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 23, 1999 COMMISSION FILE NUMBER 1-9656
LA-Z-BOY INCORPORATED
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(Exact name of registrant as specified in its charter)
MICHIGAN 38-0751137
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1284 North Telegraph Road, Monroe, Michigan 48162-3390
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(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (734) 241-4414
None
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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 23, 1999
- ------------------------------ --------------------------------
Common Shares, $1.00 par value 52,143,405
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Part I - FINANCIAL INFORMATION
Item 1. Financial Statements
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LA-Z-BOY INCORPORATED
CONSOLIDATED STATEMENT OF INCOME
(Amounts in thousands, except per share data)
SECOND QUARTER ENDED
------------------------------------------------
(UNAUDITED)
------------------- Percent of Sales
Oct. 23, Oct. 24, % Over --------------
1999 1998 (Under) 1999 1998
-------- -------- -------- ----- -----
Sales $387,736 $334,831 16% 100.0% 100.0%
Cost of sales 286,520 245,062 17% 73.9% 73.2%
-------- -------- -------- ----- -----
Gross profit 101,216 89,769 13% 26.1% 26.8%
Selling, general &
administrative 62,920 59,510 6% 16.2% 17.8%
-------- -------- -------- ----- -----
Operating profit 38,296 30,259 27% 9.9% 9.0%
Interest expense 1,866 1,164 60% 0.5% 0.3%
Interest income 610 471 30% 0.2% 0.1%
Other income 927 865 7% 0.2% 0.3%
-------- -------- -------- ----- -----
Pretax income 37,967 30,431 25% 9.8% 9.1%
Income tax expense 14,697 11,984 23% 38.7% * 39.4% *
-------- -------- -------- ----- -----
Net income $ 23,270 $ 18,447 26% 6.0% 5.5%
======== ======== ======== ===== =====
Diluted average shares 52,625 53,425 -1%
Diluted EPS $0.44 $0.35 26%
Basic EPS $0.44 $0.35 26%
Dividends per share $0.08 $0.08 0%
SIX MONTHS ENDED
--------------------------------------------------
(UNAUDITED)
------------------- Percent of Sales
Oct. 23, Oct. 24, % Over ----------------
1999 1998 (Under) 1999 1998
-------- -------- -------- ------- -----
Sales $709,395 $603,711 18% 100.0% 100.0%
Cost of sales 527,546 450,493 17% 74.4% 74.6%
-------- -------- -------- ------- -----
Gross profit 181,849 153,218 19% 25.6% 25.4%
Selling, general &
administrative 121,896 110,798 10% 17.1% 18.4%
-------- -------- -------- ------- -----
Operating profit 59,953 42,420 41% 8.5% 7.0%
Interest expense 3,305 2,351 41% 0.5% 0.4%
Interest income 1,206 1,048 15% 0.2% 0.2%
Other income 1,708 1,220 40% 0.2% 0.2%
-------- -------- -------- ------- -----
Pretax income 59,562 42,337 41% 8.4% 7.0%
Income tax expense 22,999 16,706 38% 38.6% * 39.5% *
-------- -------- -------- ------- -----
Net income $ 36,563 $ 25,631 43% 5.2% 4.2%
======== ======== ======== ======= =====
Diluted average shares 52,610 53,543 -2%
Diluted EPS $0.69 $0.48 44%
Basic EPS $0.70 $0.48 46%
Dividends per share $0.16 $0.15 7%
* As a percent of pretax income, not sales.
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.
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<TABLE>
<CAPTION>
LA-Z-BOY INCORPORATED
CONSOLIDATED BALANCE SHEET
(Amounts in thousands, except par value)
Unaudited Increase
--------------------- (Decrease) Audited
Oct. 23, Oct. 24, -------------------- Apr. 24,
1999 1998 Dollars Percent 1999
--------- --------- -------- ------- ---------
<S> <C> <C> <C> <C> <C>
Current assets
Cash & equivalents $ 12,769 $ 22,721 ($ 9,952) -44% $ 33,550
Receivables 281,651 256,328 25,323 10% 265,157
Inventories
Raw materials 56,139 47,847 8,292 17% 47,197
Work-in-process 43,354 39,118 4,236 11% 37,447
Finished goods 43,388 35,627 7,761 22% 34,920
--------- --------- --------- -------- ---------
FIFO inventories 142,881 122,592 20,289 17% 119,564
Excess of FIFO over LIFO (23,303) (22,712) (591) -3% (23,053)
--------- --------- --------- -------- ---------
Total inventories 119,578 99,880 19,698 20% 96,511
Deferred income taxes 22,660 19,396 3,264 17% 20,028
Other current assets 11,510 5,889 5,621 95% 10,342
--------- --------- --------- -------- ---------
Total current assets 448,168 404,214 43,954 11% 425,588
Property, plant & equipment, net 143,006 119,660 23,346 20% 125,989
Goodwill 89,271 48,017 41,254 86% 46,985
Other long-term assets 39,719 29,847 9,872 33% 31,230
--------- --------- --------- -------- ---------
Total assets $ 720,164 $ 601,738 $ 118,426 20% $ 629,792
========= ========= ========= ======== =========
Current liabilities
Current portion - long-term debt $ 1,585 $ 4,726 ($ 3,141) -66% $ 2,001
Current portion - capital leases 844 1,099 (255) -23% 784
Accounts payable 59,506 50,693 8,813 17% 45,419
Payroll/other compensation 44,641 39,063 5,578 14% 53,697
Income taxes 5,818 6,885 (1,067) -15% 4,103
Other current liabilities 29,393 26,491 2,902 11% 26,424
--------- --------- --------- -------- ---------
Total current liabilities 141,787 128,957 12,830 10% 132,428
Long-term debt 119,594 63,319 56,275 89% 62,469
Capital leases 1,485 300 1,185 395% 219
Deferred income taxes 4,995 5,454 (459) -8% 5,697
Other long-term liabilities 14,554 11,912 2,642 22% 14,064
Commitments & contingencies
Shareholders' equity
Common shares, $1 par 52,143 52,909 (766) -1% 52,340
Capital in excess of par 32,543 30,328 2,215 7% 31,582
Retained earnings 354,795 310,417 44,378 14% 332,934
Currency translation (1,732) (1,858) 126 7% (1,941)
--------- --------- --------- -------- ---------
Total shareholders' equity 437,749 391,796 45,953 12% 414,915
Total liabilities and
--------- --------- --------- -------- ---------
shareholders' equity $720,164 $ 601,738 $ 118,426 20% $629,792
========= ========= ========= ======== =========
<FN>
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.
</FN>
</TABLE>
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<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 Six Months Ended
----------------------- -----------------------
October 23, October 24, October 23, October 24,
1999 1998 1999 1998
---------- ------------ ---------- ----------
<S> <C> <C> <C> <C>
Cash Flows from Operating Activities
Net income $23,270 $18,447 $36,563 $25,631
Adjustments to reconcile net income to
net cash provided by operating activities
Depreciation and amortization 6,348 5,936 12,128 11,353
Change in receivables (57,931) (60,025) (7,931) (17,454)
Change in inventories (6,365) 1,393 (17,979) (7,975)
Change in other assets and liabilities 17,657 31,233 261 21,424
Change in deferred taxes (2,575) (2,815) (2,554) (2,742)
---------- ------------ ---------- ----------
Total adjustments (42,866) (24,278) (16,075) 4,606
---------- ------------ ---------- ----------
Cash Provided/(Used) by Operating Activities (19,596) (5,831) 20,488 30,237
Cash Flows from Investing Activities
Proceeds from disposals of assets 483 88 550 293
Capital expenditures (8,384) (4,128) (21,952) (8,233)
Acquisition of operating division, net of cash
acquired (365) - (58,681) -
Change in other investments (2,147) (537) (2,313) (2,427)
---------- ------------ ---------- ----------
Cash Used for Investing Activities (10,413) (4,577) (82,396) (10,367)
Cash Flows from Financing Activities
Long term debt - - 57,000 -
Retirements of debt (102) (120) (2,806) (3,211)
Capital leases 935 - 935 -
Capital lease principal payments (116) (361) (202) (803)
Stock for stock option plans 2,012 3,237 4,183 4,688
Stock for 401(k) employee plans 512 458 1,199 837
Purchase of La-Z-Boy stock (4,804) (11,160) (10,946) (18,763)
Payment of cash dividends (4,189) (4,263) (8,374) (8,006)
---------- ------------ ---------- ----------
Cash Provided/(Used) for Financing Activities (5,752) (12,209) 40,989 (25,258)
Effect of exchange rate changes on cash 426 (281) 138 (591)
---------- ------------ ---------- ----------
Net change in cash and equivalents (35,335) (22,898) (20,781) (5,979)
Cash and equivalents at begin. of period 48,104 45,619 33,550 28,700
---------- ------------ ---------- ----------
Cash and equivalents at end of period $12,769 $22,721 $12,769 $22,721
========== ============ ========== ==========
Cash paid during period -Income taxes $21,018 $7,403 $23,307 $7,878
-Interest $2,180 $588 $2,666 $1,131
<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 Consolidated Financial Statements are an
integral part of these statements.
</FN>
</TABLE>
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NOTES TO 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 Company's 1999 Annual Report on Form 10-K, as amended,
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 October 23, 1999 and October
24, 1998 have 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 issuable under employee stock options were issued.
Three Months Six Months
Ended Ended
----------------- -----------------
Oct. 23, Oct. 24, Oct. 23, Oct. 24,
(Amounts in thousands) 1999 1998 1999 1998
- ---------------------- -------- -------- -------- --------
Weighted average common
shares outstanding (basic) 52,324 53,121 52,305 53,250
Effect of options 301 304 305 293
-------- -------- -------- --------
Weighted average common
shares outstanding (diluted) 52,625 53,425 52,610 53,543
======== ======== ======== ========
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4. Segment Information
The Company's reportable operating segments are Residential upholstery and
Residential casegoods. Financial results of the Company's operating segments for
the three and six months ended October 23, 1999 and October 24, 1998 are as
follows:
Three Months Ended Six Months Ended
---------------------- ----------------------
Oct. 23, Oct. 24, Oct. 23, Oct. 24,
(Amounts in thousands) 1999 1998 1999 1998
- ---------------------- --------- --------- --------- ---------
Net revenues
Residential upholstery $ 314,186 $ 262,727 $ 569,274 $ 469,361
Residential casegoods 53,810 52,314 104,063 97,889
Other 45,023 38,595 83,600 68,089
Eliminations (25,283) (18,805) (47,542) (31,628)
--------- --------- --------- ---------
Consolidated $ 387,736 $ 334,831 $ 709,395 $ 603,711
========= ========= ========= =========
Operating profit
Residential upholstery $ 34,483 $ 27,862 $ 53,075 $ 39,553
Residential casegoods 4,533 2,741 9,627 5,321
Other 734 1,054 1,164 277
Unallocated corporate
costs & eliminations (1,454) (1,398) (3,913) (2,731)
--------- --------- --------- ---------
Consolidated $ 38,296 $ 30,259 $ 59,953 $ 42,420
========= ========= ========= =========
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Cautionary Statement Concerning Forward-Looking Statements
This document contains forward-looking statements that are subject to risks and
uncertainties. Generally, forward-looking statements include information
concerning possible or assumed future actions, events or results of operations.
More specifically, forward-looking statements include the information in this
document regarding:
future income and margins future economic performance
growth future acquisitions
adequacy and cost of financial resources management plans
industry trends year 2000 readiness
Forward-looking statements also include those preceded or followed by the words
"anticipates," "believes," "estimates," "hopes," "plans," " intends" and
"expects" or similar expressions. With respect to all forward-looking
statements, the Company claims the
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protection of the safe harbor for forward-looking statements contained in the
Private Securities Litigation Reform Act of 1995. The reader should understand
that the following important factors, in addition to those discussed elsewhere
in this document, could affect the Company's future results and could cause
those results or other outcomes to differ materially from those expressed or
implied in forward-looking statements:
Economic and Industry Conditions
* materially adverse changes in economic and industry conditions and
customer demand generally or in the markets served by our company
* supply and demand for and pricing of supplies and components
* availability of qualified labor
* changes in demographics and consumer preferences or demands for the
Company's products
* the impact of e-commerce or the distribution of the Company's products
* changes in the availability or cost of capital
Competitive Factors
* the competitiveness of foreign-made products
* the actions of competitors
* new manufacturing technologies
* industry consolidation
Operating Factors
* supply, labor or distribution disruptions
* technical difficulties, including the inability of material customers and
suppliers to replace, modify or upgrade computer programs in order to
adequately address year 2000 concerns
* acquisitions or divestitures
* changes in operating conditions and costs
* changes in regulatory environment
Factors Relating to Pending Acquisitions
* whether the acquisitions will be consummated and, if they are, whether
they will yield the benefits the Company anticipates
* the challenges inherent in diverting management's focus and resources from
other strategic opportunities and from operational matters during the
integration process
* experienced employees leaving for other positions
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Recent and Pending Acquisitions
The Company acquired Bauhaus USA, Inc., a manufacturer of upholstered furniture
primarily marketed to department stores, on June 1, 1999 for approximately $57
million in cash. Bauhaus' operations are included in the Company's results for
the entire quarter ended October 23, 1999 and for approximately five of the six
months ended on that date but not in the comparable periods of the prior fiscal
year.
On September 28, 1999, the Company signed a definitive agreement to acquire LADD
Furniture, Inc., a publicly traded furniture manufacturer, in a stock-for-stock
merger in which LADD shareholders would receive approximately 9.2 million shares
of La-Z-Boy common stock (excluding shares issuable on the exercise of LADD
stock options) valued at approximately $191 million as of that date. LADD's
sales for its fiscal year ended January 2, 1999 were approximately $571
million. The transaction would result in the former LADD shareholders owning
approximately 15% of the Company's outstanding common stock. It is subject to
approval by LADD's shareholders.
On November 11, 1999, the Company signed a definitive agreement to acquire
Alexvale Furniture, Inc., a manufacturer of medium priced upholstered furniture,
for a combination of cash and La-Z-Boy common stock. Alexvale's sales for its
fiscal year ended April 30, 1999 were approximately $61 million. The transaction
is subject to regulatory approval.
Both the LADD and the Alexvale acquisitions are expected to be consummated
during the current quarter, and both will be accounted for as purchases. If
completed, these acquisitions (especially LADD) will result in substantial
changes in the Company's assets, liabilities and future results of operations.
Detailed information about LADD is publicly available in the reports and proxy
statements it has filed with the SEC. Additional information about the LADD
acquisition will be contained in the registration statement on Form S-4 that
La-Z-Boy will file with the SEC to register the stock issuable to LADD
shareholders in the merger. Except where expressly stated otherwise, the
discussion that follows does not include any anticipated results of the pending
acquisitions.
Results of Operations
Quarter Ended Oct. 23, 1999 Compared to Quarter Ended Oct. 24, 1998
Sales in the second quarter of fiscal year 2000 were up 16% over the prior
year's second quarter. Roughly half of the increase was caused by the
acquisition of Bauhaus and most of the remaining increase was also in the
upholstery segment. Casegoods sales increased 3% compared to last year. Sales
growth in casegoods was less than in the upholstery segment primarily due to
product availability problems and some order weakness. Other sales increased
17%, primarily due to stronger sales at La-Z-Boy retail outlets.
Excluding the effects of the Bauhaus acquisition, the current quarter's results
to date and incoming sales orders indicate that third quarter sales should
increase over the prior year,
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but at a slower rate than in the second quarter. This continues a trend from
the first quarter, and the trend is expected to continue into the fourth quarter
as well. This trend of declining sales increases is in part due to very strong
prior year sales performance and in part because of slowing growth of U.S.
furniture sales generally.
Gross profit margin decreased to 26.1% of sales from 26.8% of sales in last
year's second quarter on a 16% increase in sales and a 14% increase in unit
volume. Higher labor and overhead costs were incurred during the quarter as a
result of improving plant floor layouts to accommodate additional product lines
and to implement lean manufacturing processes. While causing short-term
disruptions and increased plant labor and overhead costs, these changes are
expected to generate long-term production capacity without the need for
additional facilities. In addition, significant employee training costs were
incurred for new hires, especially in sewing and upholstery. It has become
increasingly difficult to acquire and retain labor in a low unemployment
environment. These labor and overhead cost trends are expected to continue into
the third quarter, but to a lesser degree than experienced in the second
quarter.
Gross profit margin was also somewhat impacted by increased costs for plywood
and cardboard packaging during the second quarter, which were only partially
offset by decreased cost for leather. Costs for plywood in the third quarter are
expected to decrease but costs for cardboard packaging are expected to continue
to increase. Foam (polyurethane) costs could rise during calendar year 2000 if
oil prices continue to rise. Fabric prices also could be impacted by higher oil
prices, although no increases are presently being experienced. La-Z-Boy
typically renegotiates its foam contracts in December on a calendar year basis.
Fabric prices are typically negotiated throughout the year. Foam and fabric
comprise about 5% and 20%, respectively, of total costs in the upholstery
segment.
Second quarter selling, general and administrative expenses decreased to 16.2%
of sales from 17.8% last year. Information technology, bad debt and selling
expenses as a percent of sales were below the prior year. This favorable trend
is expected to continue throughout fiscal year 2000.
Operating profit as a percent of sales improved from 5.2% to 8.4% in the
casegoods segment and from 10.6% to 11.0% in the upholstery segment. This
continues a trend from the first quarter where casegoods profitability has
increased at a rate faster than upholstery, although casegoods' absolute level
of profitability is still less than upholstery. The primary reasons for the
improvement in second quarter profitability in the casegoods segment were a
lower level of selling price incentives and reductions in selling, general and
administrative expenses.
Interest expense as a percent of sales increased from 0.3% last year to 0.5% due
to financing obtained in the first quarter for the acquisition of Bauhaus.
Income tax expense as a percent of pretax income declined to 38.7% from 39.4%
last year. Canadian operating results for the second quarter were favorable
compared to last
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year's second quarter. Since our Canadian operation has net operating loss
carryforwards to offset income, this resulted in a decrease to the second
quarter effective tax rate.
Six Months Ended Oct. 23, 1999 Compared to Six Months Ended Oct. 24, 1998
Sales in the six months ended October 23, 1999 were up 18% over the prior year.
Roughly 6% of the 18% sales increase was caused by the acquisition of Bauhaus,
which occurred in June, 1999. Most of the remaining increase was in the
upholstery segment. Casegoods sales increased 6% compared to last year.
Gross profit margin increased to 25.6% of sales from 25.4% of sales in first
six months of the last fiscal year on an 18% increase in sales and a 17%
increase in unit volume. The favorable fixed cost absorption was offset in part
by higher labor and overhead costs as a result of improving plant floor layouts
to accommodate additional product lines and implement lean manufacturing
processes. The gross profit margin was also somewhat impacted by increased
costs for plywood, which were only partially offset by decreased costs for
leather.
For the six months ended October 23, 1999, selling, general and administrative
expenses decreased to 17.1% of sales from 18.4% last year. Information
technology, bad debt and selling expenses as a percent of sales were below the
prior year.
Operating profit as a percent of sales improved from 5.4% to 9.3% in the
casegoods segment and 8.4% to 9.3% in the upholstery segment.
Interest expense as a percent of sales increased from 0.4% last year to 0.5% due
to financing obtained in the first quarter for the acquisition of Bauhaus.
Income tax expense as a percent of pretax income declined to 38.6% from 39.5%
last year caused by the favorable Canadian operating results previously
discussed.
Liquidity and Capital Resources
Cash flows from operations amounted to $20.5 million in the first six months of
fiscal year 2000 compared to $30.2 million in the prior year. Capital
expenditures, dividends and stock repurchases totaled approximately $41 million
during the six month period, while cash and cash equivalents decreased by
$20.8 million.
Total FIFO inventory at October 23, 1999 was 20% higher than at the end of
fiscal 1999 and 17% higher than at the end of last year's second quarter. Of
this increase, 6% was due to the acquisition of Bauhaus, 6% was an increase in
finished goods to support additional sales volumes, and the remainder was
primarily a raw material and work-in-process increase for the start up of a new
upholstery plant.
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The Company's financial strength is reflected in two commonly used ratios, the
current ratio (current assets divided by current liabilities) and the
debt-to-capital ratio (total debt divided by shareholders' equity plus total
debt). Total debt is defined as current portion - long-term debt plus current
portion - capital leases plus long-term debt plus capital leases. The Company's
current ratio was 3.2 to 1 at October 23, 1999 and at the end of fiscal 1999 and
3.1 to 1 at the end of last year's second quarter. At October 23, 1999, the debt
to capital ratio was 22%, compared to 14% at the end of fiscal 1999 and 15% at
the end of last year's second quarter.
As of October 23, 1999, the Company had $113 million of unused lines of credit
available under several credit arrangements. To finance the acquisition of
Bauhaus on June 1, 1999, the Company borrowed $57 million which is expected to
be replaced on December 29, 1999 by a borrowing under the Company's $75 million
unsecured revolving credit line.
The Alexvale acquisition will require approximately $2.2 million for the cash
portion of the purchase price, which the Company intends to finance by borrowing
under one of its credit lines or from cash flow from operations. Alexvale has
approximately $4 million of outstanding debt.
LADD has a $175 million asset-based credit facility maturing on July 12, 2001.
As of October 2, 1999, LADD's outstanding borrowings under this credit facility
were $97.5 million, and its remaining availability under its borrowing base
formula was $41.2 million. The Company intends to terminate the $175 million
LADD credit facility at closing of the merger transaction and pay off all
borrowings under this credit facility by borrowing under an unsecured $150
million bridge loan facility currently being negotiated that would mature June
29, 2001. At October 2, 1999, LADD's total debt was approximately $102 million.
In addition, LADD finances a significant amount of machinery and equipment
through operating lease lines.
The Company's capital expenditures during the six months ended October 23, 1999
were $22 million. Without regard to the pending LADD and Alexvale acquisitions,
the Company would expect to make capital expenditures of approximately $8 to $12
million during the remainder of fiscal year 2000 and approximately $25 to $35
million in fiscal year 2001. Taking the capital expenditure needs of LADD and
Alexvale into account, the Company expects to spend approximately $14 to $18
million during the remainder of fiscal year 2000 and approximately $45 to $55
million in fiscal year 2001. The Company does not currently have any material
commitments for capital expenditures.
As of November 27, 1999, approximately 6% of the 12 million shares of Company
stock authorized for purchase on the open market was still available for
purchase by the Company. The Company will not be purchasing shares from the date
of the mailing of the proxy material to LADD's shareholders through the
shareholder meeting date, but the Company otherwise expects to be in the market
for its shares from time to time as changes in its stock price and other factors
present appropriate opportunities. La-Z-Boy's cash on hand is generally lower
during the October through January part of the year. La-Z-Boy is prepared to
borrow funds in order to repurchase shares during this period if necessary. Such
borrowings would be expected to be from La-Z-Boy's credit lines and would be
expected to be repaid from cash flow from operations after the cyclical low
period is over.
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The Company expects to meet its cash needs for pending acquisitions, capital
expenditures, stock repurchases and dividends during the remainder of the fiscal
year 2000 and fiscal year 2001 from cash generated by operations and borrowings
under available lines of credit.
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. The scope of the Company's year 2000 project includes
information technology systems and non-information technology systems as well as
third party readiness. The Company is substantially on schedule with regard to
its internal plan and believes it is taking the steps necessary to minimize the
impact of the year 2000 challenge.
The Company's process for addressing the year 2000 consisted of a five-step
approach. The inventory phase was a comprehensive survey and collection of
information technology and non-information technology systems potentially
affected by the year 2000 issue. The assessment phase was a detailed analysis
and review of each identified system to determine whether or not the year 2000
issue may impact the system. The remediation phase included repair, replacement
or retirement of systems to eliminate year 2000 issues identified in the
assessment phase. The testing phase validated that each system functioned
properly using future date scenarios. The implementation phase consisted of
migrating remediated systems into production usage.
To date, the Company has not experienced any significant material mishaps
attributed to the year 2000 issue. Failure dates were identified for information
technology and non-information technology systems and these have been used as
year 2000 project deadlines. As projects have progressed, plans have been
adjusted accordingly taking into consideration failure dates.
The challenges the Company faces with regard to its information technology
systems include upgrading of operating systems, hardware and software and
modifying order entry and invoicing programs. The Company has taken all
reasonable steps necessary to ensure critical information technology systems
are compliant and compatible. The Company has completed the inventory,
assessment, remediation, testing and implementation phases for information
technology systems that handle approximately 97% of consolidated sales. For the
remaining information technology systems, the Company has completed the
inventory, assessment and remediation phases and has substantially completed the
testing and implementation phases. However, additional testing is needed to
confirm the year 2000 readiness of these systems and it may not be possible to
complete this testing by calendar year end. Contingency plans have been created
for these systems. These plans include manual processes and calculations,
alternative back-up systems and alternative payroll
12
<PAGE>
calculations. The Company intends to continue testing for specific date
impacts through the end of calendar year 1999.
The primary challenges the Company faced with regard to its non-information
technology systems related to plant floor machinery and facility related items.
For these systems, the inventory, assessment, remediation, testing and
implementation phases have been completed. The Company believes these systems to
be compliant and compatible.
The table that follows provides more information about these systems.
<TABLE>
<CAPTION>
La-Z-Boy Incorporated Year 2000 Information Technology and Non-Information Technology Critical Systems and Phase Completion Detail
Division Phase
IT and non-IT System Inventory Assessment Remediation Testing Implementation
- ------------------------------------ --------- ---------- ----------- ------- --------------
<S> <C> <C> <C> <C> <C>
LA-Z-BOY--RESIDENTIAL,
BUSINESS FURNITURE GROUP
Order Processing / Invoicing C C C C C
Inventory Management / Purchasing C C C C C
Payroll / Human Resources C C C C C
Financials (AR, Cash, AP, GL, FA) C C C C C
Local Area Network C C C C C
Mainframe System C C C C C
Plant Floor Equipment C C C C C
Manufacturing Execution System C C C C C
ENGLAND/CORSAIR
Order Processing / Invoicing C C C C C
Inventory Management / Purchasing C C C C C
Payroll / Human Resources C C C C C
Financials (AR, Cash, AP, GL, FA) C C C C C
Mainframe System C C C C C
Local Area Network C C C C C
Plant Floor Equipment C C C C C
KINCAID
Order Processing / Invoicing C C C C C
Inventory Management / Purchasing C C C C C
Payroll / Human Resources C C C C C
Financials (AR, Cash, AP, GL, FA) C C C C C
AS/400 System C C C C C
Local Area Network C C C C C
Plant Floor Equipment C C C C C
BAUHAUS USA
Order Processing / Invoicing C C C C C
Inventory Management / Purchasing C C C C C
Payroll / Human Resources C C C C C
Financials (AR, Cash, AP, GL, FA) C C C C C
AS/400 System C C C C C
Plant Floor Equipment C C C C C
13
<PAGE>
HAMMARY
Order Processing / Invoicing C C C C C
Inventory Management / Purchasing C C C C C
Payroll / Human Resources C C C C C
Financials (AR, Cash, AP, GL, FA) C C C C C
Local Area Network C C C C C
Mainframe System C C C C C
Plant Floor Equipment C C C C C
SAM MOORE
Order Processing / Invoicing C C C 12-31-1999* 12-31-1999*
Inventory Management / Purchasing - Uph. C C C 12-31-1999* 12-31-1999*
Inventory Management - Frame C C C 12-31-1999** 12-31-1999**
Payroll / Human Resources - Uph. C C C 12-31-1999* 12-31-1999*
Time and Attendance / Payroll - Frame C C C 12-31-1999** 12-31-1999**
Financials (AR, Cash, AP, GL, FA) C C C 12-31-1999* 12-31-1999*
Mid-Range Computer System C C C C C
Local Area Network C C C C C
Plant Floor Equipment C C C C C
CENTURION
Order Processing / Invoicing C C C C C
Inventory Management / Purchasing C C C C C
Payroll / Human Resources C C C C C
Financials (AR, Cash, AP, GL, FA) C C C C C
Local Area Network C C C C C
Plant Floor Equipment C C C C C
<FN>
C - Phase has been completed as of the date of filing.
* - Original target completion dated 11-30-1999.
** - Original target completion dated 12-10-1999.
</FN>
</TABLE>
With respect to third party readiness, the Company is continuing to work with
customers, suppliers and service providers to prevent disruption of business
activities. The Company is using multiple approaches to determine compliance,
such as written communication, oral communication and website disclosure
reviews, based on the priority assigned to the third party. For critical third
parties, oral communications have been the primary means to obtain compliance
information. Based on communications with these third parties, the Company
believes that all critical third parties will be sufficiently prepared for the
year 2000 or the Company has made or is in the process of making alternative
plans.
While the Company believes that it is preparing adequately for all year 2000
concerns, the year 2000 computer date changeover will be a unique event that by
its nature involves many unknowns. Internal or external system failures may
still occur, and it is possible that some of them could have a material adverse
effect on the Company's results of operations, liquidity and financial
condition. The Company is continuing to assess the operational risks related to
the year 2000 issue. The Company believes that the most likely worst case
scenario would be business interruptions caused by third party failures. The
Company has developed contingency plans for issues of concern relating to
critical third party providers. These plans include building inventory levels
and/or using alternate sources. The Company also has developed contingency plans
for its own information technology and non-information technology systems. For
the information technology systems, these plans
14
<PAGE>
include advance printing of production information, alternative back-up systems,
possible delays in monthly closing cycles and rolling back of dates. For the
non-information technology systems, specifically plant floor equipment, the
contingency plans include forward advancement of dates and/or rolling back of
dates. The Company intends to refine its contingency plans through the end of
calendar year 1999. The Company estimates that total year 2000 related costs
will be between $11 and $12 million. To date, the Company has spent
approximately $10.5 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. The Company had
previously planned some of these enhancements or improvements and merely
accelerated them as a means to address year 2000 challenges.
Item 3: Quantitative & Qualitative Disclosures About Market Risk
No information is presented in response to this item because the Company has no
material market risk relating to derivative financial instruments, derivative
commodity instruments or other financial instruments.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(2) Agreement and Plan of Merger dated as of September 28, 1999 among
LADD Furniture, Inc. and La-Z-Boy Incorporated and LZB Acquisition
Corp. and the exhibits to such Agreement, followed by List of
Schedules to the Agreement (The schedules themselves are omitted
from this exhibit; however, La-Z-Boy Incorporated will provide a
copy of any omitted schedule to the Securities and Exchange
Commission upon its request.) This document is incorporated by
reference to an exhibit to the La-Z-Boy Incorporated Form 8-K
dated September 28, 1999 (Commission File No. 1-9656).
(27) Financial Data Schedule (EDGAR only).
15
<PAGE>
(b) Reports on Form 8-K
A Form 8-K dated September 28, 1999 was filed with the SEC on
September 30, 1999. The Form 8-K reported the entry into the merger
agreement with LADD Furniture, Inc. and filed the agreement. The
Company's press release and the agreement were filed as exhibits to
the Form 8-K.
SIGNATURE
Pursuant to the requirements 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.
LA-Z-BOY INCORPORATED
(Registrant)
Date December 7, 1999 /s/Gene M. Hardy
------------------------------
Gene M. Hardy
Secretary and Treasurer
EXHIBIT INDEX
(2) Agreement and Plan of Merger dated as of September 28, 1999 among
LADD Furniture, Inc. and La-Z-Boy Incorporated and LZB Acquisition
Corp. and the exhibits to such Agreement, followed by List of
Schedules to the Agreement (The schedules themselves are omitted
from this exhibit; however, La-Z-Boy Incorporated will provide a
copy of any omitted schedule to the Securities and Exchange
Commission upon its request.) This document is incorporated by
reference to an exhibit to the La-Z-Boy Incorporated Form 8-K
dated September 28, 1999 (Commission File No. 1-9656).
(27) Financial Data Schedule (EDGAR only).
16
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-mos
<FISCAL-YEAR-END> APR-29-2000
<PERIOD-START> APR-25-1999
<PERIOD-END> OCT-23-1999
<CASH> 12,769
<SECURITIES> 0
<RECEIVABLES> 281,651
<ALLOWANCES> 0
<INVENTORY> 119,578
<CURRENT-ASSETS> 448,168
<PP&E> 143,006
<DEPRECIATION> 206,983
<TOTAL-ASSETS> 720,164
<CURRENT-LIABILITIES> 141,787
<BONDS> 0
0
0
<COMMON> 52,143
<OTHER-SE> 385,606
<TOTAL-LIABILITY-AND-EQUITY> 720,164
<SALES> 709,395
<TOTAL-REVENUES> 709,395
<CGS> 527,546
<TOTAL-COSTS> 527,546
<OTHER-EXPENSES> 121,896
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,305
<INCOME-PRETAX> 59,562
<INCOME-TAX> 22,999
<INCOME-CONTINUING> 36,563
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 36,563
<EPS-BASIC> 0.70
<EPS-DILUTED> 0.69
</TABLE>
