UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
X Annual report pursuant to Section 13 or 15 (d) of the Securities Exchange
Act of 1934 [Fee Required]
For the fiscal year ended February 28, 1998 or
Transition report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934 [No Fee Required]
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)
Registrant's telephone number, including area code: (804) 784-7300
Securities registered pursuant to Section 12(b) of the Act:
Title of each Class Name of each exchange on which registered
Common Stock, $2.00 New York Stock Exchange
Par Value Pacific Exchange
Rights to purchase Preferred New York Stock Exchange
Stock, Series A, $10.00 Pacific Exchange
Par Value
Securities registered pursuant to Section 12(g)of the Act:
None
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 of 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 the
filing requirements for at least the past 90 days. Yes X No .
---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (Sec. 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates
of the registrant as of May 1, 1998 was approximately $748,798,640.
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This figure was calculated by multiplying (i) the closing sales price
of the registrant's common stock on the New York Stock Exchange on May 1, 1998
by (ii) the number of shares of the registrant's common stock not held by the
officers or directors of the registrant or any persons known to the registrant
to own more than five percent of the outstanding common stock of the registrant.
Such calculation does not constitute an admission or determination that any such
officer, director or holder of more than five percent of the outstanding common
stock of the registrant is in fact an affiliate of the registrant.
As of May 1, 1998, there were outstanding 58,812,313 shares of the
registrant's common stock, $2.00 par value.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Proxy Statement for its Annual Meeting of
Shareholders scheduled for June 17, 1998, are incorporated by reference into
Part III.
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INDEX
PART 1
ITEM 1. BUSINESS Page
A. Introduction 4
B. Industry Segments 4
C. Nature of Business
General 4
Profit Improvement Plan 5
Competition 5
D. Store Operations
General 6
Merchandising 7
Advertising and Promotion 7
Credit Operations 8
Distribution 9
Customer Service 10
E. Corporate Expansion 10
F. Other Factors Affecting the Business of Heilig-Meyers
Suppliers 12
Service Marks, Trademarks and Franchise Operations 12
Seasonality 12
Employees 12
Foreign Operations and Export Sales 13
ITEM 2. PROPERTIES 13
ITEM 3. LEGAL PROCEEDINGS 14
ITEM 4. SUBMISSION of MATTERS to a VOTE of SECURITY HOLDINGS 14
PART II
ITEM 5. MARKET for REGISTRANT'S COMMON EQUITY and
RELATED STOCKHOLDER MATTERS 17
ITEM 6. SELECTED FINANCIAL DATA 18
ITEM 7. MANAGEMENT'S DISCUSSION and ANALYSIS of
FINANCIAL CONDITION and RESULTS of OPERATIONS 20
ITEM 8. FINANCIAL STATEMENTS and SUPPLEMENTARY DATA 27
ITEM 9. CHANGES in and DISAGREEMENTS with ACCOUNTANTS
on ACCOUNTING and FINANCIAL DISCLOSURE 49
PART III
ITEM 10. DIRECTORS and EXECUTIVE OFFICERS of the REGISTRANT 50
ITEM 11. EXECUTIVE COMPENSATION 50
ITEM 12. SECURITY OWNERSHIP of CERTAIN BENEFICIAL OWNERS
and MANAGEMENT 50
ITEM 13. CERTAIN RELATIONSHIPS and RELATED TRANSACTIONS 50
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, and
REPORTS on FORM 8-K 50
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PART 1
ITEM 1. BUSINESS
A. Introduction
Heilig-Meyers Company (the "registrant"), which together with its
predecessors and subsidiaries, sometimes hereinafter referred to as the
"Company," is engaged primarily in the retail sale of home furnishings and
bedding. The Company's predecessors are numerous Virginia and North Carolina
corporations, the first of which was incorporated in 1940, and all of which were
merged into Heilig-Meyers Company, a North Carolina corporation, in March 1970,
which in turn was merged into the registrant, a Virginia corporation, in June
1972.
The Company has grown in recent years, in part, through a series of
acquisitions. Among the largest acquisitions are the January 1994 acquisition of
certain assets relating to 92 stores of McMahan's Furniture Company, the
February 1995 acquisition of certain assets relating to the operations of 17
stores owned by Berrios Enterprises of Caguas, Puerto Rico, the October 1996
acquisition of certain assets relating to the 20 stores of J. McMahan's in Santa
Monica, California and the unrelated acquisition of certain assets relating to
the 23 stores of Self-Service Furniture Company of Spokane, Washington, the
December 1996 acquisition of the Atlanta, Georgia-based Rhodes, Inc., a publicly
traded home furnishings retailer with 105 stores in 15 states, and the February
1997 acquisition of certain assets relating to the 10 stores of The RoomStore,
Inc. of Fort Worth, Texas. The Company also acquired the assets of the 19-store
Star Furniture chain based in North Carolina in February 1997. The Company
acquired Mattress Discounters Corporation and a related corporation in July
1997, with 169 stores in 10 states and Washington, D.C. The Company also
acquired Bedding Experts, Inc. with 54 stores in Chicago, Illinois and the
surrounding area in January 1998. In addition, the Company also acquired the
assets of 5 John M. Smyth's Homemakers stores, a Chicago, Illinois furniture
chain in January 1998, and the 24-store Hub Furniture chain based in Columbia,
Maryland in February 1998. The Rhodes, RoomStore, and Mattress Discounters
chains continue to operate under their respective names and formats.
As of April 30, 1998, Heilig-Meyers Company operates stores under four
formats. The "Heilig-Meyers" format is associated with the Company's historical
operations, as well as the 32 stores operating in Puerto Rico under the
"Berrios" name. The majority of the Heilig-Meyers stores operate in smaller
markets with a broad line of merchandise. The "Rhodes" format is used for 102
stores as of April 30, 1998. The Rhodes format retailing strategy is selling
quality furniture to a broad base of middle income customers. Stores under "The
RoomStore" format display and sell furniture in complete room packages. The
rooms are arranged by professional designers and sell at a value if purchased as
a group. The "Mattress Discounters" format is used for 225 stores acquired in
fiscal 1998. Mattress Discounters is the Nation's largest retail bedding
specialist. Stores are classified by operating format rather than by the name
under which a store is operated.
B. Industry Segments
The Company considers that it is engaged primarily in one line of
business, the sale of home furnishings, and has one reportable industry segment.
Accordingly, data with respect to industry segments has not been separately
reported herein.
C. Nature of Business
General
The Company is the Nation's largest specialty retailer of home
furnishings with 1,244 stores (as of April 30, 1998), 1,212 of which are located
in 37 states and Washington, D.C., with the remainder in Puerto Rico. The
Company's Heilig-Meyers stores are primarily located in small towns and rural
markets in the southern, mid-western and western Continental United States. The
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102 Rhodes stores are primarily located in the mid-sized markets and
metropolitan areas of 15 southern, midwestern and western states. The 67 stores
of The RoomStore are primarily located in 7 states, including Texas, Illinois
and Maryland. The 225 Mattress Discounters stores are primarily located in 11
eastern states, California and Washington, D.C.
The Company's operating strategies include: (1) offering a broad
selection of competitively priced home furnishings, including furniture and
accessories, and bedding, and in the Heilig-Meyers stores, consumer electronics,
appliances, and other items such as jewelry, small appliances and seasonal
goods; (2) locating Heilig-Meyers stores primarily in small towns and rural
markets which are at least 25 miles from a metropolitan market; (3) offering
credit programs to provide flexible financing to its customers; (4) utilizing
centralized inventory and distribution systems in strategic regional locations
to support store inventory and merchandise delivery operations; (5) emphasizing
customer service, including free delivery on most major purchases in the
Heilig-Meyers stores and repair service for consumer electronics and other
mechanical items. As a result of the acquisition of Rhodes, The RoomStore and
Mattress Discounters, the Company now has the ability to match operating formats
to markets with appropriate demographic and competitive factors.
Profit Improvement Plan
Home furnishings purchases are generally considered "big-ticket
purchases", and consumers typically utilize consumer credit to finance these
purchases. Impacted by an increase in consumer credit problems and personal
bankruptcies, the demand for home furnishings in the niche in which the Company
serves has been low over the past two fiscal years. In response to this
difficult environment, the Company conducted a comprehensive review of its
operations, and developed a Profit Improvement Plan (the "Plan"), which was
announced on December 17, 1997. 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 calls for the closing of
approximately 40 Heilig-Meyers stores, the downsizing of administrative 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 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
merchandising and advertising strategies based on the remaining markets and the
strengthening of the inventory management programs. While management plans to
slow the growth in the Heilig-Meyers division, it expects to pursue
opportunities in the Company's other formats. These opportunities will be in the
formats that are less capital intensive and are currently operating at higher
levels of return than the Heilig-Meyers division. For additional information
concerning the Plan, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Competition
The retail home furnishings industry is a highly competitive and
fragmented market. The Company, as a whole, competes with large chains,
independent stores, discount stores, furniture stores, specialty stores and
others, some of which have financial resources greater than those of the
Company, and some of which derive revenues from the sale of products other than
home furnishings. The Company believes that the "Rhodes", "The RoomStore" and
"Mattress Discounters" names and formats will enhance the Company's competitive
position. The Company is capable of matching the store format with the local
market environment. The Company believes the "Rhodes" and "The RoomStore"
formats are better suited for larger markets than the Heilig-Meyers store
format, which it believes better serves small towns. The addition of "Mattress
Discounters" enables the Company to position itself more competitively in the
retail bedding market.
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Due to volume purchasing, the Company believes it is generally able to
offer merchandise at equal or lower prices than its competitors, particularly
local independent and regional specialty furniture retailers. In addition,
Management believes that it offers a broader selection of merchandise than many
of its competitors.
The Company believes that locating its Heilig-Meyers stores in small
towns and rural markets provides an important competitive advantage. Currently,
approximately 80% of all Heilig-Meyers stores are located in towns with
populations under 50,000 that are more than 25 miles from a metropolitan market.
Competition in these small towns largely comes from locally owned store
operations, which generally lack the financial strength to compete effectively
with the Company. Consequently, the Company believes that its Heilig-Meyers
stores have the largest market share among home furnishings retailers in the
majority of their areas.
The RoomStore and Rhodes formats compete in mid-to-large metropolitan
markets and serve middle income customers. The Mattress Discounters stores also
operate in metropolitan markets.
Based on its experience, the Company believes its competitive
environment is comparable in all geographic regions in which it operates.
Therefore, the Company does not believe that a regional analysis of its
competitive market is meaningful at this time.
D. Store Operations
General
The Company's Heilig-Meyers stores generally range in size from 12,000
to 35,000 square feet, with the average being approximately 25,000 square feet.
A store's attached or nearby warehouse usually measures from 3,000 to 5,000
square feet. A typical store is designed to give the customer an urban shopping
experience in a rural location. During the last five years, the Company has
revised its Heilig-Meyers prototype store construction program. The Company's
most recent version of its prototype stores opened in fiscal 1997. The Company
added 3 of these stores in fiscal 1994, 7 in fiscal 1995, 8 in fiscal 1996, 8 in
fiscal 1997 and 16 in fiscal 1998. The prototype stores are 27,000 square feet
and feature the latest display techniques and construction efficiencies. Certain
features of these prototype stores are incorporated into other locations through
the Company's ongoing remodeling program. The Company's existing store
remodeling program, under which stores are remodeled on a rotational basis,
provides the Company's older stores with a fresh look and up-to-date displays on
a periodic basis. During fiscal 1998, the Company remodeled 78 existing stores
and plans to remodel approximately 10 existing stores in fiscal 1999. The
existing Rhodes, The RoomStore, and Mattress Discounters stores average
approximately 34,000, 25,000, and 4,000 square feet, respectively. The Company
does not have significant remodeling activities planned for these formats during
fiscal 1999.
Each store unit is managed by an on-site manager responsible for
day-to-day store operations including, if offered in that store, installment
credit extension and collection. For executive management purposes, stores are
grouped by operating format. For operational purposes, stores are generally
grouped within their format by geographic market.
The Company has an in-house education program to train new employees in
its operations and to keep current employees informed of the Company's policies.
This training program emphasizes sales productivity, store administration, and
where applicable, credit extension and collection. The training program utilizes
the publication of detailed store manuals, internally produced training
videotapes and Company-conducted classes for employees. The Company also has an
in-store manager training program, which provides potential managers with
hands-on experience in all aspects of store operations. The Company's ongoing
education program is designed to provide a sufficient number of qualified
personnel for its stores.
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In recent years, Heilig-Meyers has enhanced its operating systems to
increase the availability and effectiveness of management information. In fiscal
1995, the Company made improvements to inventory management by use of
just-in-time ordering and backhauling. In fiscal 1995, the Company completed the
installation of a new satellite system. This system provides immediate
communication between the Company's corporate headquarters and the Heilig-Meyers
stores and distribution centers. As a result, the Company believes customer
service has been improved by providing store management more timely access to
information related to product availability. This system also provided the means
for the Company to implement, for the Heilig-Meyers stores, its new inventory
reservation system and enhanced target marketing programs during fiscal 1997.
The Rhodes, The RoomStore, and Mattress Discounters formats have operating
systems in place that provide similar operating capabilities.
Merchandising
The Company's Heilig-Meyers merchandising strategy is to offer a broad
selection of competitively priced home furnishings, including furniture and
accessories, consumer electronics, appliances, bedding and other items such as
jewelry and seasonal goods. During the fiscal year ended February 28, 1998, the
percentage of Heilig-Meyers stores' sales derived from the various merchandising
categories was as follows:
Furniture and accessories 60%
Consumer electronics 9
Bedding 13
Appliances 7
Other (e.g. jewelry and seasonal goods) 11
These percentages have not varied significantly over the past five
fiscal years.
The RoomStore and Rhodes stores primarily sell mid-price-point furniture and
bedding. During the fiscal year ended February 28, 1998, 89% and 90%,
respectively, of Rhodes' and The RoomStore's sales consisted of furniture and
accessories with bedding comprising the remaining 11% and 10%, respectively. The
Mattress Discounters stores are specialty bedding retailers and sell across the
full spectrum of bedding price points. During fiscal 1998, approximately 90% of
Mattress Discounters' sales consisted of bedding, with bedding accessories
comprising the remaining 10%.
The Company's stores carry a wide variety of items within each
merchandise category to appeal to individual tastes and preferences. The Company
believes this broad selection of products has enabled it to expand its customer
base and increase repeat sales to existing customers. By carrying seasonal
merchandise (heaters, air conditioners, lawn mowers, outdoor furniture, etc.) in
its Heilig-Meyers stores, the Company has been able to moderate the seasonal
fluctuations in its sales that are common to the industry and, in particular,
small towns.
While the basic merchandise mix within each operating format remained
fairly constant during fiscal 1998, the Company continued to refine its
merchandise selections to capitalize on variations in customer preferences.
During fiscal 1998, the Company continued to strengthen its vendor
relationships. In addition to providing purchasing advantages, these
relationships provide warehousing and distribution arrangements that improve
inventory management.
Advertising and Promotion
Direct mail circulars are a key part of the Company's marketing
program. The Company centrally designs its direct mail circulars for its
Heilig-Meyers stores, which accounted for approximately 40% of the Company's
Heilig-Meyers store advertising expenses in fiscal 1998. In fiscal 1998, the
Heilig-Meyers format distributed over 183 million direct mail circulars. This
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included monthly circulars sent by direct mail to over twelve million households
on the Heilig-Meyer's mailing list and special private sale circulars mailed to
approximately two million of these households each month, as well as during
special promotional periods. In its Rhodes stores, direct mailing comprised
approximately 25% of total advertising expenses in fiscal 1998, with circulars
being mailed to approximately six million households per promotion. Direct
mailing expenses accounted for approximately 15% of advertising expenses at The
RoomStore during fiscal 1998, with circulars being mailed to approximately
350,000 customers per month. Direct mailing expenses comprised approximately 40%
of total advertising expenses at Mattress Discounters during fiscal 1998, with
approximately fourteen million circulars mailed each month.
In addition to the Company's utilization of direct mail circulars,
television and radio commercials are produced for each format and aired in
virtually all of the Company's markets. Newspaper advertising is placed largely
at the store level. The Company also utilizes Spanish language television and
radio in selected markets with significant Hispanic populations. The Company
regularly conducts approximately 40 Heilig-Meyers store promotional events each
year. In addition to these events, individual stores periodically conduct
promotional events locally. The Company also conducts promotions twice each
month in its Rhodes and The RoomStore formats, and weekly in its Mattress
Discounters format. Besides the conventional marketing techniques noted above,
Heilig-Meyers has sought alternative methods to increase the Company's name
recognition and customer appeal. In fiscal 1998, the Company continued its
sponsorship of the Heilig-Meyers NASCAR Racing Team and added the Rhodes NASCAR
Racing Team as a means of enhancing the Company's name recognition among the
millions of NASCAR fans in its market areas.
During fiscal 1998, the Company continued to utilize market
segmentation techniques (begun in fiscal 1994) to identify prospective customers
by matching their demographics to those of existing customers. Management
believes ongoing market research and improved mailing techniques enhance the
Company's ability to place circulars in the hands of those potential customers
most likely to make a purchase. The Company believes that the availability as
well as the terms of credit are key determinants in the purchasing decision at
its Heilig-Meyers stores, and therefore, promotes credit availability by
disclosing monthly payment terms in those circulars.
Credit Operations
The Company believes that offering flexible credit options is an
important part of its business strategy, which provides a significant
competitive advantage. Because Heilig-Meyers installment credit is administered
at the store level, terms can generally be tailored to meet the customer's
ability to pay. Each Heilig-Meyers store has a credit manager who, under the
store manager's supervision, is responsible for extending and collecting that
store's accounts in accordance with corporate guidelines.
The Company believes its credit program fosters customer loyalty and
repeat business. Approximately 75% to 80% of sales in the Heilig-Meyers stores
have been made through the Company's installment credit program. Although the
Company extends credit for original terms up to 24 months, the average term of
installment contracts at origination for the fiscal year ended February 28,
1998, was approximately 17 months. The Company accepts major credit cards in all
of its stores and, in addition, offers a revolving credit program featuring its
private label credit cards. The Company promotes this program by direct mailings
to revolving credit customers of acquired stores and potential new customers in
targeted areas. Credit extension and collection of Heilig-Meyers revolving
accounts are handled centrally from the Company's Credit Center located in
Richmond, Virginia.
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The Company also offers revolving credit programs, which are
underwritten by third parties, in The RoomStore, Rhodes and Mattress Discounters
formats. The Company does not service or generally provide recourse on these
accounts. Credit applications, sales, and many payments on account are generally
processed electronically through the point-of-sale systems. Approximately 40% of
The RoomStore, 60% of Rhodes, and 10% of Mattress Discounters fiscal 1998 sales
were made through the revolving credit programs.
Revenue is recognized on installment and credit sales upon approval and
establishment of a delivery date, which does not differ materially from
recognition at time of shipment. The effect of sales returns prior to shipment
date has been immaterial. Finance charges are included in revenues on a monthly
basis as earned. During fiscal 1998, finance income amounted to $231,612,000, or
approximately 9.4% of total revenues. Because credit operations are integrated
with sales and store administration, management does not believe that an
accurate allocation of various costs and expenses of operations can be made
between retail sales and credit operations. Therefore, the Company is unable to
estimate accurately the contribution of its financing operations to net income.
The Company offers, but does not require, one or more of the following
credit insurance products at the time of a credit sale in all formats except
Mattress Discounters: property, life, disability and unemployment insurance. The
Company's employees enroll customers under a master policy issued by an
unrelated third-party insurer with respect to these credit insurance products.
Distribution
As of April 30, 1998, the Company operates eight Heilig-Meyers
distribution centers in the Continental U.S. and one center in Puerto Rico.
These centers are located in Orangeburg, South Carolina; Rocky Mount, North
Carolina; Russellville, Alabama; Mount Sterling, Kentucky; Thomasville, Georgia;
Moberly, Missouri; Hesperia, California; Athens, Texas; and Cidra, Puerto Rico.
The Athens Distribution Center was completed near the end of fiscal 1997, with
full operations commencing in March 1997. The Company relocated the Fontana, CA
Distribution Center during fiscal 1998 to a larger, 400,000 square foot facility
located in Hesperia, CA. The new distribution center also contains the relocated
Fontana Service Center as well as an outlet store. Currently, the Company's
Heilig-Meyers distribution network has the capacity to service over 900 stores
in the continental U.S. The Company also operates the seven Rhodes distribution
centers, which collectively have more than 950,000 square feet and include home
delivery operations in certain markets. The Company also operates The
RoomStore's seven and Mattress Discounters' eleven distribution centers, which
collectively have approximately 800,000 and 370,000 square feet, respectively.
Management is in the process of evaluating the distribution function in light of
recent acquisitions in order to maximize warehousing and transportation
efficiencies.
The Company utilizes several sophisticated design and management
techniques to increase the operational efficiency of its distribution network.
These include cantilever racking and computer-controlled random-access inventory
storage. Use of direct shipping and backhauling from vendors has also enhanced
distribution efficiency. Backhauling involves routing its trucks so that they
can transport purchased inventory from suppliers to the distribution centers
while returning from normal store deliveries. The Company backhauled
approximately 20% of its purchased inventory in the Heilig-Meyers stores during
fiscal 1998.
Typically, each of the Company's Heilig-Meyers stores is located within
250 miles of one of the eight distribution centers, each Rhodes store is within
100 miles of one of the seven Rhodes distribution centers, each of The RoomStore
stores is located within 70 miles of the seven The RoomStore distribution and
delivery centers, and each Mattress Discounters store is located within 110
miles of the eleven Mattress Discounters distribution and delivery centers. The
Company operates a fleet of trucks which generally delivers merchandise to each
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Heilig-Meyers store at least twice a week. In the Rhodes, The RoomStore and
Mattress Discounters formats, which are located in larger cities, the Company
also utilizes centralized delivery centers for home delivery. The Company
believes the use of the distribution centers enables it to make available a
broader selection of merchandise, to reduce inventory requirements at individual
stores, to benefit from volume purchasing, to provide prompt delivery to
customers and to minimize freight costs.
Customer Service
The Company believes that customer service is an important element for
success in the retail furniture business and therefore provides a broad range of
services to its customers. These include home delivery and setup, as well as
liberal policies with respect to exchanges and returns. In addition, the Company
offers service agreements on certain merchandise sold in its stores. The Company
sells substantially all of its service policies to third parties and recognizes
service policy income on these at the time of sale. Revenue from service
policies and extended warranty contracts retained by the Company are deferred
and recognized over the life of the contract period.
In addition, the Company provides repair services on virtually all
consumer electronics and mechanical items sold in its Heilig-Meyers stores. The
Company operates Heilig-Meyers service centers in Fayetteville, North Carolina;
Moberly, Missouri; Hesperia, California and Athens, Texas. The Fayetteville
Service Center occupies approximately 32,000 square feet and has the capacity to
process 2,000 repairs a week. The Moberly Service Center occupies 35,000 square
feet adjacent to the Moberly, Missouri Distribution Center and has the capacity
to process 2,000 repairs a week. The Hesperia Service Center occupies 35,000
square feet and has the capacity to process 2,500 repairs a week. The Athens
Service Center occupies 30,000 square feet and has the capacity to process 2,000
repairs a week. The service centers provide service for all consumer electronic
items, most mechanical items (except major appliances, which are serviced
locally) and watches. The service centers are also authorized to perform repair
work under certain manufacturers' warranties. Service center trucks visit
Heilig-Meyers stores weekly, allowing one-week turnaround on most repair orders.
E. Corporate Expansion
The Company has grown from 434 stores at February 28, 1993, to 1,244
stores at April 30, 1998. Over this time period, the Company has expanded from
its traditional southeast operating region into the midwest, west, southwest,
northwest, southcentral and northeast Continental United States as well as
Puerto Rico. In addition, the Company has acquired new operating formats as a
result of the Rhodes, The RoomStore and Mattress Discounters acquisitions.
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The following table lists the Company's stores by state and format as
of April 30, 1998:
Heilig- The Mattress
State Meyers Rhodes RoomStore Discounters Total
Alabama ...................... 33 10 43
Arizona ...................... 15 15
California ................... 82 60 142
Colorado ..................... 4 9 13
District of Columbia ......... 3 3
Florida ...................... 36 19 55
Georgia ...................... 56 18 74
Idaho ........................ 4 4
Iowa ......................... 19 19
Illinois ..................... 25 2 22 53 102
Indiana ...................... 21 1 22
Kansas ....................... 1 1
Kentucky ..................... 29 2 31
Louisiana .................... 21 21
Maine ........................ 1 1
Maryland ..................... 2 14 28 44
Massachusetts ................ 17 17
Michigan ..................... 12 12
Mississippi .................. 30 1 31
Missouri ..................... 29 6 35
Montana ...................... 2 2
Nevada ....................... 5 5
New Hampshire ................ 3 3
New Jersey ................... 14 14
New Mexico ................... 10 10
North Carolina ............... 112 11 123
Ohio ......................... 33 7 40
Oklahoma ..................... 11 11
Oregon ....................... 2 4 6
Pennsylvania ................. 22 8 30
Puerto Rico .................. 32 32
Rhode Island ................. 1 1
South Carolina ............... 45 6 51
Tennessee .................... 53 7 60
Texas ........................ 33 18 51
Virginia ..................... 44 2 4 24 74
Washington ................... 13 1 14
West Virginia ................ 27 27
Wisconsin .................... 4 1 5
----- ----- ----- ----- -----
850 102 67 225 1,244
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The table excludes 15 Heilig-Meyers stores in operation at April 30,
1998 that are scheduled to be closed during the first quarter of fiscal 1999 as
part of the Profit Improvement Plan. Stores listed under the RoomStore format
include: 1) the stores in Maryland and Virginia acquired in a recent acquisition
that are in the process of converting to the RoomStore format, 2) former
Heilig-Meyers stores in Illinois which have been converted to the RoomStore
format, but continue to operate under Heilig-Meyers signage and 3) 3 recently
acquired stores in Illinois that operate under the John M. Smyth's Homemakers
name. All of these stores are under the supervision of the RoomStore management
team.
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Growth in the number of stores comes primarily from three sources:
acquisition of chains or independent stores, refurbishing of existing retail
space and new construction. During the fiscal year ended February 28, 1998, the
Company opened or acquired 330 stores and closed 21 stores for a net increase of
309 stores. Of the 330 new stores, 284 were existing stores acquired by the
Company in various transactions, 30 were operations begun by the Company in
vacant existing buildings and 16 were prototype stores built according to the
Company's specifications.
The Company constantly evaluates opportunities for further expansion of
its business. The Company plans to slow the growth of its Heilig-Meyers stores.
In selecting new Heilig-Meyers locations, the Company intends to follow its
established strategy of generally locating stores within 250 miles of a
distribution center and in towns with populations of 5,000 to 50,000 that are
over 25 miles from the closest metropolitan market. The Company believes that it
has substantial growth potential in certain of its other formats. Growth
opportunities of the recently acquired Rhodes, The RoomStore and Mattress
Discounters formats are being evaluated. The Company plans to expand these
formats as the appropriate markets are identified.
F. Other Factors Affecting the Business of the Company
Suppliers
During the fiscal year ended February 28, 1998, the Company's ten
largest suppliers accounted for approximately 30% of consolidated merchandise
purchases. In the past, the Company has not experienced difficulty in obtaining
satisfactory sources of supply and believes that adequate alternative sources of
supply exist for the types of merchandise sold in its stores. Neither the
Company nor its officers or directors have an interest, direct or indirect, in
any of its suppliers of merchandise other than minor investments in publicly
held companies.
Service Marks, Trademarks and Franchise Operations
The marks "Heilig-Meyers", "MacSaver", "MacSaver, design of a
Scotsman", other marks acquired through various acquisitions and the Company's
distinctive logo are federally registered service marks of the Company. The
Company has registrations for numerous other trademarks and service marks
routinely used in the Company's business. These registrations can be kept in
force in perpetuity through continued use of the marks and timely applications
for renewal.
The mark "Berrios" is a federally registered service mark of the
Company. The Company has also applied for certain other trademarks and service
marks for use in connection with its stores in Puerto Rico.
The marks "Rhodes" and "The RoomStore" are federally registered service
marks of the Company which were acquired in fiscal year 1997.
The marks "Mattress Discounters" and "Bedding Experts" are federally
registered service marks of the Company which were acquired in fiscal year 1998.
Seasonality
Quarterly fluctuations in the Company's sales are insignificant.
Employees
As of April 30, 1998, the Company employed approximately 23,100 persons
full- or part-time in the Continental United States, of whom approximately
22,100 worked in the Company's stores, distribution centers and service centers,
with the balance in the Company's corporate offices. As of February 28, 1998,
the Company employed approximately 1,000 persons full- or part-time in Puerto
Rico, of whom approximately 900 worked in the stores and distribution center,
with the balance in the corporate office. The Company is not a party to any
union contract and considers its relations with its employees to be good.
12
<PAGE>
Foreign Operations and Export Sales
The Company has no foreign operations and makes no export sales.
ITEM 2. PROPERTIES
As of April 30, 1998, 962 of the Company's stores are on a single
level, with floor space devoted to sales as well as a warehouse primarily for
merchandise being prepared for delivery and for items customers carry with them.
The Heilig-Meyers stores are typically located away from the center of town. The
remaining 282 stores generally are in older two- or three-level buildings in
downtown areas. Usually there is no warehouse space in these older buildings,
and the stores' warehouses are located in nearby buildings.
As of April 30, 1998, the Company owned 75 of its Heilig-Meyers and 15
of its Rhodes stores, three of its Heilig-Meyers and three of its Rhodes
distribution centers and the Fayetteville, North Carolina Service Center. The
Company leases the remaining stores, the remaining distribution centers, its
corporate headquarters located at 12560 West Creek Parkway, Richmond, Virginia
and other office space. Rentals generally are fixed without reference to sales
volume, although some leases provide for increased rent due to increases in
taxes, insurance premiums or both. Some renewal options are tied to changes in
the Consumer Price Index. Total rental payments for properties for the fiscal
year ended February 28, 1998, were approximately $109,374,000. Most vehicles, a
majority of the distribution centers' material handling equipment, and a
majority of the Company's data processing equipment are also leased. In
addition, Mattress Discounters operates a 102,000-square-foot mattress
manufacturing facility in Maryland and a 54,000-square-foot mattress
manufacturing facility in California. The Company believes that its facilities
are adequate at present levels of operations.
13
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
The Company previously reported involvement in certain cases regarding
non-filing fees charged by the Company on certain credit transactions.
Non-filing fees are used to obtain insurance in lieu of filing a financing
statement to perfect a security interest in connection with a credit
transaction. The plaintiffs in the cases are alleging that the Company's
charging of the non-filing fees violates certain state and federal statutes and
are seeking statutory damages and unspecified punitive damages. Kirby et al v.
Heilig-Meyers Furniture Company and Heilig-Meyers Company was filed in the
United States District Court for the Southern District of Mississippi
(Hattiesburg District) on April 10, 1995 and initially sought certification of a
class in all states except Alabama and Georgia. On February 3, 1997, this case
was transferred by the panel on multi-district litigation (the "MDL Panel") to
the United States District Court for the Middle District of Alabama (the
"Alabama Court"). The Company has moved to return this case to the court in
which it was originally filed. On December 3, 1997, Faulkner v. Heilig-Meyers
Company (filed on February 18, 1997 in the Northern District of Illinois
alleging violation of federal and Illinois statutes) was transferred by the MDL
Panel to the Alabama Court and consolidated with Kirby. The Court in Kirby has
pending a motion to certify a class for all states except Alabama and Florida.
In addition, the Company has previously reported two cases pending in state
court: (i) Eubanks v. Heilig-Meyers Company and Heilig-Meyers Furniture Company
(alleging violation of Georgia statutes and seeking certification of a class of
Georgia residents) filed on March 5, 1997 in Georgia State Court, subsequently
removed to United States District Court for the Southern District of Georgia,
and on July 7, 1997, remanded to Superior Court of Liberty County, Georgia, and
(ii) Wahl v. Heilig-Meyers Company and Heilig-Meyers Furniture Company (alleging
violations of Tennessee statutes and seeking certification of a class of certain
individuals who made purchase in the Company's Tennessee stores) filed on June
23, 1997 in Memphis, Tennessee Chancery Court. On March 25, 1998, the court in
Eubanks entered an order dismissing the case. The Company's motion to dismiss is
pending in the Wahl case.
In addition, the Company is party to various legal actions and
administrative proceedings and subject to various claims arising in the ordinary
course of business, including claims relating to its charges in connection with
credit sales. Based on the best information presently available, the Company
believes that the disposition of these matters will not have a material adverse
impact on the financial statements of the Company.
ITEM 4. SUBMISSION of MATTERS to a VOTE of SECURITY HOLDERS
None.
14
<PAGE>
Executive Officers of the Registrant
The following table sets forth certain information with respect to the
executive officers of the Company as of May 1, 1998:
Positions with
the Company or
Principal Occupation for
the Years with Past Five Years and
Name Age the Company Other Information
William C. DeRusha 48 29 Chairman of the Board since April
1986. Chief Executive Officer since
April 1984. Director since January
1983.
Troy A. Peery, Jr. 52 26 President since April 1986. Chief
Operating Officer since December
1987. Director since April 1984.
James F. Cerza, Jr. 50 10 Executive Vice President, Heilig-
Meyers since April 1998. Executive
Vice President, Operations from June
1996 until April 1998. Executive Vice
President, from April 1995 to June
1996. Executive Vice President,
Operations from August 1989 to April
1995.
Joseph R. Jenkins 52 10 Executive Vice President, Heilig-
Meyers / Mattress Discounters since
April 1998. Executive Vice President
from July 1997 until April 1998.
Executive Vice President and Chief
Financial Officer from January 1988
to July 1997.
Irwin L. Lowenstein 62 1 Executive Vice President, Rhodes
since April 1997. Executive Vice
President, Rhodes, Inc. since January
1997. Chairman of the Board, Rhodes,
Inc. from 1994 to December 1996.
Chief Executive Officer, Rhodes, Inc.
from 1989 to December 1996. President
and Chief Operating Officer, Rhodes,
Inc. from 1973 to 1994.
James R. Riddle 56 13 Executive Vice President, The
RoomStore / Berrios since April 1998.
Executive Vice President from April
1995 to April 1998. Executive Vice
President, Marketing from January
1988 to April 1995.
15
<PAGE>
Patrick D. Stern 41 - Executive Vice President, The
RoomStore / Berrios since June
1997. Vice President, Merchandising,
Value City Furniture (retailer) from
April 1994 to April 1997. Vice
President, Sales and Marketing,
SilverOaks Furniture Manufacturing
prior to 1994.
George A. Thornton III 57 1 Executive Vice President, Rhodes
since April 1997. Director from
April 1980 to February 1997.
Independent consultant to furniture
manufacturers and Chairman, Tim Buck
II, LTD (real estate development) for
more than five years prior to April
1997.
William J. Dieter 58 25 Senior Vice President, Accounting
since April 1986. Chief Accounting
Officer since 1975.
Roy B. Goodman 40 17 Senior Vice President,Chief Financial
Officer since July 1997. Senior Vice
President, Finance from April 1995 to
July 1997. Vice President, Secretary
and Treasurer prior to April 1995.
16
<PAGE>
PART II
ITEM 5. MARKET for REGISTRANT'S COMMON EQUITY and RELATED STOCKHOLDER MATTERS
The Company's common stock is traded on the New York Stock and Pacific
Exchanges under the symbol HMY. The table below sets forth the high and low
prices as reported on the New York Stock Exchange Composite Tape, and dividend
information for each of the last eight fiscal quarters.
Fiscal Year High Low Dividends
1998
4th Quarter $ 15 3/4 $ 11 15/16 $ .07
3rd Quarter 17 3/16 12 9/16 .07
2nd Quarter 20 14 3/4 .07
1st Quarter 17 7/8 13 3/4 .07
1997
4th Quarter $ 16 1/8 $ 12 3/4 $ .07
3rd Quarter 17 1/4 12 5/8 .07
2nd Quarter 24 1/8 16 .07
1st Quarter 23 3/8 13 7/8 .07
There were approximately 3,300 shareholders of record as of February
28, 1998.
The Company has paid cash dividends in every year since fiscal 1976.
The Board of Directors intends to continue its present policy of paying regular
quarterly dividends when justified by the financial condition of the Company.
The amount of future dividends, if any, will depend upon general business
conditions, earnings, capital requirements and such other factors as the Board
may deem relevant. The Company's payment of dividends is restricted, under
certain covenants in loan agreements, to $92,687,000 plus 75% of net earnings
adjusted for dividend payouts subsequent to February 28, 1998.
Recent Sales of Unregistered Securities. During the past fiscal year,
the Company issued shares of its common stock in the transactions described
below. The sales of the securities were exempt from registration under the
Securities Act of 1933 ("the Act") for transactions not involving a public
offering, based on the fact that the private placements were made to accredited
investors under Rule 506 of Regulation D under the Act.
On July 17, 1997, the Company acquired all of the outstanding capital
stock of Mattress Discounters Corporation and TJB, Inc., which operated 169
stores in 10 states and Washington, D.C. The shareholders of Mattress
Discounters Corporation and TJB, Inc. received 2,269,839 shares of the Company's
common stock as part of the transaction. An additional 264,550 shares of the
Company's common stock were placed in escrow to be paid to the former
shareholders of Mattress Discounters Corporation if the acquired stores meet
certain earnings targets in the twelve months following the transaction.
On January 2, 1998, the Company acquired all of the outstanding capital
stock of Bedding Experts, Inc., which operated 54 stores in Chicago, Illinois
and the surrounding area. The shareholders of Bedding Experts, Inc. received
2,019,182 shares of the Company's common stock as part of the transaction.
17
<PAGE>
<TABLE>
ITEM 6. SELECTED FINANCIAL DATA
<S> <C> <C> <C> <C> <C>
FISCAL YEAR 1998 (1) 1997 (1) 1996 1995 1994
(Dollar amounts in thousands except per share data)
Operations Statement Data:
Sales $2,160,223 $1,342,208 $1,138,506 $ 956,004 $ 723,633
Annual growth in sales 60.9% 17.9% 19.1% 32.1% 31.7%
Other income $ 309,513 $ 250,911 $ 220,843 $ 196,135 $ 140,156
Total revenues 2,469,736 1,593,119 1,359,349 1,152,139 863,789
Annual growth in revenue 55.0% 17.2% 18.0% 33.4% 31.4%
Costs of sales $1,451,560 $ 876,142 $ 752,317 $ 617,839 $ 460,284
Gross profit margin 32.8% 34.7% 33.9% 35.4% 36.4%
Selling, general and
administrative expense $ 828,105 $ 526,369 $ 436,361 $ 350,093 $ 260,161
Interest expense 67,283 47,800 40,767 32,889 23,834
Provision for doubtful
accounts 181,645 80,908 65,379 45,419 32,356
Store closing and other
charges 25,530 --- --- --- ---
Provision (benefit) for
income taxes (29,244) 21,715 23,021 39,086 32,158
Effective income tax rate 34.7% 35.1% 35.7% 36.9% 36.9%
Net earnings (loss) $ (55,143) $ 40,185 $ 41,504 $ 66,813 $ 54,996
Earnings (loss) margin (2.6)% 3.0% 3.7% 7.0% 7.6%
Net earnings (loss) per share:
Basic (2) $ (.98) $ .81 $ .85 $ 1.38 $ 1.16
Diluted (2) (.98) .80 .84 1.34 1.12
Cash dividends per share .28 .28 .28 .24 .20
Balance Sheet Data:
Total assets $2,097,513 $1,837,158 $1,288,960 $1,208,937 $1,049,633
Average assets per store 1,674 1,946 1,800 1,869 1,841
Accounts receivable, net 392,765 380,879 518,969 538,208 535,437
Retained interest in
securitized receivables
at fair value 182,158 243,427 --- --- ---
Inventories 542,868 433,277 293,191 253,529 184,216
Property and equipment, net 398,151 366,749 216,059 203,201 168,142
Additions to property
and equipment 70,921 84,137 40,366 49,101 36,252
Short-term debt 282,365 256,413 207,812 167,925 210,318
Long-term debt 715,271 561,489 352,631 370,432 248,635
Average debt per store 796 866 783 832 805
Stockholders' equity 609,154 642,621 518,983 490,390 433,229
Stockholders' equity per share 10.36 11.81 10.69 10.10 8.95
Other Financial Data:
Working capital $ 591,397 $ 550,137 $ 527,849 $ 554,096 $ 453,175
Current ratio 1.8 1.9 2.4 2.9 2.4
Debt to equity ratio 1.64 1.27 1.08 1.10 1.06
Debt to debt and equity 62.1% 56.0% 51.9% 52.3% 51.4%
Rate of return on average
assets (3) (0.6)% 4.6% 5.4% 7.8% 7.7%
Rate of return on average
equity (8.8)% 6.9% 8.2% 14.5% 14.9%
Number of stores 1,253 944 716 647 570
Number of employees 24,374 19,131 14,383 13,063 10,536
Average sales per employee $ 99 $ 84 $ 83 $ 81 $ 79
18
<PAGE>
SELECTED FINANCIAL DATA, cont.
FISCAL YEAR 1998 1997 1996 1995 1994
(Dollar amounts in thousands except per share data)
Weighted average common shares outstanding:
(in thousands)
Basic 56,312 49,360 48,560 48,459 47,292
Diluted 56,312 50,146 49,604 49,954 49,103
Price range on common stock per share:
High $ 20 $ 24 1/8 $ 27 1/4 $ 36 $ 39
Low 11 15/16 12 5/8 13 1/2 23 1/4 19 3/8
Close 15 1/2 14 1/8 14 23 5/8 33
</TABLE>
(1)Operations statement data include operating results of acquisitions
subsequent to the dates of acquisition. Balance sheet data include the
financial position of acquisitions as of fiscal year ends subsequent to the
dates of acquisition. See the description of such acquisitions in the Notes
to Consolidated Financial Statements.
(2)The earnings per share amounts prior to 1998 have been restated as required
to comply with Statement of Financial Accounting Standards No. 128, Earnings
Per Share. For further discussion of earnings per share and the impact of
Statement 128, see the Notes to Consolidated Financial Statements.
(3) Calculated using earnings before interest, net of tax.
19
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION and ANALYSIS of FINANCIAL CONDITION
and RESULTS of OPERATIONS
RESULTS OF OPERATIONS
Results of operations expressed as a percentage of sales are as
follows:
Fiscal Year
1998 1997 1996
----------------------------------------
Other income 14.3% 18.7% 19.4%
Costs of sales 67.2 65.3 66.1
Selling, general and
administrative expense 38.3 39.2 38.3
Interest expense 3.1 3.6 3.6
Provision for doubtful
accounts 8.4 6.0 5.7
Store closing and other
charges 1.2 - -
Earnings (loss) before
provision (benefit)
for income taxes (3.9) 4.6 5.7
Provision (benefit) for
income taxes (1.4) 1.6 2.0
Net earnings (loss) (2.6) 3.0 3.7
Profit Improvement Plan
Home furnishings purchases are generally considered "big-ticket
purchases", and consumers typically utilize consumer credit to finance these
purchases. Impacted by an increase in consumer credit problems and personal
bankruptcies, the demand for home furnishings in the niche in which the Company
serves has been low over the past two fiscal years. In response to this
difficult environment, Heilig-Meyers Company (the "Company") conducted a
comprehensive review of its operations, and developed a Profit Improvement Plan
(the "Plan"), which was announced on December 17, 1997. 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 calls for
the closing of certain Heilig-Meyers stores, the downsizing of administrative
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.
In the fourth quarter of fiscal 1998, the Company recorded a pre-tax
charge of approximately $25.5 million related to specific plans to close
approximately 40 Heilig-Meyers stores, downsize office and support facilities,
and reorganize the Heilig-Meyers private label credit card program. The charge
reduced 1998 net earnings $16.7 million or $.30 per share. The pre-tax charge
includes the following components: $8.1 million for severance, $7.6 million for
lease and facility exit costs, $7.3 million for fixed asset impairment, and $2.5
million for goodwill impairment. The Company expects to substantially complete
the store closings and office downsizing during the first quarter of fiscal
1999, and private label credit card program reorganization during fiscal 1999.
Accordingly, the majority of the reserves are expected to be utilized during
fiscal 1999. The final plan calls for closing approximately 40 stores rather
than the approximately 60 stores initially contemplated, as a result of the
completion of store operations and asset disposition analyses.
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
merchandising and advertising strategies based on the remaining markets and the
strengthening of the inventory management programs. While management plans to
slow the growth in the Heilig-Meyers division, it expects to pursue
opportunities in the Company's other formats. These opportunities will be in the
formats that are less capital intensive and are currently operating at higher
levels of return than the Heilig-Meyers division. The Company has adopted a
capital allocation process under which all expansion and capital projects will
be subjected to return on investment criteria.
20
<PAGE>
Pursuant to these initiatives, raw selling margins in the fourth
quarter of fiscal 1998 were negatively impacted by approximately $5.1 million,
or .2% of sales, due to inventory liquidations. Approximately $14.8 million (.7%
of sales) in selling, general and administrative expenses were incurred related
to asset write-downs and other reserves in the third and fourth quarters of
fiscal 1998 (see "Costs and Expenses").
While the Company anticipates that the majority of the reserves related
to this Plan will be utilized over the first two quarters of fiscal 1999,
amounts related to property and long-term 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.
Revenues
Sales for fiscal 1998 compared to the two previous periods are shown
below:
Fiscal Year
1998 1997 1996
----------------------------------------
Sales (in thousands) $2,160,223 $1,342,208 $1,138,506
Percentage increase over
prior period 60.9% 17.9% 19.1%
Portion of increase from
existing (comparable)
stores 2.8 (0.6) 0.3
Portion of increase from
new stores 58.1 18.5 18.8
The growth in total sales of the Company for fiscal years 1998, 1997
and 1996 is primarily attributed to the growth in operating units through
acquisitions. The impact of price changes on sales growth over the last three
fiscal years has been insignificant. Expansion of the Heilig-Meyers retail units
during fiscal 1998 and 1997 was primarily in the south central, southwestern and
northwestern United States.
The Company has four primary retail formats targeting a wide range of
consumers. The increase in these formats over the past two years has been
achieved through acquisitions. Sales for the last three fiscal years and store
counts as of February 28, (29), were as follows:
Fiscal Year
1998 1997 1996
-----------------------------------------------------------------
(Sales amounts in millions)
# of % of # of % of # of % of
Stores Sales Total Stores Sales Total Stores Sales Total
------------------------------------------------------------------
Heilig-Meyers 865 $1,436 66.5 829 $1,262 94.1 716 $1,139 100.0
Rhodes 102 480 22.2 105 78 5.8 - - -
The RoomStore 61 112 5.2 10 2 0.1 - - -
Mattress
Discounters 225 132 6.1 - - - - - -
-----------------------------------------------------------------
Total 1,253 $2,160 100.0 944 $1,342 100.0 716 $1,139 100.0
=================================================================
On December 31, 1996, Rhodes, Inc., a Georgia Corporation, became a
wholly-owned subsidiary of the Company in a transaction accounted for under the
purchase method. The Company operates these stores under the Rhodes name and
format. These stores are primarily located in metropolitan areas of 15 southern,
midwestern and western states.
In late February 1997, the Company acquired certain assets relating to
10 stores operating in central Texas under the name "The RoomStore" in a
transaction accounted for under the purchase method. The RoomStore operates
under a "rooms concept," displaying and selling furniture in complete room
21
<PAGE>
packages. At the end of fiscal 1998, The RoomStore operated 61 stores, 18 of
which were acquired from Reliable Inc. in Columbia, Maryland, in February 1998
and 3 of which were acquired in January 1998 from John M. Smyth's Homemakers in
Chicago, Illinois. The remaining additions to The RoomStore format were through
the ongoing conversion of pre-existing Heilig-Meyers and Rhodes stores.
In July 1997, the Company acquired all of the outstanding capital stock
of Mattress Discounters Corporation and a related corporation ("Mattress
Discounters") with 169 stores in 10 states and Washington, D.C. The transaction
was accounted for under the purchase method. In January 1998, the Company
acquired all of the outstanding capital stock of Bedding Experts, Inc., with 54
stores in Chicago, Illinois, and the surrounding area. The transaction was
recorded as a pooling-of-interests, however, prior periods have not been
restated as the effect is not considered material to the consolidated financial
statements. These stores are included in the Mattress Discounters format in the
table above.
Other income decreased to 14.3% of sales for fiscal 1998 from 18.7% of
sales for fiscal 1997. Other income decreased to 18.7% of sales for fiscal 1997
from 19.4% of sales for fiscal 1996. These decreases are primarily the result of
the effect of Rhodes, The RoomStore and Mattress Discounters operations, as
these stores' credit programs are maintained by third parties 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 decreased .1% of sales for the year ended February 28, 1998, compared to
the prior fiscal year.
The Company plans to continue its program of periodically securitizing
a portion of the installment accounts receivable portfolio of its Heilig-Meyers
stores. Proceeds from securitized accounts receivable are generally used by the
Company to lower debt levels. Net servicing income related to securitized
receivables that have been sold to third parties is included in other income.
The Company offers third-party private label credit card programs to customers
of the Rhodes and The RoomStore formats.
Costs and Expenses
In fiscal 1998, costs of sales increased, as a percentage of sales, to
67.2% from 65.3% in fiscal year 1997. This increase is the result of the
liquidation of merchandise associated with acquisitions, reduced leverage on
distribution and occupancy costs, and higher occupancy costs in the larger
markets served by the Rhodes and The RoomStore formats. Raw selling margins were
reduced by approximately $5.1 million, or .2% of sales, due to inventory
liquidation sales in the Rhodes stores and Heilig-Meyers stores in Puerto Rico
(see "Profit Improvement Plan"). Costs of sales decreased to 65.3% of sales in
fiscal 1997 from 66.1% in fiscal 1996. The reduction in costs of sales was
primarily related to improved raw selling margins in the Heilig-Meyers stores. A
reduction in the use of aggressive, price-cutting promotions and improvement in
day-to-day pricing policies were the primary contributors to the raw selling
margin results. Additionally, as compared to fiscal 1996, the merchandise sales
mix for fiscal 1997 included a higher percentage of furniture and bedding, which
carry higher raw selling margins.
Selling, general and administrative expenses decreased to 38.3% of
sales in fiscal 1998 from 39.2% in fiscal 1997. The decrease between years was
the result of leverage gained on sales at the Rhodes, The RoomStore and Mattress
Discounters formats. Compared to the prior year period, the addition of these
formats has resulted in a lower administrative cost structure generally due to
the use of third-party credit providers. However, selling, general and
administrative expenses for fiscal 1998 include charges of approximately $14.8
million, or .7% of sales, related to asset write-downs and other reserves (see
"Profit Improvement Plan"). These charges arise primarily from asset impairment
caused by the conversion of existing stores to new operating formats,
relocations of administrative and support facilities, and a more aggressive
strategy to exit excess real estate. Also included in this amount are legal and
other transaction costs associated with the Bedding Experts acquisition, which
was accounted for as a pooling of interests. Selling, general and administrative
expenses increased to 39.2% of sales in fiscal 1997 from 38.3% in fiscal 1996.
The increase in fiscal 1997 was primarily the result of loss of sales leverage
on fixed type expenses such as base salaries, data processing, and depreciation
and amortization, given the modest decline in comparable store sales during the
fiscal year. Advertising costs in fiscal 1997 were slightly down as a percentage
of sales compared to fiscal 1996.
22
<PAGE>
Interest expense was 3.1% and 3.6% of sales in fiscal years 1998 and
1997, respectively. The decrease is mainly due to leverage on the sales by
Rhodes, The RoomStore and Mattress Discounters, which were purchased with common
stock. The Company issued $175 million in public debt during the second quarter
of fiscal 1998. 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 fiscal 1998 remained
relatively consistent at 7.8%, compared to 7.7% during the prior year. Weighted
average short-term debt increased to $229.2 million in fiscal 1998 from $186.3
million in fiscal 1997. Weighted average short-term interest rates increased to
6.1% from 5.8% in the prior year. Interest expense was 3.6% of sales in fiscal
years 1997 and 1996. The impact of an increase in weighted average long-term
debt of $93.5 million was offset by lower weighted average interest rates, which
decreased to 7.7% from 7.9% on long-term debt and to 5.8% from 6.3% on
short-term debt in fiscal years 1997 and 1996, respectively. The increase in
long-term debt levels in both fiscal 1998 and 1997 was consistent with the
Company's plan to structure its debt portfolio to contain a higher percentage of
long-term fixed rate debt in order to minimize the exposure to future short-term
interest rate fluctuations.
The provision for doubtful accounts was 8.4% of sales in fiscal 1998
compared to 6.0% and 5.7% in fiscal 1997 and 1996, respectively. The increase in
the provision for doubtful accounts as a percentage of sales resulted from an
increase in the installment portfolio's loss rate and related write-offs, the
impact of management's plan to close approximately 40 stores, and management's
plan to reorganize the Heilig-Meyers private label credit card program. The
overall rise in the portfolio's loss rate is primarily attributed to an increase
in bankruptcies. The Company provided an additional $38.0 million for doubtful
bankrupt accounts based on the increase in the total bankrupt account portfolio,
the mix of accounts by type of bankruptcy filed, and recent collection
experience. The Company also provided for increased write-offs of approximately
$36.3 million related to a more critical evaluation of accounts for write-off
for fiscal 1998 and to cover the impact of transferring the servicing of
accounts from stores that are planned for closing in fiscal 1999 to other
Heilig-Meyers store locations. Additionally, management has committed to a
reorganization of the Heilig-Meyers private label credit card program, which is
offered to certain customers under an agreement with a financial institution.
The Company provided $15.0 million to cover estimated losses under the recourse
provisions of the agreement that will be incurred as a result of the
reorganization plan. The items noted above, which total 4.1% of sales in fiscal
1998 were slightly offset by the operations of Rhodes, The RoomStore, and
Mattress Discounters as these formats primarily use third-party credit providers
and, accordingly, do not record significant provisions for doubtful accounts.
Total portfolio write-offs for fiscal 1998, 1997 and 1996 were $167.5
million, $77.4 million and $66.1 million, respectively. Of these amounts, $21.2
million, $6.9 million and $8.9 million were for purchased receivables,
respectively. Management believes that the allowance for doubtful accounts at
February 28, 1998, is adequate.
Components of the Profit Improvement Plan address the increase in the
portfolio loss rate. Stores that have been targeted for closing have been among
the poorest performers related to credit losses. Management believes the
elimination of these stores will positively impact the Company's credit losses
going forward. The Company plans to more fully implement risk-based scoring
models to provide local management with better tools in making credit extension
decisions. These models will also enable corporate management to more
efficiently monitor the portfolio. Management believes implementing this plan at
the local and corporate levels will also positively impact the portfolio's
credit losses.
Provision for Income Taxes and Net Earnings
The income tax benefit for fiscal 1998 was calculated by applying a
percentage of 34.7% compared to fiscal 1997's tax rate of 35.1%. The decrease in
the rate from 1997 is due to the impact of the loss incurred during 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. The effective tax rate for fiscal 1997 was
35.1% compared to 35.7% for fiscal 1996. The decrease between the fiscal 1997
and 1996 effective tax rate was primarily the result of higher fixed dollar
income tax credits in fiscal 1997 and lower levels of pretax earnings.
23
<PAGE>
The net loss for fiscal 1998 was $55.1 million compared to earnings of
$40.2 million for fiscal 1997. The loss in fiscal 1998 was the result of the
store closing and other charges related to the Profit Improvement Plan discussed
above and the increase in the provision for doubtful accounts in fiscal 1998.
The net earnings for fiscal 1997 decreased to $40.2 million from $41.5 million
for fiscal 1996. As a percentage of sales, profit margin decreased to 3.0% for
fiscal 1997 from 3.7% for fiscal 1996. The decrease was mostly attributable to
an increase as a percentage of sales in selling, general and administrative
expenses due to the decline in comparable store sales and an increase in the
provision for doubtful accounts.
LIQUIDITY AND CAPITAL RESOURCES
The Company increased its cash position $33.8 million to $48.8 million
at February 28, 1998, from $15.0 million at February 28, 1997, and $16.0 million
at February 29, 1996. As the Company continued to expand its store base through
acquisitions, cash flows used for investing activities exceeded cash provided by
operating activities for fiscal years 1998, 1997 and 1996. The Company's
operating activities typically use cash primarily because the significant
majority of customer sales in the Heilig-Meyers format have been through the
Company's in-house credit program. These uses of cash have been partially offset
by proceeds from the sale of accounts receivable and financing activities.
Operating activities used cash of $22.8 million for fiscal 1998
compared to cash used of $3.0 million in fiscal 1997 and cash provided of $92.5
million in fiscal 1996. The Company traditionally produces minimal or negative
cash flow from operating activities because it extends in-house credit in its
Heilig-Meyers stores. The Company's change in accounts receivable and provision
for doubtful accounts netted to a $13.5 million increase in fiscal 1998. The
Company's retained interest in securitized receivables at cost decreased $50.5
million during fiscal 1998 as the result of the sale of certain of these
investments. The Company's retained interest in securitized receivables at cost
grew by $198.8 million in fiscal 1997 with accounts receivable decreasing by
$56.2 million. These changes relate to the sale of $60.5 million of receivables
and the change in classification of certain receivables transferred to a master
trust during fiscal 1997. The higher level of receivables transferred relate to
the continued extension of credit to customers and a reduced amount of accounts
sold during the year as compared to the amounts sold in fiscal 1996. During
fiscal 1998, inventory levels increased at a higher rate than fiscal 1997
primarily due to the stocking of line-up inventory in the recently acquired
stores in order to support the merchandising plan. The prior increases in
inventory levels have primarily been the result of the opening of 113 new
Heilig-Meyers stores in fiscal 1997 and 69 in fiscal 1996. Continued extension
of credit and related increases in customer accounts receivable, as well as
increases in inventory related to new stores, are expected to be negative cash
flow activities in future periods. However, as noted above, the Company
periodically sells accounts receivable to provide a source of positive cash
flows from operating activities.
Investing activities produced negative cash flows of $106.5 million in
fiscal 1998, $146.5 million in fiscal 1997, and $95.6 million in fiscal 1996.
Cash used for acquisitions decreased in 1998 to $40.2 million compared to $58.8
million in fiscal 1997 as a result of a lower level of acquisition activity in
fiscal 1998. Cash used for acquisitions was relatively consistent in fiscal 1997
compared to fiscal 1996, at $58.8 million and $51.7 million, respectively. Cash
used for additions to property and equipment resulted from the opening of new
store locations and related support facilities as well as the remodeling and
improvement of existing and acquired locations. The increase in the cash
required for capital expenditures in fiscal 1997 was the result of a larger
number of prototype stores and support facilities completed or under
construction as of February 28, 1997, compared to February 29, 1996. The
increase in the disposals of property and equipment between fiscal 1998 and 1997
is the result of the beginning phases of the Company's "Profit Improvement
Plan." See the discussion concerning the Company's future expansion and
disposition plans under "Profit Improvement Plan" above.
Financing activities provided a positive net cash flow of $163.1
million in fiscal 1998 as compared to $148.4 million in fiscal 1997 and $8.8
million in fiscal 1996. In June 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 February 28, 1998, long-term notes payable with an
aggregate principal amount of $175.0 million have been issued to the public
24
<PAGE>
under this registration statement. Long-term notes payable with an aggregate
principal amount of $300.0 million were issued to the public during fiscal 1997.
Proceeds from the issues were used to retire long-term debt maturing and
short-term notes payable. All previously issued debt had been in private
placements rather than public markets. As of February 28, 1998, the Company had
a $400.0 million revolving credit facility in place which expires in July 2000.
This facility includes thirteen banks and had $260.0 million outstanding and
$140.0 million unused as of February 28, 1998. The Company also had additional
lines of credit with banks totaling $60.0 million, all of which was unused as of
February 28, 1998.
As a result of charges recorded in fiscal 1998 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
until certain covenant restrictions are met. Management expects to meet these
covenants in the fourth quarter of fiscal 1999. However, management believes
that the Company has adequate access to capital to finance accounts receivable,
inventories and other capital needs during these next twelve months.
Total debt as a percentage of debt and equity was 62.1% at February 28,
1998, compared to 56.0% and 51.9% at February 28, (29), 1997 and 1996,
respectively. The increase in total debt as a percentage of debt and equity from
February 28, 1997 to February 28, 1998 is primarily attributed to the issuance
of $175 million of long-term debt as well as the increase in short-term notes
payable during fiscal 1998. The issuance was partially offset by the payment on
the maturity of long-term notes. The fiscal 1998 loss, which reduced retained
earnings, also resulted in the increase of total debt as a percentage of debt
and equity. The current ratio was 1.8X at February 28, 1998, compared to 1.9X
and 2.4X for February 28, (29), 1997 and 1996, respectively. The decrease in the
current ratios from February 29, 1996 to February 28, 1997 was primarily
attributed to an $82.6 million increase in long-term debt due within one year.
OTHER INFORMATION
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 in a timely manner, the
Year 2000 issue may have a material adverse impact on the operations of the
Company.
FORWARD-LOOKING STATEMENTS
Certain statements included in this Annual Report 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. See, e.g., "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Leading Our Industry Through
Innovation," "Strengthening Our Core Business," "Expanding Via New Formats and
Markets," and "Leveraging Our Strengths." 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
25
<PAGE>
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.
26
<PAGE>
ITEM 8. FINANCIAL STATEMENTS and SUPPLEMENTARY DATA
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands except per share data)
FISCAL YEAR 1998 1997 1996
------ ------ -----
Revenues:
Sales $2,160,223 $1,342,208 $1,138,506
Other income 309,513 250,911 220,843
---------- ---------- ---------
Total revenues 2,469,736 1,593,119 1,359,349
Costs and expenses:
Costs of sales 1,451,560 876,142 752,317
Selling,general and administrative 828,105 526,369 436,361
Interest 67,283 47,800 40,767
Provision for doubtful accounts 181,645 80,908 65,379
Store closing and other charges 25,530 -- --
---------- ---------- ---------
Total costs and expenses 2,554,123 1,531,219 1,294,824
---------- ---------- ---------
Earnings (loss) before provision
(benefit) for income taxes (84,387) 61,900 64,525
Provision (benefit) for income taxes (29,244) 21,715 23,021
---------- --------- ---------
Net earnings (loss) $ (55,143) $ 40,185 $ 41,504
========== ========= =========
Net earnings (loss) per share:
Basic $ (.98) $ .81 $ .85
========== ========= =========
Diluted $ (.98) $ .80 $ .84
========== ========= =========
Weighted average common shares outstanding:
Basic 56,312 49,360 48,560
Diluted 56,312 50,146 49,604
========= ========= =========
Cash dividends per share of common
stock $ .28 $ .28 $ .28
========= ========= =========
See notes to consolidated financial statements.
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<PAGE>
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands except par value data)
FEBRUARY 28, 1998 1997
------ -----
Assets
Current assets:
Cash $ 48,779 $ 14,959
Accounts receivable, net 392,765 380,879
Retained interest in securitized
receivables at fair value 182,158 243,427
Inventories 542,868 433,277
Other current assets 126,978 61,515
----------- -----------
Total current assets 1,293,548 1,134,057
Property and equipment, net 398,151 366,749
Other assets 55,321 42,262
Excess costs over net
assets acquired, net 350,493 294,090
----------- -----------
$ 2,097,513 $ 1,837,158
=========== ===========
Liabilities And Stockholders' Equity
Current liabilities:
Notes payable $ 260,000 $ 156,000
Long-term debt due within one year 22,365 100,413
Accounts payable 203,048 160,857
Accrued expenses 216,738 166,650
----------- -----------
Total current liabilities 702,151 583,920
Long-term debt 715,271 561,489
Deferred income taxes 70,937 49,128
Stockholders' equity:
Preferred stock, $10 par value -- --
Common stock, $2 par value (250,000
shares authorized; 58,808 and
54,414 shares issued and
outstanding, respectively) 117,616 108,828
Capital in excess of par value 230,580 195,352
Unrealized gain on investments 4,548 10,797
Retained earnings 256,410 327,644
----------- -----------
Total stockholders' equity 609,154 642,621
----------- -----------
$ 2,097,513 $ 1,837,158
=========== ===========
See notes to consolidated financial statements.
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CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Amounts in thousands)
Number of
Common Capital in Unrealized Total
Shares Common Excess of Gain on Retained Stockholders'
Outstanding Stock Par Value Investments Earnings Equity
Balances at
March 1,1995 48,548 $ 97,096 $120,129 $ -- $273,165 $490,390
Cash dividends -- -- -- -- (13,598) (13,598)
Exercise of stock
options, net 23 47 640 -- -- 687
Net earnings -- -- -- -- 41,504 41,504
------------------------------------------------------------
Balances at
February 29,1996 48,571 97,143 120,769 -- 301,071 518,983
Cash dividends -- -- -- -- (13,612) (13,612)
Common stock
issued for
acquisitions 5,791 11,582 73,842 -- -- 85,424
Exercise of stock
options, net 52 103 741 -- -- 844
Unrealized gain
on investments -- -- -- 10,797 -- 10,797
Net earnings -- -- -- -- 40,185 40,185
------------------------------------------------------------
Balances at
February 28,1997 54,414 108,828 195,352 10,797 327,644 642,621
Cash dividends -- -- -- -- (16,249) (16,249)
Common stock
issued for
acquisitions 4,279 8,558 34,578 -- -- 43,136
Exercise of stock
options, net 115 230 650 -- -- 880
Change in
unrealized gain
on investments -- -- -- (6,249) -- (6,249)
Net loss -- -- -- -- (55,143) (55,143)
Other -- -- -- -- 158 158
------------------------------------------------------------
Balances at
February 28,1998 58,808 $117,616 $230,580 $ 4,548 $256,410 $609,154
============================================================
See notes to consolidated financial statements.
29
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
FISCAL YEAR 1998 1997 1996
-------------------------------
Cash flows from operating activities:
Net earnings (loss) $ (55,143) $ 40,185 $ 41,504
Adjustments to reconcile net earnings
(loss) to net cash provided (used) by
operating activities:
Depreciation and amortization 54,043 33,874 29,460
Provision for doubtful accounts 181,645 80,908 65,379
Store closing and other charges
provision 25,530 -- --
Store closing and other charges
payments (1,452) -- --
Other, net 2,616 588 (470)
Change in operating assets and
liabilities, net of the effects
of acquisitions:
Accounts receivable (195,141) (4,331) (167,860)
Sale of accounts receivable -- 60,500 150,000
Retained interest in securitized
receivables at cost 50,533 (198,786) --
Inventories (77,115) (35,154) (24,015)
Other current assets (65,218) (11,749) (23,447)
Accounts payable 14,788 18,017 216
Accrued expenses 42,106 12,948 21,734
--------------------------------
Net cash provided (used)
by operating activities (22,808) (3,000) 92,501
--------------------------------
Cash flows from investing activities:
Acquisitions, net of cash acquired (40,186) (58,842) (51,658)
Additions to property and equipment (70,921) (84,137) (40,366)
Disposals of property and equipment 15,107 3,423 6,348
Miscellaneous investments (10,467) (6,907) (9,942)
---------------------------------
Net cash used by
investing activities (106,467) (146,463) (95,618)
---------------------------------
Cash flows from financing activities:
Issuance of stock 912 683 286
Proceeds from long-term debt 174,767 299,444 --
Increase (decrease) in notes
payable, net 104,000 (34,000) 50,200
Payments of long-term debt (100,335) (104,110) (28,114)
Dividends paid (16,249) (13,612) (13,598)
---------------------------------
Net cash provided by
financing activities 163,095 148,405 8,774
--------------------------------
Net increase (decrease) in cash 33,820 (1,058) 5,657
Cash at beginning of year 14,959 16,017 10,360
--------------------------------
Cash at end of year $ 48,779 $ 14,959 $ 16,017
================================
See notes to consolidated financial statements.
30
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Summary of Significant Accounting Policies
- -----------------------------------------------------------------------------
Nature of Operations
Heilig-Meyers Company and subsidiaries (the "Company") is a retailer of
home furnishings that operated 1,253 stores as of February 28, 1998 of which
1,221 are located in 38 states and Washington, D.C. and 32 are located in Puerto
Rico. Through acquisitions, the Company now has four primary retail formats
operating as Heilig-Meyers Furniture, Rhodes Furniture, The RoomStore and
Mattress Discounters.
The Company's operating strategy includes offering a broad selection of
home furnishings and bedding. The Company offers third party private label
credit card programs to provide financing to its customers. The Heilig-Meyers
format also offers consumer electronics, appliances, and floor coverings as well
as an in-house installment credit program.
Principles of Consolidation
The consolidated financial statements include the accounts of
Heilig-Meyers Company and its subsidiaries, all of which are wholly owned. All
material intercompany balances and transactions have been eliminated.
Fiscal Year
Fiscal years are designated in the consolidated financial statements by
the calendar year in which the fiscal year ends. Accordingly, results for fiscal
years 1998, 1997 and 1996 represent the years ended February 28, 1998, February
28, 1997 and February 29, 1996, respectively. Certain amounts in the fiscal 1997
and 1996 consolidated financial statements have been reclassified to conform to
the fiscal 1998 presentation.
Segment Information
The Company considers that it is engaged primarily in one line of
business, the sale of home furnishings. Accordingly, data with respect to
industry segments have not been separately reported herein.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Accounts Receivable
Accounts receivable arise primarily from closed-end installment sales
contracts used by customers to finance purchases of merchandise and services
offered by the Company. These contracts are at fixed rates and terms with level
payments of principal and interest. In accordance with trade practice, payments
due after one year are included in current assets. Provisions for doubtful
accounts are made to maintain an adequate allowance to cover anticipated losses.
Credit operations are generally maintained at each store to evaluate the credit
worthiness of its customers and to manage the collection process. The Company
reviews customer accounts on an individual basis in reaching decisions regarding
methods of collection or write-off of doubtful accounts. Generally, accounts on
which payments have not been received for six months are charged to the
allowance for doubtful accounts. The Company generally requires down payments on
credit sales and offers credit insurance to its customers, both of which lessen
credit risk.
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<PAGE>
The Company also offers certain of its customers revolving credit
through private label credit facilities with various commercial banks. Where
applicable, provisions for recourse obligations are made to maintain an adequate
allowance to cover anticipated losses.
The Company operates its 1,253 stores throughout 38 states, Washington,
D.C., and Puerto Rico and, therefore, is not dependent on any given industry or
business for its customer base and has no significant concentration of credit
risk.
Retained Interest in Securitized Receivables
As part of its accounts receivable securitization program, the Company
transfers a portion of installment accounts receivable to a Master Trust
("Trust") in exchange for certificates representing undivided interests in such
receivables. The Company retains an undivided interest in the securitized
receivables through its ownership of the seller's certificate, which represents
both contractually required seller's interest and excess seller's interest in
the receivables in the Trust. Retained interests also include an interest-only
strip, which arises due to estimated excess cash flow from the Trust that
reverts to the Company. The Company continues to service the receivables in the
Trust. The prior year balances of retained interests have been reclassified to a
separate balance sheet line item.
Inventories
Merchandise inventories are stated at the lower of cost or market as
primarily determined by the average cost method. Inventory costs include certain
warehouse and handling costs.
Property and Equipment
Additions to property and equipment, other than capital leases, are
recorded at cost and, when applicable, include interest incurred during the
construction period. Capital leases are recorded at the lesser of fair value or
the discounted present value of the minimum lease payments.
Depreciation is computed by the straight-line method. Capital leases
and leasehold improvements are amortized by the straight-line method over the
shorter of the estimated useful life of the asset or the term of the lease. The
estimated useful lives are 7 to 45 years for buildings, 3 to 10 years for
fixtures, equipment and vehicles, and 10 to 15 years for leasehold improvements.
Excess Costs Over Net Assets Acquired
Excess costs over net assets acquired are being amortized over periods
not exceeding 40 years using the straight-line method. The Company evaluates
excess costs over net assets acquired for recoverability on the basis of whether
goodwill is fully recoverable from projected, undiscounted net cash flows from
operations of the related business unit. Impairment, should any occur, would be
recognized by a charge to operating results and a reduction in the carrying
value of excess costs over net assets acquired.
Stockholders' Equity
The Company is authorized to issue 250,000,000 shares of $2 par value
common stock. At February 28, 1998 and 1997, there were 58,808,000 and
54,414,000 shares outstanding, respectively. The Company is authorized to issue
3,000,000 shares of $10 par value preferred stock. To date, none of these shares
have been issued.
On February 10, 1998 the Board of Directors of the Company declared a
dividend distribution of one preferred share purchase right (a "Right") on each
outstanding share of Common Stock pursuant to a Shareholders' Rights Plan. The
action replaced a similar plan expiring in fiscal 1998. The Rights are
exercisable only after the attainment of, or the commencement of a tender offer
to attain, a specified ownership interest in the Company by a person or group.
When exercisable, each Right would entitle its holder to purchase one-hundredth
of a newly issued share of Cumulative Participating Preferred Stock, Series A,
par value $10.00 per share (the "Series A Preferred Stock") at an initial price
of $110, subject to adjustment. A total of 750,000 shares of Series A Preferred
Stock have been reserved. Each share of Series A Preferred Stock will entitle
32
<PAGE>
the holder to 100 votes and has an aggregate dividend rate of 100 times the
amount paid to holders of the Common Stock. Upon occurrence of certain events,
each holder of a Right (other than those which are void pursuant to the terms of
the plan) will become entitled to purchase shares of Common Stock having a value
of twice the Right's then current exercise price in lieu of Series A Preferred
Stock.
New Accounting Standards
During the fiscal year, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 128, "Earnings per Share," which requires the
Company to disclose basic and diluted earnings per share. See Note 13 for the
calculation of basic and diluted earnings per share. The Company also adopted
SFAS No. 129, "Disclosure Information about Capital Structure," which
established disclosure requirements for the Company's common stock. The adoption
of SFAS No. 128 and SFAS No. 129 did not have a material impact on the Company's
financial statements.
In June 1997, the Financial Accounting Standards Board (FASB) issued
SFAS No. 130, "Reporting Comprehensive Income," which requires presentation of
total nonowner changes in equity for all periods displayed. The Company plans to
adopt this statement for the year ending February 28, 1999, and is evaluating
the alternative disclosure formats suggested by the standard.
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. Adoption of
this statement will not affect the Company's consolidated financial position,
results of operations or cash flows, and will be limited to the form and content
of its disclosures.
Revenues and Costs of Sales
Sales revenue is generally recognized upon determination that
merchandise is in stock and establishment of a delivery date, and, if
applicable, upon approval of customer credit. Sales are presented net of
returns. The effect of sales returns prior to shipment date has been immaterial.
Other income consists primarily of finance and other income earned on accounts
receivable. Finance charges were $231,612,000, $209,491,000, and $182,426,000
during fiscal 1998, 1997 and 1996, respectively. Finance charges are included in
revenues on a monthly basis as earned. The Company sells substantially all of
its service policies to third parties and recognizes service policy income on
these at the time of sale. Revenue from service policies and extended warranty
contracts retained by the Company are deferred and recognized over the life of
the contract period. Costs of sales includes occupancy and delivery expenses.
Earnings Per Share
Basic earnings per share is computed based on the weighted average
number of common shares outstanding. Diluted earnings per share also includes
the effect of dilutive potential common shares outstanding during the period.
Dilutive potential common shares are additional common shares (dilutive stock
options) assumed to be earned.
Interest Rate Swap Agreements
The Company has entered into several interest rate swap agreements ("swap
agreements") as a means of managing its exposure to changes in interest rates.
These agreements in effect convert a portion of the Company's floating rate debt
and floating rate asset securitizations to fixed rates by exchanging floating
rate payments for fixed rate payments. The differential to be paid or received
on these agreements is accrued and is recognized as an adjustment to interest
expense. The related amount of payable to or receivable from counterparties is
recorded as an adjustment to accrued interest expense.
33
<PAGE>
(2) Expansion
- -----------------------------------------------------------------------------
During fiscal years 1998 and 1997, the Company made the acquisitions
described below. All acquisitions, except for the Bedding Experts transaction,
have been accounted for by the purchase method, and accordingly, operations
subsequent to the respective acquisition dates have been included in the
accompanying financial statements. Pro forma results of operations for certain
acquisitions have not been presented because the effects were not significant.
Other acquisitions completed during fiscal years 1998 and 1997 are not discussed
below because they are not considered material to the consolidated financial
statements.
During July 1997, the Company acquired all of the outstanding capital
stock of Mattress Discounters Corporation and a related corporation ("Mattress
Discounters") with 169 stores in 10 states and Washington, D.C. The initial
purchase price was valued at approximately $42,900,000. The Company issued
2,269,839 shares of its common stock at the time of closing and placed 264,550
shares of common stock in escrow to be paid to the former shareholders of
Mattress Discounters if the acquired stores meet certain earnings targets in the
twelve months following the closing. As of February 28, 1998, the purchase price
allocation was considered preliminary as certain studies related to the fair
value of assets acquired and liabilities assumed have not been completed.
However, management does not expect the resulting adjustments to be material.
The unamortized excess of purchase price over the fair market value of the net
assets acquired, as of February 28, 1998 was $56,181,000.
During January 1998, the Company acquired all of the outstanding capital
stock of Bedding Experts, Inc. with 54 stores in Chicago, Illinois and the
surrounding area. The Company issued 2,019,182 shares of its common stock in the
transaction valued at $25,000,000. The transaction was recorded as a
pooling-of-interests, however prior periods have not been restated as the effect
is not considered material to the consolidated financial statements.
During January 1998, the Company acquired certain assets related to 5
stores, 3 of which will remain in operation, of John M. Smyth's Homemakers
("Homemakers") in Chicago, Illinois. The purchase price of these assets was
approximately $11,959,000. The unamortized excess of purchase price over the
fair market value of the net assets acquired from Homemakers as of February 28,
1998 was not significant.
During February 1998, the Company acquired certain assets related to 24
stores of Reliable, Inc. of Columbia, Maryland. The purchase price of these
assets was approximately $18,164,000. The unamortized excess of purchase price
over the fair market value of the net assets acquired from Reliable, Inc. as of
February 28, 1998 was $4,602,000.
During October 1996, the Company acquired certain assets related to 20
stores of J. McMahan's in Santa Monica, California. The purchase price of these
assets was approximately $20,021,000, net of $26,989,000 of assets, which were
subsequently sold. The unamortized excess of purchase price over the fair market
value of the net assets acquired from J. McMahan's as of February 28, 1998 was
$16,346,000.
During October 1996, the Company purchased certain assets relating to 23
stores of Self Service Furniture Company of Spokane, Washington. The purchase
price of these assets was approximately $19,163,000. The unamortized excess of
purchase price over the fair market value of the net assets acquired from Self
Service as of February 28, 1998 was $4,857,000.
During December 1996, the Company acquired Rhodes, Inc., a publicly traded
home furnishings retailer with 105 stores in 15 states. The Company issued
approximately 4,588,000 shares of its common stock in the transaction valued at
$69,390,000, assumed debt and other accrued liabilities of $192,542,000 and
incurred approximately $1,400,000 in costs related to the acquisition. The
Company assigned $108,319,000 of acquisition costs to excess of purchase price
over the fair market value of the net assets acquired. The unamortized excess of
purchase price over the fair market value of the net assets acquired, as of
February 28, 1998 was $105,162,000. Adjustments made to the preliminary purchase
price allocation were not material.
34
<PAGE>
The unaudited consolidated results of operations on a pro forma basis as
though Rhodes had been acquired as of the beginning of fiscal years 1997 and
1996 are as follows:
1997 1996
---- ----
(Amounts in thousands except per share data)
Total revenues $2,027,753 $1,795,015
Net earnings 33,829 48,674
Net earnings per share:
Basic 0.64 0.92
Diluted 0.63 0.90
The pro forma information is presented for comparative purposes only
and is not necessarily indicative of the operating results that would have
occurred had the Rhodes acquisition been consummated as of the above dates, nor
is it necessarily indicative of future operating results.
During February 1997, the Company acquired certain assets relating to
10 stores of The RoomStore, Inc. of Ft. Worth, Texas. The Company issued 720,000
shares of its common stock in the transaction valued at $9,630,000, and assumed
debt and other accrued liabilities of $5,984,000. The unamortized excess of
purchase price over the fair market value of the net assets acquired as of
February 28, 1998 was $7,778,000.
The Company amortizes the excess of purchase price over fair market
value of net assets acquired on a straight-line basis over periods not exceeding
40 years. The unamortized excess of purchase price over the fair value of the
net assets acquired for all acquisitions was $350,493,000 and $294,090,000, net
of accumulated amortization of $29,050,000 and $20,213,000, at February 28, 1998
and 1997, respectively.
(3) Store Closing & Other Charges
- ------------------------------------------------------------------------------
In the fourth quarter of fiscal 1998, the Company recorded a pre-tax
charge of approximately $25,530,000 related to specific plans to close
approximately 40 Heilig-Meyers stores, downsize office and support facilities,
and reorganize the Heilig-Meyers private label credit card program. The charge
reduced 1998 net earnings $16,683,000 or $.30 per share.
The pre-tax charge is summarized as follows:
Amount Utilized Remaining
through Reserve as of
Pre-Tax February 28, February 28,
Charge 1998 1998
---------------------------------------------
(Amounts in thousands)
Severance $ 8,100 $1,452 $ 6,648
Lease & facility exit cost 7,680 - 7,680
Fixed asset impairment 7,250 2,117 5,133
Goodwill impairment 2,500 2,500 -
--------------------------------------------
Total $25,530 $6,069 $19,461
============================================
The Company expects to complete the store closings, office downsizing, and
private label credit card program reorganization within the next fiscal year.
Accordingly, the substantial majority of the reserves are expected to be
utilized during fiscal 1999. Amounts related to long-term lease obligations may
extend beyond fiscal 1999.
35
<PAGE>
(4) Accounts Receivable and Retained Interest in Securitized Receivables
- -----------------------------------------------------------------------------
Accounts receivable are shown net of an allowance for doubtful accounts
and unearned finance income. The allowance for doubtful accounts was $60,306,000
and $41,120,000 and unearned finance income was $46,980,000 and $44,356,000 at
February 28, 1998 and 1997, respectively. Accounts receivable having balances
due after one year were $94,676,000 and $139,233,000 at February 28, 1998 and
1997, respectively.
As noted in Note 1, the Company transfers a portion of its installment
accounts receivable to a Master Trust ("Trust") in exchange for certificates
representing undivided interests in such receivables. The Trust has two series
of certificates outstanding as of February 28, 1998: Series 1997-1 and Series
1998-1. Certificates have been sold to third parties representing undivided
interests in $652,000,000 of the securitized receivables as of February 28,
1998, and $592,000,000 of the securitized receivables as of February 28, 1997.
The Series 1997-1 Senior class certificates totaling $252,000,000 and
$592,000,000 were outstanding as of February 28, 1998 and 1997, respectively,
and bear a variable interest rate tied to commercial paper indices. The rates in
effect as of February 28, 1998 and 1997 were 6.1% and 5.7%, respectively. Unless
extended, the commitment termination date related to the Series 1997-1
certificates is February 24, 1999. The Series 1998-1 $307,000,000 Class A 6.125%
and $61,000,000 Class B 6.35% fixed rate certificates were held by third parties
as of February 28, 1998. Additionally, as of February 28, 1998, a third party
held the $32,000,000 Series 1998-1 Collateral Indebtedness Interest, which bears
interest at a variable rate (6.5% as of February 28, 1998). The final
distribution date for the Class A certificates is scheduled to occur in December
2002, at which time the Class A certificate holders will begin to receive
principal payments. The final distribution date for the Class B certificates is
scheduled to occur in February 2003, at which time the Class B certificate
holders will begin to receive principal payments provided that Class A
certificates have been paid in full. The holder of the Collateral Indebtedness
Interest will receive principal payments beginning one month subsequent to the
final principal payment to Class B certificate holders.
The Company retained the remaining undivided interests in the Trust's
receivables. The Company will continue to service all accounts in the Trust. No
servicing asset resulted because contractual rates are at estimated market rates
and are considered adequate compensation for servicing. Retained interests are
carried at fair value and are summarized below:
Unrealized Unrealized
(Amounts in thousands) Cost Gain Loss Fair Value
February 28, 1998:
Contractually required
seller's interest $110,193 $ 7,242 $ - $117,435
Excess seller's interest 36,706 - - 36,706
Interest-only strip 27,925 92 - 28,017
---------------------------------------
$174,824 $ 7,334 $ - $182,158
=======================================
February 28, 1997:
Contractually required
seller's interest $200,229 $ 15,851 $ - $216,080
Interest-only strip 25,337 2,010 - 27,347
---------------------------------------
$225,566 $ 17,861 $ - $243,427
=======================================
36
<PAGE>
(5) Property and Equipment
- -----------------------------------------------------------------------------
Property and equipment consists of the following:
1998 1997
------------------------
(Amounts in thousands)
Land and buildings $135,857 $133,049
Fixtures, equipment and vehicles 150,259 111,916
Leasehold improvements 254,363 215,683
Construction in progress 30,998 36,484
------------------------
571,477 497,132
Less accumulated depreciation 173,326 130,383
------------------------
$398,151 $366,749
========================
(6) Notes Payable and Long-Term Debt
- -----------------------------------------------------------------------------
The Company is currently in the third year of a five-year $400,000,000
revolving credit facility dated July 19, 1995. Comprised of thirteen banks, the
facility had $260,000,000 outstanding and $140,000,000 unused as of February 28,
1998. The Company also has additional lines of credit with banks, totaling
$60,000,000, all of which were unused at February 28, 1998. The Company's
maximum short-term borrowings were $342,100,000 during fiscal 1998 and
$321,000,000 during fiscal 1997. The average short-term debt outstanding for
fiscal 1998 was $229,213,000 compared to $186,281,000 for fiscal 1997. The
approximate weighted average interest rates were 6.1%, 5.8% and 6.3% in fiscal
1998, 1997 and 1996, respectively.
At February 28, 1998, the Company had $260,000,000 of outstanding
short-term borrowings compared to $156,000,000 at February 28, 1997. The average
interest rate on this debt was approximately 6.2% at February 28, 1998, and 5.8%
and 5.6% at February 28, 1997 and February 29, 1996, respectively. There were no
compensating balance requirements.
Long-term debt consists of the following:
1998 1997
------------------------
(Amounts in thousands)
Shelf registration issues:
7.60% unsecured notes due 2007 $175,000 $ -
7.88% unsecured notes due 2003 200,000 200,000
7.40% unsecured notes due 2002 100,000 100,000
Other issues:
Notes payable to insurance
companies and banks, maturing
through 2002, interest ranging
from 6.25% to 8.99%,unsecured 245,000 343,400
Notes, collateralizing industrial
development revenue bonds, maturing
through 2005, interest ranging from
a floating rate of 60% of prime to
an 8.50% fixed rate 906 1,316
Term loans, maturing through
2007, interest ranging to 9.80%,
primarily collateralized by deeds
of trust 1,026 505
Capital lease obligations, maturing
through 2009, interest ranging
from 76% of prime to 12.80% 15,704 16,681
-----------------------
737,636 661,902
Less amounts due within one year 22,365 100,413
-----------------------
$715,271 $561,489
=======================
37
<PAGE>
Principal payments are due for the four years after February 28, 1999
as follows: 2000, $131,132,000; 2001, $35,641,000; 2002, $200,000; and 2003,
$208,000. The aggregate net carrying value of property and equipment
collateralization at February 28, 1998, was $9,794,000. The Company has on file
a shelf registration to issue up to $400,000,000 of common stock, warrants and
debt securities. The $175,000,000 unsecured 7.60% notes due 2007 were issued
under the shelf registration with the remaining $225,000,000 unissued at
February 28, 1998. During fiscal 1997, the Company issued $200,000,000 unsecured
7.88% notes due 2003 and $100,000,000 unsecured 7.40% notes due 2002 under a
previous shelf registration.
Notes payable to insurance companies contain certain restrictive
covenants. Under these covenants, the payment of cash dividends is limited to
$92,687,000 plus 75% of net earnings adjusted for dividend payouts subsequent to
February 28, 1998. Other covenants relate to the maintenance of working capital,
pre-tax earnings coverage of fixed charges, limitations on total and funded
indebtedness and maintenance of stockholders' equity. As a result of the loss
incurred during fiscal 1998, the Company obtained amendments to its bank debt
agreements to exclude certain charges from its pre-tax earnings coverage of
fixed charges calculation in order to maintain covenant compliance as of
February 28, 1998. As a result of these charges, certain provisions of the
Company's bond indenture restrict the Company's ability to incur long-term debt
until certain covenant restrictions are met.
Interest payments of $65,404,000, $46,710,000 and $40,710,000 net of
capitalized interest of $3,762,000, $2,360,000 and $2,141,000 were made during
fiscal 1998, 1997 and 1996, respectively.
(7) Income Taxes
- ------------------------------------------------------------------------------
The provision (benefit) for income taxes consists of the following:
1998 1997 1996
(Amounts in thousands) -----------------------------------
Current:
Federal $(21,250) $ 5,481 $11,034
State (4,911) 3,006 1,988
Puerto Rico 2,238 2,160 (522)
------------------------------------
(23,923) 10,647 12,500
------------------------------------
Deferred:
Federal (2,178) 7,758 6,012
State ( 573) 1,618 1,293
Puerto Rico (2,570) 1,692 3,216
-----------------------------------
(5,321) 11,068 10,521
-----------------------------------
$(29,244) $21,715 $23,021
===================================
The income tax effects of temporary differences that gave rise to
significant portions of the net deferred tax liability as of February 28, 1998
and February 28, 1997, consist of the following:
1998 1997
(Amounts in thousands)
Deferred tax assets:
Allowance for doubtful accounts $ 20,613 $ 8,775
Store closing and other charges 15,521 -
Accrued liabilities 12,400 25,198
Alternative minimum tax credit
carryforward 7,973 3,014
Federal tax credits 6,655 -
Net operating loss carryforward 1,977 5,622
Other 247 435
Deferred revenues - 1,487
------------------------
65,386 44,531
------------------------
38
<PAGE>
Deferred tax liabilities:
Excess costs over net assets acquired 46,536 58,172
Accounts receivable 20,586 6,813
Depreciation 17,520 7,029
Asset securitizations 17,436 19,152
Inventory 9,264 7,469
Deferred revenues 8,962 -
Costs capitalized on constructed
assets 6,525 5,767
Other 3,580 2,547
------------------------
130,409 106,949
$ 65,023 $ 62,418
Balance sheet classification:
Other current assets $ 5,914 $ -
Other current liabilities - 13,290
Deferred income tax liability 70,937 49,128
------------------------
$ 65,023 $ 62,418
========================
A reconciliation of the statutory federal income tax rate to the
Company's effective rate is provided below:
1998 1997 1996
---------------------------------------
Statutory federal income
tax rate 35.0% 35.0% 35.0%
State income taxes, net of
federal income tax benefit 2.5 3.7 3.8
Tax credits (4.9) (5.3) (3.1)
Other, net 2.1 1.7 -
---------------------------------------
34.7% 35.1% 35.7%
=======================================
Federal and state income tax payments of $8,427,000, $18,447,000 and
$24,738,000 were made during fiscal 1998, 1997, and 1996, respectively. The
Company has an alternative minimum tax and other federal tax credit
carryforwards of approximately $7,973,000 and $6,655,000, respectively.
Additionally, the Company has a federal net operating loss carryforward of
approximately $566,000. The federal net operating loss and tax credit
carryforwards will expire fiscal year 2013.
(8) Retirement Plans
- ------------------------------------------------------------------------------
The Company has a qualified profit sharing and retirement savings plan, which
includes a cash or deferred arrangement under Section 401(k) of the Internal
Revenue Code (the "Code") and covers substantially all the Company's employees.
Eligible employees may elect to contribute specified percentages of their
compensation to the plan. The Company guarantees a dollar-for-dollar match on
the first two percent of the employee's compensation contributed to the plan.
The Company will make an additional matching contribution if and to the extent
that four percent of the Company's estimated consolidated income before taxes
exceeds the two percent dollar-for-dollar match described above. The Company
may, at the discretion of its Board of Directors, make additional Company
matching contributions subject to certain limitations. The plan may be
terminated at the discretion of the Board of Directors. If the plan is
terminated, the Company will not be required to make any further contributions
to the plan and participants will become 100% vested in any Company
contributions made to the plan. The plan expense recognized in fiscal 1998, 1997
and 1996 was $3,052,000, $2,507,000 and $2,553,000, respectively.
In addition, a non-qualified supplemental profit sharing and retirement
savings plan was established as of March 1, 1991, for the purpose of providing
deferred compensation for certain employees whose benefits and contributions
under the qualified plan are limited by the Code. The deferred compensation
expense recognized in fiscal 1998, 1997 and 1996 was $445,000, $283,000 and
$254,000, respectively.
39
<PAGE>
The Company has an executive income continuation plan which covers
certain executive officers. The plan is intended to provide certain supplemental
pre-retirement death benefits and retirement benefits to its key executives. In
the event an executive dies prior to age 65 in the employment of the Company,
the executive's beneficiary will receive annual benefits of 100% of salary for a
period of one to two years and/or 50% of salary for a period of eight years. If
the executive retires at age 65, either the executive or his beneficiary will
receive an annual retirement benefit of 20% to 25% of the executive's salary
increased 4% annually for a period of 15 years. This plan has been funded
through the purchase of life insurance contracts covering the executives and
owned by the Company. For fiscal years 1998, 1997 and 1996, there was no charge
to earnings. As of February 28, 1998, the Company continued to operate separate
employee benefit plans covering certain groups of employees of Rhodes, which was
acquired on December 31, 1996. These plans include a qualified non-contributory
defined benefit plan, a non-qualified unfunded defined benefit plan, and a
qualified defined contribution savings plan. During fiscal 1998, these three
plans were amended in order to cease future benefit accruals and contributions.
As of that date, no new participants could be added.
A comparison of accumulated plan benefits and plan net assets as of
February 28, 1998 and 1997 for the qualified defined benefit plan follows:
Plan Benefits & Assets
1998 1997
(Amounts in thousands)
Actuarial present value of accumulated plan benefits:
Vested $15,280 $13,495
Non-vested - 387
-------------------
$15,280 $13,882
Net assets available for plan benefits $15,205 $12,972
===================
The projected benefit obligation of the unfunded plan totaled $1,796,000
and $1,062,000 at February 28, 1998 and 1997, respectively. The assumed rate of
return used in determining the actuarial present value of accumulated plan
benefits for both defined benefit plans was 7.25% and 7.75%, for the fiscal
years ended February 28, 1998 and 1997, respectively. The expense related to the
operation of these plans during fiscal 1998 and 1997 was insignificant.
(9) Stock Options
- ------------------------------------------------------------------------------
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB 25) and related
Interpretations in accounting for its employee stock options. In electing to
account for its stock options under APB 25, the Company is required by SFAS No.
123, "Accounting for Stock-Based Compensation" to provide pro forma information
regarding net income and earnings per share.
The 1983, 1990 and 1994 Stock Option Plans provide that key employees of
the Company are eligible to receive common stock options (at an exercise price
of no less than fair market value at the date of grant) and stock appreciation
rights. Under these plans, approximately 8,094,000 shares have been authorized
to be reserved for issuance. All options granted have ten-year terms. Options
granted during fiscal 1998 immediately vested and became exercisable when
granted. Previously granted options vest on a graduated basis and become fully
exercisable at the end of two years of continued employment.
Pro forma information regarding net income and earnings per share as
required by SFAS No. 123 has been determined as if the Company had accounted for
its employee stock options under the fair value method of that statement. The
fair value for these options was estimated at the date of grant using a
Black-Scholes option valuation model with the following weighted-average
assumptions for fiscal 1998, 1997 and 1996, respectively: risk-free interest
rates of 6.5%, 6.1% and 5.2%; a dividend yield of 1.6%; volatility factors of
the expected market price of the Company's common stock of 46%, 41% and 41%; and
a weighted-average expected option life of 3.61, 3.48 and 3.50 years.
40
<PAGE>
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information follows:
1998 1997 1996
(Amounts in thousands except per share data)
Pro forma net income (loss) $(55,837) $37,072 $36,524
Pro forma earnings (loss) per share:
Basic (.99) .75 .75
Diluted (.99) .74 .74
A summary of the Company's stock option activity and related information
for the years ended February 28, (29), 1998, 1997 and 1996 follows:
Weighted
Average
Options Exercise Price
--------- --------------
Outstanding at March 1, 1995 4,075,729 $18.46
Granted 1,045,200 17.25
Exercised (23,525) 12.17
Forfeited (665,500) 32.50
--------- ------
Outstanding at February 29, 1996 4,431,904 18.49
Granted 816,480 14.55
Exercised (51,500) 13.25
--------- ------
Outstanding at February 28, 1997 5,196,884 15.55
Granted 28,008 15.53
Exercised (116,435) 7.81
Forfeited (100,000) 15.63
--------- ------
Outstanding at February 28, 1998 5,008,457 $15.98
========= ======
Range of $5.52 $10.01 $17.01 $27.01
Exercise to to to to
Prices $10.00 $17.00 $27.00 $35.06
------ ------ ------ ------
Options outstanding
at February 28, 1998 1,527,259 733,758 2,735,440 12,000
Weighted average
remaining contract life,
outstanding options 3.21 8.95 5.96 5.95
Weighted average
exercise price,
outstanding options $8.66 $14.46 $20.39 $35.06
41
<PAGE>
Options exercisable
at February 28, 1998 1,527,259 659,596 2,632,240 12,000
Weighted average
exercise price,
exercisable options $8.66 $14.32 $20.51 $35.06
Options exercisable at year end and the respective weighted average
exercise prices were 4,831,095 at $15.96, 4,762,846 at $15.50 and 4,017,290 at
$18.06 for fiscal 1998, 1997 and 1996, respectively.
The weighted average fair values of options granted were $5.82, $4.88, and
$5.42 for fiscal 1998, 1997, and 1996, respectively.
(10) Commitments and Contingencies
- -----------------------------------------------------------------------------
Leases
The Company has entered into noncancellable lease agreements with initial terms
ranging from 1 to 25 years for certain stores, warehouses and the corporate
office. Certain leases include renewal options ranging from 1 to 10 years and/or
purchase provisions, both of which may be exercised at the Company's option.
Most of the leases are gross leases under which the lessor pays the taxes,
insurance and maintenance costs. The following capital leases are included in
the accompanying consolidated balance sheets:
1998 1997
(Amounts in thousands)
Land and buildings ............................. $12,098 $12,098
Fixtures and equipment ......................... 1,955 675
------- -------
14,053 12,773
Less accumulated depreciation
and amortization ...................... 5,219 3,724
------- -------
$ 8,834 $ 9,049
======= =======
Capitalized lease amortization is included in depreciation expense.
Future minimum lease payments under capital leases and operating leases having
initial or remaining noncancellable lease terms in excess of one year at
February 28, 1998, are as follows:
Fiscal Years Capital Leases Operating Leases
(Amounts in thousands)
1999 $ 3,308 $136,294
2000 3,772 133,179
2001 3,349 116,732
2002 2,957 100,782
2003 2,403 91,684
After 2003 5,085 337,684
--------------------------------
Total minimum lease payments $ 20,874 $916,355
========
Less:
Executory costs 88
Imputed interest 5,082
Present value of minimum --------
lease payments $ 15,704
========
Total rental expense under operating leases for fiscal 1998, 1997 and
1996 was $138,128,000, $83,888,000 and $67,509,000, respectively. Contingent
rentals and sublease rentals are negligible.
Payments to affiliated entities under capital and operating leases were
$327,000 for fiscal 1998, which included payments to limited partnerships in
which the Company has equity interests. Lease payments to affiliated entities
for fiscal 1997 and 1996 were $314,000 and $625,000, respectively.
Litigation
The Company is party to various legal actions and administrative
proceedings and subject to various claims arising in the ordinary course of
business. Based on the best information presently available, the Company
believes that the disposition of these matters will not have a material effect
on the financial statements.
42
<PAGE>
(11) Derivative Financial Instruments
- ------------------------------------------------------------------------------
The Company uses derivative financial instruments in the form of interest
rate swap agreements primarily to manage the risk of unfavorable movements in
interest rates. These convert floating rate notes payable to banks and floating
rates on asset securitization agreements to fixed rates. The notional amounts of
these swap agreements at February 28, were as follows:
1998 1997
(Amounts in thousands)
On notes payable and other $168,300 $211,700
On securitized receivables 185,000 235,000
Interest rates that the Company paid per the swap agreements related
primarily to notes payable were fixed at an average rate of 7.0% and 6.7% at
February 28, 1998 and 1997, respectively. The variable rates received per these
agreements were tied to LIBOR or commercial paper rates and averaged 5.7% at
February 28, 1998 and 1997. The terms for these agreements range from 1 to 2
years.
Interest rates that the Company paid on swap agreements related to
securitized receivables were fixed at an average rate of 6.8% and 6.5% at
February 28, 1998 and 1997, respectively. The variable rates received per these
agreements were tied to LIBOR or commercial paper rates and averaged 5.7% and
5.5% at February 28, 1998 and 1997, respectively. The terms for these agreements
range from 1 to 3 years. Resulting changes in interest are recorded as increases
or decreases to interest expense. The accrued interest liability is
correspondingly increased or decreased.
The Company believes its risk of credit-related losses resulting from
nonperformance by a counterparty is remote. The amount of any such loss would be
limited to a small percentage of the notional amount of each swap. As a means of
reducing this risk, the Company as a matter of policy only enters into
transactions with counterparties rated "A" or higher.
The Company does not mark its swaps to market and therefore does not
record a gain or loss with interest rate changes. Gains on disposals of swaps
are recognized over the remaining life of the swap. Losses on disposals, which
there have been none to date, would be recognized immediately.
All swaps are held for purposes other than trading.
(12) Fair Value of Financial Instruments
- ------------------------------------------------------------------------------
The estimated fair values of financial instruments have been determined by
using available market information. The estimates are not necessarily indicative
of the amounts the Company could realize in a current market exchange. The use
of different market assumptions and/or estimation methodologies may have a
material effect on the estimated fair value amounts.
The estimated fair values of the Company's financial instruments at
February 28, 1998 and 1997 are as follows:
43
<PAGE>
1998 1997
---- ----
Carrying Fair Carrying Fair
(Amounts in thousands) Amount Value Amount Value
Assets:
Cash $ 48,779 $ 48,779 $ 14,959 $ 14,959
Accounts receivable, net 392,765 392,765 380,879 380,879
Retained interest in
securitized receivables 182,158 182,158 243,427 243,427
Liabilities:
Accounts payable 203,048 203,048 160,857 160,857
Notes payable 260,000 260,000 156,000 156,000
Long-term debt 721,932 725,997 645,221 661,940
Off-balance-sheet financial
instruments:
Interest rate swap
agreements:
Assets - 86 - 632
Liabilities - 6,570 - 6,247
The following methods and assumptions were used to estimate the fair value
for each class of financial instruments shown above:
Cash and Accounts Receivable
The carrying amount approximates fair value because of the short-term
maturity of these assets.
Retained Interest in Securitized Receivables
The carrying amount approximates fair value, based upon customer
payment experience and discounted at the market rate.
Accounts Payable and Notes Payable
The carrying amount approximates fair value because of the short-term
maturity of these liabilities.
Long-Term Debt
The fair value of the Company's long-term debt is based on the
discounted cash flow of that debt, using current rates and remaining maturities.
Interest Rate Swap Agreements
The fair value of the Company's interest rate swap agreements is the
estimated amount that the Company would receive or pay upon termination of the
agreements, based on estimates obtained from the counterparties. These
agreements are not held for trading purposes, but rather to hedge interest rate
risk.
(13) Earnings (Loss) Per Share
- ------------------------------------------------------------------------------
The Company was required to adopt in the fourth quarter of fiscal 1998
SFAS No. 128, "Earnings Per Share", which superceded APB Opinion No. 15.
Earnings (loss) per share for all periods presented have been restated to
reflect the adoption of SFAS No. 128. SFAS No. 128 requires companies to present
basic and diluted earnings (loss) per share, instead of primary and fully
diluted earnings (loss) per share. Basic earnings (loss) per share is computed
by dividing the net earnings (loss) by the weighted average number of shares
outstanding. Diluted earnings (loss) per share reflects the potential dilution
that could occur if options or other contingencies to issue common stock were
exercised.
The following is a reconciliation of the number of shares (denominator)
44
<PAGE>
used in the basic and diluted earnings (loss) per share computations:
1998 1997 1996
-------------------------------
(Amounts in thousands)
Numerator:
Net earnings (loss) $(55,143) $40,185 $41,504
Denominator:
Denominator for basic
earnings (loss) per
share - average common
shares outstanding 56,312 49,360 48,560
Effect of potentially
dilutive stock options - 786 1,044
Denominator for diluted
earnings loss) per share 56,312 50,146 49,604
Basic EPS $ (0.98) $ 0.81 $ 0.85
Diluted EPS (0.98) 0.80 0.84
The computation for fiscal 1998 does not assume the conversion of
outstanding options to purchase 5,008,000 shares of common stock at prices
ranging from $5.52 to $35.06, with expiration dates between January 1999 and
June 2007 or 265,000 contingently issuable shares, since the result would be
antidilutive to the loss from operations. Options to purchase 1,723,000 shares
of common stock at prices ranging from $20.29 to $35.06, with expiration dates
between February 2003 and August 2004, were outstanding during fiscal 1997,
however, were excluded from the diluted EPS calculation because the options'
exercise prices were greater than the average market price of the common shares.
Options to purchase 545,000 shares of common stock at prices ranging from $26.13
to $35.06, with expiration dates between February 2004 and August 2004, were
outstanding during fiscal 1996, however, were excluded from the diluted EPS
calculation because the options' exercise prices were greater than the average
market price of the common shares.
45
<PAGE>
(14) Quarterly Financial Data (Unaudited)
- ------------------------------------------------------------------------------
The following is a summary of quarterly financial data for fiscal 1998 and
1997:
Three months ended May 31 August 31 November 30 February 28
- --------------------------------------------------------------------------------
(Amounts in thousands except per share data)
1998
Revenues $566,325 $590,212 $678,468 $634,732
Gross profit(1) 169,058 171,201 202,796 165,609
Earnings (loss) before taxes 22,000 14,402 (75,467) (45,322)
Net earnings (loss) 13,761 9,279 (49,122) (29,061)
Earnings (loss) per share of common stock(2):
Basic 0.25 0.17 (0.87) (0.50)
Diluted 0.25 0.16 (0.87) (0.50)
Cash dividends per share of
common stock 0.07 0.07 0.07 0.07
1997
Revenues $357,914 $343,523 $413,474 $478,207
Gross profit(1) 106,977 95,784 123,614 139,692
Earnings before taxes 19,208 12,085 14,701 15,907
Net earnings 12,371 7,747 9,492 10,576
Earnings per share of common stock(2):
Basic 0.25 0.16 0.20 0.20
Diluted 0.25 0.16 0.19 0.20
Cash dividends per share of
common stock 0.07 0.07 0.07 0.07
(1) Gross profit is sales less costs of sales.
(2) Total of quarterly earnings (loss) per common share may not equal the
annual amount because net income (loss) per common share is calculated
independently for each quarter. The earnings (loss) per share amounts have
been restated as required to comply with Statement of Financial Accounting
Standards No. 128, "Earnings Per Share." For further discussion of
earnings (loss) per share and the impact of SFAS No. 128, see Note 13.
(15) MacSaver Financial Services
- ------------------------------------------------------------------------------
MacSaver Financial Services ("MacSaver"), is the Company's wholly-owned
subsidiary whose principal business activity is to obtain financing for the
operations of the Company, and in connection therewith, MacSaver generally
acquires and holds the aggregate principal amount of installment credit accounts
generated by the Company's operating subsidiaries, and issues and carries
substantially all of the Company's notes payable and long-term debt. MacSaver
also transfers a portion of its installment accounts receivable, through a
wholly-owned subsidiary, to a Master Trust which issues certificates
representing undivided interests in such certificates (See Notes 1 and 4).
Substantially all of the net revenues generated by MacSaver are pursuant to
operating agreements with the Company and certain of its wholly-owned
subsidiaries. In June 1997, the Company and MacSaver filed a joint Registration
Statement on Form S-3 with the Securities and Exchange Commission relating to up
to $400,000,000 aggregate principal amount of securities. MacSaver has issued
$175,000,000 in aggregate principal amount of its notes at 7.60% due 2007. In
fiscal 1997, MacSaver issued $300,000,000 in aggregate principal amount of its
46
<PAGE>
notes under a previous Registration Statement filed jointly by the Company and
MacSaver; $200,000,000 at 7.88% due 2003 and $100,000,000 at 7.40% due 2002.
These notes are unconditionally guaranteed as to payment of principal and
interest 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 holders of the debt
securities. However, as required by the 1934 Act, the summarized financial
information concerning MacSaver is as follows:
MacSaver Financial Services Summarized Statements of Operations
Twelve months ended February 28, (29),
1998 1997 1996
(Amounts in thousands)
Net revenues $267,386 $158,306 $116,243
Operating expenses 292,493 102,706 71,649
-----------------------------
Earnings (loss) before
taxes (25,107) 55,600 44,594
-----------------------------
Net earnings (loss) $(16,320) $ 36,140 $ 28,986
=============================
MacSaver Financial Services Summarized Balance Sheets
February 28,
1998 1997
(Amounts in thousands)
Current assets $ 29,545 $ 9,054
Accounts receivable, net 295,405 238,694
Retained interest in securitized
receivables at fair value 182,158 243,427
Due from affiliates 645,291 504,763
----------------------
Total assets $1,152,399 $995,938
======================
Current liabilities $ 48,951 $128,921
Notes payable 260,000 156,000
Long-term debt 700,000 545,000
Stockholder's equity 143,448 166,017
----------------------
Total liabilities and
stockholder's equity $1,152,399 $995,938
======================
47
<PAGE>
Independent Auditors' Report
To the Stockholders and Board of Directors
Heilig-Meyers Company
Richmond, Virginia
We have audited the accompanying consolidated balance sheets of Heilig-Meyers
Company and subsidiaries as of February 28, 1998 and 1997, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended February 28, 1998. Our audits also
included the financial statement schedule listed in the Index at item 14(a)2.
These financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on the financial statements and financial statement schedule based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Heilig-Meyers Company and
subsidiaries as of February 28, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
February 28, 1998 in conformity with generally accepted accounting principles.
Also, in our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ Deloitte & Touche LLP
Richmond, Virginia
March 25, 1998
48
<PAGE>
ITEM 9. CHANGES in and DISAGREEMENTS with ACCOUNTANTS on ACCOUNTING and
FINANCIAL DISCLOSURE
None.
49
<PAGE>
PART III
In accordance with general instruction G(3) of Form 10-K, the information
called for by Items 10, 11, 12 and 13 of Part III is incorporated by reference
from the registrant's definitive Proxy Statement for its Annual Meeting of
Shareholders scheduled for June 17, 1998, except for information concerning the
executive officers of the registrant which is included in Part I of this report
under the caption "Executive Officers of the Registrant."
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, and REPORTS on FORM 8-K
(a) 1. Financial Statements
The following consolidated financial statements of Heilig-Meyers
Company and Subsidiaries included in the registrant's 1998 Annual
Report to Shareholders are included in item 8 herein:
Independent Auditors' Report
Consolidated Balance Sheets -
February 28, 1998 and 1997
Consolidated Statements of Operations -
Year Ended February 28, 1998,
Year Ended February 28, 1997, and
Year Ended February 29, 1996
Consolidated Statements of Stockholders' Equity -
Year Ended February 28, 1998,
Year Ended February 28, 1997, and
Year Ended February 29, 1996
Consolidated Statements of Cash Flows -
Year Ended February 28, 1998,
Year Ended February 28, 1997, and
Year Ended February 29, 1996
Notes to Consolidated Financial Statements
50
<PAGE>
(a) 2. Financial Statement Schedules: The financial statement
schedule required by this item is listed below.
Independent Auditors' Report on Schedule II included in Item 8
herein.
Schedule II - Valuation and Qualifying Accounts
Schedules other than those listed above have been omitted because
they are not applicable or are not required or because the
required information is included in the financial statements
or notes thereto.
(a) 3. Exhibits required to be filed by Item 601 of Regulation S-K.
See INDEX TO EXHIBITS
(b) 1. Reports on Form 8-K Filed During Last Quarter of Year Ended
February 28, 1998.
There were two Current Reports on Form 8-K filed during the
last quarter of the fiscal year ended February 28, 1998. On
December 24, 1997, Registrant filed a Form 8-K in which it
reported the results for the third quarter of fiscal 1998
and announced an aggressive plan to improve core store
profitability. On February 11, 1998, Registrant filed an 8-K
in which it reported that a Shareholders Rights Plan had
been adopted to replace a similar plan adopted in 1988 which
expired on January 31, 1998.
51
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
Date: May 27, 1998 by /s/William C. DeRusha
-------------------------
William C. DeRusha
Chairman of the Board
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date: May 27, 1998 /s/William C. DeRusha
---------------------
William C. DeRusha
Chairman of the Board
Principal Executive Officer
Director
Date: May 27, 1998 /s/Roy B. Goodman
-----------------
Roy B. Goodman
Senior Vice President
Principal Financial Officer
Date: May 27, 1998 /s/William J. Dieter
--------------------
William J. Dieter
Senior Vice President,
Accounting and Principal
Accounting Officer
Date: May 27, 1998 /s/Alexander Alexander
----------------------
Alexander Alexander, Director
Date: May 27, 1998 /s/Robert L. Burrus, Jr.
------------------------
Robert L. Burrus, Jr., Director
Date: May 27, 1998 /s/Beverley E. Dalton
---------------------
Beverley E. Dalton, Director
Date: May 27, 1998
-------------------
Charles A. Davis, Director
Date: May 27, 1998
---------------------------
Benjamin F. Edwards, III, Director
Date: May 27, 1998 /s/Alan G. Fleischer
--------------------
Alan G. Fleischer, Director
52
<PAGE>
Date: May 27, 1998
---------------------
Nathaniel Krumbein, Director
Date: May 27, 1998
---------------
Hyman Meyers, Director
Date: May 27, 1998 /s/S. Sidney Meyers
-------------------
S. Sidney Meyers, Director
Date: May 27, 1998 /s/Troy A. Peery, Jr.
---------------------
Troy A. Peery, Jr., Director
Date: May 27, 1998 /s/Lawrence N. Smith
--------------------
Lawrence N. Smith, Director
Date: May 27, 1998 /s/Eugene P. Trani
------------------
Eugene P. Trani, Director
Date: May 27, 1998 /s/L. Douglas Wilder
--------------------
L. Douglas Wilder, Director
53
<PAGE>
<TABLE>
HEILIG-MEYERS COMPANY AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(Amounts in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Column A Column B Column C Column D Column E
- -------- --------- ------------------- ------------------------------ ---------
Write-off
Balance at Charged Charged and Purchased Sold Balance
Beginning To Costs To Other Repossession Accounts Accounts at Close
Description of Period & Expenses Accounts Losses Receivable Receivable of Period
Allowance for
Doubtful Accounts:
Year Ended
February 28,
1998 $41,120 $181,136 $ 1,817(A) $106,029 $21,156(C) $38,148 $60,306
$ 1,566(B)
Year Ended
February 28,
1997 $54,714 $ 80,908 $ 1,330(A) $ 70,438 $ 6,912(C) $33,940 $41,120
$15,458(B)
Year Ended
February 29,
1996 $46,678 $ 65,379 $ 1,134(A) $ 57,231 $ 8,917(C) $ -- $54,714
$ 7,671(B)
(A) Represents recoveries on accounts previously written off.
(B) Allowance applicable to purchased accounts receivable.
(C) Deductions from reserve applicable to purchased accounts receivable, as
follows:
1998 1997 1996
-------- -------- ------
Write-offs of Uncollectible Accounts $21,156 $ 6,912 $ 8,917
</TABLE>
54
<PAGE>
Index to Exhibits
3. Articles of Incorporation and Bylaws.
a. Registrant's Restated Articles of Incorporation, as amended.
b. Registrant's Amended and Restated Bylaws, filed as Exhibit
3a to Registrant's Quarterly Report on Form 10-Q for the
quarter ended November 30, 1997, are incorporated herein by
this reference.
4. Instruments defining the rights of security holders, including
indentures.
a. The long-term debt as shown on the consolidated balance sheet
of the Registrant at February 28, 1995 includes various
obligations each of which is evidenced by an instrument
authorizing an amount that is less than 10% of the total
assets of the Registrant and its subsidiaries on a
consolidated basis. The documents evidencing these obligations
are accordingly omitted pursuant to Regulation S-K, Item
601(b)(4)(iii) and will be furnished to the Commission upon
request.
10. Contracts
a. Three leases dated as of December 27, 1976 between Hyman
Meyers, Agent, and the Registrant, filed as Exhibit 10(a)(2)
and Exhibit 10(a)(4) - Exhibit 10(a)(5) to Registrant's Annual
Report on Form 10-K for the fiscal year ended February 28,
1989 (No. 1-8484), are incorporated herein by this reference.
b. The following Agreements filed as Exhibits 10(b) through 10(f)
to Registrant's Annual Report on Form 10-K for the fiscal year
ended February 28, 1991 (No. 1-8484) are incorporated herein
by this reference:
(1) Lease dated as of January 1, 1980 between Hyman Myers
, Agent, and the Registrant.
(2) Lease dated November 1, 1970 between Hyman Meyers,
Agent, and the Registrant as successor in interest to
Heilig-Meyers Company of Greenville, Inc.
(3) Lease dated April 15, 1971 between Meyers-Thornton
Investment Co. and the Registrant as successor in
interest to Meyers-Thornton Corporation.
(4) Lease dated June 28, 1971 between Meyers-Thornton
Investment Company and the Registrant as successor in
interest to Meyers-Thornton Corporation.
(5) Lease dated December 1, 1972 between Meyers-Thornton
Investment Company and the Registrant.
c. The following Agreements (originally filed as exhibits to
Registrant's Annual Report on Form 10-K for the fiscal year
ended March 31, 1982) were refiled as Exhibits 10(c)(1)-(3) to
Registrant's Annual Report on Form 10-K for the fiscal year
ended February 28, 1993 (No. 1-8484) and are incorporated
herein by reference:
(1) Executive Employment and Deferred Compensation
Agreement made January 12, 1982 between Hyman
Meyers and the Registrant. *
(2) Executive Employment and Deferred Compensation
Agreement made January 12, 1982 between S.
Sidney Meyers and the Registrant. *
55
<PAGE>
(3) Executive Employment and Deferred Compensation
Agreement made January 12, 1982 between
Nathaniel Krumbein and the Registrant. *
d. Addendum to Lease and Contract dated February 26, 1973
amending Lease Contract dated April 15, 1971 between
Meyers-Thornton Investment Co. and the Company as successor in
interest to Meyers-Thornton Corporation (see Exhibit
10(c)(2)), filed as Exhibit 10(k) to Registrant's Registration
Statement on Form S-2 (No. 2-81775) is incorporated herein by
this reference.
e. The following Agreements filed as Exhibits 19(a) through 19(c)
to Registrant's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1984 (No. 1-8484) are incorporated herein by
this reference:
(1) Agreement made as of May 4, 1984 to amend Executive
Employment and Deferred Compensation Agreement
between Hyman Meyers and Registrant.*
(2) Agreement made as of May 4, 1984 to amend Executive
Employment and Deferred Compensation Agreement
between S. Sidney Meyers and Registrant.*
(3) Agreement made as of May 4, 1984 to amend Executive
Employment and Deferred Compensation Agreement
between Nathaniel Krumbein and Registrant.*
f. Agreement made as of September 15, 1989 to amend Executive
Employment and Deferred Compensation Agreement between Hyman
Meyers and Registrant filed as Exhibit 10(i) to the
Registrant's Annual Report on Form 10-K for the fiscal year
ended February 28, 1990 (No. 1-8484) is incorporated herein by
this reference.*
g. Agreement made as of September 15, 1989 to amend Executive
Employment and Deferred Compensation Agreement between S.
Sidney Meyers and Registrant filed as Exhibit 10(j) to the
Registrant's Annual Report on Form 10-K for the fiscal year
ended February 28, 1990 (No. 1-8484) is incorporated herein by
this reference.*
h. Agreement made as of September 15, 1989 to amend Executive
Employment and Deferred Compensation Agreement between
Nathaniel Krumbein and Registrant filed as Exhibit 10(k) to
the Registrant's Annual Report on Form 10-K for the fiscal
year ended February 28, 1990 (No. 1-8484)is incorporated
herein by this reference.*
i. Deferred Compensation Agreement between Robert L. Burrus, Jr.
and the Registrant filed as Exhibit 10(o) to the Registrant's
Annual Report on Form 10-K for the fiscal year ended February
28, 1987(No.1-8484) is incorporated herein by this reference.*
j. Amendment dated September 15, 1989 to the Deferred
Compensation Agreement between Robert L. Burrus,
Jr. and the Registrant filed as Exhibit 10(m) to Registrant's
Annual Report on Form 10-K for the fiscal year ended February
28, 1990(No.1-8484) is incorporated herein by this reference.*
k. Deferred Compensation Agreement between Lawrence N. Smith and
the Registrant filed as Exhibit 10(p) to the Registrant's
Annual Report on Form 10-K for the fiscal year ended February
28, 1987 (No. 1-8484) is incorporated herein by this
reference.*
l. Amendment dated September 15, 1989 to Deferred Compensation
Agreement between Lawrence N. Smith and the Registrant filed
as Exhibit 10(o) to Registrant's Annual Report on Form 10-K
for the fiscal year ended February 28, 1990 (No. 1-8484) is
incorporated herein by this reference.*
56
<PAGE>
m. Deferred Compensation Agreement between George A. Thornton,
III and the Registrant filed as Exhibit 10(q) to the
Registrant's Annual Report on Form 10-K for the fiscal year
ended February 28, 1987 (No.
1-8484) is incorporated herein by this reference.*
n. Amendment dated September 15, 1989 to Deferred Compensation
Agreement between George A. Thornton, III and the Registrant
filed as Exhibit 10(q) to Registrant's Annual Report on Form
10-K for the fiscal year ended February 28, 1990 (No. 1-8484)
is incorporated herein by this reference.*
o. Employees Supplemental Profit-Sharing and Retirement Savings
Plan, adopted effective as of March 1, 1991, amended and
restated effective as of March 1, 1994 filed as Exhibit 10(s)
to Registrant's Annual Report on Form 10-K for the fiscal year
ended February 28, 1997 (No. 1-8484) is incorporated herein
by this reference. *
p. Registrant's 1983 Stock Option Plan, as amended, filed as
Exhibit C to Registrant's Proxy Statement dated May 9, 1988
(No. 1-8484) for its Annual Meeting of Stockholders held on
June 22, 1988 is incorporated herein by this reference.*
q. Amendments to registrant's 1983 Stock Option Plan, as amended,
filed as Exhibit 10(t) to Registrant's Annual Report on Form
10-K for the fiscal year ended February 28, 1990 (No. 1-8484)
is incorporated herein by this reference.*
r. Registrant's 1990 Stock Option Plan, as amended, filed as
Exhibit 10(t) to Registrant's Annual Report on Form 10-K for
the fiscal year ended February 28, 1993 (No. 1-8484) is
incorporated herein by this reference.*
s. Registrant's 1994 Stock Option Plan, as amended, filed as
Exhibit A to Registrant's Proxy Statement dated May 3, 1994
(No. 1-8484) for its Annual Meeting of Stockholders held on
June 15, 1994 is incorporated herein by this reference.*
t. Registrant's Executive Severance Plan effective as of
September 15, 1989 filed as Exhibit 10(v) to Registrant's
Annual Report on Form 10-K for the fiscal year ended February
28, 1990 (No. 1-8484) is incorporated herein by this
reference.*
u. Form of Executive Supplemental Retirement Agreement between
the Registrant and each of William C. DeRusha and Troy A.
Peery, Jr. dated January 1, 1996 filed as Exhibit 10(y) to
Registrant's Annual Report on Form 10-K for the fiscal year
ended February 28, 1997 (No. 1-8484) is incorporated herein by
this reference. *
v. Form of Executive Supplemental Retirement Agreement between
the Registrant and each of James F. Cerza, Jr., Joseph R.
Jenkins and James R. Riddle dated January 1, 1996 filed as
Exhibit 10(z) to Registrant's Annual Report on Form 10-K for
the fiscal year ended February 28, 1997 (No. 1-8484) is
incorporated herein by this reference. *
w. Form of Executive Supplemental Retirement Agreement between
the Registrant and William J. Dieter dated January 1, 1996
filed as Exhibit 10(aa) to Registrant's Annual Report on Form
10-K for the fiscal year ended February 28, 1997 (No. 1-8484)
is incorporated herein by this reference. *
x. Employment Agreement made as of November 1, 1996 between
William C. DeRusha and the Registrant filed as Exhibit 10(bb)
to Registrant's Annual Report on Form 10-K for the fiscal year
ended February 28, 1997 (No. 1-8484) is incorporated herein by
this reference. *
57
<PAGE>
y. Employment Agreement made as of November 1, 1996 between Troy
A. Peery, Jr. and the Registrant filed as Exhibit 10(cc) to
Registrant's Annual Report on Form 10-K for the fiscal year
ended February 28, 1997 (No. 1-8484) is incorporated herein by
this reference. *
z. The following Agreements filed as Exhibits 10 (ii) through 10
(kk) to the Registrant's Annual Report on Form 10-K for fiscal
year ended February 28, 1991 (No. 1-8484) are incorporated
herein by this reference:
(1) Employment Agreement dated April 10, 1991 between
Joseph R. Jenkins and the Registrant.*
(2) Employment Agreement dated April 10, 1991 between
James C. Cerza, Jr. and the Registrant.*
(3) Employment Agreement dated April 10, 1991 between
James R. Riddle and the Registrant.*
aa. Carve Out Life Insurance Plan filed as Exhibit 10(ff) to the
Registrant's Annual Report on Form 10-K for the fiscal year
ended February 28, 1993 (No. 1-8484) is incorporated herein
by this reference.*
bb. Amendment, dated as of August 18, 1993, to the Heilig-
Meyers Company Severance Plan filed as exhibit 10(hh)
to the Registrant's Annual Report on Form 10-K for the fiscal
year ended February 28, 1994 (No. 1-8484) is incorporated
herein by this reference.*
cc. 1988 Deferred Compensation Agreement for Outside Directors
between George A. Thornton, III and the Registrant filed as
exhibit 10(ii) to the Registrant's Annual Report on Form
10-K for the fiscal year ended February 28, 1994 (No. 1-8484)
is incorporated herein by this reference.*
dd. Amendment, dated as of April 18, 1994, to the 1986
Heilig-Meyers Company Deferred Compensation Agreement for
Outside Director between George A. Thornton, III and the
Registrant filed as exhibit 10(jj) to the Registrant's Annual
Report on Form 10-K for the fiscal year ended February 28,
1994 (No. 1-8484) is incorporated herein by this reference.*
ee. Amendment, dated as of April 18, 1994, to the 1990 Heilig
Meyers Company Deferred Compensation Agreement for Outside
Director between George A. Thornton, III and the Registrant
filed as exhibit 10(kk) to the Registrant's Annual Report on
Form 10-K for the fiscal year ended February 28, 1994 (No.
1-8484) is incorporated herein by this reference.*
ff. Letter Agreement, dated August 26, 1993, amending employment
agreement between Joseph R. Jenkins and the Registrant filed
as exhibit 10(ll) to the Registrant's Annual Report on Form
10-K for the fiscal year ended February 28, 1994 (No. 1-8484)
is incorporated herein by this reference.*
gg. Letter Agreement, dated August 26, 1993, amending employment
agreement between James R. Riddle and the Registrant filed as
exhibit 10(mm) to the Registrant's Annual Report on Form 10-K
for the fiscal year ended February 28, 1994 (No. 1-8484) is
incorporated herein by this reference.*
hh. Letter Agreement, dated August 26, 1993, amending employment
agreement between James F. Cerza and the Registrant filed as
exhibit 10(nn) to the Registrant's Annual Report on Form 10-K
for the fiscal year ended February 28, 1994 (No. 1-8484) is
incorporated herein by this reference.*
58
<PAGE>
ii. $400,000,000 Credit Agreement dated July 18, 1995 (the
"Credit Facility") among MacSaver Financial Services, Inc., as
Borrower; the Registrant, as Guarantor; and Wachovia Bank of
Georgia, N.A., as Administrative Agent, as amended by the
First Amendment and Restatement of Credit Agreement dated May
14, 1996 filed as exhibit 10 (pp) to the Registrant's Annual
Report on Form 10-K for the fiscal year ended February 29,
1996 (No. 1-8484) is incorporated herein by this reference.
jj. Policy issued by Life Insurance Company of North America,
dated March 1, 1989 covering the Rhodes, Inc. Employee
Disability Plan, filed with the Commission as Exhibit 10.38
to Rhodes, Inc.'s Annual Report on Form 10-K for the year
ended February 28, 1991 (No. 0-08966) is incorporated herein
by this reference.*
kk. Form of Compensation (change in control) Agreement between
Irwin L. Lowenstein and Rhodes, Inc., filed with the
Commission as Exhibit 10.7 to Rhodes, Inc.'s Annual Report on
Form 10-K for the year ended February 28, 1995 (No. 1-09308)
is incorporated herein by this reference.*
ll. Amended and Restated Merchant Agreement by and between
Beneficial National Bank USA, HMY RoomStore, Inc. and Rhodes,
Inc., dated as of May 9, 1997 filed as Exhibit 10(qq) to
Registrant's Annual Report on Form 10-K for the fiscal year
ended February 28, 1997 (No. 1-8484) is incorporated herein by
this reference.
mm. Compensation Agreement entered into between Rhodes, Inc. and
Joel T. Lanham, filed with the Commission as Exhibit 10.10 to
Rhodes, Inc.'s. Annual Report on Form 10-K for the year ended
February 29, 1996 (No. 1-09308) is incorporated herein by this
reference.*
nn. Compensation Agreement entered into between Rhodes, Inc. and
Joel H. Dugan, filed with the Commission as Exhibit 10.11 to
Rhodes, Inc.'s Annual Report on Form 10-K for the year ended
February 29, 1996 (No. 1-09308) is incorporated herein by this
reference.*
oo. First Amendment and Restatement of Credit Agreement dated as
of May 14, 1996.
pp. Second Amendment and Restatement of Credit Agreement dated as
of January 8, 1997.
qq. Third Amendment and Restatement of Credit Agreement dated as
of May 23, 1997.
rr. Amendment No. 4 to the Credit Agreement, dated as of November
30, 1997 filed as Exhibit 10a to Registrant's Quarterly Report
on Form 10-Q for the quarter ended November 30, 1997, is
incorporated herein by this reference.
ss. Amendment No. 5 to the Credit Agreement dated as of April 22,
1998.
tt. Amended and Restated Guaranty by the Registrant, dated as of
May 9, 1997, of certain obligations under the Amended and
Restated Merchant Agreement by and among Beneficial National
Bank USA, HMY RoomStore, Inc. and Rhodes, Inc., dated as of
May 9, 1997, filed as Exhibit 10a to Registrant's Quarterly
Report on Form 10-Q for the quarter ended May 31, 1997, is
incorporated herein by this reference.
uu. Rhodes Inc. Supplemental Employees Pension Plan, effective as
of March 1, 1995.
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21. Subsidiaries of Registrant.
23. Consents of experts and counsel.
a. Consent of Deloitte & Touche LLP to incorporation by
reference of Accountants' Reports into Registrant's
Registration Statements on Form S-8.
27. Financial Data Schedule
* Management contract or compensatory plan or arrangement of the Company
required to be filed as an exhibit.
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EXHIBIT 3.a
RESTATED ARTICLES OF INCORPORATION
OF
HEILIG-MEYERS COMPANY
(As Amended)
ARTICLE I
The name of the Corporation is Heilig-Meyers Company
(hereinafter called the "Corporation").
ARTICLE II
The purposes for which the Corporation is organized are as follows: to
manufacture, buy, sell, renovate, import, export and generally deal in
furniture, household and kindred furnishings, floor coverings, bedding,
appliances, electronic equipment and jewelry, and generally to engage in the
business of interior decorating and household furnishings of every nature and
description, and to do all things incidental to the foregoing.
The Corporation may, and shall have the power to, engage in any
business and do anything not prohibited by law or required to be stated in these
Articles.
ARTICLE III
The aggregate number of shares of capital stock which the Corporation
shall have authority to issue is 3,000,000 shares of Preferred Stock, par value
$10.00 per share, and 250,000,000 shares of Common Stock, par value $2.00 per
share.
A. Preferred Stock. Authority is expressly vested in the Board of
Directors to divide the Preferred Stock into, and issue same in, series and,
within the following limitation, to fix and determine the relative rights and
preferences of the shares of any series so established, and to provide for the
issuance hereof. Each series shall be so designated as to distinguish the shares
thereof from the shares of all other series and classes. All shares of the
Preferred Stock shall be identical except as to the following relative rights
and preferences, as to which there may be variations between different series:
(i) The rate of dividend, the time of payment, whether
dividends shall be cumulative and if so, the dates from which they shall be
cumulative, and the extent of participation rights, if any;
(ii) Any right to vote with holders of shares of any other
series or class and any right to vote as a class, either generally or as a
condition to specified corporate action;
(iii) The price at and the terms and conditions on which
shares may be redeemed;
(iv) The amount payable upon shares in event of involuntary
liquidation;
(v) the amount payable upon shares in event of voluntary
liquidation;
(vi) Sinking fund provisions for the redemption or purchase of
shares; and
(vii) The terms and conditions on which shares may be
converted, if the shares of any series are issued with the privilege of
conversion.
Prior to the issuance of any shares of a series of Preferred Stock the
Board of Directors shall establish such series by adopting a resolution
(hereinafter called an "Issuing Resolution") setting forth the designation and
number of shares of the series and the relative rights and preferences thereof,
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to the extent permitted by the provisions hereof, and the Corporation shall file
in the office of the State Corporation Commission of Virginia articles of serial
designation as required by law, and the Commission shall have issued a
certificate of serial designation.
All series of Preferred Stock shall rank on a parity as to dividends
and assets with all other series according to the respective dividend rates and
amounts distributable upon any voluntary or involuntary liquidation of the
Corporation fixed for each such series, and without the preference or priority
of any series over any other series; but all shares of the Preferred Stock shall
be preferred over the Common Stock as to both dividends and amounts
distributable upon any voluntary or involuntary liquidation of the Corporation
to the extent provided in any articles of serial designation applicable thereto.
B. Common Stock. Except as required by law or as permitted by the terms
of any Issuing Resolution creating any series of voting Preferred Stock, the
holders of Common Stock shall, to the exclusion of the holders of any other
class or series of stock of the Corporation, have the sole and full power to
vote for the election of directors and for all other purposes. Each holder of
Common Stock shall be entitled to one vote for each share of such stock held by
him.
ARTICLE IV
The holders of the capital stock of the Corporation shall have no
preemptive or preferential rights to purchase or subscribe to (i) any shares of
capital stock of the Corporation, whether now or hereafter authorized, (ii) any
warrants, rights or options to purchase capital stock of the Corporation, or
(iii) any obligations convertible into such capital stock or into warrants,
rights or options to purchase such capital stock.
ARTICLE V
LIMIT ON LIABILITY AND INDEMNIFICATION
1. Definitions. For purposes of this Article, the following
definitions shall apply:
(a) "corporation" means this Corporation only and no
predecessor entity or other legal entity;
(b) "expenses" include counsel fees, expert witness fees, and
costs of investigation, litigation and appeal, as well as any amounts expended
in asserting a claim for indemnification;
(c) "liability" means the obligation to pay a judgment,
settlement, penalty, fine, or other such obligation, including, without
limitation, any excise tax assessed with respect to an employee benefit plan;
(d) "legal entity" means a corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise;
(e) "predecessor entity" means a legal entity the existence of
which ceased upon its acquisition by the Corporation in a merger or otherwise;
and
(f) "proceeding" means any threatened, pending, or completed
action, suit, proceeding or appeal whether civil, criminal, administrative or
investigative and whether formal or informal.
2. Limit On Liability. In every instance permitted by the Virginia
Stock Corporation Act, as it exists on the date hereof or may hereafter be
amended, the liability of a director or officer of the Corporation to the
Corporation or its shareholders arising out of a single transaction, occurrence
or course of conduct shall be eliminated.
3. Indemnification of Directors and Officers. The Corporation shall
indemnify any individual who is, was or is threatened to be made a party to a
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proceeding (including a proceeding by or in the right of the Corporation)
because such individual is or was a director or officer of the Corporation or
because such individual is or was serving the Corporation or any other legal
entity in any capacity at the request of the Corporation while a director or
officer of the Corporation against all liabilities and reasonable expenses
incurred in the proceeding, except such liabilities and expenses as are incurred
because of such individual's willful misconduct or knowing violation of the
criminal law. Service as a director or officer of a legal entity controlled by
the Corporation shall be deemed service at the request of the Corporation. The
determination that indemnification under this Section 3 is permissible and the
evaluation as to the reasonableness of expenses in a specific case shall be
made, in the case of a director, as provided by law, and in the case of an
officer, as provided in Section 4 of this Article; provided, however, that if a
majority of the directors of the Corporation has changed after the date of the
alleged conduct giving rise to a claim for indemnification, such determination
and evaluation shall, at the option of the person claiming indemnification, be
made by special legal counsel agreed upon by the Board of Directors and such
person. Unless a determination has been made that indemnification is not
permissible, the Corporation shall make advances and reimbursements for expenses
incurred by a director or officer in a proceeding upon receipt of an undertaking
from such director or officer to repay the same if it is ultimately determined
that such director or officer is not entitled to indemnification. Such
undertaking shall be an unlimited, unsecured general obligation of the director
or officer and shall be accepted without reference to such director's or
officer's ability to make repayment. The termination of a proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent shall not of itself create a presumption that a director or
officer acted in such a manner as to make such director or officer ineligible
for indemnification. The Corporation is authorized to contract in advance to
indemnify and make advances and reimbursements for expenses to any of its
directors or officers to the same extent provided in this Section 3.
4. Indemnification of Others. The Corporation may, to a lesser extent
or the same extent that it is required to provide indemnification and make
advances and reimbursements for expenses to its directors and officers pursuant
to Section 3, provide indemnification and make advances and reimbursements for
expenses to its employees and agents, the directors, officers, employees and
agents of its subsidiaries and predecessor entities, and any person serving any
other legal entity in any capacity at the request of the Corporation, and may
contract in advance to do so. The determination that indemnification under this
Section 4 is permissible, the authorization of such indemnification and the
evaluation as to the reasonableness of expenses in a specific case shall be made
as authorized from time to time by general or specific action of the Board of
Directors, which action may be taken before or after a claim for indemnification
is made, or as otherwise provided by law. No person's rights under Section 3 of
this Article shall be limited by the provisions of this Section 4.
5. Miscellaneous. The rights of each person entitled to indemnification
under this Article shall inure to the benefit of such person's heirs, executors
and administrators. Special legal counsel selected to make determinations under
this Article may be counsel for the Corporation. Indemnification pursuant to
this Article shall not be exclusive of any other right of indemnification to
which any person may be entitled, including indemnification pursuant to a valid
contract, indemnification by legal entities other than the Corporation and
indemnification under policies of insurance purchased and maintained by the
Corporation or others. However, no person shall be entitled to indemnification
by the Corporation to the extent such person is indemnified by another,
including an insurer. The Corporation is authorized to purchase and maintain
insurance against any liability it may have under this Article or to protect any
of the persons named above against any liability arising from their service to
the Corporation or any other legal entity at the request of the Corporation
regardless of the Corporation's power to indemnify against such liability. The
provisions of this Article shall not be deemed to preclude the Corporation from
entering into contracts otherwise permitted by law with any individuals or legal
entities, including those named above. If any provision of this Article or its
application to any person or circumstance is held invalid by a court of
competent jurisdiction, the invalidity shall not affect other provisions or
applications of this Article, and to this end the provisions of this Article are
severable.
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6. Application; Amendments. The provisions of this Article shall be
applicable from and after its adoption even though some or all of the underlying
conduct or events relating to a proceeding may have occurred before its
adoption. No amendment, modification or repeal of this Article shall diminish
the rights provided hereunder to any person arising from conduct or events
occurring before the adoption of such amendment, modification or repeal.
ARTICLE VI
The number of directors shall be fixed by Bylaw or in the absence of
such a Bylaw shall be ten (10).
ARTICLE VII
Pursuant to a resolution adopted by the Board of Directors of the
Corporation on February 17, 1988, a Series A of Preferred Stock, par value
$10.00 per share, was designated as set forth below, the shares of which have
the rights and preferences set forth following the designation:
I. Designation and Amount. The shares of such series shall be designated as
"Cumulative Participating Preferred Stock, Series A" (the "Series A Stock") and
the number of shares constituting such series shall be 750,000. Such number of
shares may be increased or decreased by resolution of the Board of Directors;
provided, that no decrease shall reduce the number of shares of the Series A
Stock to a number less than that of the shares then outstanding.
II. Dividends and Distributions.
A. The holders of shares of the Series A Stock, in preference to the
holders of Common Stock, par value $2.00 per share, of the Corporation (the
"Common Stock") and of any other junior stock, shall be entitled to receive,
when, as and if declared by the Board of Directors out of funds legally
available for the purpose, quarterly dividends payable in cash on the fifteenth
day (or, if not a business day, the preceding business day) of March, June,
September and December in each year (each such date being referred to herein as
a "Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend
Payment Date after the first issuance of a share or fraction of a share of the
Series A Stock, in an amount per share (rounded to the nearest cent) equal to
the greater of (a) $1.00 or (b) subject to the provision for adjustment
hereinafter set forth, 100 times the aggregate per share amount of all cash
dividends, and 100 times the aggregate per share amount (payable in kind) of all
non-cash dividends or other distributions, other than a dividend payable in
shares of Common Stock, or a subdivision of the outstanding shares of Common
Stock (by reclassification or otherwise), declared on the Common Stock since the
immediately preceding Quarterly Dividend Payment Date or, with respect to the
first Quarterly Dividend Payment Date, since the first issuance of any share or
fraction of a share of the Series A Stock. In the event the Corporation shall at
any time after the first issuance of any share or fraction of a share of the
Series A Stock declare or pay any dividend on Common Stock payable in shares of
Common Stock, or effect a subdivision or combination or consolidation of the
outstanding shares of Common Stock (by reclassification or otherwise than by
payment of a dividend in shares of Common Stock) into a greater or lesser number
of shares of Common Stock, then in each such case the amount per share to which
holders of shares of the Series A Stock shall be entitled under clause (b) of
the preceding sentence shall be adjusted by multiplying the amount per share to
which holders of shares of the Series A Stock were entitled immediately prior to
such event under clause (b) of the preceding sentence by a fraction the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.
B. The Corporation shall declare a dividend or distribution on the
Series A Stock as provided in paragraph (A) of this Section immediately after it
declares a dividend or distribution on the Common Stock (other than a dividend
payable in shares of Common Stock); provided that, in the event no dividend or
distribution shall have been declared on the Common Stock during the period
between any Quarterly Dividend Payment Date and the next subsequent Quarterly
Dividend Payment Date, a dividend of $1.00 per share on the Series A Stock shall
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nevertheless be payable on such subsequent Quarterly Dividend Payment Date.
C. Dividends shall begin to accrue and be cumulative on outstanding
shares of the Series A Stock from the Quarterly Dividend Payment Date next
preceding the date of issue of such shares of the Series A Stock, unless the
date of issue of such shares is prior to the record date for the first Quarterly
Dividend Payment Date, in which case dividends on such shares shall begin to
accrue from the date of issue of such shares, or unless the date of issue is a
Quarterly Dividend Payment Date or is a date after the record date for the
determination of holders of shares of the Series A Stock entitled to receive a
quarterly dividend and before such Quarterly Dividend Payment Date, in either of
which events such dividends shall begin to accrue and be cumulative from such
Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear
interest. Dividends paid on the shares of the Series A Stock in an amount less
than the total amount of such dividends at the time accrued and payable on such
shares shall be allocated pro rata on a share-by-share basis among all such
shares at the time outstanding. The Board of Directors may fix a record date for
the determination of holders of shares of the Series A Stock entitled to receive
payment of a dividend or distribution declared thereon, which record date shall
be not more than 60 days prior to the date fixed for the payment thereof.
III. Voting Rights. The holders of shares of the Series A Stock shall have the
following voting rights:
A. Subject to the provision for adjustment hereinafter set forth, each
share of the Series A Stock shall entitle the holder thereof to 100 votes on all
matters submitted to a vote of the shareholders of the Corporation. In the event
the Corporation shall at any time after the first issuance of any share or
fraction of a share of the Series A Stock declare or pay any dividend on Common
Stock payable in shares of Common Stock, or effect a subdivision or combination
or consolidation of the outstanding shares of Common Stock (by reclassification
or otherwise than by payment of a dividend in shares of Common Stock) into a
greater or lesser number of shares of Common Stock, then in each such case the
number of votes per share to which holders of shares of the Series A Stock shall
be entitled shall be adjusted by multiplying the number of votes per share to
which holders of shares of the Series A Stock were entitled immediately prior to
such event by a fraction the numerator of which is the number of shares of
Common Stock outstanding immediately after such event and the denominator of
which is the number of shares of Common Stock that were outstanding immediately
prior to such event.
B. Except as otherwise provided herein or by law, the holders of shares
of the Series A Stock and the holders of shares of Common Stock shall vote
together as one class on all matters submitted to a vote of shareholders of the
Corporation.
C. Except as set forth herein, holders of the Series A Stock shall have
no special voting rights and their consent shall not be required (except to the
extent they are entitled to vote with holders of Common Stock as set forth
herein) for taking any corporate action.
IV. Certain Restrictions.
A. Whenever quarterly dividends or other dividends or distributions
payable on the Series A Stock as provided in Section II are in arrears,
thereafter and until all accrued and unpaid dividends and distributions, whether
or not declared, on shares of the Series A Stock outstanding shall have been
paid in full, the Corporation shall not:
(i) declare, set apart or pay dividends on or make any other
distributions on the Common Stock or any shares of stock ranking junior
(either as to dividends or upon liquidation, dissolution or winding up)
to the Series A Stock;
(ii) declare or pay dividends on or make any other
distributions on any shares of stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up) with the
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Series A Stock, except dividends paid ratably on the Series A Stock and
all such parity stock on which dividends are payable or in arrears in
proportion to the total amounts to which the holders of all such shares
are then entitled; or
(iii) redeem or purchase or otherwise acquire for
consideration shares of the Series A Stock, any such parity stock or
any stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) with the Series A Stock, or set aside for or
pay to any sinking fund therefor.
B. The Corporation shall not permit any subsidiary of the Corporation
to purchase or otherwise acquire for consideration any shares of stock of the
Corporation unless the Corporation could, under paragraph (A) of this Section IV
purchase or otherwise acquire such shares at such time and in such manner.
V. Reacquired Shares. Any shares of the Series A Stock purchased or otherwise
acquired by the Corporation in any manner whatsoever shall be retired and
cancelled promptly after the acquisition thereof. All such shares shall upon
their cancellation became authorized but unissued shares of Preferred Stock, par
value $10.00 per share and may be reissued as a new series or a part of a new
series of Preferred Stock, par value $10.00 per share, to be created by
resolution or resolutions of the Board of Directors.
VI. Liquidation, Dissolution or Winding Up. Upon any liquidation, dissolution or
winding up of the Corporation, no distribution shall be made (1) to the holders
of shares of Common Stock or of stock ranking junior (either as to dividends or
upon liquidation, dissolution or winding up) to the Series A Stock unless, prior
thereto, the holders of shares of the Series A Stock shall have received an
amount per share equal to the greater of (a) $11,000 or (b) subject to the
provision for adjustment hereinafter set forth, 100 times the aggregate amount
to be distributed per share to holders of Common Stock, plus in each such case
an amount equal to accrued and unpaid dividends and distributions thereon,
whether or not declared, to the date of such payment, or (2) to the holders of
stock ranking on a parity (either as to dividends or upon liquidation,
dissolution or winding up) with the Series A Stock, except distributions made
ratably on the Series A Stock and all other such parity stock in proportion to
the total amounts to which the holders of all such shares are entitled upon such
liquidation, dissolution or winding up. In the event the Corporation shall at
any time after the first issuance of any share or fraction of a share of the
Series A Stock declare or pay any dividend on Common Stock payable in shares of
Common Stock, or effect a subdivision or combination or consolidation of the
outstanding shares of Common Stock (by reclassification or otherwise than by
payment of a dividend in shares of Common Stock) into a greater or lesser number
of shares of Common Stock, then in each such case the aggregate amount per share
to which holders of shares of the Series A Stock shall be entitled under the
provision of clause (1) of the preceding sentence shall be adjusted by
multiplying the amount per share to which holders of shares of the Series A
Stock would have been entitled immediately prior to such event under the
provision of clause (1) of the preceding sentence by a fraction the numerator of
which is the number of shares of Common Stock outstanding immediately after such
event and the denominator of which is the number of shares of Common Stock that
were outstanding immediately prior to such event.
VII. Consolidation, Merger, etc. In case the Corporation shall enter into any
consolidation, merger, combination or other transaction in which the shares of
Common Stock are exchanged for or changed into other stock or securities, cash
and/or any other property, then in any such case the shares of the Series A
Stock shall at the same time be similarly exchanged or changed in an amount per
share (subject to the provision for adjustment hereinafter set forth) equal to
100 times the aggregate amount of stock, securities, cash and/or any other
property (payable in kind), as the case may be, into which or for which each
share of Common Stock is changed or exchanged. In the event the Corporation
shall at any time after the first issuance of any share or fraction of a share
of the Series A Stock declare or pay any dividend on Common Stock payable in
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share of Common Stock, or effect a subdivision or combination or consolidation
of the outstanding shares of Common Stock (by reclassification or otherwise)
into a greater or lesser number of shares of Common Stock, then in each such
case the amount set forth in the preceding sentence with respect to the exchange
or change of shares of the Series A Stock shall be adjusted by multiplying such
amount by a fraction the numerator of which is the number of shares of Common
Stock outstanding immediately after such event and the denominator of which is
the number of shares of Common Stock that were outstanding immediately prior to
such event.
VIII. No Redemption. The shares of the Series A Stock shall not be redeemable.
IX. Amendment. The Articles of Incorporation of the Corporation shall not be
amended in any manner which would materially alter or change the powers,
preferences or special rights of the Series A Stock so as to affect them
adversely without the affirmative vote of the holders of more than two-thirds of
the outstanding shares of the Series A Stock, voting together as a single voting
group.
ARTICLE VIII
VOTE TO AMEND OR RESTATE
As to each voting group entitled to vote on an amendment or restatement
of these Articles of Incorporation the vote required for approval shall be (i)
the vote required by the Virginia Stock Corporation Act (as applied without
regard to the effect of clause (iii) of this Article) if the effect of the
amendment or restatement is (a) to reduce the shareholder vote required to
approve a merger, a statutory share exchange, a sale of all or substantially all
of the assets of the Corporation or the dissolution of the Corporation, or (b)
to delete all or any part of this clause (i) of this Article; (ii) the vote
required by the terms of these Articles of Incorporation, as amended or as
restated from time to time, if such terms require the approval of more than a
majority of the votes entitled to be cast thereon by such voting group; or (iii)
a majority of the votes entitled to be cast thereon if neither clause (i) nor
clause (ii) of this Article is applicable.
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EXHIBIT 10.oo
FIRST AMENDMENT AND RESTATEMENT OF CREDIT AGREEMENT
THIS FIRST AMENDMENT AND RESTATEMENT OF CREDIT AGREEMENT (the "First Amendment")
dated as of May 14, 1996 is to that Credit Agreement dated as of July 18, 1995
(as amended and modified hereby and as further amended and modified from time to
time hereafter, the "Credit Agreement") by and among MACSAVER FINANCIAL
SERVICES, INC., a Delaware corporation (the "Borrower"), HEILIG-MEYERS COMPANY,
a Virginia corporation (the "Company"), the Lenders, WACHOVIA BANK OF GEORGIA,
N.A., as Administrative Agent, NATIONSBANK, N.A, as Documentation Agent, and
CRESTAR BANK and FIRST UNION NATIONAL BANK OF VIRGINIA, as Co-Agents. Terms used
but not otherwise defined herein shall have the meanings provided in the Credit
Agreement.
W I T N E S S E T H
WHEREAS, the Lenders have, pursuant to the terms of the Credit Agreement, made
available to the Borrower a $400,000,000 credit facility for the purposes set
forth therein;
WHEREAS, the Borrower has requested modification of a financial covenant; and
WHEREAS, the requested modifications require the consent of the Required
Lenders;
WHEREAS, the Required Lenders for and on behalf of the Lenders have agreed to
the requested changes on the terms and conditions hereinafter set forth;
NOW, THEREFORE, IN CONSIDERATION of the premises and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties hereto agree as follows:
A. The Credit Agreement is amended in the following respects:
1. The following definitions are amended or added to Section 1.1 to read as
follows:
"Applicable Percentage" means, for any day, the appropriate rate per annum set
forth in Schedule 2.1(d), it being understood that the Applicable Percentage for
(i) Base Rate Loans shall be the percentage set forth under the appropriate
column entitled "Applicable Margin for Base Rate Loans", (ii) Eurodollar Loans
shall be the percentage set forth under the appropriate column entitled
"Applicable Margin for Eurodollar Loans" and (iii) the Facility Fee shall be the
percentage set forth under the appropriate column entitled "Applicable
Percentage for Facility Fee". The Applicable Percentages shall be adjusted on
the following dates (each being an "Interest Determination Date"):
(i) where the Company has a senior unsecured (non-credit enhanced) long term
debt rating from both S&P and Moody's, five (5) days after receipt of notice by
the Administrative Agent of a change in any such debt rating, based on such debt
ratings;
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(ii) where the Company previously had a senior unsecured (non-credit enhanced)
long term debt rating from both S&P and Moody's, but either or both of S&P and
Moody's withdraws its rating, five (5) days after receipt by the Administrative
Agent of notice of the withdrawal of such debt rating, based on the information
contained in the most recent annual or quarterly financial statements and
related certificates provided in accordance with Sections 7.1(a) and 7.1(b); and
(iii) where the Company does not have a senior unsecured (non-credit enhanced)
long term debt rating from both S&P and Moody's, five (5) days after the date of
delivery of the annual and quarterly financial statements and related
certificates provided in accordance with Section 7.1(a) and 7.1(b), but not in
any event to a date later than the date 5 days after the date by which such
financial statements and related certificates are due in accordance with the
terms thereof, based on the information contained in such financial statements.
The Applicable Percentage shall be effective from an Interest Determination Date
until the next such Interest Determination Date. The Administrative Agent shall
determine the appropriate Applicable Percentages promptly upon receipt of the
notices and information necessary to make such determination and shall promptly
notify the Borrower and the Lenders of any change thereof. Such determinations
by the Administrative Agent shall be conclusive absent manifest error. The
Applicable Percentage from May 14, 1996 (being the effective date of the First
Amendment to Credit Agreement) shall be based on Pricing Level II assuming a
Fixed Charge Coverage Ratio of less than 1.6:1.0, subject to adjustment as
provided herein.
"Pricing Level" means the applicable pricing Level for the Applicable Percentage
shown in Schedule 2.1(d).
2. The first clause of Section 2.2(a) preceding the proviso is amended to read
as follows:
During the Commitment Period, subject to the terms and conditions hereof, from
such time as the Company shall have attained, and for so long as the Company
shall maintain
(A) Pricing Level I or II status, where the Company does not have a senior
unsecured (non-credit enhanced) long term debt rating from both S&P and Moody's,
or
(B) Pricing Level I, II, III or IV status, where the Company has a senior
unsecured (non-credit enhanced) long term debt rating from both S&P and Moody's,
the Borrower may from time to time request and each Lender may, in its sole
discretion, agree to make, Competitive Loans to the Borrower;
3. Subsection (e) of Section 7.7 is renumbered as subsection (f) and a new
subsection (e) is added to read as follows:
(e) promptly notify the Administrative Agent of the issuance of a senior
unsecured (non-credit enhanced) long term debt rating by S&P or Moody's and of
any change in or withdrawal of such rating, together with any correspondence or
evidence thereof from S&P or Moody's;
4. The financial covenant in Section 7.9(b) relating to the Fixed Charge
Coverage Ratio is amended to read as follows:
(b) Fixed Charge Coverage Ratio. As of the end of each fiscal quarter,
there shall be maintained a Fixed Charge Coverage Ratio of at least:
For fiscal quarters ending
prior to May 31, 1996 1.5:1.0
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From the fiscal quarter ending
May 31, 1996 through the
fiscal quarter ending
February 28, 1997 1.25:1.0
For fiscal quarters ending after
February 28, 1997 1.5:1.0
5. new Schedule 2.1(d) is added to the Credit Agreement in the form attached
hereto.
B. The Company and the Borrower hereby certify that as of the date hereof:
(i) the representations and warranties contained in the Credit Agreement (other
than those which expressly relate to a prior period) are true and correct in all
material respects; and
(ii) No Default or Event of Default currently exists and is continuing.
C. The effectiveness of this First Amendment is conditioned upon receipt by the
Administrative Agent of the following:
(a) copies of this First Amendment executed by the Company, the Borrower
and the Required Lenders;
(b) copies of resolutions of the Company and the Borrower approving the
terms, and authorizing execution and delivery, of this First Amendment;
(c) legal opinions of counsel to the Company and the Borrower regarding the
enforceability of this First Amendment; and
(d) an amendment fee of $100,000 (representing 2.5 b.p. on the total
aggregate Revolving Committed Amount)for the ratable benefit of the
Lenders.
D. The Company joins in the execution of this First Amendment for purposes,
among other things, of acknowledging and consenting to the terms of this First
Amendment and reaffirming its guaranty obligations under the Credit Agreement,
as amended hereby.
E. The Company and the Borrower will execute such additional documents as are
reasonably requested by the Administrative Agent to reflect the terms and
conditions of this First Amendment.
F. Except as modified hereby, all of the terms and provisions of the Credit
Agreement (and Exhibits) remain in full force and effect.
G. The Company and the Borrower agree to pay all reasonable costs and expenses
in connection with the preparation, execution and delivery of this First
Amendment, including without limitation the reasonable fees and expenses of
Moore & Van Allen, PLLC.
H. This First 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
not be necessary in making proof of this First Amendment to produce or account
for more than one such counterpart.
I. This First Amendment and the Credit Agreement, as amended hereby, shall be
deemed to be contracts made under, and for all purposes shall be construed in
accordance with, the laws of the State of North Carolina.
IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart of this
First Amendment to Credit Agreement to be duly executed under seal and delivered
as of the date and year first above written.
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BORROWER:
MACSAVER FINANCIAL SERVICES, INC.
a Delaware corporation
By /s/ D.V. Bhavnagri
Dossi V. Bhavnagri,
Vice President
COMPANY:
HEILIG-MEYERS COMPANY,
a Virginia corporation
By /s/ Roy B. Goodman
Roy B. Goodman,
Senior Vice President - Finance
ADMINISTRATIVE AGENT:
WACHOVIA BANK OF GEORGIA, N.A.,
in its capacity as Administrative Agent
By /s/ [signature illegible]
Title Vice President
DOCUMENTATION
AGENT: NATIONSBANK, N.A.,
in its capacity as Documentation Agent
By /s/ Marty V. Mitchell
Title Vice President
CO-AGENTS: CRESTAR BANK,
in its capacity as Co-Agent
By /s/ [signature illegible]
Title Senior Vice President
FIRST UNION NATIONAL BANK OF VIRGINIA,
in its capacity as Co-Agent
By /s/ [signature illegible]
Title Senior Vice President
LENDERS: WACHOVIA BANK OF NORTH CAROLINA, N.A.
By /s/ [signature illegible]
Title Senior Vice President
NATIONSBANK, N.A.
71
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By /s/ Marty V. Mitchell
Title Vice President
CRESTAR BANK
By /s/ [signature illegible]
Title Senior Vice President
FIRST UNION NATIONAL BANK OF VIRGINIA
By /s/ [signature illegible]
Title Senior Vice President
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION
By /s/ [signature illegible]
Title Senior Vice President
NBD BANK
By /s/ [signature illegible]
Title Authorized Agent
TRUST COMPANY BANK
By /s/ [signature illegible]
Title Assistant Vice President
By /s/ [signature illegible]
Title Vice President
SIGNET BANK
(formerly known as Signet Bank/Virginia)
By /s/ William D. Garrison
Title Senior Vice President
72
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PNC BANK, NATIONAL ASSOCIATION
By /s/ [signature illegible]
Title Vice President
CREDIT LYONNAIS CAYMAN ISLAND BRANCH
By /s/ Robert Ivosevich
Title
CREDIT LYONNAIS ATLANTA AGENCY
By /s/ Robert Ivosevich
Title Senior Vice President
THE FUJI BANK, LIMITED - NEW YORK BRANCH
By
Title
THE BOATMEN'S NATIONAL BANK OF ST. LOUIS
By /s/ [signature illegible]
Title Corporate Banking Officer
THE MITSUBISHI BANK, LIMITED
By /s/ [signature illegible]
Title Vice President
THE LONG-TERM CREDIT BANK OF JAPAN, LIMITED
By /s/ John J. Sullivan
Title Joint General Manager
73
<PAGE>
EXHIBIT 10.pp
SECOND AMENDMENT AND RESTATEMENT OF CREDIT AGREEMENT
THIS SECOND AMENDMENT AND RESTATEMENT OF CREDIT AGREEMENT (the "Second
Amendment") dated as of January 8, 1997 is to that Credit Agreement dated as of
July 18, 1995 (as amended and modified hereby and as further amended and
modified from time to time hereafter, the "Credit Agreement") by and among
MACSAVER FINANCIAL SERVICES, INC., a Delaware corporation (the "Borrower"),
HEILIG-MEYERS COMPANY, a Virginia corporation (the "Company"), the Lenders,
WACHOVIA BANK OF GEORGIA, N.A., as Administrative Agent, NATIONSBANK, N.A, as
Documentation Agent, and CRESTAR BANK and FIRST UNION NATIONAL BANK OF VIRGINIA,
as Co-Agents. Terms used but not otherwise defined herein shall have the
meanings provided in the Credit Agreement.
W I T N E S S E T H
WHEREAS, the Lenders have, pursuant to the terms of the Credit Agreement, made
available to the Borrower a $400,000,000 credit facility for the purposes set
forth therein;
WHEREAS, the Borrower has requested certain modifications to the Credit
Agreement; and
WHEREAS, the requested modifications require the consent of the Required
Lenders;
WHEREAS, the Required Lenders for and on behalf of the Lenders have agreed to
the requested changes on the terms and conditions hereinafter set forth;
NOW, THEREFORE, IN CONSIDERATION of the premises and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties hereto agree as follows:
A. Section 8.1(v) of the Credit Agreement is amended to read as follows:
(v) Funded Debt of a Subsidiary of the Company payable to the Company or to
another Subsidiary of the
Company; and
B. The Company and the Borrower hereby certify that as of the date hereof:
(i) the representations and warranties contained in the Credit Agreement (other
than those which expressly relate to a prior period) are true and correct in all
material respects; and
(ii) No Default or Event of Default currently exists and is continuing.
C. The effectiveness of this Second Amendment is conditioned upon receipt by the
Administrative Agent of the following:
(a) copies of this Second Amendment executed by the Company, the Borrower
and the Required Lenders;
D. The Company joins in the execution of this Second Amendment for purposes,
among other things, of acknowledging and consenting to the terms of this Second
Amendment and reaffirming its guaranty obligations under the Credit Agreement,
as amended hereby.
E. The Company and the Borrower will execute such additional documents as are
reasonably requested by the Administrative Agent to reflect the terms and
conditions of this Second Amendment.
F. Except as modified hereby, all of the terms and provisions of the Credit
Agreement (and Exhibits) remain in full force and effect.
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G. The Company and the Borrower agree to pay all reasonable costs and expenses
in connection with the preparation, execution and delivery of this Second
Amendment, including without limitation the reasonable fees and expenses of
Moore & Van Allen, PLLC.
H. This Second 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
not be necessary in making proof of this Second Amendment to produce or account
for more than one such counterpart.
I. This Second Amendment and the Credit Agreement, as amended hereby, shall be
deemed to be contracts made under, and for all purposes shall be construed in
accordance with, the laws of the State of North Carolina.
IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart of this
Second Amendment to Credit Agreement 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/ D.V. Bhavnagri
Dossi V. Bhavnagri,
Vice President
COMPANY:
HEILIG-MEYERS COMPANY,
a Virginia corporation
By /s/ Roy B. Goodman
Roy B. Goodman,
Senior Vice President - Finance
ADMINISTRATIVE AGENT:
WACHOVIA BANK OF GEORGIA, N.A.,
in its capacity as Administrative Agent
By /s/ [signature illegible]
Title Assistant Vice President
DOCUMENTATION AGENT: NATIONSBANK, N.A.,
in its capacity as Documentation Agent
By /s/ [signature illegible]
Title Executive Vice President
CO-AGENTS: CRESTAR BANK,
in its capacity as Co-Agent
By /s/ [signature illegible]
Title Senior Vice President
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<PAGE>
FIRST UNION NATIONAL BANK OF VIRGINIA,
in its capacity as Co-Agent
By /s/ [signature illegible]
Title Senior Vice President
LENDERS: WACHOVIA BANK OF NORTH CAROLINA, N.A.
By /s/ [signature illegible]
Title Senior Vice President
NATIONSBANK, N.A.
By /s/ [signature illegible]
Title Executive Vice President
CRESTAR BANK
By /s/ [signature illegible]
Title Senior Vice President
FIRST UNION NATIONAL BANK OF VIRGINIA
By /s/ [signature illegible]
Title Senior Vice President
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION
By /s/ [signature illegible]
Title Vice President
NBD BANK
By /s/ [signature illegible]
Title Authorized Agent
TRUST COMPANY BANK
By
Title
By
Title
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<PAGE>
SIGNET BANK
(formerly known as Signet Bank/Virginia)
By /s/ William D. Garrison
Title Senior Vice President
PNC BANK, NATIONAL ASSOCIATION
By
Title
CREDIT LYONNAIS CAYMAN ISLAND BRANCH
By /s/ [signature illegible]
Title Authorized Signature
CREDIT LYONNAIS ATLANTA AGENCY
By /s/ [signature illegible]
Title First Vice President & Manager
THE FUJI BANK, LIMITED - NEW YORK BRANCH
By /s/ [signature illegible]
Title Vice President and Manager
THE BOATMEN'S NATIONAL BANK OF ST. LOUIS
By /s/ [signature illegible]
Title Corporate Banking Officer
THE MITSUBISHI BANK, LIMITED
By
Title
THE LONG-TERM CREDIT BANK OF JAPAN, LIMITED
By /s/ John J. Sullivan
Title Joint General Manager
77
<PAGE>
EXHIBIT 10.qq
THIRD AMENDMENT AND RESTATEMENT OF CREDIT AGREEMENT
THIS THIRD AMENDMENT AND RESTATEMENT OF CREDIT AGREEMENT (the "Third Amendment")
dated as of May 23, 1997 is to that Credit Agreement dated as of July 18, 1995
(as amended and modified hereby and as further amended and modified from time to
time hereafter, the "Credit Agreement") by and among MACSAVER FINANCIAL
SERVICES, INC., a Delaware corporation (the "Borrower"), HEILIG-MEYERS COMPANY,
a Virginia corporation (the "Company"), the Lenders, WACHOVIA BANK OF GEORGIA,
N.A., as Administrative Agent, NATIONSBANK, N.A., as Documentation Agent, and
CRESTAR BANK and FIRST UNION NATIONAL BANK OF VIRGINIA, as Co-Agents. Terms used
but not otherwise defined herein shall have the meanings provided in the Credit
Agreement.
W I T N E S S E T H
WHEREAS, the Lenders have, pursuant to the terms of the Credit Agreement, made
available to the Borrower a $400,000,000 credit facility for the purposes set
forth therein;
WHEREAS, the Borrower has requested modification of a financial covenant; and
WHEREAS, the requested modifications require the consent of the Required
Lenders;
WHEREAS, the Required Lenders for and on behalf of the Lenders have agreed to
the requested changes on the terms and conditions hereinafter set forth;
NOW, THEREFORE, IN CONSIDERATION of the premises and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties hereto agree as follows:
A. The financial covenant in Section 7.9(b) of the Credit Agreement relating to
the Fixed Charge Coverage Ratio is amended to read as follows:
(a) Fixed Charge Coverage Ratio. As of the end of each fiscal quarter, there
shall be maintained a Fixed Charge Coverage Ratio of at least:
For fiscal quarters ending
prior to May 31, 1996 1.5:1.0
From the fiscal quarter ending
May 31, 1996 through the
fiscal quarter ending
February 28, 1998 1.25:1.0
For fiscal quarters ending after
February 28, 1998 1.5:1.0
B. The Company and the Borrower hereby certify that as of the date hereof:
(i) the representations and warranties contained in the Credit Agreement (other
than those which expressly relate to a prior period) are true and correct in all
material respects; and
(ii) No Default or Event of Default currently exists and is continuing.
C. The effectiveness of this Third Amendment is conditioned upon receipt by the
Administrative Agent of the following:
(i) copies of this Third Amendment executed by the Company, the Borrower and
the Required Lenders; and
(ii) an amendment fee of $200,000 (representing 5 b.p. on the total aggregate
Revolving Committed Amount) for the ratable benefit of the Lenders.
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<PAGE>
D. The Company joins in the execution of this Third Amendment for purposes,
among other things, of acknowledging and consenting to the terms of this Third
Amendment and reaffirming its guaranty obligations under the Credit Agreement,
as amended hereby.
E. The Company and the Borrower will execute such additional documents as are
reasonably requested by the Administrative Agent to reflect the terms and
conditions of this Third Amendment.
F. Except as modified hereby, all of the terms and provisions of the Credit
Agreement (and Exhibits) remain in full force and effect.
G. The Company and the Borrower agree to pay all reasonable costs and expenses
in connection with the preparation, execution and delivery of this Third
Amendment, including without limitation the reasonable fees and expenses of
Moore & Van Allen, PLLC.
H. This Third 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
not be necessary in making proof of this Third Amendment to produce or account
for more than one such counterpart.
I. This Third Amendment and the Credit Agreement, as amended hereby, shall be
deemed to be contracts made under, and for all purposes shall be construed in
accordance with, the laws of the State of North Carolina.
IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart of this
Third Amendment to Credit Agreement 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/ D.V. Bhavnagri
Dossi V. Bhavnagri,
Vice President
COMPANY:
HEILIG-MEYERS COMPANY,
a Virginia corporation
By /s/ Roy B. Goodman
Roy B. Goodman,
Senior Vice President - Finance
ADMINISTRATIVE AGENT:
WACHOVIA BANK OF GEORGIA, N.A.,
in its capacity as Administrative Agent
By /s/ [signature illegible]
Title Assistant Vice President
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<PAGE>
DOCUMENTATION
AGENT: NATIONSBANK, N.A.,
in its capacity as Documentation Agent
By /s/ [signature illegible]
Title Executive Vice President
CO-AGENTS: CRESTAR BANK,
in its capacity as Co-Agent
By /s/ [signature illegible]
Title Senior Vice President
FIRST UNION NATIONAL BANK OF VIRGINIA,
in its capacity as Co-Agent
By /s/ [signature illegible]
Title Senior Vice President
LENDERS: WACHOVIA BANK OF NORTH CAROLINA, N.A.
By /s/ [signature illegible]
Title Banking Officer
NATIONSBANK, N.A.
By /s/ [signature illegible]
Title Executive Vice President
CRESTAR BANK
By /s/ [signature illegible]
Title Senior Vice President
FIRST UNION NATIONAL BANK OF VIRGINIA
By /s/ [signature illegible]
Title Senior Vice President
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION
By /s/ [signature illegible]
Title Managing Director
80
<PAGE>
THE FIRST NATIONAL BANK OF CHICAGO
By /s/ [signature illegible]
Title Managing Director
TRUST COMPANY BANK
By /s/ [signature illegible]
Title Vice President
By /s/ [signature illegible]
Title Vice President
SIGNET BANK
(formerly known as Signet Bank/Virginia)
By /s/ [signature illegible]
Title Senior Vice President
PNC BANK, NATIONAL ASSOCIATION
By /s/ [signature illegible]
Title Vice President
CREDIT LYONNAIS NEW YORK BRANCH
By /s/ Jacques-Yves Mulliez
Title Senior Vice President
CREDIT LYONNAIS ATLANTA AGENCY
By /s/ Jacques-Yves Mulliez
Title Senior Vice President
THE FUJI BANK, LIMITED - NEW YORK BRANCH
By
Title
81
<PAGE>
THE BOATMEN'S NATIONAL BANK OF ST. LOUIS
By /s/ [signature illegible]
Title Executive Vice President
THE BANK OF TOKYO - MITSUBISHI LTD. -
ATLANTA AGENCY
By /s/ [signature illegible]
Title Vice President
THE LONG-TERM CREDIT BANK OF JAPAN, LIMITED
By /s/ [signature illegible]
Title Joint General Manager
82
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EXHIBIT 10.ss
AMENDMENT NO. 5
THIS AMENDMENT NO. 5 (the "Amendment") dated as of April 23, 1998, 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.
W I T N E S S E T H
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 certain modifications to the Credit
Agreement;
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 Credit Agreement is amended and modified in the following
respects:
2.1 The following definitions are amended or added in Section 1.1 to read
as follows:
"Applicable Percentage" means for any day, the rate per annum set forth below
opposite the applicable rating for the Company's senior unsecured (non-credit
enhanced) long term debt then in effect, it being understood that the Applicable
Percentage for (i) Base Rate Loans shall be the percentage set forth under the
column "Base Rate Margin", (ii) Eurodollar Loans shall be the percentage set
forth under the column "Eurodollar Margin", and (iii) the Facility Fee shall be
the percentage set forth under the column "Facility Fee":
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------------ ----------------- ------------------ -------------------
Pricing S&P Moody's Eurodollar Margin
Level Rating Rating
------------ ----------------- ------------------ -------------------
------------ ----------------- ------------------ -------------------
I BBB+ or above Baa1 or above 0.275%
------------ ----------------- ------------------ -------------------
------------ ----------------- ------------------ -------------------
II BBB Baa2 0.350%
------------ ----------------- ------------------ -------------------
------------ ----------------- ------------------ -------------------
III BBB- Baa3 0.475%
------------ ----------------- ------------------ -------------------
------------ ----------------- ------------------ -------------------
IV BB+ Ba1 0.750%
------------ ----------------- ------------------ -------------------
------------ ----------------- ------------------ -------------------
V below BB+ below Ba1 0.950%
or unrated or unrated
------------ ----------------- ------------------ -------------------
(Continued)
------------- ---------------
Base Rate
Margin Facility Fee
------------- ---------------
------------- ---------------
0% 0.125%
------------- ---------------
------------- ---------------
0% 0.150%
------------- ---------------
------------- ---------------
0% 0.175%
------------- ---------------
------------- ---------------
0% 0.250%
------------- ---------------
------------- ---------------
0% 0.30%
------------- ---------------
The numerical classification set forth under the column "Pricing Level" shall be
established based on the better of ratings by S&P and Moody's for the Company's
senior unsecured (non-credit enhanced) long term debt. The Applicable Percentage
shall be determined and adjusted on the date five (5) Business Days after each
change in debt rating. Adjustments in the Applicable Percentage shall be
effective as to all Loans, existing and prospective, from the date of
adjustment. The Administrative Agent shall promptly notify the Lenders of
changes in the Applicable Percentage.
"Consolidated Interest Expense" means, for any period, all interest expense,
including the amortization of debt discount and premium and the interest
component under Capital Leases for the Company and its Subsidiaries on a
consolidated basis determined in accordance with GAAP applied on a consistent
basis (including, for purposes hereof, interest payments on Subordinated
Debentures). Except as otherwise specified, the applicable period shall be for
the four consecutive quarters ending as of the date of computation.
"Funded Debt" means for any Person, (i) all Indebtedness of such Person for
borrowed money or which has been incurred in connection with the acquisition of
assets, (ii) all Capital Lease Obligations of such Person and, without
duplication, (iii) all Guarantee Obligations of such Person of Funded Debt of
other Persons (excluding, for purposes hereof, obligations evidenced by or
otherwise recorded with respect to Subordinated Debentures or Preferred
Securities).
"Preferred Securities" means pass-through securities, capital securities or
other preferred securities issued by a statutory business trust or other similar
special purpose entity owned or controlled by the Company or any Subsidiary the
proceeds of which are invested in or exchanged for Subordinated Debentures.
"PS Affiliate" means trust or other special purpose entity which is the issuer
of Preferred Securities.
"Subordinated Debentures" means junior subordinated deferrable interest
debentures or other similar subordinated debt securities issued by the Company
or any Subsidiary the interest payments on which are used to make cash
distributions on Preferred Securities.
2.3 The first clause of Section 2.2(a) preceding the prorisois amendment to
read as follows:
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During the Commitment Period, subject to the terms and conditions hereof, from
such time as the Company shall have attained and for so long as the Company
shall maintain, ratings for its senior unsecured (non-credit enhanced) long-term
debt of BBB-/Baa3 or better by S&P and Moody's, respectively, the Borrower may
from time to time request and each Lender may, in its sole discretion, agree to
make Competitive Loans to the Borrower;
2.3 Section 7.9(b) relating to the Fixed Charge Coverage Ratio is amended
to read as follows:
(b) Fixed Charge Coverage Ratio. As of the end of each fiscal quarter,
there shall be maintained a Fixed Charge Coverage Ratio of at least:
through the end of the fiscal year ending in February, 1999 1.15:1.0
thereafter 1.25:1.0
3. This Amendment shall be effective upon satisfaction of the following
conditions:
(a) execution of this Amendment by the Borrower, the Company and the
Administrative Agent;
(b) receipt by the Bank of legal opinions of counsel to the Borrower and the
Company relating to this Amendment in form and substance satisfactory to the
Administrative Agent and the Required Lenders;
(c) receipt by the Administrative Agent for the ratable benefit of the
consenting Lenders of an Amendment Fee of 7.5 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 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.
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/ D.V. Bhavnagri
Name: Dossi V. Bhavnagri
Title: Vice President
COMPANY: HEILIG-MEYERS COMPANY,
a Virginia corporation
By: /s/ Paige H. Wilson
Name: Paige H. Wilson
Title: Vice President
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ADMINISTRATIVE
AGENT: WACHOVIA BANK, N.A., as Administrative Agent
for and on behalf of the Lenders
By: /s/ Christopher C. Borin
Name: Christopher C. Borin
Title: Senior Vice Presient
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EXHIBIT 10.uu
RHODES, INC. SUPPLEMENTAL EMPLOYEES' PENSION PLAN
(Effective March 1, 1995)
ARTICLE 1.
1 Purpose. Rhodes, Inc. (The "Sponsoring Company") established the
Rhodes, Inc. Employees' Pension Plan (the "Employees' Pension Plan"), effective
February 1, 1968, to provide eligible employees with retirement benefits in
accordance with Sections 401 and 501 of the Internal Revenue Code of 1986 and
other provisions of law relating to qualified employee plans and trusts.
Effective March 1, 1976, January 1, 1981 and January 1, 1989, the Sponsoring
Company amended and restated the Plan in order to comply with changes in the
law. Due to changes in the law which cut back benefits for certain executives,
Rhodes, Inc. Has established this excess benefit plan, the Rhodes, Inc.
Supplemental Employees' Pension Plan, to provide full retirement benefits for
certain officers of the Company.
2 Source of Funds. It is the intention of the Company that this
arrangement be unfunded for tax purposes and for purposes of Title I of the
Employee Retirement Income Security Act of 2974 (ERISA). This Plan provides a
mere promise by the Company to make benefit payments in the future. Benefits are
payable solely from the Company's general assets and the Employee is a general
unsecured creditor of the company.
3 Effective Date. This Plan shall be effective March 1, 1995.
4 ERISA. The Company intends that this Plan come within the various
exceptions and exemptions to the Employee Retirement Income Security Act of
1974, as amended, for an unfunded plan maintained for a "select group of
management or highly compensated employees."
ARTICLE 2.
1 Accrued Benefit. "Accrued Benefit" means the monthly retirement
benefit payable at Normal Requirement Age which a Participant has earned on any
given date, determined in accordance with Article 4.
2 Affiliate. "Affiliate" means (a) any corporation which is a member of
the same controlled group of corporations (within the meaning of Code Section
414(b) as is a Company, (b) any other trade or business (whether or not
incorporated) under common control (within the meaning of Code Section 414(c))
with a Company, (c) any other corporation, partnership or other organization
which is a member of an affiliated service group (within the meaning of Code
Section 414(m)) with a Company, and (d) any other entity required to be
aggregated with a Company pursuant to regulations under Code Section 414(o).
3 Board of Directors. "Board of Directors" means the Board of
Directors of Rhodes, Inc.
4 Code. "Code" means the Internal Revenue Code of 1986, as
amended.
5 Committee. "Committee" means the Plan Administrative Committee as
from time to time appointed by the Board of Directors to administer the Plan in
accordance with Article 6.
6 Company. "Company" means the Sponsoring Company, its corporate
successors, the surviving corporation resulting from any merger or consolidation
of the Sponsoring Company with any other corporation or corporations, and any
Affiliate or other entity which has adopted the Plan.
7 Deferred Vested Termination. "Deferred Vested Termination"
means termination of employment after completing five Years of Service.
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8 Disability. "Disability" means entitlement to receive disability
income benefits under the Social Security Act based on total and permanent
disability.
9 Early Retirement Date. "Early Retirement Date" means the first day of
the month coincident with or next following the date on which a participant
elects to retire after attaining age 55 and completing five Years of Service.
10 Effective Date. "Effective Date" means March 1, 1995 with respect to
the Sponsoring Company. With respect to each other Company adopting the Plan,
the "Effective Date" shall be designated by the adopting Company and accepted by
the Sponsoring Company.
11 Employee or Eligible Employee. "Employee" or "Eligible Employee"
means any person who is employed by a Company or any Affiliate for purposes of
the Federal Insurance Contributions Act, who is an officer and who earns annual
compensation in excess of the compensation limit applicable to qualified
retirement plans under Code 401(a)(17), as adjusted for cost of living pursuant
to the Code (2)ss. ($150,000 for 1995).
12 Employees Pension Plan. The Rhodes, Inc. Employees' Pension
Plan, effective January 1, 1989, as amended from time to time.
13 Normal Retirement Age. "Normal Retirement Age" means the
attainment of age 65 and the completion of five (5) Years of Service.
14 Normal Retirement Date. "Normal Requirement Date" means the
first day of the month coincident with or next following the attainment of
Normal Retirement Age.
15 Participant. "Participant" means any Employee who has become a
Participant in the Plan until his or her vested Accrued Benefit has been fully
distributed from the Plan.
16 Plan Year. "Plan Year' means the calendar year.
17 Qualified Joint and Survivor Annuity. "Qualified Joint and Survivor
Annuity" means annuity payable in monthly installments or the life of a
Participant with a survivor annuity for the life of his or her spouse which is
fifty percent (50%) of the amount of the annuity payable during the joint lives
of the Participant and spouse, and which is the Actuarial Equivalent of a single
annuity for the life of the Participant.
18 Qualified Preretirement Survivor Annuity. "Qualified Preretirement
Survivor Annuity" means a single life annuity for the life of the Participant's
surviving spouse which is equal to fifty percent (50%) of the benefit that would
have been payable to the Participant under the Qualified Joint and Survivor
Annuity if:
19 Termination Completion Date. "Termination Completion Date" means the
last day of the fifth consecutive One-Year Break in Service computation period,
determined under Section 2.23, in which a Participant completes a Break in
Service.
20 Year of Service. "Year of Service" means each Plan Year during which
an Employee completes 1,000 or more Hours of Service for the Company or an
Affiliate. In determining Years of Service, an Employee shall not receive credit
for Hours of Service worked prior to attainment of age eighteen (18).
ARTICLE 3.
[Intentionally Omitted]
88
<PAGE>
ARTICLE 4.
1 General Rule. Transfer of a Participant from one Company to another
Company or to an Affiliate shall not be deemed to be a termination of employment
of the Participant. Subject to the time payments begin under the Employees'
Pension Plan, upon a Participant's termination of employment on or after his or
her Normal Retirement Date, Early Retirement Date, or after attainment of
eligibility for a benefit following Deferred Vested Termination, the Participant
shall be entitled to receive from the Company a monthly retirement benefit
payable at the participant's Normal Retirement Date equal to the monthly
retirement benefit that would be payable at such time under the Employees'
Pension Plan, determined without regard to the limitations imposed by Code
Sections 401(a)(17) and 415, offset, but not below zero, by the monthly
retirement benefits payable at such time under the Employees' Pension Plan.
2 Death Benefits. [Text Illegible] commencement of retirement benefits
after completing at least five (5) Years of Service shall only be eligible to
receive benefits in the form of a Qualified Preretirement Survivor Annuity based
on the benefit that would have been payable to the Participant under this Plan.
The surviving spouse of a fully vested Participant who dies prior to retirement
and who is not entitled to a Qualified Preretirement Survivor Annuity under the
Employees' Pension Plan shall not be entitled to receive a benefit under this
Plan.
3 Accrued Benefit. The Accrued Benefit of a Participant under this Plan
is not preserved from year to year without possibility of reductions. The
supplemental benefit under this Plan is finally determined only at the time
payments begin under the Plan and may increase or decrease from year to year
prior to the time payments begin.
ARTICLE 5.
1 Manner of Payment. The payment of a Participant's vested Accrued
Benefit determined in accordance with Article 4 shall be paid in the same form
and at the same time as payments are made under the Employees' Pension Plan. If
a Participant's Accrued Benefit is paid before the Participant's Normal
Retirement Date, it shall be reduced for early commencement to the extent (and
using the same reduction factors) that the Participant's benefit under the
Employees' Pension Plan is reduced for early commencement. If a Participant's
Accrued Benefit is paid in a form other than a single life annuity, such benefit
shall be actuarially equivalent (using the actuarial equivalence factors then
applicable to the participant under the Employees' pension Plan) to the benefit
that would otherwise be payable to him or her under this Plan in the single life
annuity form.
2 Benefit Application and Claims Procedure.
[Intentionally Omitted]
3 Unfounded Arrangement. [Intentionally Omitted]
ARTICLE 6.
1 Appointment of Administrative Committee. The Board of Directors shall
appoint a Plan Administrative Committee to serve as a administrator of the Plan.
Any person, including directors, shareholders, officers and employees of the
Company, shall be eligible to serve on the Committee. Any person appointed a
member of the Committee shall signify his or her acceptance in writing to the
Board of Directors. The Committee may be the same as the Committee that
administers the Employees' Pension Plan.
2 Powers and Duties of the Committee. Except as otherwise provided in
this Plan, the committee shall have authority to control and manage the
operation and administration of the Plan, including all rights and powers
necessary or convenient to carry out its functions hereunder, whether or not
such rights and powers are specifically enumerated herein. In particular, the
Committee shall have sole and exclusive discretion, authority and responsibility
89
<PAGE>
for administering, construing and interpreting the provisions of the Plan and
making all determinations thereunder. In establishing the Committee's
discretion, authority and responsibility, it is the intent of the Company to
grant the Committee the broadest possible powers to interpret and administer the
Plan so that judicial or other review of Committee decisions is limited to the
extent allowed by law and so that maximum deference is given to all Committee
decisions under or relating to the Plan.
3 Administrative Procedures. The Committee may adopt such bylaws and
regulations as it deems desirable for the conduct of Plan affairs. The Committee
shall advise the Company of any Plan actions in writing. The Committee shall
keep a record of all its actions as a Committee and shall forward all
appropriate communications to the Company. Filing or delivery of any document
with or to the Committee in person or by registered or certified mail, addressed
in care of the Company, shall be deemed a filing with or delivery to the
Committee.
4 Consultation with Advisors. The Committee may employ one or more
persons to render advice with regard to any responsibility it may have under the
Plan. The Committee may consult with counsel, actuaries, accountants, physicians
or other advisors (who may also be advisors for the Company) and may also from
time to time utilize the services of employees and agents of the Company in the
discharge of its responsibilities.
5 Committee Members as Participants. A member of the Committee may also
be a Participant, but such member shall not make any discretionary decision or
take any action affecting his or her interest as a Participant unless such
decision or action is upon a matter that affects all other Participants
similarly situated and confers no special right, benefit, or privilege not
simultaneously conferred upon all such Participants.
6 Records and Reports. The Committee shall take any actions it deems
necessary or appropriate to comply with laws and regulations relating to the
Plan.
ARTICLE 7.
1 Amendment of Plan by Sponsoring Company. The sponsoring Company
reserves the right at any time to modify, amend or terminate the Plan in whole
or in part by action of its Board of Directors. No Company other than the
Sponsoring Company shall have the right to modify, amend or terminate the Plan.
Notwithstanding the foregoing, each Company may terminate its own participation
in the Plan pursuant to Section 7.2.
2 Termination From Plan by a Company. Each Company other than the
Sponsoring Company shall have the right to terminate its participation in the
Plan by Resolution of its board of directors or other appropriate governing body
and notice in writing to the Sponsoring Company. If contributions by or on
behalf of a Company are completely terminated, the Plan shall be deemed
terminated as to such Company. In the event of such a termination by a Company
the Section 7.3 and 7.4 shall govern the interests of the Participants and
Beneficiaries who are affected by the termination, except that the termination
shall not be a termination as to any other Company.
3 Vesting Upon Termination. If the Plan is terminated by the
Sponsoring Company, the Plan shall terminate as to all Companies and the Accrued
Benefit of each affected Participant shall be fully vested and nonforfeitable.
In the event of the partial termination of the Plan, each affected Participant's
Accrued Benefit, shall be fully vested and nonforfeitable.
4 Distributions by Committee. In the event of the termination of the
Plan, all Accrued Benefits shall be paid in accordance with the terms of the
Plan.
ARTICLE 8.
[Intentionally Omitted]
90
<PAGE>
ARTICLE 9. Miscellaneous
1 Limitation of Assignment. No benefit payable under the Plan to any
person shall be subject in any manner to anticipation, alienation, sale,
transfer, assignment, pledge, encumbrance or charge, and any attempt to
anticipate, alienate, sell, transfer assign, pledge, encumbrance or charge, and
any attempt to anticipate, alienate, sell, transfer, assign, pledge, encumber or
charge a benefit shall be void; and no such benefit shall in any manner be
liable for, or subject to, the debts, contracts, liabilities, engagements or
torts of any person, nor shall it be subject to attachment or legal process for,
or against, such person, and the same shall not be recognized under the Plan,
except to such extent as may be required by law.
2 Legally Incompetent Distributee. Whenever any benefit payable under
the Plan is to be paid to or for the benefit of any person who is determined to
be incompetent by qualified medical advice, the Committee need not require the
appointment of a guardian or custodian, but is authorized to cause the benefit
(a) to be paid to the person having custody of each incompetent, without
intervention of a guardian or custodian, (b) to pay the benefit to a legal
guardian or custodian of such incompetent if one has been appointed, or (c) to
use the payment for the benefit of the incompetent.
3 Notification of Addresses. Each Participant and Beneficiary shall
from time to time file with the Committee in writing his or her address or any
change of address. Any communication, statement, or notice mailed to the last
address filed with the Committee, or if no such address was filed with the
Committee, to the last address shown on the Company's records, will be binding
on the Participant or Beneficiary for all purposes, and neither the Committee
nor the Company shall be obliged to search for or ascertain the whereabouts of
any Participant or Beneficiary.
4 Notice of Proceedings and Effect of Judgment. In any application,
proceeding or action in any court, only the Company shall be a necessary party,
and no Participant or other person shall be entitled to any notice or service of
process except as required by law. Any judgment or decree entered on account of
such application, proceeding or action shall be finding and conclusive upon all
persons claiming under this Plan.
5 Severability. If any provisions of this Plan re held illegal or
invalid for any reason, such illegality or invalidity shall not affect the
remaining parts of this Plan, and this Plan shall be construed and enforced as
if the illegal and invalid provisions were not included.
6 Limitation of Rights. Participation in the Plan shall not give any
Employee any right or claim except to the extent that such right is specifically
fixed under the terms of the Plan. The adoption of the Plan by a Company shall
not be construed to give any Employee a right to continue in the employ of a
Company or to interfere with the right of a Company to terminate the employment
of the Employee at any time.
7 Controlling Law. The laws of the state of Georgia shall be the
controlling state law in all matters relating to the Plan and shall apply to the
extent not preempted by the laws of the United States of America.
91
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
Heilig-Meyers Furniture Company, incorporated under the laws of North Carolina;
HMPR, Inc., incorporated under the laws of Puerto Rico;
HMY - RoomStore, Inc., incorporated under the laws of Virginia;
MacSaver Financial Services, Inc., incorporated under the laws of Delaware;
MacSaver Funding Corporation, Inc., incorporated under the laws of Delaware;
MacSaver Insurance Services, Ltd., incorporated under the laws of Bermuda;
Mattress Discounters Corporation, incorporated under the laws of Delaware;
Rhodes, Inc., incorporated under the laws of Georgia; and
92
<PAGE>
EXHIBIT 23(a)
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in (i) the Registration
Statements No. 2-96961 and No. 33-28095 on Form S-8 and related Prospectus
of Heilig-Meyers Company relating to Common Stock issued and issuable under
the 1983 Stock Option Plan of the Company, (ii) the Registration Statements
No. 33-35263, No. 33-50086 and No. 33-64616 on Form S-8 and related
Prospectuses of Heilig-Meyers Company relating to Common Stock issued and
issuable under the 1990 Stock Option Plan of the Company, (iii) the
Registration Statement No. 33-43791 on Form S-8 relating to the
Heilig-Meyers Company Employee Stock Purchase Plan and related Prospectus
of the Company, (iv) Registration Statements No. 33-54261 and No. 333-29105
on Form S-8 and related Prospectuses of Heilig-Meyers Company relating to
Common Stock issued and issuable under the 1994 Stock Option Plan of the
Company, and (v) the Registration Statements No. 333-07753, No. 333-29929,
No. 333-45129 and No. 333-320825 on Form S-3 and the related Prospectuses
of Heilig-Meyers Company of our report dated March 25, 1998 on the
consolidated financial statements and schedule of Heilig-Meyers Company and
subsidiaries, as listed under Items 14(a) (1) and (2), both appearing in
the Annual Report on Form 10-K of Heilig-Meyers Company for the year ended
February 28, 1998.
/s/ Deloitte & Touche LLP
Richmond, Virginia
May 27, 1998
93
<PAGE>
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