SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
Current Report Pursuant
to Section 13 or 15(d) of the
Securities Exchange Act of 1934
May 29, 1997
(Date of Report (Date of Earliest Event Reported))
LA-Z-BOY INCORPORATED
(Exact Name of Registrant as Specified in Its Charter)
Michigan
(State or Other Jurisdiction of Incorporation)
1-9656
(Commission File Number)
38-0751137
(I.R.S. Employer Identification No.)
1284 N. Telegraph Road
Monroe, Michigan 48162
(Address of Principal Executive Offices, Including Zip Code)
(313) 242-1444
(Registrant's Telephone Number, Including Area Code)
[not applicable]
(Former Name or Former Address If Changed Since Last Report
Item 5. Other Events
Exhibit
Number Description
------- -------------------------------------------------------------
(27) Financial Data Schedule (EDGAR only)
(99)(a) News Release and Financial Information Release
(99)(b) Annual Report Financial Section
SIGNATURES
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 hereunto duly authorized.
LA-Z-BOY INCORPORATED
Date: May 29, 1997 Gene M. Hardy
Secretary and Treasurer
5
1,000
APR-26-1997
APR-26-1997
12-MOS
25,382
0
215,032
0
78,771
342,775
276,815
162,157
528,407
97,669
0
17,908
0
0
341,430
528,407
1,005,825
1,005,825
744,662
744,662
187,230
0
4,376
73,835
28,538
45,297
0
0
0
45,297
2.50
2.50
Receivables are reported net of allowances for doubtful accounts on the
Statement of Financial Position.
News Release
------------
LA-Z-BOY TOPS $1 BILLION IN SALES
NET INCOME PER SHARE REACHED $2.50
MONROE, MI., May 29, 1997: La-Z-Boy Incorporated exceeded one billion
dollars in sales, as net income per share reached a record $2.50 for the
furniture company's 1997 fiscal year ended April 26. Chairman and President
Charles T. Knabusch said La-Z-Boy concluded its fiscal year with "a strong
fourth quarter." It was the seventh consecutive quarter in which sales and
profits improved over comparable prior year periods.
Financial Details
- -----------------
For the 1997 FISCAL YEAR, sales reached $1,005.8 million, up 6% from last
year's $947.3 million. Operating profit rose 10% to $73.9 million vs. $67.5
million. Net income increased 15% to $45.3 million vs. $39.3 million, and net
income per share was up 18% to $2.50 from $2.12.
FOURTH QUARTER sales increased 8% to $287.5 million from sales of $266.8
million in last year's fourth quarter. Operating profit rose 6% to $24.6
million vs. $23.3 million. Net income rose 11% to $15.6 million vs. $14.0
million. Net income per share increased 14% to $0.87 from $0.76.
Chairman Comments
- -----------------
Mr. Knabusch said, "Fiscal 1997 saw La-Z-Boy sales and profits reach record
levels. Sales passed the billion dollar mark thanks to hard work by La-Z-Boy
employees, our supplier companies and our vast network of retail dealers. The
dedicated efforts of all these people honor our late chairman Edward M.
Knabusch and our current vice chairman Edwin J. Shoemaker who founded the
company 70 years ago and poured their energies into making La-Z-Boy our
industry's best-known name and one of its most respected names."
Marketing
- ---------
Sales benefited from aggressive advertising and promotional programs that
included a La-Z-Boy/ Plymouth Road Home Sweepstakes. The sweepstakes, whose
two top prizes were Plymouth Voyager minivans, generated higher retail store
traffic for La-Z-Boy dealers.
In June, a La-Z-Boy Great Room Giveaway National Sweepstakes will help dealers
showcase La-Z-Boy's full line of upholstered products. On June 1, the
nation's two top weekend magazines -- Parade and USA Weekend -- will feature
La-Z-Boy advertisements. These ads will reach some 57 million readers in a 48-
hour period.
Acquisitions
- ------------
As part of a platform for expanding into Europe, the Company recently acquired
a 75% interest in Centurion Furniture plc, which has been La-Z-Boy's
manufacturing and sales licensee in England. Centurion recorded approximately
$12 million in sales for their year ended March, 1997. The investment in
Centurion is reflected in "Other long-term assets" on the balance sheet.
Plans are to include their operating results in the second half of fiscal year
1998.
Sales Orders
- ------------
In recent weeks, La-Z-Boy has been receiving incoming orders at a higher rate
than for the similar period last year. Sales backlogs, however, generally are
lower, due in part to success in filling sales orders more promptly.
More Information
- ----------------
La-Z-Boy's 8-K filing includes a full income statement, balance sheet, cash
flow statement and additional management discussion. This information can be
found in the SEC's EDGAR databases or at www.lazboy.com. See
www.lzbcontract.com and www.hammary.com for more information on two of La-Z-
Boy's operating divisions.
NYSE & PCX: LZB Contact: Gene Hardy (313) 241-4306
La-Z-Boy Incorporated Financial Information Release 1 of 3
CONSOLIDATED STATEMENT OF INCOME 5/29/97
(Amounts in thousands, except per share data)
FOURTH QUARTER ENDED (UNAUDITED)
----------------------------------------------
Amounts
------------------ Percent of Sales
Apr. 26, Apr. 27, % Over ----------------
1997 1996 (Under) 1997 1996
--------- -------- ------- ------- -------
Sales $287,463 $266,832 8% 100.0% 100.0%
Cost of sales 211,749 194,755 9% 73.7% 73.0%
--------- -------- ------- ------- -------
Gross profit 75,714 72,077 5% 26.3% 27.0%
S, G & A 51,105 48,751 5% 17.7% 18.3%
--------- -------- ------- ------- -------
Operating profit 24,609 23,326 6% 8.6% 8.7%
Interest expense 1,076 1,188 -9% 0.4% 0.4%
Interest Income 510 645 -21% 0.2% 0.2%
Other income 563 736 -24% 0.2% 0.3%
--------- -------- ------- ------- -------
Pretax income 24,606 23,519 5% 8.6% 8.8%
Income taxes 8,960 9,481 -5% 36.4%* 40.3%*
--------- -------- ------- ------- -------
Net income $15,646 $14,038 11% 5.4% 5.3%
========= ======== ======= ======= =======
Average shares 17,929 18,457 -3%
Net income per share $0.87 $0.76 14%
Dividends per share $0.21 $0.19 11%
FISCAL YEAR ENDED (AUDITED)
----------------------------------------------
Amounts
------------------ Percent of Sales
Apr. 26, Apr. 27, % Over ----------------
1997 1996 (Under) 1997 1996
-------- -------- ------- ------- -------
Sales $1,005,825 $947,263 6%* 100.0% 100.0%
Cost of sales 744,662 705,379 6% 74.0% 74.5%
-------- -------- ------- ------- -------
Gross profit 261,163 241,884 8% 26.0% 25.5%
S,G & A 187,230 174,376 7% 18.6% 18.4%
-------- -------- ------- ------- -------
Operating profit 73,933 67,508 10% 7.4% 7.1%
Interest expense 4,376 5,306 -18% 0.4% 0.6%
Interest Income 1,770 1,975 -10% 0.2% 0.2%
Other income 2,508 2,023 24% 0.1% 0.3%
-------- -------- ------- ------- -------
Pretax income 73,835 66,200 12% 7.3% 7.0%
Income taxes 28,538 26,947 6% 38.7%* 40.7%*
-------- -------- ------- ------- -------
Net income $45,297 $39,253 15% 4.5% 4.1%
======== ======== ======= ======= =======
Average shares 18,108 18,498 -2%
Net income per share $2.50 $2.12 18%
Dividends per share $0.78 $0.74 5%
* As a percent of pretax income, not sales.
La-Z-Boy Incorporated Financial Information Release 2 of 3
CONSOLIDATED BALANCE SHEET 5/29/97
(Dollars in thousands)
Audited Increase
------------------- (Decrease)
Apr. 26, Apr. 27, -----------------
1997 1996 Dollars Percent
--------- --------- --------- -------
Current assets
Cash & equivalents $25,382 $27,060 $(1,678) -6%
Receivables 215,032 206,430 8,602 4%
Inventories
Raw materials 36,959 37,274 (315) -1%
Work-in-process 34,854 35,241 (387) -1%
Finished goods 28,177 28,333 (156) -1%
--------- --------- --------- -------
FIFO inventories 99,990 100,848 (858) -1%
Excess of FIFO over LIFO (21,219) (21,656) 437 2%
--------- --------- --------- -------
Total inventories 78,771 79,192 (421) -1%
Deferred income taxes 20,950 19,271 1,679 9%
Other current assets 2,640 5,148 (2,508) -49%
--------- --------- -------- -------
Total current assets 342,775 337,101 5,674 2%
Property, plant & equipment 114,658 116,199 (1,541) -1%
Goodwill 38,702 40,359 (1,657) -4%
Other long-term assets 32,272 23,887 8,385 35%
--------- --------- --------- --------
Total assets $528,407 $517,546 $10,861 2%
========= ========= ========= ========
Audited Increase
------------------- (Decrease)
Apr. 26, Apr. 27, -----------------
1997 1996 Dollars Percent
--------- --------- --------- -------
Current liabilities
Current portion-l/t debt $4,611 $5,625 $(1,014) -18%
Current portion-cap. leases 2,017 2,114 (97) -5%
Accounts payable 28,589 30,997 (2,408) -8%
Payroll/Other Comp. 37,934 34,609 3,325 10%
Estimated income taxes 5,412 5,572 (160) -3%
Other current liabilities 19,106 17,601 1,505 9%
--------- --------- --------- -------
Total current liabilities 97,669 96,518 1,151 1%
Long-term debt 52,449 57,075 (4,626) -8%
Capital leases 2,202 4,219 (2,017) -48%
Deferred income taxes 6,329 6,663 (334) -5%
Other long-term liabilities 10,420 9,695 725 7%
Shareholders' equity
17,907,526 shares, $1.00 par 17,908 18,385 (477) -3%
Capital in excess of par 27,697 28,016 (319) -1%
Retained earnings 314,731 297,750 16,981 6%
Currency translation (998) (775) (223) -29%
--------- --------- --------- -------
Total shareholders' equity 359,338 343,376 15,962 5%
--------- --------- --------- -------
Total liabilities and
shareholders' equity $528,407 $517,546 $10,861 2%
========= ========= ========= =======
La-Z-Boy Incorporated Financial Information Release 3 of 3
5/29/97
Overall
- -------
Refer to today's press release for additional information.
Gross Profit
- ------------
Fourth quarter gross profit declined to 26.3% of sales from 27.0% of
sales last year. The decline was largely due to year-end physical in-
ventory adjustments. The adjustments were unfavorable this year and
favorable last year. The Company uses various techniques to reduce
the effect of physical inventory adjustments, however, there is always
some uncertainty as to the outcome of the adjustments.
S, G and A
- ----------
Fourth quarter S, G & A declined to 17.7% of sales vs. 18.3% last
year. Last year included some one-time adjustments which increased
S, G & A a total of 0.7 points as a percent of sales. Excluding these
adjustments, S, G & A was up 0.1 points as a percent of sales.
Income Taxes
- ------------
Fourth quarter income tax expense as a percent of pretax income was
36.4% vs. 40.3% last year. Last year included a one-time amortization
adjustment which increased the effective tax rate. The Canadian divi-
sion results for the current quarter were favorable, reversing some of
the unfavorable tax impacts recorded in prior quarters. The prior
year Canadian division results were unfavorable, generating unfavor-
able tax impacts, which increased the prior year effective rate. In
addition, the benefits of some efforts to reduce tax expense were rec-
ognized during the quarter.
Other Long-term Assets
- ----------------------
Other long-term assets increased 35% from last year. A major reason
for the increase was an investment in Centurion Furniture, plc, a fur-
niture manufacturer located in England. During fiscal year 1997, ap-
proximately 75% of their ordinary share capital was acquired. The re-
mainder of the ordinary share capital is expected to be acquired in
the first quarter of fiscal year 1998. Most of the remaining increase
relates to various proprietary store related financing activities.
Financial Report
Report of Management Responsibilities
La-Z-Boy Incorporated
The management of La-Z-Boy Incorporated is responsible for the preparation of
the accompanying consolidated financial statements, related financial data,
and all other information included in the following pages. The financial
statements have been prepared in accordance with generally accepted accounting
principles and include amounts based on management's estimates and judgements
where appropriate.
Management is further responsible for maintaining the adequacy and effective-
ness of established internal controls. These controls provide reasonable
assurance that the assets of La-Z-Boy Incorporated are safeguarded and that
transactions are executed in accordance with management's authorization and
are recorded properly for the preparation of financial statements. The
internal control system is supported by written policies and procedures, the
careful selection and training of qualified personnel, and a program of
internal auditing.
The accompanying report of the Company's independent accountants states their
opinion on the Company's financial statements, based on examinations conducted
in accordance with generally accepted auditing standards. The Board of
Directors, through its Audit Committee composed exclusively of outside
directors, is responsible for reviewing and monitoring the financial
statements and accounting practices. The Audit Committee meets periodically
with the internal auditors, management, and the independent accountants to en-
sure that each is meeting its responsibilities. The Audit Committee and the
independent accountants have free access to each other with or without
management being present.
Charles T. Knabusch
Chief Executive Officer
Frederick H. Jackson
Chief Financial Officer
Report of Independent Accountants
Price Waterhouse LLP
To the Board of Directors and Shareholders of La-Z-Boy Incorporated:
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income, of changes in shareholders' equity, and
of cash flows, present fairly, in all material respects, the financial
position of La-Z-Boy Incorporated and its subsidiaries at April 26, 1997 and
April 27, 1996, and the results of their operations and their cash flows for
each of the three fiscal years in the period ended April 26, 1997, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation.We believe that our audits provide a reasonable basis for the
opinion expressed above.
Price Waterhouse LLP
Toledo, Ohio
May 29, 1997
Consolidated Balance Sheet
(Amounts in thousands, except par value)
- ----------------------------------------------------------------------------
As of April 26, April 27,
1997 1996
- ----------------------------------------------------------------------------
Assets
- ------
Current assets
Cash and equivalents.............................. $25,382 $27,060
Receivables, less allowances of $16,442 in 1997
and $15,253 in 1996............................. 215,032 206,430
Inventories
Raw materials................................... 36,959 37,274
Work-in-process................................. 34,854 35,241
Finished goods.................................. 28,177 28,333
--------- ---------
FIFO inventories.............................. 99,990 100,848
Excess of FIFO over LIFO...................... (21,219) (21,656)
--------- ---------
Total inventories........................... 78,771 79,192
Deferred income taxes............................. 20,950 19,271
Other current assets.............................. 2,640 5,148
--------- ---------
Total current assets............................ 342,775 337,101
Property, plant and equipment, net.................. 114,658 116,199
Goodwill, less accumulated amortization of
$9,744 in 1997 and $8,087 in 1996................. 38,702 40,359
Other long-term assets, less allowances of
$2,489 in 1997 and $2,780 in 1996................. 32,272 23,887
--------- ---------
Total assets.................................... $528,407 $517,546
========= =========
Liabilities and Shareholders' Equity
- ------------------------------------
Current liabilities
Current portion of long-term debt................. $4,611 $5,625
Current portion of capital leases................. 2,017 2,114
Accounts payable.................................. 28,589 30,997
Payroll/other compensation........................ 37,934 34,609
Estimated income taxes............................ 5,412 5,572
Other current liabilities......................... 19,106 17,601
--------- ---------
Total current liabilities....................... 97,669 96,518
Long-term debt...................................... 52,449 57,075
Capital leases...................................... 2,202 4,219
Deferred income taxes............................... 6,329 6,663
Other long-term liabilities......................... 10,420 9,695
Shareholders' equity
Preferred shares - 5,000 authorized; 0 issued..... -- --
Common shares, $1 par value - 40,000 authorized;
17,908 issued in 1997 and 18,385 in 1996......... 17,908 18,385
Capital in excess of par value.................... 27,697 28,016
Retained earnings................................. 314,731 297,750
Currency translation adjustments.................. (998) (775)
--------- ---------
Total shareholders' equity...................... 359,338 343,376
--------- ---------
Total liabilities and shareholders' equity.... $528,407 $517,546
========= =========
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
Consolidated Statement of Income
(Amounts in thousands, except per share data)
- -----------------------------------------------------------------------------
Year Ended April 26, April 27, April 29,
1997 1996 1995
- -----------------------------------------------------------------------------
Sales...............................$1,005,825 $947,263 $850,271
Cost of sales........................ 744,662 705,379 629,222
--------- --------- ---------
Gross profit....................... 261,163 241,884 221,049
Selling, general and administrative.. 187,230 174,376 158,551
--------- --------- ---------
Operating profit................... 73,933 67,508 62,498
Interest expense..................... 4,376 5,306 3,334
Interest income...................... 1,770 1,975 1,628
Other income......................... 2,508 2,023 1,229
--------- --------- ---------
Pretax income...................... 73,835 66,200 62,021
Income tax expense
Federal - current.................. 26,247 23,383 22,716
- deferred................. (1,699) (818) (1,205)
State - current.................. 4,304 4,540 4,177
- deferred................. (314) (158) 31
--------- --------- ---------
Total tax expense................ 28,538 26,947 25,719
--------- --------- ---------
Net income....................... $45,297 $39,253 $36,302
========= ========= =========
Weighted average shares.............. 18,108 18,498 18,044
========= ========= =========
Net income per share............. $2.50 $2.12 $2.01
========= ========= =========
The years ended April 26, 1997 and April 27, 1996 include England/Corsair.
The year ended April 29, 1995 does not include England/Corsair.
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
Consolidated Statement of Cash Flows
(Amounts in thousands)
- -----------------------------------------------------------------------------
Year Ended April 26, April 27, April 29,
1997 1996 1995
- -----------------------------------------------------------------------------
Cash flows from operating activities:
Net income.............................. $45,297 $39,253 $36,302
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization....... 20,382 20,147 15,156
Change in receivables............... (8,178) (13,492) (6,013)
Change in inventories............... 421 1,899 (4,142)
Change in other assets and liab..... 4,254 5,184 1,624
Change in deferred taxes............ (2,014) (975) (2,619)
--------- --------- ---------
Total adjustments................. 14,865 12,763 4,006
--------- --------- ---------
Cash provided by operating
activities...................... 60,162 52,016 40,308
Cash flows from investing activities:
Proceeds from disposals of assets....... 1,527 1,063 1,442
Capital expenditures.................... (17,778) (18,168) (18,980)
Acquisition of operating division, net
of cash acquired....................... -- -- (2,486)
Change in other investments............. (8,596) (1,229) (254)
--------- --------- ---------
Cash used for investing activities (24,847) (18,334) (20,278)
Cash flows from financing activities:
Short-term debt......................... -- -- 261
Long-term debt.......................... -- -- 7,500
Retirements of debt..................... (5,640) (13,125) (5,011)
Capital leases.......................... -- 1,161 --
Capital lease principal payments (2,114) (2,204) --
Stock for stock option plans............ 4,213 2,876 1,834
Stock for 40l(k) employee plans......... 1,568 1,378 1,521
Purchases of La-Z-Boy stock............. (20,751) (10,035) (12,722)
Payments of cash dividends.............. (14,142) (13,706) (12,286)
--------- --------- ---------
Cash used for financing activities (36,866) (33,655) (18,953)
Effect of exchange rate changes on cash... (127) (15) 45
--------- --------- ---------
Net change in cash and equivalents........ (1,678) 12 1,122
Cash and equiv. at beginning of the year.. 27,060 27,048 25,926
--------- --------- ---------
Cash and equiv. at end of the year........ $25,382 $27,060 $27,048
========= ========= =========
Cash paid during the year - Income taxes.. $28,670 $27,024 $28,010
- Interest...... $4,437 $5,408 $3,281
For purposes of the Consolidated 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.
Consolidated Statement of Shareholders' Equity
(Amounts in thousands)
- ------------------------------------------------------------------------------
Capital Currency
in Trans-
Excess lation
Common of Par Retained Adjust-
Shares Value Earnings ments Total
- ------------------------------------------------------------------------------
At April 30, 1994.. $18,287 $10,147 $236,348 ($871) $290,911
Purchases of La-Z-Boy stock.. (529) (12,243) (12,772)
Currency translation......... 126 126
Stock options/401(k)......... 137 601 2,617 3,355
Acquisition of operating
division................... 667 17,337 18,004
Dividends paid............... (12,286) (12,286)
Net income................... 36,302 36,302
-------- ------- --------- ------- ---------
At April 29, 1995.. 18,562 28,085 277,738 (745) 323,640
Purchases of La-Z-Boy stock.. (372) (9,663) (10,035)
Currency translation......... (30) (30)
Stock options/401(k)......... 195 (69) 4,128 4,254
Dividends paid............... (13,706) (13,706)
Net income................... 39,253 39,253
-------- ------- --------- ------- ---------
At April 27, 1996.. 18,385 28,016 297,750 (775) 343,376
Purchases of La-Z-Boy stock.. (693) (20,058) (20,751)
Currency translation......... (223) (223)
Stock options/401(k)......... 216 (319) 5,884 5,781
Dividends paid............... (14,142) (14,142)
Net income................... 45,297 45,297
------- ------- -------- ------- --------
At April 26, 1997.. $17,908 $27,697 $314,731 ($998) $359,338
======= ======= ======== ======= ========
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
Notes to Consolidated Financial Statements
Note 1: Accounting Policies
The Company operates primarily in the U.S. furniture industry. The following
is a summary of significant accounting policies followed in the preparation
of these financial statements.
Principles of Consolidation
The consolidated financial statements include the accounts of La-Z-Boy
Incorporated and its wholly owned subsidiaries. All significant intercompany
transactions have been eliminated.
Risks And Uncertainties
The consolidated financial statements are prepared in conformity with
generally accepted accounting principles, which require management to make
estimates and assumptions that affect the reported amounts of assets,
liabilities, sales and expenses for the reporting periods. Actual results
could differ from those estimates.
Inventories
Inventories are valued at the lower of cost or market. Cost is determined on
the last-in, first-out (LIFO) basis.
Property, Plant and Equipment
Items capitalized, including significant betterments to existing facilities,
are recorded at cost. Depreciation is computed using primarily accelerated
methods over the estimated useful lives of the assets.
Goodwill
The excess of the cost of operating companies acquired over the value of their
net assets is amortized on a straight-line basis over 30 years from the date
of acquisition.
Goodwill is evaluated periodically as events or circumstances indicate a
possible inability to recover its carrying amount. Such evaluation is based
on profitability projections and cash flow analysis. If future expected
undiscounted cash flows are insufficient to recover the carrying amount of the
asset, then an impairment loss is recognized.
Revenue Recognition
Revenue is recognized upon shipment of product.
Income Taxes
Income tax expense is provided on all revenue and expense items included in
the consolidated statement of income, regardless of the period such items are
recognized for income tax purposes.
Note 2: Acquisitions
On April 29, 1995, the Company acquired all of the capital stock of
England/Corsair, Inc., a manufacturer of upholstered furniture. For
the twelve months ended April 1995, England/Corsair sales were $103.2
million and income before income tax expense was $3.9 million.
During fiscal year 1997, La-Z-Boy acquired approximately 75% of the
ordinary share capital of Centurion Furniture plc, a furniture
manufacturer located in England. The remainder of the ordinary share
capital is expected to be acquired in the first quarter of fiscal
year 1998. Sales for their year ended March 31, 1997 were $12
million. The investment appears in other long-term assets on the
balance sheet.
Note 3: Cash and Equivalents
(Amounts in thousands)
- -----------------------------------------------------------------
April 26, April 27,
1997 1996
- -----------------------------------------------------------------
Cash in bank........................... $5,782 $7,060
Certificates of deposit................ 19,600 20,000
------- -------
Total cash and equivalents........... $25,382 $27,060
======= =======
The Company invests in certificates of deposit with a bank whose board of
directors includes three members of the Company's board of directors.
At the end of both fiscal years 1997 and 1996, $16 million was invested
in this bank's certificates.
Note 4: Property, Plant and Equipment
(Amounts in thousands)
- -------------------------------------------------------------------------
Estimated Depreciation April 26, April 27,
Life(years) Method 1997 1996
- -------------------------------------------------------------------------
Land and land improvements...... 0-20 150% DB $ 11,296 $ 10,753
Buildings and building fixtures. 15-30 150% DB 110,875 108,120
Machinery and equipment......... 10 200% DB 107,316 99,869
Information systems............. 5 200% DB 16,295 14,888
Network and tracking systems.... 5-10 SL 1,873 253
Transportation equipment........ 5 SL 14,974 16,680
Other........................... 3-10 Various 14,186 14,875
-------- --------
276,815 265,438
Less: accumulated depreciation....... 162,157 149,239
-------- --------
Property, plant and equipment, net.. $114,658 $116,199
======== ========
DB = Declining Balance SL = Straight Line
Note 5: Debt and Capital Lease Obligations
(Dollar amounts in thousands)
- -------------------------------------------------------------------------
Interest April 26, April 27,
rates Maturities 1997 1996
- -------------------------------------------------------------------------
Credit lines.............. 5.9%-6.1% 1998-02 $15,000 $15,000
Private placement......... 8.8% 1998-00 5,625 7,500
La-Z-Boy notes............ 8.0% 1998-99 4,984 7,476
Industrial revenue bonds.. 3.8%-4.7% 1999-15 30,870 31,870
Other debt................ 5.0%-7.0% 1998-00 581 854
------- -------
Total debt................................... $57,060 $62,700
Less: current portion........................ 4,611 5,625
------- -------
Long-term debt............................... $52,449 $57,075
======= =======
Weighted average interest 5.4% 5.5%
Fair value of long-term debt $57,200 $62,931
The Company has a $50 million unsecured revolving credit line through
August 2001, requiring interest only payments through August 2001 and
requiring principal payment in August 2001. The Credit Agreement also
includes covenants that, among other things, require the Company to maintain
certain financial statement ratios. The Company has complied with all of the
requirements.
Proceeds from industrial revenue bonds were used to finance the construction
of manufacturing facilities. These arrangements require the Company to
insure and maintain the facilities and make annual payments that includes
interest. The bonds are secured by the facilities constructed from the bond
proceeds.
The Company leases equipment (primarily trucks used as transportation
equipment) under capital leases expiring at various dates through fiscal
year 2001. The majority of the leases include bargain purchase options.
Maturities of debt and lease obligations for the five years subsequent to
April 26, 1997 are $7 million, $7 million, $3 million, $1 million and
$22 million, respectively. As of April 26,1997, the Company had remaining
unused lines of credit and commitments of $63 million under several credit
arrangements.
Note 6: Financial Guarantees
La-Z-Boy has provided financial guarantees relating to loans and leases in
connection with some proprietary stores. The amounts of the unsecured
guarantees are shown in the following table. Because almost all guarantees
are expected to retire without being funded in whole, the contract amounts
are not estimates of future cash flows.
(Amounts in thousands)
- ------------------------------------------------------------------------------
April 26, 1997 April 27, 1996
Contract Amount Contract Amount
- ------------------------------------------------------------------------------
Lease Guarantees......................... $4,458 $4,403
Loan Guarantees.......................... $20,049 $16,713
- ------------------------------------------------------------------------------
Most guarantees require periodic payments to La-Z-Boy in exchange for the
guarantee. Terms of current guarantees generally range from one to five
years.
The guarantees have off-balance-sheet credit risk because only the periodic
payments and accruals for possible losses are recognized in the Consolidated
Balance Sheet until the guarantee expires. Credit risk represents the
accounting loss that would be recognized at the reporting date if counter-
parties failed to perform completely as contracted. The credit risk amounts
are equal to the contractual amounts, assuming that the amounts are fully
advanced and that no amounts could be recovered from other parties.
Note 7: Stock Option Plans
The Company's shareholders adopted an employee Incentive Stock Option Plan
that provided grants to certain employees to purchase common shares of the
Company at not less than their fair market value at the date of grant.
Options are for five years and become exercisable at 25% per year beginning
one year from date of grant. The Company was authorized to grant options for
up to 1,600,000 common shares.
- --------------------------------------------------------------------
Number of Weighted average
shares exercise price
- --------------------------------------------------------------------
Outstanding at April 30, 1994.... 489,974 $22.65
Granted........................ 109,412 $27.48
Exercised...................... (73,759) $19.60
Expired or cancelled........... (40,927) $25.00
--------
Outstanding at April 29, 1995.... 484,700 $24.03
Granted........................ 140,245 $30.98
Exercised...................... (87,917) $16.80
Expired or cancelled........... (4,478) $26.15
--------
Outstanding at April 27, 1996.... 532,550 $27.05
Granted........................ -- --
Exercised...................... (120,714) $22.82
Expired or cancelled........... (3,659) $27.11
--------
Outstanding at April 26, 1997.... 408,177 $28.30
========
Exercisable at April 26, 1997.... 235,676 $27.11
Shares available for grants at
April 26, 1997................. --
- --------------------------------------------------------------------
The options outstanding at April 26, 1997 have exercise prices between $21.75
and $33.55 and a weighted-average remaining contractual life of 2.1 years.
The Company's shareholders have adopted Restricted Share Plans. Under one
plan, which has expired, the Compensation Committee of the Board of Directors
was authorized to offer for sale up to an aggregate of 600,000 common shares
to certain employees. There were 11,300 shares granted and issued in fiscal
year 1996 under this plan. Under a second plan, up to an aggregate of 50,000
common shares were authorized for sale to non-employee directors. This plan
expires in fiscal year 2000. Under the Restricted Share Plans, shares are
offered at 25% of the fair market value at the date of grant. The plans
require that all shares be held in an escrow account for a period of three
years in the case of an employee, or until the participant's service as a
director ceases in the case of a director. In the event of an employee's
termination during the escrow period, the shares must be sold back to the
Company at the employee's cost.
Shares aggregating 2,500 and 1,000 were granted and issued during the fiscal
years 1997 and 1996, respectively, under the director's Plan. Shares
remaining for future grants under the director's plan amounted to 34,000 at
April 26, 1997.
No Incentive or employee Restricted stock options were granted in fiscal year
1997 as the plans have expired. Those options, which would have been granted
in fiscal year 1997, along with the fiscal year 1998 Incentive and employee
Restricted stock options, will be granted in fiscal year 1998 provided the
new plans are approved by the Company's shareholders.
The Company's shareholders have also adopted a Performance-Based Restricted
Stock Plan. This plan authorizes the Compensation Committee of the
Board of Directors to award up to an aggregate of 400,000 shares to key
employees. This plan expires in fiscal year 2004. Grants of shares are
based entirely on achievement of goals over a three-year performance period.
Any award made under the plan will be at the sole discretion of the
Compensation Committee after judging all relevant factors. At April 26, 1997,
performance awards were outstanding pursuant to which up to approximately
110,000 shares may be issued in fiscal years 1998 through 2000 for the three
outstanding plan years, depending on the extent to which certain specified
performance objectives are met. The costs of performance awards are expensed
over the performance period. In fiscal year 1997, 42,420 shares were issued.
Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for
Stock-Based Compensation," encourages, but does not require, companies to
record compensation for stock-based employee compensation plans at fair
value. The Company has chosen to continue to account for stock-based
compensation using the intrinsic value method prescribed in Accounting
Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to
Employees," and related interpretations. The difference between the re-
cognition and measurement provisions of SFAS No. 123 and APB No. 25 are
not significant to the Company's result of operations or net income
per share.
Note 8: Retirement
The Company has contributory and non-contributory retirement plans covering
substantially all factory employees.
Eligible salaried employees are covered under a trusteed profit sharing
retirement plan. Cash contributions to a trust are made annually based on
profits.
The Company has established a non-qualified deferred compensation plan for
eligible highly compensated employees called a SERP (Supplemental Executive
Retirement Plan).
The Company offers voluntary 401(k) retirement plans to eligible employees
within all U.S. operating divisions. Currently over 60% of eligible employees
are participating in the plans. The Company makes matching contributions
based on specific formulas. For most divisions, this match is made in La-Z-
Boy stock.
The Company maintains a defined benefit pension plan for all eligible factory
hourly employees. The actuarially determined net periodic pension cost and
retirement costs are computed as follows (for the fiscal years ended):
(Amounts in thousands)
- ------------------------------------------------------------------------------
April 26, April 27, April 29,
1997 1996 1995
- ------------------------------------------------------------------------------
Service cost........................... $1,767 $1,802 $1,739
Interest cost.......................... 2,270 2,051 1,861
Actual return on plan assets........... (5,433) (5,468) (2,737)
Net amortization and deferral.......... 2,339 3,031 571
------- ------- -------
Net periodic pension cost............ 943 1,416 1,434
Profit sharing/SERP.................... 6,352 5,681 5,710
40l(k)................................. 1,625 1,429 1,388
Other.................................. 529 497 508
------- ------- -------
Total retirement costs............... $9,449 $9,023 $9,040
======= ======= =======
The funded status of the pension plans was as follows:
(Amounts in thousands)
- ------------------------------------------------------------------------------
April 26, April 27,
1997 1996
- ------------------------------------------------------------------------------
Actuarial present value of projected benefit
obligation........................................ ($32,011) ($29,035)
Plan assets at fair value........................... 41,526 37,503
--------- ---------
Excess of plan assets over projected benefit
obligation...................................... 9,515 8,468
Prior year service cost not yet
recognized in net periodic pension cost........... 823 921
Unrecognized net (gain)/loss........................ (904) 1,320
Unrecognized initial asset.......................... (3,002) (3,333)
--------- ---------
Prepaid pension asset............................. $6,432 $7,376
========= =========
The expected long-term rate of return on plan assets was 8.0% for fiscal years
1997, 1996 and 1995. The discount rate used in determining the actuarial
present value of accumulated benefit obligations was 7.5% for fiscal years
1997, 1996 and 1995. Vested benefits included in the accumulated benefit
obligation were $29 million and $26 million at April 26, 1997 and April 27,
1996, respectively. Plan assets are invested in a diversified portfolio that
consists primarily of debt and equity securities.
The Company's pension plan funding policy is to contribute annually at least
the amount necessary so that the plan assets exceed the projected benefit
obligation.
Note 9: Health Care
The Company offers eligible employees an opportunity to participate in group
health plans. Participating employees make required premium payments through
pretax payroll deductions.
Health-care expenses were as follows (for the years ended):
(Amounts in thousands)
- ----------------------------------------------------------------------------
April 26, April 27, April 29,
1997 1996 1995
- ----------------------------------------------------------------------------
Gross health care................. $30,831 $30,122 $30,414
Participant payments.............. (6,393) (6,005) (4,783)
-------- -------- --------
Net health care................. $24,438 $24,117 $25,631
======== ======== ========
The Company makes annual provisions for any current and future retirement
health-care costs which may not be covered by retirees' collected premiums.
Note 10: Income Taxes
The primary components of the Company's deferred tax assets and liabilities
as of April 26, 1997 and April 27, 1996 are as follows:
(Amounts in thousands)
- ---------------------------------------------------------------------------
April 26, April 27,
1997 1996
- ---------------------------------------------------------------------------
Current
Deferred income tax assets/liabilities
Bad debt................................... $7,649 $7,395
Warranty................................... 4,448 3,941
Workers' compensation...................... 1,594 1,464
SERP....................................... 1,680 1,452
State income tax........................... 1,161 987
Inventory.................................. 1,026 900
Performance based restricted stock plan.... 693 717
Other...................................... 2,837 2,603
Valuation allowance........................ (148) (188)
-------- --------
Total current deferred tax assets...... 20,950 19,271
Noncurrent
Deferred income tax assets/liabilities
Property, plant and equipment.............. (3,717) (3,627)
Pension.................................... (2,783) (3,055)
Net operating losses....................... 1,533 1,458
Other...................................... 207 212
Valuation allowance........................ (1,569) (1,651)
-------- --------
Total noncurrent deferred tax liabilities (6,329) (6,663)
-------- --------
Net deferred tax asset............... $14,621 $12,608
======== ========
The differences between the provision for income taxes and income taxes
computed using the U.S. federal statutory rate were as follows (for the fiscal
years ended):
(% of pretax income)
- ------------------------------------------------------------------------------
April 26, April 27, April 29,
1997 1996 1995
- ------------------------------------------------------------------------------
Statutory tax rate......................... 35.0% 35.0% 35.0%
Increase (reduction) in taxes resulting in:
State income taxes net of federal benefit. 3.5 4.3 4.4
Tax credits............................... (0.4) (1.1) (0.5)
Acquisition amortization.................. 0.9 1.5 0.7
Unrecognized loss carryforwards........... 0.1 0.9 1.6
Miscellaneous items....................... (0.4) 0.1 0.3
----- ----- -----
Effective tax rate......................... 38.7% 40.7% 41.5%
===== ===== =====
Note 11: Contingencies
The Company has been named as defendant in various lawsuits arising in the
normal course of business. It is not possible at the present time to estimate
the ultimate outcome of these actions; however, management believes that the
resultant liability, if any, will not be material based on the Company's
previous experience with lawsuits of these types.
The former England/Corsair shareholders were given the opportunity to receive
additional Company common stock based on England/Corsair's actual profit
performance in each of the two years following acquisition. Approximately
$2 million of common stock will be issued in the first quarter of fiscal
year 1998 relating to the fiscal year 1997 performance. Goodwill will be
increased by the value of the common stock issued.
The Company has been identified as a Potentially Responsible Party (PRP) at
three environmental clean-up sites. The Seaboard Chemical Company site is a
Resource Conservation and Recovery Act (RCRA) site, managed under the
direction of the State of North Carolina. Four of the Company's manufacturing
facilities were individually named as PRP's (the total number of PRP's named
at this site is over 1,750). A "De Micromis" settlement with the State for
any future obligations at this site was made available to those PRP's who were
responsible for sending extremely small volumes of material to the site. The
settlement was available for, and accepted by, three out of the four Company
facilities. Given its small volume of material sent to this site
(approximately 0.06% of the total volume), management anticipates that the
remaining facility will be eligible for a "De Minimus" level settlement in the
future.
The Organic Chemicals Inc. site is a Superfund site, managed under the
direction of the U.S. Environmental Protection Agency (EPA). One of the
Company's manufacturing facilities was named as a PRP (a total of 182 PRP's
have been named).This facility is considered a "De Minimus" party, having only
contributed 0.02% of the total volume of materials at the site. A De Minimus
settlement offer, that would resolve all such parties form their future
obligations at this site, is currently under review by the EPA.
The Caldwell Systems site is a voluntary RCRA closure, with its activities
being coordinated by the EPA. Three of the Company's manufacturing facilities
have been identified as having sent materials to this site (a total of 938
parties have been identified).
Two of these facilities (with a combined contribution of just over 1%
of the total site volume) participate on the Steering Committee respon-
sible for negotiating closure activities. The third facility,
(with a contribution of less than 0.05% of the total site volume) is
considered a "De Minimus" party.
Based on a review of all currently known facts, management does not
anticipate that future expenditures in this area will have a material
adverse effect. At April 26, 1997, a total of $200,000 has been accrued
with respect to these three sites.
Management Discussion
The Management Discussion and Analysis, as required by the Securities and
Exchange Commission, should be read in conjunction with the Report of
Management Responsibilities, the Report of Independent Accountants, the
Financial Statements and related Notes, and all other pages that follow them
in the annual report.
Background:
Sales by type 1997 1996 1995
- ------------- ---- ---- ----
Residential (home)
Upholstery 78% 78% 76%
Wood & other 16 16 18
-- -- --
94 94 94
Contract (office) 6 6 6
--- .--- ---
100% 100% 100%
==== ==== ====
Sales by country 1997 1996 1995
- ---------------- ---- ---- ----
United States 94% 94% 94%
Canada and other 6 6 6
--- --- ---
100% 100% 100%
==== ==== ====
La-Z-Boy is organized into six operating divisions. U.S. Residential
(70 years in business) accounts for the majority of the upholstery category
and approximately two-thirds of consolidated sales.
U.S. Residential division
sales by dealer type 1997 1996 1995
- -------------------- ---- ---- ----
Galleries/proprietary 51% 47% 46%
General dealers 36 40 39
Dept. stores/chains 13 13 15
--- --- ---
100% 100% 100%
==== ==== ====
Kincaid (51 years) is part of the wood category. England/Corsair (33 years),
acquired in April 1995 and not included in the 1995 column of the tables
above, is part of the upholstery category. La-Z-Boy Contract Furniture Group
(25 years) is all of the Contract line. Hammary (53 years) is primarily in
the wood category. La-Z-Boy Canada (68 years) is part of the upholstery
category.
La-Z-Boy is the third largest furniture maker in the US, the largest
reclining-chair manufacturer in the world and America's largest manufacturer
of upholstered furniture.
Analysis of Operations
Year Ended April 26, 1997
(1997 compared with 1996)
La-Z-Boy's sales increased 6% in fiscal 1997 over 1996 and exceeded $1 billion
for the first time. This growth rate is believed to be slightly better than
the industry growth. The sales growth was spread among all the Company's
divisions with wood and contract sales somewhat above the average. The Ducks
Unlimited Collection, introduced in April 1996, contributed significantly to
the wood division sales increases. Selling price increases were small.
The gross margin (gross profit dollars as a percent of sales) improved to
26.0% in 1997 from 25.5% in 1996. The increase in sales volume, along with
the effect of cost cutting initiatives, contributed to the margin improvement.
The effect of these favorable items was only partially offset by increased
material and labor costs and the mix change toward products with lower than
average gross margins.
In 1997, the number of plants producing wood frame parts was reduced in an
effort to improve quality and reduce costs. The reductions had little
financial impact on 1997 as the timing was spread over the year and some
conversion costs were incurred offsetting some of the lower production costs.
Benefits are expected in 1998.
In April 1997, the Company announced plans to close the Contract plants in
Grand Rapids, Michigan and to begin producing these products at an existing
plant in Lincolnton, North Carolina. The move is planned for the first
quarter of 1998.Two of the plants have been sold and the third will be sold.
S, G & A expense increased to 18.6% of sales in 1997 from 18.4% of sales in
1996 primarily due to increased costs for employee bonuses and incentives.
Interest expense declined 18% primarily due to lower debt and capital lease
obligations.
Income tax expense as a percent of pretax income declined to 38.7% in 1997
from 40.7% in 1996. The Canadian division's results were favorable compared
to the prior year, reducing the unfavorable impact on the effective tax rate.
Also, the benefits of some efforts to reduce tax expense were recognized
during the year.
During 1997, La-Z-Boy acquired approximately 75% of the ordinary share capital
of Centurion Furniture plc, a furniture manufacturer located in England. The
remainder of the ordinary share capital is expected to be acquired in the
first quarter of 1998. Sales for their year ended March 1997 were $12
million.
Analysis of Operations
Year Ended April 27, 1996
(1996 compared with 1995)
Sales increased 11% in fiscal 1996 over 1995. The increase was due to the
inclusion of England/Corsair (E/C) in 1996. On a comparable basis, sales
declined 1% from 1995 in a year that the industry experienced softness in the
residential furniture market. Sales of contract furniture increased while
residential upholstery approximated the prior year and residential wood and
other declined. Selling price increases were generally in the 1-2% range.
The gross margin of 25.5% declined from 26.0% in 1995. The decline was
largely due to the inclusion of E/C which has historically had a lower gross
margin than La-Z-Boy. The gross margin was favorably affected by lower
health-care and frame stock lumber costs. However, higher fabric and poly
costs, along with lower margins in the residential wood and other divisions
due to lower volume, offset these savings.
S, G & A expense of 18.4% of sales in 1996 was down from 18.6% in 1995. The
decline was largely due to the inclusion of E/C which has historically had
lower S, G & A expense than La-Z-Boy.
Margins for the La-Z-Boy Contract Furniture Group improved in 1996 as planned
and the division came close to breaking even. Attention was directed toward
reducing manufacturing costs and S, G & A expense.
Interest expense increased in 1996 due to debt issued to acquire
England/Corsair. In addition, debt and capital lease obligations were assumed
when England/Corsair was acquired. Most of the assumed debt was retired
during the year.
Liquidity and Financial Condition:
Effective April 29, 1995, La-Z-Boy acquired England/Corsair, Inc. (E/C), a
manufacturer of upholstered furniture. Payment was in the form of $18.0
millionLa-Z-Boy common stock, $10.0 million notes and $2.6 million cash. E/C
debt and capital lease obligations of $14.4 million were assumed by La-Z-Boy.
As of April 26, 1997, these assumed obligations had been reduced to $4.5
million.
Below is a summary of the cash flow statement. Free cash flow represents the
cash remaining from operations after reinvesting in business opportunities.
This cash flow allows the Company to pay dividends and repurchase stock
generally without incurring additional debt.
April 26, April 27, April 29,
(Amounts in thousands) Year ended 1997 1996 1995
- ---------------------------------- ---- ---- ----
Cash flows provided by (used for):
Net income $45,297 $39,253 $36,302
Other operating activities 14,865 12,763 4,006
Investing activities (24,847) (18,334) (20,278)
-------- -------- --------
Free cash flow 34,315 33,682 20,030
Cash flows provided by (used for):
Financing activities (36,866) (33,655) (18,953)
Exchange (127) (15) 45
------- ------- -------
Increase (decrease) in cash ($1,678) $12 $1,122
======= ======= =======
Cash flows from operations amounted to $60 million in 1997, $52 million in
1996 and $40 million in 1995 and have been adequate for day-to-day
expenditures, dividends to shareholders and capital expenditures.
Capital expenditures were $17.8 million in 1997, $18.2 million in 1996 and
$19.0 million in 1995. Capacity utilization was approximately 60% at the end
of 1997.
In 1995, La-Z-Boy obtained $7.5 million through the sale of industrial revenue
bonds. The proceeds were used to construct a new plant in Siloam Springs,
Arkansas. Retirements of debt totaled between $5 million and $13 million for
each of the last three years.
The Company had unused lines of credit and commitments of $63 million under
several credit arrangements as of April 26, 1997. The primary credit
arrangement is a $50 million unsecured revolving credit line through August
2001, requiring interest only payments through August 2001 and a payment of
principal in August 2001. The credit agreement includes covenants that, among
other things, require the Company to maintain certain financial statement
ratios. The Company has complied with all of the requirements.
The La-Z-Boy Board of Directors has authorized the repurchase of Company
stock. Shares acquired in 1997, 1996 and 1995 totaled 694,000, 372,000 and
529,000, respectively. As of April 26, 1997, 474,000 shares were available
for repurchase. In May 1997, the Board of Directors authorized the repurchase
of an additional one million shares. The Company plans to be in the market
for its shares as changes in its stock price and other financial opportunities
arise.
The financial strength of the Company 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). The current ratio at the end of both 1997 and 1996 was 3.5:1.
The debt to capital ratio was 14.6% at the end of 1997 and 16.7% at the end of
1996.
Continuing compliance with existing federal, state and local provisions
dealing with protection of the environment is not expected to have a material
effect upon the Company's capital expenditures, earnings, competitive position
or liquidity. The Company will continue its program of conducting voluntary
compliance audits at its facilities. The Company has also taken steps to
assure compliance with the provisions of Titles III and V of the 1990 Clean
Air Act Amendments.
The Company has accrued for certain environmental remediation activities
relating to past operations, including those under the Comprehensive
Environmental Response, Compensation and Liability Act (CERCLA, often
referred to as Superfund) and the Resource Conservation and Recovery Act
(RCRA). The Company is participating in the closure of three such sites.
There will be future expenditures in this area, but based on a review of all
currently known facts, management does not anticipate that they will have a
material adverse effect. For further discussion of environmental matters,
refer to Note 11: Contingencies, in the Notes to Consolidated Financial
Statements.
Outlook:
Statements in the Outlook section are forward looking and based on current
expectations. Actual results may differ materially.
One of La-Z-Boy's financial goals is for sales to grow faster than the
furniture industry with a benchmark of 10% per year. For 1997, La-Z-Boy
sales increased 6% from 1996 which the Company believes was slightly better
than the industry average. Some furniture industry forecasts for calendar
year 1997 over 1996 are in the 4-6% range. While a 10% sales increase is not
anticipated in 1998, sales are expected to be slightly above the industry
average.
The Company's major residential efforts and opportunities for U.S. sales
growth greater than industry averages are focused outside the recliner market
segment, e.g., stationary upholstery (single and multi-seat), reclining sofas
and modulars, wood occasional and wall units and wood bedroom and dining room.
The number of dealer owned and operated proprietary stores is expected to
continue increasing. These stores are a major contributor to La-Z-Boy's
ability to achieve its sales goal.
At the end of April 1997, the backlog of orders was somewhat below the prior
year level. The decline was mostly due to efforts to fill orders quicker than
in the past allowing customers to order product closer to the expected
delivery date. The rate of incoming orders in recent weeks has been above the
rate for the similar period last year. The backlog is not expected to change
significantly in 1998 and first quarter sales are expected to exceed the prior
year.
A second financial goal is for earnings (operating profit and net income) to
grow equal to or greater than the sales growth. For 1997, the operating
profit margin increased to 7.4% of sales from 7.1% in 1996. In 1998, the
operating margin is expected to improve again. The gross margin as a percent
of sales is expected to increase somewhat due to efficiencies of higher
production. Selling price increases are expected to be small while material
costs are not expected to increase. Increased S, G & A expense as a percent
of sales, largely due to increased information technology related expenses,
is expected to offset part of the margin change. For 1997, net income as a
percent of sales improved to 4.5% of sales from 4.1% in 1996 and is expected
to also improve slightly in 1998 primarily due to the expected increase in
operating profit.
A third goal is to continue improving the quality of earnings by
concentrating on margins and return on capital (operating profit, interest
income and other income as a percent of beginning of year capital) with a
benchmark of 20%. For 1997, return on capital was 19.0% compared to the 1996
return of 17.6%.
Further, La-Z-Boy expects to enhance shareholder value by dividend
improvement and using our stock repurchase plan.
La-Z-Boy has an opportunity to improve its operating margins through
increases in efficiency, improvements in the utilization of equipment
and facilities and increases in sales volumes, even though sales growth
may be in product lines with lower gross margins.
Capital expenditures are forecast to be approximately $25 to $30 million
in 1998 compared to $18 million in 1997. Major items in the 1998 plan
include: network and production tracking systems along with woodworking,
fabric cutting and metal stamping equipment.
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings Per Share," which
specifies the computation, presentation and disclosure requirements for
earnings per share. The statement is effective for periods ending after
December 15, 1997. The Company does not expect adoption of this standard
will have a material impact on its financial statements.
The Company's future results of operations and other forward looking
statements contained in this Outlook involve a number of risks and
uncertainties. These statements are based on assumptions relating to
business conditions, the general economy, competitive factors and other
similar assumptions. Variations in these assumptions could cause actual
results to differ materially. In particular, the Company's sales and
profits can be impacted materially in any one quarter by changes in
interest rates and consumer confidence in the economy.
Consolidated Six-Year Summary of Selected Financial Data
(Dollar amounts in thousands, except per share data)
- ------------------------------------------------------------------------------
Year Ended in April 1997 1996 1995 1994 1993 1992
(52 wks) (52 wks) (52 wks) (53 wks) (52 wks) (52 wks)
- -----------------------------------------------------------------------------
Sales........... $1,005,825 $947,263 $850,271 $804,898 $684,122 $619,471
Cost of sales.... 744,662 705,379 629,222 593,890 506,435 453,055
--------- --------- --------- --------- --------- --------
Gross profit... 261,163 241,884 221,049 211,008 177,687 166,416
Sell, gen & admin 187,230 174,376 158,551 151,756 131,894 123,927
--------- --------- --------- --------- --------- --------
Oper profit.... 73,933 67,508 62,498 59,252 45,793 42,489
Interest expense. 4,376 5,306 3,334 2,822 3,260 5,305
Interest income.. 1,770 1,975 1,628 1,076 1,474 1,093
Other income..... 2,508 2,023 1,229 649 1,292 1,628
--------- --------- --------- --------- --------- --------
Pretax income.. 73,835 66,200 62,021 58,155 45,299 39,905
Income tax expense 28,538 26,947 25,719 23,438 18,015 14,805
--------- --------- --------- --------- --------- --------
Net income...... $45,297 39,253 $36,302 $34,717** $27,284 $25,100
========= ========= ========= ========= ========= =========
Weighted avg shares
outstg ('000s)... 18,108 18,498 18,044 18,268 18,172 18,064
Per com shr outstg
Net income.... $2.50 $2.12 $2.01 $1.90** $1.50 $1.39
Cash div paid.... $0.78 $0.74 $0.68 $0.64 $0.60 $0.58
BV on YE shr outst. $20.07 $18.68 $17.44 $15.91 $14.48 $13.58
Rtn avg shrhdr eqt. 12.9% 11.8% 12.2%* 12.5%** 10.7% 10.6%
Gr prft % of sales. 26.0% 25.5% 26.0% 26.2% 26.0% 26.9%
Op prft % of sales. 7.4% 7.1% 7.4% 7.4% 6.7% 6.9%
Op prft, int inc &
oth inc as % of
BOY capital...... 19.2% 17.6% 18.9% 19.1% 15.8% 15.1%
Net inc % of sales. 4.5% 4.1% 4.3% 4.3%** 4.0% 4.1%
Income tax expense
% pretax income.. 38.7% 40.7% 41.5% 40.3% 39.8% 37.1%
- ----------------------------------------------------------------------------
Deprec & amortiz... $20,382 $20,147 $15,156 $14,014 $14,061 $14,840
Capital expendtrs.. $17,778 $18,168 $18,980 $17,485 $12,248 $12,187
Prty,plt,eqpt,net..$114,658 $116,199 $117,175 $94,277 $90,407 $93,440
- ----------------------------------------------------------------------------
Working capital....$245,106 $240,583 $237,280 $224,122 $202,398 $184,431
Current ratio......3.5 to 1 3.5 to 1 3.7 to 1 4.1 to 1 3.8 to 1 3.7 to 1
Total assets.......$528,407 $517,546 $503,818 $430,253 $401,064 $376,722
- ---------------------------------------------------------------------------
Debt & Cap. leases. $61,279 $69,033 $83,201 $55,370 $55,912 $60,726
Shareholders' eqty.$359,338 $343,376 $323,640 $290,911 $263,386 $246,359
Ending capital.... $420,617 $412,409 $406,841 $346,281 $319,298 $307,085
Ratio debt to eqty. 17.1% 20.1% 25.7% 19.0% 21.2% 24.6%
Ratio debt to capl. 14.6% 16.7% 20.5% 16.0% 17.5% 19.8%
- ----------------------------------------------------------------------------
Shareholders....... 12,729 12,293 12,665 12,615 9,032 8,081
Employees.......... 11,236 10,733 11,149 9,370 8,724 8,153
- ----------------------------------------------------------------------------
* April 1995 shareholders' equity used in this calculation excludes $18,004
relating to stock issued on the last day of the fiscal year for the
acquisition of an operating division.
** Excludes the income effect of adopting SFAS 109 in May 1993 of $3,352 or
$0.18 per share.
Dividend and Market Information
----------------------------------------------------
1997 Divi- Market Price
Quarter dends -------------------------------
Ended Paid High Low Close
----------------------------------------------------
July 27 $0.19 $32 5/8 $28 1/4 $29 1/8
Oct. 26 0.19 31 3/8 28 1/4 30 3/8
Jan. 25 0.19 31 3/8 29 1/4 31 3/8
Apr. 26 0.21 36 7/8 30 3/4 32 1/4
-----
$0.78
=====
----------------------------------------------------
1996 Divi- Market Price
Quarter dends
Ended Paid High Low Close
-----------------------------------------------------
July 29 $0.17 $29 1/2 $25 5/8 $27 1/2
Oct. 28 0.19 30 3/4 27 1/8 29 5/8
Jan. 27 0.19 33 1/2 28 5/8 30 5/8
Apr. 27 0.19 33 3/4 27 30 1/8
-----
$0.74
=====
- ---------------------------------------------------------------------------
Dividend Market Price Net P/E Ratio
Dividends Dividend Payout ----------------------- Income ---------
Year Paid Yield Ratio High Low Close per share High Low
- -----------------------------------------------------------------------------
1997 $0.78 2.4% 31.2% $36 7/8 $28 1/4 $32 1/4 $2.50 15 11
1996 0.74 2.5% 34.9% 33 3/4 25 5/8 30 1/8 2.12 16 12
1995 0.68 2.5% 33.8% 33 3/4 25 3/8 27 2.01 17 13
1994 0.64 1.9% 33.7%* 40 25 1/2 33 1/2 1.90* 21* 13*
1993 0.60 2.1% 40.0% 29 3/4 18 28 l.50 20 12
1992 0.58 2.5% 41.7% 28 3/4 19 1/2 23 1/2 1.39 21 14
La-Z-Boy Incorporated common shares are traded on the NYSE and the PSE
(symbol LZB).
Unaudited Quarterly Financial Information
(Amounts in thousands, except per share data)
- ------------------------------------------------------------------------------
Quarter Ended July 27 October 26 January 25 April 26 Year 1997
- ------------------------------------------------------------------------------
Sales............ $202,227 $271,554 $244,581 $287,463 $1,005,825
Cost of sales.... 154,917 197,017 180,979 211,749 744,662
-------- -------- -------- --------- --------
Gross profit... 47,310 74,537 63,602 75,714 261,163
Selling, general
& admin........ 39,354 49,006 47,765 51,105 187,230
-------- -------- -------- --------- --------
Opertg profit.. 7,956 25,531 15,837 24,609 73,933
Interest expense. 1,107 1,097 1,096 1,076 4,376
Interest income.. 463 367 430 510 1,770
Other Income..... 785 521 639 563 2,508
-------- -------- -------- --------- --------
Pretax income.. 8,097 25,322 15,810 24,606 73,835
Income tax exp... 3,499 10,070 6,009 8,960 28,538
-------- -------- -------- --------- --------
Net income... $4,598 $15,252 $9,801 15,646 45,297
======== ======== ======== ========= ========
Net income
per share.. $0.25 $0.84 $0.54 $0.87 $2.50
======== ======== ======== ========= ========
- ------------------------------------------------------------------------------
Quarter Ended July 29 October 28 January 27 April 27 Year 1996
- ------------------------------------------------------------------------------
Sales............ $195,757 $258,320 $226,354 $266,832 $947,263
Cost of sales.... 151,378 188,644 170,602 194,755 705,379
-------- -------- -------- --------- --------
Gross profit... 44,379 69,676 55,752 72,077 241,884
Selling, general
& admin........ 37,937 45,905 41,783 48,751 174,376
-------- -------- -------- --------- --------
Opertg profit.. 6,442 23,771 13,969 23,326 67,508
Interest expense. 1,464 1,437 1,217 1,188 5,306
Interest income.. 456 484 390 645 1,975
Other Income..... 375 476 736 736 2,023
-------- -------- -------- --------- --------
Pretax income.. 5,809 23,294 13,578 23,519 66,200
Income tax exp... 2,634 9,038 5,794 9,481 26,947
-------- -------- -------- --------- --------
Net income... $3,175 $14,256 $7,784 14,038 39,253
======== ======== ======== ========= ========
Net income
per share.. $0.17 $0.77 $0.42 $0.76 $2.12
======== ======== ======== ========= ========
