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 29, 2000 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, 2000 was approximately $122,502,762.
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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, 2000
by (ii) the number of shares of the registrant's common stock not held by the
executive 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, 2000, there were outstanding 60,676,773 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 21, 2000, 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 5
Competition 5
D. Store Operations
General 6
Merchandising 7
Advertising and Promotion 7
Credit Operations 8
Distribution 8
Customer Service 9
E. Corporate Expansion 10
F. Other Factors Affecting the Business of Heilig-Meyers
Suppliers 11
Service Marks, Trademarks and Franchise Operations 11
Seasonality 11
Employees 11
Foreign Operations and Export Sales 11
ITEM 2. PROPERTIES 12
ITEM 3. LEGAL PROCEEDINGS 12
ITEM 4. SUBMISSION of MATTERS to a VOTE of SECURITY HOLDINGS 12
PART II
ITEM 5. MARKET for REGISTRANT'S COMMON EQUITY and
RELATED STOCKHOLDER MATTERS 14
ITEM 6. SELECTED FINANCIAL DATA 15
ITEM 7. MANAGEMENT'S DISCUSSION and ANALYSIS of FINANCIAL
CONDITION and RESULTS of OPERATIONS 17
ITEM 7A. QUANTITATIVE and QUALITATIVE DISCLOSURES
ABOUT MARKET RISK 25
ITEM 8. FINANCIAL STATEMENTS and SUPPLEMENTARY DATA 26
ITEM 9. CHANGES in and DISAGREEMENTS with ACCOUNTANTS
on ACCOUNTING and FINANCIAL DISCLOSURE 51
PART III
ITEM 10. DIRECTORS and EXECUTIVE OFFICERS of the REGISTRANT 51
ITEM 11. EXECUTIVE COMPENSATION 51
ITEM 12. SECURITY OWNERSHIP of CERTAIN BENEFICIAL OWNERS
and MANAGEMENT 51
ITEM 13. CERTAIN RELATIONSHIPS and RELATED TRANSACTIONS 51
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, and
REPORTS on FORM 8-K 52
3
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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 acquisitions are 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, at the time of acquisition, 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 The Bedding Experts, Inc. with 54 stores in Chicago, Illinois and the
surrounding area in January 1998. 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 which both currently operate under The RoomStore division. In
addition, the Company acquired substantially all of the operating assets and
liabilities of Guardian Products in September 1998.
During the fiscal year ended February 29, 2000, the Company divested its
Rhodes Furniture division effective June 30, 1999, divested its Mattress
Discounters division on August 6, 1999, sold the assets related to certain
RoomStore operations in the Chicago and Milwaukee markets beginning in September
1999 and sold substantially all of the assets of Guardian Products on January
31, 2000. Additionally, on April 20, 2000, the sale of the Berrios division was
completed. The transaction will be recorded in the Company's first quarter ended
May 31, 2000 and is not expected to have a significant effect on results of
operations. The results of the divestiture activity is described in detail in
the Notes to the Consolidated Financial Statements.
B. Industry Segments
The Company operated two primary segments for the full fiscal year as
Heilig-Meyers Furniture and The RoomStore. As discussed previously, the Company
has divested its Mattress Discounters and Rhodes divisions and has sold the
assets related to 18 stores in the Chicago and Milwaukee markets which were
previously part of The RoomStore division. Additionally, the Company announced
its intention to divest of The RoomStore's remaining Chicago operations as well
as its Puerto Rican operations, both of which are reported within operations
held for sale as of February 29, 2000. For the financial results of the
Company's operating divisions, see Note 15 of Notes to Consolidated Financial
Statements in Item 8 of Part II found on page 46 of this annual report.
The Company's "Heilig-Meyers" division is associated with the Company's
historical operations. The majority of the Heilig-Meyers stores operate in
smaller markets with a broad line of merchandise. Stores under "The RoomStore"
division display and sell furniture in complete room packages. The rooms are
arranged by professional designers and sell at a value when purchased as a
group. As of February 29, 2000, operations held for sale include three stores in
the Chicago market and 33 stores operating in Puerto Rico under the "Berrios"
name.
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C. Nature of Business
General
The Company is the Nation's largest specialty retailer of home furnishings
and related items with 872 stores (as of April 30, 2000) which are located in 30
states. 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 55 stores of The RoomStore are located in 5 states, including Texas,
Virginia, Oregon, Maryland and Washington. The stores included in Operations
held for sale as of February 29, 2000 include three stores in the Chicago market
and the 33 stores in Puerto Rico operating under the Berrios name, both of which
were previously reported within The RoomStore division.
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 and; (5) emphasizing
customer service and repair service for consumer electronics and other
mechanical items.
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.
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 division competes in mid-to-large metropolitan markets and
serves middle income customers.
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.
5
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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. 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 2000, the Company remodeled 18 existing stores and plans to
remodel approximately 20 existing stores in fiscal 2001. The remodel plan for
fiscal 2001 is designed around a new store format that brings together new
product and visual presentation supported by an enhanced advertising program.
Decisions regarding the presentations and programs will be made on a
market-by-market basis. The existing The RoomStore stores average approximately
30,000 square feet. The Company does not have significant remodeling activities
planned for this format during fiscal 2001.
Generally, 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. In certain markets where conditions permit, one
manager may have operating responsibility for two stores. See "Credit
Operations" regarding planned changes with respect to 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.
In order to increase the availability and effectiveness of management
information, Heilig-Meyers makes use of just-in-time ordering and backhauling.
The Company also makes use of satellite systems which provide immediate
communication between the Company's corporate headquarters and the Heilig-Meyers
stores and distribution centers. The Company believes customer service is
enhanced by providing store management more timely access to information related
to product availability. The RoomStore division has operating systems in place
that provide similar operating capabilities.
6
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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. The RoomStore stores primarily sell mid-price-point
furniture and accessories, and bedding. During the three most recent fiscal
years, the percentage of store sales derived from the various merchandising
categories were as follows (by format):
2000 1999 1998
---- ---- ----
Heilig-Meyers Furniture:
Furniture and accessories 65% 64% 60%
Consumer electronics 8 7 9
Bedding 13 13 13
Appliances 7 7 7
Other (e.g. jewelry and
seasonal goods) 7 9 11
The RoomStore:
Furniture and accessories 90 90 90
Bedding 10 10 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 helps to 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 2000, the Company continued to refine its
merchandise selections to capitalize on variations in customer preferences.
During fiscal 2000, 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. The Company also began the implementation of new systems
in fiscal 2000 designed to improve category management capabilities and supply
chain management. These systems will allow the Company to gather and analyze
marketing and merchandising information more effectively in order to build
better assortments and inventory plans. Furthermore, the systems should provide
the capability to integrate this information into its inventory management
function and develop supply chain management strategies aimed at lowering
inventory levels while enhancing customer service.
Advertising and Promotion
Circulars and broadcast advertising are the key components of the Company's
marketing program. The Company centrally designs its circulars for its
Heilig-Meyers stores, which accounted for approximately 32% of the Company's
Heilig-Meyers store advertising expenses in fiscal 2000. In fiscal 2000, the
Heilig-Meyers format distributed over 150 million circulars. This included nine
circulars sent by direct mail or newspaper insert to over 16 million households
in Heilig-Meyers primary trade area and special private sale circulars mailed to
approximately 0.5 million of these households each month, as well as during
special promotional periods. Direct mailing expenses accounted for approximately
20% of advertising expenses at The RoomStore during fiscal 2000, with circulars
being mailed to approximately 750,000 customers per month.
In addition to the Company's utilization of circulars, television and radio
commercials are produced for each format and aired in virtually all of the
Company's markets. Broadcast advertising accounted for approximately 46% of the
Company's Heilig-Meyers store advertising expenses in fiscal 2000. 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 42
Heilig-Meyers store promotional events each year. In addition to these events,
individual stores periodically conduct promotional events locally. The Company
generally conducts promotions twice each month in its The RoomStore format.
7
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During fiscal 2000, the Company continued to utilize market segmentation
techniques 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 in those circulars.
Credit Operations
The Company believes that offering flexible credit options is an important
part of its business strategy. Approximately 70% to 80% of sales in the
Heilig-Meyers stores have been made through the Company's installment credit
programs. The Company accepts major credit cards in all stores and offers
revolving credit featuring private label credit cards.
Historically, the Heilig-Meyers installment credit program has been
administered at the store level, allowing terms to 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. Over
fiscal years 1999 and 2000, the Company implemented credit scoring capabilities
that provide local store management with an enhanced tool for making better
credit decisions. In fiscal 2001, the Company plans to further refine its credit
management effectiveness by implementing a centralized billing process for all
installment credit customers. Additionally, the Company plans to implement
centralized credit extension and collections in approximately 223 stores. In
addition to administrative cost savings, this program should enable the Company
to more effectively evaluate its credit offerings to ensure their
competitiveness in the marketplace, as well as provide the highest level of
support to the Company's operating strategy. Based on results achieved in the
initial implementation of this program in the 223 stores, strategies will be
developed regarding the credit offerings and operations within the remaining
store base.
The Company extends credit under installment contracts in its Heilig-Meyers
stores for original terms up to 24 months, however, the average term at
origination as of February 29, 2000 was 19 months. Finance charges are included
in revenues on a monthly basis, as earned, net of costs related to the Company's
asset securitization program and totaled $214,098,000 during fiscal 2000, or
approximately 9.3% of total revenues. To provide a source of financing to the
Company, the substantial majority of installment accounts receivable is
transferred to a Master Trust in exchange for certificates representing
undivided interests in such receivables. Certificates with a face value of
$826,300,000 have been sold to third parties as of February 29, 2000. The
Company continues to service these accounts. Because credit operations are
integrated with the sales and store administration, management does not believe
that an accurate allocation of various costs and expenses of operations can be
made between the retail sales and credit operations. Therefore, the Company is
unable to estimate accurately the contribution of its financing operations to
net income.
The Company also offers revolving credit programs, which are underwritten
by third parties, in The RoomStore stores, and to a lesser degree, in the
Heilig-Meyers stores. 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. During
fiscal 2000, approximately 45% of The RoomStore sales and approximately 3% of
Heilig-Meyers sales were made through the revolving credit programs.
Distribution
As of April 30, 2000, the Company operates eight Heilig-Meyers distribution
centers in the Continental U.S. These centers are located in Orangeburg, South
Carolina; Rocky Mount, North Carolina; Russellville, Alabama; Mount Sterling,
Kentucky; Thomasville, Georgia; Moberly, Missouri; Hesperia, California; and
Athens, Texas. 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 six RoomStore distribution centers which collectively have
approximately 1,000,000 square feet.
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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 25% of its purchased inventory in the Heilig-Meyers stores during
fiscal 2000.
Typically, each of the Company's Heilig-Meyers stores is located within 250
miles of one of the eight distribution centers and each of The RoomStore stores
is located within 30 miles of the six The RoomStore distribution and delivery
centers. The Company operates a fleet of trucks which generally delivers
merchandise to each Heilig-Meyers store at least twice a week. In The RoomStore
format 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.
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E. Corporate Expansion
The Company has grown from 647 stores at February 28, 1995, to 872 stores
at April 30, 2000. The following table lists the Company's stores by state and
format as of April 30, 2000:
Heilig- The Operations
State Meyers RoomStore Held for Sale Total
--------------------------------------------------------------------------
Alabama 33 33
Arizona 15 15
California 81 81
Colorado 4 4
Florida 35 35
Georgia 57 57
Idaho 4 4
Illinois 28 3 31
Indiana 21 21
Iowa 19 19
Kentucky 30 30
Louisiana 20 20
Maryland 2 15 17
Mississippi 29 29
Missouri 29 29
Montana 2 2
Nevada 5 5
New Mexico 10 10
North Carolina 110 110
Ohio 33 33
Oklahoma 11 11
Oregon 2 5 7
Pennsylvania 22 22
South Carolina 43 43
Tennessee 53 53
Texas 33 25 58
Virginia 45 9 54
Washington 11 1 12
West Virginia 27 27
--- --- --- ----
814 55 3 872
=== === === ====
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 29, 2000, the
Company opened 16 stores and closed 8 stores. The Company also divested 236
Mattress Discounters stores and 96 Rhodes stores. The Company also closed 19
stores in the Chicago and Milwaukee markets and on April 20, 2000, the Company
sold the 33 Berrios stores located in Puerto Rico for a net decrease of 376
stores. The 16 new stores were opened in refurbished existing retail space.
The Company plans to continue its slower, selective growth strategy for the
Heilig-Meyers division with a greater focus on remodeling existing 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. Growth opportunities of The
RoomStore format are being evaluated. The Company plans to expand this format as
the appropriate markets are identified.
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F. Other Factors Affecting the Business of the Company
Suppliers
During the fiscal year ended February 29, 2000, the Company's ten largest
suppliers accounted for approximately 35% 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.
The mark "The RoomStore" is a federally registered service mark of the
Company which was acquired in fiscal year 1997.
These registrations can be kept in force in perpetuity through continued
use of the marks and timely applications for renewal.
Seasonality
Quarterly fluctuations in the Company's sales are insignificant.
Employees
As of April 30, 2000, the Company employed approximately 16,478 persons
full- or part-time in the Continental United States, of whom approximately
15,800 worked in the Company's stores, distribution centers and service centers,
with the balance in the Company's corporate offices. The Company is not a party
to any union contract and considers its relations with its employees to be good.
Foreign Operations and Export Sales
The Company has no foreign operations and makes no export sales.
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ITEM 2. PROPERTIES
As of April 30, 2000, 632 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 240 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, 2000, the Company owned 73 of its Heilig-Meyers stores, six
of its Heilig-Meyers 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 29, 2000, were approximately
$100,641,000. Most vehicles, a majority of the distribution centers' material
handling equipment, and a majority of the Company's data processing equipment
are also leased. The Company believes that its facilities are adequate at
present levels of operations.
ITEM 3. LEGAL PROCEEDINGS
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.
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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, 2000:
Positions with the Company
or Occupation for the Past
Years with Five Years and Other
Name Age the Company Information
-------------------------------------------------------------------------------
William C. DeRusha 50 31 Chairman of the Board since April
1986. Chief Executive Officer since
April 1984. Director since January
1983.
Donald S. Shaffer 57 1 President and Chief Operating Officer
since April 1999. Chairman and Chief
Executive Officer, Western Auto Supply
Company, a division of Sears, Roebuck
and Company from December 1996 to
December 1998. President and Chief
Executive Officer, Sears Canada from
January 1993 to November 1996.
James F. Cerza, Jr. 52 12 Executive Vice President, Operations
since April 1995.
Roy B. Goodman 42 19 Executive Vice President, Chief
Financial Officer since December 1998.
Senior Vice President, Chief Financial
Officer from July 1997 to December
1998. Senior Vice President, Finance
from April 1995 to July 1997. Vice
President, Secretary and Treasurer
prior to April 1995.
William E. Helms 51 21 Executive Vice President, Puerto Rican
Operations since August 1999.
Senior Vice President, Corporate
Expansion prior to August 1999.
Curtis C. Kimbrell, III 54 15 Executive Vice President,
Merchandising since August 1999.
Senior Vice President, Marketing from
April 1998 to August 1999. Senior
Vice President, Operations prior to
April 1998.
Thomas F. Crump 43 7 Senior Vice President, Controller
since July 1997. Vice President,
Controller, prior to July 1997.
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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
----------- ------ ----- ---------
2000
4th Quarter $ 3 5/8 $ 2 5/16 $ .02
3rd Quarter 5 5/16 3 5/8 .02
2nd Quarter 8 5 5/16 .07
1st Quarter 7 3/16 4 7/16 .07
1999
4th Quarter $ 8 7/16 $ 6 1/16 $ .07
3rd Quarter 11 1/4 5 5/8 .07
2nd Quarter 14 5/16 11 3/8 .07
1st Quarter 15 15/16 11 3/4 .07
There were approximately 3,400 shareholders of record as of February 29,
2000.
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 $19,785,000 plus 75% of net earnings
adjusted for dividend payouts subsequent to February 29, 2000.
14
<PAGE>
<TABLE>
ITEM 6. SELECTED FINANCIAL DATA
<S> <C> <C> <C> <C> <C>
Fiscal Year 2000(1) 1999(2) 1998(2) 1997(2) 1996
(Dollar amounts in thousands except per share data)
Operations Statement Data:
Sales $2,038,143 $2,431,152 $2,160,223 $1,342,208 $1,138,506
Annual growth in sales (16.2)% 12.5% 60.9% 17.9% 19.1%
Other income $ 259,509 $ 295,206 $ 309,513 $ 250,911 $ 220,843
Total revenues 2,297,652 2,726,358 2,469,736 1,593,119 1,359,349
Annual growth in revenues (15.7)% 10.4% 55.0% 17.2% 18.0%
Costs of sales $1,346,503 $1,637,901 $1,451,560 $ 876,142 $ 752,317
Gross profit margin 33.9% 32.6% 32.8% 34.7% 33.9%
Selling, general and
administrative expense $ 762,176 $ 907,913 $ 828,105 $ 526,369 $ 436,361
Interest expense 62,997 75,676 67,283 47,800 40,767
Provision for doubtful
accounts 99,283 107,916 181,645 80,908 65,379
Store closing and other
charges -- -- 25,530 -- --
Loss on sale and write-down
of assets held for sale (63,052) -- -- -- --
Provision (benefit) for
income taxes 22,284 (1,081) (29,244) 21,715 23,021
Effective income tax rate 61.3% (35.5)% (34.7)% 35.1% 35.7%
Net earnings (loss) $ (58,643) $ (1,967) $ (55,143) $ 40,185 $ 41,504
Earnings (loss) margin (2.9)% (0.1)% (2.6)% 3.0% 3.7%
Net earnings (loss) per share:
Basic(3) $ (0.97) $ (0.03) $ (0.98) $ 0.81 $ 0.85
Diluted(3) (0.97) (0.03) (0.98) 0.80 0.84
Cash dividends per share
of common stock 0.18 0.28 0.28 0.28 0.28
Balance Sheet Data:
Total assets $1,457,685 $1,947,752 $2,097,513 $1,837,158 $1,288,960
Average assets per store 1,609 1,559 1,674 1,946 1,800
Accounts receivable, net 143,132 254,282 392,765 380,879 518,969
Retained interest in
securitized receivables
at fair value 165,873 190,970 182,158 243,427 --
Inventories 336,690 493,463 542,868 433,277 293,191
Property and equipment, net 290,252 400,686 398,151 366,749 216,059
Additions to property and
equipment 32,099 87,505 70,921 84,137 40,366
Short-term debt 72,963 377,486 282,365 256,413 207,812
Long-term debt 535,982 547,344 715,271 561,489 352,631
Average debt per store 672 740 796 866 783
Stockholders' equity 534,748 605,102 609,154 642,621 518,983
Stockholders' equity
per share 8.81 10.11 10.36 11.81 10.69
15
<PAGE>
SELECTED FINANCIAL DATA, cont.
Fiscal Year 2000(1) 1999(2) 1998(2) 1997(2) 1996
(Dollar amounts in thousands except per share data)
Other Financial Data:
Working capital $562,809 $380,333 $591,397 $550,137 $527,849
Current ratio 2.7x 1.5x 1.8x 1.9x 2.4x
Debt to equity ratio 1.14x 1.53x 1.64x 1.27x 1.08x
Percentage of debt to debt
and equity 53.2% 60.4% 62.1% 56.0% 51.9%
Rate of return on average
assets(4) (1.1)% 2.3% (0.6)% 4.6% 5.4%
Rate of return on average
equity (10.3)% (0.3)% (8.8)% 6.9% 8.2%
Number of stores 906 1,249 1,253 944 716
Number of employees 17,424 23,352 24,374 19,131 14,383
Average sales per employee $ 100 $ 103 $ 99 $ 84 $ 83
Weighted average common shares outstanding (in thousands):
Basic 60,289 59,331 56,312 49,360 48,560
Diluted 60,289 59,331 56,312 50,146 49,604
Price range on common stock per share:
High $ 8 $ 15 15/16 $ 20 $ 24 1/8 $ 27 1/4
Low 2 5/16 5 5/8 11 15/16 12 5/8 13 1/2
Close 3 1/4 6 1/2 15 1/2 14 1/8 14
</TABLE>
(1) Fiscal year 2000 results include the operating results of divested
operations up thorugh the date of divestiture. See the description of such
divestitures in the Notes to Consolidated Financial Statements.
(2) 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.
(3) 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 No. 128, see the Notes to Consolidated Financial Statements.
(4) Calculated using earnings before interest, net of tax.
16
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION and ANALYSIS of FINANCIAL CONDITION and
RESULTS of OPERATIONS
Overview
Heilig-Meyers Company (the "Company") is the Nation's largest retailer of
home furnishings and related items and currently operates under two business
segments: Heilig-Meyers Furniture ("Heilig-Meyers") and The RoomStore. During
the current fiscal year ended February 29, 2000 ("fiscal 2000"), the Company
commenced a plan designed to divest of non-core operations. In connection with
this plan, the Company divested of two previously reported business segments,
Rhodes and Mattress Discounters, and certain stores within The RoomStore
business segment that were located in the Chicago and Milwaukee markets, as more
fully described below.
The Heilig-Meyers division and The RoomStore division are considered the
Company's core business. The Heilig-Meyers division locates its stores primarily
in small towns and rural markets in the southern, mid-western and western
Continental United States. The Heilig-Meyers division offers its customers a
broad selection of competitively priced merchandise and approximately 70% to 80%
of its sales have been made through the Company's installment credit program.
The RoomStore division employs a room-packaging concept marketed to
value-conscious families in large metropolitan markets including Texas,
Baltimore, Maryland, Washington, D.C., Virginia and Portland, Oregon. The
RoomStore division originated with the acquisition of stores in the central
Texas region in February 1997 that operated under The RoomStore name.
On March 24, 1999, the Company announced that in an effort to substantially
improve the overall financial position of the Company and to refocus on its core
home furnishings operation, a review of strategic divestiture options of all
non-core operating assets was being made. This review included the retention of
third parties to advise on the possible divestiture of the Rhodes and Mattress
Discounters divisions. The results of the divestiture activities are described
in detail below.
On June 15, 1999, the Company entered into a definitive agreement to sell
its interest in its Rhodes division. The transaction was closed on July 13,
1999, with an effective date of July 1, 1999. Under the terms of the sale
agreement the Company received $60.0 million in cash, a $40 million 10%
pay-in-kind subordinated note receivable due 2004 (9.5% interest rate per annum
for periods where interest is paid in cash) and an option to acquire a 10%
equity interest in Rhodes Holdings, the acquiring entity. The Company also has
the option to acquire an additional 10% equity interest if certain financial
goals are achieved by Rhodes Holdings. The Company agreed to provide or
guarantee a $20.0 million standby credit facility to Rhodes after the closing,
which may only be drawn on in certain circumstances after utilization of
availability under Rhodes' primary credit facility. In addition, under terms of
the agreement, Rhodes assumed approximately $10 million in capital lease
obligations. As a result of this sale, the Company recorded a pre-tax charge to
earnings of $99.5 million ($64.5 million net of tax benefit) during the fiscal
year ended February 29, 2000. Results for fiscal 2000 include operations of the
Rhodes division through June 30, 1999.
On May 28, 1999, the Company entered into a definitive agreement to sell
93% of its interest in its Mattress Discounters division, and on August 6, 1999,
the Company completed the transaction. The Company received approximately $204
million in cash, subject to certain working capital adjustments, pay-in-kind
junior subordinated notes valued at $11.4 million and retained a 7% equity
interest in Mattress Discounters. The Company incurred costs related to the
transaction of approximately $7.7 million and assumed liabilities of
approximately $2.9 million. This transaction resulted in a pre-tax gain of
$138.5 million ($63.2 million net of tax) during fiscal 2000. Results for fiscal
2000 include operations of Mattress Discounters through August 6, 1999.
On January 31, 2000, the Company sold substantially all of the assets of
Guardian Products, Inc. The Company received $6.0 million in cash and a $5.1
million note receivable. This transaction resulted in a pre-tax loss of $0.2
million, however, the sale resulted in a $3.8 million loss after income taxes as
a result of the Company's low tax basis in its investment.
During the second quarter ended August 31, 1999, the Company announced its
intent to exit the Chicago, Illinois, Milwaukee, Wisconsin and Puerto Rican
markets, which are not considered to be part of the Company's core operations.
Pursuant to this plan, the Company sold the assets related to 18 stores in the
Chicago and Milwaukee markets (referred to throughout as The RoomStore -
Chicago) in September 1999. This transaction resulted in a pre-tax loss of $46.6
million ($28.0 million net of tax benefit) during fiscal 2000. The Puerto Rican
operations and the remaining three stores in the Chicago area are classified as
net assets held for sale on the February 29, 2000 consolidated balance sheet
with net assets totaling $125.9 million. The Company recorded a pre-tax charge
of $55.2 million ($42.5 million net of tax benefit) to write down the associated
assets to their estimated fair value, less costs to sell.
17
<PAGE>
On April 20, 2000, subsequent to the Company's fiscal year end, the sale of
the Berrios division was completed. The total value of the transaction was in
excess of $120.0 million, before transaction costs, of which $18.0 million was
in the form of a seller's note and $12.0 million was in the form of excess
working capital. The transaction will be recorded in the Company's first quarter
ended May 31, 2000 and is not expected to have a significant effect on results
of operations. Proceeds from the sale will be used to pay down debt obligations.
The Company expects the disposition of the remaining assets held for sale
to be completed within fiscal year 2001. Historical business segment information
presented in management's discussion and analysis has been restated to reflect
the current operating segments.
Results of Operations
As a result of the divestitures of Rhodes, Mattress Discounters and the 18
stores in the Chicago and Milwaukee markets, total revenues for the year
declined to $2,297.7 million from $2,726.4 million for the prior year. During
the current fiscal year, the Company incurred pre-tax costs of $63.1 million
($75.7 million net of tax) associated with divestiture activities and the write
down of assets held for sale. Including these costs, the Company reported a net
loss of $58.6 million or $.97 per share for the year ended February 29, 2000.
Absent these charges, net earnings for the year ended February 29, 2000, were
$17.0 million, or $.28 per share. This compares to a net loss of $2.0 million or
$.03 per share for the year ended February 28, 1999 ("fiscal 1999") and a net
loss of $55.1 million, or $.98 per share for the year ended February 28, 1998
("fiscal 1998"). Results for fiscal 2000 include operations of the Rhodes
division through June 30, 1999, the Mattress Discounters division through August
6, 1999 and The RoomStore - Chicago division through August 31, 1999. On a pro
forma basis, net earnings for those divisions which were under the Company's
ownership for the full year increased 11.3% to $17.0 million in fiscal 2000
compared to $15.2 million in fiscal 1999. Pro forma revenues increased 3.1% to
$2,007.2 million from the fiscal 1999 amount of $1,946.5 million and total costs
and expenses increased 3.0% to $1,980.6 million from the fiscal 1999 amount of
$1,922.5 million. Consolidated results of operations expressed as a percentage
of sales are as follows:
Fiscal Year
2000 1999 1998
----------------------------------------
Other income 12.7% 12.1% 14.3%
Costs of sales 66.1 67.4 67.2
Selling, general and
administrative expense 37.4 37.3 38.3
Interest expense 3.1 3.1 3.1
Provision for doubtful accounts 4.9 4.4 8.4
Store closing and other charges -- -- 1.2
Loss on sale of and write-
down of assets held for sale (3.1) -- --
Loss before provision (benefit)
for income taxes (1.8) (0.1) (3.9)
Provision (benefit) for
income taxes 1.1 -- (1.4)
Net loss (2.9) (0.1) (2.6)
A significant component of the decrease in the loss reported in fiscal 1999
compared to fiscal 1998 relates to pre-tax charges of approximately $45.4
million recorded in fiscal 1998, which are more fully described below, and a
$73.7 million decrease in the provision for doubtful accounts. Also contributing
to the decrease was a $9.5 million increase in the earnings before interest and
income taxes of the Mattress Discounters division, which had twelve months of
operations in fiscal 1999 compared to seven months in fiscal 1998. The earnings
before interest and income taxes of the Rhodes division, however, decreased by
$38.5 million from fiscal 1998 to fiscal 1999. The remainder of the change is
primarily due to an increase in interest expense and additional selling, general
and administrative expenses recorded by the Heilig-Meyers division related to
costs associated with corporate downsizing and early retirement benefits.
18
<PAGE>
The Company recorded charges during the fourth quarter of fiscal 1998
related to a plan (the "Profit Improvement Plan") to close approximately 40
Heilig-Meyers stores, downsize office and support facilities, and reorganize the
Heilig-Meyers private label credit card program. In connection with the Profit
Improvement Plan, the Company recorded a pre-tax charge in the fourth quarter of
fiscal 1998 of approximately $25.5 million, or 1.2% of sales. Related
initiatives caused raw selling margins in the fourth quarter of fiscal 1998 to
be negatively impacted by approximately $5.1 million, or 0.2% of sales, due to
inventory liquidations. Also, approximately $14.8 million, or 0.7% of sales, in
selling, general and administrative expenses were incurred in the fourth quarter
of fiscal 1998 related to asset write-downs and other reserves.
During fiscal 1999, the Company completed the store closing plan and the
reorganization of the private label credit card program. Of the $19.5 million
reserve balance in place at the end of fiscal 1998, $14.7 million was utilized
during fiscal 1999, $2.6 million was utilized during fiscal 2000, with the
remaining portion related to severance and lease obligations that will extend
into fiscal 2001. Included in the fiscal 1999 results are operating losses of
approximately $5.8 million incurred as these stores were closed. In the third
quarter of fiscal 1999, the Company's private label credit card program was
reorganized through the establishment of a new agreement with a third party to
offer revolving credit financing to certain of the Company's customers. The
Company is not responsible for servicing these accounts or for any related
credit losses. The elimination of the previous program does not have a material
impact on the Company's financial statements.
Revenues
Consolidated sales for fiscal 2000 compared to the previous years are shown
below:
Fiscal Year
2000 1999 1998
----------------------------------------------
Sales (in thousands) $2,038,143 $2,431,152 $2,160,223
Sales percentage increase
(decrease) over prior period (16.2)% 12.5% 60.9%
Portion of change from
existing (comparable) stores 2.1 3.0 2.8
Portion of change from
new (closed/divested) stores (18.3) 9.5 58.1
Sales from comparable stores are stores which were open for at least twelve
months. During the current fiscal year the Company divested 236 Mattress
Discounters stores and 96 Rhodes stores. The Company also closed 19 The
RoomStore - Chicago stores and transferred three stores to Heilig-Meyers.
Additionally, The RoomStore netted 11 new stores, stores within operations held
for sale include one new store and Heilig-Meyers netted four closed stores. The
following table shows a comparison of sales by division for the last three
fiscal years:
Fiscal Year
2000 1999 1998
-----------------------------------------------------------------
(Sales amounts in millions)
# of % of # of % of # of % of
Stores Sales Total Stores Sales Total Stores Sales Total
----------------------------------------------------------------
Heilig-Meyers 814 $1,309 64.2 815 $1,296 53.3 833 $1,269 58.8
The RoomStore 56 271 13.3 45 208 8.6 36 106 4.9
Operations held
for sale 36 183 9.0 35 181 7.4 35 127 5.9
----------------------------------------------------------------
906 1,763 86.5 895 1,685 69.3 904 1,502 69.6
Divested operations:
The Room Store -
Chicago -- 18 .9 22 51 2.1 22 46 2.1
Rhodes -- 151 7.4 96 457 18.8 102 479 22.2
Mattress
Discounters -- 106 5.2 236 238 9.8 225 133 6.1
----------------------------------------------------------------
Total 906 $2,038 100.0 1,249 $2,431 100.0 1,253 $2,160 100.0
================================================================
19
<PAGE>
Sales in those divisions which were under the Company's ownership for the
full fiscal year increased 4.7% to $1,762.8 million, compared to $1,684.4
million for fiscal 1999 and $1,502.3 million for fiscal 1998. As a result of the
divestitures of Rhodes, Mattress Discounters and the 18 stores in the Chicago
and Milwaukee markets, total sales for the year declined 16.2% to $2,038.1
million compared to sales of $2,431.2 million in fiscal 1999. The overall
increase in sales in the divisions under the Company's ownership for the full
fiscal year was attributable to an increase in operating units as well as a
comparable store increase of 2.1%. As noted above, the overall growth rate in
sales decreased in fiscal 2000 as compared to the two previous years. This trend
is reflective of the fiscal 2000 divestitures and the current operating strategy
of limiting new store growth in the Heilig-Meyers division. Sales in comparable
stores decreased compared to the two previous years due to the divestiture
activity during fiscal 2000. The impact of price changes on sales growth over
the last three fiscal years has been insignificant.
Other income
The Heilig-Meyers division and certain stores within operations held for
sale offer installment credit as a financing option to its customers. The
substantial majority of receivables generated by this program are transferred to
a special purpose entity and provide a source of financing to the Company
through an asset securitization program, which is more fully described in the
Notes to the Consolidated Financial Statements. Included in other income is the
compensation received by the Company for servicing these accounts, the finance
and related income earned on the accounts that have not been securitized, and
other income earned related to non-home furnishings merchandise. The stores in
The RoomStore, Rhodes and Mattress Discounters divisions do not offer in-house
credit programs and, accordingly, make limited contributions to the other income
category.
Other income for those divisions which were under the Company's ownership
for the full year decreased to 13.9% of sales for fiscal 2000 from 15.6% of
sales in fiscal 1999 and 18.1% of sales in fiscal 1998. This decreasing trend is
primarily the result of sales growth in stores that do not offer the Company's
in-house installment credit program. On a consolidated basis, other income was
12.7% of sales for fiscal 2000 compared to 12.1% and 14.3% in fiscal 1999 and
1998, respectively. The increase in consolidated other income as a percentage of
sales in fiscal 2000 compared to fiscal 1999 is primarily the result of the
divestiture of the Rhodes and Mattress Discounters divisions. The decrease in
other income as a percentage of sales in fiscal 1999 compared to fiscal 1998 is
primarily due to the growth in stores in which the installment credit program is
not offered. The following table shows other income as a percentage of sales for
each division:
Fiscal Year
2000 1999 1998
---------------------------------------
Heilig-Meyers 16.8% 18.2% 19.7%
The RoomStore 1.2 1.8 1.1
Operations held for sale 12.8 13.0 16.3
---------------------------------------
13.9 15.6 18.1
Divested operations:
The RoomStore - Chicago 21.3 19.8 18.2
Rhodes 6.1 4.8 6.2
Mattress Discounters .1 .2 .2
---------------------------------------
Consolidated 12.7% 12.1% 14.3%
=======================================
The decrease in other income as a percentage of sales in fiscal 2000
compared to fiscal 1999 in the Heilig-Meyers division is due to an increase in
the amount of receivables that have been securitized, the elimination of the
previous revolving credit card program in fiscal 1999 and lower commissions
earned on credit insurance products. Since the proceeds generated by the sale of
accounts under the securitization program are used to reduce debt levels, the
reduction in finance income is offset by lower interest expense. Additionally,
the loss of other income from the revolving credit program is substantially
offset by the elimination of administrative expenses associated with the
servicing of those accounts as well as fees and commissions earned under the new
revolving credit program.
20
<PAGE>
The decrease in other income as a percentage of sales in The RoomStore
division in fiscal 2000 compared to fiscal 1999 is due to the concentration of
total sales growth in stores that do not offer in-house credit programs.
Costs and expenses
Costs of sales for those divisions which were under the Company's ownership
for the full year were 65.9% of sales in fiscal 2000, and 66.5% and 66.3% in
fiscal 1999 and 1998, respectively. On a consolidated basis, costs of sales
decreased in fiscal 2000 to 66.1% of sales from 67.4% of sales in fiscal 1999
and 67.2% of sales in fiscal 1998. These decreases in costs of sales are
primarily the result of cost reductions in administrative and overhead areas.
The following table shows costs of sales as a percentage of sales for each
division:
Fiscal Year
2000 1999 1998
----------------------------------------
Heilig-Meyers 66.2% 66.3% 66.6%
The RoomStore 68.1 69.5 65.9
Operations held for sale 61.3 64.6 63.8
----------------------------------------
65.9 66.5 66.3
Divested operations:
The RoomStore - Chicago 66.2 70.7 71.8
Rhodes 70.6 72.6 70.5
Mattress Discounters 62.2 62.6 63.7
----------------------------------------
Consolidated 66.1% 67.4% 67.2%
========================================
The costs of sales in the Heilig-Meyers division decreased slightly as a
percentage of sales from fiscal 2000 as compared to fiscal 1999 and fiscal 1998.
These decreases are a result of cost control efforts primarily in the warehouse
and delivery areas.
Costs of sales as a percentage of sales for The RoomStore division in
fiscal 2000 decreased approximately 1.4% of sales from the prior year. This
decrease was primarily due to an increase in raw selling margins.
Selling, general and administrative expenses for those divisions which were
under the Company's ownership for the full year were 37.7% of sales in fiscal
2000, and 38.0% and 40.3% of sales in fiscal 1999 and 1998, respectively. On a
consolidated basis, selling, general and administrative expenses were 37.4% of
sales in fiscal 2000, and 37.3% and 38.3% of sales in fiscal 1999 and 1998,
respectively. The following table displays selling, general and administrative
expenses as a percentage of the applicable division's sales:
Fiscal Year
2000 1999 1998
----------------------------------------
Heilig-Meyers 39.1% 39.4% 41.1%
The RoomStore 29.0 29.7 33.8
Operations held for sale 40.4 37.0 37.8
----------------------------------------
37.7 38.0 40.3
Divested operations:
The RoomStore- Chicago 75.6 49.1 57.5
Rhodes 37.1 38.7 33.7
Mattress Discounters 26.9 27.9 26.3
----------------------------------------
Consolidated 37.4% 37.3% 38.3%
========================================
Selling, general and administrative expenses as a percentage of sales for
the Heilig-Meyers division in fiscal 2000 decreased approximately 0.3% of sales
from the prior year as a result of decreases in advertising as well as salaries
and related expenses. Selling, general and administrative expenses as a
percentage of sales for the Heilig-Meyers division in fiscal 1999 decreased
approximately 1.7% of sales from 1998 as a result of asset write-downs and other
reserves recorded in fiscal 1998 related to the Profit Improvement Plan. The
remaining portion of the decrease is the result of corporate downsizing actions
taken in late fiscal 1998 and other cost cutting programs aimed at reducing
discretionary spending.
21
<PAGE>
The decreasing trend in selling, general and administrative expenses of The
RoomStore division, as a percentage of sales, is primarily due to sales leverage
gained from total sales growth and also reflects the lower cost structure of
this division relative to the Heilig-Meyers division because The RoomStore
division does not administer installment credit programs.
Interest expense remained flat at 3.1% of sales in fiscal 2000, 1999 and
1998. Weighted average long-term debt decreased to $600.0 million in fiscal 2000
compared to $714.6 million in fiscal 1999 primarily due to the paydown of
approximately $166.6 million of long-term debt in fiscal 2000. Weighted average
long-term interest rates for fiscal 2000 increased to 8.2% from 7.7% during the
prior year. Weighted average short-term debt decreased to $143.0 million in
fiscal 2000 from $235.0 million in fiscal 1999. This decrease was the result of
the use of proceeds from divestitures to paydown notes payable. Weighted average
short-term interest rates increased to 7.1% compared to 6.2% in the prior year.
The provision for doubtful accounts was 4.9% of sales in fiscal 2000
compared to 4.4% and 8.4% in fiscal 1999 and 1998, respectively. The increase in
the provision for doubtful accounts as a percentage of sales in fiscal 2000
compared to fiscal 1999 is due to the reduction in the sales contribution of the
Rhodes and Mattress Discounters divisions. The decrease in the provision as a
percentage of sales in fiscal 1999 compared to fiscal 1998 is a result of
charges totaling 4.1% of sales recorded in fiscal 1998 that did not recur in
fiscal 1999. In fiscal 1998, the Company provided an additional $38.0 million
for doubtful bankrupt accounts. The Company also provided for increased
write-offs of approximately $36.3 million related to a more critical evaluation
of accounts for write-off in fiscal 1998 and to cover the impact of transferring
the servicing of accounts from stores that were designated to close. In
addition, the Company provided $15.0 million in fiscal 1998 for an increase in
estimated losses under the recourse provision of the Heilig-Meyers private label
credit card program that was planned for reorganization.
The volume of accounts declaring bankruptcy was $31.4 million in fiscal
2000 as compared to the prior two years of $35.3 million and $34.4 million.
Write-offs and repossession losses for the on-balance sheet portfolio for
fiscal years 2000, 1999 and 1998 were $95.0 million, $68.8 million and $106.0
million, respectively. Of these amounts, $1.1 million, $4.3 million and $21.2
million were for purchased accounts. Management believes that the allowance for
doubtful accounts at February 29, 2000, is adequate.
The Profit Improvement Plan implemented in fiscal 1998 has positively
impacted the portfolio's credit loss performance. The stores that were closed in
the past two years included many of the poorest performers related to credit
losses. Management believes the elimination of these stores will continue to
positively impact credit losses going forward. Over the past two fiscal years,
the Company has implemented a credit scoring product that provides local store
management with an enhanced tool for making better credit decisions. Looking
forward to fiscal 2001, the Company plans to further refine its credit
management effectiveness by implementing a centralized billing process for all
installment credit customers. Additionally, the Company plans to implement
centralized credit extension and collections in approximately 223 Heilig-Meyers
stores.
Provision for Income Taxes
Before divestiture activity, the effective income tax rate for fiscal 2000
was 36.3% compared to an income tax benefit of 35.5% in fiscal 1999 and 34.7% in
fiscal 1998. For fiscal year 2000, the divestiture activity caused the provision
for income taxes to be an expense of $22.3 million on a pre-tax loss of $36.4
million. Because the Company's tax basis in the Mattress Discounters division
was minimal, the sale of the division resulted in a tax gain significantly in
excess of the gain recorded for financial reporting purposes. The lower rate for
fiscal 1998 compared to fiscal 1999 was primarily due to the loss incurred
during 1998.
22
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company decreased its cash position $52.2 million to $15.1 million at
February 29, 2000 from $67.3 million at February 28, 1999, which was $18.5
million higher than the $48.8 million position at February 28, 1998.
Net cash outflow from operating activities during fiscal 2000 was $0.8
million, compared to an inflow of $194.7 million in fiscal 1999. The prior year
amount includes $159.3 million from the sale of accounts receivable through the
Company's asset securitization program. Absent proceeds from securitizations,
the Company traditionally produces minimal or negative cash flow from operating
activities because it extends in-house credit in its Heilig-Meyers stores.
During fiscal 1999, installment accounts receivable increased at a slower rate
than the prior year period primarily due to the closing of certain Heilig-Meyers
stores pursuant to the Profit Improvement Plan. During fiscal 1999, inventory
decreased compared to an increase in the prior year period. The variation in the
change in inventory between years is primarily the result of the closing of
certain Heilig-Meyers stores pursuant to the Profit Improvement Plan, prior year
purchases related to newly acquired stores and generally lower inventory levels
compared to the prior year across all divisions.
Investing activities produced cash flows of $266.8 million during the
twelve months ended February 29, 2000 compared to negative cash flows of $87.1
million in the prior year period. The increase in cash flows from investing
activities is primarily due to cash proceeds received from the divestitures of
Rhodes, Mattress Discounters and the 18 stores in the Chicago and Milwaukee
markets. In accordance with management's plan to slow the growth of the capital
intensive Heilig-Meyers division and lower overall spending on capital projects,
additions to property and equipment in fiscal 2000 decreased $36.1 million from
fiscal 1999. The remaining portion of the decrease in additions to property and
equipment was due to the divestitures previously mentioned. Additions to
property and equipment during fiscal 1999 include the acquisition of properties
and equipment totaling $46.9 million that were previously leased under operating
lease agreements. During 1998 cash used for additions to property and equipment
for fiscal 1998 resulted from the opening of 36 new Heilig-Meyers store
locations and related support facilities as well as the remodeling and
improvement of existing and acquired locations. Capital expenditures will
continue to be financed by cash flows from operations and external sources of
funds.
Financing activities produced negative cash flows of $318.1 million during
the twelve months ended February 29, 2000 compared to negative cash flows of
$89.1 million in the prior year period. The increase in negative cash flows from
financing activities in the current year is due to the payments of debt from the
proceeds of the divestitures of Rhodes, Mattress Discounters and the 18 stores
in the Chicago and Milwaukee markets. 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. There were no issuances of debt
pursuant to the joint Registration Statement during the twelve months ended
February 29, 2000. As of February 29, 2000, long-term notes payable with an
aggregate principal amount of $175.0 million have been issued to the public
under this Registration Statement. As of February 29, 2000, the Company had a
$200.0 million revolving credit facility in place. This facility includes ten
banks and had $72.3 million outstanding and $127.7 million undrawn as of
February 29, 2000. On March 22, 2000, the Company obtained commitments, subject
to final documentation requirements which were satisfied in May 2000, from its
current bank group to extend its revolving credit facility as described in Note
7 that was set to expire in July 2000. The facility expiration date is set 364
days after the satisfaction of documentation requirements, and the facility
contains certain provisions under which the facility expiration date may be
extended to July 2001. As a result of the application of proceeds generated by
the sale of the Berrios division, the committed amount of the facility was
reduced from $200.0 million to $140.0 million. In addition, the Company pledged,
within the provisions of certain other long-term debt agreements, certain assets
as partial security.
As a result of losses incurred during fiscal years 2000 and 1999, the
Company amended its bank debt agreements in order to maintain covenant
compliance.
Total debt as a percentage of debt and equity was 53.2% at February 29,
2000, compared to 60.4% at February 28, 1999. The decrease in total debt as a
percentage of debt and equity is primarily due to the paydown of debt from
proceeds of divestitures as well as the write-down of assets held for sale. The
current ratio was 2.7x at February 29, 2000, compared to 1.5x at February 28,
1999. The increase in the current ratio from February 28, 1999 to February 29,
2000 is primarily attributed to the paydown of debt and the reclassification of
assets held for sale.
In the event the Company's long term senior unsecured debt rating is
reduced below BB- by Standard & Poor's or below Ba3 by Moody's Investors
Service, Inc., the Company may need to reduce expenses or sell additional assets
to provide a source of working capital of approximately $20.0 million which
would otherwise be obtained under two asset securitizations, unless these
securitizations are otherwise restructured. The Company expects that any such
assets would be non-operational assets. As of May 26, 2000, the Company's long
term senior unsecured debt is rated BB- by Standard & Poor's and Ba2 on watch
for possible downgrade by Moody's Investors Service, Inc.
23
<PAGE>
Other Information
Year 2000 Issue
The Year 2000 issue arose because many computer programs use two digits
rather than four to define the applicable year. Using two digits could result in
system failure or miscalculations that cause disruptions of operations. In
addition to computer systems, any equipment with embedded technology that
involves date sensitive functions is at risk if two digits have been used rather
than four.
Since the project's beginning in fiscal 1997, the Company has incurred
approximately $3.0 million in expenses in updating its management information
system to alleviate potential Year 2000 problems. These expenditures represent
personnel costs related to software remediation of major impact systems,
auditing costs, software upgrade costs, software testing costs, and contingency
planning costs.
To date the Company has not experienced any material difficulties due to
the Year 2000 issue. The Company will continue to monitor its systems and
address any issues that might arise. Management believes the Year 2000
compliance issue has been addressed properly by the Company to prevent any
material adverse operational or financial impacts.
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." These statements reflect the Company's
reasonable judgments with respect to future events and are subject to risks and
uncertainties that could cause actual results to differ materially from those in
the forward-looking statements. Such risks and uncertainties include, but are
not limited to, the customer's willingness, need and financial ability to
purchase home furnishings and related items, the Company's ability to extend
credit to its customers, the costs and effectiveness of promotional activities,
the Company's access to, and cost of, capital, the Company's ability to attract
buyers and obtain satisfactory valuations for certain assets held for sale, and
the successful implementation of the Company's credit centralization and
merchandising management plans. Payments under guarantees of Rhodes leases or
other obligations or the standby credit facility as a result of lower than
expected Rhodes operating results or defaults by Rhodes could impact the outcome
of forward looking statements. Other factors such as changes in tax laws,
consumer credit and bankruptcy trends, recessionary or expansive trends in the
Company's markets, and 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.
24
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fair Value
(Amounts in thousands) 2001 2002 2003 2004 2005 Thereafter Total at 2/29/00
----------------------------------------------------------------------------------------------------------------------
Assets:
Other receivables $ 44,376 -- -- -- -- -- $ 44,376 $ 44,376
Average interest rate 5.5% -- -- -- -- -- 5.5% --
Liabilities:
Notes payable $ 72,257 -- -- -- -- -- $ 72,257 $ 72,257
Average interest rate 7.9% -- -- -- -- -- 7.9% --
Long-term debt
Fixed rate $ 157 $160,081 $ 82 $200,083 $ 83 $175,049 $535,535 $319,601
Average interest rate 8.6% 9.1% 7.5% 7.9% 7.4% 7.6% 8.2% --
Variable rate $ 37 $ 8 $ 45 $ 45
Average interest rate 6.2% 6.0% -- -- -- -- 6.1% --
Interest Rate Derivative
Financial Instruments
Relating to Asset
Securitizations:
Pay fixed/receive variable $100,000 -- -- -- -- -- $100,000 $ (281)
Average pay rate 7.0% -- -- -- -- -- 7.0% --
Average receive rate 5.9% -- -- -- -- -- 5.9% --
</TABLE>
25
<PAGE>
ITEM 8. FINANCIAL STATEMENTS and SUPPLEMENTARY DATA
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands except per share data)
Fiscal Year 2000 1999 1998
------ ------ ------
Revenues:
Sales $2,038,143 $2,431,152 $2,160,223
Other income 259,509 295,206 309,513
---------- ---------- ----------
Total revenues 2,297,652 2,726,358 2,469,736
Costs and expenses:
Costs of sales 1,346,503 1,637,901 1,451,560
Selling, general and
administrative 762,176 907,913 828,105
Interest, net 62,997 75,676 67,283
Provision for doubtful accounts 99,283 107,916 181,645
Store closing and other charges -- -- 25,530
---------- ---------- ----------
Total costs and expenses 2,270,959 2,729,406 2,554,123
---------- ---------- ----------
Loss on sale and write-down
of assets held for sale (63,052) -- --
Loss before provision
(benefit) for income taxes (36,359) (3,048) (84,387)
Provision (benefit) for income taxes 22,284 (1,081) (29,244)
---------- ---------- ----------
Net loss $ (58,643) $ (1,967) $ (55,143)
========== ========== ==========
Net loss per share:
Basic $ (0.97) $ (0.03) $ (0.98)
=========== =========== ==========
Diluted $ (0.97) $ (0.03) $ (0.98)
=========== =========== ==========
Weighted average common shares outstanding:
Basic 60,289 59,331 56,312
Diluted 60,289 59,331 56,312
========== ========= =========
Cash dividends per share of common
stock $ 0.18 $ 0.28 $ 0.28
========== ========== =========
See Notes to Consolidated Financial Statements.
26
<PAGE>
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands except par value data)
February 29, (28), 2000 1999
------ ------
Assets:
Current assets:
Cash $ 15,073 $ 67,254
Accounts receivable, net 143,132 254,282
Retained interest in securitized
receivables at fair value 165,873 190,970
Inventories 336,690 493,463
Other current assets 116,792 124,305
Net assets held for sale 125,917 --
---------- ----------
Total current assets 903,477 1,130,274
Property and equipment, net 290,252 400,686
Other assets 121,031 72,632
Excess costs over net assets acquired, net 142,925 344,160
---------- ----------
$1,457,685 $1,947,752
========== ==========
Liabilities And Stockholders' Equity:
Current liabilities:
Notes payable $ 72,257 $ 210,000
Long-term debt due within one year 706 167,486
Accounts payable 125,464 193,799
Accrued expenses 142,241 178,656
---------- ----------
Total current liabilities 340,668 749,941
Long-term debt 535,982 547,344
Deferred income taxes 46,287 45,365
Stockholders' equity:
Preferred stock, $10 par value -- --
Common stock, $2 par value (250,000
shares authorized; 60,677 and
59,861 shares issued and
outstanding, respectively) 121,354 119,722
Capital in excess of par value 240,871 242,346
Unrealized gain on investments 4,169 5,228
Retained earnings 168,354 237,806
---------- ----------
Total stockholders' equity 534,748 605,102
---------- ----------
$1,457,685 $1,947,752
========== ==========
See Notes to Consolidated Financial Statements.
27
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Amounts in thousands)
<S> <C> <C> <C> <C> <C> <C>
Number of Accumulated
Common Capital in Other Total
Shares Common Excess of Comprehensive Retained Stockholders'
Outstanding Stock Par Value Income (Loss) Earnings Equity
-------------------------------------------------------------------------------------------
Balances at
February 28, 1997 54,414 $108,828 $195,352 $10,797 $327,644 $642,621
Net loss -- -- -- -- (55,143) (55,143)
Change in
unrealized gain
on investments -- -- -- (6,249) -- (6,249)
--------
Comprehensive loss (61,392)
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
Other -- -- -- -- 158 158
----------------------------------------------------------------------
Balances at
February 28, 1998 58,808 117,616 230,580 4,548 256,410 609,154
Net loss -- -- -- -- (1,967) (1,967)
Change in
unrealized gain
on investments -- -- -- 680 -- 680
--------
Comprehensive loss (1,287)
Cash dividends -- -- -- -- (16,637) (16,637)
Common stock issued
for acquisitions 931 1,862 11,336 -- -- 13,198
Exercise of stock
options, net 122 244 430 -- -- 674
----------------------------------------------------------------------
Balances at
February 28, 1999 59,861 119,722 242,346 5,228 237,806 605,102
Net loss -- -- -- -- (58,643) (58,643)
Unrealized gain
on investments -- -- -- (1,059) -- (1,059)
--------
Comprehensive loss (59,702)
Cash dividends -- -- -- -- (10,809) (10,809)
Common stock issued
for acquisitions 803 1,606 (1,537) -- -- 69
Exercise of stock
options, net 13 26 62 -- -- 88
----------------------------------------------------------------------
Balances at
February 29, 2000 60,677 $121,354 $240,871 $ 4,169 $168,354 $534,748
======================================================================
See Notes to Consolidated Financial Statements.
</TABLE>
28
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
Fiscal Year 1999 1998 1997
-----------------------------------------
Cash flows from operating activities:
Net loss $ (58,643) $ (1,967) $ (55,143)
Adjustments to reconcile net loss
to net cash provided (used) by
operating activities:
Depreciation and amortization 53,533 58,840 54,043
Provision for doubtful accounts 99,283 107,916 181,645
Store closing and other charges
provision -- -- 25,530
Store closing and other charges
payments (2,610) (10,013) (1,452)
Loss, net of tax on sale and
write-down of net assets held
for sale 75,656 -- --
Other, net 604 (2,527) 2,616
Change in operating assets and
liabilities, net of the effects
of acquisitions:
Accounts receivable (107,762) 25,342 (195,141)
Retained interest in securitized
receivables at cost 24,038 (7,784) 50,533
Inventories (2,065) 51,601 (77,115)
Other current assets (30,984) 10,050 (65,218)
Accounts payable (17,601) (9,819) 14,788
Accrued expenses (34,271) (26,958) 42,106
-------------------------------------------
Net cash provided (used)
by operating activities (822) 194,681 (22,808)
-------------------------------------------
Cash flows from investing activities:
Proceeds from sale of subsidiaries 284,688 -- --
Acquisitions, net of cash acquired -- -- (40,186)
Additions to property and equipment (32,099) (87,505) (70,921)
Disposals of property and equipment 8,193 22,797 15,107
Miscellaneous investments 6,008 (22,416) (10,467)
-------------------------------------------
Net cash provided (used) by
investing activities 266,790 (87,124) (106,467)
-------------------------------------------
Cash flows from financing activities:
Issuance of stock 1,632 697 912
Proceeds from long-term debt -- -- 174,767
Increase (decrease) in notes
payable, net (137,743) (50,000) 104,000
Payments of long-term debt (166,562) (23,142) (100,335)
Debt structuring costs (4,667) -- --
Dividends paid (10,809) (16,637) (16,249)
-------------------------------------------
Net cash provided (used)
by financing activities (318,149) (89,082) 163,095
-------------------------------------------
Net increase (decrease) in cash (52,181) 18,475 33,820
Cash at beginning of year 67,254 48,779 14,959
-------------------------------------------
Cash at end of year $ 15,073 $ 67,254 $ 48,779
===========================================
See Notes to Consolidated Financial Statements.
29
<PAGE>
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 906 stores as of February 29, 2000 of which 873
are located in 30 states and 33 are located in Puerto Rico. The Company operated
two primary retail formats for the full current fiscal year as Heilig-Meyers
Furniture ("Heilig-Meyers") and The RoomStore. During the current fiscal year
the Company divested its Mattress Discounters and Rhodes Furniture divisions and
sold the assets related to certain RoomStore operations in the Chicago, Illinois
and Milwaukee, Wisconsin markets. Additionally, the Company announced its
intention to divest the remaining operations in Chicago and the Puerto Rican
operations. Data with respect to these operating segments has been separately
reported herein.
The Company's operating strategy includes offering a broad selection of
home furnishings and bedding. The Heilig-Meyers format also offers consumer
electronics, appliances, and floor coverings as well as an in-house installment
credit program. The Company also offers third party private label credit card
programs to provide financing to its customers.
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 2000, 1999 and 1998 represent the years ended February 29, 2000, February
28, 1999 and February 28, 1998, respectively.
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 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 or on which the Company has
received a bankruptcy notice indicating an unsecured position 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.
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 906 stores throughout 30 states 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.
30
<PAGE>
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.
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 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 29, 2000 and February 28, 1999, there were 60,677,000
and 59,861,000 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
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.
31
<PAGE>
New Accounting Standards
In June 1998 the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities," which,
as amended by FASB Statement 137, is effective for fiscal years beginning after
June 15, 2000. The new statement requires that every derivative instrument
(including certain derivative instruments embedded in other contracts) be
recorded in the balance sheet as either an asset or liability measured at its
fair value. SFAS No. 133 requires the changes in the derivative's fair value to
be recognized currently in earnings unless specific hedge accounting criteria
are met. The Company has not yet determined the effect this statement will have
on the consolidated financial position or results of operations of the Company.
During fiscal year 2000, the Company adopted the AICPA Statement of
Position ("SOP") 98-1, "Accounting for the Costs of Computer Software Developed
or Obtained for Internal Use," which requires certain software development costs
to be capitalized. Generally, once the capitalization criteria of the SOP have
been met, external direct costs of materials and services used in the
development of internal-use software, payroll and payroll related costs for
employees directly involved in the development of internal-use software, and
interest costs incurred when developing software for internal use are to be
capitalized. The adoption of this SOP did not have a material effect on the
Company's consolidated financial position, results of operations or cash flows.
During the current fiscal year the Company also adopted the AICPA SOP 98-5,
"Reporting on the Costs of Start-Up Activities," which requires costs of
start-up activities and organization costs to be expensed as incurred. Adoption
of this SOP did not have a material effect on the Company's consolidated
financial position, results of operations or cash flows.
Revenues and Costs of Sales
Currently, revenue is generally recognized upon determination that
merchandise is in stock, the establishment of a delivery date, and, if
applicable, upon approval of consumer credit. Sales are presented net of
returns. Historically, the effect of returns prior to shipment date has been
immaterial. In December 1999 the SEC issued Staff Accounting Bulletin ("SAB")
101, "Revenue Recognition in Financial Statements," which is effective no later
than the second fiscal quarter of the fiscal year beginning after December 15,
1999. This SAB provides additional guidance in applying generally accepted
accounting principles for revenue recognition in consolidated financial
statements. Effective March 1, 2000, the Company will change its method of
accounting to record merchandise sales upon delivery of merchandise to
customers, rather than prior to delivery in order to be consistent with the
provisions of SAB 101. The pre-tax amount of the one-time non-cash charge to be
recorded as of March 1, 2000 is estimated to be $24.0 to $29.0 million ($15.0 to
$18.5 million after tax). The cumulative effect of the change represents the
deferral of previously recorded revenue, net of direct costs, related to
merchandise that has not been delivered to the customer as of February 29, 2000.
This change in accounting will impact future interim and fiscal year reporting
periods based on seasonal trends in sales and corresponding delivery cycles.
However, there will be no impact on the Company's cash flows from operations as
a result of this change.
Other income consists primarily of finance and other income earned on
accounts receivable. Finance charges were $214,098,000, $231,369,000, and
$231,612,000 during fiscal 2000, 1999 and 1998, 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 include
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
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. Interest is presented net
of interest income of $6.0 million for the year ended February 29, 2000.
32
<PAGE>
(2) Expansion
--------------------------------------------------------------------------------
On September 1, 1998, the Company acquired substantially all of the
operating assets and liabilities of Guardian Products, Inc. ("Guardian"), a
manufacturer of fabric protection and related products, in a transaction in
which the shareholder of Guardian received 666,667 shares of the Company's
common stock. Unless the Company's common stock traded for at least ten
consecutive trading days during the period from September 1, 1998, through
August 31, 1999, at a per share price of $15.00 or more, additional shares would
be issued so that the acquisition price would equal $10 million divided by the
average closing price per share for the Company's common stock for the ten
trading days ending on August 31, 1999, or an earlier date if selected by the
Company. In August 1999, the Company issued the former owner of Guardian an
additional 802,592 shares of the Company's common stock in connection with this
agreement. See Note 3 regarding the divestiture of Guardian.
All acquisitions 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 have not been presented because the effects were not significant.
Other acquisitions completed during fiscal year 1999 are not discussed because
they are not considered material to the consolidated financial statements.
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 $142,925,000 and $344,160,000, net of
accumulated amortization of $30,431,000 and $38,248,000, at February 29, 2000
and February 28, 1999, respectively.
(3) Divestitures
--------------------------------------------------------------------------------
On March 24, 1999, the Company announced that in an effort to substantially
improve the overall financial position of the Company and to refocus on its core
home furnishings operation, a review of strategic divestiture options of all
non-core operating assets was being made. This review included the retention of
third parties to advise on the possible divestiture of the Rhodes and Mattress
Discounters divisions. The results of the divestiture activity is described in
detail below.
On June 15, 1999, the Company entered into a definitive agreement to sell
its interest in its Rhodes division. The transaction was closed on July 13,
1999, with an effective date of July 1, 1999. Under the terms of the sale
agreement the Company received $60.0 million in cash, a $40 million 10%
pay-in-kind subordinated note receivable due 2004 (9.5% interest rate per annum
for periods where interest is paid in cash) and an option to acquire a 10%
equity interest in Rhodes Holdings, the acquiring entity. The Company also has
the option to acquire an additional 10% equity interest if certain financial
goals are achieved by Rhodes Holdings. The Company agreed to provide or
guarantee a $20.0 million standby credit facility to Rhodes after the closing,
which may only be drawn on in certain circumstances after utilization of
availability under Rhodes' primary credit facility. In addition, under terms of
the agreement, Rhodes assumed approximately $10 million in capital lease
obligations. As a result of this sale, the Company recorded a pre-tax charge to
earnings of $99.5 million ($64.5 million net of tax benefit) during the fiscal
year ended February 29, 2000. Results for fiscal 2000 include operations of the
Rhodes division through June 30, 1999.
On May 28, 1999, the Company entered into a definitive agreement to sell
93% of its interest in its Mattress Discounters division, and on August 6, 1999,
the Company completed the transaction. The Company received approximately $204
million in cash, subject to certain working capital adjustments, pay-in-kind
junior subordinated notes valued at $11.4 million and retained a 7% equity
interest in Mattress Discounters. The Company incurred costs related to the
transaction of approximately $7.7 million and assumed liabilities of
approximately $2.9 million. This transaction resulted in a pre-tax gain of
$138.5 million ($63.2 million net of tax) during fiscal 2000. Results for fiscal
2000 include operations of Mattress Discounters through August 6, 1999.
On January 31, 2000, the Company sold substantially all of the assets of
Guardian Products, Inc. The Company received $6.0 million in cash and a $5.1
million note receivable. This transaction resulted in a pre-tax loss of $0.2
million, however, the sale resulted in a $3.8 million loss after income taxes as
a result of the Company's low tax basis in its investment.
33
<PAGE>
During the second quarter ended August 31, 1999, the Company announced its
intent to exit the Chicago, Illinois, Milwaukee, Wisconsin and Puerto Rican
markets, which are not considered to be part of the Company's core operations.
Pursuant to this plan, the Company sold the assets related to 18 stores in the
Chicago and Milwaukee markets (referred to throughout as The RoomStore- Chicago)
in September 1999. This transaction resulted in a pretax loss of $46.6 million
($28.0 million net of tax benefit) during fiscal 2000. The Puerto Rican
operations and the remaining three stores in the Chicago area are classified as
operations held for sale on the February 29, 2000 consolidated balance sheet
with net assets totaling $125.9 million. The Company recorded a pre-tax charge
of $55.2 million ($42.5 million net of tax benefit) to write down the associated
assets to their estimated fair value, less costs to sell.
The Company expects the disposition of the remaining assets held for sale
to be completed during fiscal year 2001. See Note 18 regarding events subsequent
to the balance sheet date.
(4) Store Closing and Other Charges
--------------------------------------------------------------------------------
In the fourth quarter of fiscal 1998, the Company recorded a pre-tax charge
of $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 by
$16,683,000 or $.30 per share. The pre-tax charge is summarized as follows:
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Amount Remaining Amount Remaining Amount Remaining
Utilized Reserve Utilized Reserve Utilized Reserve
through as of through as of through as of
Pre-Tax February 28, February 28, February 28, February 28, February 29, February 29,
(Amounts in thousands) Charge 1998 1998 1999 1999 2000 2000
-------------------------------------------------------------------------------------
Severance $ 8,100 $1,452 $ 6,648 $ 5,150 $1,498 $ 859 $ 639
Lease & facility exit cost 7,680 - 7,680 4,386 3,294 1,752 1,542
Fixed asset impairment 7,250 2,117 5,133 5,133 -- -- --
Goodwill impairment 2,500 2,500 - - -- -- --
-------------------------------------------------------------------------------------
Total $25,530 $6,069 $19,461 $14,669 $4,792 $2,611 $2,181
=====================================================================================
</TABLE>
The Company completed the store closings, office downsizing, and private
label credit card program reorganization associated with this plan during fiscal
1999. The substantial majority of the remaining reserves are expected to be
utilized during fiscal 2001 with some amounts related to long-term lease
obligations extending beyond fiscal 2001.
Operations of stores closed during fiscal 1999 generated a net loss of $5.8
million on sales of $4.8 million. These amounts are reported in the fiscal 1999
statement of operations.
Charges associated with actions taken during fiscal 1999 to close stores
and related support facilities totaled $2.1 million. Because these charges were
not associated with a comprehensive restructuring plan, this amount is reported
as selling, general and administrative expense in the fiscal 1999 statement of
operations.
(5) Accounts Receivable and Retainted 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 $26,453,000 and
$42,745,000 and unearned finance income was $12,266,000 and $31,775,000 at
February 29, 2000 and February 28, 1999, respectively. Accounts receivable
having balances due after one year were $39,954,000 and $64,496,000 at February
29, 2000 and February 28, 1999, respectively.
34
<PAGE>
As discussed in Note 1, the Company transfers the substantial majority of
its installment accounts receivable to a Master Trust ("Trust") in exchange for
certificates representing undivided interests in such receivables. Certificates
that have been sold to third parties are as follows:
(Amounts in thousands) 2000 1999
----------------------------------------------------------
Series 1997-1
Senior class floating
rate certificates $115,000 $100,000
Series 1998-1
Class A 6.125% certificates 307,000 307,000
Class B 6.35% certificates 61,000 61,000
Floating rate collateral
indebtedness interest 32,000 32,000
Series 1998-2
Class A floating rate certificates 230,000 230,000
Class B floating rate certificates 50,000 50,000
Floating rate collateral
indebtedness interest 31,300 31,300
----------------------
$826,300 $811,300
======================
The weighted average rates in effect on the Series 1997-1 senior class
certificates were 6.5% and 5.2% for fiscal 2000 and 1999, respectively. Unless
extended, the commitment termination date related to the Series 1997-1
certificates is July 18, 2000. The weighted average rates in effect on the
Series 1998-1 floating rate Collateral Indebtedness Interest were 6.2% and 6.3%
for fiscal 2000 and 1999, respectively. With respect to the Series 1998-1
certificates, 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 weighted average rates in effect on the Series 1998-2 Class A floating rate
certificates, Class B floating rate certificates and the floating rate
Collateral Indebtedness Interest were 5.6%, 5.9% and 6.6%, respectively, for
fiscal 2000, and 5.5%, 5.7% and 6.4%, respectively, for fiscal 1999. With
respect to the Series 1998-2 certificates, the final distribution date for the
Class A certificates is scheduled to occur in August 2001. The final
distribution date for the Class B certificates is scheduled to occur in October
2001 provided that the 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 payment to Class B certificate
holders.
The Company, through a bankruptcy-remote special purpose entity, retained
the remaining undivided interests in the Trust's receivables. This remaining
undivided interest is not available to the creditors of the Company. The Company
will continue to service all accounts in the Trust. No servicing asset is
recorded because contractual rates are at estimated market rates and are
considered adequate compensation for servicing. The cost of retained interests
is based on an allocation of the total cost of accounts securitized in
accordance with SFAS No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinquishment of Liabilities." Quoted market prices are
35
<PAGE>
not available for these retained interests. The fair value of the contractually
required and excess seller's interest is based on the present value of future
cash flows associated with the underlying receivables. The fair value of the
interest only strip is based on the present value of estimated future cash flows
to be received in excess of contractually specified servicing fees less
estimated losses, discounted at 12.5% over the estimated remaining term (13
months) of the underlying receivables. Retained interests are carried at fair
value and are summarized below:
Unrealized Unrealized
(Amounts in thousands) Cost Gain Loss Fair Value
---------------------------------------------
February 29, 2000:
Contractually
required seller's
interest $116,395 $5,257 $ -- $121,652
Excess seller's
interest 13,551 -- -- 13,551
Interest-only strip 28,991 1,679 -- 30,670
----------------------------------------------
$158,937 $6,936 $ -- $165,873
==============================================
February 28, 1999:
Contractually
required seller's
interest $112,967 $5,163 $ -- $118,130
Excess seller's
interest 41,071 -- -- 41,071
Interest-only strip 28,500 3,269 -- 31,769
----------------------------------------------
$182,538 $8,432 $ -- $190,970
==============================================
(6) Property and Equipment
--------------------------------------------------------------------------------
Property and equipment consists of the following:
2000 1999
----------------------
(Amounts in thousands)
Land and buildings $142,718 $184,127
Fixtures, equipment and vehicles 116,585 158,383
Leasehold improvements 213,079 249,238
Construction in progress 2,321 14,210
--------------------
474,703 605,958
Less accumulated depreciation 184,451 205,272
--------------------
$290,252 $400,686
====================
(7) Notes Payable and Long-Term Debt
--------------------------------------------------------------------------------
As of February 29, 2000, the Company was in the final year of a five-year
revolving credit facility set to expire on July 19, 2000. The facility,
comprised of ten banks, provided for commitments totaling $200,000,000. See Note
18 regarding events subsequent to the balance sheet date.
At February 29, 2000, the Company had $72,257,000 of outstanding short-term
borrowings compared to $210,000,000 at February 28, 1999. The average interest
rate on this debt was approximately 7.9% at February 29, 2000, and 5.7% and 6.2%
at February 28, 1999 and 1998, respectively. The Company's maximum short-term
borrowings were $222,221,000 during fiscal 2000 and $288,500,000 during fiscal
1999. The average short-term debt outstanding for fiscal 2000 was $142,258,000
compared to $235,018,000 for fiscal 1999. The approximate weighted average
interest rates were 7.3%, 6.2% and 6.1% in fiscal 2000, 1999 and 1998,
respectively. The revolving credit facility also supports various letters of
credit relating to the Company's workers' compensation obligations and certain
lease agreements. The outstanding amount of letters of credits totaled
$44,106,000 and $29,200,000 as of February 29, 2000 and February 28, 1999,
respectively. There were no compensating balance requirements.
36
<PAGE>
Long-term debt consists of the following:
(Amounts in thousands) 2000 1999
--------------------
Shelf registration issues:
7.60% unsecured notes due 2007 $175,000 $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 5.74% to 11.99%, unsecured 60,000 225,000
Notes, collateralizing industrial
development revenue bonds,
maturing through 2005, interest
ranging from a floating rate of
67% of prime to an 8.50% fixed
rate 380 495
Term loans, maturing through
2007, interest ranging to 9.80%,
primarily collateralized by
deeds of trust 200 830
Capital lease obligations, maturing
through 2009, interest ranging
from 76% of prime to 12.80% 1,108 13,505
---------------------
536,688 714,830
Less amounts due within one year 706 167,486
---------------------
$535,982 $547,344
=====================
Principal payments are due for the four years after February 28, 2001 as
follows: 2002, $160,200,000; 2003, $209,000; 2004, $200,204,000; and 2005,
$204,000. The aggregate net carrying value of property and equipment
collateralization at February 29, 2000, was $9,062,000. 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 August 2007 were
issued under the shelf registration with the remaining $225,000,000 unissued at
February 29, 2000. During fiscal 1997, the Company issued $200,000,000 unsecured
7.88% notes due August 2003 and $100,000,000 unsecured 7.40% notes due February
2002 under a previous shelf registration.
Notes payable to insurance companies and banks contain certain restrictive
covenants. Under these covenants, the Company must maintain certain leverage,
fixed charge and minimum net worth tests. As a result of the losses incurred
during fiscal years 2000 and 1999, the Company obtained amendments to its bank
debt agreements in order to maintain covenant compliance.
During the fiscal year ended February 29, 2000, the Company obtained policy
loans from an insurance company on life insurance policies owned by the Company.
The outstanding balance of these loans was $22,680,000 as of February 29, 2000
and is netted against the cash surrender values of the related policies, which
are included in other assets on the consolidated balance sheet. The Company has
the right to offset these loans against the maturity or cancellation of the
related policies and has no intention to repay these loans prior to February 28,
2001.
Interest payments of $72,739,000, $77,743,000 and $65,404,000 net of
capitalized interest of $213,000, $1,658,000 and $3,762,000 were made during
fiscal 2000, 1999 and 1998, respectively.
37
<PAGE>
(8) Income Taxes
The provision (benefit) for income taxes consists of the following:
(Amounts in thousands) 2000 1999 1998
-------------------------------
Current:
Federal $29,878 $(12,711) $(21,250)
State 6,453 (1,910) (4,911)
Puerto Rico (500) (740) 2,238
-------------------------------
35,831 (15,361) (23,923)
Deferred:
Federal (14,474) 8,138 (2,178)
State (2,025) 4,951 (573)
Puerto Rico 2,952 1,191 (2,570)
-------------------------------
(13,547) 14,280 (5,321)
-------------------------------
$22,284 $ (1,081) $(29,244)
===============================
The income tax effects of temporary differences that gave rise to
significant portions of the net deferred tax liability as of February 29, 2000
and February 28, 1999, consist of the following:
(Amounts in thousands) 2000 1999
---------------------
Deferred tax assets:
Allowance for doubtful accounts $ 12,002 $ 20,672
Store closing and other charges -- 7,537
Accrued liabilities 38,183 13,318
Alternative minimum tax credit
carryforward 1,713 2,689
Federal tax credits 4,247 10,429
Net operating loss carryforward 10,000 26,539
Other 509 806
Restructuring costs 8,380 --
---------------------
75,034 81,990
---------------------
Deferred tax liabilities:
Excess costs over net assets
acquired 55,662 60,135
Accounts receivable 18,655 28,034
Depreciation 13,278 13,339
Asset securitizations 20,624 20,625
Inventory 7,299 9,107
Deferred revenues 252 6,598
Costs capitalized on constructed
assets 9,189 8,322
Other 4,632 6,045
--------------------
129,591 152,205
--------------------
$ 54,557 $ 70,215
====================
Balance sheet classification:
Other current liabilities $ 8,270 $ 24,850
Deferred income tax liability 46,287 45,365
--------------------
$ 54,557 $ 70,215
====================
38
<PAGE>
A reconciliation of the statutory federal income tax rate to the Company's
effective tax rate is provided below:
2000 1999 1998
-------------------------------
Statutory federal income
tax rate (35.0)% (35.0)% (35.0)%
State income taxes, net of
federal income tax benefit 6.7 (3.8) (2.8)
Tax credits (11.7) (131.8) (4.9)
Goodwill amortization and
other, net 14.8 135.1 8.0
Divestiture activity,
permanent differences 86.5 -- --
-------------------------------
61.3% (35.5)% (34.7)%
===============================
Divestiture activity recorded in fiscal 2000 resulted in a pretax charge to
earnings of $63,052,000 and a provision for income tax expense of $12,604,000.
On a pro forma basis before divestiture transactions, the Company's effective
tax rate would have been 36.3%.
Federal and state income tax payments of $21,160,000, $5,762,000 and
$8,427,000 were made during fiscal 2000, 1999 and 1998, respectively. As of
February 29, 2000 the Company has an alternative minimum tax and other federal
tax credit carryforwards of approximately $1,713,000 and $4,247,000,
respectively. Net operating losses and tax credit carryforwards expire at
various dates up through fiscal year 2018.
(9) Retirement Plans
--------------------------------------------------------------------------------
During fiscal 1999, the Company adopted FASB No. 132, "Employer's
Disclosures about Pensions and Other Postretirement Benefits," which revised the
Company's disclosure about pension and other postretirement benefit 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 2000, 1999
and 1998 was $4,023,000, $3,958,000 and $3,052,000, 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 2000, 1999 and 1998 was $425,000, $489,000 and
$445,000, respectively.
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 two years and 50% of salary for a period of eight years. If the
executive retires at age 65, either the executive or the executive's 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 is supported
through the purchase of life insurance contracts covering the executives and
owned by the Company. For fiscal years 2000 and 1999, the Company recognized
expense of $720,000 and $540,000, respectively, and for fiscal year 1998 there
was no charge to earnings.
39
<PAGE>
The responsibility for three employee benefit plans covering certain groups
of employees of Rhodes, Inc. was assumed by the purchaser of the Rhodes division
effective July 1, 1999. These plans included 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. As of February 29, 2000,
the Company has no further financial obligations relating to these plans.
The following tables represent activity in the qualified defined benefit
plan:
2000 1999
--------------------------
(Amounts in thousands)
Change in projected benefit obligation:
Projected benefit obligation at
beginning of year $ 15,898 $ 15,280
Interest cost 372 1,077
Actuarial loss (gain) (283) 729
Benefits paid (372) (1,188)
Rhodes divestiture (15,615) --
-----------------------
Projected benefit obligation at end of year $ -- $ 15,898
=======================
Change in plan assets:
Fair value of plan assets at
beginning of year $ 15,607 $ 15,205
Actual return on plan assets 423 1,590
Benefits paid (372) (1,188)
Rhodes divestiture (15,658) --
-----------------------
Fair value of plan assets at end of year $ -- $ 15,607
=======================
Funded status $ -- $ (291)
Unrecognized net transition asset -- (862)
Unrecognized net actuarial loss -- 389
-----------------------
Accrued benefit cost $ -- $ (764)
=======================
2000 1999 1998
--------------------------------------
(Amounts in thousands)
Weighted-average assumptions at end of year:
Discount Rate 7.75% 7.25% 7.25%
Expected return on plan assets 7.75% 7.25% 8.50%
Components of net periodic benefit cost:
Service cost $ -- $ -- $ 355
Interest cost 372 1,077 1,109
Expected return on plan assets (365) (1,072) (1,100)
Amortization of transition asset (66) (197) (197)
Amortization of prior service cost -- -- 5
--------------------------------------
Charge (benefit) to operations $ (59) $ (192) $ 172
======================================
Assets of the plan were generally invested in equities and fixed income
instruments.
There was no projected benefit obligation of the non-qualified pension plan
at February 29, 2000. The projected benefit obligation of the non-qualified
pension plan totaled $1,935,000 at February 28, 1999. There were no plan assets
in the non-qualified plan due to the nature of the plan.
40
<PAGE>
(10) 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, 1994 and 1998 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 9,594,000 shares have been
authorized to be reserved for issuance. All options granted have ten-year terms.
Certain options granted during fiscal year 2000 vest immediately while others
vest and become fully exercisable after one year of continued employment.
Options granted during fiscal years 1999 and 1998 immediately vested and became
exercisable when granted.
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 2000, 1999 and 1998, respectively: risk-free interest
rates of 6.5%, 5.2% and 6.5%; a dividend yield of 1.5%; volatility factors of
the expected market price of the Company's common stock of 50%, 48% and 46%; and
a weighted-average expected option life of 3.93, 4.55 and 3.61 years.
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:
2000 1999 1998
(Amounts in thousands, except per share data)
---------------------------------------------
Pro forma net loss $(59,102) $(3,494) $(55,837)
Pro forma loss per share:
Basic (.98) (.06) (.99)
Diluted (.98) (.06) (.99)
A summary of the Company's stock option activity and related information
for the years ended February 29, 2000, and February 28, 1999 and 1998 follows:
Weighted
Average
Options Exercise Price
--------- --------------
Outstanding at March 1, 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
Granted 385,030 6.72
Exercised (122,155) 5.52
Forfeited (44,862) 17.55
--------- ------
Outstanding at February 28, 1999 5,226,470 15.53
Granted 347,380 3.30
Exercised -- --
Forfeited (238,448) 15.83
--------- ------
Outstanding at February 29, 2000 5,335,402 $14.72
========= ======
41
<PAGE>
Range of $3.06 $10.01 $17.01 $27.01
Exercise to to to to
Prices $10.00 $17.00 $27.00 $35.06
------ ------ ------ ------
Options outstanding at
February 29, 2000 2,067,514 689,898 2,565,990 12,000
Weighted averageremaining
contract life,outstanding
options 4.21 6.98 3.95 3.94
Weighted average exercise
price, outstanding
options $ 7.58 $14.41 $20.46 $35.06
Options exercisable at
February 29, 2000 2,027,514 689,898 2,565,990 12,000
Weighted average exercise
price, exercisable
options $ 7.63 $14.41 $20.46 $35.06
Options exercisable at year end and the respective weighted average
exercise prices were 5,295,402 at $14.79, 5,226,470 at $15.53 and 4,831,095 at
$15.96 for fiscal 2000, 1999 and 1998, respectively.
The weighted average fair values of options granted were $1.35, $2.68 and
$5.82 for fiscal 2000, 1999 and 1998, respectively.
(11) 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:
2000 1999
(Amounts in thousands)
----------------------
Land and buildings $ 6,426 $12,098
Fixtures and equipment 1,221 2,164
----------------------
7,647 14,262
Less accumulated depreciation
and amortization 4,565 7,095
----------------------
$ 3,082 $ 7,167
======================
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 29, 2000, are as follows:
Capital Operating
Fiscal Years Leases Leases
(Amounts in thousands)
---------------------
2001 $ 616 $105,328
2002 191 95,400
2003 192 86,643
2004 171 78,737
2005 156 80,820
After 2005 135 396,672
-------------------
Total minimum lease payments $1,461 $843,600
========
Less:
Executory costs 66
Imputed interest 287
------
Present value of minimum
lease payments $1,108
======
42
<PAGE>
Total rental expense under operating leases for fiscal 2000, 1999 and 1998
was $125,414,000, $165,005,000 and $138,128,000, respectively. Contingent
rentals and sublease rentals are negligible.
Payments to affiliated entities under capital and operating leases were
$285,000 for fiscal 2000, which included payments to limited partnerships in
which the Company has equity interests. Lease payments to affiliated entities
for fiscal 1999 and 1998 were $269,000 and $327,000, 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.
Guarantees
In connection with its sale of Rhodes, Inc., the Company has agreed to
provide or guarantee a $20.0 million standby credit facility to Rhodes, which
may only be drawn on in certain circumstances after utilization of availability
under Rhodes' primary credit facility.
(12) 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 29, 2000 and February 28, 1999, were as
follows:
2000 1999
(Amounts in thousands)
----------------------
On notes payable and other $ -- $ 74,000
On securitized receivables 100,000 145,000
Interest rates that the Company paid per the swap agreements related
primarily to notes payable were fixed at an average rate of 7.6% at February 28,
1999. The variable rates received per these agreements were tied to LIBOR or
commercial paper rates and averaged 5.2% at February 28, 1999. All of these
agreements expired in fiscal 2000.
Interest rates that the Company paid on swap agreements related to
securitized receivables were fixed at an average rate of 7.0% and 6.9% at
February 29, 2000 and February 28, 1999, respectively. The variable rates
received per these agreements were tied to LIBOR or commercial paper rates and
averaged 5.9% and 5.0% at February 29, 2000 and February 28, 1999, respectively.
The remaining terms for these agreements are less than one year.
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. Although there have been none to
date, losses on disposals would be recognized immediately.
All swaps are held for purposes other than trading.
(13) Financial Instruments
--------------------------------------------------------------------------------
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.
43
<PAGE>
The estimated fair values of the Company's financial instruments at
February 29, 2000 and February 28, 1999 are as follows:
2000 1999
Carrying Fair Carrying Fair
(Amounts in thousands) Amount Value Amount Value
---------------------------------------------
Assets:
Cash $ 15,073 $ 15,073 $ 67,254 $ 67,254
Accounts receivable, net 143,132 143,132 254,282 254,282
Other receivables 44,376 44,376 18,861 18,861
Retained interest in
securitized receivables 165,873 165,873 190,970 190,970
Liabilities:
Accounts payable 125,464 125,464 193,799 193,799
Notes payable 72,257 72,257 210,000 210,000
Long-term debt 535,580 319,646 701,325 572,362
Off-balance-sheet financial
instruments:
Interest rate swap agreements:
Assets -- -- -- --
Liabilities -- (281) -- 3,095
The following methods and assumptions were used to estimate the fair value
for each class of financial instruments shown above:
Cash, Accounts Receivable and Other Receivables
The carrying amount approximates fair value because of the short-term
maturity of these assets. Other receivables consist primarily of cash balances
maintained in collateral accounts associated with the Company's accounts
receivable securitization program.
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.
Debt Securities
As described in Note 3, the Company holds notes receivable in connection
with its divestitures of Rhodes, Mattress Discounters and Guardian, all of which
are classified as held to maturity. Accordingly, these investments are carried
at amortized cost, which approximates fair value. The amortized costs, including
accrued interest, of the notes receivable from Rhodes, Mattress Discounters and
Guardian were $42,755,000, $11,729,000 and $5,100,000 as of February 29, 2000,
respectively, and are included in other assets on the consolidated balance
sheet.
44
<PAGE>
(14) 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 which 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)
used in the basic and diluted earnings (loss) per share computations:
(Amounts in thousands 2000 1999 1998
except per share data) ---------------------------------
Numerator:
Net loss $(58,643) $ (1,967) $(55,143)
Denominator:
Denominator for
basic earnings (loss)
per share - average
common shares
outstanding 60,289 59,331 56,312
Effect of potentially
dilutive stock options -- -- --
Denominator for
diluted earnings
(loss) per share 60,289 59,331 56,312
Basic EPS $ (0.97) $ (0.03) $ (0.98)
Diluted EPS (0.97) (0.03) (0.98)
The computation for fiscal 2000 does not assume the conversion of
outstanding options to purchase 5,335,000 shares of common stock at prices
ranging from $3.06 to $35.06, with expiration dates between April 2000 and
February 2010 since the result would be antidilutive to the loss from
operations. Options to purchase 5,226,000 shares of common stock at prices
ranging from $6.02 to $35.06, with expiration dates between February 2000 and
February 2009 and 911,000 contingently issuable shares were outstanding during
fiscal 1999, however, were excluded from the diluted EPS calculation since the
result would be antidilutive to the loss from operations. 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 and 265,000 contingently
issuable shares were outstanding during fiscal 1998, however, were excluded from
the diluted EPS calculation since the result would be antidilutive to the loss
from operations.
45
<PAGE>
(15) Quarterly Financial Data (Unaudited)
--------------------------------------------------------------------------------
The following is a summary of quarterly financial data for fiscal 2000 and
1999:
Three months ended May 31 August 31 Nov. 30 Feb. 29(28)
--------------------------------------------------------------------------------
(Amounts in thousands except per share data)
2000
Revenues $689,203 $572,950 $528,904 $506,595
Gross profit( 214,768 169,289 162,151 145,432
Earnings (loss) before taxes (99,641) 53,913 7,558 1,811
Net earnings (loss)(3) (70,540) 2,842 4,739 4,316
Earnings (loss) per share of
common stock(2)(3):
Basic (1.18) 0.05 0.08 0.07
Diluted (1.18) 0.05 0.08 0.07
Cash dividends per share of
common stock 0.07 0.07 0.02 0.02
1999
Revenues $668,939 $675,007 $728,209 $654,203
Gross profit(1) 200,363 190,529 219,697 182,662
Earnings (loss) before taxes 15,872 13,761 9,896 (42,577)
Net earnings (loss) 10,194 8,758 6,274 (27,193)
Earnings (loss) per share of
common stock(2):
Basic 0.17 0.15 0.11 (0.45)
Diluted 0.17 0.15 0.10 (0.45)
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 earnings (loss) per common share is calculated independently
for each quarter.
(3) Fiscal year 2000 net earnings (loss) includes the gain (loss) on sale and
write-down of assets held for sale of $(79,552) or $(1.33) per share in the
first quarter, $649 or $0.01 per share in the second quarter and $3,247 or $0.05
per share in the fourth quarter.
(16) Segment Information
--------------------------------------------------------------------------------
During fiscal year 2000 the Company changed the manner in which it reports
operating segments. The Company operated two primary segments for the full
fiscal year as Heilig-Meyers Furniture and The RoomStore. As discussed in Note
3, the Company has divested its Mattress Discounters and Rhodes divisions and
has sold the assets related to 18 stores in the Chicago and Milwaukee markets
which were previously part of The RoomStore division. Additionally, the Company
announced its intention to divest of The RoomStore's remaining Chicago
operations as well as its Puerto Rican operations, both of which are now
reported within operations held for sale. Results for fiscal year 2000 include
operations of the Rhodes division through June 30, 1999 and the Mattress
Discounters division through August 6, 1999. Information for prior periods has
been restated to reflect these changes. See Note 18 regarding events subsequent
to balance sheet date.
The Company's Heilig-Meyers division is associated with the Company's
historical operations. The majority of the Heilig-Meyers stores operate in
smaller markets with a broad line of merchandise. The RoomStore division
includes 56 stores primarily operating in Texas, Oregon, Maryland and Virginia.
Operations held for sale includes three stores in the Chicago area and 33 stores
in Puerto Rico operating under the "Berrios" name, all of which were previously
part of The RoomStore operating division. The RoomStore - Chicago division
includes 18 stores that were located in Chicago and Milwaukee.
The accounting policies of the segments are the same as those described in
Note 1 to the Consolidated Financial Statements. The Company evaluates
performance based on pre-tax earnings (loss) before interest and income taxes
46
<PAGE>
(based upon generally accepted accounting principles). The Company generally
accounts for intersegment sales and transfers at current market prices as if the
sales or transfers were to unaffiliated third parties. General corporate
expenses are allocated between the divisions.
(Amounts in thousands) 2000 1999 1998
--------------------------------------------------------------------------------
Revenues:
Heilig-Meyers $1,528,356 $1,531,291 $1,518,415
The RoomStore 274,613 211,938 107,050
Operations held for sale 206,181 203,768 148,132
---------- ---------- ----------
2,009,150 1,946,997 1,773,597
Divested operations:
Rhodes 160,048 479,620 509,474
Mattress Discounters 106,733 238,648 132,183
The RoomStore - Chicago 21,721 61,093 54,482
---------- ---------- ----------
Total revenues from external
customers $2,297,652 $2,726,358 $2,469,736
========== ========== ==========
Earnings (loss) before interest and taxes:
Heilig-Meyers $ 60,471 $ 66,159 $ (17,648)
The RoomStore 11,053 5,357 1,393
Operations held for sale 14,175 13,673 11,488
---------- ---------- ----------
85,699 85,189 (4,767)
Divested operations:
Rhodes (2,390) (29,279) 9,181
Mattress Discounters 11,650 22,971 13,479
The RoomStore - Chicago (5,994) (5,700) (9,176)
Intersegment earnings (loss) 725 (553) (291)
---------- ---------- ----------
Total earnings before interest
and taxes $ 89,690 $ 72,628 $ 8,426
Store closing and other charges -- -- (25,530)
Interest expense (62,997) (75,676) (67,283)
Loss on sale and write-down of
assets held for sale (63,052) -- --
---------- ---------- ----------
Consolidated loss before provision
(benefit) for income taxes $ (36,359) $ (3,048) $ (84,387)
========== ========== ==========
Depreciation and amortization expense:
Heilig-Meyers $ 40,392 $ 35,564 $ 32,740
The RoomStore 3,319 2,672 2,282
Operations held for sale 3,231 2,696 1,948
---------- ---------- ----------
46,942 40,932 36,970
Divested operations:
Rhodes 3,918 12,468 13,998
Mattress Discounters 2,111 4,762 2,397
The RoomStore - Chicago 562 678 678
---------- ---------- ----------
Total depreciation and
amortization expense $ 53,533 $ 58,840 $ 54,043
========== ========== ==========
Capital expenditures:
Heilig-Meyers $ 18,307 $ 53,135 $ 51,069
The RoomStore 6,167 8,630 8,146
Operations held for sale 4,690 3,456 5,900
---------- ---------- ----------
29,164 65,221 65,115
Divested operations:
Rhodes 1,665 12,784 3,381
Mattress Discounters 1,195 5,149 1,623
The RoomStore - Chicago 75 4,351 802
---------- ---------- ----------
Total capital expenditures $ 32,099 $ 87,505 $ 70,921
========== ========== ==========
Total identifiable assets:
Heilig-Meyers $1,238,136 $1,211,106 $1,366,556
The RoomStore 93,632 75,856 57,508
Operations held for sale 125,917 206,268 197,293
---------- ---------- ----------
1,457,685 1,493,230 1,621,357
Divested operations:
Rhodes -- 287,595 331,845
Mattress Discounters -- 97,481 93,033
The RoomStore - Chicago -- 69,446 51,278
---------- ---------- ----------
Total identifiable assets $1,457,685 $1,947,752 $2,097,513
========== ========== ==========
47
<PAGE>
(17) 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. 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 the substantial majority of its installment accounts receivable,
through a wholly-owned subsidiary, to a Master Trust which issues certificates
representing undivided interests in such receivables (See Notes 1 and 5).
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 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 29, (28),
2000 1999 1998
--------------------------------------
(Amounts in thousands)
Net revenues $289,644 $302,418 $267,386
Operating expenses 252,691 252,699 292,493
--------------------------------------
Earnings (loss) before
taxes 36,953 49,719 (25,107)
--------------------------------------
Net earnings (loss) $ 24,020 $ 32,317 $(16,320)
======================================
MacSaver Financial Services
Summarized Balance Sheets
February 29, (28),
2000 1999
---------------------
(Amounts in thousands)
Current assets $ 53,332 $ 57,148
Accounts receivable, net 119,953 145,211
Retained interest in securitized
receivables at fair value 165,873 190,970
Due from affiliates 485,639 716,867
---------------------
Total assets $824,797 $1,110,196
=====================
Current liabilities $ 18,134 $ 188,750
Notes payable 72,257 210,000
Long-term debt 535,000 535,000
Stockholder's equity 199,406 176,446
---------------------
Total liabilities and
stockholder's equity $824,797 $1,110,196
=====================
48
<PAGE>
(18) Subsequent Events
--------------------------------------------------------------------------------
On March 22, 2000, the Company obtained commitments, subject to final
documentation requirements, from its current bank group to extend its revolving
credit facility as described in Note 7 that is currently set to expire in July
2000. The facility expiration date will be set 364 days after the satisfaction
of documentation requirements and will contain certain provisions under which
the facility may be extended to July 2001. Upon application of proceeds
generated by the sale of the Berrios division, the Company expects the committed
amount of the facility to be reduced from the current level of $200.0 million to
approximately $140.0 million. In addition, the Company expects to pledge, within
the provisions of certain other long-term debt agreements, certain assets as
partial security.
On April 20, 2000, the sale of the Berrios division was completed. The
total value of the transaction was in excess of $120.0 million, before
transaction costs, including seller's notes with a face value of $18.0 million
and excess working capital of approximately $12.0 million. The transaction will
be recorded in the Company's first quarter ended May 31, 2000 and is not
expected to have a significant effect on results of operations. Proceeds from
the sale will be used to pay down debt obligations.
49
<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 29, 2000 and February 28,
1999, and the related consolidated statements of operations, stockholders'
equity, and cash flows for each of the three fiscal years in the period ended
February 29, 2000. 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 these financial statements and
financial statement schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. 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 29, 2000 and February 28, 1999, and the results of
their operations and their cash flows for each of the three fiscal years in the
period ended February 29, 2000 in conformity with accounting principles
generally accepted in the United States of America. 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 22, 2000
(April 20, 2000 as to the sale of the Berrios division described in Note 18).
50
<PAGE>
ITEM 9. CHANGES in and DISAGREEMENTS with ACCOUNTANTS on ACCOUNTING
and FINANCIAL DISCLOSURE
None.
PART III
With the exception of the information incorporated by reference from the
Company's Proxy Statement in Items 10, 11 and 12 of Part III of this Form 10-K,
the Company's Proxy Statement dated May 15, 2000 (the "2000 Proxy Statement"),
is not to be deemed filed as a part of this Report.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information concerning the Company's directors required by this Item is
incorporated by reference to the section entitled "Election of Directors"
appearing on pages 2-4 of the 2000 Proxy Statement.
The information concerning the Company's executive officers required by this
Item is incorporated by reference to the section in Part I hereof entitled
"Executive Officers of the Registrant."
The information concerning compliance with Section 16(a) of the Securities
Exchange Act of 1934 required by this Item is incorporated by reference to the
section entitled "Section 16(a) Beneficial Ownership Reporting Compliance"
appearing on pages 4-5 of the 2000 Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference to the
sections entitled "Executive Compensation" appearing on pages 6-7 of the 2000
Proxy Statement, "Executive Supplemental Retirement Plan" and "Executive
Severance Plan" appearing on page 13 of the 2000 Proxy Statement, and
"Director's Compensation" and "Compensation Committee Interlocks and Insider
Participation" appearing on pages 13-14 of the 2000 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated by reference to the
section entitled "Election of Directors" appearing on pages 1-4 of the 2000
Proxy Statement and "Principal Shareholders" appearing on page 15 of the 2000
Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference to the
sections entitled "Principal Shareholders" appearing on pages 15-16 of the 2000
Proxy Statement and the last paragraph under the section entitled "Election of
Directors" on page 4.
51
<PAGE>
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 2000 Annual
Report to Shareholders are included in Item 8 herein:
Independent Auditors' Report
Consolidated Balance Sheets -
February 29, 2000 and February 28, 1999
Consolidated Statements of Operations -
Year Ended February 29, 2000,
Year Ended February 28, 1999, and
Year Ended February 28, 1998
Consolidated Statements of Stockholders' Equity -
Year Ended February 29, 2000,
Year Ended February 28, 1999, and
Year Ended February 28, 1998
Consolidated Statements of Cash Flows -
Year Ended February 29, 2000,
Year Ended February 28, 1999, and
Year Ended February 28, 1998
Notes to Consolidated Financial Statements
(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) Reports on Form 8-K Filed During Last Quarter of Year Ended February
29, 2000.
There were no Current Reports on Form 8-K filed during the last
quarter of the fiscal year ended February 29, 2000.
52
<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 30, 2000 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 30, 2000 /s/William C. DeRusha
---------------------
William C. DeRusha
Chairman of the Board
Principal Executive Officer
Director
Date: May 30, 2000 /s/Roy B. Goodman
-----------------
Roy B. Goodman
Executive Vice President
Principal Financial Officer
Date: May 30, 2000 /s/Thomas F. Crump
------------------
Thomas F. Crump
Senior Vice President,
Controller
Date: May 30, 2000 /s/Alexander Alexander
----------------------
Alexander Alexander, Director
Date: May 30, 2000 /s/Robert L. Burrus, Jr.
------------------------
Robert L. Burrus, Jr., Director
Date: May 30, 2000 /s/Beverley E. Dalton
---------------------
Beverley E. Dalton, Director
Date: May 30, 2000 /s/Benjamin F. Edwards, III
---------------------------
Benjamin F. Edwards, III, Director
Date: May 30, 2000 /s/Robert M. Freeman
--------------------
Robert M. Freeman, Director
53
<PAGE>
Date: May 30, 2000 /s/Lawrence N. Smith
--------------------
Lawrence N. Smith, Director
Date: May 30, 2000 /s/Eugene P. Trani
------------------
Eugene P. Trani, Director
Date: May 30, 2000 /s/L. Douglas Wilder
--------------------
L. Douglas Wilder, Director
54
<PAGE>
<TABLE>
HEILIG-MEYERS COMPANY AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(Amounts in thousands)
<S> <C> <C> <C> <C> <C> <C>
Column A Column B Column C Column D Column E
-------- --------- ------------------- ------------------------------ ---------
Write-off Reclassed/
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 29,
2000 $42,745 $ 99,618 $ 3,587 (A) $ 55,892 $ 2,161(D) $41,819 $26,453
$ (224)(B) $19,401(C)
Year Ended
February 28,
1999 $60,306 $108,216 $ 3,470 (A) $ 68,779 $ 4,295(D) $47,947 $42,745
$(8,226)(B)
Year Ended
February 28,
1998 $41,120 $181,136 $ 1,817 (A) $106,029 $21,156(D) $38,148 $60,306
$ 1,566 (B)
(A) Represents recoveries on accounts previously written off.
(B) Allowance applicable to purchased accounts receivable.
(C) Related to Berrios balance which was classified as assets held for sale
as of February 29, 2000 and subsequently sold on April, 20 2000.
(D) Deductions from reserve applicable to purchased accounts receivable, as
follows:
2000 1999 1998
-------- -------- ------
Write-offs of Uncollectible Accounts $ 2,161 $ 4,295 $21,156
</TABLE>
55
<PAGE>
Index to Exhibits
2. Plans of Acquisition, Reorganization, Arrangement, Liquidation
or Succession.
a. Agreement of Sale dated as of April 19, 2000 among HMPR, Inc.,
MacManufacturing, Inc., the Registrant, Empresas Berrios, Inc.
and Empresa Manufacturera, Inc. filed as Exhibit 2.1 to the
Registrant's Amended Current Report on Form 8-K/A filed May 8,
2000 (No. 1-8484) is incorporated herein by this reference.
b. Transaction Agreement among the Registrant, Heilig-Meyers
associates, Inc. and MD Acquisition Corporation dated as of May
28, 1999, as amended by Amendment No. 1 thereto dated as of July
14, 1999 and Amendment No. 2 dated as of July 29, 1999, filed as
Exhibit 2.1 to Registrant's Current Report on Form 8-K filed on
August 23, 1999 (No. 1-8484) is incorporated herein by this
reference.
c. Stock Purchase Agreement among the Registrant, Rhodes Holdings,
Inc. and Rhodes Holdings II, Inc. dated as of June 15, 1999, as
amended by the First Amendment thereto dated as of July 13, 1999,
filed as Exhibit 2.1 to Registrant's Current Report on Form 8-K
filed on July 28, 1999 (No. 1-8484) is incorporated herein by
this reference.
3. Articles of Incorporation and Bylaws.
a. Registrant's Restated Articles of Incorporation, as amended,
filed as Exhibit 3a to Registrant's Annual Report on Form 10-K
for the fiscal year ended February 28, 1998, is hereby
incorporated by this reference.
b. Bylaws of Registrant as Amended December 16,1999, filed as
Exhibit 3 to Registrant's Quarterly Report on Form 10-Q for the
quarter ended November 30, 1999, 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, 1999 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. Material Contracts
a. 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.*
b. 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.*
c. 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.*
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d. 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.*
e. Employees Supplemental Profit-Sharing and Retirement Savings
Plan, adopted effective as of March 1, 1991, amended and restated
effective as of January 1, 1999. filed as exhibit 10(o) to
Registrant's Annual Report on Form 10-K for the fiscal year ended
February 28, 1999 (No. 1-8484) is incorporated herein by this
reference.*
f. 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.*
g. 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.*
h. 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.*
i. 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.*
j. 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.*
k. Form of Executive Supplemental Retirement Agreement between the
Registrant and William C. DeRusha 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. *
l. Form of Executive Supplemental Retirement Agreement between the
Registrant and each of James F. Cerza, Jr. 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. *
m. 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. *
n. 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
James C. Cerza, Jr. and the Registrant.*
(2) Employment Agreement dated April 10, 1991 between
James R. Riddle and the Registrant.*
o. 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.*
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p. 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.*
q. 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.*
r. 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.*
s. $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.
t. 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.
u. First Amendment and Restatement of Credit Agreement dated as of
May 14, 1996, filed as Exhibit 10(oo) to Registrant's Annual
Report on Form 10-K for the fiscal year ended February 28, 1998,
is incorporated herein by this reference.
v. Second Amendment and Restatement of Credit Agreement dated as of
January 8, 1997, filed as Exhibit 10(pp) to Registrant's Annual
Report on Form 10-K for the fiscal year ended February 28, 1998,
is incorporated herein by this reference.
w. Third Amendment and Restatement of Credit Agreement dated as of
May 23, 1997, filed as Exhibit 10(qq) to Registrant's Annual
Report on Form 10-K for the fiscal year ended February 28, 1998,
is incorporated herein by this reference.
x. Amendment No. 4 to the Credit Facility, dated as of November 30,
1997 filed as Exhibit 10(a) to Registrant's Quarterly Report on
Form 10-Q for the quarter ended November 30, 1997, is
incorporated herein by this reference.
y. Amendment No. 5 to the Credit Facility dated as of April 22,
1998, filed as Exhibit 10(ss) to Registrant's Annual Report on
Form 10-K for the fiscal year ended February 28, 1998, is
incorporated herein by this reference.
z. 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 10(a) to Registrant's Quarterly Report on Form 10-Q
for the quarter ended May 31, 1997, is incorporated herein by
this reference.
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aa. Amendment No. 6 to the Credit Facility dated as of February 24,
1999 filed as Exhibit 10(uu) to Registrant's Annual Report on
Form 10-K for the fiscal year ended February 28, 1999 (No.
1-8484) is incorporated herein by this reference.
bb. Amendment No. 7 to the Credit Facility dated as of April 15, 1999
filed as Exhibit 10(vv) to Registrant's Annual Report on Form
10-K for the fiscal year ended February 28, 1999 (No. 1-8484) is
incorporated herein by this reference.
cc. Employment Agreement dated as of September 22, 1999 between
Donald S. Shaffer and the Registrant filed as Exhibit 10.2 to
Registrant's Quarterly Report on Form 10-Q for the quarter ended
November 30, 1999 (No. 1-8484) is incorporated herein by this
reference.*
dd. Heilig-Meyers Company Director Stock Ownership Plan as amended
effective July 1, 1999 filed as Exhibit 10.1 to Registrant's
Quarterly Report on Form 10-Q for the quarter ended August 31,
1999 (No. 1-8484) is incorporated herein by this reference.
ee. Heilig-Meyers Company Severance Plan 1999 Amendment and
Restatement filed as Exhibit 10.2 to Registrant's Quarterly
Report on Form 10-Q for the quarter ended August 31, 1999 (No.
1-8484) is incorporated herein by this reference.*
ff. Amendment No. 8 to the Credit Facility dated as of September 24,
1999 filed as Exhibit 10.1 to Registrant's Quarterly Report on
Form 10-Q for the quarter ended November 30, 1999 (No. 1-8484) is
incorporated herein by this reference.*
gg. Amendment No. 9 to the Credit Facility dated May 25, 2000.
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
Forms S-8 and S-3.
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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