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, 1997 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.)
12560 West Creek Parkway, Richmond, Virginia 23238 .
- -------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(804) 784-7300 .
- -------------------------------------------------------------------
(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, 1998.
57,051,296 shares of Common Stock, $2.00 par value.
<PAGE>
HEILIG-MEYERS COMPANY
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Operations for
Three and Nine Months Ended November 30, 1997
and November 30, 1996 (Unaudited) 3
Consolidated Balance Sheets as of November 30, 1997
(Unaudited), and February 28, 1997 (Audited) 4
Consolidated Statements of Cash Flows for
Nine Months Ended November 30, 1997 and
November 30, 1996 (Unaudited) 5
Notes to Consolidated Financial Statements (Unaudited) 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 6. Exhibits and Reports on Form 8-K 16
2
<PAGE>
PART I
ITEM 1. FINANCIAL STATEMENTS
HEILIG-MEYERS COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands except per share data)
(Unaudited)
Three Months Ended Nine Months Ended
November 30, November 30,
------------ ------------
1997 1996 1997 1996
---- ---- ---- ----
Revenues:
Sales $602,004 $351,725 $1,606,205 $ 939,406
Other income 76,464 61,749 228,799 175,506
--------- -------- ---------- ---------
Total revenues 678,468 413,474 1,835,004 1,114,912
--------- -------- ---------- ---------
Costs and Expenses:
Costs of sales 399,208 228,111 1,063,151 613,032
Selling, general and
administrative 233,566 135,808 613,367 362,445
Interest 16,494 11,850 48,023 33,415
Provision for doubtful
accounts 104,667 23,004 149,528 60,027
--------- -------- ---------- ---------
Total costs
and expenses 753,935 398,773 1,874,069 1,068,919
--------- -------- ---------- ---------
Earnings (loss) before
provision for income taxes (75,467) 14,701 (39,065) 45,993
Provision (benefit)
for income taxes (26,345) 5,209 (12,983) 16,384
--------- ------- ---------- --------
Net earnings (loss) $(49,122) $ 9,492 $ (26,082) $ 29,609
========= ======== =========== ========
Net earnings (loss) per
share of common stock:
Primary and fully diluted $ (0.85) $ 0.19 $ (0.46) $ 0.60
========= ======== =========== ========
Cash dividends per share of
common stock $ 0.07 $ 0.07 $ 0.21 $ 0.21
========= ======== =========== ========
See notes to consolidated financial statements.
3
<PAGE>
HEILIG-MEYERS COMPANY
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands except par value data)
November 30, February 28,
1997 1997
---- ----
(Unaudited) (Audited)
ASSETS
Current assets:
Cash $ 17,370 $ 14,959
Accounts receivable, net 646,964 596,959
Inventories 513,599 433,277
Other current assets 142,846 88,862
---------- ----------
Total current assets 1,320,779 1,134,057
Property and equipment, net 396,778 366,749
Other assets 53,146 42,262
Excess costs over net assets acquired, net 350,878 294,090
---------- ----------
$2,121,581 $1,837,158
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 252,900 $ 156,000
Long-term debt due within
one year 22,222 100,413
Accounts payable 229,880 160,857
Accrued expenses 204,062 166,650
---------- ----------
Total current liabilities 709,064 583,920
---------- ----------
Long-term debt 715,345 561,489
Deferred income taxes 50,098 49,128
Stockholders' equity:
Preferred stock, $10 par value --- ---
Common stock, $2 par value (250,000
shares authorized; shares issued
56,787 and 54,414, respectively) 113,573 108,828
Capital in excess of par value 234,686 195,352
Unrealized gain on investments 9,367 10,797
Retained earnings 289,448 327,644
---------- ----------
Total stockholders' equity 647,074 642,621
---------- ----------
$2,121,581 $1,837,158
========== ==========
See notes to consolidated financial statements.
4
<PAGE>
HEILIG-MEYERS COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
Nine Months Ended
November 30,
-----------------
1997 1996
---- ----
Cash flows from operating activities:
Net earnings (loss) $ (26,082) $ 29,609
Adjustments to reconcile net
earnings (loss) to net cash used
by operating activities:
Depreciation and amortization 39,451 24,073
Provision for doubtful accounts 149,528 60,027
Other, net 3,023 406
Change in operating assets and
liabilities net of the effects
of acquisitions:
Accounts receivable (197,606) (161,199)
Other receivables (56,895) 249
Inventories (71,816) (32,164)
Prepaid expenses 517 (4,965)
Accounts payable 46,604 33,859
Accrued expenses 28,298 27,276
--------- ---------
Net cash used by
operating activities (84,978) (22,829)
--------- ---------
Cash flows from investing activities:
Acquisitions, net of cash acquired (10,826) (52,979)
Additions to property and equipment (59,463) (53,321)
Disposals of property and equipment 8,035 980
Miscellaneous investments (11,097) (9,139)
--------- ---------
Net cash used by investing
activities (73,351) (114,459)
--------- ---------
Cash flows from financing activities:
Net increase (decrease)
in notes payable 96,900 (36,250)
Proceeds from long-term debt 174,767 199,612
Payments of long-term debt (99,789) (22,666)
Issuance of common stock 976 709
Dividends paid (12,114) (10,276)
--------- ---------
Net cash provided
by financing activities 160,740 131,129
Net increase (decrease) in cash 2,411 (6,159)
Cash at beginning of period 14,959 16,017
--------- ---------
Cash at end of period $ 17,370 $ 9,858
========= =========
See notes to consolidated financial statements.
5
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. The accompanying consolidated financial statements of Heilig- Meyers
Company (the Company) have not been audited by independent accountants,
except for the balance sheet at February 28, 1997. 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
1997 Annual Report on Form 10-K. The results for the third quarter of
fiscal year 1998 are not necessarily indicative of future financial
results.
B. On October 15, 1997, the Board of Directors declared a cash dividend of
$0.07 per share which was paid on November 22, 1997, to stockholders of
record on November 5, 1997.
C. Accounts receivable are shown net of the allowance for doubtful accounts
and unearned finance income. The allowance for doubtful accounts was
$113,166,000 and $41,120,000 and unearned finance income was $59,576,000
and $44,356,000 at November 30, 1997, and February 28, 1997, respectively.
D. The Company made income tax payments of $108,000 and $16,204,000 during the
three months ended November 30, 1997, and November 30, 1996, respectively.
E. The Company made interest payments of $7,749,000 and $7,748,000 during the
three months ended November 30, 1997, and November 30, 1996, respectively.
F. On July 1, 1997, the Company acquired all of the outstanding capital stock
of Mattress Discounters Corporation and a related corporation ("Mattress
Discounters"). The Company issued 2,269,839 shares of common stock and
placed 264,550 shares of common stock in escrow to be released to the
former shareholders of Mattress Discounters if the acquired stores meet
certain earnings targets in the twelve months following the acquisition.
G. MacSaver Financial Services, Inc. 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 Company. The Company has not presented separate
financial statements and other disclosures concerning MacSaver because
management has determined that such information is not material to the
holders of the MacSaver debt securities guaranteed by the Company. However,
as required by the 1934 Act, the summarized financial information
concerning MacSaver Financial Services is as follows:
6
<PAGE>
MacSaver Financial Services
Summarized Statements of Operations
(Amounts in thousands)
(Unaudited) (Unaudited)
Three Months Ended Nine Months Ended
November 30, November 30,
1997 1996 1997 1996
--------- ------- --------- --------
Net revenues $ 66,787 $39,521 $189,752 $114,242
Operating expenses 120,369 26,347 228,702 76,162
--------- ------- --------- --------
Earnings (loss)
before taxes (53,582) 13,174 (38,950) 38,080
--------- ------- --------- --------
Net earnings (loss) $(34,828) $ 8,563 $(25,317) $ 24,752
========= ======= ========= ========
MacSaver Financial Services
Summarized Balance Sheets
(Amounts in thousands)
November 30, February 28,
1997 1997
---------- ----------
(Unaudited) (Audited)
Current assets $ 50,496 $ 36,401
Accounts receivable, net 552,026 454,774
Due to affiliates 551,149 504,763
---------- ----------
Total Assets $1,153,671 $ 995,938
========== ==========
Current liabilities $ 61,501 $ 128,921
Long-term debt 700,000 545,000
Notes payable 252,900 156,000
Stockholder's equity 139,270 166,017
---------- ----------
Total Liabilities and Equity $1,153,671 $ 995,938
========== ==========
H. In February 1997, the Financial Accounting Standards Board (FASB)issued
Statement of Financial Accounting Standards (SFAS) No. 128 on "Earnings per
Share". The Statement changes the computation, presentation and disclosure
requirements for earnings per share in financial statements for periods
ending after December 15, 1997. Basic earnings per share will not include
stock options as common stock equivalents and may, therefore, be higher
than previously reported primary earnings per share. Diluted earnings per
share will equal previously reported primary earnings per share under the
Company's current capital structure. Pro forma disclosure of basic EPS and
diluted EPS for the current reporting period and comparable period in the
prior year is as follows (in thousands except per share data):
(Unaudited) (Unaudited)
Three Months Ended Nine Months Ended
November 30, November 30,
1997 1996 1997 1996
------------------ ---------------
Average shares outstanding
(basic earnings per share) 56,786 48,623 55,730 48,571
Stock option equivalents 651 369 800 841
Contingently issuable shares
considered outstanding 127 0 42 0
Average shares and
equivalents 57,564 48,992 56,572 49,412
(diluted earnings per share)
Basic EPS $(0.87) $0.20 $(0.47) $0.61
Diluted EPS $(0.85) $0.19 $(0.46) $0.60
7
<PAGE>
I. In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information," which will be effective for the
Company's fiscal year ended February 28, 1999. SFAS No. 131 redefines how
operating segments are determined and requires disclosure of certain
financial and descriptive information about a company's operating segments.
Management has not yet completed its analysis of which operating segments
it will report on.
J. On December 17, 1997, the Company announced a profit improvement plan. The
plan has three main components: (1) expense reductions; (2) restructuring
of certain aspects of the business; and (3) Heilig-Meyers store operating
initiatives. The plan resulted from a comprehensive review of Company
operations. As a result of this review, the plan calls for the closing of
approximately 60 Heilig-Meyers stores, downsizing and consolidation of
non-store office and support facilities, a reorganization of the
Heilig-Meyers private label credit card program, and the development of
operating initiatives to improve the performance of the Heilig-Meyers
stores.
The majority of the stores to be closed are located in larger markets where
it is more difficult for the Heilig-Meyers small-town format to be success-
ful and where the store's location and size are not adequate for conversion
to another format. The Company expects to incur a charge of approximately
$37.4 million during the fourth quarter of fiscal 1998 related to the store
closing plan. The Company recorded charges of approximately $14.3 million
during the third quarter of fiscal 1998 to cover estimated losses from the
installment accounts serviced by these stores.
The plan also calls for cost reductions in administrative office and
distribution center facilities, primarily through personnel reductions and
consolidations. Approximately $6.5 million was charged during the third
quarter of fiscal 1998 related to these actions. The Company expects to
incur a charge of approximately $11.0 million during the fourth quarter of
fiscal 1998 primarily related to severance arrangements. The reorganization
of the Heilig-Meyers private label credit card program resulted in third
quarter charges of approximately $15.0 million. During the third quarter of
fiscal 1998, the Company incurred a $50.0 million increase in the provision
for doubtful accounts as a result of increased estimates of write-offs
within the installment account portfolio, $38.0 million of which is related
to customer accounts in bankruptcy.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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, 1997.
RESULTS OF OPERATIONS
Total revenues for the quarter rose 64.1% to $678.5 million from
$413.5 million in the prior year. Approximately $219.7 million of this increase
can be attributed to the recently acquired Rhodes, The RoomStore and Mattress
Discounters operations. Excluding Rhodes, The RoomStore and Mattress
Discounters, total revenues for the quarter increased 10.9% from the prior year
primarily as a result of an increase in the number of Heilig-Meyers operating
units. The Company incurred a loss of $49.1 million (or a loss of $0.85 per
share) compared to earnings of $9.5 million (or earnings of $0.19 per share) in
the prior year. The Company incurred a loss of $26.1 million (or a loss of $0.46
per share) for the nine months ended November 30, 1997 compared to earnings of
$29.6 million (or earnings of $0.60 per share) in the prior year period. The
loss resulted primarily from the increase in the provision for doubtful accounts
as discussed in the profit improvement plan section below.
Sales for the third quarter of fiscal 1998 increased 71.2% to $602.0
million from $351.7 million in the third quarter of the prior year. For the nine
month period ended November 30, 1997, sales increased 71.0% to $1,606.2 million
from $939.4 million. Approximately $212.8 million and $515.6 million of this
increase resulted from the recently acquired Rhodes, The RoomStore and Mattress
Discounters operations for the third quarter and the nine months ended November
30, 1997, respectively. Excluding Rhodes, The RoomStore and Mattress
Discounters, total sales for the three and nine months ended November 30, 1997
increased 10.6% and 16.1%, respectively, from the prior year. The remaining
increase in sales for both periods was primarily attributable to an increase in
Heilig-Meyers operating units from November 30, 1996 to November 30, 1997, and a
comparable store sales increase of 1.8% and 2.7% for the three and nine months
ended November 30, 1997, respectively.
Through acquisitions, the Company now has five retail formats targeting
a wide range of markets. Sales for these formats were as follows:
Three Months Ended Nine months ended
November 30, 1997 November 30, 1997
------------------ -----------------
(Sales amounts in millions)
# of % of % of
Stores Sales Total Sales Total
------ ----- ----- ----- -----
Heilig-Meyers 864 $353.3 58.7 $ 999.6 62.2
Berrios 32 35.9 6.0 90.9 5.7
Rhodes 100 138.5 23.0 361.2 22.5
The RoomStore 23 27.2 4.5 71.4 4.4
Mattress Discounters 171 47.1 7.8 83.1 5.2
----- ------ ----- -------- -----
Total 1,190 $602.0 100.0 $1,606.2 100.0
===== ====== ===== ======== =====
Price changes had an immaterial impact on the overall sales increase
for the quarter. Management believes the consumer demand for home furnishings
9
<PAGE>
remained relatively unchanged from the prior year quarter and that demand is
impacted by the high level of consumer debt.
As a percentage of sales, other income decreased during the third quarter
to 12.7% from 17.6% in the prior year quarter. For the nine months ended
November 30, 1997, other income decreased as a percentage of sales to 14.2% from
18.7% in the prior year. This decrease is primarily the result of the effect of
Rhodes, The RoomStore and Mattress Discounters operations, as these stores'
credit programs are maintained by a third party and, unlike the Heilig-Meyers
in-house program, do not produce finance income for the Company. Excluding the
results of Rhodes, The RoomStore and Mattress Discounters, other income
increased 0.4% of sales for the three months and was unchanged as a percentage
of sales for the nine months ended November 30, 1997.
The Company offers third party private label credit card programs to
customers of Rhodes and The RoomStore locations. The Company plans to continue
its program of periodically securitizing a portion of the installment accounts
receivable portfolio of its other stores. Proceeds from securitized accounts
receivable are generally used by the Company to lower debt levels. Net servicing
income related to securitized receivables which have been sold to third parties
are included in other income.
Costs and Expenses
Costs of sales increased during the quarter to 66.3% of sales from
64.9% in the prior year quarter. For the nine month period ended November 30,
1997, costs of sales were 66.2% of sales as compared to 65.3% in the prior year.
These increases are the result of the liquidation of merchandise associated with
acquisitions, lower raw selling margins in the Heilig-Meyers stores, and reduced
leverage on distribution and occupancy costs, as a result of lower than expected
same store sales.
Selling, general and administrative expenses increased as a percentage of
sales to 38.8% from 38.6% in the prior year quarter. An increase in salaries and
related expenses as a percentage of sales from the prior year quarter was
partially offset by the leverage gained on the sales by acquired units discussed
below. For the nine month period ended November 30, 1997, selling, general and
administrative expenses were 38.2% compared to 38.6% in the prior year. The
decrease between years was the result of leverage gained on the sales at the
Rhodes, The RoomStore and Mattress Discounters units. Compared to the prior year
period, the addition of these units has resulted in a lower administrative cost
structure generally due to the use of third-party credit providers. However, the
decrease between periods caused by the Rhodes, The RoomStore and Mattress
Discounters leverage was somewhat offset by a higher level of administrative
salaries within the Heilig-Meyers stores. Management is instituting a profit
improvement plan, discussed further below, which includes the objective of
reducing certain selling, general and administrative expenses in future periods.
Interest expense decreased to 2.7% of sales in the third quarter of fiscal
1998 from 3.4% of sales in the third quarter of the prior year. The decrease is
mainly due to leverage on the sales by Rhodes, The RoomStore and Mattress
Discounters, which were purchased with common stock. For the quarter, weighted
average long-term debt increased to $722.6 million from $550.9 million in the
prior year third quarter. The Company issued $175 million in public debt during
the second quarter. The Company also issued approximately $300 million in public
debt in the last half of fiscal 1997 as part of the financing strategy discussed
below. Weighted average long-term interest rates for the third quarter decreased
to 7.7%, compared to 7.8% during the prior year period. Weighted average
short-term debt increased to $220.8 million from $106.8 million in the prior
10
<PAGE>
year third quarter. Weighted average short-term interest rates increased to 6.0%
from 5.8% in the prior year. For the nine months ended November 30, 1997,
interest expense decreased to 3.0% of sales from 3.6% from the prior year
period. Previous actions by the Company have created a higher percentage of
long-term fixed rate debt, which is designed to minimize the Company's exposure
to significant changes in short-term interest rates.
The provision for doubtful accounts increased in the third quarter
ended November 30, 1997, as a percentage of sales, to 17.4% from 6.5% in the
prior year quarter. The provision for doubtful accounts increased to $104.7
million in the current third quarter from $23.0 million in the prior year
quarter. For the nine months ended November 30, 1997, the provision increased to
9.3% from 6.4% in the prior year. For the nine months ended November 30, 1997,
the provision for doubtful accounts was $149.5 million compared to $60.0 million
in the prior year nine month period. In response to the current credit
environment characterized by increased delinquencies and higher bankruptcies,
the Company has adjusted its estimates of write-offs, increasing the provision
for doubtful accounts an additional $50.0 million (or $0.56 per share and 8.3%
of sales) in the third quarter. The Company also recorded an additional $14.3
million related to estimated losses on installment accounts serviced by stores
that will be closed as part of the profit improvement plan. In addition, a $15.0
million charge was recorded as a result of the Company's plan to reorganize its
private label credit card program. The increase as a percentage of sales was
slightly offset by the operations of Rhodes, The RoomStore and Mattress
Discounters as these units primarily use third-party credit providers and,
accordingly, do not record significant provisions for doubtful accounts.
Excluding the effect of Rhodes, The RoomStore and Mattress Discounters, the
provision was 26.9% and 13.7% of sales for the third quarter and for the nine
months ended November 30, 1997, respectively.
The income tax benefit for the third quarter of fiscal 1998 was calculated
by applying a percentage of 34.9%. For the nine months ended November 30, 1997,
the income tax benefit was calculated by applying a percentage of 33.2%. For the
third quarter of fiscal 1997 and the nine months ended November 30, 1996 the
effective income tax rate was 35.4% and 35.6%, respectively. The decrease for
the three and nine months is due to the impact of the loss incurred during the
third quarter of fiscal 1998, offset by the higher effective tax rates of the
recently acquired operating subsidiaries. The higher rates result from the
carryover tax attributes of acquired assets and liabilities.
LIQUIDITY AND CAPITAL RESOURCES
The Company increased its cash position $2.4 million to $17.4 million at
November 30, 1997, from $15.0 million at February 28, 1997, compared to a
decrease of $6.2 million in the comparable period a year ago.
Net cash outflow from operating activities was $85.0 million, compared to
a net cash outflow of $22.8 million in the comparable period of the prior year.
As the Company has expanded its store base, cash flows used for investing
activities exceeded cash provided by operating activities for the first nine
months of fiscal years 1998 and 1997. The Company traditionally produces minimal
or negative cash flow from operating activities because it extends in-house
credit in its Heilig-Meyers and Berrios stores. During the nine months ended
November 30, 1997, inventory levels increased at a higher rate than the prior
year period primarily due to the stocking of line-up inventory in the recently
acquired stores in order to support the merchandising plan. There was a related
increase in the Company's accounts payable as a result of the higher levels of
inventory purchases. Continued extension of credit and related increases in
11
<PAGE>
customer accounts receivable will likely produce minimal or negative cash flow
from operations in the upcoming fiscal 1998 quarters. However, the Company
periodically sells accounts receivable as a source of liquidity, providing
additional positive cash flows from operating activities. The Company also saw
an increase in income tax benefits as a result of the losses recorded during the
quarter.
Investing activities produced negative cash flows of $73.4 million during
the nine months ended November 30, 1997 compared to negative cash flows of
$114.5 million in the prior year period. The change in cash flows from investing
activities is primarily due to a decrease in acquisitions from prior year. The
purchase of 20 stores of J. McMahan's of Santa Monica, CA and the 23 stores of
Self-Service Furniture Company of Spokane, WA occurred in the prior year third
quarter. Capital expenditures will continue to be financed by cash flows from
operations and external sources of funds. See the discussion concerning the
Company's future expansion plans under "Profit Improvement Plan" below.
Financing activities produced positive cash flows of $160.7 million during
the nine months ended November 30, 1997 compared to a $131.1 million positive
cash flow in the prior year period. The positive cash flow from financing
activities in both the current and prior year quarters was due to an increase in
long-term debt. There has also been an increase in short-term notes payable in
the current period. On June 24, 1997, the Company and a wholly-owned subsidiary
filed a joint Registration Statement on Form S-3 with the Securities and
Exchange Commission relating to up to $400.0 million aggregate principal amount
of securities. As of November 30, 1997, long-term notes payable with an
aggregate principal amount of $175.0 million have been issued to the public and
are outstanding under this facility. As of November 30, 1997, the Company had a
$400.0 million revolving credit facility in place which expires in July 2000.
This facility includes fourteen banks and had $215.0 million outstanding and
$185.0 million unused as of November 30, 1997. The Company also had additional
lines of credit with banks totaling $60.0 million of which $37.9 million was
unused as of November 30, 1997.
As a result of charges recorded in the current quarter and those
expected to be incurred in the fourth quarter under the profit improvement plan,
the Company obtained amendments to its bank debt agreements in order to maintain
covenant compliance. In addition, certain provisions of the Company's bond
indenture restrict the Company's ability to incur long-term debt for up to
fifteen months as a result of these charges. However, management believes that
the Company has adequate access to capital to finance accounts receivable,
inventories and other capital needs during this period.
Total debt as a percentage of debt and equity was 60.5% at November 30,
1997, compared to 56.0% at February 28, 1997. The current ratio remained
relatively flat at 1.9X as of November 30, 1997, compared to February 28, 1997.
The increase in total debt as a percentage of debt and equity from February 28,
1997 to November 30, 1997 is primarily attributed to the issuance of $175
million of long-term notes payable as well as the increase in short-term notes
payable during the period. The issuance was somewhat offset by the payment on
the maturity of long-term notes. The current period loss, which reduced retained
earnings, also resulted in the increase of total debt as a percentage of debt
and equity.
12
<PAGE>
OTHER INFORMATION
Profit Improvement Plan
On December 17, 1997, the Company announced a profit improvement plan.
The plan has three main components: (1) expense reductions; (2) restructuring of
certain aspects of the business; and (3) Heilig-Meyers store operating
initiatives. The plan resulted from a comprehensive review of Company
operations. As a result of this review, the plan calls for the closing of
approximately 60 Heilig-Meyers stores, downsizing and consolidation of non-store
office and support facilities, a reorganization of the Heilig-Meyers private
label credit card program, and the development of operating initiatives to
improve the performance of the Heilig-Meyers stores.
The majority of the stores to be closed are located in larger markets
where it is more difficult for the Heilig-Meyers small-town format to be
successful and where the store's location and size are not adequate for
conversion to another format. The Company expects to incur a charge of
approximately $37.4 million during the fourth quarter of fiscal 1998 related to
the store closing plan. The Company recorded charges of approximately $14.3
million during the third quarter of fiscal 1998 to cover estimated losses from
the installment accounts serviced by these stores.
The plan also calls for cost reductions in administrative office
and distribution center facilities, primarily through personnel reductions and
consolidations. Approximately $6.5 million was charged during the third quarter
of fiscal 1998 related to these actions. The Company expects to incur a charge
of approximately $11.0 million during the fourth quarter of fiscal 1998
primarily related to severance arrangements. The reorganization of the
Heilig-Meyers private label credit card program resulted in third quarter
charges of approximately $15.0 million.
The core store operating initiatives include a plan to significantly
slow the growth of the Heilig-Meyers stores over the next year to allow for the
maturation of the recent store additions. Approximately 20 to 30 stores will be
relocated to higher-traffic areas. The initiatives also call for adjustments to
the merchandising and advertising strategies based on the remaining markets and
the strengthening of the inventory management programs. While management plans
to slow growth in the Heilig-Meyers division, it expects to pursue opportunities
in the Company's other formats. These opportunities will be in the formats which
are less capital intensive and are currently operating at higher levels of
return than the Heilig-Meyers division. The Company plans to adopt a rigorous
capital allocation process under which all expansion and capital projects will
be subjected to stringent return on investment criteria.
During the third quarter of fiscal 1998, the Company incurred a $50.0
million increase in the provision for doubtful accounts as a result of increased
estimates of write-offs within the installment account portfolio, $38.0 million
of which is related to customer accounts in bankruptcy. The Company plans to add
consumer credit expertise to the senior management team and to further develop
risk profiling, bankruptcy scoring and risk based pricing models for the
installment program.
The Company anticipates that the majority of the reserves related to
this plan will be utilized during the fourth quarter of fiscal 1998 and first
quarter of fiscal 1999 as elements of the plan are completed. Amounts related to
long-term property and lease commitments will continue to be utilized subsequent
to this time period. The overall cash impact of the plan is expected to be
positive as cash received from the sale of certain assets and from income tax
benefits is expected to significantly exceed cash expenditures which will
consist primarily of employee severance and payments under lease obligations.
13
<PAGE>
Year 2000 Issue
During fiscal year 1997, management established a team to oversee the
Company's year 2000 date conversion project. After conducting its assessment of
all systems, management implemented a plan of corrective action using both
internal and external resources to enhance the systems for Year 2000 compliance.
Management expects to complete the project during fiscal year 1999, and does not
anticipate the amounts required to be expensed as part of the corrective plan to
have a material effect on the Company's financial position or results of
operations. The team is communicating with other companies on which the
Company's systems rely and is planning to obtain compliance letters from these
entities. However, there can be no assurance that the systems of these other
companies will be converted in a timely manner or that any such failure to
convert by another company would not have an adverse effect on the Company's
systems. Management believes the Year 2000 compliance issue is being addressed
properly by the Company to prevent any material adverse operational or financial
impacts. However, if such enhancements are not completed timely, the Year 2000
issue may have a material adverse impact on the operations of the Company.
Expansion
On January 2, 1998, the Company acquired Bedding Experts, a
privately held bedding retailer based in Chicago, Illinois. The acquisition was
accounted for as a pooling of interests and was accomplished through the
issuance of approximately 2,019,000 shares of common stock. Bedding Experts had
revenues of approximately $40.0 million for its fiscal year ended 12/31/96. As
of January 2, 1998, Bedding Experts had 54 stores in the Chicago area.
On July 1, 1997, the Company acquired Mattress Discounters, a privately
held bedding retailer and manufacturer based in Upper Marlboro, Maryland. The
acquisition was accounted for as a purchase and was accomplished through the
issuance of 2,269,839 shares of common stock. In addition, 264,550 shares of
common stock were placed in escrow to be paid to the former shareholders of
Mattress Discounters if
the acquired stores meet certain earnings targets in the twelve months
subsequent to the acquisition.
FORWARD-LOOKING STATEMENTS
Certain statements included above are not based on historical facts,
but are forward-looking statements. These statements can be identified by the
use of forward-looking terminology such as "believes," "expects," "may," "will,"
"should," or "anticipates" or the negative thereof or other variations thereon
or comparable terminology, or by discussions of strategy. These statements
reflect the Company's reasonable judgments 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, the Company's ability to realize cost savings and
other synergies from recent acquisitions as well as the Company's access to, and
cost of, capital. Other factors such as changes in consumer debt and bankruptcy
trends 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.
14
<PAGE>
PART II
Item 1. Legal Proceedings
The Company previously reported involvement in certain cases regarding
non-filing fees charged by the Company on certain credit transactions in the
Company's Annual Report on Form 10-K for the fiscal year ended February 28, 1997
and the Company's quarterly reports on Form 10-Q for the quarters ended May 31,
1997 and August 31, 1997. Among the cases reported were the following cases
pending in United States District Court: Kirby et al v. Heilig-Meyers Furniture
Company and Heilig-Meyers Company (Middle District of Alabama), Faulkner v.
Heilig-Meyers Company (Northern District of Illinois), Eubanks v. Heilig-Meyers
Company and Heilig-Meyers Furniture Company (Southern District of Georgia), and
Via v. Heilig-Meyers Company and Heilig-Meyers Furniture Company (Western
District of Virginia). On December 3, 1997, Faulkner was transferred to the
United States District Court for the Middle District of Alabama and consolidated
with Kirby. On July 7, 1997, Eubanks was remanded to the Superior Court of
Liberty County, Georgia. On October 29, 1997, the Court in Via granted the
Company's motion for summary judgment.
15
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits. See INDEX TO EXHIBITS
(b) The Company filed no reports on Form 8-K for the
quarter ended November 30, 1997.
INDEX TO EXHIBITS
Page
3. Articles of Incorporation
a. Registrant's Bylaws as Amended and
Restated December 3, 1997 18
10. a. Amendment No. 4 to the $400,000,000 Credit
Agreement dated July 18, 1995 among MacSaver
Financial Services, Inc., as Borrower; the
Registrant, as Guarantor; and Wachovia Bank of
Georgia, N.A., as Administrative Agent. 24
11. Computation of Per Share Earnings 27
27. Financial Data Schedule 28
16
<PAGE>
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 13, 1998 /s/Roy B. Goodman
---------------- -----------------
Roy B. Goodman
Senior Vice President and
Principal Financial Officer
Date: January 13, 1998 /s/William J. Dieter
---------------- --------------------
William J. Dieter
Senior Vice President,
Accounting and Principal
Accounting Officer
17
EXHIBIT 3.a.
BY-LAWS
OF
HEILIG-MEYERS COMPANY
AS AMENDED AND RESTATED
DECEMBER 3, 1997
ARTICLE 1 - OFFICES
A. The principal office of the Corporation shall be at 12560 West Creek Parkway,
Richmond, Virginia. The Corporation may also have offices at such other places,
within or without the State of Virginia, as the Board of Directors may, from
time to time, appoint, or the business of the Corporation may require.
B. The registered office of the Corporation shall be its initial registered off-
ice as shown in the Articles of Incorporation or at such other place in Virginia
as the Board of Directors shall, from time to time, appoint, and may, but need
not, be at the principal office of the Corporation.
ARTICLE II - STOCK AND OTHER SECURITIES
A. Certificates of Stock shall be in such form as is required by law and
approved by the Board of Directors. Each stockholder shall be entitled to a
certificate signed by either the Chairman of the Board and Chief Executive
Officer or a Vice President, and by either the Treasurer or an Assistant
Treasurer or the Secretary or an Assistant Secretary or any other officer
authorized by resolution of the Board of Directors. Each certificate may (but
need not) be sealed with the seal of the Corporation or a facsimile thereof.
B. The signatures of the officers upon a stock certificate, bond, note or
debenture issued by the Corporation may be facsimiles if such stock certificate
is countersigned by a transfer agent or registered by a registrar,other than the
Corporation itself or an employee of the Corporation, or if such bond, note or
debenture is countersigned or otherwise authenticated by the signature of a
trustee. If any officer who has signed, or whose facsimile signature has been
placed upon, a stock certificate, bond, note or debenture, shall have ceased to
be such officer before such certificate, bond, note or debenture is issued, it
may be issued by the Corporation with the same effect as if he were such officer
at the date of its issue.
C. Only stockholders of record on the stock transfer books of the Corporation
shall be entitled to be treated by the Corporation as the holders of the stock
standing in their respective names, and except to the extent, if any, required
by law, the Corporation shall not be obligated to recognize any equitable or
other claim to, or interest in, any share on the part of any other person,
whether or not it shall have express or other notice thereof.
D. Transfers of stock shall be made on the stock transfer books only upon
surrender of the certificate therefor, endorsed or accompanied by a written
assignment signed by the holder of record or by his duly authorized
attorney-in-fact. The Board of Directors may, from time to time, make reasonable
regulations governing transfers of stock and other securities. No share shall be
transferred, unless otherwise required by law, if such transfer would violate
the terms of any written agreement to which the Corporation, and either the
transferor or transferee, is a party.
E. In case of the loss, mutilation or destruction of a stock certificate, bond,
note or debenture, a duplicate may be issued upon such terms, and bearing such
legend, if any, as the Board of Directors may lawfully prescribe.
18
<PAGE>
ARTICLE III - STOCKHOLDERS' MEETING
A. Meetings of the stockholders shall be held at the principal office of the
Corporation, or at such other place, within or without the State of Virginia, as
the Board of Directors may designate from time to time. At least ten (10) days
before each meeting, a complete list of the stockholders entitled to vote at
such meeting, or any adjournment thereof, with the address and number of shares
held by each, shall be prepared, kept on file subject to inspection by any
stockholder during regular business hours, at the principal office of the
Corporation or its registered office or the office of its transfer agent or
registrar.
B. The annual meeting of the stockholders shall be held on the second Wednesday
of July of each year (and if such day is a legal holiday, on the next business
day) or such other date as may be set by the Board of Directors, for the purpose
of electing Directors and transacting such other business as may properly come
before the meeting.
C. Special meetings of the stockholders may be called by the Chairman of the
Board and Chief Executive Officer, the President, the Secretary or the Board of
Directors.
D. Written notice stating the place, day and hour of the meeting, and, in the
case of a special meeting (or required by law or the Articles of Incorporation
or these By-Laws), the purpose or purposes for which the meeting was called,
shall be given to each stockholder entitled to vote at such meeting. Such notice
shall be given either personally or by mail, by or at the direction of the
officer or other person or persons calling the meeting not more than sixty (60)
days nor less than ten (10) days before the date of the meeting (except that
such notice shall be given not less than twenty-five (25) days before a meeting
called to act on a plan of merger of consolidation, or on proposal to amend the
Articles of Incorporation or to reduce stated capital, or to sell,, lease,
exchange, mortgage or pledge for a consideration other than money, all or
substantially all the property or assets of the Corporation, if not in the usual
and regular course of its business and such notice shall be accompanied by a
copy of any proposed amendment or plan of reduction, merger or consolidation).
Notice to a stockholder shall be deemed given when deposited in the United
States mail, with postage prepaid, addressed to the stockholder at his address
as it appears on the stock transfer books of the Corporation. Any stockholder
who attends a meeting shall be deemed to have had timely and proper notice of
the meeting, unless the attends for the express purpose of objecting to the
transaction of any business because the meeting is not lawfully called or
convened.
E. Notice of any meeting may be waived, and any action may be taken by the
stockholders without a meeting if a consent in writing, setting forth the action
to be taken, shall be signed by all the stockholders entitled to vote thereon,
in accordance with the Virginia Stock Corporation Act.
F. The stock transfer books may be closed by order of the Board of Directors for
not more than seventy (70) days for the purpose of determining stockholders
entitled to notice of, or to vote at, any meeting of the stockholders or any
adjournment thereof (or entitled to receive payment of any dividend, or in order
to make a determination of stockholders for any other purpose). In lieu of
closing such books, the Board of Directors may fix in advance, as the record
date for any such determination, a date not more than seventy (70) days before
the date on which such meeting is to be held (or such payment is to be made, or
other action requiring such determination is to be taken). If the books are not
thus closed or the record date is not thus fixed, then the date on which the
notice of the meeting was mailed (or on which such dividend is declared or such
other action approved by the Board of Directors) shall be the record date.
G. The Chairman of the Board and Chief Executive Officer or the President shall
preside as Chairman over the meetings of stockholders. If neither the Chairman
of the Board and Chief Executive Officer nor the President is present, the
meeting shall elect a chairman. The Secretary, or, in his absence, an Assistant
19
<PAGE>
Secretary, shall act as Secretary of such meeting. If no such officer is
present, the chairman shall appoint the Secretary of the meeting.
H. One or more inspectors of election may be appointed by the Board of Directors
before each meeting of the stockholders; and if no such appointment has been
made, or if any inspector thus appointed shall not be present, the Chairman may,
and if requested by stockholders holding in the aggregate at least one-fifth
(1/5) of the stock entitled to vote at the meeting shall, appoint such an
inspector or inspectors to determine the qualifications of voters, the validity
of proxies and the number of shares represented at the meeting, to supervise
voting, and to ascertain the results thereof.
I. A stockholder may vote either in person or by proxy executed in writing by
the stockholder or by his duly authorized attorney-in-fact. No proxy shall be
valid after eleven (11) months from its date unless otherwise provided in the
proxy. A proxy may be revoked at any time before the shares to which it relates
are voted by written notice, which may be in the form of a substitute proxy to
the secretary of the meeting. A proxy apparently executed in the name of a
partnership or other Corporation, or by one of several fiduciaries, shall be
presumed to be valid until challenged, and the burden of proving invalidity
shall rest upon the challenger.
J. The procedure at each meeting of the stockholders shall be determined by the
Chairman of the meeting, and (subject to paragraph H of this Article III) the
vote on all questions before any meeting shall be taken in such manner as the
Chairman prescribes. However, upon the demand of stockholders holding in the
aggregate at least one-fifth (1/5) of the stock entitled to vote on any
questions, such vote shall be by ballot.
K. A quorum at any meeting of stockholders shall be a majority of the shares
entitled to vote, represented in person or by proxy. The affirmative vote of a
majority of such quorum shall be the act of the stockholders, unless a greater
vote is required by the Virginia Stock Corporation Act or the Articles of
Incorporation (except that in elections of directors, those receiving the
greatest number of votes shall be elected even though less than such a
majority). Less than a quorum may, by the vote of a majority of the shares
present and entitled to vote, adjourn the meeting to a fixed time and place,
without further notice; and if a quorum shall then be present in person or by
proxy, any business may be transacted which might have been transacted if a
quorum had been present at the meeting as originally called.
L. All committees of stockholders created at any meeting of the stockholders
shall be appointed by the Chairman of the meeting unless otherwise directed by
the meeting.
ARTICLE IV - BOARD OF DIRECTORS
A. The Board of Directors shall consist of fourteen (14) persons, none of whom
need be residents of Virginia or stockholders of the Corporation. Nominations
for the election of directors may be made by the Directors or a nominating
committee appointed by the Board of Directors or by any stockholder entitled to
vote in the election of directors. A stockholder entitled to vote in the
election of directors may nominate one or more persons for election as a
director at an annual or special meeting of stockholders only if written notice
of such stockholder's intent to make such nomination has been given, either by
personal delivery to the Secretary of the Corporation not later than the close
of business on the tenth day following the date on which notice of such meeting
is first mailed to stockholders or by Untied States mail, postage prepaid, to
the Secretary of the Corporation postmarked not later than the tenth day
following the date on which notice of such meeting is first mailed to
stockholders. Each notice required by this section shall set forth: (1) the name
and address of the stockholder who intends to make the nomination; (2) the name,
address, and principal occupation of each proposed nominee; (3) a representation
that the stockholder is entitled to vote at such meeting and intends to appear
20
<PAGE>
in person or by proxy at the meeting to nominate the person or persons specified
in the notice; and (4) the consent of each proposed nominee to serve as a
director of the Corporation if so elected. The Chairman of the meeting may
refuse to acknowledge the nomination of any person not made in compliance with
the foregoing procedure.
B. Regular meetings of the Board of Directors may be held without notice at such
time and place as the Board of Directors may designate from time to time (and,
in the absence of such designation, at the principal office of the Corporation).
A regular meeting shall be held as soon as practicable after each annual meeting
of the stockholders for the purpose of electing officers and transacting such
other business as may properly come before the meeting.
C. Special meetings of the Board of Directors may be called at any time by the
Chairman of the Board and Chief Executive Officer or by any director.
D. Notice of the time and place of each special meeting shall be given to each
director either by mail, telegraph, or written communication delivered to the
address of such director as it appears in the records of the Corporation, at
least twenty-four (24) hours before such meeting. Neither the business to be
transacted at, nor the purpose of, any meeting of the Board of Directors need be
specified in the notice or any waiver of notice of such meeting. A director who
attends a meeting shall be deemed to have had timely and proper notice thereof,
unless he attends for the express purpose of objecting to the transaction of any
business because the meeting is not lawfully called or convened.
E. Notice of any meeting may be waived, and any action may be taken by the Board
of Directors (or by any committee thereof) without a meeting if a consent in
writing, setting forth the action taken, shall be signed by all the directors
(or members of the committee, as the case may be), in accordance with the
Virginia Stock Corporation Act.
F. Each director shall be elected to hold office until the next succeeding
annual meeting, and shall hold office until his successor shall have been
elected and qualifies, or until such earlier time as he shall resign, die or be
removed. No decrease in the number of directors by amendment to these By-Laws
shall change the term of any incumbent director.
G. Any director may be removed, with or without cause, by a vote of the holders
of a majority of the number of shares entitled to vote at an election of
directors.
H. Any vacancy in the Board of Directors (including any vacancy resulting from
an increase of not more than thirty percent (30%) of the number of directors
last elected by the shareholders) may be filled by the affirmative vote of a
majority of the remaining directors, even though less than a quorum, unless
filled by the stockholders.
I. A quorum at a meeting of the Board of Directors shall be a majority of the
number of directors fixed by these By-Laws. The act of the majority of the
directors present at a meeting at which a quorum is present shall be the act of
the Board of Directors.
J. An Executive Committee consisting of at least two (2) or more directors may
be designated by a resolution adopted by a majority of the number of directors
fixed by these By-Laws. To the extent provided in such resolution, such
Executive Committee shall have and may exercise all of the authority of the
Board of Directors except as otherwise provided by the Virginia Stock
Corporation Act. Other committees with limited authority may be designated by
resolution adopted by a majority of the directors present at a meeting at which
a quorum is present. Regular meetings of any committee may be held without
notice at such time and place as shall be fixed by a majority of the committee.
Special meetings of any committee may be called at the request of the Chairman
of the Board and Chief Executive Officer or any member of the committee. Notice
of such special meetings shall be given by the Chairman of the Board and Chief
21
<PAGE>
Executive Officer or any member of any such committee, and shall be deemed duly
given, or may be waived, or action may be taken without a meeting, as provided
in paragraphs D and E of this Article IV. A majority of any such committee shall
constitute a quorum, and the act of a majority of those present at any meeting
at which a quorum is present shall be the act of the committee, unless otherwise
provided by the Board of Directors.
ARTICLE V - OFFICERS, AGENTS AND EMPLOYEES
A. The officers of the Corporation shall be a Chairman of the Board and Chief
Executive Officer, a President, a Secretary, and a Treasurer, each of whom shall
be elected by the Board of Directors at the regular meeting of the Board of
Directors to be held as soon as practicable after each annual meeting of the
stockholders, and any officer may be elected at any meeting of the Board of
Directors. Any officer may hold more than one office and he may, but need not be
a director, except that the same person may not be Chairman of the Board and
Chief Executive Officer and Secretary, and the Chairman of the Board and Chief
Executive Officer shall be a director. The Board may elect one or more Vice
Presidents and any other officers and assistant officers and may fill any
vacancies. The officers shall have such authority and perform such duties as
generally pertain to their offices and as may lawfully be provided by these
By-Laws or by resolution of the Board of Directors not inconsistent with these
By-Laws.
B. The Chairman of the Board and Chief Executive Officer shall have general
supervision over, responsibility for, and control of the other officers, agents,
and employees of the Corporation and shall preside as Chairman at meetings of
the stockholders and the directors. The Chairman of the Board and Chief
Executive Officer shall also perform such duties and shall also have such
authority as may lawfully be required of or conferred upon him by the Board of
Directors.
C. The President and each Vice President shall perform such duties and shall
have such authority as may be lawfully required of or conferred upon him by the
Chairman of the Board and Chief Executive Officer or the Board of Directors. The
President shall, during the absence, disqualification, or incapacity of the
Chairman of the Board and Chief Executive Officer, exercise all the functions
and perform all the duties of the Chairman of the Board and Chief Executive
Officer.
D. The Secretary shall, as Secretary of the meeting, record all proceedings at
stockholders' meetings and directors' meetings, in books kept for that purpose.
He shall maintain the record of stockholders of the Corporation, giving the
names and addresses of all stockholders and the number, classes and series of
the shares held by each; and, unless otherwise prescribed by the Board of
Directors, he shall maintain the stock transfer books.
E. The Treasurer shall have custody of all moneys and securities of the
Corporation. He shall deposit the same in the name and to the credit of the
Corporation in such depositories as may be designated by the Board of Directors,
disburse the funds of the Corporation as may be required, and cause books and
records of account to be kept in accordance with generally accepted accounting
practices and principles.
F. During the absence, disqualification, or incapacity of any officer of the
Corporation other than the Chairman of the Board and Chief Executive Officer,
the Chairman of the Board and Chief Executive Officer may by written order, or
the Board of Directors may by resolution, delegate the power of each such
officer to any other officer or employee of the Corporation.
G. Each officer shall be elected to hold office until the next succeeding
regular meeting of the Board of Directors to be held as soon as practicable
after each annual meeting of the stockholders, or for such longer or shorter
term as the Board of Directors may lawfully specify; and he shall hold office
until his successor shall have been elected and qualified, or until such earlier
time as he shall resign, die or be removed.
H. Any officer may be removed, with or without cause, at any time whenever the
Board of Directors in its absolute discretion shall consider that the best
22
<PAGE>
interests of the Corporation would be served thereby. Any officer or agent
appointed otherwise than by the Board of Directors may be removed with or
without cause at any time by any officer having authority to appoint such an
officer or agent, except as may be otherwise provided in these By-Laws, whenever
such officer in his absolute discretion shall consider that the best interests
of the Corporation will be served thereby. Any such removal shall be without
prejudice to the recovery of damages for breach of the contract rights, if any,
of the person removed. Election or appointment of an officer or agent shall not
of itself create contract rights.
I. Checks, drafts, notes and orders for the payment of money shall be signed by
such officer or officers or such other person or persons as the Board of
Directors may, from time to time, authorize, and any endorsement of such paper
in the ordinary course of business shall be similarly made, except that any
officer or assistant officer of the Corporation may endorse checks, drafts or
notes for collection or deposit to the credit of the Corporation. The signature
of any such officer or other person may be a facsimile when authorized by the
Board of Directors.
J. Unless otherwise provided by resolution of the Board of Directors, the
Chairman of the Board and Chief Executive Officer may, from time to time,
himself or by such proxies, attorneys, or agents of the Corporation as he shall
designate in the name and on behalf of the Corporation, cast the votes to which
the Corporation may be entitled as a stockholder or otherwise in any other
Corporation, at meetings, or consent in writing to any action by any such
Corporation. He may instruct the person or persons so appointed as to the manner
of casting such votes or giving such consent, and may execute or cause to be
executed on behalf of the Corporation and under its corporate seal, or
otherwise, such written proxies consents, waivers, or other instruments as he
may deem necessary or desirable in the premises.
ARTICLE VI - SEAL
The seal of the Corporation shall be a flat-face circular die, of which there
may be any number of counterparts or facsimiles, in such form as the Board of
Directors shall, from time to time, adopt as the corporate seal of the
Corporation.
ARTICLE VII - AMENDMENTS
These By-Laws may be repealed or changed, and new By-Laws made, by the
stockholders entitled to vote at any annual or special meeting, or by the Board
of Directors at any regular or special meeting. By-Laws made by the directors
may be repealed or changed by the stockholders; and By-Laws made by the
stockholders may be repealed or changed by the directors, except as, and to the
extent that, the stockholders prescribe that the By-Laws, or any specified
By-Law, shall not be altered, amended or repealed by the directors.
23
AMENDMENT NO. 4 EXHIBIT 10.a.
THIS AMENDMENT NO. 4 (the "Amendment") dated as of November 30, 1997,
to the Credit Agreement referenced below, is by and among MACSAVER FINANCIAL
SERVICES, INC., a Delaware corporation, (the "Borrower"), HEILIG-MEYERS COMPANY,
a Virginia corporation (the "Company"), the Lenders identified therein, WACHOVIA
BANK, N.A. (formerly, Wachovia Bank of Georgia, N.A.) as Administrative Agent,
NATIONSBANK, N.A., as Documentation Agent, and CRESTAR BANK and FIRST UNION
NATIONAL BANK (formerly, First Union National Bank of Virginia), as Co-Agents.
WITNESSETH
WHEREAS, the Lenders have established a $400 million credit facility
for the benefit of the Borrower pursuant of the terms of that Credit Agreement
dated as of July 18, 1995 (as amended and modified, the "Credit Agreement")
among the Borrower, the Company, the Lenders identified therein and Wachovia
Bank of Georgia, N.A., as Administrative Agent;
WHEREAS, the Borrower has requested that certain financial covenants be
computed without regard to a special charge to earnings of up to $135 million to
be taken in the third and fourth quarters of 1998;
WHEREAS, the modifications requested hereby require the consent of the
Required Lenders; and
WHEREAS, the Required Lenders have consented to the requested
modifications on the terms and conditions set forth herein and have authorized
the Administrative Agent to enter into this Amendment on their behalf to give
effect to this Amendment;
NOW, THEREFORE, IN CONSIDERATION of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Definitions. Terms used but not otherwise defined shall have
the meanings provided in the Credit Agreement.
2. Amendment. The definition of "Consolidated EBIT" in Section
1.1 of the Credit Agreement is amended to add the following clause at the end of
the first sentence therein:
", but excluding for purposes hereof in any event the special charge to
earnings of up to $135 million taken in the third and fourth fiscal
quarters of 1998 relating to restructuring and severance expenses."
3. The effectiveness of this Amendment is subject to receipt by the
Administrative Agent of an Amendment Fee of 5 basis points on the aggregate
amount of Commitments held by each of the Lenders consenting to this Amendment.
4. Except as modified hereby, all of the terms and provisions of
the Credit Agreement (including Schedules and Exhibits) shall remain in full
force and effect.
5. The Borrower agrees to pay all reasonable costs and expenses of the
Administrative Agent in connection with the preparation, execution and delivery
of this Amendment, including without limitation the reasonable fees and expenses
of Moore & Van Allen, PLLC.
6. This Amendment may be executed in any number of counterparts, each
of which when so executed and delivered shall be deemed an original and it shall
24
<PAGE>
not be necessary in making proof of this Amendment to produce or account for
more than one such counterpart.
7. This Amendment shall be deemed to be a contract made under, and for
all purposes shall be construed in accordance with the laws of the State of
North Carolina.
[Remainder of Page Intentionally Left Blank]
25
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart
of this Amendment to be duly executed under seal and delivered as of the date
and year first above written.
BORROWER: MACSAVER FINANCIAL SERVICES, INC.,
a Delaware corporation
By: /s/Dossi Bhaznagri
------------------
Name: Dossi Bhaznagri
Title: Vice President
COMPANY: HEILIG-MEYERS COMPANY,
a Virginia corporation
By: /s/Paige H. Wilson
------------------
Name: Paige H. Wilson
Title: Vice President, Treasurer and Secretary
ADMINISTRATIVE
AGENT: WACHOVIA BANK, N.A., as Administrative Agent
for and on behalf of the Lenders
By: /s/Charles A. Johnson
---------------------
Name: Charles A. Johnson
Title: Senior Vice President
26
HEILIG-MEYERS COMPANY
COMPUTATION OF PER SHARE EARNINGS (LOSS)
(Amounts in thousands except per share data)
Three Months Ended Nine Months Ended
November 30, November 30,
1997 1996 1997 1996
---- ---- ---- ----
Primary Earnings (Loss) Per Share:
Average number of
shares outstanding 56,786 48,623 55,730 48,571
Net effect of stock
options 651 369 800 841
Contingently issuable shares
considered outstanding 127 0 42 0
Average number of
shares as adjusted 57,564 48,992 56,572 49,412
Net earnings (loss) $(49,122) $9,492 $(26,082) $29,609
Per share amount $ (.85) $ .19 $ (.46) $ .60
Fully Diluted Earnings (Loss) Per Share:
Average number of
shares outstanding 56,786 48,623 55,730 48,571
Net effect of stock
options 651 369 816 856
Contingently issuable shares
considered outstanding 127 0 42 0
Average number of
shares as adjusted 57,564 48,992 56,588 49,427
Net earnings (loss) $(49,122) $9,492 $(26,082) $29,609
Per share amount $ (.85) $ .19 $ (.46) $ .60
Earnings (Loss) Per Common Share:
Earnings (loss) per common share is computed by dividing net earnings (loss) 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, 1997 were not included in the earnings (loss) per share
calculation.
27
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-END> NOV-30-1997
<CASH> 17370000
<SECURITIES> 0
<RECEIVABLES> 760130000
<ALLOWANCES> 113166000
<INVENTORY> 513599000
<CURRENT-ASSETS> 1320779000
<PP&E> 558266000
<DEPRECIATION> 161488000
<TOTAL-ASSETS> 2121581000
<CURRENT-LIABILITIES> 709064000
<BONDS> 715345000
0
0
<COMMON> 113573000
<OTHER-SE> 533501000
<TOTAL-LIABILITY-AND-EQUITY> 2121581000
<SALES> 1606205000
<TOTAL-REVENUES> 1835004000
<CGS> 1063151000
<TOTAL-COSTS> 1063151000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 149528000
<INTEREST-EXPENSE> 48023000
<INCOME-PRETAX> (39065000)
<INCOME-TAX> (12983000)
<INCOME-CONTINUING> (26082000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (26082000)
<EPS-PRIMARY> (0.46)
<EPS-DILUTED> (0.46)
</TABLE>
