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 JANUARY 24, 1998 COMMISSION FILE NUMBER 1-9656
LA-Z-BOY INCORPORATED
(Exact name of registrant as specified in its charter)
MICHIGAN 38-0751137
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1284 North Telegraph Road, Monroe, Michigan 48162-3390
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (734) 241-4414
None
Former name, former address and former fiscal year, if changed since last
report.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15 (d) of the Securities Exchange Act
of 1934 during the preceding 12 months and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each issuer's classes of common
stock, as of the last practicable date:
Class Outstanding at January 24, 1998
- ------------------------------ -------------------------------
Common Shares, $1.00 par value 17,856,292
Part I. Financial Information
The Consolidated Balance Sheet and Consolidated Statement of Income required
for Part I are contained in the Registrant's Financial Information Release
dated February 3, 1998 and are incorporated herein by reference.
LA-Z-BOY INCORPORATED CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(Unaudited, dollar amounts in thousands)
Three Months Ended Nine Months Ended
------------------ -----------------
Jan. 24, Jan. 25 Jan. 24 Jan. 25
1998 1997 1998 1997
--------- -------- ------- --------
Cash Flows from Operating Activities
Net income $11,459 $9,801 $30,007 $29,651
Adjustments to reconcile net income
to net cash provided by operating
activities
Depreciation and amortization 5,140 5,189 15,208 15,215
Change in receivables 22,393 37,106 18,407 27,312
Change in inventories (2,485) (1,978) (10,227) (12,994)
Change in other assets and liab. (8,607) (11,979) 2,137 (1,035)
Change in deferred taxes (2,553) (439) (4,513) (1,317)
--------- -------- -------- --------
Total adjustments 13,888 27,899 21,012 27,181
--------- -------- -------- --------
Cash Provided by Operating
Activities 25,347 37,700 51,019 56,832
Cash Flows from Investing Activities
Proceeds from disposals of assets 1,108 (167) 1,500 554
Capital expenditures (4,218) (4,580) (15,561) (12,803)
Change in other investments (419) (571) (707) (6,013)
--------- -------- -------- --------
Cash Used for Investing Activities (3,529) (5,318) (14,768) (18,262)
Cash Flows from Financing Activities
Short-term debt - - - -
Long-term debt - - - -
Retirements of debt (2,428) (64) (4,469) (3,068)
Capital leases - - - -
Capital lease principal payments (507) (509) (1,547) (1,587)
Stock for stock option plans 2,299 1,005 5,402 2,851
Stock for 401(k) employee plans 417 276 1,103 944
Purchase of La-Z-Boy stock (3,086) (6,993) (12,483) (17,361)
Payment of cash dividends (3,749) (3,446) (11,292) (9,909)
---------- -------- -------- ---------
Cash Used for Financing Activities (7,054) (9,731) (23,286) (28,130)
Effect of exch. rate changes on cash (233) (53) (135) 54
--------- -------- -------- ---------
Net change in cash and equivalents 14,531 22,598 12,830 10,494
Cash and equiv. beginning of period 23,681 14,956 25,382 27,060
---------- ------- -------- ---------
Cash and equiv. at end of period $38,212 $37,554 38,212 37,554
========= ======== ======== =========
Cash paid during period - Income taxes $14,345 $12,461 $22,008 $23,231
- Interest $1,016 $948 $2,810 $2,918
For purposes of the Statement of Cash Flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three months or
less to be cash equivalents.
The accompanying Notes to Condensed Consolidated Financial Statements are an
integral part of these statements.
LA-Z-BOY INCORPORATED AND OPERATING DIVISIONS
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
---------------------
The financial information is prepared in conformity with generally
accepted accounting principles and such principles are applied on a basis
consistent with those reflected in the 1997 Annual Report filed with the
Securities and Exchange Commission. The financial information included
herein, other than the consolidated balance sheet as of April 26, 1997, has
been prepared by management without audit by independent certified public
accountants who do not express an opinion thereon. The consolidated
balance sheet as of January 24, 1998 has been prepared on a basis consistent
with but does not include all the disclosures contained in, the audited
consolidated financial statements for the year ended April 26, 1997. The
information furnished includes all adjustments and accruals consisting only
of normal recurring accrual adjustments which are, in the opinion of
management, necessary for a fair presentation of results for the interim
period.
2. Interim Results
---------------
The foregoing interim results are not necessarily indicative of the
results of operations for the full fiscal year ending April 25, 1998.
3. Commitments and Contingencies
-----------------------------
There has been no significant change from the prior fiscal year end
audited financial statements.
LA-Z-BOY INCORPORATED AND OPERATING DIVISIONS
MANAGEMENT DISCUSSION
Due to the cyclical nature of the Company's business, comparison of
operations between the most recently completed quarter and the immediate
preceding quarter would not be meaningful and could be misleading to the
reader of these financial statements.
For further Management Discussion, see attached Exhibit 99.(a)
The Company's strong financial position is reflected in the debt to capital
percentage of 13% and a current ratio of 3.3 to 1 at the end of the third
quarter. At April 26, 1997, the debt to capital percentage was 15% and the
current ratio was 3.5 to 1. At the end of the preceding year's Third
quarter, the debt to capital percentage was 16% and the current ratio was
3.4 to 1. As of January 24, 1998, there was $63 million of unused lines of
credit available under several credit arrangements.
Cash flow from the change in receivables was about $15 million less in the
third quarter this year vs. last year. This is primarily due to differences
in the timing and volume of shipments. At the end of January this year there
were substantially more dollars outstanding (not yet due) and the amounts past
due were actually less than the prior year.
Approximately 29% of the 4 million shares of Company stock authorized for
purchase on the open market are still available for purchase by the Company.
The Company plans to be in the market for its shares as changes in its stock
price and other factors present appropriate opportunities.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(27) Financial Data Schedule (EDGAR only).
(99) (a) News Release and Financial Information Release: re Actual third
quarter results and Management Discussion dated February 3, 1997
(filed herewith).
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused the Quarterly Report on Form 10-Q for the quarter
ended January 24, 1998 to be signed on its behalf by the undersigned
thereunto duly authorized.
LA-Z-BOY INCORPORATED
(Registrant)
/s/G.M. Hardy
Date February 3, 1998 -----------------------------
Gene M. Hardy
Secretary and Treasurer
(Principal Accounting Officer)
5
1,000
9-MOS
APR-25-1998
JAN-24-1998
38,473
0
196,879
0
91,165
355,364
288,468
170,841
543,918
107,024
0
17,856
0
0
352,109
543,918
786,054
786,054
591,242
591,242
145,946
0
3,099
48,846
18,839
30,007
0
0
0
30,007
1.68
1.68
Receivables are reported net of allowances for doubtful accounts on
the Statement of Financial Position.
News Release
------------
DOUBLE DIGIT SALES AND PROFIT INCREASES
FOR LA-Z-BOY IN THIRD QUARTER
MONROE, MI., February 3, 1998: La-Z-Boy Incorporated, the nation's largest
producer of upholstered and solid wood furniture, continued reaching record
levels of quarterly sales and profits.
Financial Details
- -----------------
For the third quarter ended 1/24/98, sales reached $280.5 million, up 15%
from last year's third quarter of $244.6 million. Operating profit was $18.6
million vs. $15.8 million. Net income was $11.5 million vs. $9.8 million, and
net income per share was $0.64 vs. $0.54.
For the nine months ended 1/24/98, sales were $786.1 million, up 9% from
last year's nine months of $718.4 million. Operating profit was $48.9 million
vs. $49.3 million. Net income was $30.0 million vs. $29.7 million, and net
income per share was $1.68 vs. $1.63. Nine months results reflect a one time
first quarter $3.1 million pretax bad debts expense relating to the Montgomery
Ward bankruptcy filing.
Short Term Sales Trends are Good
- --------------------------------
Sales order backlogs as of today and recent short term trends in sales
orders indicate that February's and March's shipments over comparable prior
year months may be between 6% - 11%.
Marketing
- ---------
On January 11th, the Residential Division launched its second "Instant
Win" Sweepstakes in Parade and USA Weekend magazines. Reaching 57 million
readers, the "Remarkable La-Z-Boy Recliner Giveaway" generated markedly
increased retail traffic and over 55,000 phone calls from consumers asking for
the location of their nearest La-Z-Boy retailer.
More Information
- ----------------
La-Z-Boy's third quarter 10-Q filing including a full income statement,
balance sheet, cash flow statement and additional management discussion is
available now at La-Z-Boy's worldwide web site (www.lazboy.com). About 24 to
48 hours after this release, the 10-Q information should be available on the
SEC's web site in their EDGAR databases (www.sec.gov). The SEC's site also
contains additional La-Z-Boy financial information, including 8-K and other
filings, going back about two years.
NYSE & PCX: LZB Contact: Gene Hardy (313) 241-4306
02/03/98 La-Z-Boy Incorporated Financial Information Release 1 of 3
CONSOLIDATED STATEMENT OF INCOME
(Amounts in thousands, except per share data)
THIRD QUARTER ENDED (UNAUDITED)
---------------------------------------------
Percent of Sales
Jan. 24, Jan. 25, % Over ----------------
1998 1997 (Under) 1998 1997
-------- -------- ------- ------ ------
Sales $280,520 $244,581 15% 100.0% 100.0%
Cost of sales 211,688 180,979 17% 75.5% 74.0%
-------- -------- ------- ------ ------
Gross profit 68,832 63,602 8% 24.5% 26.0%
S, G & A 50,189 47,765 5% 17.9% 19.5%
-------- -------- ------- ------ ------
Operating profit 18,643 15,837 18% 6.6% 6.5%
Interest expense 1,048 1,096 -4% 0.4% 0.4%
Interest income 568 430 32% 0.2% 0.2%
Other income 240 639 -62% 0.2% 0.2%
-------- -------- ------- ------ ------
Pretax income 18,403 15,810 16% 6.6% 6.5%
Income taxes 6,944 6,009 16% 37.7%* 38.0%*
-------- -------- ------- ------ -----
Net income $11,459 $9,801 17% 4.1% 4.0%
======== ======== ======= ====== ======
Average shares 17,877 18,086 -1%
Net income per share $0.64 $0.54 19%
Dividends per share $0.21 $0.19 11%
NINE MONTHS ENDED (UNAUDITED)
---------------------------------------------
Percent of Sales
Jan. 24, Jan. 25, % Over ----------------
1998 1997 (Under) 1998 1997
-------- -------- ------- ------ ------
Sales $786,054 $718,362 9% 100.0% 100.0%
Cost of sales 591,242 532,913 11% 75.2% 74.2%
-------- -------- ------- ------ ------
Gross profit 194,812 185,449 5% 24.8% 25.8%
S, G & A 145,946 136,125 7% 18.6% 18.9%
-------- -------- ------- ------ ------
Operating profit 48,866 49,324 -1% 6.2% 6.9%
Interest expense 3,099 3,300 -6% 0.4% 0.5%
Interest income 1,562 1,260 24% 0.2% 0.2%
Other income 1,517 1,945 -22% 0.2% 0.3%
-------- -------- ------- ------ ------
Pretax income 48,846 49,229 -1% 6.2% 6.9%
Income taxes 18,839 19,578 -4% 38.6%* 39.8%*
-------- -------- ------- ------ -----
Net income $30,007 $29,651 1% 3.8% 4.1%
======== ======== ======= ====== ======
Average shares 17,905 18,168 -1%
Net Income per share $1.68 $1.63 3%
Dividends per share $0.63 $0.57 11%
* As a percent of pretax income, not sales.
02/03/98 La-Z-Boy Incorporated Financial Information Release 2 of 3
CONSOLIDATED BALANCE SHEET
(Dollars in thousands)
Unaudited Increase
------------------ (Decrease) Audited
Jan. 24, Jan. 25, --------------- April 26,
1998 1997 Dollars Percent 1997
-------- -------- ------- ------- --------
Current assets
Cash & equivalents $38,473 $37,554 $919 2% $25,382
Receivables 196,879 177,933 18,946 11% 215,032
Inventories
Raw materials 44,478 41,235 3,243 8% 36,959
Work-in-process 37,726 39,868 (2,142) -5% 34,854
Finished goods 30,511 33,010 (2,499) -8% 28,177
-------- -------- ------- ------- --------
FIFO inventories 112,715 114,113 (1,398) -1% 99,990
Excess of FIFO over LIFO (21,550) (21,928) 378 2% (21,219)
-------- -------- ------- ------- --------
Total inventories 91,165 92,185 (1,020) -1% 78,771
Deferred income taxes 24,761 19,732 5,029 25% 20,950
Other current assets 4,086 4,092 (6) 0% 2,640
-------- -------- ------- ------- --------
Total current assets 355,364 331,496 23,868 7% 342,775
Property, plant & equipment 117,627 115,167 2,460 2% 114,658
Goodwill 40,974 39,117 1,857 5% 38,702
Other long-term assets 29,953 31,464 (1,511) -5% 32,272
-------- -------- ------- ------- --------
Total assets $543,918 $517,244 $26,674 5% $528,407
======== ======== ======= ======= ========
Unaudited Increase
----------------- (Decrease) Audited
Jan. 24, Jan. 25, --------------- April 26,
1998 1997 Dollars Percent 1997
-------- -------- ------- ------- -------
Current liabilities
Current portion - l/t debt $5,107 $4,625 $482 10% $4,611
Current portion - captl leas 1,561 2,067 (506) -24% 2,017
Accounts payable 38,714 33,941 4,773 14% 28,589
Payroll/other comp 33,315 30,961 2,354 8% 37,934
Estimated income taxes 4,469 2,741 1,728 63% 5,412
Other current liabilities 23,858 22,625 1,233 5% 19,106
-------- -------- ------- ------ ------
Total current liabilities 107,024 96,960 10,064 10% 97,669
Long-term debt 49,723 55,007 (5,284) -10% 52,449
Capital leases 1,111 2,679 (1,568) -59% 2,202
Deferred income taxes 5,627 5,808 (181) -3% 6,329
Other long-term liabilities 10,468 10,876 (408) -4% 10,420
Commitments & contingencies
Shareholders' equity
17,856,292 shares, $1.00 par 17,856 17,961 (105) -1% 17,908
Capital in excess of par 28,239 27,733 506 2% 27,697
Retained earnings 325,138 300,861 24,277 8% 314,731
Currency translation (1,268) (641) (627) -98% (998)
-------- -------- ------- ------ -------
Total shareholders' equity 369,965 345,914 24,051 7% 359,338
-------- -------- ------- ------ -------
Total liabilities and
shareholders' equity $543,918 $517,244 $26,674 5% $528,407
======== ======== ======= ====== ========
02/03/98 La-Z-Boy Incorporated Financial Information Release Page 3 of 3
Overall:
- -------
Refer to today's press release for additional information.
Gross Profit:
- ------------
Gross profit margins declined to 24.5% of sales from 26.0% in last year's
third quarter on a 15% increase in sales dollars and an 11% increase in sales
units. A combination of both selling price increases and favorable
merchandising trends on upholstery products was offset by unfavorable
merchandising for some casegood products and increased production costs at
most manufacturing facilities. The unfavorable casegood merchandising was
primarily a result of discounting obsolete product and introductory pricing on
new product to establish it in the marketplace. Both of these unfavorable
merchandising items are considered to be one time events. Provided below, in
no specific order, is a list of the most significant unfavorable production
cost factors:
Hardwood and plywood parts delivery problems and the related production
disruptions experienced in the first and second quarter are mostly resolved.
However, the transition costs associated with the consolidation
of seven hardwood frame supply centers into three and the continued conversion
of hardwood parts to our new unibody frame construction were significant just
as they were in recent quarters. Although these unfavorable cost trends are
expected to continue into the fourth quarter, it is believed that the long
term benefits of eliminating excess hardwood supply center capacity will
contribute to manufacturing cost reductions in the early part of fiscal year
1998-1999.
As was the case in the second quarter, the costs associated with the
consolidation of one casegood manufacturing facility into an existing facility
had a measurable impact upon the third quarter. In addition, a second,
separate casegood manufacturing facility consolidation was begun. It is
expected that the transition costs of both the first and second consolidations
will be completed in the fourth quarter and that benefits will be realized in
the first quarter of fiscal year 1998-1999. The consolidation of casegood
manufacturing facilities was initiated to reduce manufacturing costs and is
not a result of, nor an indicator of any shrinking demand for casegood
product.
As a result of a sharp increase in production demand, overtime and
indirect labor costs were up significantly at most upholstery plants. Due to
an expected continuation of strong demand for upholstery products, these costs
are expected to remain unfavorable in the fourth quarter.
Inclement weather in the southern U.S. caused several manufacturing
facilities to close for approximately two days. Although some production was
lost as a result of the plant closures, a good portion was re-captured using
overtime. This event is believed to be a one time occurrence.
S,G & A:
- -------
Third quarter S, G & A decreased to 17.9% of sales in the current year vs.
19.5% last year. Bonus expense decreased over last year's third quarter.
Advertising expense increased over last year's third quarter; however, not at
the rate of the sales increase. Both trends are expected to continue through
the fourth quarter.
