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 29, 2000 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 July 29, 2000
----------------------------------------- ----------------------------
Common Shares, $1.00 par value 60,653,059
LA-Z-BOY INCORPORATED
FORM 10-Q FIRST QUARTER OF FISCAL 2001
TABLE OF CONTENTS
Page
Number(s)
---------
PART I Financial Information
Item 1. Financial Statements
Consolidated Balance Sheet...................................3
Consolidated Statement of Income.............................4
Consolidated Statement of Cash Flows.........................5
Notes to Consolidated Financial Statements
Basis of Presentation.....................................6
Interim Results...........................................6
Recent Acquisitions.......................................6-7
Earnings per Share........................................7
Segment Information.......................................8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Cautionary Statement Concerning Forward-Looking Statements...8-9
LADD Effects.................................................9
Results of Operations........................................9-10
Liquidity and Capital Resources..............................10-11
Outlook......................................................11-12
Item 3. Quantitative and Qualitative Disclosures About Market Risk...12
PART II Other Information
Item 5. Other Information............................................12
Item 6. Exhibits and Reports on Form 8-K.............................12
Signature Page.......................................................13
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
LA-Z-BOY INCORPORATED
CONSOLIDATED BALANCE SHEET
(Amounts in thousands, except par value)
Unaudited Increase
---------------------- (Decrease) Audited
July 29, July 24, ------------------- Apr. 29,
2000 1999 Dollars Percent 2000
---------- --------- --------- ------- ----------
<S> <C> <C> <C> <C> <C>
Current assets
Cash & equivalents $18,025 $48,104 ($30,079) -63% $14,353
Receivables 348,067 223,782 124,285 56% 394,453
Inventories
Raw materials 100,033 56,888 43,145 76% 91,018
Work-in-process 67,813 40,799 27,014 66% 63,635
Finished goods 105,762 38,672 67,090 173% 98,623
---------- --------- --------- ------- ----------
FIFO inventories 273,608 136,359 137,249 101% 253,276
Excess of FIFO over LIFO (7,637) (23,146) 15,509 67% (7,473)
---------- --------- --------- ------- ----------
Total inventories 265,971 113,213 152,758 135% 245,803
Deferred income taxes 21,005 20,685 320 2% 22,374
Other current assets 15,545 10,116 5,429 54% 15,386
---------- --------- --------- ------- ----------
Total current assets 668,613 415,900 252,713 61% 692,369
Property, plant & equipment, net 226,810 140,381 86,429 62% 227,883
Goodwill 117,362 90,554 26,808 30% 116,668
Trade names 134,854 - 134,854 N/M 135,340
Other long-term assets 45,029 35,943 9,086 25% 46,037
---------- --------- --------- ------- ----------
Total assets $1,192,668 $682,778 $509,890 75% $1,218,297
========== ========= ========= ======= ==========
Current liabilities
Current portion - long-term debt $9,404 $1,687 $7,717 457% $13,119
Current portion - capital leases 457 773 (316) -41% 457
Accounts payable 83,207 46,673 36,534 78% 90,392
Payroll/other compensation 54,935 33,401 21,534 64% 74,724
Income taxes 5,492 10,347 (4,855) -47% 5,002
Other current liabilities 51,635 29,969 21,666 72% 53,312
---------- --------- --------- ------- ----------
Total current liabilities 205,130 122,850 82,280 67% 237,006
Long-term debt 240,893 120,187 120,706 100% 233,938
Capital leases 3,002 144 2,858 N/M 2,156
Deferred income taxes 52,317 5,595 46,722 835% 50,280
Other long-term liabilities 29,905 13,687 16,218 118% 31,825
Commitments & contingencies
Shareholders' equity
Common shares, $1 par 60,652 52,234 8,418 16% 61,328
Capital in excess of par 211,633 32,117 179,516 559% 211,450
Retained earnings 391,460 338,326 53,134 16% 392,458
Currency translation (2,324) (2,362) 38 2% (2,144)
---------- --------- --------- ------- ----------
Total shareholders' equity 661,421 420,315 241,106 57% 663,092
Total liabilities and
---------- --------- --------- ------- ----------
shareholders' equity $1,192,668 $682,778 $509,890 75% $1,218,297
========== ========= ========= ======= ==========
<FN>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
</FN>
</TABLE>
LA-Z-BOY INCORPORATED
CONSOLIDATED STATEMENT OF INCOME
(Amounts in thousands, except per share data)
(Unaudited)
FIRST QUARTER ENDED
------------------------------------------------
Percent of Sales
July 29, July 24, % Over ----------------
2000 1999 (Under) 2000 1999
-------- -------- ------- ------ ------
Sales $498,282 $321,659 55% 100.0% 100.0%
Cost of sales 382,446 241,026 59% 76.8% 74.9%
-------- -------- ------- ------ ------
Gross profit 115,836 80,633 44% 23.2% 25.1%
S, G & A 91,256 58,976 55% 18.3% 18.4%
-------- -------- ------- ------ ------
Operating profit 24,580 21,657 13% 4.9% 6.7%
Interest expense 4,352 1,439 202% 0.9% 0.4%
Interest income 453 596 -24% 0.1% 0.2%
Other income 616 781 -21% 0.2% 0.2%
-------- -------- ------- ------ ------
Pretax income 21,297 21,595 -1% 4.3% 6.7%
Income tax expense 8,294 8,302 0% 38.9% * 38.4% *
-------- -------- ------- ------ ------
Net income $13,003 $13,293 -2% 2.6% 4.1%
======== ======== ======= ====== ======
Basic EPS $0.21 $0.25 -16%
Diluted average shares 61,280 52,627 16%
Diluted EPS $0.21 $0.25 -16%
Dividends paid per share $0.08 $0.08 0%
* As a percent of pretax income, not sales.
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
LA-Z-BOY INCORPORATED
CONSOLIDATED STATEMENT OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
First Quarter Ended
-------------------
July 29, July 24,
2000 1999
-------- --------
Cash flows from operating activities
Net income $13,003 $13,293
Adjustments to reconcile net income to
net cash provided by operating activities
Depreciation and amortization 10,565 5,780
Change in receivables 45,616 50,000
Change in inventories (20,168) (11,614)
Change in other assets and liabilities (34,173) (17,396)
Change in deferred taxes 3,406 21
-------- --------
Total adjustments 5,246 26,791
-------- --------
Cash provided by operating activities 18,249 40,084
Cash flows from investing activities
Proceeds from disposals of assets 186 67
Capital expenditures (7,395) (13,568)
Acquisition of operating division, net of cash
acquired - (58,316)
Change in other investments 3,148 (166)
-------- --------
Cash used by investing activities (4,061) (71,983)
Cash flows from financing activities
Long term debt 62,000 57,000
Retirements of debt (58,760) (2,704)
Capital leases 1,027 -
Capital lease principal payments (181) (86)
Stock for stock option plans 1,788 2,171
Stock for 401(k) employee plans 632 687
Purchase of La-Z-Boy stock (12,008) (6,142)
Payment of cash dividends (4,906) (4,185)
-------- --------
Cash provided/(used) by financing activities (10,408) 46,741
Effect of exchange rate changes on cash (108) (288)
-------- --------
Net change in cash and equivalents 3,672 14,554
Cash and equivalents at beginning of period 14,353 33,550
-------- --------
Cash and equivalents at end of period $18,025 $48,104
======== ========
Cash paid during period -Income taxes $6,448 $2,289
-Interest $2,257 $486
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The interim financial information is prepared in conformity with generally
accepted accounting principles and such principles are applied on a basis
consistent with those reflected in our 2000 Annual Report on Form 10-K,
filed with the Securities and Exchange Commission. The financial
information included in these financial statements, other than the
consolidated balance sheet as of April 29, 2000, has been prepared by
management without audit by independent certified public accountants. The
interim financial information as of and for the interim periods ended July
29, 2000 and July 24, 1999 have been prepared on a basis consistent with,
but do not include all the disclosures contained in, the audited
consolidated financial statements for the year ended April 29, 2000. The
interim financial information includes all adjustments and accruals
consisting only of normal recurring adjustments which are, in our opinion,
necessary for a fair presentation of results for the respective 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 28, 2001.
3. Recent Acquisitions
On January 29, 2000, we acquired LADD Furniture, Inc., then a publicly
traded furniture manufacturer, in a stock-for-stock merger, at which time
LADD became a wholly owned subsidiary of the Company. The holders of LADD
stock received approximately 9.2 million shares of La-Z-Boy common stock in
consideration for their LADD shares. In addition, LADD employee stock
options then outstanding were replaced by about 1 million La-Z-Boy stock
options. Total consideration, including acquisition costs, was about $190
million. Annual sales for LADD's 1999 calendar year were over $600 million.
Additional information about the LADD acquisition is contained in the Form
S-4 registration statement that we filed with the SEC to register the stock
issued to LADD shareholders as merger consideration.
On December 28, 1999, we acquired all of the outstanding equity securities
of the business now comprising Alexvale Furniture, Inc., a manufacturer of
medium-priced upholstered furniture, for a combination of cash and La-Z-Boy
common stock totaling about $17 million. Alexvale's calendar year 1999
sales were about $60 million.
We acquired Bauhaus USA, Inc., a manufacturer of upholstered furniture
primarily marketed to department stores, on June 1, 1999 for approximately
$59 million in cash. Bauhaus' annual calendar year 1999 sales were in
excess of $100 million.
The above acquisitions have been accounted for as purchases. The operations
of the above companies were included in our financial statements following
the acquisition dates.
The following unaudited pro forma financial information presents combined
results of operations of the above companies with us as if the acquisitions
had occurred as of the beginning of fiscal 2000. The pro forma financial
information gives effect to certain adjustments resulting from the
acquisitions and related financing. The pro forma financial information
does not necessarily reflect the results of operations that would have
occurred had the separate operations of each company constituted a single
entity during the periods presented.
(Unaudited)
First Quarter Ended
-----------------------
Actual Pro forma
(Amounts in thousands, July 29, July 24,
except per share data) 2000 1999
----------------------- -------- ---------
Net sales $498,282 $490,104
Net income $13,003 $17,130
Earnings per share $0.21 $0.27
4. 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.
(Unaudited)
First Quarter Ended
---------------------
July 29, July 24,
(Amounts in thousands) 2000 1999
---------------------- -------- --------
Weighted average common
shares outstanding (basic) 61,077 52,286
Effect of options 203 341
-------- --------
Weighted average common
shares outstanding (diluted) 61,280 52,627
======== ========
5. Segment Information
Our reportable operating segments are Residential upholstery, Residential
casegoods, and Contract. Financial results of our operating segments are as
follows:
(Unaudited)
First Quarter Ended
---------------------
July 29, July 24,
(Amounts in thousands) 2000 1999
---------------------- -------- --------
Net sales
Residential upholstery $311,699 $255,088
Residential casegoods 134,928 50,253
Contract 51,655 16,318
-------- --------
Consolidated $498,282 $321,659
======== ========
Operating profit
Residential upholstery $20,968 $18,592
Residential casegoods 6,524 5,094
Contract 2,997 63
Unallocated corporate
costs & other (5,909) (2,092)
-------- --------
Consolidated $24,580 $21,657
======== ========
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
Cautionary Statement Concerning Forward-Looking Statements
We are making forward-looking statements in this item. 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 item regarding:
future income and margins future economic performance
growth industry trends
adequacy and cost of financial resources management plans
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, we claim the protection of the safe harbor for forward-looking
statements contained in the Private Securities Litigation Reform Act of 1995.
You should understand that many important factors, including future economic and
industry conditions (for example, changes in interest rates, changes in
demographics and consumer preferences, e-commerce developments, and changes in
the availability and cost of capital); competitive factors (such as the
competitiveness of foreign-made products, new manufacturing technologies, or
other actions taken by current or new competitors); operating factors (for
example, supply, labor, or distribution disruptions, changes in operating
conditions or costs, and changes in regulatory environment), and factors
relating to recent or future acquisitions, could affect our future results and
could cause those results or other outcomes to differ materially from those
expressed or implied in forward-looking statements.
LADD Effects
As a result of the LADD acquisition, most of our assets, liabilities and results
of operations for our first, second and third quarters of this fiscal year will
differ substantially from those in comparable prior periods.
Results of Operations
First Quarter Ended July 29, 2000 Compared to First Quarter Ended July 24, 1999
See page 4 for the consolidated statement of income with analysis of percentages
and calculations. In addition, see page 7 for pro forma analysis and notes.
<TABLE>
<CAPTION>
(Unaudited)
Segment Analysis
First Quarter Ended
---------------------------------------------------------------
Net Sales Operating Profit
--------------------------- ---------------------------
FY01 FY01
Over Percent of Total Over Percent of Sales
(Under) ---------------- (Under) ----------------
FY00 FY01 FY00 FY00 FY01 FY00
------- ------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Residential upholstery 22% 63% 79% 13% 6.7% 7.3%
Residential casegoods 169% 27% 16% 28% 4.8% 10.1%
Contract 217% 10% 5% N/M 5.8% 0.4%
Unallocated corporate
costs & eliminations N/A N/A N/A (183%) (1.2%) (0.7%)
------- ------- ------ ------ ------ ------
Consolidated 55% 100% 100% 13% 4.9% 6.7%
======= ======= ====== ====== ====== ======
</TABLE>
First quarter sales were up 55% over the prior year's first quarter. However,
sales were up just 2% compared to last year's pro forma sales. Therefore, the
sales growth in all three of our operating segments and on a consolidated basis
that is shown in the table above in each case was due primarily to acquisitions.
Gross profit as a percent of sales decreased to 23.2% from 25.1% in last year's
first quarter. The primary reason for the drop was higher factory costs,
primarily labor and overhead, which were not absorbed as anticipated due to the
small 2% pro forma sales increase. During this period of time we did not lay off
employees since they will be needed for the expected cyclical second, third and
fourth quarters' higher sales. It is very difficult to hire and train skilled
factory furniture employees in the short run; especially given today's low
unemployment environment we are facing at most of our locations. A secondary
reason for the drop in gross margin was relatively lower gross margins of some
companies acquired during fiscal 2000.
Operating profit as a percent of sales decreased to 4.9% from 6.7% in last
year's first quarter which was a record first quarter. As we mentioned in our
2000 annual report, we expected our recent acquisitions would cause a
consolidated decline in margin this year, and we experienced some of this effect
during the first quarter. However, acquisitions were only a minor cause of the
margin drop this quarter. Residential upholstery's operating margin decreased to
6.7% from 7.3%, primarily due to the items mentioned in the above gross profit
paragraph. We were able to slightly reduce our selling, general and
administrative costs in the Residential upholstery segment to adjust for the
lower than expected sales volume. Residential casegoods' operating margin
decreased to 4.8% from 10.1%, primarily because one division had a higher than
normal profitability last year compared to a lower than normal quarter this
year. The casegoods segment was much smaller last year, which means that these
types of individual division effects are amplified when compared to the current
year where we have many more casegoods operating divisions due to our fiscal
2000 acquisitions. A secondary reason for the Residential casegoods operating
margin decline was the effect of these acquisitions. Contract operating margin
improved to 5.8% of sales from 0.4% last year due to acquiring LADD's American
of Martinsville division, which was more profitable than our Contract operations
of last year.
Interest expense as a percent of sales increased to 0.9% from 0.4% last year due
to an increased debt load as a result of the financing obtained in connection
with the acquisition of LADD.
Liquidity and Capital Resources
See pages 3 through 5 for our Consolidated Balance Sheet, Consolidated Statement
of Income, and Consolidated Statement of Cash Flows with analysis and
calculations.
Cash flows from operations amounted to $18 million in the first three months of
fiscal year 2001 compared to $40 million in the prior year. In the aggregate,
capital expenditures, dividends and stock repurchases totaled approximately $24
million during the three month period, which was about the same as in the first
three months of fiscal 2000. Cash and cash equivalents decreased by $30 million.
Our 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 plus net
deferred taxes). Total debt is defined as current portion of long-term debt plus
current portion of capital leases plus long-term debt plus capital leases. Our
current ratio was 3.3 to 1 at July 29, 2000, 2.9 to 1 at the end of fiscal 2000
and 3.4 to 1 at the end of last year's first quarter. At July 29, 2000, the debt
to capital ratio was 26.8%, compared to 26.5% at the end of fiscal 2000 and
23.3% at the end of last year's first quarter.
As of July 29, 2000, we had a line of credit availability of approximately $176
million under several credit agreements. On May 12, 2000, a new $300 million
unsecured revolving credit facility was entered into with a group of banks with
a performance based interest rate grid with pricing between LIBOR plus .475% to
LIBOR plus .80% based on our consolidated debt to capital ratio and utilization
under the agreement. The current pricing under the facility is LIBOR plus .550%.
This facility was used to retire the company's unsecured $150 million bridge
loan facility, which had been put in place to finance the acquisition of LADD,
and to also retire the company's $75 million unsecured revolving line of credit.
Capital expenditures during the three months ended July 29, 2000 were about $7
million.
As of July 29, 2000, approximately 2 million of the 12 million La-Z-Boy shares
authorized for purchase on the open market were still available for purchase by
the Company.
Outlook
Our pro forma sales growth is moderating. We believe the North American
furniture industry as a whole is slowing in growth due to macroeconomic factors
and that this slower pro forma growth will likely continue into our second
quarter.
As we mentioned in our 2000 annual report, we expect our operating profit margin
for the next two quarters to be lower than in the comparable quarters last year
due to our fiscal 2000 acquisitions. Even though LADD, our largest acquisition,
has improved its margins measurably over the last five years from an operating
loss condition, and we expect that 2001 will be better than 2000, LADD margins
are lower than the average margins that we have historically achieved.
We expect interest expense to remain substantially higher than in fiscal 2000
through the end of our third quarter.
We expect capital expenditures of approximately $45 million during fiscal 2001
down from the $55 million we estimated at May 31, 2000. This compares to $38
million in 2000. The large increase is primarily due to acquisitions. We have a
commitment to purchase about $5 million of equipment by the end of fiscal 2002.
We expect to continue to be in the open market purchasing our shares from time
to time as changes in our stock price and other factors present appropriate
opportunities.
We expect to meet our cash needs for capital expenditures, stock repurchases and
dividends during fiscal year 2001 from cash generated by operations and
borrowings under available lines of credit.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
No information is presented in response to this item because we have no material
market risk relating to derivative financial instruments, derivative commodity
instruments, or other financial instruments.
PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION
The Annual Meeting of Shareholders of La-Z-Boy Incorporated was held on July 31,
2000. The shareholders elected three directors for three-year terms expiring in
2003.
Shares Voted Percent Shares Shares
In Favor In Favor Withheld
Election of Directors: ---------- -------- ---------
Patrick H. Norton 53,931,718 97% 1,810,589
Fredrick H. Jackson 53,958,681 97% 1,783,626
Helen O. Petrauskas 54,064,106 97% 1,678,198
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(27) Financial Data Schedule (EDGAR only)
(b) Reports on Form 8-K
A Form 8-K containing a press release about our expected first quarter
financial results filed with the SEC on July 7, 2000.
A Form 8-K concerning our fiscal year end financial results filed with
the SEC on May 31, 2000.
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 August 9, 2000 /s/James J. Korsnack
------------------------
James J. Korsnack
Chief Accounting Officer
