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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
X Annual report pursuant to Section 13 or 15 (d) of the Securities Exchange
Act of 1934 [Fee Required]
For the fiscal year ended February 28, 1997 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.)
2235 Staples Mill Road, Richmond, Virginia 23230
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (804) 359-9171
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 Stock Exchange
Rights to purchase Preferred New York Stock Exchange
Stock, Series A, $10.00 Pacific Stock 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. [ X ]
The aggregate market value of the voting stock held by non-affiliates
of the registrant as of May 1, 1997 was approximately $624,713,837.
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This figure was calculated by multiplying (i) the closing sales price
of the registrant's common stock on the New York Stock Exchange on May 1, 1997
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, 1997, there were outstanding 54,414,463 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 18, 1997, are incorporated by reference into
Part III.
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INDEX
PART 1
ITEM 1. BUSINESS Page
A. Introduction 4
B. Industry Segments 4
C. Nature of Business
General 4
Competition 5
D. Store Operations
General 5
Merchandising 6
Advertising and Promotion 7
Credit Operations 7
Distribution 8
Customer Service 9
E. Corporate Expansion 9
F. Other Factors Affecting the Business of Heilig-Meyers
Suppliers 11
Service Marks, Trademarks and Franchise Operations 11
Seasonality 11
Employees 11
Foreign Operations and Export Sales 11
ITEM 2. PROPERTIES 11
ITEM 3. LEGAL PROCEEDINGS 13
ITEM 4. SUBMISSION of MATTERS to a VOTE of SECURITY HOLDINGS 13
PART II
ITEM 5. MARKET for REGISTRANT'S COMMON EQUITY and
RELATED STOCKHOLDER MATTERS 16
ITEM 6. SELECTED FINANCIAL DATA 17
ITEM 7. MANAGEMENT'S DISCUSSION and ANALYSIS of
FINANCIAL CONDITION and RESULTS of OPERATIONS 19
ITEM 8. FINANCIAL STATEMENTS and SUPPLEMENTARY DATA 24
ITEM 9. CHANGES in and DISAGREEMENTS with ACCOUNTANTS
on ACCOUNTING and FINANCIAL DISCLOSURE 43
PART III
ITEM 10. DIRECTORS and EXECUTIVE OFFICERS of the REGISTRANT 44
ITEM 11. EXECUTIVE COMPENSATION 44
ITEM 12. SECURITY OWNERSHIP of CERTAIN BENEFICIAL OWNERS
and MANAGEMENT 44
ITEM 13. CERTAIN RELATIONSHIPS and RELATED TRANSACTIONS 44
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, and
REPORTS on FORM 8-K 44
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PART 1
ITEM 1. BUSINESS
A. Introduction
Heilig-Meyers Company (the "registrant"), which together with its
predecessors and subsidiaries, sometimes hereinafter referred to as the
"Company," is engaged primarily in the retail sale of home furnishings. The
Company's predecessors are numerous Virginia and North Carolina corporations,
the first of which was incorporated in 1940, and all of which were merged into
Heilig-Meyers Company, a North Carolina corporation, in March 1970, which in
turn was merged into the registrant, a Virginia corporation, in June 1972.
The Company has grown in recent years, in part, through a series of
acquisitions. Among the largest recent acquisitions are the January 1994
acquisition of certain assets relating to 92 stores of McMahan's Furniture
Company, the February 1995 acquisition of certain assets relating to the
operations of 17 stores owned by Berrios Enterprises of Caguas, Puerto Rico, the
October 1996 acquisition of certain assets relating to the 20 stores of J.
McMahan's in Santa Monica, California and the unrelated acquisition of
certain assets relating to the 23 stores of Self-Service Furniture Company of
Spokane, Washington and the December 1996 acquisition of the Atlanta,
Georgia-based Rhodes, Inc., a publicly traded home furnishings retailer with 105
stores in 15 states. Most recently, during February 1997, the Company acquired
certain assets relating to the 10 stores of The RoomStore, Inc. of Ft. Worth,
Texas. The Rhodes and RoomStore chains will continue to operate under their
respective names and formats. The Company also acquired the assets of a 19-
store furniture chain based in North Carolina on February 28, 1997. These stores
began operations March 1, 1997 and are, therefore, excluded from the February
28, 1997 store count.
As of February 28, 1997, Heilig-Meyers Company operates stores under
four names and formats. The "Heilig-Meyers" name is associated with the
Company's historical format with the majority of the stores operating in
smaller markets with a broad line of merchandise. All of the Company's Puerto
Rican stores operate under the "Berrios" name. The Berrios format is similar to
the stores operated under the "Heilig-Meyers" name. The "Rhodes" name is
used for the 105 stores acquired on December 31, 1996. The Rhodes format
retailing strategy is selling quality furniture to a broad base of middle income
customers. "The RoomStore" name and format is utilized for 10 stores
acquired in February 1997 that display and sell furniture in complete room
packages. The rooms are arranged by professional designers and sell at a value
if purchased as a group.
B. Industry Segments
The Company considers that it is engaged primarily in one line of
business, the sale of home furnishings, and has one reportable industry segment.
Accordingly, data with respect to industry segments has not been separately
reported herein.
C. Nature of Business
General
The Company is the nation's largest specialty retailer of home
furnishings with 944 stores (as of February 28, 1997), 912 of which are located
in 32 states with the remainder in Puerto Rico. The Company's Heilig- Meyers
stores are primarily located in small towns and rural markets in the southeast,
southcentral, midwest, west, northwest and southwest Continental United States.
The 105 Rhodes stores are primarily located in the midsized markets and
metropolitan areas of 15 southern, midwestern and western states.
The Company's operating strategies include: (1) offering a broad
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selection of competitively priced home furnishings, including furniture and
accessories, and bedding, and in the Heilig-Meyers and Berrios stores, consumer
electronics, appliances, and other items such as jewelry, small appliances and
seasonal goods; (2) locating Heilig-Meyers stores primarily in small towns and
rural markets which are at least 25 miles from a metropolitan market; (3)
offering credit programs to provide flexible financing to its customers; (4)
utilizing centralized inventory and distribution systems in strategic regional
locations to support store inventory and merchandise delivery operations; (5)
emphasizing customer service, including free delivery on most major purchases in
the Heilig-Meyers stores and repair service for consumer electronics and other
mechanical items. As a result of the acquisition of Rhodes and The RoomStore,
the Company now has the ability to expand by matching operating formats to
markets with appropriate demographic and competitive factors. The Company
expects to expand these formats as appropriate markets are identified.
The Company believes this strategy of offering selection, credit,
delivery and service generally allows its Heilig-Meyers stores to have the
largest market share among home furnishings retailers in most of their small-
town markets.
Competition
The retail home furnishings industry is a highly competitive and
fragmented market. The Company, as a whole, competes with large chains,
independent stores, discount stores, furniture stores, specialty stores and
others, some of which have financial resources greater than those of the
Company, and some of which derive revenues from the sale of products other than
home furnishings. The Company believes that the addition of the "Rhodes" and
"The RoomStore" names and formats will enhance the Company's
competitive position. The Company is now more capable of matching the store
format with the local market environment. The Company believes the "Rhodes"
and "The RoomStore" formats are better suited for larger markets than
the Heilig-Meyers store format, which it believes better serves small towns.
Due to volume purchasing, the Company believes it is generally able to
offer merchandise at equal or lower prices than its competitors, particularly
local independent and regional specialty furniture retailers. In addition,
Management believes that it offers a broader selection of merchandise than many
of its competitors. The Company believes that locating its Heilig-Meyers stores
in small towns and rural markets provides an important competitive advantage.
Currently, approximately 80% of all Heilig-Meyers stores are located in towns
with populations under 50,000 that are more than 25 miles from a metropolitan
market. Competition in these small towns largely comes from locally-owned store
operations, which generally lack the financial strength to compete effectively
with the Company. Consequently, the Company believes that its Heilig-Meyers
stores have the largest market share among home furnishings retailers in the
majority of their areas.
Based on its experience, the Company believes its competitive
environment is comparable in all geographic regions in which it operates.
Therefore, the Company does not believe that a regional analysis of its
competitive market is meaningful at this time.
D. Store Operations
General
The Company's Heilig-Meyers stores generally range in size from 10,000
to 35,000 square feet, with the average being approximately 20,000 square feet.
A store's attached or nearby warehouse usually measures from 3,000 to 5,000
square feet. A typical store is designed to give the customer an urban shopping
experience in a rural location. During the last five years, the Company has
revised its Heilig-Meyers prototype store construction program. The Company's
most recent version of its prototype stores opened in fiscal 1997. The Company
added 3 of these stores in fiscal 1994, 7 in fiscal 1995, 8 in fiscal 1996, 8 in
fiscal 1997 and plans to add up to 15 more for fiscal
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1998. The prototype stores are 27,000 square feet and feature the latest display
techniques and construction efficiencies. Certain features of these prototype
stores are incorporated into other locations through the Company's ongoing
remodeling program. The Company's existing store remodeling program, under which
stores are remodeled on a rotational basis, provides the Company's older stores
with a fresh look and up-to-date displays on a periodic basis. During fiscal
1997, the Company remodeled 75 existing stores and approximately 105 additional
remodelings are planned for fiscal 1998. The existing Rhodes and RoomStore
formats average approximately 34,000 and 25,000 square feet, respectively.
Each store unit is managed by an on-site manager responsible for
day-to-day store operations including, if offered in that store, installment
credit extension and collection. Stores are grouped into divisions and regions
for executive management purposes.
The Company has an extensive in-house education program to train new
employees in its operations and to keep current employees informed of the
Company's policies. This training program emphasizes sales productivity, credit
extension and collection, and store administration. The training program
utilizes the publication of detailed store manuals, internally produced training
videotapes and Company-conducted classes for employees. The Company also has an
in-store manager training program which provides potential managers hands-on
experience in all aspects of store operations. The Company's ongoing education
program is designed to provide a sufficient number of qualified personnel for
its stores.
In recent years, Heilig-Meyers has enhanced its operating systems to
increase the availability and effectiveness of management information and to
provide a foundation for planned future growth. In fiscal 1995, the Company made
improvements to inventory management by use of just-in-time ordering and
backhauling. Also during fiscal 1995, the Company completed a conversion to
updated hardware, providing a foundation for numerous system enhancements. In
fiscal 1996, the Company completed the installation of a new satellite system.
This system provides immediate communication between the Company's corporate
headquarters, Heilig-Meyers stores and distribution centers. As a result, the
Company believes customer service has been improved by providing store
management more timely access to information related to product availability.
This system also provided the means for the Company to implement its new
inventory reservation system and enhanced target marketing programs during
fiscal 1997. The Rhodes and The RoomStore formats have operating systems in
place that provide similar operating capabilities.
Merchandising
The Company's Heilig-Meyers merchandising strategy is to offer a broad
selection of competitively priced home furnishings, including furniture and
accessories, consumer electronics, appliances, bedding and other items such as
jewelry and seasonal goods. During the fiscal year ended February 28, 1997, the
percentage of Heilig-Meyers stores' sales derived from the following
merchandising categories was as follows:
Furniture and accessories 60%
Consumer electronics 10
Bedding 12
Appliances 8
Other (e.g. jewelry and seasonal goods 10
These percentages have not varied significantly over the past five
fiscal years. The RoomStore and Rhodes stores primarily sell mid-price point
furniture and bedding. Historically, 89% of Rhodes' sales consisted of furniture
and accessories with bedding comprising the remaining 11%.
The Company carries a wide variety of items within each merchandise
category to appeal to individual tastes and preferences. The Company believes
this broad selection of products has enabled it to expand its customer base
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and increase repeat sales to existing customers. By carrying seasonal
merchandise (heaters, air conditioners, lawn mowers, outdoor furniture, etc.) in
its Heilig-Meyers stores, the Company has been able to moderate the seasonal
fluctuations in its sales which are common to the industry.
While the basic merchandise mix remained fairly constant during fiscal
1997, the Company continued to refine its merchandise selections to capitalize
on variations in customer preferences. During fiscal 1997, the Company continued
to strengthen its vendor relationships. In addition to providing purchasing
advantages, these relationships provide warehousing and distribution
arrangements which improve inventory management.
Advertising and Promotion
Direct mail circulars are a key part of the Company's marketing
program. The Company centrally designs its direct mail circulars, which
accounted for approximately 45% of the Company's advertising expenses in fiscal
1997. In fiscal 1997, the Company distributed over 140 million direct mail
circulars. This included monthly circulars sent by direct mail to over nine
million households on the Company's mailing list and special private sale
circulars mailed to approximately two million of these households each month, as
well as during special promotional periods.
In addition to the Company's utilization of direct mail circulars,
television and radio commercials are produced centrally and aired in virtually
all of the Company's markets. Newspaper advertising is placed largely at the
store level. The Company also utilizes Spanish language television and radio in
selected markets with significant Hispanic populations. The Company also
regularly conducts approximately 40 Company-wide promotional events each year.
In addition to these events, individual stores periodically conduct promotional
events locally. Besides the conventional marketing techniques noted above,
Heilig-Meyers has sought alternative methods to increase the Company's name
recognition and customer appeal. In fiscal 1997, the Company continued its
sponsorship of the Heilig-Meyers NASCAR Racing Team as a means of enhancing the
Company's name recognition among the millions of NASCAR fans in its current and
potential market areas.
During fiscal 1997, the Company continued to utilize market
segmentation techniques (begun in fiscal 1994) to identify prospective customers
by matching their demographics to those of existing customers. Management
believes ongoing market research and improved mailing techniques enhance the
Company's ability to place circulars in the hands of those potential customers
most likely to make a purchase. The Company believes that the availability as
well as the terms of credit are key determinants in the purchasing decision, and
therefore, promotes credit availability by disclosing monthly payment terms in
its circulars.
Credit Operations
The Company believes that offering flexible credit options is an
important part of its business strategy, which provides a significant
competitive advantage. Because Heilig-Meyers installment credit is administered
at the store level, terms can generally be tailored to meet the customer's
ability to pay. Each Heilig-Meyers store has a credit manager who, under the
store manager's supervision, is responsible for extending and collecting that
store's accounts in accordance with corporate guidelines. Because Company
representatives work with customers on a local level, they can often extend
credit, without significantly increasing the risk of nonpayment, to customers
whose other credit sources may be limited.
The Company believes its credit program fosters customer loyalty and
repeat business. Historically, approximately 80% of sales in the Heilig- Meyers
stores have been made through the Company's installment credit program. Although
the Company extends credit for original terms up to 24 months, the average term
of the installment obligation for the fiscal year ended February 28, 1997, was
approximately 17 months. The Company accepts major credit cards
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in all of its stores and, in addition, offers a revolving credit program
featuring its private label credit card. The Company promotes this program by
direct mailings to revolving credit customers of acquired stores and potential
new customers in targeted areas. Credit extension and collection of revolving
accounts are handled centrally from the Company's Credit Center located in
Richmond, Virginia.
The Company offers a revolving credit program in the recently acquired
Rhodes stores through a private label credit facility pursuant to an ongoing
merchant agreement with Beneficial National Bank USA. The Company does not
service or provide recourse on these accounts. All credit applications, sales,
and many payments on account are processed electronically through Rhodes'
point-of-sale system. Approximately 70% of Rhodes sales are made through the
revolving credit program.
Revenue is recognized on installment and credit sales upon approval
and establishment of a delivery date, which does not differ materially from
recognition at time of shipment. The effect of sales returns prior to shipment
date have been immaterial. Finance charges are included in revenues on a monthly
basis as earned. During fiscal 1997, finance income amounted to $209,491,000, or
approximately 13.1% of total revenues. Because credit operations are integrated
with sales and store administration, management does not believe that an
accurate allocation of various costs and expenses of operations can be made
between retail sales and credit operations. Therefore, the Company is unable to
estimate accurately the contribution of its financing operations to net income.
The Company offers, but does not require, one or more of the following
credit insurance products at the time of a credit sale: property, life,
disability and unemployment insurance. The Company's employees enroll customers
under a master policy issued by an unrelated third-party insurer with respect to
these credit insurance products.
Distribution
The Company currently operates eight Heilig-Meyers distribution
centers in the Continental U.S. and one center in Puerto Rico. These centers are
located in Orangeburg, South Carolina; Rocky Mount, North Carolina;
Russellville, Alabama; Mount Sterling, Kentucky; Thomasville, Georgia; Moberly,
Missouri; Fontana, California; Athens, Texas; and Cidra, Puerto Rico. The Athens
distribution center was completed near the end of fiscal 1997, with full
operations commencing in March 1997. During fiscal 1996, the Company expanded
the Moberly distribution center with a 150,000 square foot addition. Currently,
the Company's Heilig-Meyers distribution network has the capacity to service
over 900 stores in the continental U.S. The Company plans to relocate the
Fontana, CA distribution center in July 1997 to a larger, 400,000 square foot
facility with highly mechanized operations including conveyor systems located in
Hesperia, CA. The new distribution center will also contain the relocated
Fontana Service Center as well as an outlet store. The Company also operates the
eleven Rhodes distribution centers, which collectively have more than 1.1
million square feet and include home delivery operations in certain markets. The
Company also operates The RoomStore's 200,000 square foot distribution center.
Management is in the process of evaluating the distribution function in light of
recent acquisitions in order to maximize warehousing and transportation
efficiencies.
The Company utilizes several sophisticated design and management
techniques to increase the operational efficiency of its distribution network.
These include cantilever racking and computer-controlled random-access inventory
storage. Use of direct shipping and backhauling from vendors has also enhanced
distribution efficiency. Backhauling involves routing its trucks so that they
can transport purchased inventory from suppliers to the distribution centers
while returning from normal store deliveries. The Company backhauled
approximately 26% of its purchased inventory in the Continental U.S. in fiscal
1997.
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Typically, each of the Company's Heilig-Meyers stores is located
within 250 miles of one of the eight distribution centers, and each Rhodes store
is within 100 miles of one of the eleven Rhodes distribution centers. The
Company operates a fleet of trucks which delivers merchandise to each store at
least twice a week. The Company believes the use of the distribution centers
enables it to make available a broader selection of merchandise, to reduce
inventory requirements at individual stores, to benefit from volume purchasing,
to provide prompt delivery to customers and to minimize freight costs.
Customer Service
The Company believes that customer service is an important element for
success in the retail furniture business and therefore provides a broad range of
services to its customers. These include home delivery and setup, as well as
liberal policies with respect to exchanges and returns. In addition, the Company
offers service agreements on certain merchandise sold in its stores. The Company
sells substantially all of its service policies to third parties and recognizes
service policy income on these at the time of sale. Revenue from service
policies and extended warranty contracts retained by the Company are deferred
and recognized over the life of the contract period.
In addition, the Company provides repair services on virtually all
consumer electronics and mechanical items sold in its stores. The Company
operates service centers in Fayetteville, North Carolina, Moberly, Missouri and
Fontana, California. The Fayetteville Service Center occupies approximately
40,000 square feet and has the capacity to process 2,000 repair jobs a week. The
Moberly Service Center occupies 35,000 square feet adjacent to the Moberly,
Missouri Distribution Center and has the capacity to process 2,000 repair jobs a
week. The Fontana service center occupies 15,000 square feet and has the
capacity to process 750 repair jobs a week. The Fontana service center will be
relocated with the distribution center to a 35,000 square foot facility in
Hesperia, CA. The service centers provide service for all consumer electronic
items, most mechanical items (except major appliances which are serviced
locally) and watches. The service centers are also authorized to perform repair
work under certain manufacturers' warranties. Service center trucks visit stores
weekly, allowing one-week turnaround on most repair orders.
E. Corporate Expansion
The Company has grown from 374 stores at February 29, 1992, to 944
stores at February 28, 1997. Over this time period, the Company has expanded
from its traditional southeast operating region into the midwest, west,
southwest, northwest and southcentral Continental United States as well as
Puerto Rico. In addition, the Company has acquired new operating formats as a
result of the Rhodes and The RoomStore acquisitions.
(PAGE)
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The following table discloses the Company's stores by state and
format as of February 28, 1997:
Heilig-
State Meyers Rhodes
Alabama 37 9
Arizona 15
Arkansas 3
California 89
Colorado 4 8
Florida 39 18
Georgia 53 18
Idaho 4
Iowa 20
Illinois 41 2
Indiana 20 1
Kansas 1
Kentucky 28 2
Louisiana 12
Maryland 1
Mississippi 30 1
Missouri 29 6
Montana 2
North Carolina 88 11
Nevada 5
New Mexico 7
Ohio 34 8
Oklahoma 7
Oregon 6
Pennsylvania 16
South Carolina 44 6
Tennessee 54 6
Texas 20 8
Virginia 45
Washington 14
West Virginia 27
Wisconsin 3
797 105
The Company also operates 10 The RoomStores in Texas and 32 Berrios stores in
Puerto Rico.
Growth in the number of stores comes primarily from three sources: acquisition
of chains or independent stores, refurbishing of existing retail space and new
construction. During the fiscal year ended February 28, 1997, the Company opened
or acquired 238 stores and closed 10 stores for a net increase, of 228 stores.
Of the 238 new stores, 175 were existing furniture stores acquired by the
Company in separate transactions, 55 were operations begun by the Company in
vacant existing buildings and 8 were prototype stores built according to the
Company's specifications.
The Company constantly evaluates opportunities for further expansion
of its business. The Company plans to add approximately 60 to 80 Heilig-Meyers
stores in the Continental U.S. during fiscal 1998 by seeking acquisitions of
existing businesses, obtaining and renovating existing retail space or
constructing new prototype stores in selected small towns. Most fiscal 1998
expansion is expected to be focused in Texas, Louisiana and Oklahoma due to the
proximity of the new Athens, Texas distribution center. In addition, the Company
plans to add two new stores in Puerto Rico during fiscal 1998. In selecting new
Heilig-Meyers locations, the Company intends to follow its established strategy
of generally locating stores within 250 miles of a
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distribution center and in towns with populations of 5,000 to 50,000 that are
over 25 miles from the closest metropolitan market. The Company believes that it
has substantial growth potential in its present and contiguous market areas.
Growth opportunities of the recently acquired stores operating under the Rhodes
and The RoomStore formats are being evaluated. The Company plans to expand these
formats as the appropriate markets are identified.
F. Other Factors Affecting the Business of the Company
Suppliers
During the fiscal year ended February 28, 1997, the Company's ten
largest suppliers accounted for approximately 35% of merchandise purchased. The
Company has no long-term contracts for the purchase of merchandise. In the past,
the Company has not experienced difficulty in obtaining satisfactory sources of
supply and believes that adequate alternative sources of supply exist for the
types of merchandise sold in its stores. Neither the Company nor its officers or
directors have an interest, direct or indirect, in any of its suppliers of
merchandise other than minor investments in publicly held companies.
Service Marks, Trademarks and Franchise Operations
The marks "Heilig-Meyers", "MacSaver", "MacSaver, design of a
Scotsman", other marks acquired through various acquisitions and the Company's
distinctive logo are federally registered service marks of the Company. The
Company has registrations for numerous other trademarks and service marks
routinely used in the Company's business. These registrations can be kept in
force in perpetuity through continued use of the marks and timely applications
for renewal.
The mark "Berrios" is a federally registered service mark of the
Company. The Company has also applied for certain other trademarks and service
marks for use in connection with its stores in Puerto Rico.
The marks "Rhodes" and "The RoomStore" are federally
registered service marks of the Company which were acquired in fiscal year 1997.
Seasonality
Quarterly fluctuations in the Company's sales are insignificant.
Employees
As of February 28, 1997, the Company employed approximately 18,200
persons full- or part-time in the Continental United States, of whom
approximately 17,200 worked in the Company's stores, distribution centers and
service centers, with the balance in the Company's corporate offices. As of
February 28, 1997, the Company employed approximately 1,000 persons full- or
part-time in Puerto Rico, of whom approximately 800 worked in the stores and
distribution center, with the balance in the corporate office. The Company is
not a party to any union contract and considers its relations with its employees
to be good.
Foreign Operations and Export Sales
The Company has no foreign operations and makes no export sales.
ITEM 2. PROPERTIES
As of February 28, 1997, 668 of the Company's stores are on a single
level, with approximately 80% of floor space devoted to sales and 20% used as a
warehouse primarily for merchandise being prepared for delivery and for items
customers carry with them. The Heilig-Meyers stores are typically located away
from the center of town. The remaining 276 stores generally are in older two- or
three-level buildings in downtown areas. Usually there is no warehouse space in
these older buildings, and the stores' warehouses are located in nearby
buildings.
(page 12)
As of February 28, 1997, the Company owned 71 of its Heilig-Meyers and
12 of its Rhodes stores, three of its Heilig-Meyers and five of its Rhodes
distribution centers and the Fayetteville, North Carolina Service Center. The
Company leases the remaining stores, the remaining distribution centers, its
corporate headquarters located at 2235 Staples Mill Road, Richmond, Virginia and
other office space. Rentals generally are fixed without reference to sales
volume, although some leases provide for increased rent due to increases in
taxes, insurance premiums or both. Some renewal options are tied to changes in
the Consumer Price Index. Total rental payments for properties for the fiscal
year ended February 28, 1997, were approximately $59,096,000. Most vehicles, a
majority of the distribution centers' material handling equipment, and a
majority of the Company's data processing equipment are also leased. The Company
believes that its facilities are adequate at present levels of operations.
(page 13)
ITEM 3. LEGAL PROCEEDINGS
The Company previously reported involvement in certain cases regarding
non-filing fees charged by the Company on certain credit transactions. Non-
filing fees are used to obtain insurance in lieu of filing a financing statement
to perfect a security interest in connection with a credit transaction. The
plaintiffs in the cases are alleging that the Company's charging of the
non-filing fees violates certain state and federal statutes and are seeking
statutory damages and unspecified punitive damages. Kirby et al v. Heilig-
Meyers Furniture Company and Heilig-Meyers Company was filed in the United
States District Court for the Southern District of Mississippi (Hattiesburg
District) on April 10, 1995. The plaintiffs in this case requested certification
of a class in all states except Alabama and Georgia and subsequently moved to
substitute a Mississippi class in its place. On February 3, 1997, this case and
Richardson v. Heilig-Meyers Company and Heilig-Meyers Furniture Company filed on
July 11, 1996 in the United States District Court for the North District of
Florida (Tallahassee Division) (the "Florida District Court") (seeking
certification of a class of Florida residents and alleging violation of federal
statutes) were transferred by the panel on multi district litigation (the "MDL
Panel") to the United States District Court for the Middle District of Alabama.
The Company has moved to return these cases to the courts in which these cases
were originally filed. There are also three cases pending in United States
District Courts which seek to certify classes of residents in Georgia, Illinois
and Virginia, respectively: Eubanks v. Heilig- Meyers Company and Heilig-Meyers
Furniture Company (Southern District of Georgia) filed on March 5, 1997 in
Georgia State Court and subsequently removed to United States District Court
(alleges violation of Georgia statutes); Faulkner v. Heilig-Meyers Company
(Northern District of Illinois) filed on February 18, 1997 (alleges violation of
federal and Illinois statutes); and Via v. Heilig-Meyers Company and
Heilig-Meyers Furniture Company (Western District of Virginia) filed on April
23, 1997 (alleges violation of federal statutes). The Company intends to
vigorously defend all of these cases. The Company has reached a settlement in a
case pending in the Florida District Court, Pace v. Heilig-Meyers Company and
Heilig-Meyers Furniture Company, which sought certification of a class of
Florida residents and alleged violations of Florida statutes. The settlement,
which was approved by the Florida District Court in May 1997, is not expected to
have a material impact on the Company's financial statements. In Jones v.
Heilig-Meyers Company and Heilig-Meyers Furniture Company (filed on February 23,
1996 in the Memphis, Tennessee Circuit Court seeking certification of a class of
Tennessee residents and alleging violations of Tennessee statutes), the Court
granted the Company's motion to deny class certification on April 29, 1997 and
subsequently granted the Company's motion to deny class certification on April
29, 1997 and subsequently granted the Company's motion to dismiss the case.
In addition, the Company is party to various legal actions and
administrative proceedings and subject to various claims arising in the ordinary
course of business, including claims relating to its charges in connection with
credit sales. Based on the best information presently available, the Company
believes that the disposition of these matters will not have a material adverse
impact on the financial statements of the Company.
ITEM 4. SUBMISSION of MATTERS to a VOTE of SECURITY HOLDERS
None.
(page 14)
Executive Officers of the Registrant
The following table sets forth certain information with respect to the
executive officers of the Company as of May 1, 1997:
Positions with the Company
or Principal Occupation for
Years with the Past Five Years and
Name Age the Company Other Information
---- --- ----------- -----------------
William C. DeRusha 47 28 Chairman of the Board since
April 1986. Chief Executive
Officer since April 1984.
Director since January 1983.
Troy A. Peery, Jr. 51 25 President since April 1986.
Chief Operating Officer since
December 1987. Director since
April 1984.
James F. Cerza, Jr. 49 9 Executive Vice President,
since April 1995. Executive
Vice President, Operations
from August 1989 to April 1995.
Joseph R. Jenkins 51 9 Executive Vice President and
Chief Financial Officer since
January 1988.
Irwin L. Lowenstein 61 - Executive Vice President, Rhodes
since April 1997. Executive Vice
President, Rhodes, Inc. since
January 1997. Chairman of the
Board, Rhodes, Inc. from 1994 to
December 1996. Chief Executive
Officer, Rhodes, Inc. from 1989 to
December 1996. President and Chief
Operating Officer, Rhodes, Inc.
from 1973 to 1994.
Frederick E. Meiser 53 - Executive Vice President,
Merchandising since December 1996.
Executive Vice President,
Montgomery Ward from March
1996 to December 1996 (retail
merchandising of electronics,
appliances, furniture and jewelry).
Chairman of the Board and Chief
Executive Officer, Lechmere from
November 1995 to December 1996
(retail merchandising of
home oriented products). Executive
Vice President, Merchandising,
Builders Square from 1994 to
November 1995 (retail
merchandising of home improvement
and repair products). Senior Vice
President, Marketing, Builders
Square from 1992 to 1994.
(page 15)
James R. Riddle 55 12 Executive Vice President,
since April 1995. Executive
Vice President, Marketing
from January 1988 to April
1995.
George A. Thornton III 56 - Executive Vice President, Rhodes
since April 1997. Director from
April 1980 to February 1997.
Independent consultant to
furniture manufacturers and
Chairman, Tim Buck II, LTD (real
estate development) for more than
five years prior to April 1997.
William J. Dieter 57 24 Senior Vice President, Accounting
since April 1986. Chief Accounting
Officer since 1975.
(page 16)
PART II
Item 5. MARKET for REGISTRANT'S COMMON EQUITY and RELATED STOCKHOLDER
MATTERS
The Company's common stock is traded on the New York and Pacific Stock
Exchanges under the symbol HMY. The table below sets forth the high and low
prices as reported on the New York Stock Exchange Composite Tape, and dividend
information for each of the last eight fiscal quarters.
Fiscal Year High Low Dividends
1997
4th Quarter $ 16 1/8 $ 12 3/4 $ .07
3rd Quarter 17 1/4 12 5/8 .07
2nd Quarter 24 1/8 16 .07
1st Quarter 23 3/8 13 7/8 .07
1996
4th Quarter $ 20 7/8 $ 13 1/2 $ .07
3rd Quarter 24 1/8 17 1/2 .07
2nd Quarter 27 1/4 21 1/2 .07
1st Quarter 24 1/8 19 5/8 .07
There were approximately 3,100 shareholders of record as of February
28, 1997.
The Company has paid cash dividends in every year since fiscal 1976.
The Board of Directors intends to continue its present policy of paying regular
quarterly dividends when justified by the financial condition of the Company.
The amount of future dividends, if any, will depend upon general business
conditions, earnings, capital requirements and such other factors as the Board
may deem relevant. The Company's payment of dividends is restricted, under
certain covenants in loan agreements, to $150,293,000 plus 75% of net earnings
adjusted for dividend payouts subsequent to February 28, 1997.
Recent Sales of Unregistered Securities. During the past fiscal year,
the Company issued shares of its common stock in the transactions described
below. The sales of the securities were exempt from registration under the
Securities Act of 1933 ("the Act") for transactions not involving a public
offering, based on the fact that the private placements were made to accredited
investors and a limited number of nonaccredited investors permitted under Rule
506 of Regulation D under the Act.
On February 18, 1997, the Company acquired substantially all the
assets of The RoomStore, Inc. which operated 10 stores in Texas. The
shareholders of The RoomStore, Inc. received 720,000 shares of the Company's
common stock as part of the transaction.
On February 28, 1997, the Company acquired substantially all the
assets of Star Furniture Company, Incorporated which operated a 19-store
furniture chain based in North Carolina. The shareholders of Star Furniture
Company, Incorporated received 500,000 shares of the Company's common stock as
part of the transaction.
(page 17)
Item 6. SELECTED FINANCIAL DATA
FISCAL YEAR 1997 1996 1995 1994 1993
(Dollar amounts in thousands except per share data)
Earnings Statement Data:
Sales $1,342,208 $1,138,506 $ 956,004 $ 723,633 $549,660
Annual growth in sales 17.9% 19.1% 32.1% 31.7% 25.9%
Other income $ 250,911 $ 220,843 $ 196,135 $ 140,156 $107,883
Total revenues 1,593,119 1,359,349 1,152,139 863,789 657,543
Annual growth in revenue 17.2% 18.0% 33.4% 31.4% 26.5%
Costs of sales $ 876,142 $ 752,317 $ 617,839 $ 460,284 $351,361
Gross profit margin 34.7% 33.9% 35.4% 36.4% 36.1%
Selling, general and
administrative
expense $ 526,369 $ 436,361 $ 350,093 $ 260,161 $200,071
Interest expense 47,800 40,767 32,889 23,834 23,084
Provision for doubtful
accounts 80,908 65,379 45,419 32,356 24,185
Provision for income
taxes 21,715 23,021 39,086 32,158 20,833
Effective income tax
rate 35.1% 35.7% 36.9% 36.9% 35.4%
Earnings margin 3.0% 3.7% 7.0% 7.6% 6.9%
Cumulative effect of
accounting change --- --- --- --- ---
Net earnings $ 40,185 $ 41,504 $ 66,813 $ 54,996 $ 38,009
Earnings per share:
Primary .80 .84 1.34 1.12 .84
Fully diluted .80 .84 1.34 1.12 .83
Net earnings per share:
Primary .80 .84 1.34 1.12 .84
Fully diluted .80 .84 1.34 1.12 .83
Cash dividends per share .28 .28 .24 .20 .16
Balance Sheet Data:
Total assets $1,837,158 $1,288,960$1,208,937 $1,049,633 $766,485
Average assets per store1,946 1,800 1,869 1,841 1,803
Accounts receivable,
net 596,959 518,969 538,208 535,437 397,974
Inventories 433,277 293,191 253,529 184,216 131,889
Property and equipment,
net 366,749 216,059 203,201 168,142 126,611
Additions to property
and equipment 84,137 40,366 49,101 36,252 27,426
Short-term debt 256,413 207,812 167,925 210,318 163,171
Long-term debt 561,489 352,631 370,432 248,635 176,353
Average debt per store 866 783 832 805 799
Stockholders' equity 642,621 518,983 490,390 433,229 305,555
Stockholders' equity
per share 11.81 10.69 10.10 8.95 6.87
Other Financial Data:
Working capital $ 550,137 $ 527,849$ 554,096 $ 453,175 $322,796
Current ratio 1.9 2.4 2.9 2.4 2.3
Debt to equity ratio 1.27 1.08 1.10 1.06 1.11
Debt to debt and equity 56.0% 51.9% 52.3% 51.4% 52.6%
Rate of return on
average assets (1) 4.6% 5.4% 7.8% 7.7% 7.5%
Rate of return on
average equity 6.9% 8.2% 14.5% 14.9% 13.3%
Number of stores 944 716 647 570 425
Number of employees 19,131 14,383 13,063 10,536 7,850
Average sales
per employee $ 84 $ 83$ 81 $ 79 $ 76
(page 18)
SELECTED FINANCIAL DATA, cont.
FISCAL YEAR 1997 1996 1995 1994 1993
(Dollar amounts in thousands except per share data)
Weighted average common shares outstanding:
(in thousands)
Primary 50,146 49,604 49,954 49,103 45,356
Fully diluted 50,157 49,645 49,954 49,281 45,644
Price range on common stock per share:
High $ 24 1/8 $27 1/4 $36 $39 $22 3/8
Low 12 5/8 13 1/2 23 1/4 19 3/8 10 5/8
Close 14 1/8 14 23 5/8 33 19 7/8
Per share amounts reflect a three-for-two stock split distributed in July
1993.
(1) Calculated using earnings before interest, net of tax.
(page 19)
Item 7. MANAGEMENT'S DISCUSSION and ANALYSIS of FINANCIAL
CONDITION and RESULTS of OPERATIONS
RESULTS OF OPERATIONS
Highlights of operations expressed as a percentage of sales are as
follows:
Fiscal Year
1997 1996 1995
Other income 18.7% 19.4% 20.5%
Costs of sales 65.3 66.1 64.6
Selling, general and
administrative expense 39.2 38.3 36.6
Interest expense 3.6 3.6 3.4
Provision for doubtful
accounts 6.0 5.7 4.8
Earnings before provision for
income taxes 4.6 5.7 11.1
Provision for income taxes 1.6 2.0 4.1
Net earnings 3.0 3.7 7.0
Revenues
Sales for fiscal 1997 compared to the two previous periods are shown
below:
Fiscal Year
1997 1996 1995
Sales (in thousands) $1,342,208 $1,138,506 $956,004
Percentage increase over
prior period 17.9% 19.1% 32.1%
Portion of increase from existing
(comparable) stores (0.6) 0.3 6.1
Portion of increase from new stores 18.5 18.8 26.0
The growth in total sales of Heilig-Meyers Company (the
"Company") for fiscal years 1997 and 1996 is primarily attributed to the
growth in operating units. An increased number of operating units as well as
increased volume in comparable stores caused the fiscal 1995 increase. 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
1997 was primarily in the southcentral, southwestern and northwestern United
States. The Heilig-Meyers units contributed 86%, 92% and 99.6% of sales for
fiscal years 1997, 1996 and 1995, respectively. The Company's Puerto Rican
operations, which conduct business under the name "Berrios," contributed
8% of total sales for fiscals 1997 and 1996 and .4% for fiscal 1995. On December
31, 1996, Rhodes, Inc., a Georgia Corporation, became a wholly-owned subsidiary
of the Company, and the acquisition was accounted for under the purchase method.
The Company operates these stores under the Rhodes name and format. The 105
Rhodes stores are primarily located in metropolitan areas of 15 southern,
midwestern and western states. Sales by the Rhodes stores for the two-month
period ended February 28, 1997 represented approximately 5.8% of the
Company's total sales for fiscal 1997. In late February 1997, the Company
acquired certain assets relating to 10 stores operating in central Texas under
the name "The RoomStore." The RoomStore operates under a "rooms
concept," displaying and selling furniture in complete room packages. The
Company plans to maintain The RoomStore name and continue to operate these
stores under this format. Due to the timing of the acquisition, The RoomStore
contribution to the Company's fiscal 1997 consolidated sales was not
significant. On February 28, 1997, the Company acquired a 19-store chain based
in North Carolina. These stores will begin operations in March 1997, and are
excluded from the table below. A summary of retail locations in
(page 20)
operation at the end of the last three fiscal years follows:
Fiscal Year
1997 1996 1995
Heilig-Meyers 797 688 630
Rhodes 105 - -
The RoomStore 10 - -
Berrios 32 28 17
TOTAL 944 716 647
The Company plans to continue its strategy of locating Heilig-Meyers
stores primarily in small towns and rural markets and expects to open 60 to 80
new stores in fiscal 1998. Growth opportunities of the stores operating under
the Rhodes and The RoomStore names are being evaluated. The Company expects to
expand these formats as appropriate markets are identified.
Management attributes the recent trends in sales primarily to a weak
overall home furnishings retail environment. The consumer demand for home
furnishings continued to be sluggish during fiscal 1997, which management
believes has been impacted by an overall rise in consumer debt levels. In
addition, the Company's operating strategy during fiscal 1997 was designed
to increase the quality of sales, as measured by increasing margin percentages
over the prior year, and to reduce the growth rate in the provision for doubtful
accounts as a percentage of sales.
Other income decreased to 18.7% of sales for fiscal 1997 from 19.4% of
sales for fiscal 1996. This decrease was due primarily to the impact of the
addition of the Rhodes stores acquired on December 31, 1996. The Rhodes stores
generate minimal finance related revenues because they do not offer in-house
credit to their customers. The Rhodes stores offer a private label credit card
program that is serviced by a third party. Other income for fiscal 1996
decreased to 19.4% of sales from 20.5% of sales in fiscal 1995. This decrease is
primarily attributed to a larger pool of securitized accounts receivable during
fiscal 1996 as compared to fiscal 1995. Interest costs related to securitized
receivables, which are based on the dollar value of accounts receivable sold to
third parties, are netted against finance income.
The Company plans to continue to offer the third party private label
credit card program by its Rhodes stores in fiscal 1998, and to continue its
program of periodically securitizing a portion of the installment accounts
receivable portfolio of its other stores. Proceeds from securitized receivables
are generally used to lower debt levels.
Costs and Expenses
In fiscal 1997, costs of sales decreased, as a percentage of sales, to
65.3% from 66.1% in fiscal year 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. Costs of sales increased to 66.1% of sales in
fiscal 1996 from 64.6% in fiscal 1995. This increase was due to utilization of
promotional pricing in response to the sluggish sales environment experienced in
fiscal 1996 and increases in costs associated with occupancy, depreciation and
lease charges related to store and distribution operations.
Selling, general and administrative expenses increased to 39.2% of
sales in fiscal 1997 from 38.3% in fiscal 1996 and 36.6% in fiscal 1995. The
increase in fiscal 1997 is 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
year. Advertising costs in fiscal 1997 were slightly down as a
(page 21)
percentage of sales compared to fiscal 1996; however, expenditures during the
year remained above the fiscal 1995 percentage. In fiscal 1996 the increase in
selling, general and administrative expenses as compared to fiscal 1995 was
primarily due to an increase in advertising expense associated with additional
promotional activities in response to the sluggish retail sales environment.
Interest expense was 3.6% of sales in fiscal years 1997 and 1996 and
3.4% of sales in fiscal 1995. 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 as
a percentage of sales from fiscal 1995 to fiscal 1996 was due to a $96.7 million
increase in weighted average long-term debt levels with no change in weighted
average long-term interest rates. Although weighted average short-term debt
levels declined during fiscal 1996 by approximately $31.4 million, weighted
average short-term interest rates increased to 6.3% from 5.1% in fiscal 1995.
The increase in long-term debt levels in both fiscal 1997 and 1996 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 6.0% of sales in fiscal 1997
compared to 5.7% and 4.8% of sales in fiscal years 1996 and 1995, respectively.
The increase in the provision for doubtful accounts as a percentage of sales is
a result of a rise in the portfolio loss rate and related write-offs experienced
during the last three fiscal years. The growth rate of the provision as a
percentage of sales decreased in fiscal 1997 as a result of the sales
contribution of the Rhodes stores and a more disciplined approach to credit
extension and account collection in Heilig- Meyers stores during the year. The
Company plans to continue this approach in order to minimize the portfolio loss
rate, and continue to offer third party credit without recourse in the Rhodes
stores during fiscal 1998.
Total portfolio write-offs for fiscal 1997, 1996 and 1995 were $77.4
million, $66.1 million and $51.7 million, respectively. Of these amounts, $6.9
million, $8.9 million and $7.6 million were for purchased receivables,
respectively. Management believes that the allowance for doubtful accounts at
February 28, 1997, is adequate.
Provision for Income Taxes and Net Earnings
The effective tax rate for fiscal 1997 was 35.1% compared to 35.7% and
36.9% for fiscal 1996 and fiscal 1995, respectively. This decrease in the
effective tax rate was primarily the result of higher fixed dollar income tax
credits in the current year and lower levels of pretax earnings.
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 expense due to the decline in comparable store sales and an
increase in the provision for doubtful accounts. As a percentage of sales,
profit margin decreased to 3.7% for fiscal 1996 from 7.0% for fiscal 1995. The
decrease was mostly attributable to a decline in the gross margin percentage, an
increase in selling, general and administrative expense and an increase in the
provision for doubtful accounts.
LIQUIDITY AND CAPITAL RESOURCES
The Company decreased its cash position $1.0 million to $15.0 million
at February 28, 1997, from $16.0 million at February 29, 1996. As the Company
continued to expand its store base, cash flows used for investing activities
exceeded cash provided by operating activities for fiscal years 1997, 1996 and
1995. The Company's operating activities typically use cash primarily
because the significant majority of customer sales 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
(page 22)
financing activities.
Operating activities used cash of $3.0 million for fiscal 1997
compared to cash provided of $92.5 million in fiscal 1996 and $114.2 million in
fiscal 1995. The Company's investment in accounts receivable grew by $144.1
million in fiscal 1997 because of 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. The increase in inventory levels has primarily been the
result of the opening of 113 new Heilig-Meyers and Berrios stores in fiscal
1997, 69 in fiscal 1996 and 77 in fiscal 1995. 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 $146.5 million in
fiscal 1997, $95.6 million in fiscal 1996, and $179.9 million in fiscal 1995.
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
acquisitions in fiscal 1995 was $132.2 million primarily due to the acquisition
of 17 stores in Puerto Rico for $99.0 million. 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 is 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. This includes the Company's distribution
center located in Athens, Texas which opened in late fiscal 1997. This facility
will support current and future stores located in Texas, Louisiana and Oklahoma.
During fiscal 1998, the Company plans to open approximately 60 to 80 new
Heilig-Meyers stores as well as continue its existing store remodeling program.
Capital expenditures will continue to be financed by cash flows from operations
and external sources of funds.
Financing activities provided a positive net cash flow of $148.4
million in fiscal 1997 as compared to $8.8 million in fiscal 1996 and $69.8
million in fiscal 1995. In July 1996, 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. Long-term notes payable with an aggregate principal amount of
$300.0 million were issued to the public during fiscal 1997 leaving $100.0
million available to be issued in the future. All previously issued debt had
been in private placements rather than public markets. Proceeds were used to
reduce long-term debt which matured in fiscal 1997 and short-term notes payable.
The Company has access to a variety of external capital sources to finance asset
growth and plans to continue to finance accounts receivable, inventories and
future expansion from operating cash flows supplemented by other sources of
capital. As of February 28, 1997, the Company had a $400.0 million revolving
credit facility in place which expires in July 2000. This facility includes
fourteen banks and had $145.0 million outstanding and $255.0 million unused as
of February 28, 1997. The Company also had additional lines of credit with banks
totaling $54.0 million of which $43.0 million was unused as of February 28,
1997.
Total debt as a percentage of debt and equity was 56.0% at February
29, 1997, compared to 51.9% and 52.3% at February 29, (28), 1996 and 1995,
respectively. The current ratio was 1.9 at February 28, 1997, compared to 2.4
and 2.9 for February 29, (28), 1996 and 1995, respectively. The decrease in the
current ratio at February 28, 1997 is primarily attributed to an $82.6 million
increase in long-term debt due within one year.
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,"
(page 23)
"expects," "may," "will," "should," or
"anticipates" or the negative thereof or other variations thereon or
comparable terminology, or by discussions of strategy. See, e.g.,
"Management's Discussion and Analysis of Financial Condition and Results
of Operations." These statements reflect the Company's reasonable
judgments with respect to future events and are subject to risks and
uncertainties that could cause actual results to differ materially from those in
the forward-looking statements. Such risks and uncertainties include, but are
not limited to, the customer's willingness, need and financial ability to
purchase home furnishings and related items, the Company's ability to extend
credit to its customers, the costs and effectiveness of promotional activities,
the Company's 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 tax laws, recessionary or expansive
trends in the Company's markets, inflation rates and regulations and laws
which affect the Company's ability to do business in its markets may also
impact the outcome of forward-looking statements.
(page 24)
Item 8. FINANCIAL STATEMENTS and SUPPLEMENTARY DATA
CONSOLIDATED STATEMENTS OF EARNINGS
(Amounts in thousands except per share data)
FISCAL YEAR 1997 1996 1995
---------- ---------- ---------
Revenues:
Sales $1,342,208 $1,138,506 $ 956,004
Other income 250,911 220,843 196,135
---------- ---------- ---------
Total revenues 1,593,119 1,359,349 1,152,139
Costs and expenses:
Costs of sales 876,142 752,317 617,839
Selling,general and administrative 526,369 436,361 350,093
Interest 47,800 40,767 32,889
Provision for doubtful accounts 80,908 65,379 45,419
---------- ---------- ---------
Total costs and expenses 1,531,219 1,294,824 1,046,240
---------- ---------- ---------
Earnings before provision for income
taxes 61,900 64,525 105,899
Provision for income taxes 21,715 23,021 39,086
---------- ---------- ---------
Net earnings $ 40,185 $ 41,504 $ 66,813
========== ========== =========
Net earnings per share:
Primary and fully diluted $ .80 $ .84 $ 1.34
========== ========== =========
Weighted average common shares outstanding:
Primary 50,146 49,604 49,954
Fully diluted 50,157 49,645 49,954
========== ========== =========
Cash dividends per share of common
stock $ .28 $ .28 $ .24
========== ========== =========
See notes to consolidated financial statements.
(PAGE)
(page 25)
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands except par value data)
FEBRUARY 28, (29) 1997 1996
Assets
Current assets:
Cash $ 14,959 $ 16,017
Accounts receivable, net 596,959 518,969
Inventories 433,277 293,191
Other current assets 88,862 67,139
----------- -----------
Total current assets 1,134,057 895,316
Property and equipment, net 366,749 216,059
Other assets 42,262 29,455
Excess costs over net
assets acquired, net 294,090 148,130
----------- -----------
$ 1,837,158 $ 1,288,960
=========== ===========
Liabilities And Stockholders' Equity
Current liabilities:
Notes payable $ 156,000 $ 190,000
Long-term debt due within one year 100,413 17,812
Accounts payable 160,857 87,739
Accrued expenses 166,650 71,916
----------- -----------
Total current liabilities 583,920 367,467
Long-term debt 561,489 352,631
Deferred income taxes 49,128 49,879
Stockholders' equity:
Preferred stock, $10 par value -- --
Common stock, $2 par value 108,828 97,143
Capital in excess of par value 195,352 120,769
Unrealized gain on investments 10,797 --
Retained earnings 327,644 301,071
----------- -----------
Total stockholders' equity 642,621 518,983
----------- -----------
$ 1,837,158 $ 1,288,960
=========== ===========
See notes to consolidated financial statements.
(page 26)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Amounts in thousands)
Number of
Common Capital in Total
Shares Common Excess of Unrealized Retained Stockholders'
Outstanding Stock Par Value Gain Earnings Equity
----------------- --------- ---- -------- ------
Balances at
March 1, 1994 48,423 $96,846 $118,400 $-- $217,983 $433,229
Cash dividends -- -- -- -- (11,631) (11,631)
Exercise of stock
options, net 125 250 1,729 -- -- 1,979
Net earnings -- -- -- -- 66,813 66,813
-------------------------------------------------------------
Balances at
February 28,1995 48,548 97,096 120,129 -- 273,165 490,390
Cash dividends -- -- -- -- (13,598) (13,598)
Exercise of stock
options, net 23 47 640 -- -- 687
Net earnings -- -- -- -- 41,504 41,504
-------------------------------------------------------------
Balances at
February 29,1996 48,571 97,143 120,769 -- 301,071 518,983
Cash dividends -- -- -- -- (13,612) (13,612)
Common stock
issued for
acquisitions 5,791 11,582 73,842 -- -- 85,424
Exercise of stock
options, net 52 103 741 -- -- 844
Unrealized gain
on investments -- -- -- 10,797 -- 10,797
Net earnings -- -- -- -- 40,185 40,185
-------------------------------------------------------------
Balances at
February 28,1997 54,414 $108,828 $195,352 $10,797 $327,644 $642,621
=============================================================
See notes to consolidated financial statements.
(page 27)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
FISCAL YEAR 1997 1996 1995
--------- --------- ---------
Cash flows from operating activities:
Net earnings $ 40,185 $ 41,504 $ 66,813
Adjustments to reconcile net earnings
to net cash provided (used) by
operating activities:
Depreciation and amortization 33,874 29,460 23,878
Provision for doubtful accounts 80,908 65,379 45,419
Other, net 588 (470) (406)
Change in operating assets and
liabilities, net of the effects
of acquisitions:
Accounts receivable (204,560) (167,860) (171,137)
Sale of accounts receivable 60,500 150,000 178,778
Inventories (35,154) (24,015) (44,206)
Other current assets (10,306) (23,447) (5,830)
Accounts payable 18,017 216 18,098
Accrued expenses 12,948 21,734 2,767
--------- --------- ---------
Net cash provided (used)
by operating activities (3,000) 92,501 114,174
--------- --------- ---------
Cash flows from investing activities:
Acquisitions, net of cash acquired (58,842) (51,658) (132,158)
Additions to property and equipment (84,137) (40,366) (49,101)
Disposals of property and equipment 3,423 6,348 4,583
Miscellaneous investments (6,907) (9,942) (3,184)
--------- --------- ---------
Net cash used by
investing activities (146,463) (95,618) (179,860)
--------- --------- ---------
Cash flows from financing activities:
Issuance of stock 683 286 1,979
Proceeds from long-term debt 299,444 -- 230,000
Increase (decrease) in notes
payable, net (34,000) 50,200 (112,800)
Payments of long-term debt (104,110) (28,114) (37,797)
Dividends paid (13,612) (13,598) (11,631)
--------- --------- ---------
Net cash provided by
financing activities 148,405 8,774 69,751
--------- --------- ---------
Net increase (decrease) in cash (1,058) 5,657 4,065
Cash at beginning of year 16,017 10,360 6,295
--------- --------- ---------
Cash at end of year $ 14,959 $ 16,017 $ 10,360
========= ========= ========
See notes to consolidated financial statements.
(page 28)
Notes To Consolidated Financial Statements
(1) Summary of Significant Accounting Policies
Nature of Operations
Heilig-Meyers is a retailer of home furnishings which operated 944
stores as of February 28, 1997 of which 912 are located in 32 states and 32 are
located in Puerto Rico. The Company's stores are primarily located in small
towns and rural markets in the southeast, south-central, midwest, west,
northwest and southwest continental United States. During the fourth quarter of
this fiscal year, the Company acquired Rhodes, Inc. of Atlanta, Georgia and
certain assets of The RoomStore of Dallas, Texas. The Rhodes and The RoomStore
stores continue to operate under their respective names and formats.
The Company's operating strategy includes offering a broad
selection of home furnishings including furniture, consumer electronics,
appliances, bedding and floor coverings. The Company offers in-house installment
and third party private label credit card programs to provide financing to its
customers.
Principles of Consolidation
The consolidated financial statements include the accounts of Heilig-
Meyers Company and its subsidiaries (the "Company"), all of which are
wholly owned. All material intercompany balances and transactions have been
eliminated.
Fiscal Year
Fiscal years are designated in the consolidated financial statements by
the calendar year in which the fiscal year ends. Accordingly, results for fiscal
years 1997, 1996 and 1995 represent the years ended February 28, 1997, February
29, 1996 and February 28, 1995, respectively. Certain amounts in the fiscal 1996
consolidated financial statements have been reclassified to conform to the
fiscal 1997 presentation.
Segment Information
The Company considers that it is engaged primarily in one line of
business, the sale of home furnishings. Accordingly, data with respect to
industry segments have not been separately reported herein.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Accounts Receivable
In accordance with customary trade practice, payments on accounts
receivable due after one year are included in current assets. Provisions for
doubtful accounts are made to maintain an adequate allowance to cover
anticipated losses. The Company reviews customer accounts on an individual basis
in reaching decisions regarding methods of collection or write-off of doubtful
accounts. Generally, accounts on which payments have not been received for six
months are charged to the allowance for doubtful accounts. The Company has sold
a portion of its accounts receivable. These sales are accounted for under
Statement of Financial Accounting Standards (SFAS) No.
(page 29)
125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities."
Inventories
Merchandise inventories are stated at the lower of cost or market as
determined by the average cost method. Inventory costs include certain warehouse
and handling costs.
Property and Equipment
Additions to property and equipment, other than capital leases, are
recorded at cost and, when applicable, include interest incurred during the
construction period. Capital leases are recorded at the lesser of fair value or
the discounted present value of the minimum lease payments.
Depreciation is computed by the straight-line method. Capital leases
and leasehold improvements are amortized by the straight-line method over the
shorter of the estimated useful life of the asset or the term of the lease. The
estimated useful lives are 7 to 45 years for buildings, 3 to 10 years for
fixtures, equipment and vehicles, and 10 to 15 years for leasehold improvements.
Excess Costs Over Net Assets Acquired
Excess costs over net assets acquired are being amortized over periods
not exceeding 40 years using the straight-line method. The Company evaluates
excess costs over net assets acquired for recoverability on the basis of whether
goodwill is fully recoverable from projected, undiscounted net cash flows from
operations of the related business unit. Impairment, should any occur, would be
recognized by a charge to operating results and a reduction in the carrying
value of excess costs over net assets acquired.
Stockholders' Equity
The Company is authorized to issue 250,000,000 shares of $2 par value
common stock. At February 28, (29), 1997 and 1996, there were 54,414,000 and
48,571,000 shares outstanding, respectively. The Company is authorized to issue
3,000,000 shares of $10 par value preferred stock. To date, none of these shares
have been issued.
New Accounting Standards
Effective March 1, 1996, the Company adopted SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of." The adoption of SFAS No. 121 did not have a
material impact on the financial statements. The Company also adopted SFAS No.
123, "Accounting for Stock-Based Compensation." As provided for by SFAS
No. 123, the Company has decided to continue to apply Accounting Principles
Board (APB) No. 25 "Accounting for Stock Issued to Employees," for
recognition and measurement purposes within the financial statements. During the
fiscal year, the Financial Accounting Standards Board issued SFAS No. 125. This
statement was effective for applicable transactions after January 1, 1997.
Revenues and Costs of Sales
Other income consists primarily of finance and other income earned on
accounts receivable. Finance charges were $209,491,000, $182,426,000, and
$163,114,000 during fiscal 1997, 1996 and 1995, respectively. Revenue is
recognized on installment and credit sales upon approval and establishment of a
delivery date, which does not materially differ from recognition at time of
shipment. Finance charges are included in revenues on a monthly basis as earned.
The effect of sales returns prior to shipment date have
(page 30)
been immaterial. The Company sells substantially all of its service policies to
third parties and recognizes service policy income on these at the time of sale.
Revenue from service policies and extended warranty contracts retained by the
Company are deferred and recognized over the life of the contract period. Costs
of sales includes occupancy and delivery expenses.
Earnings and Dividends Per Share
Primary and fully diluted earnings per share of common stock are
calculated by dividing net earnings by the weighted average number of common
shares and common stock equivalents (stock options) outstanding during the year.
Interest Rate Swap Agreements
The Company has entered into several interest rate swap agreements
("swap agreements") as a means of managing its exposure to changes in
interest rates. These agreements in effect convert a portion of the
Company's floating rate debt and floating rate asset securitizations to
fixed rates by exchanging floating rate payments for fixed rate payments. The
differential to be paid or received on these agreements is accrued and is
recognized as an adjustment to interest expense. The related amount of payable
to or receivable from counterparties is recorded as an adjustment to accrued
interest expense.
(2) Expansion
During fiscal years 1997 and 1996, the Company made the acquisitions
described below. All acquisitions have been accounted for by the purchase
method, and accordingly, operations subsequent to the respective acquisition
dates have been included in the accompanying financial statements. Pro forma
results of operations for certain acquisitions have not been presented because
the effects were not significant. Other acquisitions completed during fiscal
years 1997 and 1996 are not discussed below because they are not considered
material to the financial statements.
During October 1996, the Company acquired certain assets related to 20
stores of J. McMahan's in Santa Monica, California. The purchase price of
these assets was approximately $20,021,000, net of $26,989,000 of assets which
were subsequently sold. The unamortized excess of purchase price over the fair
market value of the net assets acquired from J. McMahan as of February 28, 1997
was $16,333,000.
During October 1996, the Company purchased certain assets relating to
23 stores of Self Service Furniture Company of Spokane, Washington. The purchase
price of these assets was approximately $19,163,000. The unamortized excess of
purchase price over the fair market value of the net assets acquired from Self
Service as of February 28, 1997 was $5,195,000.
During December 1996, the Company acquired Rhodes, Inc., a publicly
traded home furnishings retailer with 105 stores in 15 states. The Company
issued approximately 4,588,000 shares of its common stock in the transaction
valued at $69,390,000, assumed debt and other accrued liabilities of
$192,542,000 and incurred approximately $1,400,000 in costs related to the
acquisition. The Company assigned $107,782,000 of acquisition costs to excess of
purchase price over the fair market value of the net assets acquired. As of
February 28, 1997, the purchase price allocation was considered preliminary as
certain studies related to the fair value of assets acquired and liabilities
assumed have not been completed. However, management does not expect the
resulting adjustments to be material.
The unaudited consolidated results of operations on a pro forma basis
as though Rhodes had been acquired as of the beginning of fiscal years 1997 and
1996 are as follows:
(page 31)
1997 1996
---- ----
(Amounts in thousands except per share data)
Total revenues $2,027,753 $1,795,015
Net earnings 33,829 48,674
Net earnings per share:
Primary and fully diluted 0.63 0.90
The pro forma information is presented for comparative purposes only
and is not necessarily indicative of the operating results that would have
occurred had the Rhodes acquisition been consummated as of the above dates, nor
is it necessarily indicative of future operating results.
During February 1997, the Company acquired certain assets relating to
10 stores of The RoomStore, Inc. of Dallas, Texas. The Company issued 720,000
shares of its common stock in the transaction valued at $9,630,000, and assumed
debt and other accrued liabilities of $5,984,000. The unamortized excess of
purchase price over the fair market value of the net assets acquired as of
February 28, 1997 was $7,905,000.
During fiscal 1996, the Company acquired certain assets related to 9
stores of BWAC International located in Puerto Rico. The purchase price of these
assets was approximately $39,196,000. The unamortized excess of purchase price
over the fair market value of the net assets acquired from BWAC as of February
28, 1997 was $8,631,000.
The Company amortizes the excess of purchase price over fair market
value of net assets acquired on a straight-line basis over periods not exceeding
40 years. The unamortized excess of purchase price over the fair value of the
net assets acquired for all acquisitions was $294,090,000 and $148,130,000, net
of accumulated amortization of $20,213,000 and $15,593,000, at February 28, 1997
and February 29, 1996, respectively.
(3) Accounts Receivable
As of February 28, 1997, accounts receivable consisted of amounts due
from customers of $421,999,000, a related allowance for doubtful accounts of
$41,120,000, and the Company's $216,080,000 interest in a Master Trust (the
"Trust"), which is more fully described below. As of February 29, 1996,
accounts receivable consisted of amounts due from customers of $573,683,000, and
an allowance for doubtful accounts, applicable to those accounts owned as well
as those sold with recourse, of $54,714,000. Balances receivable from customers
are shown net of unearned finance income of $44,356,000 and $60,114,000 at
February 28, 1997, and February 29, 1996, respectively. Accounts receivable
having balances due after one year were $139,233,000 and $131,501,000 at
February 28, 1997 and February 29, 1996, respectively.
Credit operations are generally maintained at each store to evaluate
the credit worthiness of its customers and to manage the collection process.
Furthermore, the Company generally requires down payments on credit sales and
offers credit insurance to its customers, both of which lessen credit risk. The
Company operates its 944 stores throughout 32 states and Puerto Rico and,
therefore, is not dependent on any given industry or business for its customer
base and has no significant concentration of credit risk.
As noted above, the Company participates in an asset securitization
agreement in which it sells interests in certain installment accounts receivable
from its customers to third parties. The Company was required to apply SFAS No.
125 to all securitization transactions entered into after January 1, 1997. The
adoption of SFAS No. 125 had no impact on earnings.
During fiscal 1997, the Company terminated its existing securitization
programs and replaced them with a new securitization arrangement. Under the new
arrangement, all previously securitized accounts and an additional $60,500,000
in aggregate principal amount were transferred without recourse to the Trust.
The Trust issued certificates representing undivided interests in the assets of
the Trust. Senior Class certificates having an aggregate principal amount of
$592,000,000 were sold
(page 32)
to investors. Subordinate Class certificates and the remaining undivided
interest in the Trust, which are subordinated to the Senior Class certificates,
were retained by the Company.
Cash flows generated from the receivables in the Trust are, to the
extent allocable to holders of the Senior Class certificates and the Subordinate
Class certificates, applied to pay interest on Senior Class and Subordinate
Class certificates, cover credit losses, and pay servicing fees to the Company,
which will continue to service the receivables in the Trust. The receivables
were transferred without recourse. Excess cash flows revert to the Company and
have been recorded as an interest-only strip. No servicing asset resulted
because contractual rates are at estimated market rates and are considered
adequate compensation for servicing.
The interest rate in effect for the certificates issued under the new
securitization agreement, which is a variable rate tied to commercial paper
indices, was 5.7% at February 28, 1997. The term on the new securitization
agreement is 29 months. The rates in effect for the previous securitization
agreements were variable, either being tied to LIBOR or commercial paper and
ranged from 5.7% to 6.8% in fiscal 1996. As a means of managing unfavorable
movements in these rates, the Company has entered into interest rate swap
agreements which fix rates on notional amounts of $235,000,000 at February 28,
1997 and February 29, 1996. The swap rates in effect at the end of fiscal 1997
and 1996 ranged from 5.3% to 7.4%. The terms on the previous securitization
agreements in effect during fiscal 1996 ranged from 29 to 54 months.
The former agreements in existence during fiscal 1996 and throughout
much of fiscal 1997 provided third parties with limited recourse against the
Company. On a $140,000,000 pool of receivables, recourse was limited each month
to 20% of the third parties' interest in the pool as of the related
settlement date. Recourse on a $63,600,000 pool of receivables was limited to
approximately 15% of the balance. The recourse provisions relating to a
$392,000,000 pool were limited to 6% of the third parties' interest in the
pool as of the related settlement date. Payments under all recourse provisions
never exceeded established reserves. Earnings from securitizations were
$4,250,000 and $8,771,000 in fiscal 1997 and 1996, respectively.
The Company offers certain of its customers revolving credit through
private label credit facilities with commercial banks. Heilig-Meyers offers
revolving credit to certain customers through an agreement with NationsBank,
N.A. The Company services these accounts and provides recourse up to specified
limits. A second revolving credit program is offered by the recently acquired
Rhodes stores through a private label credit facility pursuant to an on-going
merchant agreement with Beneficial National Bank USA. The Company does not
service or provide recourse on these accounts.
The Company's interest in the Trust and interest-only strip are
carried at fair value and consist of the following:
Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
(Amounts in thousands)
Investment in
receivables $200,229 $15,851 $ - $216,080
Interest-only strip 25,337 2,010 - 27,347
Total $225,566 $17,861 $ - $243,427
(4) Property and Equipment
Property and equipment consists of the following:
(page 33)
1997 1996
---- ----
(Amounts in thousands)
Land and buildings $133,049 $ 80,839
Fixtures, equipment and vehicles 111,916 87,846
Leasehold improvements 215,683 142,108
Construction in progress 36,484 12,854
497,132 323,647
Less accumulated depreciation 130,383 107,588
$366,749 $216,059
(5) Notes Payable and Long-Term Debt
The Company is currently in the second year of a five-year $400,000,000
revolving credit facility dated July 19, 1995. Comprised of fourteen banks, the
facility had $145,000,000 outstanding and $255,000,000 unused as of February 28,
1997. The Company also has additional lines of credit with banks, totaling
$54,000,000, $43,000,000 of which was unused at February 28, 1997, and a
$6,000,000 letter of credit, of which all was unused at February 28, 1997. The
Company's maximum short-term borrowings were $321,000,000 during fiscal 1997
and $249,700,000 during fiscal 1996. The average short-term debt outstanding for
fiscal 1997 was $186,281,000 compared to $190,236,000 for fiscal 1996. The
approximate weighted average interest rates were 5.8%, 6.3% and 5.1% in fiscal
1997, 1996 and 1995, respectively.
At February 28, 1997, the Company had $156,000,000 of outstanding
short-term borrowings compared to $190,000,000 at February 29, 1996. The average
interest rate on this debt was approximately 5.8% at February 28, 1997, and 5.6%
and 6.4% at February 29, 1996 and February 28, 1995, respectively. There were no
compensating balance requirements.
Long-term debt consists of the following:
1997 1996
(Amounts in thousands)
Shelf registration issues:
7.88% unsecured notes due 2003 $200,000 $ -
7.40% unsecured notes due 2002 100,000 -
Other issues:
Notes payable to insurance companies and banks, maturing through 2002,
interest ranging from 6.25% to 9.98%,
unsecured 343,400 365,371
Notes, collateralizing industrial development revenue bonds, maturing
through 2004, interest ranging from a floating rate of 60% of prime to
an
8.50% fixed rate 1,316 1,727
Term loans, maturing through 2007,
interest ranging to 9.80%, primarily
collateralized by deeds of trust 505 599
Capital lease obligations, maturing
through 2006, interest ranging from
76% of prime to 12.90% 16,681 2,746
661,902 370,443
Less amounts due within one year 100,413 17,812
561,489 $352,631
Principal payments are due for the four years after February 28, 1998
(page 34)
as follows: 1999, $20,943,000; 2000, $165,659,000; 2001, $641,000; and 2002,
$160,200,000. The aggregate net carrying value of property and equipment
collateralization at February 28, 1997, was $11,091,000. The Company has on file
a shelf registration to issue up to $400,000,000 of common stock, warrants and
debt securities. The $200,000,000 unsecured 7.88% notes due 2003 and the
$100,000,000 unsecured 7.40% notes due 2002 were issued under the shelf
registration with the remaining $100,000,000 unissued at February 28, 1997.
Notes payable to insurance companies contain certain restrictive
covenants. Under these covenants, the payment of cash dividends is limited to
$150,293,000 plus 75% of net earnings adjusted for dividend payouts subsequent
to February 28, 1997. Other covenants relate to the maintenance of working
capital, net earnings coverage of fixed charges, limitations on total and funded
indebtedness and maintenance of stockholders' equity. As of February 28,
1997, the Company is in compliance with its restrictive covenants.
Interest payments of $46,710,000, $40,710,000 and $30,303,000 net of
capitalized interest of $2,360,000, $2,141,000 and $1,751,000 were made during
fiscal 1997, 1996 and 1995, respectively.
(6) Income Taxes
The provision for income taxes consists of the following:
1997 1996 1995
(Amounts in thousands)
Current:
Federal $ 5,481 $11,034 $23,282
State 3,006 1,988 3,595
Puerto Rico 2,160 (522) -
Deferred:
Federal 7,758 6,012 10,242
State 1,618 1,293 1,967
Puerto Rico 1,692 3,216 -
11,068 10,521 12,209
$21,715 $23,021 $39,086
The income tax effects of temporary differences that gave rise to
significant portions of the net deferred tax liability as of February 28, 1997
and February 29, 1996, consist of the following:
1997 1996
(Amounts in thousands)
Deferred tax assets:
Accrued liabilities $25,198 $5,028
Allowance for doubtful accounts 8,775 5,943
Subsidiary net operating
loss carryforward 5,622 -
Puerto Rico alternative minimum
tax credit carryforward 3,014 -
Deferred revenues 1,487 711
Other 435 -
44,531 11,682
(page 35)
Deferred tax liabilities:
Excess costs over net
assets acquired 58,172 42,148
Asset securitizations 19,152 11,142
Inventory 7,469 4,148
Property and equipment 7,029 4,290
Puerto Rico accounts receivable 6,813 4,286
Costs capitalized on
constructed assets 5,767 5,480
Other 2,547 1,338
106,949 72,832
$62,418 $61,150
Balance sheet classification:
Other current liabilities $13,290 $11,271
Deferred income tax liability 49,128 49,879
$62,418 $61,150
A reconciliation of the statutory federal income tax rate to the
Company's effective rate is provided below:
1997 1996 1995
Statutory federal income tax rate 35.0% 35.0% 35.0%
State income taxes, net of federal
income tax benefit 3.7 3.8 3.3
Tax credits (5.3) (3.1) (1.9)
Other, net 1.7 - .5
35.1% 35.7% 36.9%
Income tax payments of $18,446,824, $24,737,603 and $28,966,000 were
made during fiscal 1997, 1996 and 1995, respectively.
A wholly-owned subsidiary has a separate company net operating loss
carryforward in the amount of $16,065,100 at February 28, 1997, which will
expire in fiscal year 2012.
(7) Retirement Plans
The Company has a qualified profit sharing and retirement savings plan,
which includes a cash deferred arrangement under Section 401(k) of the Internal
Revenue Code (the "Code") and covers all eligible employees of the
Company who have completed twelve months of employment and have attained the age
of 21. Eligible employees may elect to contribute specified percentages of their
compensation to the plan. The Company guarantees a dollar-for-dollar match on
the first two percent of the employee's compensation contributed to the
plan. The Company will make an additional matching contribution if and to the
extent that four percent of the Company's estimated consolidated income
before taxes exceeds the two percent dollar-for-dollar match described above.
The Company may, at the discretion of its Board of Directors, make additional
Company matching contributions subject to certain limitations. The plan may be
terminated at the discretion of the Board of Directors. If the plan is
terminated the Company will not be required to make any further contributions to
the plan and participants will become 100% vested in any Company contributions
made to the plan. The plan expense recognized in fiscal 1997, 1996 and 1995 was
$2,507,000, $2,553,000 and $4,505,000, respectively.
In addition, a non-qualified supplemental profit sharing and retirement
savings plan was established as of March 1, 1991, for the purpose of providing
deferred compensation for certain employees whose benefits and contributions
under the qualified plan are limited by the Code. The deferred compensation
expense recognized in fiscal 1997, 1996 and 1995 was $283,000, $254,000 and
$386,000, respectively.
The Company has an executive income continuation plan which covers
certain executive officers. The plan is intended to provide certain supplemental
preretirement death benefits and retirement benefits to its key executives. In
the event an executive dies prior to age 65 in the
(page 36)
employment of the Company, the executive's beneficiary will receive annual
benefits of 100% of salary for a period of one to two years and/or 25% to 50% of
salary for a period of eight years. If the executive retires at age 65, either
the executive or his beneficiary will receive an annual retirement benefit of 6%
to 25% of the executive's salary increased 4% annually for a period of 15
years. This plan has been funded through the purchase of life insurance
contracts covering the executives and owned by the Company. For fiscal years
1997, 1996 and 1995, there was no charge to earnings.
As of February 28, 1997, the Company continued to operate separate
employee benefit plans covering certain groups of employees of Rhodes, which was
acquired on December 31, 1996. These plans include a qualified non-contributory
defined benefit plan covering substantially all employees who are at least 21
years old, a non-qualified unfunded defined benefit plan covering certain
officers who earn compensation in excess of the limits imposed by the Code, and
a qualified defined contribution savings plan.
A comparison of accumulated plan benefits and plan net assets as of
February 28, 1997 for the defined benefit plan follows(Amounts in thousands):
Actuarial present value of accumulated plan benefits: $13,495
Vested 387
Non-vested $13,882
Net assets available for plan benefits $12,972
The projected benefit obligation of the unfunded plan totaled
$1,062,000 at February 28, 1997. The assumed rate of return used in determining
the actuarial present value of accumulated plan benefits for both defined
benefit plans was 7.75%. The expense related to the operation of these plans
during fiscal 1997 was insignificant.
In connection with the acquisition of Rhodes, the Company developed a
plan to potentially terminate these separate benefit plans. The estimated
additional liability associated with such termination was recorded as part of
the purchase price allocation to the acquired assets and liabilities of Rhodes.
(8) Stock Options
The Company has elected to follow Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" (APB 25) and related
Interpretation in accounting for its employee stock options. In electing to
account for its stock options under APB 25, the Company is required by SFAS No.
123, "Accounting for Stock-Based Compensation" to provide pro forma
information regarding net income and earnings per share.
The 1983, 1990 and 1994 Stock Option Plans provide that key employees
of the Company are eligible to receive common stock options (at an exercise
price of no less than fair market value at the date of grant) and stock
appreciation rights. Under these plans, approximately 8,094,000 shares have been
authorized to be reserved for issuance. All options granted have ten year terms.
The options vest on a graduated basis and become fully exercisable at the end of
two years of continued employment.
Pro forma information regarding net income and earnings per share as
required by SFAS No. 123 has been determined as if the Company had accounted for
its employee stock options under the fair value method of that statement. The
fair value for these options was estimated at the date of grant using a
Black-Scholes option valuation model with the following weighted-average
assumptions for fiscal 1997 and 1996, respectively: risk- free interest rates of
6.1% and 5.2%; a dividend yield of 1.6%; volatility factors of the expected
market price of the Company's common stock of 41%; and a weighted-average
expected option life of 3.48 years and 3.50 years for fiscal years 1997 and
1996, respectively.
(page 37)
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have
characteristics significantly different from those of traded options, and
because changes in the subjective input assumptions can materially affect the
fair value estimate, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of its employee
stock options.
For purposes of pro forma disclosures, the estimated fair value of
the options is amortized to expense over the options vesting period. The
Company's pro forma information follows:
1997 1996
(Amounts in thousands except per share data)
Pro forma net income $37,072 $36,524
Pro forma earnings per share:
Primary $.74 $.74
Fully diluted $.74 $.74
Weighted
Average
Exercise
Options Price
Outstanding at March 1, 1994 3,603,272 $16.98
Granted 600,500 $26.18
Exercised (128,043) $11.52
Outstanding at February 28, 1995 4,075,729 $18.46
Granted 1,045,200 $17.25
Exercised (23,525) $12.17
Forfeited (665,500) $32.50
Outstanding at February 29, 1996 4,431,904 $18.49
Granted 816,480 $14.55
Exercised (51,500) $13.25
Outstanding at February 28, 1997 5,196,884 $15.55
A summary of the Company's stock option activity and related
information for the years ended February 28, 1997, 1996 and 1995 follows:
Range of $5.52 $10.01 $17.01 $27.01
Exercise to to to to
Prices $10.00 $17.00 $27.00 $35.06
Options outstanding
at February 28, 1997 1,639,804 816,480 2,728,600 12,000
Weighted average
remaining contract life,
outstanding options 4.16 9.94 6.96 6.95
Weighted average
exercise price,
outstanding options $8.58 $14.55 $20.54 $35.06
Options exercisable
at February 28, 1997 1,639,804 568,142 2,542,900 12,000
Weighted average
exercise price,
exercisable options $8.58 $14.19 $20.36 $35.06
Options exercisable at year end and the respective weighted average
exercise prices were 4,762,846 at $15.50, 4,017,290 at $18.06 and 3,334,019
(page 38)
at $16.80 for fiscal 1997, 1996 and 1995, respectively.
The weighted average fair value of options granted during the year
was $4.88 for fiscal 1997 and $5.42 for fiscal 1996.
(9) Commitments and Contingencies
Leases
The Company has entered into noncancellable lease agreements with
initial terms ranging from 1 to 25 years for certain stores, warehouses and the
corporate office. Certain leases include renewal options ranging from 1 to 10
years and/or purchase provisions, both of which may be exercised at the
Company's option. Most of the leases are gross leases under which the lessor
pays the taxes, insurance and maintenance costs. The following capital leases
are included in the accompanying consolidated balance sheets:
1997 1996
(Amounts in thousands)
Land and buildings $12,098 $6,426
Fixtures and equipment 675 675
12,773 7,101
Less accumulated depreciation
and amortization 3,724 3,307
$ 9,049 $3,794
Capitalized lease amortization is included in depreciation expense.
Future minimum lease payments under capital leases and operating leases having
initial or remaining noncancellable lease terms in excess of one year at
February 28, 1997, are as follows:
Fiscal Years Capital Leases Operating Leases
(Amounts in thousands)
1998 $ 3,411 $ 79,791
1999 3,389 74,643
2000 3,566 65,980
2001 3,546 59,001
2002 2,957 50,188
After 2002 7,351 255,872
Total minimum lease payments $24,220 $585,475
Less:
Executory costs 99
Imputed interest 7,440
Present value of minimum
lease payments $16,681
Total rental expense under operating leases for fiscal 1997, 1996 and
1995 was $83,888,000, $67,509,000 and $50,855,000, respectively. Contingent
rentals and sublease rentals are negligible.
Payments to affiliated entities under capital and operating leases were
$314,000 for fiscal 1997, which included payments to limited partnerships in
which the Company has equity interests. Lease payments to affiliated entities
for fiscal 1996 and 1995 were $625,000 and $856,000, respectively.
Litigation
(page 39)
The Company is party to various legal actions and administrative
proceedings and subject to various claims arising in the ordinary course of
business. Based on the best information presently available, the Company
believes that the disposition of these matters will not have a material effect
on the financial statements.
(10) Derivative Financial Instruments
The Company uses derivative financial instruments in the form of
interest rate swap agreements primarily to manage the risk of unfavorable
movements in interest rates. These convert floating rate notes payable to banks
and floating rates on asset securitization agreements to fixed rates. The
notional amounts of these swap agreements at February 28, (29) were as follows:
1997 1996
(Amounts in thousands)
On notes payable and other $211,700 $231,100
On securitized receivables $235,000 $235,000
Interest rates that the Company paid per the swap agreements related
primarily to notes payable were fixed at an average rate of 6.7% at February 28,
1997. At February 29, 1996, rates were fixed at an average of 6.5%. The variable
rates received per these agreements were tied to LIBOR or commercial paper rates
and averaged 5.7% and 5.3% at February 28, (29), 1997 and 1996, respectively.
The terms for these agreements range from 3 to 5 years.
Interest rates that the Company paid on swap agreements related to
securitized receivables were fixed at an average rate of 6.5% at February 28,
1997. At February 29, 1996, rates were fixed at an average of 6.5%. The variable
rates received per these agreements were tied to LIBOR or commercial paper rates
and averaged 5.5% and 5.3% at February 28, (29), 1997 and 1996, respectively.
The terms for these agreements range from 2 to 5 years. Resulting changes in
interest are recorded as increases or decreases to interest expense. The accrued
interest liability is correspondingly increased or decreased.
The Company believes its risk of credit-related losses resulting from
nonperformance by a counterparty is remote. The amount of any such loss would be
limited to a small percentage of the notional amount of each swap. As a means of
reducing this risk, the Company as a matter of policy only enters into
transactions with counterparties rated "A" or higher.
The Company does not mark its swaps to market and therefore does not
record a gain or loss with interest rate changes. Gains on disposals of swaps
are recognized over the remaining life of the swap. Losses on disposals, which
there have been none to date, would be recognized immediately.
All swaps are held for purposes other than trading.
(11) Fair Value of Financial Instruments
The estimated fair values of financial instruments have been determined
by using available market information. The estimates are not necessarily
indicative of the amounts the Company could realize in a current market
exchange. The use of different market assumptions and/or estimation
methodologies may have a material effect on the estimated fair value amounts.
The estimated fair values of the Company's financial instruments at
February 28, 1997 and at February 29, 1996 are as follows:
(page 40)
1997 1996
Carrying Fair Carrying Fair
Amount Value Amount Value
Assets:
Cash $14,959 $14,959 $16,017 $16,017
Accounts receivable 596,959 596,959 518,969 518,969
Liabilities:
Accounts payable 160,857 160,857 87,739 87,739
Notes payable 156,000 156,000 190,000 190,000
Long-term debt 645,221 661,940 370,443 390,745
Off-balance-sheet financial instruments:
Interest rate swap agreements:
Assets - 632 - 1,226
Liabilities - 6,247 - 12,412
The following methods and assumptions were used to estimate the fair
value for each class of financial instruments shown above:
Cash and Accounts Receivable
The carrying amount approximates fair value because of the short-term
maturity of these assets.
Accounts Payable and Notes Payable
The carrying value approximates fair value because of the short-term
maturity of these liabilities.
Long-Term Debt
The fair value of the Company's long-term debt is based on the
discounted cash flow of that debt, using current rates and remaining maturities.
Interest Rate Swap Agreements
The fair value of the Company's interest rate swap agreements is
the estimated amount that the Company would receive or pay upon termination of
the agreements, based on estimates obtained from the counterparties. These
agreements are not held for trading purposes, but rather to hedge interest rate
risk.
(12) Quarterly Financial Data (Unaudited)
The following is a summary of quarterly financial data for fiscal 1997
and 1996:
Three months ended
May 31 August 31 November 30 February 28,(29)
(Amounts in thousands except per share data)
1997
Revenues $357,914 $343,523 $413,474 $478,207
Gross profit (1) 106,977 95,784 123,614 139,692
Earnings before
taxes 19,208 12,085 14,701 15,907
Net earnings 12,371 7,747 9,492 10,576
Earnings per share of common stock:
Primary and fully
diluted 0.25 0.16 0.19 0.20
Cash dividends per share
of common stock 0.07 0.07 0.07 0.07
(page 41)
1996
Revenues $318,971 $324,861 $375,479 $340,040
Gross profit (1) 96,364 90,503 108,439 90,885
Earnings before
taxes 29,211 17,678 12,849 4,789
Net earnings 18,466 11,316 8,757 2,961
Earnings per share of common stock:
Primary and fully
diluted 0.37 0.23 0.18 0.06
Cash dividends per share
of common stock 0.07 0.07 0.07 0.07
(1) Gross profit is sales less costs of sales.
(13) MacSaver Financial Services
MacSaver Financial Services ("MacSaver"), is the Company's
wholly-owned subsidiary whose principal business activity is to obtain financing
for the operations of Heilig-Meyers and its other subsidiaries, and in
connection therewith, MacSaver generally acquires and holds the aggregate
principal amount of installment credit accounts generated by the Company's
operating subsidiaries, and issues and carries substantially all of the
Company's notes payable and long-term debt. Substantially all of the net
revenues generated by MacSaver are pursuant to operating agreements with the
Company and certain of its wholly-owned subsidiaries. In July 1996, the Company
and MacSaver filed a joint Registration Statement on Form S-3 with the
Securities and Exchange Commission relating to up to $400,000,000 aggregate
principal amount of securities. MacSaver has issued $300,000,000 in aggregate
principal amount of its notes; $200,000,000 at 7.88% due 2003 and $100,000,000
at 7.40% due 2002. These notes are unconditionally guaranteed as to payment of
principal and interest by the Company. The Company has not presented separate
financial statements and other disclosures concerning MacSaver because
management has determined that such information is not material to holders of
the debt securities. However, as required by the 1934 Act, the summarized
financial information concerning MacSaver is as follows:
MacSaver Financial Services Summarized Statements of Earnings
Twelve months ended February 28,(29),
1997 1996 1995
(Amounts in thousands)
Net revenues $158,306 $116,243 $91,001
Operating expenses 102,706 71,649 46,367
Earnings before taxes 55,600 44,594 44,634
Net earnings $ 36,140 $ 28,986 $29,012
MacSaver Financial Services Summarized Balance Sheets
February 28, February 29,
1997 1996
(Amounts in thousands)
Current assets $ 36,401 $ 43,869
Accounts receivable, net 454,774 423,105
Due from affiliates 504,763 224,292
TOTAL ASSETS $995,938 $691,266
Current liabilities $128,921 $ 33,785
Notes payable 156,000 190,000
Long-term debt 545,000 348,401
Stockholder's equity 166,017 119,080
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY $995,938 $691,266
(page 42)
Independent Auditors' Report
To the Stockholders and Board of Directors
Heilig-Meyers Company
Richmond, Virginia
We have audited the accompanying consolidated balance sheets of Heilig-Meyers
Company and subsidiaries as of February 28, 1997 and February 29, 1996, and the
related consolidated statements of earnings, stockholders' equity, and cash
flows for each of the three years in the period ended February 28, 1997. Our
audits also included the financial statement schedule listed in the Index at
item 14(a)2. These financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express
an opinion on the financial statements and financial statement schedule based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Heilig-Meyers Company and
subsidiaries as of February 28, 1997 and February 29, 1996, and the results of
their operations and their cash flows for each of the three years in the period
ended February 28, 1997 in conformity with generally accepted accounting
principles. Also, in our opinion, such financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly in all material respects the information set forth
therein.
/s/ Deloitte & Touche LLP
Richmond, Virginia
March 25, 1997
(page 43)
Item 9. CHANGES in and DISAGREEMENTS with ACCOUNTANTS on ACCOUNTING
and FINANCIAL DISCLOSURE
None.
(page 44)
PART III
In accordance with general instruction G(3) of Form 10-K, the information
called for by Items 10, 11, 12 and 13 of Part III is incorporated by reference
from the registrant's definitive Proxy Statement for its Annual Meeting of
Shareholders scheduled for June 18, 1997, except for information concerning the
executive officers of the registrant which is included in Part I of this report
under the caption "Executive Officers of the Registrant."
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) 1. Financial Statements
The following consolidated financial statements of Heilig-Meyers
Company and Subsidiaries included in the registrant's 1997 Annual
Report to Shareholders are included in item 8 herein:
Independent Auditors' Report
Consolidated Balance Sheets -
February 28, 1997 and February 29, 1996
Consolidated Statements of Earnings -
Year Ended February 28, 1997,
Year Ended February 29, 1996, and
Year Ended February 28, 1995
Consolidated Statements of Stockholders' Equity -
Year Ended February 28, 1997,
Year Ended February 29, 1996, and
Year Ended February 28, 1995
Consolidated Statements of Cash Flows -
Year Ended February 28, 1997,
Year Ended February 29, 1996, and
Year Ended February 28, 1995
Notes to Consolidated Financial Statements
(page 45)
(a) 2. Financial Statement Schedules: The financial statement
schedule required by this item is listed below.
Independent Auditors' Report on Schedule II included in Item 8
herein.
Schedule II - Valuation and Qualifying Accounts
Schedules other than those listed above have been omitted because
they are not applicable or are not required or because the
required information is included in the financial statements or
notes thereto.
(a) 3. Exhibits required to be filed by Item 601 of Regulation
S-K.
See INDEX TO EXHIBITS
(b) 1. Reports on Form 8-K Filed During Last Quarter of Year Ended
February 28, 1997.
There were two Current Reports on Form 8-K filed during the last quarter of
the fiscal year ended February 28, 1997. On January 10, 1997, Registrant
filed a Form 8-K in which it reported that Registrant had acquired Rhodes,
Inc. ("Rhodes") and including certain financial statements related
thereto. On February 24, 1997, Registrant filed Amendment No. 1 to its
January 10, 1997 Form 8-K, in which it reported certain financial
statements related to Rhodes.
(page 46)
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
HEILIG-MEYERS COMPANY
Date: May 27, 1997 by /s/William C. DeRusha
William C. DeRusha
Chairman of the Board
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date: May 27, 1997 /s/William C. DeRusha
William C. DeRusha
Chairman of the Board
Principal Executive Officer
Director
Date: May 27, 1997 /s/Joseph R. Jenkins
Joseph R. Jenkins
Executive Vice President
Principal Financial Officer
Date: May 27, 1997 /s/William J. Dieter
William J. Dieter
Senior Vice President,
Accounting and Principal
Accounting Officer
Date: May 27, 1997 /s/Alexander Alexander
Alexander Alexander, Director
Date: May 27, 1997 /s/Robert L. Burrus, Jr.
Robert L. Burrus, Jr., Director
(page 47)
Date: May 27, 1997 /s/Beverley E. Dalton
Beverley E. Dalton, Director
Date: May __, 1997 ___________________
Charles A. Davis, Director
Date: May 27, 1997 /s/Benjamin F. Edwards, III
Benjamin F. Edwards, III, Director
Date: May __, 1997 __________________
Alan G. Fleischer, Director
Date: May 27, 1997 /s/Nathaniel Krumbein
Nathaniel Krumbein, Director
Date: May 27, 1997 /s/Hyman Meyers
Hyman Meyers, Director
Date: May 27, 1997 /s/S. Sidney Meyers
S. Sidney Meyers, Director
Date: May 27, 1997 /s/Troy A. Peery, Jr.
Troy A. Peery, Jr., Director
Date: May 27, 1997 /s/Lawrence N. Smith
Lawrence N. Smith, Director
Date: May 27, 1997 /s/Eugene P. Trani
Eugene P. Trani, Director
(page 48)
HEILIG-MEYERS COMPANY AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(Amounts in thousands)
Column A Column B Column C Column D Column E
Write-off
Balance at Charged Charged and Purchased Sold Balance
Beginning To Costs To Other Repossession Accounts Accounts at Close
Description of Period &Expenses Accounts Losses Receivable Receivable of Period
Allowance for
Doubtful Accounts:
Year Ended
February 28,
1997 $54,714 $80,908 $1,330(A) $70,438 $6,912(C) $33,940 $41,120
$15,458(B)
Year Ended
February 29,
1996 $46,678 $65,379 $1,134(A) $57,231 $8,917(C) $-- $54,714
$7,671(B)
Year Ended
February 28,
1995 $28,497 $45,419 $ 806(A) $45,735 $7,595(C) $-- $46,678
$25,286(B)
(A) Represents recoveries on accounts previously written off. (B) Allowance
applicable to purchased accounts receivable. (C) Deductions from reserve
applicable to purchased accounts receivable, as
follows:
1997 1996 1995
Write-offs of Uncollectible Accounts $6,912 $8,917 $7,595
(page 49)
Index to Exhibits
3. Articles of Incorporation and Bylaws.
a. Registrant's Restated Articles of Incorporation filed as
Exhibit 3(a) to Registrant's Annual Report on Form 10-K for
the fiscal year ended February 28, 1990 (No. 1-8484) are
incorporated herein by this reference.
b. Articles of Amendment to Registrant's Restated Articles of
Incorporation filed as Exhibit 4 to Registrant's Form 8
(Amendment No. 5 to Form 8-A filed April 26, 1983) filed
August 6, 1992 (No. 1-8484) are incorporated herein by this
reference.
c. Articles of Amendment to Registrant's Restated Articles of
Incorporation filed as Exhibit 3(c) to Registrant's Annual
Report on Form 10-K for the fiscal year ended February 28,
1993 (No. 1-8484) are incorporated herein by this reference.
d. Articles of Amendment to Registrant's Restated Articles of
Incorporation, filed as Exhibit 3(d) to Registrant's Annual
Report on Form 10-K for the fiscal year ended February 28,
1995 (No. 1-8484), are incorporated herein by this reference.
e. Registrant's Amended Bylaws.
4. Instruments defining the rights of security holders, including
indentures.
a. Indenture dated as of August 1, 1996, among Registrant,
MacSaver Financial Services, Inc. ("MacSaver") and
First Union National Bank of Virginia, as Trustee, filed with
the Commission as Exhibit 4(a) to Registrant's Current
Report on Form 8-K dated September 11, 1996 (No. 1-8484), is
incorporated herein by this reference.
b. Officer's Certificate dated August 9, 1996, relating to the
public offering by MacSaver of $200 million aggregate
principal amount of 7/8% Notes due August 1, 2003, guaranteed
as to payment of principal and interest by Registrant, filed
with the Commission as Exhibit 4(b) to Registrant's
Current Report on Form 8-K dated September 11, 1996
(No.1-8484), is incorporated herein by this reference.
c. In addition to the foregoing, 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)
(page 50)
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. *
(3) Executive Employment and Deferred Compensation
Agreement made January 12, 1982 between Nathaniel
Krumbein and the Registrant. *
d. Employees' Profit Sharing Retirement Plan, amended and
restated, effective as of March 1, 1989 filed as Exhibit
10(d) 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.*
e. First Amendment, dated as of June 15, 1992, to the Heilig-
Meyers Employees' Profit Sharing Retirement Plan, amended and
restated, effective as of March 1, 1989, filed as Exhibit
10(e) 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.*
f. Second Amendment, dated as of February 1, 1994, to the
Heilig-Meyers Employees' Profit Sharing Retirement Plan,
amended and restated, effective as of March 1, 1989. *
(page 51)
g. Third Amendment, dated as of May 1, 1995, to the Heilig-
Meyers Employees' Profit Sharing Retirement Plan, amended and
restated, effective as of March 1, 1989. *
h. 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.
i. 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.*
j. 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.*
k. 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.*
l. 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.*
m. 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.*
n. 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.*
o. Deferred Compensation Agreement between Lawrence N. Smith and
(page 52)
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.*
p. 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.*
q. 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.*
r. 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.*
s. Employees Supplemental Profit-Sharing and Retirement Savings
Plan, adopted effective as of March 1, 1991, amended and
restated effective as of March 1, 1994. *
t. 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.*
u. 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.*
v. 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.*
w. 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.*
x. 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.*
y. Form of Executive Supplemental Retirement Agreement between
the Registrant and each of William C. DeRusha and Troy A.
Peery, Jr. dated January 1, 1996. *
z. 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. *
aa. Form of Executive Supplemental Retirement Agreement between
the Registrant and William J. Dieter dated January 1, 1996. *
(page 53)
bb. Employment Agreement made as of November 1, 1996
between William C. DeRusha and the Registrant. *
cc. Employment Agreement made as of November 1, 1996
between Troy A. Peery, Jr. and the Registrant. *
dd. 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.*
ee. 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.*
ff. 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.*
gg. 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.*
hh. 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.*
ii. 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.*
jj. 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.*
kk. 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.*
ll. Letter Agreement, dated August 26, 1993, amending employment
(page 54)
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.*
mm. $400,000,000 Credit Agreement dated July 18, 1995 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.
nn. Rhodes, Inc. Employees' Savings Plan, filed with the
Commission as Exhibit 10.6 to Rhodes, Inc.'s Annual
Report on Form 10-K for the year ended February 28, 1986 (No.
0-08966) is incorporated herein by this reference.*
oo. 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.*
pp. 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.*
qq. Amended and Restated Merchant Agreement by and between
Beneficial National Bank USA, HMY RoomStore, Inc. and Rhodes,
Inc., dated as of May 9, 1997.
rr. 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.*
ss. 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.*
(page 55)
11. Computation of per share earnings for the fiscal years ended
February 28, (29), 1997, 1996 and 1995.
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.
(page 56)