UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
- --- SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended November 30, 1999
or -------------------------------------------
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
- --- SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .
-------------- -------------------
Commission file number #1-8484 .
---------------------------------------------
Heilig-Meyers Company .
- --------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Virginia 54-0558861
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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 .
- --------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(804) 784-7300 .
- --------------------------------------------------------------------
(Registrant's telephone number, including area code)
.
- --------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No .
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of January 1, 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 and Nine Months Ended November 30, 1999
and November 30, 1998 (Unaudited) 3
Consolidated Balance Sheets as of November 30, 1999
(Unaudited) and February 28, 1999 (Audited) 4
Consolidated Statements of Cash Flows for
Nine Months Ended November 30, 1999 and
November 30, 1998 (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 1. Legal Proceedings 19
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 Nine Months Ended
November 30, November 30,
------------------ ------------------
1999 1998 1999 1998
---- ---- ---- ----
Revenues:
Sales $469,385 $654,694 $1,595,518 $1,844,849
Other income 59,519 73,515 195,539 227,306
-------- -------- ---------- ----------
Total revenues 528,904 728,209 1,791,057 2,072,155
-------- -------- ---------- ----------
Costs and Expenses:
Costs of sales 307,234 434,997 1,049,310 1,234,260
Selling, general and
administrative 174,360 233,550 591,586 664,781
Interest 12,136 19,121 50,428 57,247
Provision for doubtful
accounts 27,616 30,645 74,767 76,338
-------- -------- ---------- ----------
Total costs and
expenses 521,346 718,313 1,766,091 2,032,626
-------- -------- ---------- ----------
Gain (loss) on sale
and write-down of
assets held for sale -- -- (63,136) --
Earnings (loss) before
provision for income
taxes 7,558 9,896 (38,170) 39,529
Provision for income taxes 2,819 3,622 24,789 14,303
-------- --------- ---------- ----------
Net earnings (loss) $ 4,739 $ 6,274 $ (62,959) $ 25,226
======== ======== ========== ==========
Net earnings (loss) per share of common stock:
Basic $ 0.08 $ 0.11 $ (1.05) $ 0.43
======== ======== ========== ==========
Diluted $ 0.08 $ 0.10 $ (1.05) $ 0.42
======== ======== ========== ==========
Cash dividends per
share of common stock $ 0.02 $ 0.07 $ 0.16 $ 0.21
======== ======== ========== ==========
See notes to consolidated financial statements.
3
<PAGE>
HEILIG-MEYERS COMPANY
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands except par value data)
November 30, February 28,
1999 1999
---- ----
(Unaudited) (Audited)
ASSETS
Current assets:
Cash $ 8,682 $ 67,254
Accounts receivable, net 152,874 254,282
Retained interest in securitized
receivables at fair value 184,852 190,970
Inventories 357,128 493,463
Other current assets 98,610 124,305
Net assets held for sale 147,511 ---
---------- ----------
Total current assets 949,657 1,130,274
Property and equipment, net 295,141 400,686
Other assets 134,573 72,632
Excess costs over net assets acquired, net 143,740 344,160
---------- ----------
$1,523,111 $1,947,752
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 91,272 $ 210,000
Long-term debt due within
one year 6,374 167,486
Accounts payable 144,161 193,799
Accrued expenses 164,150 178,656
---------- ----------
Total current liabilities 405,957 749,941
---------- ----------
Long-term debt 536,120 547,344
Deferred income taxes 48,694 45,365
Stockholders' equity:
Preferred stock, $10 par value --- ---
Common stock, $2 par value (250,000
shares authorized; shares issued
60,677 and 59,861, respectively) 121,354 119,722
Capital in excess of par value 240,871 242,346
Unrealized gain on investments 4,863 5,228
Retained earnings 165,252 237,806
---------- ----------
Total stockholders' equity 532,340 605,102
---------- ----------
$1,523,111 $1,947,752
========== ==========
See notes to consolidated financial statements.
4
<PAGE>
HEILIG-MEYERS COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
Nine Months Ended
November 30,
-------------------
1999 1998
---- ----
Cash flows from operating activities:
Net earnings (loss) $(62,959) $ 25,226
Adjustments to reconcile net
earnings (loss) to net cash provided
(used) by operating activities:
Depreciation and amortization 42,090 43,402
Provision for doubtful accounts 74,767 76,338
Gain (loss), net of tax on sale and
write-down of net assets held for
sale 78,903 ---
Store closing charge payments (1,312) (7,665)
Other, net 586 (3,859)
Change in operating assets and
liabilities net of the effects
of acquisitions:
Accounts receivable (87,607) 45,304
Retained interest in securitized
receivables at cost 5,753 (28,190)
Other receivables (32,162) (23,982)
Inventories (35,038) 10,392
Prepaid expenses 16,894 22,601
Accounts payable 12,973 6,591
Accrued expenses (29,375) (8,831)
--------- ---------
Net cash provided (used)
by operating activities (16,487) 157,327
--------- ---------
Cash flows from investing activities:
Proceeds from sale of subsidiaries 278,664 ---
Additions to property and equipment (23,641) (48,685)
Disposals of property and equipment 5,491 18,911
Miscellaneous investments (15,152) (36,489)
--------- ---------
Net cash provided (used)
by investing activities 245,362 (66,263)
--------- ---------
Cash flows from financing activities:
Net decrease in notes payable (118,728) (85,000)
Payments of long-term debt (160,756) (23,728)
Issuance of common stock 1,632 142
Dividends paid (9,595) (12,453)
--------- ---------
Net cash used by
financing activities (287,447) (121,039)
--------- ---------
Net decrease in cash (58,572) (29,975)
Cash at beginning of period 67,254 48,779
--------- ---------
Cash at end of period $ 8,682 $ 18,804
========= =========
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 28, 1999. 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 1999 Annual Report on Form 10-K. The results for the third
quarter of fiscal year 2000 are not necessarily indicative of future
financial results.
B. 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,
the Company completed the transaction. Heilig-Meyers received approximately
$204 million in cash, subject to certain working capital adjustments,
pay-in-kind junior subordinated notes valued at $12 million and retained a
7% equity interest in Mattress Discounters. The Company incurred costs
related to the transaction of approximately $8.9 million and assumed
liabilities of approximately $5.6 million. This transaction resulted in a
pre-tax gain of $135.2 million ($56.2 million net of tax) which was
recorded in the second quarter ended August 31, 1999. Final resolution of
working capital adjustments is expected in the fourth quarter ended
February 29, 2000.
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 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 has agreed to
provide or guarantee a $20 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. During the first quarter ended May
31, 1999, the Company recorded a pre-tax charge to earnings of $113.7
million ($79.6 million net of tax) to write down its investment in Rhodes
to estimated net realizable value. During the second quarter ended August
31, 1999, this loss was adjusted to $104.6 million ($68.8 million net of
tax) to reflect the final terms of this transaction.
During the second quarter ended August 31, 1999, the Company announced its
intent to exit certain markets which are not considered to be part of the
Company's core operations. These markets include Chicago, Illinois,
Milwaukee, Wisconsin and non-continental U.S. operations. During the
quarter ended August 31, 1999, the Company recorded a pre-tax charge of
$93.8 million ($66.3 million net of tax) to write down the associated
assets to their estimated fair value, less costs to sell, which totaled
approximately $161.5 million as of August 31, 1999. The Company began the
execution of this plan in September 1999 with the sale of assets related to
18 Heilig-Meyers Furniture stores in the Chicago and Milwaukee markets.
Approximately $15 million of net cash proceeds were generated during the
third quarter ended November 30, 1999 from the sale of these assets. The
remaining assets effected by this plan total approximately $147.5 million
and are classified as net assets held for sale on the November 30, 1999
balance sheet. The Company expects the remaining dispositions to be
completed within the next nine months. The net cash proceeds from these
divestitures will be used to pay down debt.
C. On September 22, 1999, the Board of Directors declared a cash dividend of
$0.02 per share which was paid on November 20, 1999, to stockholders of
record on November 3, 1999.
D. Accounts receivable are shown net of the allowance for doubtful accounts
and unearned finance income. The allowance for doubtful accounts was
$35,126,000 and $42,475,000 and unearned finance income was $12,096,000 and
$31,775,000 at November 30, 1999, and February 28, 1999, respectively.
6
<PAGE>
E. The Company made (received) net income tax payments (refunds) of
$17,009,000 and $(10,705,000) during the nine months ended November 30,
1999, and November 30, 1998, respectively.
F. The Company made interest payments of $43,463,000 and $51,242,000 during
the nine months ended November 30, 1999, and November 30, 1998
respectively.
G. Total comprehensive income (loss) for the three and nine month periods
ended November 30, 1999 and 1998 is as follows:
Three Months Ended Nine Months Ended
November 30, November 30,
(Amounts in thousands) 1999 1998 1999 1998
------------------- -------------------
Net income (loss) $ 4,739 $6,274 $(62,959) $25,226
Increase (decrease)
in unrealized gain
on investments $ (900) $ 763 $ (365) $(1,040)
----------------- -----------------
Comprehensive income
(loss) $ 3,839 $7,037 $(63,324) $24,186
================= =================
The difference between net income (loss) and comprehensive income (loss) is
due to the change in the unrealized gain on investments, which consists of
retained interests in securitized receivables.
H. In June 1998 the 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 derivatives 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.
I. During the nine months ended November 30, 1999, the Company had significant
operations aligned in four operating formats: Heilig-Meyers, The RoomStore,
Rhodes and Mattress Discounters. 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 the stores primarily operating
in Texas, Oregon, Maryland, Illinois, Virginia, and the stores in Puerto
Rico operating under the "Berrios" name. The Rhodes retailing strategy was
selling quality furniture to a broad base of middle income customers. The
Mattress Discounters division is the Nations largest retail bedding
specialist.
As discussed in Note B, the Company has completed the sale of its Rhodes
division, has sold 93% of its interest in its Mattress Discounters
division, has sold the assets related to 18 Heilig-Meyers Furniture stores
in the Chicago market, and has intentions to exit certain other markets. As
a result of this divestiture activity, the Company has presented two new
reportable segments: operations held for sale and the Chicago market, both
of which were previously reported in The RoomStore division. The Chicago
market includes the 18 Heilig-Meyers Furniture stores located in Chicago
and operations held for sale includes markets in the Chicago area and
non-continental U.S. operations. Results for the nine months ended November
30, 1999 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.
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 three and nine month
periods ended November 30, 1999 and 1998 are as follows:
Three Months Three Months
Ended Ended
November 30, November 30,
(Amounts in thousands) 1999 1998
Revenues: ---- ----
Heilig-Meyers $ 398,595 $ 404,279
The RoomStore 71,434 55,176
Operations held for sale 58,875 58,387
---------- ----------
528,904 517,842
Chicago market -- 15,541
Rhodes -- 134,794
Mattress Discounters -- 60,032
---------- ----------
Total revenues from
external customers $ 528,904 $ 728,209
========== ==========
Earnings (loss) before interest and taxes:
Heilig-Meyers $ 13,352 $ 22,604
The RoomStore 3,481 706
Operations held for sale 5,859 6,366
---------- ----------
22,692 29,676
Chicago market (2,998) (880)
Rhodes -- (5,265)
Mattress Discounters -- 5,486
---------- ----------
Total earnings before
interest and taxes $ 19,694 $ 29,017
Interest expense (12,136) (19,121)
---------- ----------
Consolidated earnings before
provision for income taxes $ 7,558 $ 9,896
========== ==========
Depreciation and amortization expense:
Heilig-Meyers $ 9,849 $ 9,710
The RoomStore 838 755
Operations held for sale 807 687
---------- ----------
11,494 11,152
Chicago market 113 148
Rhodes -- 2,925
Mattress Discounters -- 1,358
---------- ----------
Total depreciation and
amortization expense $ 11,607 $ 15,583
========== ==========
Capital Expenditures:
Heilig-Meyers $ 6,127 $ 6,254
The RoomStore 1,261 1,192
Operations held for sale 667 969
---------- ----------
8,055 8,415
Chicago market 8 627
Rhodes -- 2,333
Mattress Discounters -- 2,295
---------- ----------
Total capital expenditures $ 8,063 $ 13,670
========== ==========
Total identifiable assets:
Heilig-Meyers $1,287,023 $1,253,261
The RoomStore 88,577 74,758
Operations held for sale 147,511 216,761
---------- ----------
1,523,111 1,544,780
Chicago market -- 29,828
Rhodes -- 315,956
Mattress Discounters -- 92,369
---------- ----------
Total identifiable assets $1,523,111 $1,982,933
========== ==========
8
<PAGE>
Nine Months Nine Months
Ended Ended
November 30, November 30,
1999 1998
---- ----
Revenues:
Heilig-Meyers $1,148,690 $1,162,481
The RoomStore 201,774 154,658
Operations held for sale 152,091 148,685
---------- ----------
1,502,555 1,465,824
Chicago market 21,721 47,598
Rhodes 160,048 373,944
Mattress Discounters 106,733 184,789
---------- ----------
Total revenues from
external customers $1,791,057 $2,072,155
========== ==========
Earnings (loss) before interest and taxes:
Heilig-Meyers $ 51,108 $ 77,224
The RoomStore 10,178 4,651
Operations held for sale 10,829 12,763
---------- ----------
72,115 94,638
Chicago market (5,981) (1,200)
Rhodes (2,390) (16,579)
Mattress Discounters 11,650 19,917
---------- ----------
Total earnings before
interest and taxes $ 75,394 $ 96,776
Gain (loss) on sale and write-
down of assets held for sale (63,136) --
Interest expense (50,428) (57,247)
---------- ----------
Consolidated earnings (loss)
before provision for
income taxes $ (38,170) $ 39,529
========== ==========
Depreciation and amortization expense:
Heilig-Meyers $ 30,817 $ 26,025
The RoomStore 2,341 2,034
Operations held for sale 2,342 1,962
---------- ----------
35,500 30,021
Chicago market 561 484
Rhodes 3,918 9,365
Mattress Discounters 2,111 3,532
---------- ----------
Total depreciation and
amortization expense $ 42,090 $ 43,402
========== ==========
Capital Expenditures:
Heilig-Meyers $ 11,182 $ 27,430
The RoomStore 4,321 5,339
Operations held for sale 3,964 5,243
---------- ----------
19,467 38,012
Chicago market 1,314 1,913
Rhodes 1,665 4,673
Mattress Discounters 1,195 4,087
---------- ----------
Total capital expenditures $ 23,641 $ 48,685
========== ==========
9
<PAGE>
J. 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)
(Unaudited) (Unaudited)
Three Months Ended Nine Months Ended
November 30, November 30,
1999 1998 1999 1998
------------------ ------------------
Net revenues $ 68,961 $ 74,010 $220,371 $217,704
Operating expenses 66,195 62,060 190,296 172,851
-------- -------- -------- --------
Earnings before taxes 2,766 11,950 30,075 44,853
-------- -------- -------- --------
Net earnings $ 1,798 $ 7,768 $ 19,549 $ 29,155
======== ======== ======== ========
MacSaver Financial Services, Inc.
Summarized Balance Sheets
(Amounts in thousands)
November 30, February 28,
1999 1999
(Unaudited) (Audited)
------------ ------------
Current assets $ 52,651 $ 57,148
Accounts receivable, net 107,280 145,211
Retained interest in securitized
receivables at fair value 184,852 190,970
Due from affiliates 510,298 716,867
---------- ----------
Total Assets $ 855,081 $1,110,196
========== ==========
Current liabilities 20,349 173,727
Deferred income taxes 12,830 15,023
Notes payable 91,272 210,000
Long-term debt 535,000 535,000
Stockholders equity 195,630 176,446
---------- ----------
Total Liabilities and Equity $ 855,081 $1,110,196
========== ==========
10
<PAGE>
K. The following table sets forth the computations of basic and diluted
earnings (loss) per share:
Three Months Ended Nine Months Ended
November 30, November 30,
1999 1998 1999 1998
------------------ -----------------
(Amounts in thousands except per share data)
Numerator:
Net earnings (loss) $4,739 $ 6,274 $(62,959) $25,226
Denominator:
Denominator for basic
earnings per share
average common shares
outstanding 60,677 59,641 60,160 59,175
Effect of potentially
dilutive stock options -- 39 -- 376
Effect of contingently
issuable shares
considered earned -- 773 -- 346
------ ------ ------ ------
Denominator for diluted
earnings per share 60,677 60,453 60,160 59,897
Basic EPS $ 0.08 $0.11 $ (1.05) $0.43
Diluted EPS 0.08 0.10 (1.05) 0.42
Options to purchase 4,851,000 and 5,266,000 shares of common stock at
prices ranging from $5.13 and $9.03 to $35.06 per share were outstanding at
November 30, 1999 and 1998, respectively, but were not included in the
computation of diluted earnings per share because they would have been
antidilutive.
L. 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 nine months ended
November 30, 1999 are as follows:
Amount
Utilized Remaining
Reserve as through Reserve as
of March 1, November 30, of November 30,
(Amounts in thousands, 1999 1999 1999
unaudited) --------------------------------------------------
Severance $ 1,498 $ 890 $ 608
Lease & facility exit cost 3,294 422 2,872
--------------------------------------------------
Total $ 4,792 $ 1,312 $ 3,480
==================================================
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 2000 with some amounts related to
long-term lease obligations extending beyond fiscal 2000.
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 28, 1999.
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. The Heilig-Meyers division and The
RoomStore division are considered the Company's core business.
On May 28, 1999, the Company announced that it had entered into a
definitive agreement to sell 93% of its interest in its Mattress Discounters
division, and on August 6, the Company completed the transaction. Heilig-Meyers
received approximately $204 million in cash, subject to certain working capital
adjustments, pay-in-kind junior subordinated notes valued at $12 million and
retained a 7% equity interest in Mattress Discounters. The Company incurred
costs related to the transaction of approximately $8.9 million and assumed
liabilities of approximately $5.6 million. This transaction resulted in a
pre-tax gain of $135.2 million ($56.2 million net of tax) which was recorded in
the second quarter ended August 31, 1999. Final resolution of working capital
adjustments is expected in the fourth quarter ended February 29, 2000.
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 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 has agreed to provide or
guarantee a $20 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. During the first quarter ended May 31, 1999, the Company recorded a
pre-tax charge to earnings of $113.7 million ($79.6 million net of tax) to write
down its investment in Rhodes to estimated net realizable value. During the
second quarter ended August 31, 1999, the loss was adjusted to $104.6 million
($68.8 million net of tax) to reflect the final terms of this transaction.
During the second quarter ended August 31, 1999, the Company announced its
intent to exit certain markets which are not considered to be part of the
Company's core operations. These markets include Chicago, Illinois, Milwaukee,
Wisconsin and non-continental U.S. operations. During the quarter ended August
31, 1999, the Company recorded a pre-tax charge of $93.8 million ($66.3 million
net of tax) to write down the associated assets to their estimated fair value,
less costs to sell, which totaled approximately $161.5 million as of August 31,
1999. The Company began the execution of this plan in September 1999 with the
sale of assets related to 18 Heilig-Meyers Furniture stores in the Chicago and
Milwaukee markets. Approximately $15 million of net cash proceeds were generated
by these sales during the third quarter ended November 30, 1999. The remaining
assets effected by this plan total approximately $147.5 million and are
classified as net assets held for sale on the November 30, 1999 balance sheet.
The Company expects the remaining dispositions to be completed within the next
nine months. The net cash proceeds from these divestitures will be used to pay
down debt.
12
<PAGE>
RESULTS OF OPERATIONS
Revenues and Earnings
Revenues in those divisions which were under the Company's ownership for
the full quarter increased 2.1% to $528.9 million, compared to $517.8 million in
the prior year quarter. As a result of the divestitures of Rhodes, Mattress
Discounters, and 18 stores in the Chicago market, total revenues for the quarter
declined 27.4% to $528.9 million from $728.2 million in the prior year, which
included a full three months activity for these divisions. Net earnings from
operations for the quarter ended November 30, 1999, were $4.7 million or $0.08
per share compared to $6.3 million or $0.10 per share in the prior year quarter.
For the nine month period ended November 30, 1999, revenues in those
divisions which were under the Company's ownership for the full nine months
increased 2.5% to $1,502.6 million, compared to $1,465.8 million for the nine
months ended November 30, 1998. As a result of the divestitures of Rhodes,
Mattress Discounters, and 18 stores in the Chicago market, total revenues for
the nine month period declined to $1,791.1 million from $2,072.2 million for the
same period in the prior year. For the nine month period ended November 30,
1999, the Company has incurred pre-tax costs of $63.1 million ($78.9 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 $62.9
million or $1.05 per share for the nine month period ending November 30, 1999.
Absent these charges, net earnings for the nine month period ended November 30,
1999, were $15.9 million, or $0.27 per share, compared to $25.2 million, or
$0.43 per share in the prior year comparative period.
The following table shows a comparison of sales by division:
Three Months Ended Nine Months Ended
November 30, November 30,
(Sales amounts in millions)
1999 1998 1999 1998
------------- ------------- ------------- -------------
% of % of % of % of
Sales Sales Sales Sales Sales Sales Sales Sales
------------- ------------- ------------- -------------
Heilig-Meyers $345.9 73.7% $347.0 53.0% $986.4 61.8% $980.7 53.2%
The RoomStore 70.5 15.0 54.0 8.2 199.3 12.5 152.1 8.2
Operations held
for sale 53.0 11.3 52.1 8.0 134.5 8.4 130.6 7.1
------------ ------------ ------------- -------------
469.4 100.0 453.1 69.2 1,320.2 82.7 1,263.4 68.5
Chicago market -- -- 13.0 2.0 17.9 1.1 39.9 2.2
Rhodes -- -- 128.7 19.7 150.8 9.5 357.1 19.3
Mattress
Discounters -- -- 59.9 9.1 106.6 6.7 184.4 10.0
------ ------ ------- -------
Total $469.4 $654.7 $1,595.5 $1,844.8
====== ====== ======== ========
Sales in those divisions which were under the Company's ownership for the
full third quarter of fiscal 2000 increased 3.6% to $469.4 million, compared to
$453.1 million for the quarter ended November 30, 1998. As a result of the
divestitures of Rhodes, Mattress Discounters, and 18 stores in the Chicago
market, total sales declined 28.3% to $469.4 million compared to sales of $654.7
million in the prior year quarter. For the nine month period ended November 30,
1999, sales in those divisions which were under the Company's ownership for the
full nine months increased 4.5% to $1,320.2 million from $1,263.4 million. As a
result of the divestitures of Rhodes, Mattress Discounters, and 18 stores in the
Chicago market, total sales for the nine month period declined 13.5% to $1,595.5
million from $1,844.8 million. The overall increase in sales in the divisions
under the Company's ownership for the full period was attributable to an
increase in operating units from November 30, 1998 to November 30, 1999, as well
as a comparable store sales increase of 0.6% and 2.0% for the three and nine
months ended November 30, 1999. Price changes had an immaterial impact on the
overall sales increase for the quarter.
13
<PAGE>
Other income for those divisions which were under the Company's ownership
for the full quarter decreased to 12.7% from 14.3% of sales in the prior year
quarter. For the nine months ended November 30, 1999, other income for these
divisions decreased as a percentage of sales to 13.8% from 16.0% in the prior
year. These decreases are primarily the result of sales growth in stores that do
not offer the Company's in-house installment credit program. The Heilig-Meyers
division and certain stores within operations held for sale offer installment
credit as a financing option to customers. On a consolidated basis, other income
increased to 12.7% for the quarter from 11.2% in the prior year quarter due to
the divestiture of the Rhodes and Mattress Discounters disivions. For the nine
month period other income remained flat at 12.3%. The following table shows
other income as a percentage of divisional sales:
Three Months Ended Nine Months Ended
November 30, November 30, November 30, November 30,
1999 1998 1999 1998
------------------------- -------------------------
Heilig-Meyers 15.2% 16.5% 16.5% 18.5%
The RoomStore 1.3 2.2 1.2 1.7
Operations held
for sale 11.2 12.0 13.1 13.8
Chicago market -- 20.1 21.3 19.3
Rhodes -- 4.7 6.1 4.7
Mattress
Discounters -- 0.2 0.1 0.2
Within the Heilig-Meyers format, other income decreased 1.3% as a
percentage of sales for the quarter and 2.0% of sales year-to-date. The decrease
is due to an increase in the amount of receivables that have been securitized
and the elimination of the previous revolving credit card program in September
1998. Within The RoomStore division, other income decreased as a percentage of
sales 0.9% for the quarter and 0.5% year-to-date due to the concentration of
total sales growth compared to the prior year.
Costs and Expenses
Costs of sales for those divisions which were under the Company's ownership
for the full quarter decreased to 65.4% from 65.8% of sales in the prior year
quarter. For the nine months ended November 30, 1999, costs of sales for these
divisions decreased as a percentage of sales to 65.5% from 66.2% in the prior
year. On a consolidated basis, cost of sales decreased to 65.5% for the quarter
from 66.4% in the prior year quarter. For the nine month period ended November
30, 1999, cost of sales decreased to 65.8% from 66.9% in the prior year. The
following table shows the costs of sales as a percentage of divisional sales:
Three Months Ended Nine Months Ended
November 30, November 30, November 30, November 30,
1999 1998 1999 1998
------------------------ -------------------------
Heilig-Meyers 65.2% 65.5% 65.6% 66.2%
The RoomStore 68.1 70.7 67.8 68.9
Operations held
for sale 62.5 63.0 62.0 62.6
Chicago market -- 67.2 66.2 69.8
Rhodes -- 70.8 70.6 71.7
Mattress
Discounters -- 61.6 62.2 62.1
The costs of sales in the Heilig-Meyers division decreased 0.3% as a
percentage of sales from the prior year quarter and 0.6% as a percentage of
sales from the prior year-to-date as a result of cost control efforts primarily
in the warehouse and delivery areas. The decrease in costs of sales in The
RoomStore division 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 quarter increased to 36.6% from 35.4%
of sales in the prior year quarter. For the nine months ended November 30, 1999,
selling, general and administrative expenses for these divisions increased as a
percentage of sales to 37.4% from 36.6% in the prior year. On a consolidated
basis, selling, general and administrative expenses increased to 37.1% for the
quarter from 35.7% in the prior year quarter. For the nine month period ended
November 30, 1999, selling, general and administrative expenses increased to
14
<PAGE>
37.1% from 36.0% in the prior year. The following table displays selling,
general and administrative expense as a percentage of the applicable division's
sales:
Three Months Ended Nine Months Ended
November 30, November 30, November 30, November 30,
1999 1998 1999 1998
------------------------ -------------------------
Heilig-Meyers 38.6% 36.8% 39.0% 37.6%
The RoomStore 28.2 30.2 28.3 29.8
Operations held
for sale 34.4 32.1 39.0 36.9
Chicago market -- 49.1 75.5 44.9
Rhodes -- 38.0 37.1 37.7
Mattress
Discounters -- 29.4 26.9 27.2
Selling, general and administrative expenses as a percentage of sales for
the Heilig-Meyers division increased 1.8% as a percentage of sales as compared
to the prior year quarter and 1.4% as a percentage of sales as compared to the
prior year nine month period. This increase is primarily attributable to
increases in employee and casualty insurance expense and the loss of sales
leverage on other fixed costs due to lower than planned sales growth. Selling,
general and administrative expenses in The RoomStore division decreased 2.0% as
a percentage of sales versus the prior year quarter and decreased 1.5% versus
the prior year nine month period. The decreases in The RoomStore division are
primarily due to sales leverage gained from total sales growth.
Interest expense was 2.6% and 2.9% of sales in the third quarters of
fiscal years 2000 and 1999, respectively with the effect of lower debt levels
being partially offset by higher interest rates. For the quarter, weighted
average long-term debt decreased to $557.7 million from $708.8 million in the
prior year third quarter. The decrease in long-term debt levels between years is
a result of repayments made on $20.0 million of private placement debt in the
third quarter of fiscal 1999 and $129.2 million paydown of long-term debt in the
first and second quarters of fiscal 2000. Weighted average long-term interest
rates increased to 8.2% from 7.6% in the prior year. Weighted average short-term
debt decreased to $103.4 million from $254.0 million in the prior year. This
decrease was the result of the use of proceeds from divestitures to paydown
notes payable. Weighted average short-term interest rates increased to 7.2% from
6.1% in the prior year. For the nine month period ended November 30, 1999,
interest expense increased to 3.2% of sales from 3.1% in the prior year.
The reduction in the sales contribution of Rhodes, Mattress Discounters and
the 18 stores in the Chicago market caused the provision for doubtful accounts
to increase for the third quarter, as a percentage of sales to 5.9% from 4.7% in
the prior year quarter. For the nine month period ended November 30, 1999, the
provision increased to 4.7% from 4.1% in the prior year. For those stores
offering installment credit, the provision was 6.9% and 7.7% of sales for the
third quarters of fiscal years 2000 and 1999 and 6.6% and 6.9% for the nine
months ended November 30, 1999 and 1998.
The effective income tax rate was 37.3% for the third quarter ended
November 30, 1999. For the nine months ended November 30, 1999, the divestiture
activity caused the provision for income taxes to be an expense of $24.8 million
on a pre-tax loss of $38.2 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. Before divestiture activity, the effective income tax rate from
operations for the nine-month period ended November 30, 1999 was 36.1% compared
to 36.2% in the prior year. The Company continues to analyze and evaluate
alternative strategies available to estimate its tax basis in divested assets.
The results of such analysis are expected to be completed in the fourth quarter
ending February 29, 2000.
15
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company decreased its cash position $58.6 million to $8.7 million at
November 30, 1999 from $67.3 million at February 28, 1999.
Net cash from operating activities produced negative cash flows of $16.5
million during the nine months ended November 30, 1999, compared to an inflow of
$157.3 million in the comparable period of the prior year. The prior year amount
includes a cash inflow of $100.0 million from the sale of accounts receivable
through the Company's asset securitization program. 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 2000
quarter.
Investing activities produced cash flows of $245.4 million during the nine
months ended November 30, 1999 compared to negative cash flows of $66.3 million
in the prior year period. The increase in cash flows from investing activities
is primarily due to cash proceeds received from the sale of Rhodes, Mattress
Discounters, and the 18 stores in the Chicago market, as well as a decrease in
additions to property and equipment during the period and a decrease in
miscellaneous investments. Cash used for miscellaneous investments during the
nine months ended November 30, 1998 includes deposits paid by the Company
related to the change in the lessor of certain leased real estate.
Financing activities produced negative cash flows of $287.4 million during
the nine months ended November 30, 1999 compared to a negative cash flow of
$121.0 million in the prior year period. The increase in negative cash flows
from financing activities in the current year period is due to the payments of
debt from the proceeds of the sale of Rhodes, Mattress Discounters, and the 18
stores in the Chicago market. 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 nine months ended November 30, 1999. As of
November 30, 1999, long-term notes payable with an aggregate principal amount of
$175.0 million securities have been issued to the public under this Registration
Statement. As of November 30, 1999, the Company had a $200.0 million revolving
credit facility in place, which expires in July 2000. This facility includes ten
banks and had $91.2 million outstanding and $108.8 million undrawn as of
November 30, 1999.
As a result of the losses incurred during the current fiscal year due to
the write down of assets held for sale, the Company amended certain debt
agreements in the third quarter in order to maintain covenant compliance.
Total debt as a percentage of debt and equity was 54.3% at November 30,
1999, compared to 60.4% at February 28, 1999. This decrease is primarily due to
the paydown of debt from proceeds of divested subsidiaries as well as the write
down of assets held for sale. The current ratio was 2.3X at November 30, 1999,
compared to 1.5X at February 28, 1999. The increase in the current ratio is due
to the paydown of debt and the reclassification of assets held for sale.
16
<PAGE>
OTHER INFORMATION
Year 2000 Issue
The Year 2000 issue arises 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.
During fiscal year 1997, management established a team to oversee the
Company's Year 2000 date conversion project. The project is composed of the
following stages: 1) assessment of the problem, 2) prioritization of systems, 3)
remediation activities and 4) compliance testing. A plan of corrective action
using both internal and external resources to enhance or replace the systems for
Year 2000 compliance has been implemented. Internal resources consist of
permanent employees of the Company's Information Systems department, whereas
external resources are composed of contract programming personnel that are
directed by the Company's management. The team has continued to assess the
systems of subsidiaries as the Company has expanded. Management completed the
remediation stage for the critical systems of the Heilig-Meyers operations
during fiscal year 1999. Remediation for all other subsidiaries' critical
systems was completed in the second quarter of fiscal year 2000. The testing
stage for critical systems within the entire Company was also completed in the
second quarter of fiscal year 2000. The audit phase for this testing began in
the second quarter and continued into the third quarter of fiscal year 2000.
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. The Company had previously initiated a hardware upgrade plan for
desktop computers that was independent of the Year 2000 issue, and, therefore,
most hardware upgrades were completed under this plan.
The team has communicated with other companies, on which the Company's
systems rely and has obtained compliance letters from these entities. There can
be no assurance, however, that the systems of these other companies will be
converted in a timely manner, or that any such failure to convert by another
company would not have an adverse effect on the Company's systems.
The Company has assessed the consequences of its Year 2000 remediation
efforts not being successful. Management has developed contingency plans to
mitigate the effects of problems experienced by the Company, key vendors or
service providers related to the Year 2000. Management ranked suppliers based on
how critical each supplier is believed to be to the Company's operations. The
Company requested a copy of the Year 2000 project plan under which these
suppliers are operating. The Company's Year 2000 project team has reviewed these
plans. To date the Company has not experienced any problems due to the Year 2000
issue. Management believes the Year 2000 compliance issue has been addressed
properly by the Company to prevent any material adverse operational or financial
impacts.
17
<PAGE>
FORWARD-LOOKING STATEMENTS
Certain statements included above are not based on historical facts, but
are forward-looking statements. These statements can be identified by the use of
forward-looking terminology such as "believes," "expects," "may," "will,"
"should," or "anticipates" or the negative thereof or other variations thereon
or comparable terminology, or by discussions of strategy. These statements
reflect the Company's reasonable judgments with respect to future events and are
subject to risks and uncertainties that could cause actual results to differ
materially from those in the forward-looking statements. Such risks and
uncertainties include, but are not limited to, the customer's willingness, need
and financial ability to purchase home furnishings and related items, the
Company's ability to extend credit to its customers, the costs and effectiveness
of promotional activities, the Company's access to, and cost of, capital, and
the Company's ability to attract buyers and obtain satisfactory valuations for
certain assets held for sale. 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, the ability of the Company, its key vendors and service
providers to effectively correct the Year 2000 issue, 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.
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 28, 1999. Reference is made to
Part II, Item 7A, Quantitative and Qualitative Disclosures About Market Risk, in
the Registrants Annual Report on Form 10-K for the year ended February 28, 1999.
18
<PAGE>
PART II
Item 1. Legal Proceedings
The Company previously reported involvement in two cases pending in state
court regarding non-filing fees charged by the Company on certain credit
transactions. Non-filing fees are used to obtain insurance in lieu of filing a
financing statement to perfect a security interest in connection with a credit
transaction. The plaintiffs in the cases alleged that the Company's charging of
the non-filing fees violated certain state and federal statutes and sought
statutory damages and unspecified punitive damages. Wahl v. Heilig-Meyers
Company and Heilig-Meyers Furniture Company (alleging violations of Tennessee
statutes and seeking certification of a class of certain individuals who made
purchases in the Company's Tennessee stores) was filed on June 23, 1997 in
Memphis, Tennessee Chancery Court. On March 23, 1999, the court in Wahl entered
an order dismissing the case with prejudice. Eubanks v. Heilig-Meyers Company
and Heilig-Meyers Furniture Company (alleging violation of Georgia statutes and
seeking certification of a class of Georgia residents) was filed on March 5,
1997 in Georgia State Court, subsequently removed to United States District
Court for the Southern District of Georgia, and on July 7, 1997, remanded to the
Superior Court of Liberty County, Georgia. On March 25, 1998, the court in
Eubanks entered an order dismissing the case. The Eubanks case was refiled on
June 23, 1998 and on November 18, 1999, the court in Eubanks granted summary
judgment in favor of the Company.
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 November 30, 1999. On September 27, 1999,
Registrant filed a Form 8-K in which it reported that the Company
was exiting certain furniture stores located in the Chicago,
Illinois and Milwaukee, Wisconsin markets. The Registrant also
reported results for the second quarter ended August 31, 1999.
INDEX TO EXHIBITS
Exhibit
Number Description Page
------- -------------------------------------------------------
3 Bylaws of the Registrant 21
10.1 Amendment No. 8 dated as of September 24, 1999
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. 26
10.2 Employment Agreement between Donald S. Shaffer
and Heilig-Meyers Company dated as of September
22, 1999 30
27 Financial Data Schedule 38
19
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Heilig-Meyers Company
(Registrant)
Date: January 14, 2000 /s/Roy B. Goodman
----------------------------
Roy B. Goodman
Executive Vice President and
Principal Financial Officer
Date: January 14, 2000 /s/Thomas F. Crump
----------------------------
Thomas F. Crump
Senior Vice President,
Controller
20
Exhibit 3
BY-LAWS
OF
HEILIG-MEYERS COMPANY
AS AMENDED
DECEMBER 16, 1999
ARTICLE 1 - OFFICES
A. The principal office of the Corporation shall be at 12560 West Creek
Parkway, Richmond, Virginia. The Corporation may also have offices at such other
places, within or without the State of Virginia, as the Board of Directors may,
from time to time, appoint, or the business of the Corporation may require.
B. The registered office of the Corporation shall be its initial registered
office as shown in the Articles of Incorporation or at such other place in
Virginia as the Board of Directors shall, from time to time, appoint, and may,
but need not, be at the principal office of the Corporation.
ARTICLE II - STOCK AND OTHER SECURITIES
A. Certificates of Stock shall be in such form as is required by law and
approved by the Board of Directors. Each stockholder shall be entitled to a
certificate signed by either the Chairman of the Board and Chief Executive
Officer or a Vice President, and by either the Treasurer or an Assistant
Treasurer or the Secretary or an Assistant Secretary or any other officer
authorized by resolution of the Board of Directors. Each certificate may (but
need not) be sealed with the seal of the Corporation or a facsimile thereof.
B. The signatures of the officers upon a stock certificate, bond, note or
debenture issued by the Corporation may be facsimiles if such stock certificate
is countersigned by a transfer agent or registered by a registrar, other than
the Corporation itself or an employee of the Corporation, or if such bond, note
or debenture is countersigned or otherwise authenticated by the signature of a
trustee. If any officer who has signed, or whose facsimile signature has been
placed upon, a stock certificate, bond, note or debenture, shall have ceased to
be such officer before such certificate, bond, note or debenture is issued, it
may be issued by the Corporation with the same effect as if he were such officer
at the date of its issue.
C. Only stockholders of record on the stock transfer books of the
Corporation shall be entitled to be treated by the Corporation as the holders of
the stock standing in their respective names, and except to the extent, if any,
required by law, the Corporation shall not be obligated to recognize any
equitable or other claim to, or interest in, any share on the part of any other
person, whether or not it shall have express or other notice thereof.
D. Transfers of stock shall be made on the stock transfer books only upon
surrender of the certificate therefor, endorsed or accompanied by a written
assignment signed by the holder of record or by his duly authorized
attorney-in-fact. The Board of Directors may, from time to time, make reasonable
regulations governing transfers of stock and other securities. No share shall be
transferred, unless otherwise required by law, if such transfer would violate
the terms of any written agreement to which the Corporation, and either the
transferor or transferee, is a party.
E. In case of the loss, mutilation or destruction of a stock certificate,
bond, note or debenture, a duplicate may be issued upon such terms, and bearing
such legend, if any, as the Board of Directors may lawfully prescribe.
ARTICLE III - STOCKHOLDERS MEETING
A. Meetings of the stockholders shall be held at the principal office of
the Corporation, or at such other place, within or without the State of
Virginia, as the Board of Directors may designate from time to time. At least
ten (10) days before each meeting, a complete list of the stockholders entitled
to vote at such meeting, or any adjournment thereof, with the address and number
of shares held by each, shall be prepared, kept on file subject to inspection by
any stockholder during regular business hours, at the principal office of the
Corporation or its registered office or the office of its transfer agent or
registrar.
21
<PAGE>
B. The annual meeting of the stockholders shall be held on the second
Wednesday of July of each year (and if such day is a legal holiday, on the next
business day) or such other date as may be set by the Board of Directors, for
the purpose of electing Directors and transacting such other business as may
properly come before the meeting.
C. Special meetings of the stockholders may be called by the Chairman of
the Board and Chief Executive Officer, the President, the Secretary or the Board
of Directors.
D. Written notice stating the place, day and hour of the meeting, and, in
the case of a special meeting (or required by law or the Articles of
Incorporation or these By-Laws), the purpose or purposes for which the meeting
was called, shall be given to each stockholder entitled to vote at such meeting.
Such notice shall be given either personally or by mail, by or at the direction
of the officer or other person or persons calling the meeting not more than
sixty (60) days nor less than ten (10) days before the date of the meeting
(except that such notice shall be given not less than twenty-five (25) days
before a meeting called to act on a plan of merger of consolidation, or on
proposal to amend the Articles of Incorporation or to reduce stated capital, or
to sell,, lease, exchange, mortgage or pledge for a consideration other than
money, all or substantially all the property or assets of the Corporation, if
not in the usual and regular course of its business and such notice shall be
accompanied by a copy of any proposed amendment or plan of reduction, merger or
consolidation). Notice to a stockholder shall be deemed given when deposited in
the United States mail, with postage prepaid, addressed to the stockholder at
his address as it appears on the stock transfer books of the Corporation. Any
stockholder who attends a meeting shall be deemed to have had timely and proper
notice of the meeting, unless the attends for the express purpose of objecting
to the transaction of any business because the meeting is not lawfully called or
convened.
E. Notice of any meeting may be waived, and any action may be taken by the
stockholders without a meeting if a consent in writing, setting forth the action
to be taken, shall be signed by all the stockholders entitled to vote thereon,
in accordance with the Virginia Stock Corporation Act.
F. The stock transfer books may be closed by order of the Board of
Directors for not more than seventy (70) days for the purpose of determining
stockholders entitled to notice of, or to vote at, any meeting of the
stockholders or any adjournment thereof (or entitled to receive payment of any
dividend, or in order to make a determination of stockholders for any other
purpose). In lieu of closing such books, the Board of Directors may fix in
advance, as the record date for any such determination, a date not more than
seventy (70) days before the date on which such meeting is to be held (or such
payment is to be made, or other action requiring such determination is to be
taken). If the books are not thus closed or the record date is not thus fixed,
then the date on which the notice of the meeting was mailed (or on which such
dividend is declared or such other action approved by the Board of Directors)
shall be the record date.
G. The Chairman of the Board and Chief Executive Officer or the President
shall preside as Chairman over the meetings of stockholders. If neither the
Chairman of the Board and Chief Executive Officer nor the President is present,
the meeting shall elect a chairman. The Secretary, or, in his absence, an
Assistant Secretary, shall act as Secretary of such meeting. If no such officer
is present, the chairman shall appoint the Secretary of the meeting.
H. One or more inspectors of election may be appointed by the Board of
Directors before each meeting of the stockholders; and if no such appointment
has been made, or if any inspector thus appointed shall not be present, the
Chairman may, and if requested by stockholders holding in the aggregate at least
one-fifth (1/5) of the stock entitled to vote at the meeting shall, appoint such
an inspector or inspectors to determine the qualifications of voters, the
validity of proxies and the number of shares represented at the meeting, to
supervise voting, and to ascertain the results thereof.
I. A stockholder may vote either in person or by proxy executed in writing
by the stockholder or by his duly authorized attorney-in-fact. No proxy shall be
valid after eleven (11) months from its date unless otherwise provided in the
proxy. A proxy may be revoked at any time before the shares to which it relates
are voted by written notice, which may be in the form of a substitute proxy to
the secretary of the meeting. A proxy apparently executed in the name of a
partnership or other Corporation, or by one of several fiduciaries, shall be
presumed to be valid until challenged, and the burden of proving invalidity
shall rest upon the challenger.
22
<PAGE>
J. The procedure at each meeting of the stockholders shall be determined by
the Chairman of the meeting, and (subject to paragraph H of this Article III)
the vote on all questions before any meeting shall be taken in such manner as
the Chairman prescribes. However, upon the demand of stockholders holding in the
aggregate at least one-fifth (1/5) of the stock entitled to vote on any
questions, such vote shall be by ballot.
K. A quorum at any meeting of stockholders shall be a majority of the
shares entitled to vote, represented in person or by proxy. The affirmative vote
of a majority of such quorum shall be the act of the stockholders, unless a
greater vote is required by the Virginia Stock Corporation Act or the Articles
of Incorporation (except that in elections of directors, those receiving the
greatest number of votes shall be elected even though less than such a
majority). Less than a quorum may, by the vote of a majority of the shares
present and entitled to vote, adjourn the meeting to a fixed time and place,
without further notice; and if a quorum shall then be present in person or by
proxy, any business may be transacted which might have been transacted if a
quorum had been present at the meeting as originally called.
L. All committees of stockholders created at any meeting of the
stockholders shall be appointed by the Chairman of the meeting unless otherwise
directed by the meeting.
ARTICLE IV - BOARD OF DIRECTORS
A. The Board of Directors shall consist of ten (10) persons, none of whom
need be residents of Virginia or stockholders of the Corporation. Nominations
for the election of directors may be made by the Directors or a nominating
committee appointed by the Board of Directors or by any stockholder entitled to
vote in the election of directors. A stockholder entitled to vote in the
election of directors may nominate one or more persons for election as a
director at an annual or special meeting of stockholders only if written notice
of such stockholders intent to make such nomination has been given, either by
personal delivery to the Secretary of the Corporation not later than the close
of business on the tenth day following the date on which notice of such meeting
is first mailed to stockholders or by Untied States mail, postage prepaid, to
the Secretary of the Corporation postmarked not later than the tenth day
following the date on which notice of such meeting is first mailed to
stockholders. Each notice required by this section shall set forth: (1) the name
and address of the stockholder who intends to make the nomination; (2) the name,
address, and principal occupation of each proposed nominee; (3) a representation
that the stockholder is entitled to vote at such meeting and intends to appear
in person or by proxy at the meeting to nominate the person or persons specified
in the notice; and (4) the consent of each proposed nominee to serve as a
director of the Corporation if so elected. The Chairman of the meeting may
refuse to acknowledge the nomination of any person not made in compliance with
the foregoing procedure.
B. Regular meetings of the Board of Directors may be held without notice at
such time and place as the Board of Directors may designate from time to time
(and, in the absence of such designation, at the principal office of the
Corporation). A regular meeting shall be held as soon as practicable after each
annual meeting of the stockholders for the purpose of electing officers and
transacting such other business as may properly come before the meeting.
C. Special meetings of the Board of Directors may be called at any time by
the Chairman of the Board and Chief Executive Officer or by any director.
D. Notice of the time and place of each special meeting shall be given to
each director either by mail, telegraph, or written communication delivered to
the address of such director as it appears in the records of the Corporation, at
least twenty-four (24) hours before such meeting. Neither the business to be
transacted at, nor the purpose of, any meeting of the Board of Directors need be
specified in the notice or any waiver of notice of such meeting. A director who
attends a meeting shall be deemed to have had timely and proper notice thereof,
unless he attends for the express purpose of objecting to the transaction of any
business because the meeting is not lawfully called or convened.
E. Notice of any meeting may be waived, and any action may be taken by the
Board of Directors (or by any committee thereof) without a meeting if a consent
in writing, setting forth the action taken, shall be signed by all the directors
(or members of the committee, as the case may be), in accordance with the
Virginia Stock Corporation Act.
23
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F. Each director shall be elected to hold office until the next succeeding
annual meeting, and shall hold office until his successor shall have been
elected and qualifies, or until such earlier time as he shall resign, die or be
removed. No decrease in the number of directors by amendment to these By-Laws
shall change the term of any incumbent director.
G. Any director may be removed, with or without cause, by a vote of the
holders of a majority of the number of shares entitled to vote at an election of
directors.
H. Any vacancy in the Board of Directors (including any vacancy resulting
from an increase of not more than thirty percent (30%) of the number of
directors last elected by the shareholders) may be filled by the affirmative
vote of a majority of the remaining directors, even though less than a quorum,
unless filled by the stockholders.
I. A quorum at a meeting of the Board of Directors shall be a majority of
the number of directors fixed by these By-Laws. The act of the majority of the
directors present at a meeting at which a quorum is present shall be the act of
the Board of Directors.
J. An Executive Committee consisting of at least two (2) or more directors
may be designated by a resolution adopted by a majority of the number of
directors fixed by these By-Laws. To the extent provided in such resolution,
such Executive Committee shall have and may exercise all of the authority of the
Board of Directors except as otherwise provided by the Virginia Stock
Corporation Act.
Other committees with limited authority may be designated by resolution
adopted by a majority of the directors present at a meeting at which a quorum is
present.
Regular meetings of any committee may be held without notice at such time
and place as shall be fixed by a majority of the committee. Special meetings of
any committee may be called at the request of the Chairman of the Board and
Chief Executive Officer or any member of the committee. Notice of such special
meetings shall be given by the Chairman of the Board and Chief Executive Officer
or any member of any such committee, and shall be deemed duly given, or may be
waived, or action may be taken without a meeting, as provided in paragraphs D
and E of this Article IV. A majority of any such committee shall constitute a
quorum, and the act of a majority of those present at any meeting at which a
quorum is present shall be the act of the committee, unless otherwise provided
by the Board of Directors.
ARTICLE V - OFFICERS, AGENTS AND EMPLOYEES
A. The officers of the Corporation shall be a Chairman of the Board and
Chief Executive Officer, a President, a Secretary, and a Treasurer, each of whom
shall be elected by the Board of Directors at the regular meeting of the Board
of Directors to be held as soon as practicable after each annual meeting of the
stockholders, and any officer may be elected at any meeting of the Board of
Directors. Any officer may hold more than one office and he may, but need not be
a director, except that the same person may not be Chairman of the Board and
Chief Executive Officer and Secretary, and the Chairman of the Board and Chief
Executive Officer shall be a director. The Board may elect one or more Vice
Presidents and any other officers and assistant officers and may fill any
vacancies. The officers shall have such authority and perform such duties as
generally pertain to their offices and as may lawfully be provided by these
By-Laws or by resolution of the Board of Directors not inconsistent with these
By-Laws.
B. The Chairman of the Board and Chief Executive Officer shall have general
supervision over, responsibility for, and control of the other officers, agents,
and employees of the Corporation and shall preside as Chairman at meetings of
the stockholders and the directors. The Chairman of the Board and Chief
Executive Officer shall also perform such duties and shall also have such
authority as may lawfully be required of or conferred upon him by the Board of
Directors.
C. The President and each Vice President shall perform such duties and
shall have such authority as may be lawfully required of or conferred upon him
by the Chairman of the Board and Chief Executive Officer or the Board of
Directors. The President shall, during the absence, disqualification, or
incapacity of the Chairman of the Board and Chief Executive Officer, exercise
all the functions and perform all the duties of the Chairman of the Board and
Chief Executive Officer.
24
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D. The Secretary shall, as Secretary of the meeting, record all proceedings
at stockholders meetings and directors meetings, in books kept for that purpose.
He shall maintain the record of stockholders of the Corporation, giving the
names and addresses of all stockholders and the number, classes and series of
the shares held by each; and, unless otherwise prescribed by the Board of
Directors, he shall maintain the stock transfer books.
E. The Treasurer shall have custody of all moneys and securities of the
Corporation. He shall deposit the same in the name and to the credit of the
Corporation in such depositories as may be designated by the Board of Directors,
disburse the funds of the Corporation as may be required, and cause books and
records of account to be kept in accordance with generally accepted accounting
practices and principles.
F. During the absence, disqualification, or incapacity of any officer of
the Corporation other than the Chairman of the Board and Chief Executive
Officer, the Chairman of the Board and Chief Executive Officer may by written
order, or the Board of Directors may by resolution, delegate the power of each
such officer to any other officer or employee of the Corporation.
G. Each officer shall be elected to hold office until the next succeeding
regular meeting of the Board of Directors to be held as soon as practicable
after each annual meeting of the stockholders, or for such longer or shorter
term as the Board of Directors may lawfully specify; and he shall hold office
until his successor shall have been elected and qualified, or until such earlier
time as he shall resign, die or be removed.
H. Any officer may be removed, with or without cause, at any time whenever
the Board of Directors in its absolute discretion shall consider that the best
interests of the Corporation would be served thereby. Any officer or agent
appointed otherwise than by the Board of Directors may be removed with or
without cause at any time by any officer having authority to appoint such an
officer or agent, except as may be otherwise provided in these By-Laws, whenever
such officer in his absolute discretion shall consider that the best interests
of the Corporation will be served thereby. Any such removal shall be without
prejudice to the recovery of damages for breach of the contract rights, if any,
of the person removed. Election or appointment of an officer or agent shall not
of itself create contract rights.
I. Checks, drafts, notes and orders for the payment of money shall be
signed by such officer or officers or such other person or persons as the Board
of Directors may, from time to time, authorize, and any endorsement of such
paper in the ordinary course of business shall be similarly made, except that
any officer or assistant officer of the Corporation may endorse checks, drafts
or notes for collection or deposit to the credit of the Corporation. The
signature of any such officer or other person may be a facsimile when authorized
by the Board of Directors.
J. Unless otherwise provided by resolution of the Board of Directors, the
Chairman of the Board and Chief Executive Officer may, from time to time,
himself or by such proxies, attorneys, or agents of the Corporation as he shall
designate in the name and on behalf of the Corporation, cast the votes to which
the Corporation may be entitled as a stockholder or otherwise in any other
Corporation, at meetings, or consent in writing to any action by any such
Corporation. He may instruct the person or persons so appointed as to the manner
of casting such votes or giving such consent, and may execute or cause to be
executed on behalf of the Corporation and under its corporate seal, or
otherwise, such written proxies consents, waivers, or other instruments as he
may deem necessary or desirable in the premises.
ARTICLE VI - SEAL
The seal of the Corporation shall be a flat-face circular die, of which
there may be any number of counterparts or facsimiles, in such form as the Board
of Directors shall, from time to time, adopt as the corporate seal of the
Corporation.
ARTICLE VII - AMENDMENTS
These By-Laws may be repealed or changed, and new By-Laws made, by the
stockholders entitled to vote at any annual or special meeting, or by the Board
of Directors at any regular or special meeting. By-Laws made by the directors
may be repealed or changed by the stockholders; and By-Laws made by the
stockholders may be repealed or changed by the directors, except as, and to the
extent that, the stockholders prescribe that the By-Laws, or any specified
By-Law, shall not be altered, amended or repealed by the directors.
25
Exhibit 10.1
AMENDMENT NO. 8
THIS AMENDMENT NO. 8 (the "Amendment") dated as of September 24, 1999,
to the Credit Agreement referenced below, is by and among MACSAVER FINANCIAL
SERVICES, INC., a Delaware corporation, (the "Borrower"), HEILIG-MEYERS COMPANY,
a Virginia corporation (the "Company"), the Lenders identified therein, WACHOVIA
BANK, N.A. (formerly, Wachovia Bank of Georgia, N.A.), as Administrative Agent,
BANK OF AMERICA, N.A. (formerly NationsBank, N.A.), as Documentation Agent, and
CRESTAR BANK and FIRST UNION NATIONAL BANK (formerly, First Union National Bank
of Virginia), as Co-Agents. Terms used but not otherwise defined shall have the
meanings provided in the Credit Agreement.
W I T N E S S E T H
WHEREAS, the Lenders have established a $400 million credit facility for
the benefit of the Borrower pursuant to the terms of that Credit Agreement dated
as of July 18, 1995 (as amended and modified, the "Credit Agreement") among the
Borrower, the Company, the Lenders identified therein and Wachovia Bank of
Georgia, N.A., as Administrative Agent;
WHEREAS, the commitments under the Credit Agreement have been
permanently reduced to $200 million as of the date hereof;
WHEREAS, the Company has requested consent to certain dispositions
relating to its operations in the Chicago area and charges resulting therefrom,
and certain other modifications to the Credit Agreement and to the Sharing
Agreement;
WHEREAS, the requested consents and modifications require the consent of
the Required Lenders;
WHEREAS, the Required Lenders have consented to the requested consents
and modifications on the terms and conditions set forth herein and have
authorized the Administrative Agent to enter into this Amendment on their behalf
to give effect hereto;
NOW, THEREFORE, IN CONSIDERATION of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. The Credit Agreement is amended and modified in the following respects:
1.1 Consent is given to (i) the closing, sale and liquidation of
stores and operations of the Furniture Company and of the Homemakers stores
in the Chicago area consistent with the approach described in
correspondence from the Company, and (ii) use of proceeds of Loans and
extensions of credit of up to $3.5 million under the Credit Agreement to
repay, refund or otherwise satisfy and release, the Senior Notes and the
FUNB Letter of Credit (each as referenced and defined in the Sharing
Agreement).
1.2 In the proviso in the first sentence of the definition of
"Consolidated Net Income", the and immediately preceding clause (ii) is
deleted, clause (ii) is amended and a new clause (iii) is added to read as
follows:
, (ii) for purposes of determining compliance with the Consolidated
Net Worth covenant of Section 7.9(a), there shall be included the
amount of any gain, but there shall be excluded the amount of any
loss, realized from asset sales or dispositions, and (iii) for
purposes of determining compliance with the Consolidated Leverage
Ratio in Section 7.9(b) and the Consolidated Adjusted Fixed Charge
Coverage Ratio covenant in Section 7.9(c), there shall be excluded
special charges of up to $55 million in the aggregate taken in the
second (ending August 31, 1999) and third (ending November 30, 1999)
fiscal quarters of 1999 in connection with the closing, sale and
liquidation of stores and operations of the Furniture Company and the
Homemakers stores in the Chicago area more particularly described in
Annex I to Amendment No. 8.
1.3 The LOC Committed Amount as referenced and defined in Section
2.3(a) is amended and increased from THIRTY-FIVE MILLION DOLLARS
($35,000,000) to FORTY-FIVE MILLION DOLLARS ($45,000,000).
26
<PAGE>
1.4 The Consolidated Net Worth covenant of Section 7.9(a) is amended
to read as follows:
(a) Consolidated Net Worth. There shall be maintained at all
times a Consolidated Net Worth of not less than $515 million, plus, on
the last day of the fiscal quarter ending November 30, 1999 and each
fiscal quarter thereafter, an amount equal to fifty percent (50%) of
Consolidated Net Income for the fiscal quarter then ending (but not
less than zero), such increases to cumulative.
2. The Administrative Agent is authorized and directed to enter into
Amendment No. 1 to the Intercreditor and Sharing Agreement for and on
behalf of the Lenders in the form of Exhibit A attached hereto.
3. This Amendment shall be effective upon satisfaction of the
following conditions:
(a) receipt by the Administrative Agent of the consent of
Required Lenders to this Amendment;
(b) execution of this Amendment by the Borrower, the Company and
the Administrative Agent;
(c) receipt by the Administration Agent for the benefit of
Lenders consenting to this Agreement of an amendment fee of ten basis
points (0.10%) on the Revolving Commitments of Lenders consenting to
this Agreement; and
(d) evidence of consent by LTCB as holder of the LTCB Term Loan
to a comparable amendment and consent.
4. Except as modified hereby, all of the terms and provisions of the
Credit Agreement (including Schedules and Exhibits) shall remain in full
force and effect.
5. The Borrower agrees to pay all reasonable costs and expenses of the
Administrative Agent in connection with the preparation, execution and
delivery of this Amendment, including without limitation the reasonable
fees and expenses of Moore & Van Allen, PLLC.
6. This Amendment may be executed in any number of counterparts, each
of which when so executed and delivered shall be deemed an original, and it
shall not be necessary in making proof of this Amendment to produce or
account for more than one such counterpart.
7. This Amendment shall be deemed to be a contract made under, and for
all purposes shall be construed in accordance with the laws of the State of
North Carolina.
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<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart
of this Amendment to be duly executed under seal and delivered as of the date
and year first above written.
BORROWER: MACSAVER FINANCIAL SERVICES, INC.,
a Delaware corporation
By: / s / Paige H. Wilson
-------------------------
Name: Paige H. Wilson
Title: Senior Vice President,
Treasurer & Secretary
COMPANY: HEILIG-MEYERS COMPANY,
a Virginia corporation
By: / s / Paige H. Wilson
-------------------------
Name: Paige H. Wilson
Title: Senior Vice President,
Treasurer & Secretary
ADMINISTRATIVE
AGENT: WACHOVIA BANK, N.A., as Administrative Agent
for and on behalf of the Lenders
By: / s / Christopher C. Borin
----------------------------
Name: Christopher C. Borin
Title: Senior Vice President
28
<PAGE>
Annex I
to Amendment No. 8
Description of Chicago Area Sales and Liquidations
Store Zip
Number Location State Address Code
585 Chicago IL 4840 N. Broadway Street 60640
587 Chicago IL 6535 S. Halsted Street 60621
588 Cottage Grove IL 6250 S. Cottage Grove 60637
591 Melrose Park IL 3315 W. North Avenue 60160
593 Milwaukee WI 9225 N. 76th Street 53223
634 Chicago IL 3110 W. Grand Avenue 60622
635 Chicago IL 4343 S. Pulaski Street 60632
636 Oak Lawn IL 9605 S. Cicero Avenue 60453
637 Dolton IL 14931 Greenwood Road 60419
638 Norridge IL 4167 N. Harlem Avenue 60634
640 Mt. Prospect IL One East Rand Road 60056
642 Lombard IL 240 E. Roosevelt Road 60148
914 Milwaukee WI 6700 W. Forest Home Avenue 53223
963 Milwaukee WI 5428 W. Fond Du Lac Avenue 53216
978 Joliet IL Louis Joliet Mall,
3084 Hennepin Drive 60435
994 Waukegan IL 1535 N. Lewis Avenue 60085
1121 Racine WI 4103 Durand Avenue 53405
1190 Oak Lawn IL 9659 S. Cicero Avenue 60453
29
Exhibit 10.2
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement"), dated as of September 22,
1999, between Donald S. Shaffer (the "Executive") and Heilig-Meyers Company, a
Virginia corporation (the "Company"), recites and provides as follows:
WHEREAS, the Board of Directors of the Company (the "Board") expects that
the Executive will continue to make substantial contributions to the growth and
prospects of the Company; and
WHEREAS, the Board desires that the Company retain the services of the
Executive, and the Executive desires to continue his employment with the
Company, all on the terms and subject to the conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
covenants herein contained, the Company and the Executive agree as follows:
1. Employment Period. The Company hereby agrees to continue the Executive
in its employ, and the Executive hereby agrees to remain in the employ of the
Company, in accordance with the terms and provisions of this Agreement, for the
period commencing on the date of this Agreement (the "Effective Date") and
ending on the third anniversary of such date (the "Employment Period"). Subject
to the provisions of Section 3 hereof, the Employment Period shall be a constant
rolling period of three (3) years, commencing on the Effective Date, with the
result that, for each day after the Effective Date the Executive's term of
employment shall be extended for an additional day so that at all times the
remaining period of the Executive's term of employment shall be three (3)
years.
2. Terms of Employment.
a) Position and Duties.
i) During the Employment Period, (A) the Executive's position
(including status, offices, titles and reporting requirements),
authority, duties and responsibilities shall be at least commensurate
in all material respects with the most significant of those held,
exercised and assigned at any time during the 90-day period
immediately preceding the Effective Date and (B) the Executive's
services shall be performed at the location where the Executive was
employed immediately preceding the Effective Date or any office which
is less than 35 miles from such location.
ii) During the Employment Period, and excluding any periods of
vacation and leave to which the Executive is entitled, the Executive
agrees to devote reasonable attention and time during normal business
hours to the business and affairs of the Company and, to the extent
necessary to discharge the responsibilities assigned to the Executive
hereunder, to use the Executive's reasonable best efforts to perform
faithfully and efficiently such responsibilities. During the
Employment Period it shall not be a violation of this Agreement for
the Executive to (A) serve on corporate, civic, charitable, furniture
industry association or professional association boards or committees
(provided the Executive obtains prior approval by the Chief Executive
Officer of the Company), (B) deliver lectures, fulfill speaking
engagements or teach at educational institutions and (C) manage
personal investments, so long as such activities do not significantly
interfere with the performance of the Executive's responsibilities as
an employee of the Company in accordance with this Agreement. It is
expressly understood and agreed that to the extent that any such
activities have been conducted by the Executive prior to the Effective
Date, the continued conduct of such activities (or the conduct of
activities similar in nature and scope thereto) subsequent to the
Effective Date shall not thereafter be deemed to interfere with the
performance of the Executive's responsibilities to the Company.
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<PAGE>
b) Compensation.
i) Base Salary. During the Employment Period, the Executive shall
receive an annual base salary ("Annual Base Salary"), which shall be
paid in equal installments on a monthly basis, at least equal to
twelve times the highest monthly base salary paid or payable to the
Executive by the Company and its affiliated companies in respect of
the twelve-month period immediately preceding the month in which the
Effective Date occurs. During the Employment Period, the Annual Base
Salary shall be reviewed at least annually and shall be increased at
any time and from time to time as shall be substantially consistent
with increases in base salary generally awarded in the ordinary course
of business to other peer executives of the Company and its affiliated
companies. Any increase in Annual Base Salary shall not serve to limit
or reduce any other obligation to the Executive under this Agreement.
Annual Base Salary shall not be reduced after any such increase and
the term Annual Base Salary as utilized in this Agreement shall refer
to Annual Base Salary as so increased. As used in this Agreement, the
term "affiliated companies" shall include any company controlled by,
controlling or under common control with the Company.
ii) Annual Bonus. In addition to Annual Base Salary, the
Executive shall be awarded, for each fiscal year during the Employment
Period, an annual bonus opportunity (the "Annual Bonus") under the
Company's Annual Performance-Based Bonus Plan at least equal to his
bonus opportunity immediately preceding the Effective Date or, if more
favorable to the Executive, under any plans, practices, programs and
policies of the Company and its affiliates in effect generally at any
time after the Effective Date with respect to other peer executives of
the Company and its affiliated companies.
iii) Incentive, Savings and Retirement Plans. During the
Employment Period, the Executive shall be entitled to participate in
all incentive (including, without limitation, stock incentive),
savings and retirement plans, practices, policies and programs
applicable generally to other peer executives of the Company and its
affiliated companies, but in no event shall such plans, practices,
policies and programs provide the Executive with incentive
opportunities (measured with respect to both regular and special
incentive opportunities, to the extent, if any, that such distinction
is applicable), savings opportunities and retirement benefit
opportunities, in each case, less favorable, in the aggregate, than
the most favorable of those provided by the Company and its affiliated
companies for the Executive under such plans, practices, policies and
program as in effect at any time during the 90-day period immediately
preceding the Effective Date or if more favorable to the Executive,
those provided generally from time to time after the Effective Date to
other peer executives of the Company and its affiliated companies.
iv) Welfare Benefit Plans. During the Employment Period, the
Executive and/or the Executive's family, as the case may be, shall be
eligible for participation in and shall receive all benefits under
welfare benefit plans, practices, policies and programs provided by
the Company and its affiliated companies (including, without
limitation, medical, prescription, dental, disability, salary
continuance, employee life, group life, accidental death and travel
accident insurance plans and programs) to the extent applicable
generally to other peer executives of the Company and its affiliated
companies, but in no event shall such plans, practices, policies and
programs provide the Executive with benefits which are less favorable,
in the aggregate, than the most favorable of such plans, practices,
policies and programs in effect for the Executive at any time during
the 90-day period immediately preceding the Effective Date or, if more
favorable to the Executive, those provided generally at from time to
time after the Effective Date to other peer executives of the Company
and its affiliated companies.
v) Expenses. During the Employment Period, the Executive shall be
entitled to receive prompt reimbursement for all reasonable employment
expenses incurred by the Executive in accordance with the most
favorable policies, practices and procedures of the Company and its
affiliated companies in effect for the Executive at any time during
the 90-day period immediately preceding the Effective Date or, if more
favorable to the Executive, as in effect generally from time to time
after the Effective Date with respect to other peer executives of the
Company and its affiliated companies.
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<PAGE>
vi) Fringe Benefits. During the Employment Period, the Executive
shall be entitled to fringe benefits in accordance with the most
favorable plans, practices, programs and policies of the Company and
its affiliated companies in effect for the Executive at any time
during the 90-day period immediately preceding the Effective Date or,
if more favorable to the Executive, as in effect generally from time
to time after the Effective Date with respect to other peer executives
of the Company and its affiliated companies.
vii) Office and Support Staff. During the Employment Period, the
Executive shall be entitled to an office or offices of a size and with
furnishings and other appointments, and to exclusive personal
secretarial and other assistance, at least equal to the most favorable
of the foregoing provided to the Executive by the Company and its
affiliated companies at any time during the 90-day period immediately
preceding the Effective Date or, if more favorable to the Executive,
as provided generally from time to time after the Effective Date with
respect to other peer executives of the Company and its affiliated
companies.
viii) Vacation. During the Employment Period, the Executive shall
be entitled to paid vacation in accordance with the most favorable
plans, policies, programs and practices of the Company and its
affiliated companies as in effect for the Executive at any time during
the 90-day period immediately preceding the Effective Date or, if more
favorable to the Executive, as in effect generally from time to time
after the Effective Date with respect to other peer executives of the
Company and its affiliated companies.
3. Termination of Employment.
a) Death or Disability. The Executive's employment shall
terminate automatically upon the Executive's death during the
Employment Period. If the Company determines in good faith that the
Disability of the Executive has occurred during the Employment Period
(pursuant to the definition of Disability set forth below), it may
give to the Executive written notice in accordance with Section 11(b)
of its intention to terminate the Executive's employment. In such
event, the Executive's employment with the Company shall terminate
effective on the 30th day after receipt of such notice by the
Executive (the "Disability Effective Date"), provided that, within the
30 days after such receipt, the Executive shall not have returned to
full-time performance of the Executive's duties. For purposes of this
Agreement, "Disability" shall mean the absence of the Executive from
the Executive's duties with the Company on a full-time basis for 180
consecutive business days as a result of incapacity due to mental or
physical illness which is determined to be total and permanent by a
physician selected by the Company or its insurers and acceptable to
the Executive or the Executive's legal representative (such agreement
as to acceptability not to be withheld unreasonably).
b) Cause. The Company may terminate the Executive's employment
during the Employment Period for Cause. For purposes of this
Agreement, "Cause" shall mean (i) a material breach by the Executive
of the Executive's obligations under Section 2(a) (other than as a
result of incapacity due to physical or mental illness) which is
demonstrably willful and deliberate on the Executive's part, which is
committed in bad faith or without reasonable belief that such breach
is in the best interests of the Company and which is not remedied in a
reasonable period of time after receipt of written notice from the
Company specifying such breach or (ii) the conviction of the Executive
of a felony involving moral turpitude.
c) Notice of Termination. Any termination by the Company for
Cause, or by the Executive, shall be communicated by Notice of
Termination to the other party hereto given in accordance with Section
11(b). For purposes of this Agreement, a "Notice of Termination" means
a written notice which (i) indicates the specific termination
provision in this Agreement relied upon, (ii) to the extent
applicable, sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the
Executive's employment under the provision so indicated and (iii) if
the Date of Termination (as defined below) is other than the date of
receipt of such notice, specifies the termination date (which date
shall be not more than 15 days after the giving of such notice). The
failure by the Executive or the Company to set forth in the Notice of
Termination any fact or circumstance shall not waive any right of the
Executive or the Company hereunder or preclude the Executive or the
Company from asserting such fact or circumstance in enforcing the
Executive's or the Company's rights hereunder.
32
<PAGE>
d) Date of Termination. "Date of Termination" means (i) if the
Executive's employment is terminated by the Company for Cause, or by
the Executive, the date of receipt of the Notice of Termination or any
later date specified therein, as the case may be, (ii) if the
Executive's employment is terminated by the Company other than for
Cause or Disability, the Date of Termination shall be the date on
which the Company notifies the Executive of such termination and (iii)
if the Executive's employment is terminated by reason of death or
Disability, the Date of Termination shall be the date of death of the
Executive or the Disability Effective Date, as the case may be.
4. Obligations of the Company upon Termination.
a) Other than for Cause or Death. The Company may terminate the
Executive's employment during the Employment Period for other than
Cause or death. If, during the Employment Period, the Company shall
terminate the Executive's employment other than for Cause or death or
the Executive shall terminate employment:
i) The Company shall pay to the Executive in a lump sum in
cash within 30 days after the Date of Termination the sum of (1)
the Executive's Annual Base Salary through the Date of
Termination to the extent not theretofore paid; (2) to the extent
not theretofore paid, the product of (A) the greater of (x) the
Annual Bonus paid or payable, including by reason of any
deferral, to the Executive (and annualized for any fiscal year
consisting of less than twelve full months or for which the
Executive has been employed for less than twelve full months) for
the most recently completed fiscal year during the Employment
Period, if any, and (y) the average annualized (for any fiscal
year consisting of less than twelve full months or with respect
to which the Executive has been employed for less than twelve
full months) bonus paid or payable, including by reason of any
deferral, to the Executive by the Company and its affiliated
companies in respect of the three fiscal years immediately
preceding the fiscal year in which the Date of Termination occurs
(such greater amount shall be hereinafter referred to as the
"Highest Annual Bonus") and (B) a fraction, the numerator of
which is the number of days in the current fiscal year through
the Date of Termination, the denominator of which is 365; (3) any
compensation previously deferred by the Executive (together with
any accrued interest or earnings thereon) to the extent not
therefore paid; and (4) any accrued vacation pay, to the extent
not therefore paid (the sum of the amounts described in clauses
(1), (2), (3) and (4) shall be hereinafter referred to as the
"Accrued Obligations"); and
ii) The Company shall pay to the Executive in a lump sum in
cash within 30 days after the Date of Termination the sum of the
Executive's Annual Base Salary and Highest Annual Bonus payable
to the Executive from the Date of Termination to the end of the
Employment Period; and
iii) For the remainder of the Employment Period, or such
longer period as any plan, program, practice or policy may
provide, the Company shall continue benefits to the Executive
and/or the Executive's family at least equal to those which would
have been provided to them in accordance with the plans,
programs, practices and policies described in Section 2(b)(iv) if
the Executive's employment had not been terminated in accordance
with the most favorable plans, practices, programs or policies of
the Company and its affiliated companies as in effect and
applicable generally to other peer executives and their families
during the 90-day period immediately preceding the Effective Date
or, if more favorable to the Executive, as in effect generally at
any time thereafter with respect to other peer executives of the
Company and its affiliated companies and their families,
provided, however, that if the Executive becomes reemployed with
another employer and is eligible to receive medical or other
welfare benefits under another employer - provided plan, the
medical and other welfare benefits described herein shall be
secondary to those provided under such other plan during such
applicable period of eligibility (such continuation of such
benefits for the applicable period herein set forth shall be
hereinafter referred to as "Welfare Benefit Continuation"). For
purposes of determining eligibility of the Executive for retiree
benefits pursuant to such plans, practices, programs and
policies, the Executive shall be considered to have remained
employed until the end of the Employment Period and to have
retired on the last day of such period; and
33
<PAGE>
iv) To the extent not theretofore paid or provided, the
Company shall timely pay or provide to the Executive and/or the
Executive's family any other amounts or benefits required to be
paid or provided or which the Executive and/or the Executive's
family is eligible to receive pursuant to this Agreement and
under any plan, program, policy or practice or contract or
agreement of the Company and its affiliated companies as in
effect and applicable generally to other peer executives and
their families during the 90-day period immediately preceding the
Effective Date or, if more favorable to the Executive, as in
effect generally thereafter with respect to other peer executives
of the Company and its affiliated companies and their families
(such other amounts and benefits shall be hereinafter referred to
as the "Other Benefits").
b) Death. If the Executive's employment is terminated by reason
of the Executive's death during the Employment Period, this Agreement
shall terminate without further obligations to the Executive's legal
representatives under this Agreement, other than for payment of
Accrued Obligations (which shall be paid to the Executive's estate or
beneficiary, as applicable, in a lump sum in cash within 30 days of
the Date of Termination) and the timely payment or provision of the
Welfare Benefit Continuation and Other Benefits.
c) Cause. If the Executive's employment shall be terminated for
Cause during the Employment Period, this Agreement shall terminate
without further obligations to the Executive other than the obligation
to pay to the Executive his Annual Base Salary through the Date of
Termination plus the amount of any compensation previously deferred by
the Executive, in each case to the extent theretofore unpaid.
d) Time of Payment. The Company shall make all payments required
by this Section 4 within the time periods provided in Sections 4(a),
4(b) and 4(c); provided, however, that in the event that any such
payments would be non-deductible to the Company under the provisions
of Section 162(m) of the Internal Revenue Code of 1986, as amended
(the "Code"), and the Executive is a "covered employee" as defined in
Treas. Reg. Section 1.162-27(c)(2) for the taxable year of the Company
during which the Date of Termination occurred or for the immediately
preceding year, the Company shall make any such payment not earlier
than 90 days following the end of the Company's taxable year during
which the Executive last was a "covered employee."
5. Nonexclusivity of Rights. Expect as provided in Sections 4(a)(iii),
4(b) and 4(c), nothing in this Agreement shall prevent or limit the
Executive's continuing or future participation in any plan, program, policy
or practice provided by the Company or any of its affiliated companies and
for which the Executive may qualify, nor shall anything herein limit or
otherwise affect such rights as the Executive may have under any contract
or agreement with the Company or any of its affiliated companies. Amounts
which are vested benefits or which the Executive is otherwise entitled to
receive under any plan, policy, practice or program of or any contract or
agreement with the Company or any of its affiliated companies at or
subsequent to the Date of Termination shall be payable in accordance with
such plan, policy, practice or program or contract or agreement except as
explicitly modified by this Agreement.
6. Full Settlement; Resolution or Disputes.
a) The Company's obligation to make the payments provided for in
this Agreement and otherwise to perform its obligations hereunder
shall not be affected by any set-off, counterclaim, recoupment,
defense or other claim, right or action which the Company may have
against the Executive or others. In no event shall the Executive be
obligated to seek other employment or take any other action by way of
mitigation of the amounts payable to the Executive under any of the
provisions of this Agreement and, except as provided in Section
4(a)(iii) with respect to Welfare Benefit Continuation and Section
8(a) with respect to non-competition, such amounts shall not be
reduced whether or not the Executive obtains other employment. The
Company agrees to pay to the full extent permitted by law, all
reasonable legal fees and expenses which the Executive may incur to
enforce this Agreement and that result from a breach of this Agreement
by the Company; provided however, that the reasonableness of the fees
and expenses must be determined by an independent arbitrator, using
standard legal principles, mutually agreed upon by the Company and the
Executive in accordance with rules set forth by the American
Arbitration Association.
34
<PAGE>
b) If there shall be any dispute between the Company and the
Executive in the event of any termination of the Executive's
employment by the Company or by the Executive, then, unless and until
there is a final, nonappealable judgment by a court of competent
jurisdiction declaring that such termination was for Cause, the
Company shall pay all amounts, and provide all benefits, to the
Executive and/or the Executive's family or other beneficiaries, as the
case may be, that the Company would be required to pay or provide
pursuant to Section 4(a) as though such termination were by the
Company without Cause or by the Executive; provided, however, that the
Company shall not be required to pay any disputed amounts pursuant to
this paragraph except upon receipt of an undertaking (which may be
unsecured) by or on behalf of the Executive to repay all such amounts
to which the Executive is ultimately adjudged by such court not to be
entitled.
7. Confidential Information.
a) The Executive shall hold in a fiduciary capacity for the
benefit of the Company all secret or confidential information,
knowledge or data relating to the Company or any of its affiliated
companies, and their respective businesses, which shall have been
obtained b the Executive during the Executive's employment by the
Company or any of its affiliated companies and which shall not be or
become public knowledge (other than by acts by the Executive or
representatives of the Executive in violation of this Agreement).
After termination of the Executive's employment with the Company, the
Executive shall not, without the prior written consent of the Company
or except as may otherwise be required by law or legal process,
communicate or divulge any such information, knowledge or data to
anyone other than the Company and those designated by it. In no event
shall an asserted violation of the provisions of this Section 7
constitute a basis for deferring or withholding any amounts otherwise
payable to the Executive under this Agreement.
8. Non-Compete; Non-Solicitation.
a) Except as is set forth below, for a period commencing on the
date hereof and ending on the date 36 months after the Executive
ceases to be employed by the Company (the "Non-Competition Period"),
the Executive shall not in the United States of America, directly or
indirectly, either for himself or any other person, own, manage,
control, materially participate in, invest in, permit his name to be
used by, act as consultant or advisor to, render material services for
(alone or in association with any person, firm, corporation or other
business organization) or otherwise assist in any manner any entity
that engages in or owns, invests in, manages or controls any venture
or enterprise engaged in the retail furniture industry (or any other
business of the type that constitutes a substantial portion of the
Company's business at the date the Executive ceases to be employed by
the Company) (collectively, a "Competitor"); provided, however, that
the restrictions set forth above shall immediately terminate and shall
be of no further force or effect (i) in the event of a default by the
Company in the payment of any compensation or benefits to which the
Executive is entitled hereunder, which default is not cured within ten
(10) days after written notice thereof, or (ii) at the election of the
Executive if the Executive's employment has been terminated by the
Company other than for Cause and if the Executive (A) gives written
notice to the Company during the Non-Competition Period that he
desires to accept employment with a Competitor; and (B) agrees that
the severance payment specified in Section 4(a)(i) and (ii) hereof
shall be mitigated by the amount of salary and pro rata target bonus
payable to the Executive by the Competitor and attributable to
employment during the Non-Competition Period (it being understood that
the amount of such mitigated severance shall be paid by the Executive
to the Company in a lump-sum payment within thirty (30) days after the
Executive commences employment with the Competitor). Nothing herein
shall prohibit the Executive from being a passive owner of not more
than 2% of the equity securities of a corporation engaged in such
business which is publicly traded, so long as he has no active
participation in the business of such corporation.
b) During the Non-Competition Period, the Executive shall not,
directly or indirectly, (i) induce or attempt to induce or aid others
in inducing an employee of the Company to leave the employ of the
Company, or in any way interfere with the relationship between the
Company and an employee of the Company except in the proper exercise
of the Executive's authority, or (ii) in any way interfere with the
relationship between the Company and any customer, supplier, licensee
or other business relation of the Company.
35
<PAGE>
c) If, at the time of enforcement of this Section 8, a court
shall hold that the duration, scope, area or other restrictions stated
herein are unreasonable under circumstances then existing, the parties
agree that the maximum duration, scope, area or other restrictions
reasonable under such circumstances shall be substituted for the
stated duration, scope, area or other restrictions.
d) The covenants made in this Section 8 shall be construed as an
agreement independent of any other provisions of this Agreement, and
shall survive the termination of this Agreement. Moreover, the
existence of any claim or cause of action of the Executive against the
Company or any of its affiliates, whether or not predicated upon the
terms of this Agreement, shall not constitute a defense to the
enforcement of these covenants.
9. Indemnity. The Company will indemnify the Executive, in his
capacity as an officer and director of the Company, to the fullest extent
permitted by the Company's Articles of Incorporation and Bylaws.
10. Successors.
a) This Agreement is personal to the Executive and without the
prior written consent of the Company shall not be assignable by the
Executive otherwise than by will or the laws of descent and
distribution. This Agreement shall inure to the benefit of and be
enforceable by the Executive's legal representatives.
b) This Agreement shall inure to the benefit of and be binding
upon the Company and its successors and assigns.
c) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to
assume expressly and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to
perform it if no such succession had taken place. As used in this
Agreement, "Company" shall mean the Company as hereinbefore defined
and any successor to its business and/or assets as aforesaid which
assumes and agrees to perform this Agreement by operation of law, or
otherwise.
11. Miscellaneous.
a) This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Virginia, without
reference to principles of conflict of laws. The captions of this
Agreement are not part of the provisions hereof and shall have no
force or effect. This Agreement may not be amended or modified
otherwise than by a written agreement executed by the parties hereto
or their respective successors and legal representatives.
b) All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or by
registered or certified mail, return receipt requested, postage
prepaid, addressed as follows:
If to the Executive to: If to the Company to:
Donald S. Shaffer Heilig-Meyers Company
12560 West Creek Parkway
Richmond, Virginia 23238
Attention: Corporate Secretary
or to such other address as either party shall have furnished to the
other in writing in accordance herewith. Notice and communications
shall be effective when actually received by the addressee.
c) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
36
<PAGE>
d) The Company may withhold from any amounts payable under this
Agreement such Federal, state, local or foreign taxes as shall be
required to be withheld pursuant to any applicable law or
regulation.
e) The Executive's or the Company's failure to insist upon strict
compliance with any provision hereof or any other provision of this
Agreement or the failure to assert any right the Executive or the
Company may have hereunder, shall not be deemed to be a waiver of such
provision or right or any other provision or right of this
Agreement.
f) Any entitlements to the Executive created under Section 2(b)
shall be contract rights to the extent not prohibited by law. However,
the Company shall not be required to amend, or refrain from amending,
any of its plans, practices, policies and programs to so provide the
contract rights.
g) The Executive and the Company agree that as of the date
hereof, this Agreement supersedes and terminates any existing
employment agreement between the Company and the Executive.
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand
and, pursuant to the authorization from its Board of Directors, the Company has
caused these presents to be executed in its name on its behalf, all as of the
day and year first above written.
HEILIG-MEYERS COMPANY
By: / s / Robert L. Burrus, Jr.
-----------------------------
Robert L. Burrus, Jr.
Chairman, Compensation Committee
Board of Directors
/ s / Donald S. Shaffer
---------------------------------
Donald S. Shaffer
37
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Exhibit 27
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONDENSED
CONSOLIDATED BALANCE SHEETS AND STATEMENTS OF OPERATIONS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-29-2000
<PERIOD-END> NOV-30-1999
<CASH> 8,682
<SECURITIES> 184,852 <F1>
<RECEIVABLES> 188,000
<ALLOWANCES> 35,126
<INVENTORY> 357,128
<CURRENT-ASSETS> 949,657
<PP&E> 473,144
<DEPRECIATION> 178,003
<TOTAL-ASSETS> 1,523,111
<CURRENT-LIABILITIES> 405,957
<BONDS> 536,120
0
0
<COMMON> 121,354
<OTHER-SE> 410,986
<TOTAL-LIABILITY-AND-EQUITY> 1,523,111
<SALES> 469,385
<TOTAL-REVENUES> 528,904
<CGS> 307,234
<TOTAL-COSTS> 307,234
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 27,616
<INTEREST-EXPENSE> 12,136
<INCOME-PRETAX> 7,558
<INCOME-TAX> 2,819
<INCOME-CONTINUING> 4,739
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,739
<EPS-BASIC> 0.08 <F2>
<EPS-DILUTED> 0.08
<FN>
<F1> Represents retained interest in securitized receivables
<F2> Represents basic earnings per share
</FN>
</TABLE>
