UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K/A
(AMENDMENT NO. 2)
(Mark One)
X Annual report pursuant to Section 13 or 15 (d) of the Securities Exchange
Act of 1934 [Fee Required]
For the fiscal year ended February 28, 1998 or
Transition report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934 [No Fee Required]
For the transition period from to
Commission file number 1-8484
HEILIG-MEYERS COMPANY
(Exact name of registrant as specified in its charter)
Virginia 54-0558861
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
12560 West Creek Parkway, Richmond, Virginia 23238
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (804) 784-7300
Securities registered pursuant to Section 12(b) of the Act:
Title of each Class Name of each exchange on which registered
Common Stock, $2.00 New York Stock Exchange
Par Value Pacific Exchange
Rights to purchase Preferred New York Stock Exchange
Stock, Series A, $10.00 Pacific Exchange
Par Value
Securities registered pursuant to Section 12(g)of the Act:
None
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 of 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to the
filing requirements for at least the past 90 days. Yes X No .
---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (Sec. 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates
of the registrant as of May 1, 1998 was approximately $748,798,640.
This figure was calculated by multiplying (i) the closing sales price
of the registrant's common stock on the New York Stock Exchange on May 1, 1998
by (ii) the number of shares of the registrant's common stock not held by the
officers or directors of the registrant or any persons known to the registrant
to own more than five percent of the outstanding common stock of the registrant.
Such calculation does not constitute an admission or determination that any such
officer, director or holder of more than five percent of the outstanding common
stock of the registrant is in fact an affiliate of the registrant.
As of May 1, 1998, there were outstanding 58,812,313 shares of the
registrant's common stock, $2.00 par value.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Proxy Statement for its Annual Meeting of
Shareholders scheduled for June 17, 1998, are incorporated by reference into
Part III.
This Amendment No. 2 on Form 10-K/A (the "Amendment") amends and restates the
disclosure made by the registrant in its Annual Report on Form 10-K for the
fiscal year ended February 28, 1998 in response to "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations"
2
ITEM 7. MANAGEMENT'S DISCUSSION and ANALYSIS of FINANCIAL CONDITION
and RESULTS of OPERATIONS
RESULTS OF OPERATIONS
Results of operations expressed as a percentage of sales are as
follows:
Fiscal Year
1998 1997 1996
----------------------------------------
Other income 14.3% 18.7% 19.4%
Costs of sales 67.2 65.3 66.1
Selling, general and
administrative expense 38.3 39.2 38.3
Interest expense 3.1 3.6 3.6
Provision for doubtful
accounts 8.4 6.0 5.7
Store closing and other
charges 1.2 - -
Earnings (loss) before
provision (benefit)
for income taxes (3.9) 4.6 5.7
Provision (benefit) for
income taxes (1.4) 1.6 2.0
Net earnings (loss) (2.6) 3.0 3.7
Profit Improvement Plan
Home furnishings purchases are generally considered "big-ticket
purchases", and consumers typically utilize consumer credit to finance these
purchases. Impacted by an increase in consumer credit problems and personal
bankruptcies, the demand for home furnishings in the niche in which the Company
serves has been low over the past two fiscal years. In response to this
difficult environment, Heilig-Meyers Company (the "Company") conducted a
comprehensive review of its operations, and developed a Profit Improvement Plan
(the "Plan"), which was announced on December 17, 1997. The Plan has three main
components: (1) expense reductions; (2) restructuring of certain aspects of the
business; and (3) Heilig-Meyers store operating initiatives. The Plan calls for
the closing of certain Heilig-Meyers stores, the downsizing of administrative
and support facilities, a reorganization of the Heilig-Meyers private label
credit card program, and the development of operating initiatives to improve the
performance of the Heilig-Meyers stores. Once completed, the store-closing
component of the Plan will eliminate stores that incurred pretax operating
losses before corporate overhead allocation of approximately $6.5 million in
fiscal 1998. Management expects to incur total pretax operating losses before
corporate overhead allocation of approximately $5.5 million during the first and
second quarters of fiscal 1999 as these stores are closed in an orderly fashion.
The downsizing initiatives completed in the fourth quarter of fiscal 1998 are
expected to reduce general overhead expenses by approximately $8.0 million on an
annual basis, starting in March 1998. Management does not believe the
reorganization of the private label credit card program will have a material
impact on the Company's financial statements. The Company expects to continue to
offer its customers a private label credit card as a financing option. However,
as a result of the reorganization of the program, the Company is not expected to
be responsible for servicing these accounts or any related credit losses.
In the fourth quarter of fiscal 1998, the Company recorded a pre-tax
charge of approximately $25.5 million related to specific plans to close
approximately 40 Heilig-Meyers stores, downsize office and support facilities,
and reorganize the Heilig-Meyers private label credit card program. The charge
reduced 1998 net earnings $16.7 million or $.30 per share. The pre-tax charge
includes the following components: $8.1 million for severance, $7.6 million for
lease and facility exit costs, $7.3 million for fixed asset impairment, and $2.5
million for goodwill impairment. The Company expects to substantially complete
the store closings and office downsizing during the first quarter of fiscal
1999, and private label credit card program reorganization during fiscal 1999.
Accordingly, the majority of the reserves are expected to be utilized during
fiscal 1999. The final plan calls for closing approximately 40 stores rather
than the approximately 60 stores initially contemplated, as a result of the
completion of store operations and asset disposition analyses.
3
The core-store operating initiatives include a plan to significantly
slow the growth of the Heilig-Meyers stores over the next year to allow for the
maturation of the recent store additions. Approximately 20 to 30 stores will be
relocated to higher-traffic areas. The initiatives also call for adjustments to
merchandising and advertising strategies based on the remaining markets and the
strengthening of the inventory management programs. While management plans to
slow the growth in the Heilig-Meyers division, it expects to pursue
opportunities in the Company's other formats. These opportunities will be in the
formats that are less capital intensive and are currently operating at higher
levels of return than the Heilig-Meyers division. The Company has adopted a
capital allocation process under which all expansion and capital projects will
be subjected to return on investment criteria.
Pursuant to these initiatives, raw selling margins in the fourth
quarter of fiscal 1998 were negatively impacted by approximately $5.1 million,
or .2% of sales, due to inventory liquidations. Approximately $14.8 million (.7%
of sales) in selling, general and administrative expenses were incurred related
to asset write-downs and other reserves in the third and fourth quarters of
fiscal 1998 (see "Costs and Expenses").
While the Company anticipates that the majority of the reserves related
to this Plan will be utilized over the first two quarters of fiscal 1999,
amounts related to property and long-term lease commitments will continue to be
utilized subsequent to this time period. The overall cash impact of the Plan is
expected to be positive as cash received from the sale of certain assets and
from income tax benefits is expected to significantly exceed cash expenditures,
which will consist primarily of employee severance and payments under lease
obligations.
Revenues
Sales for fiscal 1998 compared to the two previous periods are shown
below:
Fiscal Year
1998 1997 1996
----------------------------------------
Sales (in thousands) $2,160,223 $1,342,208 $1,138,506
Percentage increase over
prior period 60.9% 17.9% 19.1%
Portion of increase from
existing (comparable)
stores 2.8 (0.6) 0.3
Portion of increase from
new stores 58.1 18.5 18.8
The growth in total sales of the Company for fiscal years 1998, 1997
and 1996 is primarily attributed to the growth in operating units through
acquisitions. The impact of price changes on sales growth over the last three
fiscal years has been insignificant. Expansion of the Heilig-Meyers retail units
during fiscal 1998 and 1997 was primarily in the south central, southwestern and
northwestern United States.
The Company has four primary retail formats targeting a wide range of
consumers. The increase in these formats over the past two years has been
achieved through acquisitions. Sales for the last three fiscal years and store
counts as of February 28, (29), were as follows:
Fiscal Year
1998 1997 1996
-----------------------------------------------------------------
(Sales amounts in millions)
# of % of # of % of # of % of
Stores Sales Total Stores Sales Total Stores Sales Total
------------------------------------------------------------------
Heilig-Meyers 865 $1,436 66.5 829 $1,262 94.1 716 $1,139 100.0
Rhodes 102 480 22.2 105 78 5.8 - - -
The RoomStore 61 112 5.2 10 2 0.1 - - -
Mattress
Discounters 225 132 6.1 - - - - - -
-----------------------------------------------------------------
Total 1,253 $2,160 100.0 944 $1,342 100.0 716 $1,139 100.0
=================================================================
4
On December 31, 1996, Rhodes, Inc., a Georgia Corporation, became a
wholly-owned subsidiary of the Company in a transaction accounted for under the
purchase method. The Company operates these stores under the Rhodes name and
format. These stores are primarily located in metropolitan areas of 15 southern,
midwestern and western states.
In late February 1997, the Company acquired certain assets relating to
10 stores operating in central Texas under the name "The RoomStore" in a
transaction accounted for under the purchase method. The RoomStore operates
under a "rooms concept," displaying and selling furniture in complete room
packages. At the end of fiscal 1998, The RoomStore operated 61 stores, 18 of
which were acquired from Reliable Inc. in Columbia, Maryland, in February 1998
and 3 of which were acquired in January 1998 from John M. Smyth's Homemakers in
Chicago, Illinois. The remaining additions to The RoomStore format were through
the ongoing conversion of pre-existing Heilig-Meyers and Rhodes stores.
In July 1997, the Company acquired all of the outstanding capital stock
of Mattress Discounters Corporation and a related corporation ("Mattress
Discounters") with 169 stores in 10 states and Washington, D.C. The transaction
was accounted for under the purchase method. In January 1998, the Company
acquired all of the outstanding capital stock of Bedding Experts, Inc., with 54
stores in Chicago, Illinois, and the surrounding area. The transaction was
recorded as a pooling-of-interests, however, prior periods have not been
restated as the effect is not considered material to the consolidated financial
statements. These stores are included in the Mattress Discounters format in the
table above.
Other income decreased to 14.3% of sales for fiscal 1998 from 18.7% of
sales for fiscal 1997. Other income decreased to 18.7% of sales for fiscal 1997
from 19.4% of sales for fiscal 1996. These decreases are primarily the result of
the effect of Rhodes, The RoomStore and Mattress Discounters operations, as
these stores' credit programs are maintained by third parties and, unlike the
Heilig-Meyers in-house program, do not produce finance income for the Company.
Excluding the results of Rhodes, The RoomStore and Mattress Discounters, other
income decreased .1% of sales for the year ended February 28, 1998, compared to
the prior fiscal year.
The Company plans to continue its program of periodically securitizing
a portion of the installment accounts receivable portfolio of its Heilig-Meyers
stores. Proceeds from securitized accounts receivable are generally used by the
Company to lower debt levels. Net servicing income related to securitized
receivables that have been sold to third parties is included in other income.
The Company offers third-party private label credit card programs to customers
of the Rhodes and The RoomStore formats.
Costs and Expenses
In fiscal 1998, costs of sales increased, as a percentage of sales, to
67.2% from 65.3% in fiscal year 1997. This increase is the result of the
liquidation of merchandise associated with acquisitions, reduced leverage on
distribution and occupancy costs, and higher occupancy costs in the larger
markets served by the Rhodes and The RoomStore formats. Raw selling margins were
reduced by approximately $5.1 million, or .2% of sales, due to inventory
liquidation sales in the Rhodes stores and Heilig-Meyers stores in Puerto Rico
(see "Profit Improvement Plan"). Costs of sales decreased to 65.3% of sales in
fiscal 1997 from 66.1% in fiscal 1996. The reduction in costs of sales was
primarily related to improved raw selling margins in the Heilig-Meyers stores. A
reduction in the use of aggressive, price-cutting promotions and improvement in
day-to-day pricing policies were the primary contributors to the raw selling
margin results. Additionally, as compared to fiscal 1996, the merchandise sales
mix for fiscal 1997 included a higher percentage of furniture and bedding, which
carry higher raw selling margins.
Selling, general and administrative expenses decreased to 38.3% of
sales in fiscal 1998 from 39.2% in fiscal 1997. The decrease between years was
the result of leverage gained on sales at the Rhodes, The RoomStore and Mattress
Discounters formats. Compared to the prior year period, the addition of these
formats has resulted in a lower administrative cost structure generally due to
the use of third-party credit providers. However, selling, general and
administrative expenses for fiscal 1998 include charges of approximately $14.8
million, or .7% of sales, related to asset write-downs and other reserves (see
"Profit Improvement Plan"). These charges arise primarily from asset impairment
caused by the conversion of existing stores to new operating formats,
relocations of administrative and support facilities, and a more aggressive
strategy to exit excess real estate. Also included in this amount are legal and
other transaction costs associated with the Bedding Experts acquisition, which
was accounted for as a pooling of interests. Selling, general and administrative
expenses increased to 39.2% of sales in fiscal 1997 from 38.3% in fiscal 1996.
The increase in fiscal 1997 was primarily the result of loss of sales leverage
on fixed type expenses such as base salaries, data processing, and depreciation
and amortization, given the modest decline in comparable store sales during the
fiscal year. Advertising costs in fiscal 1997 were slightly down as a percentage
of sales compared to fiscal 1996.
5
Interest expense was 3.1% and 3.6% of sales in fiscal years 1998 and
1997, respectively. The decrease is mainly due to leverage on the sales by
Rhodes, The RoomStore and Mattress Discounters, which were purchased with common
stock. The Company issued $175 million in public debt during the second quarter
of fiscal 1998. The Company also issued approximately $300 million in public
debt in the last half of fiscal 1997 as part of the financing strategy discussed
below. Weighted average long-term interest rates for fiscal 1998 remained
relatively consistent at 7.8%, compared to 7.7% during the prior year. Weighted
average short-term debt increased to $229.2 million in fiscal 1998 from $186.3
million in fiscal 1997. Weighted average short-term interest rates increased to
6.1% from 5.8% in the prior year. Interest expense was 3.6% of sales in fiscal
years 1997 and 1996. The impact of an increase in weighted average long-term
debt of $93.5 million was offset by lower weighted average interest rates, which
decreased to 7.7% from 7.9% on long-term debt and to 5.8% from 6.3% on
short-term debt in fiscal years 1997 and 1996, respectively. The increase in
long-term debt levels in both fiscal 1998 and 1997 was consistent with the
Company's plan to structure its debt portfolio to contain a higher percentage of
long-term fixed rate debt in order to minimize the exposure to future short-term
interest rate fluctuations.
The provision for doubtful accounts was 8.4% of sales in fiscal 1998
compared to 6.0% and 5.7% in fiscal 1997 and 1996, respectively. The increase in
the provision for doubtful accounts as a percentage of sales resulted from an
increase in the installment portfolio's loss rate and related write-offs, the
impact of management's plan to close approximately 40 stores, and management's
plan to reorganize the Heilig-Meyers private label credit card program. The
overall rise in the portfolio's loss rate is primarily attributed to an increase
in bankruptcies. The Company provided an additional $38.0 million for doubtful
bankrupt accounts based on the increase in the total bankrupt account portfolio,
the mix of accounts by type of bankruptcy filed, and recent collection
experience. The Company also provided for increased write-offs of approximately
$36.3 million related to a more critical evaluation of accounts for write-off
for fiscal 1998 and to cover the impact of transferring the servicing of
accounts from stores that are planned for closing in fiscal 1999 to other
Heilig-Meyers store locations. Additionally, management has committed to a
reorganization of the Heilig-Meyers private label credit card program, which is
offered to certain customers under an agreement with a financial institution.
The Company provided $15.0 million to cover estimated losses under the recourse
provisions of the agreement that will be incurred as a result of the
reorganization plan. The items noted above, which total 4.1% of sales in fiscal
1998 were slightly offset by the operations of Rhodes, The RoomStore, and
Mattress Discounters as these formats primarily use third-party credit providers
and, accordingly, do not record significant provisions for doubtful accounts.
Total portfolio write-offs for fiscal 1998, 1997 and 1996 were $167.5
million, $77.4 million and $66.1 million, respectively. Of these amounts, $21.2
million, $6.9 million and $8.9 million were for purchased receivables,
respectively. Management believes that the allowance for doubtful accounts at
February 28, 1998, is adequate.
Components of the Profit Improvement Plan address the increase in the
portfolio loss rate. Stores that have been targeted for closing have been among
the poorest performers related to credit losses. Management believes the
elimination of these stores will positively impact the Company's credit losses
going forward. The Company plans to more fully implement risk-based scoring
models to provide local management with better tools in making credit extension
decisions. These models will also enable corporate management to more
efficiently monitor the portfolio. Management believes implementing this plan at
the local and corporate levels will also positively impact the portfolio's
credit losses.
Provision for Income Taxes and Net Earnings
The income tax benefit for fiscal 1998 was calculated by applying a
percentage of 34.7% compared to fiscal 1997's tax rate of 35.1%. The decrease in
the rate from 1997 is due to the impact of the loss incurred during 1998, offset
by the higher effective tax rates of the recently acquired operating
subsidiaries. The higher rates result from the carryover tax attributes of
acquired assets and liabilities. The effective tax rate for fiscal 1997 was
35.1% compared to 35.7% for fiscal 1996. The decrease between the fiscal 1997
and 1996 effective tax rate was primarily the result of higher fixed dollar
income tax credits in fiscal 1997 and lower levels of pretax earnings.
6
The net loss for fiscal 1998 was $55.1 million compared to earnings of
$40.2 million for fiscal 1997. The decrease between years was caused primarily
by the $25.5 million pretax store closing charge and the $89.3 million increase
in the provision for doubtful accounts. Selling, general and administrative
expenses included $14.8 million related to asset write-downs and other reserves
(see "Profit Improvement Plan"). The Company's raw selling margins were reduced
by approximately $5.1 million due to inventory liquidation sales in the Rhodes
stores and the Heilig-Meyers stores located in Puerto Rico. The remaining $11.6
million decrease between years is the result of the additional factors noted in
the discussion above. The net earnings for fiscal 1997 decreased to $40.2
million from $41.5 million for fiscal 1996. As a percentage of sales, profit
margin decreased to 3.0% for fiscal 1997 from 3.7% for fiscal 1996. The decrease
was mostly attributable to an increase as a percentage of sales in selling,
general and administrative expenses due to the decline in comparable store sales
and an increase in the provision for doubtful accounts.
LIQUIDITY AND CAPITAL RESOURCES
The Company increased its cash position $33.8 million to $48.8 million
at February 28, 1998, from $15.0 million at February 28, 1997, and $16.0 million
at February 29, 1996. As the Company continued to expand its store base through
acquisitions, cash flows used for investing activities exceeded cash provided by
operating activities for fiscal years 1998, 1997 and 1996. The Company's
operating activities typically use cash primarily because the significant
majority of customer sales in the Heilig-Meyers format have been through the
Company's in-house credit program. These uses of cash have been partially offset
by proceeds from the sale of accounts receivable and financing activities.
Operating activities used cash of $22.8 million for fiscal 1998
compared to cash used of $3.0 million in fiscal 1997 and cash provided of $92.5
million in fiscal 1996. The Company traditionally produces minimal or negative
cash flow from operating activities because it extends in-house credit in its
Heilig-Meyers stores. The Company's change in accounts receivable and provision
for doubtful accounts netted to a $13.5 million increase in fiscal 1998. The
Company's retained interest in securitized receivables at cost decreased $50.5
million during fiscal 1998 as the result of the sale of certain of these
investments. The Company's retained interest in securitized receivables at cost
grew by $198.8 million in fiscal 1997 with accounts receivable decreasing by
$56.2 million. These changes relate to the sale of $60.5 million of receivables
and the change in classification of certain receivables transferred to a master
trust during fiscal 1997. The higher level of receivables transferred relate to
the continued extension of credit to customers and a reduced amount of accounts
sold during the year as compared to the amounts sold in fiscal 1996. During
fiscal 1998, inventory levels increased at a higher rate than fiscal 1997
primarily due to the stocking of line-up inventory in the recently acquired
stores in order to support the merchandising plan. The prior increases in
inventory levels have primarily been the result of the opening of 113 new
Heilig-Meyers stores in fiscal 1997 and 69 in fiscal 1996. Continued extension
of credit and related increases in customer accounts receivable, as well as
increases in inventory related to new stores, are expected to be negative cash
flow activities in future periods. However, as noted above, the Company
periodically sells accounts receivable to provide a source of positive cash
flows from operating activities.
Investing activities produced negative cash flows of $106.5 million in
fiscal 1998, $146.5 million in fiscal 1997, and $95.6 million in fiscal 1996.
Cash used for acquisitions decreased in 1998 to $40.2 million compared to $58.8
million in fiscal 1997 as a result of a lower level of acquisition activity in
fiscal 1998. Cash used for acquisitions was relatively consistent in fiscal 1997
compared to fiscal 1996, at $58.8 million and $51.7 million, respectively. Cash
used for additions to property and equipment resulted from the opening of new
store locations and related support facilities as well as the remodeling and
improvement of existing and acquired locations. The increase in the cash
required for capital expenditures in fiscal 1997 was the result of a larger
number of prototype stores and support facilities completed or under
construction as of February 28, 1997, compared to February 29, 1996. The
increase in the disposals of property and equipment between fiscal 1998 and 1997
is the result of the beginning phases of the Company's "Profit Improvement
Plan." See the discussion concerning the Company's future expansion and
disposition plans under "Profit Improvement Plan" above.
7
Financing activities provided a positive net cash flow of $163.1
million in fiscal 1998 as compared to $148.4 million in fiscal 1997 and $8.8
million in fiscal 1996. In June 1997, the Company and a wholly-owned subsidiary
filed a joint Registration Statement on Form S-3 with the Securities and
Exchange Commission relating to up to $400.0 million aggregate principal amount
of securities. As of February 28, 1998, long-term notes payable with an
aggregate principal amount of $175.0 million have been issued to the public
under this registration statement. Long-term notes payable with an aggregate
principal amount of $300.0 million were issued to the public during fiscal 1997.
Proceeds from the issues were used to retire long-term debt maturing and
short-term notes payable. All previously issued debt had been in private
placements rather than public markets. As of February 28, 1998, the Company had
a $400.0 million revolving credit facility in place which expires in July 2000.
This facility includes thirteen banks and had $260.0 million outstanding and
$140.0 million unused as of February 28, 1998. The Company also had additional
lines of credit with banks totaling $60.0 million, all of which was unused as of
February 28, 1998.
As a result of charges recorded in fiscal 1998 under the Profit
Improvement Plan, the Company obtained amendments to its bank debt agreements in
order to maintain covenant compliance. In addition, certain provisions of the
Company's bond indenture restrict the Company's ability to incur long-term debt
until certain covenant restrictions are met. Management expects to meet these
covenants in the fourth quarter of fiscal 1999. However, management believes
that the Company has adequate access to capital to finance accounts receivable,
inventories and other capital needs during these next twelve months.
Total debt as a percentage of debt and equity was 62.1% at February 28,
1998, compared to 56.0% and 51.9% at February 28, (29), 1997 and 1996,
respectively. The increase in total debt as a percentage of debt and equity from
February 28, 1997 to February 28, 1998 is primarily attributed to the issuance
of $175 million of long-term debt as well as the increase in short-term notes
payable during fiscal 1998. The issuance was partially offset by the payment on
the maturity of long-term notes. The fiscal 1998 loss, which reduced retained
earnings, also resulted in the increase of total debt as a percentage of debt
and equity. The current ratio was 1.8X at February 28, 1998, compared to 1.9X
and 2.4X for February 28, (29), 1997 and 1996, respectively. The decrease in the
current ratios from February 29, 1996 to February 28, 1997 was primarily
attributed to an $82.6 million increase in long-term debt due within one year.
OTHER INFORMATION
Year 2000 Issue
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 expects to
complete the remediation stage for the critical systems of the Heilig-Meyers
8
operations during fiscal year 1999. Completion of remediation for all other
subsidiaries' critical systems is expected in the first quarter of fiscal year
2000. The testing stage for the entire Company is planned for the first quarter
of fiscal year 2000. The Company is in the early stages of making an assessment
of its non-information technology systems (such as telephone and alarm systems).
Managers of such systems have been instructed to contact the appropriate third
party vendors to determine their Year 2000 compliance.
Since the project's beginning in fiscal 1997, the Company has incurred
approximately $.6 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. 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 remaining expenditures are expected to be approximately $1.8
million, which will be expensed as incurred. Expected future expenditures can be
broken down as follows:
Dollars
Task: (in thousands) %
----- -------------- ----
Auditing Remediation Efforts 126 7%
Hardware Remediation 1,098 61%
Internal and External Personnel Resources 378 21%
Software Upgrades/Remediation/Testing 198 11%
-------------- ----
Total 1,800 100%
-------------- ----
The remaining cost of the Company's Year 2000 Project and the dates on
which the Company plans to complete the Year 2000 compliance program are based
on management's current estimates, which are derived utilizing numerous
assumptions. Such assumptions include, but are not limited to, the continued
availability of certain resources, the readiness of third-parties through their
own remediation plans, the absence of costs associated with implementation of
any contingency plan, and the lack of acquisitions by the Company requiring
additional remediation efforts. These assumptions are inherently uncertain and
actual events could differ significantly from those anticipated.
The team is communicating with other companies, on which the Company's
systems rely and is planning to obtain 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.
Management believes the Year 2000 compliance issue is being addressed
properly by the Company to prevent any material adverse operational or financial
impacts. However, if such enhancements are not completed in a timely manner, the
Year 2000 issue may have a material adverse impact on the operations of the
Company. The Company is currently assessing the consequences of its Year 2000
project not being completed on schedule or its remediation efforts not being
successful. Management is developing contingency plans to mitigate the effects
of problems experienced by the Company, key vendors or service providers related
to the Year 2000. Management is ranking suppliers based on how critical each
supplier is believed to be to the Company's operations. The Company is
requesting a copy of the Year 2000 project plan under which these suppliers are
operating. The Company's Year 2000 project team will review these plans. If a
supplier is deemed to be critical and has a project plan that does not meet our
expectations for completion, the Company will examine all of the circumstances
and develop a contingency plan. Contingency plans may include the identification
and use of an alternate supplier of the product or service that is Year 2000
compliant or the purchase of additional levels of inventory as a precaution
based on the Company's expected needs. Management expects to complete its Year
2000 contingency planning during the first quarter of fiscal 2000.
FORWARD-LOOKING STATEMENTS
Certain statements included in this Annual Report are not based on
historical facts, but are forward-looking statements. These statements can be
identified by the use of forward-looking terminology such as "believes,"
9
"expects," "may," "will," "should," or "anticipates" or the negative thereof or
other variations thereon or comparable terminology, or by discussions of
strategy. See, e.g., "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Leading Our Industry Through
Innovation," "Strengthening Our Core Business," "Expanding Via New Formats and
Markets," and "Leveraging Our Strengths." These statements reflect the Company's
reasonable judgments with respect to future events and are subject to risks and
uncertainties that could cause actual results to differ materially from those in
the forward-looking statements. Such risks and uncertainties include, but are
not limited to, the customer's willingness, need and financial ability to
purchase home furnishings and related items, the Company's ability to extend
credit to its customers, the costs and effectiveness of promotional activities,
the Company's ability to realize cost savings and other synergies from recent
acquisitions, as well as the Company's access to, and cost of, capital. Other
factors such as changes in consumer debt and bankruptcy trends, tax laws,
recessionary or expansive trends in the Company's markets, the ability of the
Company to effectively correct the Year 2000 issue, 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.
10
PART IV
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
HEILIG-MEYERS COMPANY
Date: January 6, 1999 by /s/William C. DeRusha
-------------------------
William C. DeRusha
Chairman of the Board
and Chief Executive Officer
11
Index to Exhibits
3. Articles of Incorporation and Bylaws.
a. Registrant's Restated Articles of Incorporation, as amended.
b. Registrant's Amended and Restated Bylaws, filed as Exhibit 3a
to Registrant's Quarterly Report on Form 10-Q for the quarter
ended November 30, 1997, are incorporated herein by this
reference.
4. Instruments defining the rights of security holders, including
indentures.
a. The long-term debt as shown on the consolidated balance sheet
of the Registrant at February 28, 1995 includes various
obligations each of which is evidenced by an instrument
authorizing an amount that is less than 10% of the total
assets of the Registrant and its subsidiaries on a
consolidated basis. The documents evidencing these obligations
are accordingly omitted pursuant to Regulation S-K, Item
601(b)(4)(iii) and will be furnished to the Commission upon
request.
10. Contracts
a. Three leases dated as of December 27, 1976 between Hyman
Meyers, Agent, and the Registrant, filed as Exhibit 10(a)(2)
and Exhibit 10(a)(4) - Exhibit 10(a)(5) to Registrant's Annual
Report on Form 10-K for the fiscal year ended February 28,
1989 (No. 1-8484), are incorporated herein by this reference.
b. The following Agreements filed as Exhibits 10(b) through 10(f)
to Registrant's Annual Report on Form 10-K for the fiscal year
ended February 28, 1991 (No. 1-8484) are incorporated herein
by this reference:
(1) Lease dated as of January 1, 1980 between Hyman Myers
, Agent, and the Registrant.
(2) Lease dated November 1, 1970 between Hyman Meyers,
Agent, and the Registrant as successor in interest to
Heilig-Meyers Company of Greenville, Inc.
(3) Lease dated April 15, 1971 between Meyers-Thornton
Investment Co. and the Registrant as successor in
interest to Meyers-Thornton Corporation.
(4) Lease dated June 28, 1971 between Meyers-Thornton
Investment Company and the Registrant as successor in
interest to Meyers-Thornton Corporation.
(5) Lease dated December 1, 1972 between Meyers-Thornton
Investment Company and the Registrant.
c. The following Agreements (originally filed as exhibits to
Registrant's Annual Report on Form 10-K for the fiscal year
ended March 31, 1982) were refiled as Exhibits 10(c)(1)-(3) to
Registrant's Annual Report on Form 10-K for the fiscal year
ended February 28, 1993 (No. 1-8484) and are incorporated
herein by reference:
(1) Executive Employment and Deferred Compensation
Agreement made January 12, 1982 between Hyman
Meyers and the Registrant. *
(2) Executive Employment and Deferred Compensation
Agreement made January 12, 1982 between S.
Sidney Meyers and the Registrant. *
12
(3) Executive Employment and Deferred Compensation
Agreement made January 12, 1982 between
Nathaniel Krumbein and the Registrant. *
d. Addendum to Lease and Contract dated February 26, 1973
amending Lease Contract dated April 15, 1971 between
Meyers-Thornton Investment Co. and the Company as successor in
interest to Meyers-Thornton Corporation (see Exhibit
10(c)(2)), filed as Exhibit 10(k) to Registrant's Registration
Statement on Form S-2 (No. 2-81775) is incorporated herein by
this reference.
e. The following Agreements filed as Exhibits 19(a) through 19(c)
to Registrant's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1984 (No. 1-8484) are incorporated herein by
this reference:
(1) Agreement made as of May 4, 1984 to amend Executive
Employment and Deferred Compensation Agreement
between Hyman Meyers and Registrant.*
(2) Agreement made as of May 4, 1984 to amend Executive
Employment and Deferred Compensation Agreement
between S. Sidney Meyers and Registrant.*
(3) Agreement made as of May 4, 1984 to amend Executive
Employment and Deferred Compensation Agreement
between Nathaniel Krumbein and Registrant.*
f. Agreement made as of September 15, 1989 to amend Executive
Employment and Deferred Compensation Agreement between Hyman
Meyers and Registrant filed as Exhibit 10(i) to the
Registrant's Annual Report on Form 10-K for the fiscal year
ended February 28, 1990 (No. 1-8484) is incorporated herein by
this reference.*
g. Agreement made as of September 15, 1989 to amend Executive
Employment and Deferred Compensation Agreement between S.
Sidney Meyers and Registrant filed as Exhibit 10(j) to the
Registrant's Annual Report on Form 10-K for the fiscal year
ended February 28, 1990 (No. 1-8484) is incorporated herein by
this reference.*
h. Agreement made as of September 15, 1989 to amend Executive
Employment and Deferred Compensation Agreement between
Nathaniel Krumbein and Registrant filed as Exhibit 10(k) to
the Registrant's Annual Report on Form 10-K for the fiscal
year ended February 28, 1990 (No. 1-8484)is incorporated
herein by this reference.*
i. Deferred Compensation Agreement between Robert L. Burrus, Jr.
and the Registrant filed as Exhibit 10(o) to the Registrant's
Annual Report on Form 10-K for the fiscal year ended February
28, 1987(No.1-8484) is incorporated herein by this reference.*
j. Amendment dated September 15, 1989 to the Deferred
Compensation Agreement between Robert L. Burrus, Jr. and the
Registrant filed as Exhibit 10(m) to Registrant's Annual
Report on Form 10-K for the fiscal year ended February 28,
1990(No.1-8484) is incorporated herein by this reference.*
k. Deferred Compensation Agreement between Lawrence N. Smith and
the Registrant filed as Exhibit 10(p) to the Registrant's
Annual Report on Form 10-K for the fiscal year ended February
28, 1987 (No. 1-8484) is incorporated herein by this
reference.*
l. Amendment dated September 15, 1989 to Deferred Compensation
Agreement between Lawrence N. Smith and the Registrant filed
as Exhibit 10(o) to Registrant's Annual Report on Form 10-K
for the fiscal year ended February 28, 1990 (No. 1-8484) is
incorporated herein by this reference.*
13
m. Deferred Compensation Agreement between George A. Thornton,
III and the Registrant filed as Exhibit 10(q) to the
Registrant's Annual Report on Form 10-K for the fiscal year
ended February 28, 1987 (No. 1-8484) is incorporated herein by
this reference.*
n. Amendment dated September 15, 1989 to Deferred Compensation
Agreement between George A. Thornton, III and the Registrant
filed as Exhibit 10(q) to Registrant's Annual Report on Form
10-K for the fiscal year ended February 28, 1990 (No. 1-8484)
is incorporated herein by this reference.*
o. Employees Supplemental Profit-Sharing and Retirement Savings
Plan, adopted effective as of March 1, 1991, amended and
restated effective as of March 1, 1994 filed as Exhibit 10(s)
to Registrant's Annual Report on Form 10-K for the fiscal year
ended February 28, 1997 (No. 1-8484) is incorporated herein by
this reference. *
p. Registrant's 1983 Stock Option Plan, as amended, filed as
Exhibit C to Registrant's Proxy Statement dated May 9, 1988
(No. 1-8484) for its Annual Meeting of Stockholders held on
June 22, 1988 is incorporated herein by this reference.*
q. Amendments to registrant's 1983 Stock Option Plan, as amended,
filed as Exhibit 10(t) to Registrant's Annual Report on Form
10-K for the fiscal year ended February 28, 1990 (No. 1-8484)
is incorporated herein by this reference.*
r. Registrant's 1990 Stock Option Plan, as amended, filed as
Exhibit 10(t) to Registrant's Annual Report on Form 10-K for
the fiscal year ended February 28, 1993 (No. 1-8484) is
incorporated herein by this reference.*
s. Registrant's 1994 Stock Option Plan, as amended, filed as
Exhibit A to Registrant's Proxy Statement dated May 3, 1994
(No. 1-8484) for its Annual Meeting of Stockholders held on
June 15, 1994 is incorporated herein by this reference.*
t. Registrant's Executive Severance Plan effective as of
September 15, 1989 filed as Exhibit 10(v) to Registrant's
Annual Report on Form 10-K for the fiscal year ended February
28, 1990 (No. 1-8484) is incorporated herein by this
reference.*
u. Form of Executive Supplemental Retirement Agreement between
the Registrant and each of William C. DeRusha and Troy A.
Peery, Jr. dated January 1, 1996 filed as Exhibit 10(y) to
Registrant's Annual Report on Form 10-K for the fiscal year
ended February 28, 1997 (No. 1-8484) is incorporated herein by
this reference. *
v. Form of Executive Supplemental Retirement Agreement between
the Registrant and each of James F. Cerza, Jr., Joseph R.
Jenkins and James R. Riddle dated January 1, 1996 filed as
Exhibit 10(z) to Registrant's Annual Report on Form 10-K for
the fiscal year ended February 28, 1997 (No. 1-8484) is
incorporated herein by this reference. *
w. Form of Executive Supplemental Retirement Agreement between
the Registrant and William J. Dieter dated January 1, 1996
filed as Exhibit 10(aa) to Registrant's Annual Report on Form
10-K for the fiscal year ended February 28, 1997 (No. 1-8484)
is incorporated herein by this reference. *
x. Employment Agreement made as of November 1, 1996 between
William C. DeRusha and the Registrant filed as Exhibit 10(bb)
to Registrant's Annual Report on Form 10-K for the fiscal year
ended February 28, 1997 (No. 1-8484) is incorporated herein by
this reference. *
14
y. Employment Agreement made as of November 1, 1996 between Troy
A. Peery, Jr. and the Registrant filed as Exhibit 10(cc) to
Registrant's Annual Report on Form 10-K for the fiscal year
ended February 28, 1997 (No. 1-8484) is incorporated herein by
this reference. *
z. The following Agreements filed as Exhibits 10 (ii) through 10
(kk) to the Registrant's Annual Report on Form 10-K for fiscal
year ended February 28, 1991 (No. 1-8484) are incorporated
herein by this reference:
(1) Employment Agreement dated April 10, 1991 between
Joseph R. Jenkins and the Registrant.*
(2) Employment Agreement dated April 10, 1991 between
James C. Cerza, Jr. and the Registrant.*
(3) Employment Agreement dated April 10, 1991 between
James R. Riddle and the Registrant.*
aa. Carve Out Life Insurance Plan filed as Exhibit 10(ff) to the
Registrant's Annual Report on Form 10-K for the fiscal year
ended February 28, 1993 (No. 1-8484) is incorporated herein
by this reference.*
bb. Amendment, dated as of August 18, 1993, to the Heilig-
Meyers Company Severance Plan filed as exhibit 10(hh)
to the Registrant's Annual Report on Form 10-K for the fiscal
year ended February 28, 1994 (No. 1-8484) is incorporated
herein by this reference.*
cc. 1988 Deferred Compensation Agreement for Outside Directors
between George A. Thornton, III and the Registrant filed as
exhibit 10(ii) to the Registrant's Annual Report on Form
10-K for the fiscal year ended February 28, 1994 (No. 1-8484)
is incorporated herein by this reference.*
dd. Amendment, dated as of April 18, 1994, to the 1986
Heilig-Meyers Company Deferred Compensation Agreement for
Outside Director between George A. Thornton, III and the
Registrant filed as exhibit 10(jj) to the Registrant's Annual
Report on Form 10-K for the fiscal year ended February 28,
1994 (No. 1-8484) is incorporated herein by this reference.*
ee. Amendment, dated as of April 18, 1994, to the 1990 Heilig
Meyers Company Deferred Compensation Agreement for Outside
Director between George A. Thornton, III and the Registrant
filed as exhibit 10(kk) to the Registrant's Annual Report on
Form 10-K for the fiscal year ended February 28, 1994 (No.
1-8484) is incorporated herein by this reference.*
ff. Letter Agreement, dated August 26, 1993, amending employment
agreement between Joseph R. Jenkins and the Registrant filed
as exhibit 10(ll) to the Registrant's Annual Report on Form
10-K for the fiscal year ended February 28, 1994 (No. 1-8484)
is incorporated herein by this reference.*
gg. Letter Agreement, dated August 26, 1993, amending employment
agreement between James R. Riddle and the Registrant filed as
exhibit 10(mm) to the Registrant's Annual Report on Form 10-K
for the fiscal year ended February 28, 1994 (No. 1-8484) is
incorporated herein by this reference.*
hh. Letter Agreement, dated August 26, 1993, amending employment
agreement between James F. Cerza and the Registrant filed as
exhibit 10(nn) to the Registrant's Annual Report on Form 10-K
for the fiscal year ended February 28, 1994 (No. 1-8484) is
incorporated herein by this reference.*
15
ii. $400,000,000 Credit Agreement dated July 18, 1995 (the
"Credit Facility") among MacSaver Financial Services, Inc., as
Borrower; the Registrant, as Guarantor; and Wachovia Bank of
Georgia, N.A., as Administrative Agent, as amended by the
First Amendment and Restatement of Credit Agreement dated May
14, 1996 filed as exhibit 10 (pp) to the Registrant's Annual
Report on Form 10-K for the fiscal year ended February 29,
1996 (No. 1-8484) is incorporated herein by this reference.
jj. Policy issued by Life Insurance Company of North America,
dated March 1, 1989 covering the Rhodes, Inc. Employee
Disability Plan, filed with the Commission as Exhibit 10.38
to Rhodes, Inc.'s Annual Report on Form 10-K for the year
ended February 28, 1991 (No. 0-08966) is incorporated herein
by this reference.*
kk. Form of Compensation (change in control) Agreement between
Irwin L. Lowenstein and Rhodes, Inc., filed with the
Commission as Exhibit 10.7 to Rhodes, Inc.'s Annual Report on
Form 10-K for the year ended February 28, 1995 (No. 1-09308)
is incorporated herein by this reference.*
ll. Amended and Restated Merchant Agreement by and between
Beneficial National Bank USA, HMY RoomStore, Inc. and Rhodes,
Inc., dated as of May 9, 1997 filed as Exhibit 10(qq) to
Registrant's Annual Report on Form 10-K for the fiscal year
ended February 28, 1997 (No. 1-8484) is incorporated herein by
this reference.
mm. Compensation Agreement entered into between Rhodes, Inc. and
Joel T. Lanham, filed with the Commission as Exhibit 10.10 to
Rhodes, Inc.'s. Annual Report on Form 10-K for the year ended
February 29, 1996 (No. 1-09308) is incorporated herein by this
reference.*
nn. Compensation Agreement entered into between Rhodes, Inc. and
Joel H. Dugan, filed with the Commission as Exhibit 10.11 to
Rhodes, Inc.'s Annual Report on Form 10-K for the year ended
February 29, 1996 (No. 1-09308) is incorporated herein by this
reference.*
oo. First Amendment and Restatement of Credit Agreement dated as
of May 14, 1996.
pp. Second Amendment and Restatement of Credit Agreement dated as
of January 8, 1997.
qq. Third Amendment and Restatement of Credit Agreement dated as
of May 23, 1997.
rr. Amendment No. 4 to the Credit Agreement, dated as of November
30, 1997 filed as Exhibit 10a to Registrant's Quarterly Report
on Form 10-Q for the quarter ended November 30, 1997, is
incorporated herein by this reference.
ss. Amendment No. 5 to the Credit Agreement dated as of April 22,
1998.
tt. Amended and Restated Guaranty by the Registrant, dated as of
May 9, 1997, of certain obligations under the Amended and
Restated Merchant Agreement by and among Beneficial National
Bank USA, HMY RoomStore, Inc. and Rhodes, Inc., dated as of
May 9, 1997, filed as Exhibit 10a to Registrant's Quarterly
Report on Form 10-Q for the quarter ended May 31, 1997, is
incorporated herein by this reference.
uu. Rhodes Inc. Supplemental Employees Pension Plan, effective as
of March 1, 1995.
16
21. Subsidiaries of Registrant.
23. Consents of experts and counsel.
a. Consent of Deloitte & Touche LLP to incorporation by
reference of Accountants' Reports into Registrant's
Registration Statements on Form S-8.
27. Financial Data Schedule
* Management contract or compensatory plan or arrangement of the Company
required to be filed as an exhibit.
17