SEC Filing | La-Z-Boy Incorporated

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 ---------------- ------ 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 October 28, 2000 - ------------------------------ ------------------------------- Common Shares, $1.00 par value 60,226,683

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

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 ---------- -------- -------- ----- ---------- 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 ========== ======= ======= ===== ========= The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. 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. 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 ----------- ---------- ----------- ------- 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. 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 ========== ========== ========== ==========

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 ----------------------- (Registrant) Date November 8, 2000 /s/ James J. Korsnack ----------------------- James J. Korsnack Chief Accounting Officer

5 1,000 6-mos APR-28-2001 OCT-2-2000 16,741 0 402,603 0 275,378 727,550 464,076 237,154 1,250,402 232,958 0 0 0 60,227 616,178 1,250,402 1,069,490 1,069,490 811,676 811,676 188,398 0 8,849 67,825 25,906 41,919 0 0 0 41,919 0.69 0.69