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 24, 1999 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 24, 1999
- ------------------------------ -------------------------------
Common Shares, $1.00 par value 52,233,696
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, 1999 and are incorporated herein by reference.
------------------------------------------------------
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 24, July 25,
1999 1998
---------- ----------
Cash Flows from Operating Activities
Net income $13,293 $7,184
Adjustments to reconcile net income to
net cash provided by operating activities
Depreciation and amortization 5,780 5,417
Change in receivables 50,000 42,571
Change in inventories (11,614) (9,368)
Change in other assets and liabilities (17,396) (9,809)
Change in deferred taxes 21 73
---------- ----------
Total adjustments 26,791 28,884
---------- ----------
Cash Provided by Operating Activities 40,084 36,068
Cash Flows from Investing Activities
Proceeds from disposals of assets 67 205
Capital expenditures (13,568) (4,105)
Acquisition of operating division, net of cash
acquired (58,316) --
Change in other investments (166) (1,890)
---------- ----------
Cash Used for Investing Activities (71,983) (5,790)
Cash Flows from Financing Activities
Long term debt 57,000 --
Retirements of debt (2,704) (3,091)
Capital lease principal payments (86) (442)
Stock for stock option plans 2,171 1,451
Stock for 401(k) employee plans 687 379
Purchase of La-Z-Boy stock (6,142) (7,603)
Payment of cash dividends (4,185) (3,743)
---------- ----------
Cash Provided/(Used) for Financing
Activities 46,741 (13,049)
Effect of exchange rate changes on cash (288) (310)
---------- ----------
Net change in cash and equivalents 14,554 16,919
Cash and equivalents at begin. of period 33,550 28,700
---------- ----------
Cash and equivalents at end of period $48,104 $45,619
========== ==========
Cash paid during period -Income taxes $2,289 $475
-Interest $486 $543
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.
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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 1999 Annual Report filed with the Securities and Exchange
Commission. The financial information included herein, other than the
consolidated balance sheet as of April 24, 1999, has been prepared by management
without audit by independent certified public accountants. The consolidated
balance sheet as of July 24, 1999 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 24, 1999. 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 29, 2000.
3. Earnings per Share
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.
Three Months Ended
-----------------------
July 24, July 25,
(Amounts in thousands) 1999 1998
- ---------------------- -------- --------
Weighted average common
shares outstanding (basic) 52,286 53,392
Effect of options 341 330
-------- --------
Weighted average common
shares outstanding
(diluted) 52,627 53,722
======== ========
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4. Segment Information
The Company's reportable operating segments include Residential upholstery and
Residential casegoods. Financial results of the Company's operating segments for
the quarters ended July 24, 1999 and July 25, 1998 are as follows:
Three Months Ended
-------------------
July 24, July 25,
(Amounts in thousands) 1999 1998
- ---------------------- -------- --------
Net revenues
Residential upholstery $255,088 $206,634
Residential casegoods 50,253 45,575
Other 38,577 29,494
Eliminations (22,259) (12,823)
-------- --------
Consolidated $321,659 $268,880
======== ========
Operating profit
Residential upholstery $18,592 $11,691
Residential casegoods 5,094 2,579
Other 430 (777)
Unallocated corporate costs
& eliminations (2,459) (1,332)
-------- --------
Consolidated $21,657 $12,161
======== ========
LA-Z-BOY INCORPORATED MANAGEMENT'S DISCUSSION AND ANALYSIS
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)
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
and Exchange Commission.
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Financial Position
The Company's strong financial position is reflected in the debt to capital
percentage of 23% and a current ratio of 3.4 to 1 at the end of the first
quarter. At April 24, 1999, the debt to capital percentage was 14% and the
current ratio was 3.2 to 1. At the end of the preceding year's first quarter,
the debt to capital percentage was 15% and the current ratio was 3.8 to 1. As of
July 24, 1999, there was $124 million of unused lines of credit available under
several credit arrangements.
Stock Repurchase Program
Approximately 11% of the 12 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.
Year 2000
The Year 2000 issue arises from the use of two-digit date fields used in
computer programs which may cause problems as the year changes from 1999 to
2000. These problems could cause disruptions of operations or processing of
transactions.
To address the Year 2000 challenge, the Company established a Year 2000
Program Office guided by a steering committee consisting of senior executive
management. This office serves as the central coordination point for all Year
2000 compliance efforts of the Company, including the Company's recent
acquisition, Bauhaus. The Company has included IT systems and non-IT systems
as well as third party readiness in the scope of its Year 2000 project. The
Company remains on schedule with regard to its internal plan. Management
believes that the Company is taking the steps necessary to minimize the impact
of the Year 2000 challenge.
The challenges the Company faces with regard to its IT systems include
upgrading of operating systems, hardware and software and modifying order entry
and invoicing programs. For the IT challenges, the Company has completed the
inventory, assessment and remediation phases. The Company has substantially
completed the testing and implementation phases. The Company expects to have its
critical IT systems compliant and compatible, with the appropriate testing
completed, by September 1999.
The primary challenges the Company faces with regards to its non-IT systems
include plant floor machinery and facility related items. For these systems, the
inventory and assessment phases have been completed and the testing phase is
substantially complete. The Company believes these systems to be compliant and
compatible. The Company is presently completing the testing phase of its non-IT
projects with expected completion by September 1999.
With respect to third party readiness, the Company continues to work with
customers, suppliers and service providers in order to prevent disruption of
business activities. Multiple approaches are being used to determine compliance
based on the priority assigned to the third party. Based on communications with
these third parties, the Company believes that all material third parties will
be sufficiently prepared for the Year 2000 or the Company will make alternative
plans. For critical third parties, testing will be performed as deemed
necessary.
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While the Company believes that it is preparing adequately for all Year
2000 concerns, there is no guarantee against internal or external system
failures. Such failures could have a material adverse effect on the Company's
results of operations, liquidity and financial condition. The Company continues
to assess the operational risks related to the Year 2000 issue. To the extent
such risks are identified, the Company has or will devise contingency plans to
minimize such risks. The Company believes that its most likely worst case
scenario would be business interruptions caused by third party failures. The
Company expects to have contingency plans in place prior to the Year 2000 for IT
and non-IT systems, as well as for areas of concern with relation to third
parties.
At the present time, the total Year 2000 related costs are estimated to be
$12 to $14 million. To date, the Company has spent approximately $10 million.
Included in the total estimated expenditures are both remediation and, in some
cases, enhancement or improvement related costs that cannot easily be separated
from remediation costs. Some of these enhancements or improvements were
previously planned and were merely accelerated as a means to address Year 2000
challenges.
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 26,
1999, for the purposes of electing four members to the board of directors.
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. The distribution of
shareholders' votes was as follows:
Shares Voted Percent Shares Shares
In Favor In Favor Withheld
Election of Directors: ------------ -------------- ---------
John F. Weaver 45,427,825 98.1% 894,100
James W. Johnston 45,005,270 97.2% 1,316,655
H. George Levy, M.D. 45,251,847 97.7% 1,070,078
Gerald L. Kiser 45,523,768 98.3% 798,157
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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, 1999.
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 24, 1999 to be signed on its behalf by the undersigned thereunto duly
authorized.
LA-Z-BOY INCORPORATED
(Registrant)
Date August 4, 1999 /s/Gene M. Hardy
------------------------------
Gene M. Hardy
Secretary and Treasurer
(Principal Accounting Officer)
6
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> APR-29-2000
<PERIOD-END> JUL-24-1999
<CASH> 48,104
<SECURITIES> 0
<RECEIVABLES> 223,782
<ALLOWANCES> 0
<INVENTORY> 113,213
<CURRENT-ASSETS> 415,900
<PP&E> 140,381
<DEPRECIATION> 203,599
<TOTAL-ASSETS> 682,778
<CURRENT-LIABILITIES> 122,850
<BONDS> 0
0
0
<COMMON> 52,234
<OTHER-SE> 368,081
<TOTAL-LIABILITY-AND-EQUITY> 682,778
<SALES> 321,659
<TOTAL-REVENUES> 321,659
<CGS> 241,026
<TOTAL-COSTS> 241,026
<OTHER-EXPENSES> 58,976
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,439
<INCOME-PRETAX> 21,595
<INCOME-TAX> 8,302
<INCOME-CONTINUING> 13,293
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,293
<EPS-BASIC> 0.25
<EPS-DILUTED> 0.25
</TABLE>
7
<PAGE>
News Release
LA-Z-BOY, INC. STARTS FISCAL YEAR 2000
WITH A STRONG FIRST QUARTER
NYSE & PCX: LZB Contact: Gene Hardy (734) 241-4306
MONROE, MI., August 4, 1999: In the first quarter of its fiscal year 2000,
La-Z-Boy Incorporated again reached record levels of sales and profits. La-Z-Boy
is one of the world's leading furniture producers.
Financial Details
For the first quarter ended July 24, 1999, sales reached $321.7 million, up
20% from last year's first quarter of $268.9 million. Net income was up 85% to
$13.3 million vs. $7.2 million. Diluted earnings per share increased 92% to
$0.25 from $0.13.
La-Z-Boy's sales have increased at double digit percentages compared to the
prior year quarter for seven consecutive quarters. First quarter profitability
(net income as a percent of sales) was at its highest first quarter level since
the first quarter ended July, 1985. Historically, sales and profitability are
lowest in La-Z-Boy's first quarter due to slower summer demand and plant
vacation shutdowns.
Operations
"Our first quarter figures include the new Bauhaus division which was
acquired at the end of May," said Company President and Chief Operating Officer,
Gerald L. Kiser. "This quarter's 20 percent sales increase and 85 percent
increase in net income more than satisfied expectations. Sales should continue
strong in the next several months, although we don't expect second quarter's
increase to match the first quarter's 20% rate.
"Various capacity expansion projects are in process and are nearing
completion or have just been completed. England/Corsair is setting up a new
upholstery assembly plant in Booneville, Mississippi and has just a completed an
expansion in Tennessee. The Residential division is expanding its Dayton,
Tennessee warehouse space as well as its leather sewing operation in Newton,
Mississippi. And our Sam Moore division in Virginia just completed a new finish
room that allows for increased production, improves finishing quality, is
environmentally friendly and exceeds all OSHA and EPA guidelines."
Marketing
Based on outstanding results in February, La-Z-Boy Residential repeated its
successful "Picture Yourself in America's Favorite Recliner" rebate promotion to
coincide with the Father's Day sales period. The promotion, supported in USA
Weekend and Parade magazines was designed to generate retail traffic and drive
recliner sales. In June, a La-Z-Boy Furniture Galleries Dealer Conference was
conducted in Las Vegas with nearly 500 storeowners and key personnel attending.
The conference centered on the opportunities the Furniture Galleries program has
in the new millennium and the Company's growth plans for this vital and
successful distribution channel.
More Information
La-Z-Boy Incorporated's Form 10-Q filing includes an income statement,
balance sheet, cash flow statement and additional management discussion and is
available now at the Company's internet site (www.lazboy.com). This press
release is just one part of La-Z-Boy Incorporated's disclosures and should be
read in conjunction with all other Form 10-Q information. About 48 hours after
this release, this information should be available on the SEC's internet site
(www.sec.gov).
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8/4/99 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 24, July 25, % Over Percent of Sales
-----------------
1999 1998 (Under) 1999 1998
-------- -------- -------- -------- ------
Sales $321,659 $268,880 20% 100.0% 100.0%
Cost of sales 241,026 205,431 17% 74.9% 76.4%
-------- -------- -------- -------- ------
Gross profit 80,633 63,449 27% 25.1% 23.6%
S, G & A 58,976 51,288 15% 18.4% 19.1%
-------- -------- -------- -------- ------
Operating profit 21,657 12,161 78% 6.7% 4.5%
Interest expense 1,439 1,187 21% 0.4% 0.4%
Interest income 596 577 3% 0.2% 0.2%
Other income 781 355 120% 0.2% 0.1%
-------- -------- -------- -------- ------
Pretax income 21,595 11,906 81% 6.7% 4.4%
Income tax expense 8,302 4,722 76% 38.4%* 39.7%*
-------- -------- -------- -------- ------
Net income $ 13,293 $ 7,184 85% 4.1% 2.7%
======== ======== ======== ======== ======
Diluted average shares** 52,627 53,722 -2%
Diluted EPS ** $ 0.25 $ 0.13 92%
Basic EPS ** $ 0.25 $ 0.13 92%
Dividends per share ** $ 0.08 $ 0.07 14%
* As a percent of pretax income, not sales.
** Prior year numbers were restated to reflect a three-for-one stock
split, in the form of a 200% stock dividend, effective September 1998.
<TABLE>
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8/4/99 Page 2 of 3
La-Z-Boy Incorporated Financial Information Release
CONSOLIDATED BALANCE SHEET
(Amounts in thousands, except par value)
Unaudited Increase Audited
--------------------
July 24, July 25, (Decrease) Apr. 24,
--------------------
1999 1998 Dollars Percent 1999
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Current assets
Cash & equivalents $ 48,104 $ 45,619 $ 2,485 5% $ 33,550
Receivables 223,782 196,128 27,654 14% 265,157
Inventories
Raw materials 56,888 45,706 11,182 24% 47,197
Work-in-process 40,799 42,639 (1,840) -4% 37,447
Finished goods 38,672 35,667 3,005 8% 34,920
--------- --------- --------- --------- ---------
FIFO inventories 136,359 124,012 12,347 10% 119,564
Excess of FIFO over LIFO (23,146) (22,740) (406) -2% (23,053)
--------- --------- --------- --------- ---------
Total inventories 113,213 101,272 11,941 12% 96,511
Deferred income taxes 20,685 16,627 4,058 24% 20,028
Other current assets 10,116 5,282 4,834 92% 10,342
--------- --------- --------- --------- ---------
Total current assets 415,900 364,928 50,972 14% 425,588
Property, plant & equipment, net 140,381 120,685 19,696 16% 125,989
Goodwill 90,554 48,533 42,021 87% 46,985
Other long-term assets 35,943 27,964 7,979 29% 31,230
--------- --------- --------- --------- ---------
Total assets $ 682,778 $ 562,110 $ 120,668 21% $ 629,792
========= ========= ========= ========= =========
Current liabilities
Current portion - long-term debt $ 1,687 $ 4,805 ($ 3,118) -65% $ 2,001
Current portion - capital leases 773 1,205 (432) -36% 784
Accounts payable 46,673 35,613 11,060 31% 45,419
Payroll/other compensation 33,401 29,252 4,149 14% 53,697
Income taxes 10,347 1,613 8,734 N/M 4,103
Other current liabilities 29,969 23,194 6,775 29% 26,424
--------- --------- --------- --------- ---------
Total current liabilities 122,850 95,682 27,168 28% 132,428
Long-term debt 120,187 63,360 56,827 90% 62,469
Capital leases 144 555 (411) -74% 219
Deferred income taxes 5,595 5,500 95 2% 5,697
Other long-term liabilities 13,687 11,609 2,078 18% 14,064
Commitments & contingencies -- -- N/M N/M --
Shareholders' equity
Common shares, $1 par * 52,234 53,244 (1,010) -2% 52,340
Capital in excess of par 32,117 29,964 2,153 7% 31,582
Retained earnings * 338,326 303,718 34,608 11% 332,934
Currency translation (2,362) (1,522) (840) -55% (1,941)
--------- --------- --------- --------- ---------
Total shareholders' equity 420,315 385,404 34,911 9% 414,915
Total liabilities and --------- --------- --------- --------- ---------
shareholders' equity $ 682,778 $ 562,110 $ 120,668 21% $ 629,792
========= ========= ========= ========= =========
<FN>
* Prior year numbers were restated to reflect a three-for-one stock
split, in the form of a 200% stock dividend, effective September 1998.
</FN>
</TABLE>
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8/4/99 La-Z-Boy Incorporated Financial Information Release Page 3 of 3
COMMENTS AND ANALYSIS
Overall:
Refer to today's press release for additional information.
Sales:
Sales in the first quarter of fiscal year 2000 were up 20% over the prior
year's first quarter. A continuation of the double-digit sales growth
experienced in recent quarters along with the acquisition of Bauhaus caused the
quarter's strong sales performance.
Operating profit margin:
Operating profit margin improved from 4.5% of sales to 6.7% of sales.
Margins were primarily impacted by significant growth in unit volume, which
allowed fixed costs to be absorbed more efficiently.
The gross profit margin increased to 25.1% of sales from 23.6% of sales in
last year's first quarter. Favorable casegood merchandising initiatives,
improved operating efficiency in casegood manufacturing plants and favorable
Canadian currency exchange effects contributed to the gross margin improvement.
Start-up costs for new manufacturing facilities along with significant plant
floor reconfiguration costs at several other facilities had a negative impact on
the gross profit margin.
First quarter S, G & A decreased to 18.4% of sales vs. 19.1% last year. Bad
debt and IT expenses were below the prior year. This favorable trend is expected
to continue throughout FY2000.
Income tax expense:
Income tax expense as a percent of pretax income declined to 38.3% from
39.7% last year. With the traditionally lower income in the first quarter of the
year, rate fluctuations are common due to non-deductible amortization and
international effects being amplified. Tax rates for the year are expected to be
close to prior year rates.
Inventory:
Raw materials inventories were up 24% over the same period last year
primarily as a result of acquiring fabric stock inventory for several upcoming
sales initiatives and for the start up of a new upholstery plant.
Work-in-process inventories were down 4% over the same period last year.
Similar to the fourth quarter of FY99, operating improvements associated with
hardwood and plywood supply plants have caused WIP inventories to be
significantly reduced.
Property, plant & equipment:
Property, plant and equipment increased $14.4 million over April 1999. The
addition of Bauhaus and increases in manufacturing space at four locations
caused this increase.
Goodwill:
The increase of goodwill during the first quarter was due to the purchase
of Bauhaus.
Long-term debt:
The increase in long-term debt during the first quarter was due to
financing obtained for the acquisition of Bauhaus.
11
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