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, 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 January 1, 1997.
48,622,771 shares of Common Stock, $2.00 par value.
<Page 1>
HEILIG-MEYERS COMPANY
INDEX
Page
PART I. FINANCIAL INFORMATION 1
Item 1. Financial Statements
Consolidated Statements of Earnings for
Three and Nine Months Ended November 30, 1996
and November 30, 1995 (Unaudited) 3
Consolidated Balance Sheets as of
November 30, 1996 (Unaudited),
and February 29, 1996 (Audited) 4
Consolidated Statements of Cash Flows for
Nine Months Ended November 30, 1996 and
November 30, 1995 (Unaudited) 5
Notes to Consolidated Financial Statements (Unaudited) 6
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition 7
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 14
<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,
1996 1995 1996 1995
Revenues:
Sales $351,725 $317,670 $ 939,406 $ 853,994
Other income 61,749 57,809 175,506 165,316
Total revenues 413,474 375,479 1,114,912 1,019,310
Costs and Expenses:
Costs of sales 228,111 209,231 613,032 558,689
Selling, general and
administrative 135,808 122,836 362,445 323,979
Interest 11,850 10,105 33,415 30,075
Provision for doubtful
accounts 23,004 20,458 60,027 46,830
Total costs and expenses 398,773 362,630 1,068,919 959,573
Earnings before provision for
income taxes 14,701 12,849 45,993 59,737
Provision for income taxes 5,209 4,092 16,384 21,193
Net earnings $ 9,492 $ 8,757 $ 29,609 $ 38,544
Net earnings per share of common
stock:
Primary $0.19 $0.18 $0.60 $0.78
Fully diluted $0.19 $0.18 $0.60 $0.77
Cash dividends per share of
common stock $0.07 $0.07 $0.21 $0.21
See notes to consolidated financial statements.
<page 3>
HEILIG-MEYERS COMPANY
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands except par value data)
November 30, February 29,
1996 1996
(Unaudited) (Audited)
ASSETS
Current assets:
Cash $ 9,858 $ 16,017
Accounts receivable, net 617,431 518,969
Other receivables 13,389 13,638
Inventories 345,953 293,191
Other 55,927 53,501
Total current assets 1,042,558 895,316
Property and equipment, net 261,843 216,059
Excess costs over net assets acquired, net 212,857 177,585
$1,517,258 $1,288,960
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 153,750 $ 190,000
Long-term debt due within
one year 99,246 17,812
Accounts payable 121,598 87,739
Accrued expenses 103,373 71,916
Total current liabilities 477,967 367,467
Long-term debt 448,531 352,631
Deferred income taxes 51,605 49,879
Stockholders' equity:
Preferred stock, $10 par value --- ---
Common stock, $2 par value 97,246 97,143
Capital in excess of par value 121,505 120,769
Retained earnings 320,404 301,071
Total stockholders' equity 539,155 518,983
$1,517,258 $1,288,960
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,
1996 1995
Cash flows from operating activities:
Net earnings $ 29,609 $ 38,544
Adjustments to reconcile net
earnings to net cash used by
operating activities:
Depreciation and amortization 24,073 22,479
Provision for doubtful accounts 60,027 46,830
Other, net 406 (303)
Change in operating assets and
liabilities net of the effects
of acquisitions:
Accounts receivable (161,199) (186,862)
Sale of accounts receivable --- 100,000
Other receivables 249 (10,431)
Inventories (32,164) (30,200)
Prepaid expenses (4,965) ( 5,295)
Accounts payable 33,859 24,034
Accrued expenses 27,276 22,450
Net cash (used)/provided
by operating activities (22,829) 21,246
Cash flows from investing activities:
Acquisitions, net of cash acquired (52,979) (11,945)
Additions to property and equipment (53,321) (44,269)
Disposals of property and equipment 980 2,862
Miscellaneous investments (9,139) (8,551)
Net cash used by investing
activities (114,459) (61,903)
Cash flows from financing activities:
Net increase (decrease) in notes payable (36,250) 79,200
Proceeds from long-term debt 199,612 0
Payments of long-term debt (22,666) (27,888)
Issuance of common stock 709 262
Dividends paid (10,276) (10,198)
Net cash provided
by financing activities 131,129 41,376
Net (decrease)/increase in cash (6,159) 719
Cash at beginning of period 16,017 10,360
Cash at end of period $ 9,858 $ 11,079
See notes to consolidated financial statements.
<page 5>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. The accompanying consolidated financial statements of Heilig-Meyers
Company and its subsidiaries (the 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 third
quarter of fiscal year 1997 are not necessarily indicative of future
financial results.
B. On October 16, 1996, the Board of Directors declared a cash dividend of
$0.07 per share which was paid on November 23, 1996, to stockholders of
record on November 6, 1996.
C. Accounts receivable are shown net of the allowance for doubtful accounts
and unearned finance income. The allowance for doubtful accounts was
$92,476,000 and $54,714,000 and unearned finance income was $70,608,000
and $60,114,000 at November 30, 1996, and February 29, 1996, respectively.
D. The Company made income tax payments of $16,204,000 and $22,956,000 during
the three months ended November 30, 1996, and November 30, 1995,
respectively.
E. The Company made interest payments of $7,748,000 and $11,084,000 during
the three months ended November 30, 1996, and November 30, 1995,
respectively.
F. MacSaver Financial Services, is the Company's wholly owned subsidiary
whose principal business activity is to obtain financing for the
operations of Heilig-Meyers and its other subsidiaries, and, in
connection therewith, MacSaver generally acquires and holds the aggregate
principal amount of installment credit accounts generated by the
Company's operating subsidiaries. The payment of principal and interest
associated with this debt is guaranteed by the Parent Company. The
summarized financial information concerning MacSaver Financial Services
is as follows:
MacSaver Financial Services
Summarized Statement of Earnings
(Amounts in thousands)
(Unaudited) (Unaudited)
Three Months Ended Nine Months Ended
November 30, November 30,
1996 1995 1996 1995
Net revenues $ 39,521 $ 31,387 $ 114,242 $ 80,621
Operating expenses 26,347 18,463 76,162 45,014
Earnings before taxes 13,174 12,924 38,080 35,607
Net earnings 8,563 8,401 24,752 23,144
<page 6>
MacSaver Financial Services
Summarized Balance Sheet
(Amounts in thousands)
November 30, February 29,
1996 1996
(Unaudited) (Audited)
Current assets 2,140 15,409
Accounts receivable, net 558,111 451,565
Due to affiliates 302,704 224,292
Total Assets $ 862,955 $ 691,266
Current liabilities 21,973 16,814
Long-term debt 543,400 365,372
Notes payable 153,750 190,000
Stockholders equity 143,832 119,080
Total Liabilities and Equity $ 862,955 $ 691,266<PAGE>
<page 7>
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 third quarter rose 10.1% to $413.5 million from
$375.5 million in the prior year. Net earnings increased 8.4% to $9.5 million
(or $.19 per share) from $8.8 million (or $0.18 per share) in the prior year
period. Net earnings for the nine months ended November 30, 1996 decreased
23.2% to $29.6 million (or $.60 per share) from $38.5 million (or $0.77 per
share) in the prior year period.
Sales for the third quarter increased 10.7% to $351.7 million from $317.7
million in the prior year period. For the nine month period ended November 30,
1996, sales increased 10.0% to $939.4 million from $854.0 million in the prior
year. The overall increase in sales for both periods was attributable to
increased volume due to the addition of 113 stores from November 30, 1995 to
November 30, 1996. Comparable store sales were unchanged for the three months
ended November 30, 1996 and decreased 0.6% for the nine month period. The
Company's Eastern stores provided 77% of total sales for the third quarter, or
$269.5 million, representing a 5.4% increase over the same period of the prior
year. The Company's Western stores added $49.7 million, or 14% of total sales,
representing a 48.6% increase over the third quarter of the prior year. The
Company's 31 Puerto Rican stores contributed $32.5 million, or 9% of total
sales. Sales increases were below management's expectations due to a
continued sluggish home furnishings retail environment. The overall sales
increases for the three and nine months ended November 30, 1996 were primarily
due to increased volume with an immaterial impact from price changes.
As a percentage of sales, other income decreased during the third quarter
to 17.6% from 18.2% in the prior year third quarter. For the nine months ended
November 30, 1996, other income decreased, as a percentage of sales, to 18.7%
from 19.4% in the prior year. The decrease in both periods is primarily the
result of additional interest costs due to a larger pool of securitized
receivables. 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 decreased during the third quarter to 64.9% of sales from
65.9% in the prior year period. For the nine month period ended November 30,
1996, costs of sales were 65.3% compared to 65.4% in the prior year. During
the third quarter, raw selling margins improved over the prior year as a result
of the Company's continual disciplined promotional strategy designed to protect
margins. Compared to the prior year quarter, the merchandise sales mix
included more furniture and bedding which contributed to the overall higher
margins.
Selling, general and administrative expenses decreased slightly as a
percentage of sales to 38.6% from 38.7% in the prior year quarter. Cost
control efforts over salaries and related expenses, as well as, lower
discretionary spending, such as travel and outside services, contributed to the
decrease for the quarter as a percentage of sales. For the nine month period
ended November 30, 1996, selling, general and administrative expense was 38.6%
compared to 37.9% in the prior year. The year-to-date increase is primarily
the result of a loss of sales leverage on fixed type expenses due to lower than
expected sales increases.
<page 8>
Interest expense increased to 3.4% of sales in the third quarter of
fiscal 1997 from 3.2% of sales in the third quarter of the prior year. The
increase is mainly due to higher long-term borrowings, as a percentage of total
debt, compared to the same period in the prior year. For the quarter, weighted
average long-term debt increased to $550.9 million from $374.7 million in the
prior year period. Weighted average long-term interest rates for the third
quarter decreased to 7.8%, compared to 7.9% during the prior year period.
Weighted average short-term interest rates for the third quarter decreased to
5.8% from 6.2% in the prior year. Weighted average short-term debt decreased
to $106.8 million from $176.6 million in the prior year period. For the nine-
month period ended November 30, 1996 and November 30, 1995, interest expense
was 3.6% and 3.5% of sales, respectively.
The provision for doubtful accounts increased in the third quarter, as a
percentage of sales, to 6.5% from 6.4% in the prior year. For the nine months
ended November 30, 1996, the provision increased to 6.4% from 5.5% in the prior
year. The increase for the nine month period is a result of a rise in the
portfolio loss rate and related write-offs, compared to the prior year. For
the third quarter, these factors are consistent with trends in the prior year
quarter. Based on information currently available, management does not expect
the provision requirements, as a percentage of sales, to decrease in the fourth
quarter of fiscal 1997. Management continues to monitor the extension of
credit and collection efforts in order to minimize the portfolio loss rate.
The effective income tax rate in effect for the third quarter of fiscal
1997 was 35.4% compared to 31.8% for the third quarter of fiscal 1996. The
annual effective rate for fiscal 1996 was reduced to 35.5% from 36.5% during
the third quarter of fiscal 1996. For the nine months ended November 30, 1996,
the effective income tax rate was 35.6% compared to 35.5% in the prior year
period.
LIQUIDITY AND CAPITAL RESOURCES
The Company decreased its cash position $6.2 million to $9.9 million at
November 30, 1996, from $16.0 million at February 29, 1996, compared to an
increase of $720,000 in the comparable period a year ago.
Net cash outflow from operating activities was $22.8 million, compared to
a net cash inflow of $21.2 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 and continues to open additional
operating units. The decrease from the prior year is primarily due to $100.0
million provided last year from the sale of accounts receivable, as well as,
a slower growth in net accounts receivable this year. Cash used for
increased inventory levels was offset by increases in accounts payable and
accrued expenses.
Investing activities produced negative cash flows of $114.5 million
during the first nine months of fiscal 1997 as compared to negative cash flows
of $61.9 million in the prior year period. For both the nine month periods
ended November 30, 1996 and November 30, 1995, negative cash flows from
investing activities resulted from additions to property and equipment as a
result of the Company's new store growth. Cash outflows for acquisitions
increased to $53.0 million for the nine months ended November 30, 1996,
compared to $11.9 million for the same period ended November 30, 1995. This
increase is primarily due to the acquisitions of certain assets of McMahan's
Furniture of Santa Monica and Self Service Furniture, which were completed
during the third quarter of 1996. The Company opened 111 and 67 new stores in
the nine months ended November 30, 1996 and 1995, respectively. Future capital
expenditures will continue to be financed by cash flows from operations,
supplemented by funds from external sources.
<page 9>
Financing activities produced positive cash flows of $131.1 million during
the first nine months of fiscal 1997 as compared to an $41.4 million positive
cash flow in the prior year period. The increase from the prior year was due
to the issuance of $200.0 million, seven year notes due in 2003, the proceeds
of which were used to pay down short term notes, as well as, an increase in
current year short term borrowings to fund operating and investing cash
requirements. The Company has a $400.0 million revolving credit facility, of
which $270.0 was unused at November 30, 1996. The Company also has lines of
credit with banks, totaling $60.0 million, of which $36.3 was unused at
November 30, 1996.
OTHER INFORMATION
On October 1, 1996, the Company purchased certain assets relating to 20
stores of J. McMahan's Furniture Company, of Santa Monica, California. The
acquisition was financed by the Company's existing credit facilities. These
stores are located in California, Washington and Nevada.
The Company also purchased certain assets relating to 23 stores of Self
Service Furniture Company, headquartered in Spokane, Washington, on October 25,
1996. These stores are located in Washington, Oregon, Idaho, California and
Montana. The acquisition was financed by the Company's existing credit
facilities.
On December 31, 1996, the Company acquired Rhodes, Inc., a publicly
traded specialty furniture retailer with 106 stores in 15 states located
primarily in the southeastern United States. Under the terms of the merger
agreement, Rhodes shareholders have the right to receive one share of Heilig-
Meyers stock for every two shares of Rhodes stock. Heilig-Meyers will issue
approximately 4.5 million common shares in the transaction. The transaction is
structured to be a tax-free exchange of shares and accounted for under the
purchase method of accounting.
In June 1996, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities". This
statement is effective for transfers and servicing of financial assets and
extinguishment of liabilities occurring after December 31, 1996. The Company
does not expect the adoption of SFAS No. 125 to have a material impact on the
financial statements.
<page 10>
OUTLOOK
The retail furniture environment remained sluggish during the third
quarter of fiscal 1997 and there appears to be no fundamental reason to
anticipate a significant turn in the environment in the upcoming fourth
quarter. As a result, the Company anticipates sales trends and earnings from
operations to remain under pressure. The Company has concentrated its efforts
on improving raw selling margins and maximizing efficiencies, through
controlled selling, general and administrative costs. As a result of these
efforts, during the third quarter, the company reported, as a percentage of
sales, year over year improvements in gross margins and selling, general and
administrative expenses. Management anticipates similar trends in the fourth
quarter.
As previously discussed, the acquisition of Rhodes Inc. was closed on December
31, 1996. As a result, two months of Rhodes operations will be included in
Heilig-Meyers results for the fiscal year ended February 28, 1997. Management
believes there will be no material impact on earnings for fiscal 1997 as a
result of this transaction.
Certain statements included in the above discussions are not based on
historical facts, but are forward-looking statements. These statements reflect
the Company's reasonable judgements with respect to future events and are
subject to risks and uncertainties that could cause actual results to differ
materially from those in the forward-looking statements. Such risks and
uncertainties include, but are not limited to, the customer's willingness,
need and financial ability to purchase home furnishings and related items,
the Company's ability to extend credit to its customers, the costs and
effectiveness of promotional activities as well as the Company's access to,
and cost of, capital. Other factors such as changes in tax laws,
recessionary or expansive trends in the Company's markets, inflation rates
and regulations and laws which affect the Company's ability to do business in
its markets may also impact the outcome of forward-looking statements.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits. See INDEX TO EXHIBITS
(b) There were two Current Reports on Form 8-k filed during the
quarter ended November 30, 1996. On September 11, 1996, the
Company filed a Form 8-K in which it reported, under Item 5,
that the Company and its wholly-owned subsidiary MacSaver
Financial Services, Inc. had issued $200 million of debt
securities. The Form 8-K included certain agreements and
indentures related to this transaction. On September 25,
1996, the Company filed a Form 8-K in which it reported,
under item 5, the execution of an Agreement and Plan of
Merger, dated as of September 17, 1996 among Rhodes, Inc.,
Heilig-Meyers and its wholly-owned subsidiary HM Merger
Subsidiary, Inc.
<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: January , 1996
Joseph R. Jenkins
Executive Vice President
Principal Financial Officer
Date: January , 1996
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 Nine Months Ended
November 30, November 30, November 30, November 30,
1996 1995 1996 1995
Primary Earnings Per Share:
Average number of
shares outstanding 48,623 48,555 48,571 48,554
Net effect of stock
options 369 1,044 841 1,140
Average number of
shares as adjusted 48,992 49,599 49,412 49,694
Net earnings $9,492 $ 8,757 $29,609 $38,544
Per share amount $ .19 $ .18 $ .60 $ .78
Fully Diluted Earnings Per Share:
Average number of
shares outstanding 48,623 48,554 48,571 48,554
Net effect of stock
options 369 1,044 855 1,195
Average number of
shares as adjusted 48,992 49,599 49,427 49,749
Net earnings $9,492 $ 8,757 $29,609 $38,544
Per share amount $ .19 $ .18 $ .60 $ .77
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, 1996 were not included in the earnings per share calculation.
<page 14>
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<CASH> 9858000
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<RECEIVABLES> 709907000
<ALLOWANCES> 92476000
<INVENTORY> 345953000
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<CURRENT-LIABILITIES> 477967000
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0
0
<COMMON> 97246000
<OTHER-SE> 441909000
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<TOTAL-REVENUES> 1114912000
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