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 July 26, 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 July 26, 1997
- ------------------------------ ----------------------------
Common Shares, $1.00 par value 17,974,876
<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 August 5, 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
------------------
July 26, July 27
1997 1996
--------- --------
Cash Flows from Operating Activities
Net income $1,726 $4,598
Adjustments to reconcile net income
to net cash provided by operating
activities
Depreciation and amortization 4,873 4,855
Change in receivables 48,902 44,935
Change in inventories (14,158) (12,928)
Change in other assets and liab. (15,223) (19,250)*
Change in deferred taxes - -
--------- --------
Total adjustments 24,394 17,612 *
--------- --------
Cash Provided by Operating
Activities 26,120 22,210 *
Cash Flows from Investing Activities
Proceeds from disposals of assets 316 113
Capital expenditures (5,568) (4,580)
Change in other investments (447) (5,621)
---------- --------
Cash Used for Investing Activities (5,699) (10,088)*
Cash Flows from Financing Activities
Short-term debt - -
Long-term debt - -
Retirements of debt (1,925) (2,940)
Capital leases - -
Capital lease principal payments (527) (565)
Stock for stock option plans 2,012 1,470
Stock for 401(k) employee plans 403 383
Purchase of La-Z-Boy stock (2,424) (7,126)
Payment of cash dividends (3,768) (3,482)
---------- --------
Cash Used for Financing Activities (6,229) (12,260)*
Effect of exch. rate changes on cash 36 (52)*
---------- --------
Net change in cash and equivalents 14,228 (190)
Cash and equiv. at beginning of period 25,382 27,060
---------- --------
Cash and equiv. at end of period $39,610 $26,870
========== ========
Cash paid during period - Income taxes $1,441 $2,257
- Interest $839 $833
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.
* These numbers have changed slightly from what was reported in the first
quarter last year. They have been corrected as a reclass error.
<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 condensed 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 condensed balance sheet as of July 26, 1997
has been derived from, but does not include all the disclosures contain-
ed 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
La-Z-Boy's sales and profits historically have been weakest in the first
quarter of the fiscal year due to the Company's two-week vacation shutdown
which coincides with the slowest sales period. Therefore, first quarter
comparison to the prior year's first quarter may not be indicative of trends
that will continue in the remaining quarters of the fiscal year.
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.
The Company's strong financial position is reflected in the debt to capital
percentage of 14% and a current ratio of 3.9 to 1 at the end of the first
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 first
quarter, the debt to capital percentage was 16% and the current ratio was
3.9 to 1. As of July 26, 1997, there was $62 million of unused lines of
credit available under several credit arrangements.
Approximately 35% 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 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
The Annual Meeting of Shareholders of La-Z-Boy Incorporated was held on July
28, 1997, for the purposes of electing three members to the board of
directors as well as considering and acting upon proposals to approve the
La-Z-Boy Incorporated 1997 Incentive Stock Option Plan and the 1997
Restricted Share Plan. Proxies for the meeting were solicited pursuant to
Section 14(a) of the Securities and Exchange Act of 1934 and there was no
solicitation in opposition to Management's solicitations. The Shareholders
elected all of Management's nominees for directors as listed in the proxy
statement and approved the La-Z-Boy Incorporated 1997 Incentive Stock Option
Plan and the 1997 Restricted Share Plan. The distribution of shareholders'
votes was as follows:
Shares Voted Shares
Election of Directors: In Favor Withheld
------------- -------------
Lorne G. Stevens 16,258,184 247,157
Patrick H. Norton 16,096,638 408,703
Frederick H. Jackson 16,200,120 305,221
Adoption of the La-Z-Boy Incorporated 1997 Incentive Stock Option Plan:
Shares Voted in Favor 14,919,016
Shares Voted Against 1,283,984
Abstentions 302,341
Adoption of the La-Z-Boy Incorporated 1997 Restricted Share Plan:
Shares Voted in Favor 15,155,433
Shares Voted Against 1,034,844
Abstentions 315,064
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(a)(10i) La-Z-Boy Incorporated 1997 Incentive Stock Option Plan (filed as
Exhibit A to the registrant's proxy (Commission File No. 1-9656)
dated June 27, 1997)is incorporated herein by reference.
(10ii) La-Z-Boy Incorporated 1997 Restricted Share Plan (filed as Exhibit
B to the registrant's proxy (Commission File No. 1-9656) dated
June 27, 1997)is incorporated herein by reference.
(27) Financial Data Schedule (EDGAR only).
(99) News Release and Financial Information Release: re Actual first
quarter results and Management Discussion dated August 5, 1997
(filed herewith).
(b) An 8-K was filed on May 13, 1997 to disclose an exchange of 33,718
shares of La-Z-Boy Incorporated Common Shares for 1,078,976 ordinary
shares of Centurion Furniture plc, a corporation incorporated in
England and Wales, not already owned by the Company. This exchange
brought the registrant's ownership in Centurion Furniture, plc to
99.6%.
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 July 26, 1997 to be signed on its behalf by the undersigned thereunto
duly authorized.
LA-Z-BOY INCORPORATED
(Registrant)
/s/G.M. Hardy
Date August 5, 1997 -----------------------------
Gene M. Hardy
Secretary and Treasurer
(Principal Accounting Officer)
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> APR-25-1998
<PERIOD-END> JUL-26-1997
<CASH> 39,610
<SECURITIES> 0
<RECEIVABLES> 164,101
<ALLOWANCES> 0
<INVENTORY> 92,928
<CURRENT-ASSETS> 319,295
<PP&E> 279,897
<DEPRECIATION> 164,287
<TOTAL-ASSETS> 509,675
<CURRENT-LIABILITIES> 81,638
<BONDS> 0
<COMMON> 17,975
0
0
<OTHER-SE> 341,306
<TOTAL-LIABILITY-AND-EQUITY> 509,675
<SALES> 212,326
<TOTAL-REVENUES> 212,326
<CGS> 164,184
<TOTAL-COSTS> 164,184
<OTHER-EXPENSES> 45,357
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,024
<INCOME-PRETAX> 2,993
<INCOME-TAX> 1,267
<INCOME-CONTINUING> 1,726
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,726
<EPS-PRIMARY> .10
<EPS-DILUTED> .10
<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, LOWER PROFITS
IN FIRST QUARTER
MONROE, MI., August 5, 1997: La-Z-Boy Incorporated continued reaching
record levels of quarterly sales but reported a drop in profits due
primarily to its largest customer, Montgomery Ward, declaring bankruptcy.
Financial Details
- -----------------
For the first quarter ended 7/26/97, sales reached $212.3 million, up 5%
from last year's first quarter of $202.2 million. Operating profit was $2.8
million vs. $8.0 million. Net income was $1.7 million vs. $4.6 million, and
net income per share was $0.10 vs. $0.25.
Chairman Comments
- -----------------
La-Z-Boy Chairman and President Charles T. Knabusch said the continuing
rise in sales "reflects our introduction of new products, aggressive
marketing efforts and an improved economic climate."
He said first quarter profits were "significantly impacted" by Montgomery
Ward's recent filing for Chapter 11 bankruptcy protection. For many years,
this chain was La-Z-Boy's largest single retail account. He noted however,
that Sears HomeLife stores have started carrying La-Z-Boy furniture, and
that major regional furniture chains also feature the company's products.
Profits were also adversely affected by costs to improve manufacturing
systems as well as a decision to retain more skilled employees during the
slow summer sales period in order to better meet strong fall sales demands.
Sales Orders
- ------------
The rate of sales increases over the prior year for August and September
are expected to be higher than the 5% first quarter rate based on actual
orders in house and more optimism than 90 days ago. Sales have been
increasing with backlogs up slightly, reflecting an improvement over the
trend of the last couple of years. (All sales increases were internally
generated.)
Marketing
- ---------
The Residential Division's June "La-Z-Boy Great Room Giveaway
Sweepstakes," promoted nationally in USA Weekend and Parade magazines,
generated store traffic exceeding expectations, according to La-Z-Boy
retailers. This highly successful program is expected to be repeated in
coming months.
In September and October, La-Z-Boy's popular "Wendall and Al" television
advertising campaign will air again during leading prime time TV programs
including Caroline in the City, ER, Frasier, Home Improvement and The Drew
Carey Show. These ads position La-Z-Boy as America's producer of furniture
for the entire home.
From September through April of next year, the Residential Division will
advertise continuously in the nation's most widely read women's magazines
and "shelter" magazines with a program targeted to reach close to 100
million purchasers of home furnishings. La-Z-Boy has created a CD ROM
library of retail advertising materials to help dealers tie their local
promotional efforts to the company's national campaigns.
More Information
- ----------------
La-Z-Boy's first quarter 10-Q filing including a full income statement,
balance sheet, cash flow statement and additional management discussion is
available now at La-Z-Boy's worldwide web site (www.lazboy.com). About 24
to 48 hours after this release the first 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>
08/05/97 La-Z-Boy Incorporated Financial Information Release 1 of 3
CONSOLIDATED STATEMENT OF INCOME
(Amounts in thousands, except per share data)
FIRST QUARTER ENDED (UNAUDITED)
---------------------------------------------
Percent of Sales
July 26, July 27, % Over ----------------
1997 1996 (Under) 1997 1996
-------- -------- ------- ------ ------
Sales $212,326 $202,227 5% 100.0% 100.0%
Cost of sales 164,184 154,917 6% 77.3% 76.6%
-------- -------- ------- ------ ------
Gross profit 48,142 47,310 2% 22.7% 23.4%
S, G & A 45,357 39,354 15% 21.4% 19.5%
-------- -------- ------- ------ ------
Operating profit 2,785 7,956 -65% 1.3% 3.9%
Interest expense 1,024 1,107 -7% 0.5% 0.5%
Interest income 482 463 4% 0.2% 0.2%
Other income 750 785 -4% 0.4% 0.4%
-------- -------- ------- ------ ------
Pretax income 2,993 8,097 -63% 1.4% 4.0%
Income taxes 1,267 3,499 -64% 42.3%* 43.2%*
-------- -------- ------- ------ -----
Net income $1,726 $4,598 -62% 0.8% 2.3%
======== ======== ======= ====== ======
Average shares 17,951 18,291 -2%
Net income per share $0.10 $0.25 -60%
Dividends per share $0.21 $0.19 11%
* As a percent of pretax income, not sales.
<PAGE>
08/05/97 La-Z-Boy Incorporated Financial Information Release 2 of 3
CONSOLIDATED BALANCE SHEET
(Dollars in thousands)
Unaudited Increase
------------------ (Decrease) Audited
July 26, July 27, --------------- April 26,
1997 1996 Dollars Percent 1997
-------- -------- ------- ------- --------
Current assets
Cash & equivalents $39,610 $26,870 $12,740 47% $25,382
Receivables 164,101 161,406 2,695 2% 215,032
Inventories
Raw materials 40,455 40,309 146 0% 36,959
Work-in-process 35,880 35,701 179 1% 34,854
Finished goods 37,890 37,845 45 0% 28,177
-------- -------- ------- ------- --------
FIFO inventories 114,225 113,855 370 0% 99,990
Excess of FIFO over LIFO (21,297) (21,735) 438 2% (21,219)
-------- -------- ------- ------- --------
Total inventories 92,928 92,120 808 1% 78,771
Deferred income taxes 20,950 19,271 1,679 9% 20,950
Other current assets 1,706 6,544 (4,838) -74% 2,640
-------- -------- ------- ------- --------
Total current assets 319,295 306,211 13,084 4% 342,775
Property, plant & equipment 115,610 116,323 (713) -1% 114,658
Goodwill 40,187 39,947 240 1% 38,702
Other long-term assets 34,583 30,639 3,944 13% 32,272
-------- -------- ------- ------- --------
Total assets $509,675 $493,120 $16,555 3% $528,407
======== ======== ======= ======= ========
<PAGE>
Unaudited Increase
----------------- (Decrease) Audited
July 26, July 27, --------------- April 26,
1997 1996 Dollars Percent 1997
-------- -------- ------- ------- -------
Current liabilities
Current portion - l/t debt $4,611 $4,625 ($14) 0% $4,611
Current portion - captl leases 1,932 2,114 (182) -9% 2,017
Accounts payable 29,959 27,027 2,932 11% 28,589
Payroll/other comp 23,014 21,651 1,363 6% 37,934
Estimated income taxes 5,105 6,903 (1,798) -26% 5,412
Other current liabilities 17,017 16,492 525 3% 19,106
-------- -------- ------- ------ ------
Total current liabilities 81,638 78,812 2,826 4% 97,669
Long-term debt 50,524 55,135 (4,611) -8% 52,449
Capital leases 1,760 3,654 (1,894) -52% 2,202
Deferred income taxes 6,329 6,663 (334) -5% 6,329
Other long-term liabilities 10,143 9,729 414 4% 10,420
Commitments & contingencies
Shareholders' equity
17,974,876 shares, $1.00 par 17,975 18,207 (232) -1% 17,908
Capital in excess of par 28,318 28,225 93 0% 27,697
Retained earnings 313,893 293,563 20,330 7% 314,731
Currency translation (905) (868) (37) -4% (998)
-------- -------- ------- ------ -------
Total shareholders' equity 359,281 339,127 20,154 6% 359,338
-------- -------- ------- ------ -------
Total liabilities and
shareholders' equity $509,675 $493,120 $16,555 3% $528,407
======== ======== ======= ====== ========
<PAGE>
8/5/97 La-Z-Boy Incorporated Financial Information Release Page 3 of 3
Overall:
- -------
Refer to today's press release for additional information.
Gross Profit:
- ------------
Gross profit margins declined to 22.7% of sales from 23.7% in last
year's first quarter even though sales dollars increased 5% and sales units
increased 3% - 4%. The decline in gross profit margin was primarily due to
unfavorable direct labor and overhead costs incurred in positioning many
residential upholstery plants to meet the anticipated increased production
demands associated with the fall selling season. Other reasons for the
decline in margins include higher lumber and plywood processing costs,
higher costs due to some raw material parts delivery disruptions and higher
freight costs.
Most of the above reasons for declining first quarter margins appear to
be non-recurring.
S,G & A:
- -------
First quarter S, G & A increased to 21.4% of sales vs. 19.5%. The
largest cause is due to the increase of bad debts expense relating to the
Chapter 11 declaration of bankruptcy by Montgomery Ward Holding Corporation.
Sales to Montgomery Ward, La-Z-Boy's largest dealer, amounted to slightly
less than 5% of sales in the last year. About $3.1 million in S, G & A bad
debts expense is due to Montgomery Ward. This is expected to be a "one-
time" income statement impact.
Another area of S, G & A increase (as a percent of sales) is in the
Information Technologies (IT) area. Starting about a year ago and
continuing perhaps another year or two, an IT "infrastructure" type of
investment has been made of both an expense and capitalized nature.
Some other areas of S, G & A increase over last year (as a percent of
sales) were freight expense, sales meeting expenses, and some outside
consulting expenses. These were all "one-time" expenses and are not
expected to continue to increase throughout the new fiscal year at a rate
exceeding the rate of sales.
Cash:
- ----
The first quarter cash balance was 56% above last year end. The
increase was largely due to a decrease in accounts receivable. Because of
very strong sales in the fourth quarter of FY97, cash impacts are being
recognized in the first quarter of FY98.
Goodwill:
- --------
Goodwill increased approximately $1.5 million from 4/26/97 to 7/26/97.
The former England/Corsair shareholder's were given the opportunity to
receive additional Company common stock based on England/Corsair's actual
profit performance in each of the two years following acquisition.
Approximately $1.9 million of common stock was issued in the first quarter
of FY98 relating to England/Corsair's actual FY97 performance. Goodwill was
increased by the value of the common stock issued.
