prove
to be inaccurate. Actual events and results may materially differ from
anticipated results described in such statements. The Company's ability to
achieve such results is subject to certain risks and uncertainties,
including, but not limited to, adverse changes in the Company's customer
spending habits, continued availability of capital and financing, competitive
factors, and economic and other factors affecting the Company's business
beyond the Company's control.
<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: July 12, 1996 /s/Joseph R. Jenkins
Joseph R. Jenkins
Executive Vice President and
Principal Financial Officer
Date: July 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 May 31, 1996.
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
May 31, May 31,
1996 1995
Primary Earnings Per Share:
Average number of
shares outstanding 48,584 48,549
Net effect of stock
options 1,096 1,080
Average number of
shares as adjusted 49,680 49,629
Net earnings $12,371 $18,466
Per share amount $ .25 $ .37
Fully Diluted Earnings Per Share:
Average number of
shares outstanding 48,584 48,549
Net effect of stock
options 1,138 1,244
Average number of
shares as adjusted 49,722 49,793
Net earnings $12,371 $18,466
Per share amount $ .25 $ .37
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
May 31, 1996 were not included in the earnings per share calculation.
<page 12>
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