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 28, 2000 COMMISSION FILE NUMBER 1-9656
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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
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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 28, 2000
------------------------------ -------------------------------
Common Shares, $1.00 par value 60,226,683
<PAGE>
LA-Z-BOY INCORPORATED
FORM 10-Q SECOND 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
Other Income.................................................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 Operation...............................................9-12
Liquidity and Capital Resources....................................12-13
Outlook............................................................13
Item 3. Quantitative & Qualitative Disclosures About Market Risk........14
PART II Other Information
Item 6. Exhibits and Reports on Form 8-K..........................15
Signature Page............................................................15
<PAGE>
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LA-Z-BOY INCORPORATED
CONSOLIDATED BALANCE SHEET
(Amounts in thousands, except par value)
Unaudited
--------------------- Increase
(Decrease)
------------------ Audited
Oct. 28, Oct. 23, Apr. 29,
2000 1999 Dollars Percent 2000
---------- -------- -------- ----- ----------
<S> <C> <C> <C> <C> <C>
Current assets
Cash & equivalents $16,741 $12,769 $3,972 31% $14,353
Receivables 402,603 281,651 120,952 43% 394,453
Inventories
Raw materials 100,948 56,139 44,809 80% 91,018
Work-in-process 67,934 43,354 24,580 57% 63,635
Finished goods 114,199 43,388 70,811 163% 98,623
---------- -------- -------- ----- ----------
FIFO inventories 283,081 142,881 140,200 98% 253,276
Excess of FIFO over LIFO (7,703) (23,303) 15,600 67% (7,473)
---------- -------- -------- ----- ----------
Total inventories 275,378 119,578 155,800 130% 245,803
Deferred income taxes 18,769 22,660 (3,891) -17% 22,374
Other current assets 14,059 11,510 2,549 22% 15,386
---------- -------- -------- ----- ----------
Total current assets 727,550 448,168 279,382 62% 692,369
Property, plant & equipment, net 226,922 143,006 83,916 59% 227,883
Goodwill 116,224 89,271 26,953 30% 116,668
Trade names 134,825 - 134,825 N/M 135,340
Other long-term assets 44,881 39,719 5,162 13% 46,037
---------- -------- -------- ----- ----------
Total assets $1,250,402 $720,164 $530,238 74% $1,218,297
========== ======== ======== ===== ==========
Current liabilities
Current portion - long-term debt $1,622 $1,585 $37 2% $13,119
Current portion - capital leases 457 844 (387) -46% 457
Accounts payable 108,305 59,506 48,799 82% 90,392
Payroll/other compensation 67,139 44,641 22,498 50% 74,724
Income taxes 4,153 5,818 (1,665) -29% 5,002
Other current liabilities 51,282 29,393 21,889 74% 53,312
--------- -------- -------- ----- ----------
Total current liabilities 232,958 141,787 91,171 64% 237,006
Long-term debt 255,818 119,594 136,224 114% 233,938
-
Capital leases 2,868 1,485 1,383 93% 2,156
-
Deferred income taxes 52,493 4,995 47,498 951% 50,280
Other long-term liabilities 29,860 14,554 15,306 105% 31,825
Commitments & contingencies
Shareholders' equity
Common shares, $1 par 60,227 52,143 8,084 16% 61,328
Capital in excess of par 211,035 32,543 178,492 548% 211,450
Retained earnings 408,221 354,795 53,426 15% 392,458
Currency translation (3,078) (1,732) (1,346) -78% (2,144)
---------- -------- -------- ----- ----------
Total shareholders' equity 676,405 437,749 238,656 55% 663,092
---------- -------- -------- ----- ----------
Total liabilities and
shareholders' equity $1,250,402 $720,164 $530,238 74% $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)
SECOND QUARTER ENDED
--------------------------------------------------------
Percent of Sales
Oct. 28, Oct. 23, % Over ------------------
2000 1999 (Under) 2000 1999
------------ ------------ ------------------- --------
Sales $571,208 $387,736 47% 100.0% 100.0%
Cost of sales 429,230 286,520 50% 75.1% 73.9%
------------ ------------ ------- --------- --------
Gross profit 141,978 101,216 40% 24.9% 26.1%
S, G & A 97,142 62,920 54% 17.1% 16.2%
------------ ------------ ------- --------- --------
Operating profit 44,836 38,296 17% 7.8% 9.9%
Interest expense 4,497 1,866 141% 0.8% 0.5%
Interest income 329 610 -46% 0.1% 0.2%
Other income 5,860 927 532% 1.0% 0.2%
------------ ------------ ------- --------- --------
Pretax income 46,528 37,967 23% 8.1% 9.8%
Income tax expense 17,612 14,697 20% 37.9% * 38.7%
------------ ------------ ------- --------- --------
Net income $28,916 $23,270 24% 5.1% 6.0%
============ ============ ======= ========= ========
Basic EPS $0.48 $0.44 9%
Diluted average shares 60,684 52,625 15%
Diluted EPS $0.48 $0.44 9%
Dividends paid per share $0.09 $0.08 13%
(UNAUDITED)
SIX MONTHS ENDED
--------------------------------------------------------
Oct. 28, Oct. 23, % Over Percent of Sales
------------------
2000 1999 (Under) 2000 1999
------------ ------------ ------------------- --------
Sales $1,069,490 $709,395 51% 100.0% 100.0%
Cost of sales 811,676 527,546 54% 75.9% 74.4%
------------ ------------ ------- --------- --------
Gross profit 257,814 181,849 42% 24.1% 25.6%
S, G & A 188,398 121,896 55% 17.6% 17.1%
------------ ------------ ------- --------- --------
Operating profit 69,416 59,953 16% 6.5% 8.5%
Interest expense 8,849 3,305 168% 0.8% 0.5%
Interest income 782 1,206 -35% 0.0% 0.2%
Other income 6,476 1,708 279% 0.6% 0.2%
------------ ------------ ------- --------- --------
Pretax income 67,825 59,562 14% 6.3% 8.4%
Income tax expense 25,906 22,999 13% 38.2% * 38.6%
------------ ------------ ------- --------- --------
Net income $41,919 $36,563 15% 3.9% 5.2%
============ ============ ======= ========= ========
Basic EPS $0.69 $0.70 -1%
Diluted average shares** 60,957 52,610 16%
Diluted EPS $0.69 $0.69 0%
Dividends per share $0.17 $0.16 6%
* As a percent of pretax income, not sales.
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
<TABLE>
LA-Z-BOY INCORPORATED
CONSOLIDATED STATEMENT OF CASH FLOWS
(Amounts in thousands)
(Unaudited) (Unaudited)
Second Quarter Ended Six Months Ended
---------------------- -----------------------
Oct. 28, Oct. 23, Oct. 28, Oct. 23,
2000 1999 2000 1999
----------- ---------- ----------- -------
<S> <C> <C> <C> <C>
Cash flows from operating activities
Net income $28,916 $23,270 $41,919 $36,563
Adjustments to reconcile net income to
net cash provided by operating activities
Depreciation and amortization 11,473 6,348 22,038 12,128
Change in receivables (52,267) (57,931) (6,651) (7,931)
Change in inventories (9,407) (6,365) (29,575) (17,979)
Change in other assets and liabilities 29,448 17,657 (4,725) 261
Proceeds from insurance recovery 5,116 - 5,116 -
Change in deferred taxes 2,412 (2,575) 5,818 (2,554)
------- ------- ------- -------
Total adjustments (13,225) (42,866) (7,979) (16,075)
------- ------- ------- -------
Cash provided by operating activities 15,691 (19,596) 33,940 20,488
Cash flows from investing activities
Proceeds from disposals of assets 253 483 439 550
Capital expenditures (9,678) (8,384) (17,073) (21,952)
Acquisition of operating division, net of cash
acquired - (365) - (58,681)
Change in other investments (818) (2,147) 2,330 (2,313)
------- ------- ------- -------
Cash used by investing activities (10,243) (10,413) (14,304) (82,396)
Cash flows from financing activities
Long term debt 15,000 - 77,000 57,000
Retirements of debt (7,857) (102) (66,617) (2,806)
Capital leases 135 935 1,162 935
Capital lease principal payments (269) (116) (450) (202)
Stock for stock option plans 2,925 2,012 4,713 4,183
Stock for 401(k) employee plans 570 512 1,202 1,199
Purchase of La-Z-Boy stock (11,241) (4,804) (23,249) (10,946)
Payment of cash dividends (5,432) (4,189) (10,338) (8,374)
------- ------- ------- -------
Cash provided/(used) by financing activities (6,169) (5,752) (16,577) 40,989
Effect of exchange rate changes on cash (563) 426 (671) 138
------- ------- ------- -------
Net change in cash and equivalents (1,284) (35,335) 2,388 (20,781)
Cash and equivalents at beginning of period 18,025 48,104 14,353 33,550
------- ------- ------- -------
Cash and equivalents at end of period $16,741 $12,769 $16,741 $12,769
======= ======= ======= =======
Cash paid during period -Income taxes $18,278 $21,018 $24,726 $23,307
-Interest $3,992 $2,180 $6,249 $2,666
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.
</TABLE>
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 has been prepared by
management. The consolidated balance sheet as of April 29, 2000, has been
audited by our independent certified public accountants. The interim
financial information as of and for the interim periods ended October 28,
2000 and October 23, 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 our wholly owned subsidiary. 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 with 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
to be issued to LADD shareholders as merger consideration.
On December 28, 1999, we acquired all of the outstanding equity securities
of the businesses 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 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) (Unaudited)
Second Quarter Ended Six Months Ended
---------------------- --------------------------
Actual Pro forma Actual Pro forma
(Amounts in thousands, Oct. 28, Oct. 23, Oct. 28, Oct. 23,
except per share data) 2000 1999 2000 1999
----------------------
----------- ---------- ------------ -----------
Sales $571,208 $565,030 $1,069,490 $1,055,134
Net income $28,916 $28,190 $41,919 $45,320
Diluted earnings per share $0.48 $0.45 $0.69 $0.72
4. Other Income: Insurance Recovery
Other income in the six months and the second quarter included $4.9 million
resulting from a business interruption insurance recovery associated with
hurricane Floyd.
5. 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) (Unaudited)
Second Quarter Ended Six Months Ended
---------------------- ----------------------
Oct. 28, Oct. 23, Oct. 28, Oct. 23,
(Amounts in thousands) 2000 1999 2000 1999
---------------------- ---------- ---------- ---------- ----------
Weighted average common
shares outstanding (basic) 60,527 52,324 60,802 52,305
Effect of options 157 301 155 305
---------- ---------- ---------- ----------
Weighted average common
shares outstanding (diluted) 60,684 52,625 60,957 52,610
========== ========== ========== ==========
<PAGE>
6. Segment Information
Our reportable operating segments are Residential upholstery, Residential
casegoods, and Contract. Financial results of our operating segments are as
follows:
(Unaudited) (Unaudited)
Second Quarter Ended Six Months Ended
-------------------- ----------------------
(Amounts in thousands) Oct. 28, Oct. 23, Oct. 28, Oct. 23,
---------------------- 2000 1999 2000 1999
-------- -------- ---------- --------
Sales
Residential upholstery $373,139 $314,186 $684,838 $569,274
Residential casegoods 146,007 53,810 280,935 104,063
Contract 52,062 19,740 103,717 36,058
-------- -------- ---------- --------
Consolidated $571,208 $387,736 $1,069,490 $709,395
======== ======== ========== ========
Operating profit
Residential upholstery $37,320 $34,483 $58,288 $53,075
Residential casegoods 10,213 4,533 16,737 9,627
Contract 2,286 840 5,283 903
Unallocated corporate
costs & other (4,983) (1,560) (10,892) (3,652)
-------- -------- ---------- --------
Consolidated $44,836 $38,296 $69,416 $59,953
======== ======== ========== ========
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 document 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.
Many important factors, including future economic and industry conditions (for
example, changes in interest rates, changes in demographics and consumer
preferences, e-commerce developments, oil price changes 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 what may
be expressed or implied in forward-looking statements. We undertake no
obligation to update or revise any forward-looking statements for new
developments or otherwise.
LADD Effects
As a result of the LADD acquisition, most of our assets, liabilities and results
of operations for our first and second quarters differed substantially from
those in comparable prior periods and we expect our third quarter will also
differ substantially from the prior year's third quarter.
Results of Operations
Second Quarter Ended Oct.28, 2000 Compared to Second Quarter Ended Oct. 23, 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 comments.
(Unaudited)
Segment Analysis
Second Quarter Ended
------------------------------------------------------
Sales Operating Profit
---------------- -------------------------------
FY01 Over/
(Under) FY00 FY01 Percent of Sales
---------------- Over ------------------
Pro (Under)
Actual forma FY00 FY01 FY00
--------- ------- ------- ------ -------
Residential upholstery 19% 3% 8% 10.0% 11.0%
Residential casegoods 171% 1% 125% 7.0% 8.4%
Contract 164% (9%) 172% 4.4% 4.3%
Unallocated corp.
costs & eliminations N/A N/A 219% N/A N/A
--------- ------- ------- ------ -------
Consolidated 47% 1% 17% 7.8% 9.9%
========= ======= ======= ====== =======
Second quarter sales were up 47% over the prior year's second quarter almost
entirely due to acquisitions. Pro forma sales were up 1% as per the table above.
The 1% pro forma sales growth is primarily due to weakening furniture industry
demand and impacts of retailer financial difficulties; in particular, the recent
Heilig-Meyers bankruptcy. Our residential casegoods segment sales were impacted
more than our residential upholstery or contract segments due to the
Heilig-Meyers bankruptcy filing. In general, our higher end product lines and
divisions were impacted less by the sales slowdown than our lower end lines and
divisions.
The decrease in pro forma contract sales has followed robust growth over the
last few years. The assisted-living market is the primary area of decline with
some weakness in office seating market as well as the hospitality market due to
timing issues. In 1999, seven of the top ten skilled nursing providers filed for
some level of bankruptcy protection. The assisted-living sector of the economy
suffered from high labor costs, patient liability claims and reduced federal
funding for facility care. The hospitality sector was impacted by declining
business and vacation travel related to higher fuel costs. In the hospitality
market growth slowed in the room supply business, reduced commitment to
refurbishings and increased competition from smaller regional competitors.
Gross profit as a percent of sales decreased to 24.9% from 26.1% in last year's
second quarter. The primary reason for the drop was lower gross margins of
companies acquired during fiscal 2000. Factory cost increases were below the
small 1% pro forma sales increase primarily due to the absence of costs
associated with major plant floor layout changes, laying off some employees and
adjusting overhead and labor costs to lower demand.
Selling, General & Administrative (S,G & A) as a percent of sales has increased
from 16.2% to 17.1%. Many costs that were deferred in the first quarter were
incurred in the second quarter on top of expenses that had been budgeted for
that period. The primary areas that increased compared to last year were sales
expenses, information technology expenses, and research and development
expenses.
Operating profit as a percent of sales decreased to 7.8% from 9.9% in last
year's second quarter. In general, sales volumes being below plan, and at some
operating divisions below last year, caused a significant portion of the drop in
margins. Residential upholstery's operating margin decreased compared to the
prior year from 11.0% to 10.0% primarily due to the items mentioned in the above
gross profit and S, G & A paragraphs. Residential casegoods' operating margin
decreased from 8.4% to 7.0% due primarily to unusually favorable impacts in one
division last year. The casegoods segment was much smaller last year and these
types of individual division effects were magnified compared to the current year
where we have many more casegoods operating divisions due to acquisitions.
Contract operating margin improved slightly from 4.3% of sales last year to 4.4%
this year. Although the acquisition of LADD's American of Martinsville division
added a division to this segment which has been historically more profitable
than our other contract operations, American of Martinsville were impacted by
most of the items mentioned above in connection with contract sales section.
Interest expense as a percent of sales increased from 0.5% last year to 0.8% due
to increased debt as a result of the financing obtained in connection with the
acquisition of LADD. In addition, we had higher interest rates compared to last
year.
Other income increased $4.9 million primarily due to a business interruption
insurance recovery. This one time cash recovery was primarily related to the
effects on future earnings of hurricane Floyd that occurred in September 1999.
Some of the earnings effects were attributable to the second quarter. This
recovery was net of a $0.2 million receivable. A total of $5.1 was recognized as
an increase in cash flows from operating activities on the enclosed Consolidated
Statement of Cash Flows.
Diluted net income per share increased from $0.44 to $0.48. About $0.05 of the
increase was due to the one time business interruption insurance recovery.
Six Months Ended Oct. 28, 2000 Compared to Six Months Ended Oct. 23, 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 comments.
(Unaudited)
Segment Analysis
Six Months Ended
-----------------------------------------------------
Sales Operating Profit
------------------- ------------------------------
FY01 Over/ FY01
(Under) FY00 Over Percent of Sales
------------------- ------------------
Actual Pro (Under) FY01 FY00
forma FY00
---------- ------- ---------- --------- -------
Residential upholstery 20% 2% 10% 8.5% 9.3%
Residential casegoods 170% 3% 74% 6.0% 9.3%
Contract 188% (6%) 485% 5.1% 2.5%
Unallocated corp.
costs & eliminations. N/A N/A (198)% N/A N/A
---------- ------- ---------- --------- -------
Consolidated 51% 1% 16% 6.5% 8.5%
========== ======= ========== ========= =======
Six months ended October sales were up 51% over the prior year's second quarter.
However, sales were up just 1% compared to last year's pro forma sales. This 51%
sales growth on a consolidated basis that is shown in the table above was
primarily due to acquisitions The 6% decrease in pro forma contract sales
follows a robust growth period over the last few years. Contract sales were weak
in the assisted-care, hospitality and office furniture segments.
Gross profit as a percent of sales for the six months ended October decreased
from 25.6% to 24.1% in last year's six months ended October 23, 1999. Major
impacts on this lower profit margin were acquisitions with lower margins than
those divisions that made up the company last year. Also, higher factory and
labor costs in many divisions contributed to this decrease.
S, G & A for the six months ended October were 17.6% of sales as compared to
17.1% last year with the most marked increases in sales department and research
and development expenses. The sales department increases are consistent with
trends since the acquisition of LADD which has some divisions with higher
expenses as a percent of sales than other divisions. The increase in research
and development is primarily in the residential upholstery segment. Higher
research and development expenditures were planned and represent targeted
efforts to improve both existing products and new products.
Operating profit was down from 8.5% last year to 6.5% for the six months ended
October 28, 2000 due to many of the items discussed above. The decrease was
apparent in both the residential upholstery and residential casegoods segments
shown above. The contract segment, however, showed an improvement in operating
profit going from 2.5% to 5.1%, primarily because of the acquisition of LADD's
American of Martinsville division, which has a higher profit margin than our
other division in this segment.
Other income increased $4.9 million primarily due to a second quarter business
interruption insurance recovery.
Interest expense was up 168% in total or as a percent of sales from 0.5% to
0.8%. This increase was due to increased debt associated with the 2000
acquisitions. In addition, interest rates were higher than last year.
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 $34 million in the first six months of
fiscal year 2001 compared to $20 million in the prior year. In the aggregate,
capital expenditures, dividends and stock repurchases totaled approximately $51
million during the six month period, which was about the same as in the first
six months of fiscal 2000. Cash and cash equivalents increased by $2 million
during the six month period.
Our financial strength is reflected in three commonly used calculations. Our
current ratio (current assets divided by current liabilities) was 3.1 at October
28, 2000, 2.9 at April 29, 2000 and 3.2 at October 23, 1999. Our total
debt-to-capitalization percentage (total debt divided by shareholders' equity
plus total debt plus net deferred taxes) was 26.8% at October 28, 2000, 26.5% at
April 29, 2000, and 22.7% at October 23, 1999. Our interest coverage ratio (the
rolling twelve months net income plus income tax expense plus interest expense
divided by interest expense) was 7.5 at October 28, 2000, 10.4 at April 29, 2000
and 12.7 at October 23, 1999.
As of October 28, 2000, we had line of credit availability of approximately $173
million under several credit agreements. On May 12, 2000, we entered into a $300
million unsecured revolving credit facility with a group of banks using a
performance based interest rate grid with pricing ranging from LIBOR plus .475%
to LIBOR plus .800%. The current pricing under the facility is LIBOR plus .550%.
This facility was used to retire our unsecured $150 million bridge loan
facility, which had been put in place to finance the acquisition of LADD, and to
also retire our $75 million unsecured revolving line of credit.
Capital expenditures were $10 million during the three months ended October 28,
2000 and $17 million for the six months comparable to last year's $8 million for
the quarter and $22 million for the six months.
As of October 28, 2000, approximately 1.2 million of the 12 million La-Z-Boy
shares authorized for purchase on the open market were still available for
purchase by us.
Outlook
Our pro forma sales growth has declined from about 3% in the fourth quarter
ended April to 2% in the first quarter ended July and to 1% in this second
quarter ended October. (Comparisons are to the prior year's comparable quarter.)
We expect our next quarter's pro forma sales to be flat or slightly down from
the prior year. We expect the assisted-living sector of our contract segment to
remain stagnant over the next year with a strong rebound to begin thereafter.
There are some encouraging signs of future increases to sales growth rates;
especially in our middle and upper end residential product lines; however, we
are conservatively planning for a continuation of slow growth or even a small
decrease in sales in the near term. Most of our sales are in the middle to upper
middle price points but those market categories are expected to also continue to
have slow growth. We believe the furniture industry as a whole is continuing to
slow in growth due to macroeconomic factors, in particular due to the effects of
higher energy prices.
Certain types of expenses are expected to continue into next quarter to increase
at rates greater than selling price increases. These include health care,
lumber, leather and some purchased parts costs. Last year in our third and
fourth quarters we had high expenses associated with improving plant floor
layouts. Those one-time large plant floor improvement expenses are over, which
should help offset the anticipated increased expenses mentioned above.
As we mentioned in our 2000 annual report, we expect our operating profit margin
for next quarter to be lower than in the comparable third quarter of last year
primarily due to 2000 acquisitions. LADD, our largest acquisition, improved its
margin measurably over the five years prior to acquisition from an operating
loss condition. Since acquisition, similar to La-Z-Boy as a whole, LADD's
margins have slightly declined. LADD's margins are lower than the average
margins that we have historically achieved.
Interest expense is expected to remain substantially higher than in fiscal 2000
through the end of our third quarter.
Other income is not expected to have a reoccurrence of a large insurance
recovery similar to the second quarter.
We believe that our diluted net income per share for the fiscal year ending
April 2001 will most likely approximate fiscal 2000's $1.60.
We expect capital expenditures of approximately $40 million during fiscal 2001,
down from the $45 million we estimated at July 29, 2000. This compares to $38
million in 2000. We have a commitment to purchase about $7 million of equipment
by the end of fiscal 2002.
We expect to continue to be in the open market for purchasing our shares from
time to time as changes in its 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 6. EXHIBITS AND REPORTS ON FORM 8-K
(a)......Exhibits
(11).....Statement of Computation of Earnings
See note 5 to the financial statements included in this
report.
(27) Financial Data Schedule (EDGAR only)
(b) Reports on Form 8-K
A Form 8-K containing a press release about our expected second quarter
financial results filed with the SEC on October 17, 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
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(Registrant)
Date November 8, 2000 /s/ James J. Korsnack
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James J. Korsnack
Chief Accounting Officer
