SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-1004
FORM 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
FOR QUARTER ENDED OCTOBER 25, 1997 COMMISSION FILE NUMBER 1-9656
LA-Z-BOY INCORPORATED
(Exact name of registrant as specified in its charter)
MICHIGAN 38-0751137
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1284 North Telegraph Road, Monroe, Michigan 48162-3390
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (313) 241-4414
None
Former name, former address and former fiscal year, if changed since last
report.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15 (d) of the Securities Exchange Act
of 1934 during the preceding 12 months and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each issuer's classes of common
stock, as of the last practicable date:
Class Outstanding at October 25, 1997
- ------------------------------ -------------------------------
Common Shares, $1.00 par value 17,828,415
<PAGE>
Part I. Financial Information
The Consolidated Balance Sheet and Consolidated Statement of Income required
for Part I are contained in the Registrant's Financial Information Release
dated November 4, 1997 and are incorporated herein by reference.
<PAGE>
LA-Z-BOY INCORPORATED CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(Unaudited, dollar amounts in thousands)
Three Months Ended Six Months Ended
------------------ ----------------
Oct. 25, Oct. 26 Oct. 25 Oct. 26
1997 1996 1997 1996
--------- -------- ------- --------
Cash Flows from Operating Activities
Net income $16,822 $15,252 $18,548 $19,850
Adjustments to reconcile net income
to net cash provided by operating
activities
Depreciation and amortization 5,195 5,171 10,068 10,026
Change in receivables (52,888) (54,729) (3,986) (9,794)
Change in inventories 6,416 1,912 (7,742) (11,016)
Change in other assets and liab. 25,967 30,194 10,744 10,944
Change in deferred taxes (1,960) (878) (1,960) (878)
--------- -------- -------- --------
Total adjustments (17,270) (18,330) 7,124 (718)
--------- -------- -------- --------
Cash Provided by Operating
Activities (448) (3,078) 25,672 19,132
Cash Flows from Investing Activities
Proceeds from disposals of assets 76 608 392 721
Capital expenditures (5,775) (3,643) (11,343) (8,223)
Change in other investments 159 179 (288) (5,442)
--------- -------- -------- --------
Cash Used for Investing Activities (5,540) (2,856) (11,239) (12,944)
Cash Flows from Financing Activities
Short-term debt - - - -
Long-term debt - - - -
Retirements of debt (116) (64) (2,041) (3,004)
Capital leases - -
Capital lease principal payments (513) (513) (1,040) (1,078)
Stock for stock option plans 1,091 376 3,103 1,846
Stock for 401(k) employee plans 283 285 686 668
Purchase of La-Z-Boy stock (6,973) (3,242) (9,397) (10,368)
Payment of cash dividends (3,775) (2,981) (7,543) (6,463)
---------- -------- -------- ---------
Cash Used for Financing Activities (10,003) (6,139) (16,232) (18,399)
Effect of exch. rate changes on cash 62 159 98 107
--------- -------- -------- ---------
Net change in cash and equivalents (15,929) (11,914) (1,701) (12,104)
Cash and equiv. beginning of period 39,610 26,870 25,382 27,060
---------- ------- -------- ---------
Cash and equiv. at end of period $23,681 $14,956 23,681 14,956
========= ======== ======== =========
Cash paid during period - Income taxes $6,222 $8,513 $7,663 $10,770
- Interest $955 $1,137 $1,794 $1,970
For purposes of the Statement of Cash Flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three months or
less to be cash equivalents.
The accompanying Notes to Condensed Consolidated Financial Statements are an
integral part of these statements.
<PAGE>
LA-Z-BOY INCORPORATED AND OPERATING DIVISIONS
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
---------------------
The financial information is prepared in conformity with generally
accepted accounting principles and such principles are applied on a basis
consistent with those reflected in the 1997 Annual Report filed with the
Securities and Exchange Commission. The financial information included
herein, other than the consolidated balance sheet as of April 26, 1997, has
been prepared by management without audit by independent certified public
accountants who do not express an opinion thereon. The consolidated
balance sheet as of October 25, 1997 has been prepared on a basis consistent
with but does not include all the disclosures contained in, the audited
consolidated financial statements for the year ended April 26, 1997. The
information furnished includes all adjustments and accruals consisting only
of normal recurring accrual adjustments which are, in the opinion of
management, necessary for a fair presentation of results for the interim
period.
2. Interim Results
---------------
The foregoing interim results are not necessarily indicative of the
results of operations for the full fiscal year ending April 25, 1998.
3. Commitments and Contingencies
-----------------------------
There has been no significant change from the prior fiscal year end
audited financial statements.
LA-Z-BOY INCORPORATED AND OPERATING DIVISIONS
MANAGEMENT DISCUSSION
Due to the cyclical nature of the Company's business, comparison of
operations between the most recently completed quarter and the immediate
preceding quarter would not be meaningful and could be misleading to the
reader of these financial statements.
For further Management Discussion, see attached Exhibit 99.(a)
The Company's strong financial position is reflected in the debt to capital
percentage of 14% and a current ratio of 3.2 to 1 at the end of the Second
quarter. At April 26, 1997, the debt to capital percentage was 15% and the
current ratio was 3.5 to 1. At the end of the preceding year's Second
quarter, the debt to capital percentage was 16% and the current ratio was
3.2 to 1. As of October 25, 1997, there was $63 million of unused lines of
credit available under several credit arrangements.
Approximately 30% of the 4 million shares of Company stock authorized for
purchase on the open market are still available for purchase by the Company.
The Company plans to be in the market for its shares as changes in its stock
price and other factors present appropriate opportunities.
PART II. OTHER INFORMATION
Item 5. Other Information
- --------------------------
On October 29, 1997, The Board of Directors of La-Z-Boy Incorporated
announced that Gerald L. Kiser has been named President and Chief
Operating Officer of the Company. The Board of Directors named
Patrick H. Norton to Chairman of the Board of the company. Mr. Kiser was
promoted from Executive Vice President and Chief Operating Officer.
Mr. Norton will continue to direct all sales and marketing activities.
For Further detail, see attached exhibit 99.(b)
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(a)(3i) Restated Articles of incorporation as filed with the state
of Michigan, on September 18,1997.
(3ii) By-Laws of la-Z-Boy Incorporated
(27) Financial Data Schedule (EDGAR only).
(99) (a) News Release and Financial Information Release: re Actual second
quarter results and Management Discussion dated November 4, 1997
(filed herewith).
(99) (b) News Release: re Changes in Management of Registrant dated
October 29, 1997 (filed herewith).
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused the Quarterly Report on Form 10-Q for the quarter
ended October 25, 1997 to be signed on its behalf by the undersigned
thereunto duly authorized.
LA-Z-BOY INCORPORATED
(Registrant)
/s/G.M. Hardy
Date November 4, 1997 -----------------------------
Gene M. Hardy
Secretary and Treasurer
(Principal Accounting Officer)
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> APR-25-1998
<PERIOD-END> OCT-25-1997
<CASH> 23,681
<SECURITIES> 0
<RECEIVABLES> 216,989
<ALLOWANCES> 0
<INVENTORY> 88,921
<CURRENT-ASSETS> 352,413
<PP&E> 288,909
<DEPRECIATION> 169,662
<TOTAL-ASSETS> 544,584
<CURRENT-LIABILITIES> 111,628
<BONDS> 0
<COMMON> 17,828
0
0
<OTHER-SE> 299,798
<TOTAL-LIABILITY-AND-EQUITY> 544,584
<SALES> 505,534
<TOTAL-REVENUES> 505,534
<CGS> 379,554
<TOTAL-COSTS> 379,554
<OTHER-EXPENSES> 95,757
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,051
<INCOME-PRETAX> 30,443
<INCOME-TAX> 11,895
<INCOME-CONTINUING> 18,548
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18,548
<EPS-PRIMARY> 1.04
<EPS-DILUTED> 1.04
<FN> Receivables are reported net of allowances for doubtful accounts on
the Statement of Financial Position.
</TABLE>
News Release
------------
LA-Z-BOY HAD HIGHER SALES AND PROFITS
IN SECOND QUARTER
MONROE, MI., November 4, 1997: La-Z-Boy Incorporated continued reaching
record levels of quarterly sales; while profits rebounded from the first
quarter.
Financial Details
- -----------------
For the second quarter ended 10/25/97, sales reached $293.2 million, up
8% from last year's second quarter of $271.6 million. Operating profit was
$27.4 million vs. $25.5 million. Net income was $16.8 million vs. $15.3
million, and net income per share was $0.94 vs. $0.84.
For the six months ended 10/25/97 sales were $505.5 million, up 7% from
last year's first half of $473.8 million. Operating profit was $30.2
million vs. $33.5 million. Net income was $18.5 million vs. $19.8 million,
and net income per share was $1.04 vs. $1.09. (About $0.10 of the $0.15
decline in first quarter net income per share was due to La-Z-Boy's largest
customer, Montgomery Ward, declaring bankruptcy.)
Short Term Sales Trends are Good:
- --------------------------------
Sales order backlogs as of today and recent short term trends in sales
orders indicate that November's and December's shipments over comparable
prior year months will be above the 8% second quarter increase. The
strength in sales extends across most product lines and divisions.
Marketing
- ---------
The recently completed International Home Furnishings Market in High
Point, North Carolina featured a broad spectrum of introductions from
England/Corsair, "Cadence", a lifestyle occasional collection from Hammary,
and "American Artifact", an updated "mission" look from Kincaid. La-Z-Boy
Residential introductions included deluxe massage recliners with built-in
telephones and digital answering machines aimed at today's "high tech"
customers and significant enhancements to the reclining sofa category.
The La-Z-Boy brand recently placed 9th out of 260 household brands in a
study by HFN magazine. (The next highest furniture manufacturer placed
32nd.) To continue building the power and the strength of the La-Z-Boy
name, the Residential Division recently launched an extensive national
magazine advertising campaign in the nation's most widely read women's
magazines and home decorating publications. The series of four ads shows
how the style, comfort and variety of La-Z-Boy upholstered home furnishings
fit many family lifestyles. The campaign will run through April 1998 and
continues to offer consumers the free La-Z-Boy Home Furnishings Kit and the
name of their nearest authorized La-Z-Boy dealer through our 1-800 Make-A-
Home toll free number.
The Contract Furniture Group continues to post solid gains as a result
of a very healthy business climate in the office furniture market. The
closing of the Grand Rapids, Michigan facilities has been completed and the
manufacturing of systems furniture and laminate desks in the Lincolnton,
North Carolina facility is well underway.
More Information
- ----------------
La-Z-Boy's second quarter 10-Q filing including a full income statement,
balance sheet, cash flow statement and additional management discussion is
available now at La-Z-Boys worldwide web site (www.lazboy.com). About 24
to 48 hours after this release, the second quarter 10-Q information should
be available on the SEC's web site in their EDGAR databases (www.sec.gov).
The SEC's site also contains additional La-Z-Boy financial information,
including 8-K and other filings, going back about two years.
NYSE & PCX: LZB Contact: Gene Hardy (313) 241-4306
<PAGE>
11/04/97 La-Z-Boy Incorporated Financial Information Release 1 of 3
CONSOLIDATED STATEMENT OF INCOME
(Amounts in thousands, except per share data)
SECOND QUARTER ENDED (UNAUDITED)
---------------------------------------------
Percent of Sales
Oct. 25, Oct. 26, % Over ----------------
1997 1996 (Under) 1997 1996
-------- -------- ------- ------ ------
Sales $293,208 $271,554 8% 100.0% 100.0%
Cost of sales 215,370 197,017 9% 73.5% 72.6%
-------- -------- ------- ------ ------
Gross profit 77,838 74,537 4% 26.5% 27.4%
S, G & A 50,400 49,006 3% 17.1% 18.0%
-------- -------- ------- ------ ------
Operating profit 27,438 25,531 7% 9.4% 9.4%
Interest expense 1,027 1,097 -6% 0.4% 0.4%
Interest income 512 367 40% 0.2% 0.1%
Other income 527 521 1% 0.2% 0.2%
-------- -------- ------- ------ ------
Pretax income 27,450 25,322 8% 9.4% 9.3%
Income taxes 10,628 10,070 6% 38.7%* 39.8%*
-------- -------- ------- ------ -----
Net income $16,822 $15,252 10% 5.7% 5.6%
======== ======== ======= ====== ======
Average shares 17,888 18,125 -1%
Net income per share $0.94 $0.84 12%
Dividends per share $0.21 $0.19 11%
SIX MONTHS ENDED (UNAUDITED)
---------------------------------------------
Percent of Sales
Oct. 25, Oct. 26, % Over ----------------
1997 1996 (Under) 1997 1996
-------- -------- ------- ------ ------
Sales $505,534 $473,781 7% 100.0% 100.0%
Cost of sales 379,554 351,934 8% 75.1% 74.3%
-------- -------- ------- ------ ------
Gross profit 125,980 121,847 3% 24.9% 25.7%
S, G & A 95,757 88,360 8% 18.9% 18.6%
-------- -------- ------- ------ ------
Operating profit 30,223 33,487 -10% 6.0% 7.1%
Interest expense 2,051 2,204 -7% 0.4% 0.5%
Interest income 994 830 20% 0.2% 0.2%
Other income 1,277 1,306 -2% 0.2% 0.3%
-------- -------- ------- ------ ------
Pretax income 30,443 33,419 -9% 6.0% 7.1%
Income taxes 11,895 13,569 -12% 39.1%* 40.6%*
-------- -------- ------- ------ -----
Net income $18,548 $19,850 -7% 3.7% 4.2%
======== ======== ======= ====== ======
Average shares 17,920 18,208 -2%
Net Income per share $1.04 $1.09 -5%
Dividends per share $0.42 $0.38 11%
* As a percent of pretax income, not sales.
<PAGE>
11/04/97 La-Z-Boy Incorporated Financial Information Release 2 of 3
CONSOLIDATED BALANCE SHEET
(Dollars in thousands)
Unaudited Increase
------------------ (Decrease) Audited
Oct. 25, Oct. 26, --------------- April 26,
1997 1996 Dollars Percent 1997
-------- -------- ------- ------- --------
Current assets
Cash & equivalents $23,681 $14,956 $8,725 58% $25,382
Receivables 216,989 215,049 1,940 1% 215,032
Inventories
Raw materials 40,672 40,042 630 2% 36,959
Work-in-process 36,652 38,556 (1,904) -5% 34,854
Finished goods 33,110 33,406 (296) -1% 28,177
-------- -------- ------- ------- --------
FIFO inventories 110,434 112,004 (1,570) -1% 99,990
Excess of FIFO over LIFO (21,513) (21,796) 283 1% (21,219)
-------- -------- ------- ------- --------
Total inventories 88,921 90,208 (1,287) -1% 78,771
Deferred income taxes 22,395 20,149 2,246 11% 20,950
Other current assets 427 7,621 (7,194) -94% 2,640
-------- -------- ------- ------- --------
Total current assets 352,413 347,983 4,430 1% 342,775
Property, plant & equipment 119,247 115,297 3,950 3% 114,658
Goodwill 41,755 39,532 2,223 6% 38,702
Other long-term assets 31,169 31,075 94 0% 32,272
-------- -------- ------- ------- --------
Total assets $544,584 $533,887 $10,697 2% $528,407
======== ======== ======= ======= ========
<PAGE>
Unaudited Increase
----------------- (Decrease) Audited
Oct. 25, Oct. 26, --------------- April 26,
1997 1996 Dollars Percent 1997
-------- -------- ------- ------- -------
Current liabilities
Current portion - l/t debt $5,118 $4,625 $493 11% $4,611
Current portion - captl leases 1,778 2,072 (294) -14% 2,017
Accounts payable 37,579 41,706 (4,127) -10% 28,589
Payroll/other comp 32,362 32,798 (436) -1% 37,934
Estimated income taxes 11,132 9,217 1,915 21% 5,412
Other current liabilities 23,659 18,973 4,686 25% 19,106
-------- -------- ------- ------ ------
Total current liabilities 111,628 109,391 2,237 2% 97,669
Long-term debt 52,522 55,071 (2,549) -5% 52,449
Capital leases 1,401 3,183 (1,782) -56% 2,202
Deferred income taxes 5,814 6,663 (849) -13% 6,329
Other long-term liabilities 10,343 10,502 (159) -2% 10,420
Commitments & contingencies
Shareholders' equity
17,828,415 shares, $1.00 par 17,828 18,135 (307) -2% 17,908
Capital in excess of par 28,378 27,856 522 2% 27,697
Retained earnings 317,626 303,693 13,933 5% 314,731
Currency translation (956) (607) (349) -57% (998)
-------- -------- ------- ------ -------
Total shareholders' equity 362,876 349,077 13,799 4% 359,338
-------- -------- ------- ------ -------
Total liabilities and
shareholders' equity $544,584 $533,887 $10,697 2% $528,407
======== ======== ======= ====== ========
<PAGE>
11/4/97 La-Z-Boy Incorporated Financial Information Release Page 3 of 3
Overall:
- -------
Refer to today's press release for additional information.
The quarter ended October 25, 1997 includes three months of income
statement information and the balance sheet of Centurion Furniture plc, the
recently acquired furniture manufacturer located in England. Annual sales
for Centurion for the year ended 3/31/97 were $12 million.
Gross Profit:
- ------------
Gross profit margins declined to 26.5% of sales from 27.4% in last
year's second quarter on an 8% increase in sales dollars and a 4% increase
in sales units. A combination of both selling price increases and favorable
merchandising trends was offset by increased production costs. Similar to
the first quarter, a major reason for these increased costs was disruptions
in the delivery of hardwood and plywood parts. Secondly, additional costs
associated with the relocation of contract casegoods operations occurred.
The hardwood and plywood problems experienced in the first and second
quarter are thought to be mostly resolved and are not expected to impact
future quarters. Costs relating to the contract casegoods consolidation are
expected to continue into the third quarter but with a declining impact.
S,G & A:
- -------
Second quarter S, G & A decreased from 18.0% of sales last year to 17.1%
due mainly to decreases in bonus accruals and lower commission rates.
Offsetting the decrease, information technologies expenses continue to
increase as discussed in the first quarter.
Interest Income:
- ---------------
Interest income increased 40% from last year due to an increase in cash
balances. The collection rate on receivables was a major contributor to the
increase in cash.
Estimated Income Taxes:
- ----------------------
Estimated income taxes increased 21% over last year. Lower payments
were remitted during the second quarter FY98 compared to FY97 due to first
quarter income being significantly lower than prior year. Federal law
allows estimated taxes for the first and second quarters to be based on
annualized income for the first three months only.
Other Current Assets:
- --------------------
Other current assets have decreased 94% over last year. One major
reason for the decrease was the timing of advertising related expenditures
being later in FY98 vs FY97. In addition, assets for the company's self-
insured healthcare plans have been decreasing over the last year due to many
plants switching from traditional insurance plans to HMO's. This trend is
not expected to continue.
Other Current Liabilities:
- -------------------------
Other current liabilities increased 25% from last year. The third
dividend of the fiscal year was declared in the second quarter to be paid in
the third quarter. In the prior year this dividend was not declared until
the third quarter. The dividend payment is expected to be approximately
$3.7 million.
News Release
------------
LA-Z-BOY NAMES KISER PRESIDENT AND COO
MONROE, Mich, October 29, 1997 -- The board of directors of La-Z-Boy
Incorporated announced today that Gerald L. Kiser, 50, has been named
president, chief operating officer (COO) and member of the board of the
nation's leading manufacturer of upholstered furniture. In his new
capacity, Kiser will be responsible for the supervision of all operations of
the corporation.
Kiser's promotion followed the recent death of Charles T. Knabusch,
president and chairman of La-Z-Boy Incorporated, who led the company from
$53 million to more than $1 billion in sales during his tenure at the helm
of the company. As part of Knabusch's plan to successfully transfer
management of the company to the next generation management group, earlier
this year the board elevated Kiser to executive vice president and COO from
his former position as vice president of operations.
The board, in keeping with the management transition plan, named Patrick
H. Norton, 75, to chairman where his primary duties will be to continue to
direct the sales and marketing activities of the company and its
subsidiaries. To ensure that Knabusch's succession goals are accomplished,
Norton will work with Kiser to complete the management transition to the
team that will lead the company's aggressive future marketing program.
In addition, the board promoted Frederick H. Jackson, 69, to executive
vice president - finance from vice president of finance. The company's
executive committee will continue to include Kiser, Norton and Jackson.
Kiser's extensive background in the furniture industry includes five
years as vice president of operations for Kincaid Furniture Company, a La-Z-
Boy subsidiary located in Hudson, N.C. Prior to joining Kincaid, Kiser held
the position of case goods division manufacturing manager for Broyhill. He
also is currently active in the American Furniture Manufacturers
Association.
Headquartered in Monroe, Mich., La-Z-Boy is the nation's leading
manufacturer of upholstered furniture and world's leading producer of
reclining chairs. The company employs 11,500 people, has 31 manufacturing
facilities in the United States, Canada and Europe, and operates seven
independent divisions, including La-Z-Boy Residential; La-Z-Boy Business
Furniture Group; Hammary Furniture Company, Kincaid Furniture Company;
England/Corsair, Inc.; La-Z-Boy Canada and Centurion Furniture PLC (U.K).
