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 25, 1998 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 (734) 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 25, 1998
Common Shares, $1.00 par value 17,747,753
Part 1. Financial Information
The Consolidated Balance Sheet and Consolidated Statement of Income required for
Part 1 are contained in the Registrant's Financial Information Release dated
August 4, 1998 and are incorporated herein by reference.
-------------------------------------------------------
<TABLE>
<CAPTION>
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 25, July 26,
1998 1997
---------- -----------
<S> <C> <C>
Cash Flows from Operating Activities
Net income $7,184 $1,726
Adjustments to reconcile net income to
net cash provided by operating activities
Depreciation and amortization 5,417 4,873
Change in receivables 42,571 48,902
Change in inventories (9,368) (14,158)
Change in other assets and liabilities (9,809) (15,223)
Change in deferred taxes 73 -
---------- -----------
Total adjustments 28,884 24,394
---------- -----------
Cash Provided by Operating Activities 36,068 26,120
Cash Flows from Investing Activities
Proceeds from disposals of assets 205 316
Capital expenditures (4,105) (5,568)
Change in other investments (1,890) (447)
---------- -----------
Cash Used for Investing Activities (5,790) (5,699)
Cash Flows from Financing Activities
Retirements of debt (3,091) (1,925)
Capital lease principal payments (442) (527)
Stock for stock option plans 1,451 2,012
Stock for 401(k) employee plans 379 403
Purchase of La-Z-Boy stock (7,603) (2,424)
Payment of cash dividends (3,743) (3,768)
---------- -----------
Cash Used for Financing Activities (13,049) (6,229)
Effect of exchange rate changes on cash (310) 36
---------- -----------
Net change in cash and equivalents 16,919 14,228
Cash and equivalents at begin. of period 28,700 25,382
---------- -----------
Cash and equivalents at end of period $45,619 $39,610
========== ===========
Cash paid during period -Income taxes $475 $1,441
-Interest $543 $839
<FN>
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.
</FN>
</TABLE>
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 1998 Annual Report filed with the Securities and
Exchange Commission. The financial information included herein, other than
the consolidated balance sheet as of April 25, 1998, 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 July
25, 1998 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 25, 1998. 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 24, 1999.
3. Forward-Looking Information
Any forward-looking statements contained in this report represent
management's current expectations based on present information and current
assumptions. These statements can be identified by the use of forward-
looking terminology such as "believes", "expects", "may", "should", or
"anticipates". Forward-looking statements are inherently subject to risks
and uncertainties. Actual results could differ materially from those which
are anticipated or projected due to a number of factors. These factors
include, but are not limited to, anticipated growth in sales; success of
product introductions; fluctuations of interest rates, changes in consumer
confidence/demand and other risks and factors identified from time to time in
the Company's reports filed with the Securities Exchange Commission.
4. Commitments and Contingencies
There has been no significant change from the prior fiscal year end audited
financial statements.
5. Earnings per Share
The Company adopted Statement of Financial Accounting Standards (SFAS)
No. 128, "Earnings per Share" in 1998. The Statement requires both basic and
diluted earnings per share to be presented. Basic earnings per share is
computed using the weighted-average number of shares outstanding during the
period. Diluted earnings per share uses the weighted-average number of
shares outstanding during the period plus the additional common shares that
would be outstanding if the dilutive potential common shares were issued.
This includes employee stock options. Prior period earnings per share
information has been restated to be in compliance with SFAS No. 128.
<TABLE>
<CAPTION>
July 25, July 26,
(Amounts in thousands) 1998 1997
---------------------- -------- --------
<S> <C> <C>
Weighted average common
shares outstanding (Basic) 17,797 17,951
Effect of Options 112 49
------ ------
Weighted average common
shares outstanding (Diluted) 17,909 18,000
====== ======
</TABLE>
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.(a)
The Company's strong financial position is reflected in the debt to capital
percentage of 15% and a current ratio of 3.8 to 1 at the end of the first
quarter. At April 25, 1998, the debt to capital percentage was 16% 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 14% and the current ratio was 3.9 to 1. As
of July 25, 1998, there was $106 million of unused lines of credit available
under several credit arrangements.
Approximately 23% 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 27,
1998, for the purposes of electing three members to the board of directors as
well as considering and acting on a proposal to approve an increase in the
number of common shares authorized. 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 the Management's nominees for directors as listed in
the proxy statement and approved the increase in the number of authorized
shares. The distribution of shareholders' votes was as follows:
<TABLE>
<CAPTION>
Shares Voted Shares
Election of Directors: In Favor Withheld
------------ --------
<S> <C> <C>
Gene M. Hardy 15,812,114 462,073
David K. Hehl 15,784,975 489,212
Rocque E. Lipford 14,683,246 1,590,941
<CAPTION>
Adoption of an Increase to the Amount of Authorized Common Shares:
<S> <C>
Shares Voted in Favor 12,771,612
Shares Voted Against 3,398,385
Abstentions 104,182
</TABLE>
Item 6. Exhibits and Reports on Form 8-K
(a)(27) Financial Data Schedule (EDGAR only).
(99) News Releases and Financial Information Release: re Actual first
quarter results and Management Discussion dated August 4, 1998.
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 25, 1998 to be signed on its behalf by the undersigned thereunto duly
authorized.
LA-Z-BOY INCORPORATED
(Registrant)
/s/Gene M. Hardy
Date August 4, 1998 ------------------------------
Gene M. Hardy
Secretary and Treasurer
(Principal Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> APR-24-1999
<PERIOD-END> JUL-25-1998
<CASH> 45,619
<SECURITIES> 0
<RECEIVABLES> 196,128
<ALLOWANCES> 0
<INVENTORY> 101,272
<CURRENT-ASSETS> 364,928
<PP&E> 303,507
<DEPRECIATION> 182,823
<TOTAL-ASSETS> 562,110
<CURRENT-LIABILITIES> 95,682
<BONDS> 0
0
0
<COMMON> 17,748
<OTHER-SE> 367,656
<TOTAL-LIABILITY-AND-EQUITY> 562,110
<SALES> 268,880
<TOTAL-REVENUES> 268,880
<CGS> 205,431
<TOTAL-COSTS> 205,431
<OTHER-EXPENSES> 51,288
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,187
<INCOME-PRETAX> 11,906
<INCOME-TAX> 4,722
<INCOME-CONTINUING> 7,184
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,184
<EPS-PRIMARY> 0.40
<EPS-DILUTED> 0.40
</TABLE>
News Release
LA-Z-BOY, INC. REPORTS STRONG FIRST QUARTER GAINS
NYSE & PCX: LZB Contact: Gene Hardy (734) 241-4306
MONROE, MI., August 4, 1998: La-Z-Boy Incorporated, one of the world's largest
producers of furniture, continued reaching record levels of quarterly sales and
profit.
Financial Details
For the first quarter of La-Z-Boy's 1999 fiscal year that ended 7/25/98, sales
reached $268.9 million, up 27% from last year's first quarter of $212.3 million.
Net income was up 316% to $7.2 million vs. $1.7 million. Diluted EPS (Earnings
Per Share) was up 300% to $0.40 vs. $0.10. (Last year's diluted EPS would have
been $0.20 without a one-time expense relating to Montgomery Ward's bankruptcy.)
President Comments
According to La-Z-Boy President and Chief Operating Officer, Gerald L. Kiser,
"Strong incoming orders during the spring of the year helped cause us to exceed
our internal sales and profit goals in the first quarter. We are on our way to
performing better than our publicly stated goal of annual sales growing at least
10% or greater than the industry rate. Based on our latest sales indicators, it
looks like August and September sales growth should continue to be strong;
although not as high on a percentage basis as in the first quarter."
Marketing
Retail furniture sales remained seasonally strong throughout the first quarter,
helping drive record results. Residential division dealers purchased a record
number of company-produced four-color free-standing newspaper inserts.
Newspaper insertions in support of Father's Day 1998 nearly doubled from 1997
levels. The ability for dealers to advertise the full range of La-Z-Boy
products has been enhanced by the company's move to CD-ROM technology.
In October of this year, the Residential division and the Kincaid division
will be introducing a joint collection of upholstered products and casegoods
inspired by the works of renowned artist Thomas Kinkade, the "Painter of Light".
The Thomas Kinkade name and product lines are strong forces at retail and hold
great appeal for women consumers in particular. Previously, the Kincaid
division has enjoyed success from its licensing venture with Ducks Unlimited.
This is the first licensing agreement signed by the Residential division and the
first time the two divisions will have introduced products jointly.
The Business Furniture division launched the third issue of its "All Products
Catalog" and initiated a new marketing partnership between La-Z-Boy Business
Furniture and its distributors. Key components of the program include direct
mail brochures, newspaper advertisements, radio/television commercials and
point-of-sale materials.
Dividend Increase and Stock Split
Both of the following items were previously announced on 7/27/98: La-Z-Boy
declared a 14% increase in dividends to $0.24 per share for shareholders of
record August 21, 1998, payable September 10, 1998. In addition La-Z-Boy plans
to split its common stock 3 for 1 (two additional shares will be issued for each
share held) to holders of record at the close of business on August 21, 1998,
with distribution to be made September 14, 1998.
More Information
La-Z-Boy Inc.'s first quarter 10-Q filing including an income statement, balance
sheet, cash flow statement and additional management discussion is available now
at the Company's internet site (lazboy.com/report/index.html). This press
release is just one part of La-Z-Boy Incorporated's disclosures and should be
read in conjunction with all other 10-Q information. About 48 hours after this
release, this first quarter 10-Q information should be available on the SEC's
internet site (sec.gov/cgi-bin/srch-edgar?la-z-boy).
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8/4/98 Page 1 of 3
La-Z-Boy Incorporated Financial Information Release
CONSOLIDATED STATEMENT OF INCOME
(Amounts in thousands, except per share data)
FIRST QUARTER ENDED (UNAUDITED)
----------------------------------------------
July 25, July 26, % Over Percent of Sales
------------------
1998 1997 (Under) 1998 1997
-------- -------- -------- ------- ------
<S> ................. <C> <C> <C> <C> <C>
Sales ............... $268,880 $212,326 27% 100.0% 100.0%
Cost of sales ....... 205,431 164,184 25% 76.4% 77.3%
-------- -------- -------- ------- -----
Gross profit ... 63,449 48,142 32% 23.6% 22.7%
S, G & A ............ 51,288 45,357 13% 19.1% 21.4%
-------- -------- -------- ------- -----
Operating profit 12,161 2,785 337% 4.5% 1.3%
Interest expense .... 1,187 1,024 16% 0.4% 0.5%
Interest income ..... 577 482 20% 0.2% 0.2%
Other income ........ 355 750 -53% 0.1% 0.4%
-------- -------- -------- ------- -----
Pretax income .. 11,906 2,993 298% 4.4% 1.4%
Income tax expense .. 4,722 1,267 273% 39.7%* 42.3%*
-------- -------- -------- ------- -----
Net income ..... $ 7,184 $ 1,726 316% 2.7% 0.8%
======== ======== ======== ======= =====
Basic EPS ......... $ 0.40 $ 0.10 300%
Diluted EPS ....... $ 0.40 $ 0.10 300%
Dividends per share $ 0.21 $ 0.21 0%
<FN>
* As a percent of pretax income, not sales.
</FN>
</TABLE>
<TABLE>
<CAPTION>
8/4/98 Page 2 of 3
La-Z-Boy Incorporated Financial Information Release
CONSOLIDATED BALANCE SHEET
(Dollars in thousands)
Unaudited Increase Audited
---------
July 25, July 26, (Decrease) Apr. 25,
----------
1998 1997 Dollars Percent 1998
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Current assets
Cash & equivalents ................. $ 45,619 $ 39,610 $ 6,009 15% $ 28,700
Receivables ........................ 196,128 164,101 32,027 20% 238,260
Inventories
Raw materials .................... 45,706 40,455 5,251 13% 43,883
Work-in-process .................. 42,639 35,880 6,759 19% 40,640
Finished goods ................... 35,667 37,890 (2,223) -6% 30,193
--------- --------- --------- --------- ---------
FIFO inventories ............... 124,012 114,225 9,787 9% 114,716
Excess of FIFO over LIFO ....... (22,740) (21,297) (1,443) -7% (22,812)
--------- --------- --------- --------- ---------
Total inventories ........... 101,272 92,928 8,344 9% 91,904
Deferred income taxes .............. 16,627 20,950 (4,323) -21% 16,679
Income taxes ....................... -- -- N/M N/M 936
Other current assets ............... 5,282 1,706 3,576 210% 6,549
--------- --------- --------- --------- ---------
Total current assets ............. 364,928 319,295 45,633 14% 383,028
Property, plant & equipment .......... 120,685 115,610 5,075 4% 121,762
Goodwill ............................. 48,533 40,187 8,346 21% 49,413
Other long-term assets ............... 27,964 34,583 (6,619) -19% 26,148
--------- --------- --------- -------- ---------
Total assets ................... $ 562,110 $ 509,675 $ 52,435 10% $ 580,351
========= ========= ========= ========= =========
Current liabilities
Current portion - l/t debt ......... $4,805 $ 4,611 $ 194 4% $ 4,822
Current portion - capital leases ... 1,205 1,932 (727) -38% 1,383
Accounts payable ................... 35,613 29,959 5,654 19% 36,703
Payroll/other comp ................. 29,252 23,014 6,238 27% 39,617
Income taxes ....................... 1,613 5,105 (3,492) -68% --
Other current liabilities .......... 23,194 17,017 6,177 36% 25,764
--------- --------- --------- --------- ---------
Total current liabilities ........ 95,682 81,638 14,044 17% 108,289
Long-term debt ....................... 63,360 50,524 12,836 25% 66,434
Capital leases ....................... 555 1,760 (1,205) -68% 819
Deferred income taxes ................ 5,500 6,329 (829) -13% 5,478
Other long-term liabilities .......... 11,609 10,143 1,466 14% 11,122
Commitments & contingencies .......... -- -- N/M N/M --
Shareholders' equity
Common shares, $1 par .............. 17,748 17,975 (227) -1% 17,850
Capital in excess of par ........... 29,964 28,318 1,646 6% 29,262
Retained earnings .................. 339,214 313,893 25,321 8% 342,146
Currency translation ............... (1,522) (905) (617) -68% (1,049)
--------- --------- --------- --------- ---------
Total shareholders' equity ....... 385,404 359,281 26,123 7% 388,209
--------- --------- --------- --------- ---------
Total liabilities and
shareholders' equity ........... $ 562,110 $ 509,675 $ 52,435 10% $ 580,351
========= ========= ========= ========= =========
</TABLE>
8/4/98 Page 3 of 3
La-Z-Boy Incorporated Financial Information Release
Comments and Analysis
Overall:
Refer to today's press release for additional information.
Sales:
Sales in the first quarter of fiscal year 1999 were up 27% over the prior year's
quarter primarily due to a very strong month of May sales in the current year
compared to much weaker than normal sales in May last year. (Sales increases
for the months of June and July compared to prior year comparable months were
good but not nearly as strong as May.) In addition, sales were bolstered by
acquisitions of companies; a product mix which favored higher priced products
and selling price increases of 0.5% - 1.5%. Sales increases were not caused by
any new significant product line introductions or sales promotions. That is, a
"normal" amount of new styles, fabrics and promotional activity occurred in both
years' first quarter.
Gross profit margins:
Gross profit margins increased to 23.6% of sales from 22.7% in last year's first
quarter. Margins were favorably affected by a significant growth in unit sales
volume, which allowed fixed overhead costs to be absorbed more efficiently.
Also, the absence of a build-up in manufacturing costs due to positioning
residential upholstery plants for the fall selling season and raw material parts
delivery disruptions (which were present in the prior year) favorably impacted
gross profit margins. Margins were unfavorably impacted by a product mix which
favored lower margin products, higher inbound freight costs, higher indirect
labor expenses, higher overtime costs and higher utility expenses.
As mentioned in the press release, anticipated strong sales growth in August and
September should favorably affect fixed costs - although with not as much of a
percentage impact because unit growth isn't expected to be as high as in the
first quarter. Unfavorable gross margin impacts from product mix are expected
to continue in the short term. However; it is difficult to estimate whether the
other items that caused unfavorable margin impacts in the first quarter will
continue, get worse or get better in the second quarter.
S,G & A:
First quarter S,G & A decreased to 19.1% of sales vs. 21.4% last year. The
largest cause was due to a decrease in bad debts expense. The prior year had
$3.1 million of expense relating to the Chapter 11 declaration of bankruptcy by
Montgomery Ward Holding Corporation. As expected, performance bonus related
expenses increased due to higher sales & profits and Information Technology
(I.T.) expenses increased mainly due to Year 2000 related projects and work on
production tracking systems. La-Z-Boy held many other S,G & A expenses at a
growth rate much lower than the sales growth rate, thus somewhat offsetting the
higher performance bonus and I.T. related increases. Higher bonus and I.T.
related expenses are expected to continue throughout the year.
Income tax expense:
Income tax expense as a percent of pretax income declined to 39.7% from 42.3%
last year. With the traditionally lower income in the first quarter of the
year, rate fluctuations are common due to international and non-deductible
amortization effects being amplified.
