UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
---- SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended May 31, 2000 or
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---- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .
---------------- -----------------
Commission file number #1-8484 .
---------------------------------------------
Heilig-Meyers Company .
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(Exact name of registrant as specified in its charter)
Virginia 54-0558861
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
12560 West Creek Parkway, Richmond, Virginia 23238 .
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(Address of principal executive offices) (Zip Code)
(804) 784-7300 .
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(Registrant's telephone number, including area code)
.
(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No .
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of July 3, 2000.
60,676,773 shares of Common Stock, $2.00 par value.
<PAGE>
HEILIG-MEYERS COMPANY
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Operations for
Three Months Ended May 31, 2000
and May 31, 1999 (Unaudited) 3
Consolidated Balance Sheets as of May 31, 2000
(Unaudited) and February 29, 2000 (Audited) 4
Consolidated Statements of Cash Flows for
Three Months Ended May 31, 2000 and
May 31, 1999 (Unaudited) 5
Notes to Consolidated Financial Statements (Unaudited) 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 12
Item 3. Quantitative and Qualitative Disclosure of
Market Risk 18
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 19
2
<PAGE>
PART I
ITEM 1. FINANCIAL STATEMENTS
HEILIG-MEYERS COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands except per share data)
(Unaudited)
Three Months Ended
May 31,
-------------------
2000 1999
---- ----
Revenues:
Sales $418,786 $618,492
Other income 57,277 70,711
-------- --------
Total revenues 476,063 689,203
-------- --------
Costs and Expenses:
Costs of sales 275,731 400,229
Selling, general and administrative 163,859 231,320
Interest, net 11,275 19,733
Provision for doubtful accounts 20,647 23,872
-------- --------
Total costs and expenses 471,512 675,154
-------- --------
Write-down of assets held for sale -- (113,690)
Earnings (loss) before provision (benefit) for
income taxes and cumulative effect of a change
in accounting principle 4,551 (99,641)
Provision (benefit) for income taxes 1,624 (29,101)
-------- ---------
Earnings (loss) before cumulative effect
of a change in accounting principle 2,927 (70,540)
Cumulative effect of a change in accounting
principle, net of income taxes (18,014) --
--------- --------
Net loss $(15,087) $(70,540)
========= =========
Net loss per share of common stock:
Basic:
Earnings (loss) before cumulative effect
of a change in accounting principle $ 0.05 $(1.18)
Cumulative effect of change in accounting
principle (0.30) --
-------- --------
$(0.25) $(1.18)
======== ========
Diluted:
Earnings (loss) before cumulative effect
of a change in accounting principle $ 0.05 $(1.18)
Cumulative effect of change in accounting
principle (0.30) --
-------- --------
$(0.25) $(1.18)
======== ========
Cash dividends per share of common stock $ 0.02 $ 0.07
======= =======
See Notes to Consolidated Financial Statements.
3
<PAGE>
HEILIG-MEYERS COMPANY
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands except par value data)
May 31, February 29,
2000 2000
---- ----
(Unaudited) (Audited)
ASSETS
Current assets:
Cash $ 6,451 $ 15,073
Accounts receivable, net 136,530 143,132
Retained interest in securitized
receivables at fair value 138,503 165,873
Inventories 363,382 336,690
Other current assets 109,561 116,792
Net assets held for sale 13,782 125,917
---------- ----------
Total current assets 768,209 903,477
Property and equipment, net 285,515 290,252
Other assets 159,586 121,031
Excess costs over net assets acquired, net 141,400 142,925
---------- ----------
$1,354,710 $1,457,685
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ -- $ 72,257
Long-term debt due within
one year 681 706
Accounts payable 118,026 125,464
Accrued expenses 131,090 140,114
Deferred revenue 28,506 2,127
---------- ----------
Total current liabilities 278,303 340,668
---------- ----------
Long-term debt 515,737 535,982
Deferred income taxes 42,258 46,287
Stockholders' equity:
Preferred stock, $10 par value -- --
Common stock, $2 par value (250,000
shares authorized; shares issued
60,677 and 60,677, respectively) 121,354 121,354
Capital in excess of par value 240,871 240,871
Unrealized gain on investments 4,133 4,169
Retained earnings 152,054 168,354
---------- ----------
Total stockholders' equity 518,412 534,748
---------- ----------
$1,354,710 $1,457,685
========== ==========
See Notes to Consolidated Financial Statements.
4
<PAGE>
HEILIG-MEYERS COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
Three Months Ended
May 31,
------------------
2000 1999
---- ----
Cash flows from operating activities:
Net loss $(15,087) $(70,540)
Adjustments to reconcile net loss
to net cash provided by operating
activities:
Depreciation and amortization 10,661 16,446
Provision for doubtful accounts 20,647 23,872
Store closing charge payments (257) (1,312)
Write-down of net assets held
for sale -- 79,552
Cumulative effect of a change in
accounting principle 18,014 --
Other, net -- (4,275)
Change in operating assets and
liabilities net of the effects
of acquisitions:
Accounts receivable (18,755) (23,050)
Retained interest in securitized
receivables at cost (547) (964)
Other receivables 13,338 (8,606)
Inventories 5,273 (9,794)
Prepaid expenses (2,854) 3,205
Accounts payable (7,438) (958)
Accrued expenses 732 16,116
-------- --------
Net cash provided by
operating activities 23,727 19,692
-------- --------
Cash flows from investing activities:
Proceeds from sale of subsidiaries 86,487 --
Additions to property and equipment (4,308) (8,975)
Disposals of property and equipment 905 3,712
Miscellaneous investments (20,198) (13,822)
--------- ---------
Net cash provided (used) by
investing activities 62,886 (19,085)
-------- ---------
Cash flows from financing activities:
Net decrease in notes payable (72,257) (8,642)
Payments of long-term debt (20,270) (34,381)
Debt structuring costs (1,494) --
Dividends paid (1,214) (4,189)
--------- ---------
Net cash used by financing
activities (95,235) (47,212)
--------- ---------
Net decrease in cash (8,622) (46,605)
Cash at beginning of period 15,073 67,254
-------- --------
Cash at end of period $ 6,451 $ 20,649
======== ========
See Notes to Consolidated Financial Statements.
5
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
A. The accompanying consolidated financial statements of Heilig-Meyers
Company (the "Company") have not been audited by independent accountants,
except for the balance sheet at February 29, 2000. These financial
statements have been prepared in accordance with regulations of the
Securities and Exchange Commission in regard to quarterly (interim)
reporting. In the opinion of management, the financial information
presented reflects all adjustments, comprised only of normal recurring
accruals, which are necessary for a fair presentation of the results for
the interim periods. Significant accounting policies and accounting
principles have been consistently applied in both the interim and annual
consolidated financial statements. Certain notes and the related
information have been condensed or omitted from the interim financial
statements presented in this Quarterly Report on Form 10-Q. Therefore,
these financial statements should be read in conjunction with the Company's
2000 Annual Report on Form 10-K. The results for the first quarter of
fiscal year 2001 are not necessarily indicative of future financial
results. Amounts in the fiscal year 2000 financial statements have been
reclassified to conform to the 2001 presentation. These reclassifications
had no effect on previously reported net income.
B. 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 a subordinated note receivable with a face
value of $18.0 million and excess working capital of approximately $12.0
million. Proceeds from the sale were used to pay down debt obligations.
C. In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin ("SAB") 101, "Revenue Recognition in Financial
Statements." This SAB provides additional guidance in applying generally
accepted accounting principles for revenue recognition in consolidated
financial statements. Effective March 1, 2000, the Company changed 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 cumulative effect of this
change represents the deferral of previously recorded revenue, net of
direct costs, related to merchandise that had not been delivered to the
customer as of February 29, 2000. The cumulative effect of the accounting
change decreased net income by $18,014,000 or $0.30 per share and was
recorded in the three month period ended May 31, 2000.
D. On March 22, 2000, the Board of Directors declared a cash dividend of $0.02
per share which will be payable on May 13, 2000, to stockholders of record
on April 19, 2000. On June 21, 2000, the Board of Directors voted to
eliminate the quarterly dividend.
E. Accounts receivable are shown net of the allowance for doubtful accounts
and unearned finance income. The allowance for doubtful accounts was
$27,592,000 and $26,453,000 and unearned finance income was $12,204,000 and
$12,266,000 at May 31, 2000, and February 29, 2000, respectively.
F. The Company made income tax payments of $12,008,000 and $537,000 during the
three months ended May 31, 2000, and May 31, 1999, respectively.
G. The Company made interest payments of $1,359,000 and $11,473,000 during the
three months ended May 31, 2000, and May 31, 1999, respectively.
6
<PAGE>
H. Total comprehensive loss for the three month periods ended May 31, 2000 and
1999 is as follows:
Three Months Ended
May 31,
------------------
2000 1999
---- ----
Net loss $(15,087) $(70,540)
Increase (decrease) in
unrealized gain on
investments (36) 250
--------- --------
Comprehensive loss $(15,123) $(70,290)
========= =========
The difference between net loss and comprehensive loss is due to the change
in the unrealized gain on investments, which consist of retained interests
in securitized receivables.
I. In June 1998 the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities,"
which 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.
J. The Company has significant operations aligned in two operating formats:
Heilig-Meyers and The RoomStore. As discussed in Note B, the Company sold
its Puerto Rican division on April 20, 2000. During fiscal 2000 the Company
divested its Mattress Discounters and Rhodes divisions and sold the assets
related to 18 stores in the Chicago and Milwaukee markets. All of the
divested subsidiaries are classified as divested operations at May 31,
2000. The Company has also announced its intention to divest of its
remaining RoomStore operations in Chicago which are classified as
operations held for sale at May 31, 2000.
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 operating primarily in Texas, Oregon, Maryland and
Virginia.
The Company evaluates performance based on earnings (loss) before interest
and income taxes (based on 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.
7
<PAGE>
Pertinent financial data by operating segment for the quarters ended May
31, 2000 and 1999 are as follows:
May 31, May 31,
(Amounts in thousands) 2000 1999
---- ----
Revenues:
Heilig-Meyers $ 370,455 $ 381,753
The RoomStore 73,383 62,982
Operations held for sale 15,291 12,829
---------- ----------
459,129 457,564
Divested operations 16,934 231,639
---------- ----------
Total revenues from
external customers $ 476,063 $ 689,203
========== ==========
Earnings (loss) before interest and taxes:
Heilig-Meyers $ 14,327 $ 23,597
The RoomStore 1,677 3,317
Operations held for sale (1,023) (828)
---------- ----------
14,981 26,086
Divested operations 845 7,696
---------- ----------
Total earnings (loss)
before interest and taxes 15,826 33,782
Write-down of assets held for sale -- (113,690)
Interest expense (11,275) (19,733)
----------- ----------
Consolidated earnings (loss) before
provision for income taxes and
cumulative effect of a change in
accounting principle $ 4,551 $ (99,641)
========== ===========
Depreciation and amortization expense:
Heilig-Meyers $ 9,340 $ 10,454
The RoomStore 907 746
Operations held for sale 128 64
---------- ----------
10,375 11,264
Divested operations 286 5,182
---------- ----------
Total depreciation and
amortization expense $ 10,661 $ 16,446
========== ==========
Capital expenditures:
Heilig-Meyers $ 3,476 $ 4,394
The RoomStore 683 1,100
Operations held for sale 120 278
---------- ----------
4,279 5,772
Divested operations 29 3,203
---------- ----------
Total capital expenditures $ 4,308 $ 8,975
========== ==========
Total identifiable assets:
Heilig-Meyers $1,247,746 $1,312,600
The RoomStore 93,182 82,766
Operations held for sale 12,173 --
---------- ----------
1,353,101 1,395,366
Divested operations 1,609 346,980
---------- ----------
Total identifiable assets $1,354,710 $1,742,346
========== ==========
8
<PAGE>
K. MacSaver Financial Services, Inc. ("MacSaver") is the Company's
wholly-owned subsidiary whose principal business activity is to obtain
financing for the operations of Heilig-Meyers and its other subsidiaries,
and, in connection therewith, MacSaver generally acquires and holds the
installment credit accounts generated by the Company's operating
subsidiaries. The payment of principal and interest associated with
MacSaver debt is guaranteed by the Company. The Company has not presented
separate financial statements and other disclosures concerning MacSaver
because management has determined that such information is not material to
the holders of the MacSaver debt securities guaranteed by the Company.
However, as required by the 1934 Act, the summarized financial information
concerning MacSaver is as follows:
MacSaver Financial Services, Inc.
Summarized Statements of Operations
(Amounts in thousands)
(Unaudited)
Three Months Ended
May 31,
-------------------
2000 1999
---- ----
Net revenues $ 68,406 $ 76,513
Operating expenses 52,338 61,858
-------- --------
Earnings before taxes 16,068 14,655
-------- --------
Net earnings $ 10,444 $ 9,527
======== ========
MacSaver Financial Services, Inc.
Summarized Balance Sheets
(Amounts in thousands)
May 31, February 29,
2000 2000
------ ------
(Unaudited) (Audited)
Current assets $ 61,356 $ 53,333
Accounts receivable, net 120,848 119,953
Retained interest in securitized
receivables at fair value 170,146 165,873
Due from affiliates 400,280 485,639
-------- --------
Total Assets $752,630 $824,798
======== ========
Current liabilities 15,671 5,764
Deferred income taxes 12,345 12,370
Notes payable -- 72,257
Long-term debt 514,799 535,000
Stockholder's equity 209,815 199,407
-------- --------
Total Liabilities and Equity $752,630 $824,798
======== ========
9
<PAGE>
L. The following table sets forth the computations of basic and diluted
earnings (loss) per share:
Three Months Ended
May 31,
------------------
2000 1999
---- ----
(Amounts in thousands except per share data)
Numerator:
Earnings (loss) before
cumulative effect of a change
in accounting principle $ 2,927 $(70,540)
Cumulative effect of a change
in accounting principle (18,014) --
--------- ---------
Net loss $(15,087) $(70,540)
Denominator:
Denominator for basic
earnings per share -
average common shares
outstanding 60,677 59,861
Effect of potentially
dilutive stock options -- --
------- -------
Denominator for diluted
earnings per share 60,677 59,861
Basic EPS:
Earnings (loss) before cumulative
effect of a change in accounting
principle $ 0.05 $(1.18)
Cumulative effect of a change in
accounting principle (0.30) --
------- -------
$(0.25) $(1.18)
Diluted EPS:
Earnings (loss) before cumulative
effect of a change in accounting
principle $ 0.05 $(1.18)
Cumulative effect of a change in
accounting principle (0.30) --
------- -------
$(0.25) $(1.18)
Options to purchase 5,302,000 and 5,266,000 shares of common stock at
prices ranging from $3.06 and $6.02 to $35.06 per share were
outstanding at May 31, 2000 and May 31, 1999, respectively, but were
not included in the computation of diluted earnings per share because
they would have been antidilutive.
10
<PAGE>
M. In the fourth quarter of fiscal 1998, the Company recorded a pre-tax charge
of approximately $25,530,000 related to specific plans to close
approximately 40 Heilig-Meyers stores, downsize office and support
facilities, and reorganize the Heilig-Meyers private label credit card
program. Amounts charged to the provision during the three months ended May
31, 2000 are as follows:
Amount
Utilized Remaining
Reserve as through Reserve as
of March 1, May 31, of May 31,
(Amounts in thousands, 2000 2000 2000
unaudited) --------------------------------------
Severance $ 639 $ 134 $ 505
Lease & facility exit cost 1,542 122 1,420
--------------------------------------
Total $ 2,181 $ 256 $ 1,925
======================================
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.
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
consolidated financial statements and notes to the consolidated financial
statements included in Item 1 of this document, and with the audited
consolidated financial statements of Heilig-Meyers Company (the "Company") and
notes thereto for the fiscal year ended February 29, 2000.
On April 20, 2000, the Company sold substantially all the assets of its
Puerto Rican division which operated 33 stores under the trade name Berrios. The
total value of the transaction was in excess of $120.0 million, before
transaction costs, including a subordinated note receivable with a face value of
$18.0 million and excess working capital of approximately $12.0 million.
During fiscal year 2000, the Company divested its Mattress Discounters and
Rhodes divisions and sold the assets related to 18 stores in the Chicago and
Milwaukee markets. Additionally, the Company announced its intentions to divest
of The RoomStore's remaining Chicago operations. The remaining three stores in
the Chicago area are classified as net assets held for sale on the May 31, 2000
balance sheet with net assets totaling $13.8 million.
The Company expects the disposition of the remaining assets held for sale
to be completed within the fiscal year 2001. Historical business segment
information presented in management's discussion and analysis has been restated
to reflect the current operating segments.
12
<PAGE>
RESULTS OF OPERATIONS
The following table outlines the results for the first quarter of fiscal
years 2001 and 2000, and 2000 pro forma results.
(in thousands)
Three Months Ended
May 31,
-------------------------
Pro forma
2000 1999 1999
---- ---- ----
Revenues:
Sales $418,786 $618,492 $414,800
Other income 57,277 70,711 57,741
-------- -------- --------
Total revenues 476,063 689,203 472,541
-------- -------- --------
Costs and Expenses:
Costs of sales 275,731 400,229 265,737
Selling, general and administrative 163,859 231,320 159,255
Interest, net 11,275 19,733 11,022
Provision for doubtful accounts 20,647 23,872 21,260
-------- -------- --------
Total costs and expenses 471,512 675,154 457,274
-------- -------- --------
Write-down of assets held for sale -- (113,690) --
Earnings (loss) before provision (benefit)
for income taxes and cumulative effect of
a change in accounting principle 4,551 (99,641) 15,267
Provision (benefit) for income taxes 1,624 (29,101) 5,479
-------- --------- -------
Earnings (loss) before cumulative effect
of a change in accounting principle 2,927 (70,540) 9,788
Cumulative effect of a change in accounting
principle (18,014) -- --
--------- ------- --------
Net earnings (loss) $(15,087) $(70,540) $ 9,788
========= ========= ========
The unaudited pro forma amounts above give effect to divestitures made by
the Company and the estimated impact of the change in accounting principle as
described below.
During the fiscal year ended February 29, 2000, the Company completed the
divestitures of the Rhodes division, the Mattress Discounters division and 18
stores in the Chicago and Milwaukee markets as well as its interest in Guardian
Products, Inc. On April 20, 2000 the sale of the Berrios division was completed.
The pro forma consolidated statements of operations for the three months ended
May 31, 1999 is presented as if the divestitures that were completed in fiscal
2000 had been completed prior to the beginning of the fiscal year. Additionally,
the pro forma information is presented as if the Berrios divestiture had been
completed on April 20, 1999. The effect of the related pro forma adjustment
reduced the previously reported total revenues by $215.1 million and increased
the previously reported net earnings by $80.9 million.
Effective March 1, 2000, the Company changed its method of accounting for
revenue to record merchandise sales upon delivery to the customer. The pro forma
consolidated statement of operations for the three months ended May 31, 1999 is
prepared as if the change in accounting principle had been adopted prior to the
beginning of the fiscal year. The related pro forma adjustment decreased the
previously reported total revenues by $1.6 million and the previously reported
net earnings by $0.6 million.
13
<PAGE>
The unaudited pro forma consolidated statement of operations was prepared
by the management of Heilig-Meyers based upon historical and other financial
information. The pro forma statements do not purport to be indicative of the
results of operations which would have occurred had the dispositions or the
accounting change been made prior to the beginning of the period presented.
Revenues and Earnings
Total revenues for the quarter increased 0.7% to $476.1 million versus pro
forma revenues of $472.5 million in the prior year quarter. Including a one-time
non-cash reduction in earnings of $18.0 million, or $0.30 per share, to adjust
for the cumulative effect of a change in accounting principle, the Company
incurred a net loss for the quarter ended May 31, 2000 of $15.1 million or $0.25
per share. Net earnings before the cumulative effect of an accounting change
were $2.9 million, or $0.05 per share, compared to pro forma net earnings of
$9.8 million, or $0.16 per share in the comparable period of the prior year.
The following table shows a comparison of sales by division:
Three Months Ended
(Sales amounts in millions)
Pro Forma
May 31, 2000 May 31, 1999
------------ ------------
# of % of # of % of
Stores Sales Total Stores Sales Total
------ ----- ----- ------ ----- -----
Heilig-Meyers 815 $317.4 75.8 814 $324.3 78.2
The RoomStore 56 72.0 17.2 52 63.6 15.3
Operations held for
sale 3 15.1 3.6 3 12.7 3.1
----- ------ ----- ----- ------ -----
874 404.5 96.6 869 400.6 96.6
Divested operations - 14.3 3.4 32 14.2 3.4
----- ------ ----- ----- ------ -----
Total 874 $418.8 100.0 901 $414.8 100.0
===== ====== ===== ===== ====== =====
Sales in those divisions which were under the Company's ownership for the
full quarter increased 1.0% to $404.5 million from $400.6 million in the first
quarter of the prior year. The overall increase in sales was primarily
attributable to an increase of four operating units from May 31, 1999 to May 31,
2000 at The RoomStore. Total sales for the quarter increased 1.0% to $418.8
million compared to pro forma sales of $414.8 million in the prior year quarter.
Price changes had an immaterial impact on the overall sales increase for the
quarter.
Other income decreased to 13.7% of sales from 13.9% on a pro forma basis in
the prior year quarter . This decrease is primarily due to the growth in stores
in which the installment credit program is not offered. The Heilig-Meyers
division and certain subsidiaries within divested subsidiaries offer installment
credit as a financing option to customers. The following table shows other
income as a percentage of divisional sales:
Pro Forma
May 31, May 31,
2000 1999
------- -------
Heilig-Meyers 16.4% 16.7%
The RoomStore 3.3% 1.3%
Operations held for sale 1.8% 1.9%
------- -------
13.5% 13.8%
Divested subsidiaries 18.7% 16.9%
------- -------
Consolidated 13.7% 13.9%
====== ======
14
<PAGE>
Within the Heilig-Meyers format, other income decreased 0.3% as a
percentage of sales as compared to the prior year quarter on a pro forma basis.
The decrease is due to an increase in the amount of receivables that have been
securitized.
Costs and Expenses
Costs of sales for the quarter increased to 65.8% of sales compared to
64.1% of sales on a pro forma basis in the prior year quarter. The following
table shows the costs of sales as a percentage of divisional sales:
Pro Forma
May 31, May 31,
2000 1999
------- -------
Heilig-Meyers 65.6% 63.6%
The RoomStore 68.2% 66.3%
Operations held for sale 71.1% 70.9%
------- -------
66.2% 64.2%
Divested subsidiaries 54.3% 57.3%
------- -------
Consolidated 65.8% 64.1%
====== ======
The costs of sales in the Heilig-Meyers division increased 2.0% as a
percentage of sales from the prior year quarter on a pro forma basis as a result
of the loss of sales leverage on certain fixed expenses as well as increased
costs primarily in the warehouse and delivery areas partially related to fuel
costs. The increase in costs of sales in The RoomStore division was primarily
due to increases in rent and delivery costs.
Selling, general and administrative expenses for the quarter increased to
39.1% of sales from 38.4% of sales on a pro forma basis in the prior year
quarter. The following table displays selling, general and administrative
expenses as a percentage of the applicable division's sales:
Pro Forma
May 31, May 31,
2000 1999
------- -------
Heilig-Meyers 40.3% 39.7%
The RoomStore 32.3% 30.8%
Operations held for sale 38.6% 37.7%
------- -------
38.8% 38.2%
Divested operations 47.9% 43.8%
------ -------
Consolidated 39.1% 38.4%
====== ======
Selling, general and administrative expenses as a percentage of sales for
the Heilig-Meyers division increased 0.6% as compared to the prior year quarter
on a pro forma basis. While overall spending was lower this increase is due to
the loss of sales leverage on certain other expenses such as employee costs as
well an increase in advertising expenses. The RoomStore division experienced an
increase of 1.5% in selling, general and administrative expenses as a percentage
of sales as compared to the prior year quarter primarily due to increased
salaries and related expenses.
Interest expense remained flat at 2.7% of sales on a pro forma basis. For
the quarter, weighted average long-term debt decreased to $533.6 million from
$675.4 million in the prior year first quarter. The decrease in long-term debt
levels between years is a result of the use of proceeds from divestitures to
paydown long-term debt. Weighted average long-term interest rates decreased to
8.2% from 8.3% in the prior year. Weighted average short-term debt decreased to
$62.4 million from $186.3 million in the prior year. Weighted average short-term
interest rates increased to 8.3% from 6.6% in the prior year.
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The provision for doubtful accounts for the first quarter of fiscal 2001
was 4.9% of sales compared to 5.1% of sales on a pro forma basis in the prior
year quarter. For those stores offering installment credit, the provision was
6.2% and 6.5% of sales for the first quarters of fiscal years 2001 and 2000 on a
pro forma basis, respectively. This decrease is the result of favorable trends
in delinquencies and bankruptcies.
The effective income tax rate for the first quarter of fiscal 2001 was
35.7% compared to the prior year pro forma rate of 35.9% and the prior year
actual income tax benefit of 29.2%. The lower rate in the prior year is due to
the write-down of the Rhodes net assets to net realizable value. Because of
differences between the carrying value and the tax basis of certain assets that
were written down, the effective tax rate applicable to the write-down was 30%.
The effective rate applicable to earnings before the asset write-down was 35.9%.
LIQUIDITY AND CAPITAL RESOURCES
The Company decreased its cash position $8.6 million to $6.5 million at May
31, 2000 from $15.1 million at February 29, 2000.
Net cash inflow from operating activities was $23.7 million, compared to an
inflow of $19.7 million in the comparable period of the prior year. This
increase is partially due to improved inventory controls. 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. Continued extension of credit and related increases in
customer accounts receivable will likely produce minimal or negative cash flow
from operations in the upcoming fiscal 2001 quarters. However, the Company
expects to continue to periodically sell accounts receivable as a source of cash
flows from operating activities.
Investing activities produced cash flows of $62.9 million for the quarter
ended May 31, 2000, compared to an outflow of $19.1 million in the prior year
quarter. The increase in cash flows from investing activities is due to $86.5
million of cash proceeds received from the divestiture of the Berrios division.
Approximately $4.6 million of proceeds were held in escrow as of May 31, 2000.
Financing activities produced negative cash flows of $95.2 million during
the first quarter of fiscal 2001 compared to negative cash flows of $47.2
million in the prior year period. The increase in negative cash flows from
financing activities in the current year quarter is due to the payments of debt
from the proceeds of the divestiture of the Berrios division. 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 three months ended
May 31, 2000. As of May 31, 2000, long-term notes payable with an aggregate
principal amount of $175 million have been issued to the public under this
Registration Statement. On May 25, 2000, the Company finalized the extension of
its revolving credit facility. The extended facility provides a committed amount
of $140.0 million, expires in May 2001, and contains certain provisions under
which the facility may be extended to July 2001. In addition, the Company
pledged, within provisions of certain other long-term debt and the revolving
credit agreements, certain non-inventory assets as partial security. This
revolving credit facility includes ten banks and had no amounts outstanding and
$140.0 million undrawn as of May 31, 2000, however, there are $55 million of
letters of credit backed by this facility.
The commitment termination date for the Company's Series 1997-1
certificates issued in connection with the Company's securitized receivables has
been extended from July 18, 2000 to July 17, 2001. Under its Series 1998-2 Class
A and Class B certificates, the Company is required, beginning in January 2001,
to accumulate a portion of all principal payments received on the securitized
receivables and deposit them into a segregated trust account in equal monthly
installments in an amount sufficient to repay these certificates on their final
scheduled distribution dates in August and October 2001, respectively. The
Company may be required to begin accumulating principal payments before January
2001 if the principal payment rate on the securitized receivables decreases. The
Company expects to issue a new series of asset-backed certificates to refinance
the decrease in working capital that would result from these accumulations of
principal payments. If the Company does not implement a plan at least 60 days
before the accumulation is due to begin which provides for the issuance of a new
series or otherwise accommodates these accumulations in a manner reasonably
acceptable to the required lenders, the Company will be in default under its
revolving credit facility and certain other agreements.
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As a result of losses incurred during fiscal years 2000 and 1999, the
Company amended its bank debt agreements during fiscal years 2000 and 1999 in
order to maintain covenant compliance. The Company may need to seek additional
amendments during the current year to maintain covenant compliance in the event
performance is below expectations. The Company will monitor the implementation
of its credit centralization and merchandise management plans as well as
evaluate additional initiatives and alternatives in connection with all of its
liquidity needs including, but not limited to, its extended revolving credit
facility which terminates in calendar year 2001, its securitized receivables
with termination, accumulation or final distribution dates in calendar years
2001 and 2002 and its long term senior unsecured debt maturing in calendar year
2002 and 2003. The Company expects that refinancings of these obligations will
be required and there can be no assurance that such refinancings would be
available on commercially reasonable terms or at all.
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 such assets
would be non-operational assets. As of July 1, 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 Services, Inc.
Total debt as a percentage of debt and equity was 49.9% at May 31, 2000,
compared to 53.2% at February 29, 2000. This decrease is primarily due to the
paydown of debt from the proceeds of the Berrios division. The current ratio was
2.8x at May 31, 2000, compared to 2.7x at February 29, 2000. The increase in the
current ratio is also primarily attributable to the paydown of debt.
FORWARD-LOOKING STATEMENTS
Certain statements included above are not based on historical facts, but
are forward-looking statements. These statements can be identified by the use of
forward-looking terminology such as "believes," "expects," "may," "will,"
"should," or "anticipates" or the negative thereof or other variations thereon
or comparable terminology, or by discussions of strategy. 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.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There are no material changes to the disclosure on this matter made in our
Report on Form 10-K for the year ended February 29, 2000. Reference is made to
Part II, Item 7A, Quantitative and Qualitative Disclosures About Market Risk, in
the Registrant's Annual Report on Form 10-K for the year ended February 29,
2000.
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PART II
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits. See INDEX TO EXHIBITS
(b) There was one Current Report on Form 8-K filed during the
quarterly period ended May 31, 1999. On May 5, 2000, Registrant
filed a Form 8-K in which it reported that Registrant had sold
its Puerto Rican division which operated under the trade name
Berrios and included pro forma financial statements related
thereto. The Registrant also attached and incorporated by
reference the April 25, 2000 press release issued by the
Registrant announcing the extension of the Company's revolving
credit facility and a change in the Company's revenue recognition
policy.
INDEX TO EXHIBITS
Exhibit
Number Description Page
------- -------------------------------------------------------
10 Amendment No. 10 dated as of May 31, 2000
to the Credit Agreement dated as of July 18,
1995 among MacSaver Financial Services, Inc.,
Heilig-Meyers Company, Wachovia Bank, N.A. and
Bank of America, N.A. 21
27 Financial Data Schedule 26
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Heilig-Meyers Company
(Registrant)
Date: July 17, 2000 /s/Donald S. Shaffer
----------------------------
Donald S. Shaffer
President and Chief Operating Officer
Date: July 17, 2000 /s/Thomas F. Crump
----------------------------
Thomas F. Crump
Senior Vice President, Controller
(principal accounting officer)
20
