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 28, 1995 COMMISSION FILE NUMBER 0-5091
LA-Z-BOY CHAIR COMPANY
(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 48161-3390
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (313) 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 28, 1995
Common Shares, $1.00 par value 17,968,660
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 15, 1995 and are incorporated herein by reference.
LA-Z-BOY CHAIR COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(Unaudited, dollar amounts in thousands)
Three Months Ended Nine Months Ended
------------------- -------------------
Jan. 28, Jan. 22, Jan. 28, Jan. 22,
1995 1994 1995 1994
--------- --------- --------- ---------
Cash Flows from Operating Activities
Net income $7,221 $7,988 $23,569 $25,729
Adjustments to reconcile net income
to net cash provided by operating
activities
Accounting change 0 0 0 (3,352)
Depreciation and amortization 3,829 3,580 11,151 10,254
Change in receivables 26,498 28,387 16,609 16,947
Change in inventories 173 (1,460) (8,398) (16,364)
Change in other assets and liab. (183) (7,523) 2,858 (7,122)
Change in deferred taxes (2,310) 3 (3,185) 382
--------- --------- --------- ---------
Total adjustments 28,007 22,987 19,035 745
--------- --------- --------- ---------
Cash Provided by Operating
Activities 35,228 30,975 42,604 26,474
Cash Flows from Investing Activities
Proceeds from disposals of assets 104 79 1,338 146
Capital expenditures (4,691) (4,069) (15,179) (13,283)
Change in other investments 1,607 (234) 1,073 (3,311)
--------- --------- --------- ---------
Cash Used for Investing Activities (2,980) (4,224) (12,768) (16,448)
Cash Flows from Financing Activities
Short-term debt 0 0 261 441
Long-term debt 0 0 7,500 0
Change in unexpended IRB funds 680 0 (59) 0
Retirements of debt 0 (530) (5,011) (983)
Sale of stock under stock option plans 194 456 1,551 1,683
Stock for 401(k) employee plans 349 707 1,179 2,073
Purchase of La-Z-Boy stock (994) (261) (10,345) (857)
Payment of cash dividends (3,056) (3,109) (9,232) (8,576)
--------- --------- --------- ---------
Cash Used for Financing Activities (2,827) (2,737) (14,156) (6,219)
Effect of exch. rate changes on cash (168) 23 (54) (213)
--------- --------- --------- ---------
Net change in cash and equivalents 29,253 24,037 15,626 3,594
Cash and equiv. at beginning of period 12,299 8,365 25,926 28,808
--------- --------- --------- ---------
Cash and equiv. at end of period $41,552 $32,402 $41,552 $32,402
========= ========= ========= =========
Cash paid during period - Income taxes $10,923 $6,542 $22,776 $20,269
- Interest $944 $522 $2,362 $1,945
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.
Certain prior year balance sheet items have been reclassed for comparability
to the current year.
LA-Z-BOY CHAIR COMPANY 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 1994 Annual Report filed with the
Securities and Exchange Commission. The financial information included
herein, other than the consolidated condensed balance sheet as of April
30, 1994, has been prepared by management without audit by independent
certified public accountants who do not express an opinion thereon. The
consolidated condensed balance sheet as of January 28, 1995 has been
derived from, but does not include all the disclosures contained in, the
audited consolidated financial statements for the year ended April 30,
1994. 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 29, 1995.
3. Commitments and Contingencies
-----------------------------
There has been no significant change from the prior fiscal year end
audited financial statements.
LA-Z-BOY CHAIR COMPANY 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 I.
The Company's strong financial position is reflected in the debt to capital
percentage of 16% and a current ratio of 4.0 to 1 at the end of the third
quarter. At April 30, 1994, the debt to capital percentage was 17% and the
current ratio was 4.1 to 1. At the end of the preceding year's third quarter,
the debt to capital percentage was 17% and the current ratio was 3.8 to 1.
As of January 28, 1995, there was $62 million of unused lines of credit
available under several credit arrangements.
Approximately 28% of the 2 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 1. Legal Proceedings
- --------------------------
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 to the Company's
consolidated financial position.
Item 2. Changes in Securities
- ------------------------------
None.
Item 3. Default Upon Senior Securities
- ---------------------------------------
None.
Item 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
None.
Item 5. Other Information
- --------------------------
None.
Item 6. Exhibits and Reports on Form 8-K.
- ------------------------------------------
Exhibit I News Release and Financial Information Release: re Actual third
quarter results and Management Discussion dated February 15, 1995.
An 8-K was filed on January 13, 1995 discussing the agreement to acquire
England/Corsair, Inc.
An 8-K was filed on January 27, 1995 discussing third quarter sales and
profits.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this Quarterly Report on Form 10-Q for the quarter
ended January 28, 1995 to be signed on its behalf by the undersigned thereunto
duly authorized.
LA-Z-BOY CHAIR COMPANY
(Registrant)
Date: February 15, 1995 James J. Korsnack
Corporate Controller
News Release
LA-Z-BOY'S THIRD QUARTER SALES IMPROVED; PROFITS DECLINED
MONROE, MI., February 15, 1995: La-Z-Boy Chair Company's 1995 fiscal third
quarter that ended January 28, 1995 set a third quarter record with sales up
9%. Net income per share was 9% lower than last year's third quarter. On
1/27/95 the company issued a press release estimating sales would increase 8%
and profits would be "equal to or somewhat less than last year".
Financial Details
- -----------------
1995 THIRD QUARTER sales grew to $211 million vs. $193 million, an increase
of 9%. 1994 third quarter sales were up 13% over the preceding year. Net
income for the 1995 third quarter was $7.2 million vs. $8.0 million last year
for a decline of 10%. On a per share basis, net income was $.40 vs. $.44
last year.
1995 NINE MONTHS sales were $616 million, 9% more than last year's $564
million. Excluding the effect of a year-earlier tax accounting change, net
income was $23.6 million, up 5% from the prior year's $22.4 million, or $1.30
per share vs. $1.23 last year.
After an accounting change, which was unrelated to operations but which raised
last year's nine months net income 15%, fiscal 1995 nine months net income of
$23.6 million compares to $25.7 million, or $1.30 per share vs. $1.41 last
year.
More
- ----
La-Z-Boy has electronically filed its third quarter Form 10-Q with the
Securities and Exchange Commission via their EDGAR system. Among other
things, this filing includes the balance sheet, income statement, cash flow
statement and more detailed management discussions.
Sales do not include any acquired companies, so the third quarter improvement
of 9% was all internally generated. Sales increased at all five operating
divisions with particular strength at Hammary.
See La-Z-Boy's 10-Q and 1/27/95 press release for details regarding the
cumulative impact of higher health-care costs, unfavorable Canadian exchange
rates & taxes and raw material cost increases on third quarter 1995 net
income.
Future
- ------
In general, incoming sales orders and backlogs as of press release date
continue to be good.
The costs and anticipated higher sales associated with La-Z-Boy's new TV
advertising campaign will affect the company's financial results in the fourth
quarter and beyond. The national campaign is part of a necessary long-term
effort to further expand the company's marketshare by repositioning La-Z-Boy
as a complete furniture resource.
NYSE & PSE: LZB Contact: Jim Korsnack (313) 241-4208
La-Z-Boy Chair Company Financial Information Release 1 of 5
CONSOLIDATED SUMMARY OF OPERATIONS 02/15/95
(Amounts in thousands, except per share data)
THIRD QUARTER ENDED (UNAUDITED)
----------------------------------------------
Amounts
------------------ Percent of Sales
Jan. 28, Jan. 22, % Over ----------------
1995 1994 (Under) 1995 1994
-------- -------- ------- ------- -------
Sales $210,814 $192,648 9% 100.0% 100.0%
Cost of sales 157,767 141,771 11% 74.8% 73.6%
-------- -------- ------- ------- -------
Gross profit 53,047 50,877 4% 25.2% 26.4%
S, G & A 39,357 36,877 7% 18.7% 19.1%
-------- -------- ------- ------- -------
Operating profit 13,690 14,000 -2% 6.5% 7.3%
Interest expense 1,041 682 53% 0.5% 0.4%
Other income 39 153 -75% 0.0% 0.1%
-------- -------- ------- ------- -------
Pretax income 12,688 13,471 -6% 6.0% 7.0%
Income taxes 5,467 5,483 -0% 43.1%** 40.7%**
-------- -------- ------- ------- -------
Net income $7,221 $7,988 -10% 3.4% 4.1%
======== ======== ======= ======= =======
Average shares 17,968 18,302 -2%
Earnings per share $0.40 $0.44 -9%
Dividends per share $0.17 $0.17 0%
** As a percent of pretax income, not sales.
La-Z-Boy Chair Company Financial Information Release 2 of 5
CONSOLIDATED SUMMARY OF OPERATIONS 02/15/95
(Amounts in thousands, except per share data)
NINE MONTHS ENDED (UNAUDITED)
----------------------------------------------
Amounts
------------------ Percent of Sales
Jan. 28, Jan. 22, % Over ----------------
1995 1994 (Under) 1995 1994
-------- -------- ------- ------- -------
Sales $615,787 $563,788 9% 100.0% 100.0%
Cost of sales 458,237 416,978 10% 74.4% 74.0%
-------- -------- ------- ------- -------
Gross profit 157,550 146,810 7% 25.6% 26.0%
S,G & A 115,408 108,330 7% 18.8% 19.2%
-------- -------- ------- ------- -------
Operating profit 42,142 38,480 10% 6.8% 6.8%
Interest expense 2,455 2,178 13% 0.4% 0.4%
Other income 926 1,021 -9% 0.2% 0.2%
-------- -------- ------- ------- -------
Pretax income 40,613 37,323 9% 6.6% 6.6%
Income taxes 17,044 14,946 14% 42.0%** 40.0%**
-------- -------- ------- ------- -------
Income before acctg. change 23,569 22,377 5% 3.8% 4.0%
Accounting change - 3,352 N/A - 0.6%
-------- -------- ------- ------- -------
Net income $23,569 $25,729 -8% 3.8% 4.6%
======== ======== ======= ======= =======
Average shares 18,083 18,257 -1%
Earnings per share:
- -------------------
Income before acctg. change $1.30 $1.23 6%
Accounting change - 0.18 N/A
-------- -------- -------
Net income $1.30 $1.41 -8%
======== ======== =======
Dividends per share $0.51 $0.47 9%
** As a percent of pretax income, not sales.
La-Z-Boy Chair Company Financial Information Release 3 of 5
CONSOLIDATED BALANCE SHEET 02/15/95
(Dollars in thousands)
Unaudited Increase
------------------ (Decrease) Audited
Jan. 28, Jan. 22, ---------------- April 30,
1995 1994 Dollars Percent 1994
-------- -------- ------- ------- ---------
Current Assets
Cash & equivalents $41,552 $32,402 $9,150 28% $25,926
Receivables 166,506 153,003 13,503 9% 183,115
Inventories
Raw materials 36,362 33,259 3,103 9% 31,867
Work-in-process 33,574 32,063 1,511 5% 29,325
Finished goods 26,732 29,698 (2,966) -10% 26,676
-------- -------- ------- ------- --------
FIFO inventories 96,668 95,020 1,648 2% 87,868
Excess of FIFO over LIFO (21,034) (18,170) (2,864) -16% (20,632)
-------- -------- ------- ------- ---------
Total inventories 75,634 76,850 (1,216) -2% 67,236
Deferred income taxes 17,820 13,720 4,100 30% 15,160
Other current assets 5,084 5,614 (530) -9% 4,148
-------- -------- ------- ------- ---------
Total Current Assets 306,596 281,589 25,007 9% 295,585
Property, plant & equipment 97,552 93,889 3,663 4% 94,277
Goodwill 20,085 20,991 (906) -4% 20,752
Other long-term assets 17,191 18,541 (1,350) -7% 19,639
-------- -------- ------- ------- ---------
Total Assets $441,424 $415,010 $26,414 6% $430,253
======== ======== ======= ======= =========
Certain prior year balance sheet items have been reclassed for comparability
to the current year.
La-Z-Boy Chair Company Financial Information Release 4 of 5
CONSOLIDATED BALANCE SHEET 02/15/95
(Dollars in thousands)
Unaudited Increase
------------------ (Decrease) Audited
Jan. 28, Jan. 22, ---------------- April 30,
1995 1994 Dollars Percent 1994
-------- -------- ------- ------- ---------
Current Liabilities
Current portion of L/T debt $1,875 $2,875 ($1,000) -35% 2,875
Accounts payable 29,761 22,740 7,021 31% 21,552
Payroll/benefits 26,750 23,283 3,467 15% 29,453
Estimated income taxes 803 3,148 (2,345) -74% 3,882
Other current liabilities 16,975 16,511 464 3% 13,701
-------- -------- ------- ------- ---------
Total Current Liabilities 76,164 68,557 7,607 11% 71,463
Long-term debt 56,245 52,495 3,750 7% 52,495
Deferred income taxes 6,424 6,455 (31) -0% 6,949
Other long-term liabilities 8,170 7,579 591 8% 8,435
Shareholders' Equity
17,968,660 shares, $1.00 par 17,969 18,320 (351) -2% 18,287
Capital in excess of par 10,464 9,596 868 9% 10,147
Retained earnings 267,014 252,550 14,464 6% 263,348
Currency translation (1,026) (542) (484) -89% (871)
-------- -------- ------- ------- ---------
Total Shareholders' Equity 294,421 279,924 14,497 5% 290,911
-------- -------- ------- ------- ---------
Total Liabilities and
Shareholders' Equity $441,424 $415,010 $26,414 6% $430,253
======== ======== ======= ======= =========
Certain prior year balance sheet items have been reclassed for comparability
to the current year.
La-Z-Boy Chair Company Financial Information Release 5 of 5
02/15/95
Overall: Refer to today's press release for additional comments.
- --------
Gross Profit Margins
- --------------------
Gross profit as a percent of sales (margins) dropped from 26.4% in last
year's third quarter to 25.2% primarily due to cost increases. The quarter's
health-care costs were about 30% higher that last year. Adverse selection,
provider cost shifting and faster claims turnaround are thought to cause the
25% jump. Fourth quarter health-care costs are expected to be roughly equal
to last year's quarter on a per week basis. (Last year's fourth quarter had
high health-care costs). Costs of leather, fabric, cartoning and premium
(not frame stock) woods were measurably up and are not expected to decline.
Cartoning is expected to further increase in cost in the near future months.
Factory wage costs were up but were within expectations. The next wage
increase is scheduled to occur in the residential division at 3/1/95 and is
expected to be moderate.
In addition to higher costs, 1995's third quarter margins were unfavorably
impacted by incentives & costs associated with the introduction of new
contract products as well as an unfavorable Canadian/U.S. dollar exchange
rate. The contract items are not expected to impact the upcoming fourth
quarter as much as the third quarter. Canadian exchange rate gross margin
impacts are expected to continue unless the Canadian dollar strengthens.
Other Income
- ------------
Other income for the third quarter was down from the prior year primarily due
to Canadian exchange impacts. This was partially offset by increased interest
income due to increased investments and higher interest rates. The Canadian
dollar impacts are due to revaluations of trade and other cash-type
intercompany balances at the end of each quarter and only change or cause P&L
impacts if the Canadian/U.S. dollar exchange rate changes from the end of one
quarter to the end of the next consecutive quarter. That is, unfavorable P&L
impacts will not occur in the fourth quarter if the rate stays the same or
strengthens (from Canada's perspective).
Income Taxes
- ------------
Income taxes as a percent of pretax profit was higher than last year for both
the quarter and nine months ended primarily due to unfavorable tax situations
at La-Z-Boy's Canadian operating division. The higher tax rates may continue
in the fourth quarter.
The estimated income taxes liability was $2.3 million less at the end of
January, 1995 compared to January, 1994. The January, 1994 balance was
overstated and corrected in the fourth quarter last year with the offsetting
adjustment to deferred taxes. Since last year, the company has also settled
several audits and tax disputes which resulted in a significant reduction in
the estimated income taxes liability.
The deferred income taxes asset was higher at the end of January, 1995
compared to January, 1994 due to the increase in expenses which were deducted
for book purposes but cannot currently be deducted for tax purposes like
accrued bad debts expenses.
Advertising
- -----------
As mentioned in the press release, a major new TV advertising program began
in February. This program is intended to increase sales over the longer term.
Effects on sales in the shorter term (the next few quarters) are difficult to
predict but sales increases and other related favorable management actions may
not be enough to cover the net additional costs of the TV program.
Inventories
- -----------
Raw materials were up 9% vs. last year. About half of the increase was in
fabric & leather; and although it was higher than desired, plans are in place
for a reduction by April, 1995. Lumber was planned to increase as part of
seasonal purchasing & should be declining soon.
Finished goods declined 10%, roughly as planned. On hand balances should be
leveling off although efforts are still underway to reduce balances longer
term.
Currency Translation Adjustment
- -------------------------------
The 89% decrease in the balance sheet currency translation adjustment from
1/22/94 to 1/28/95 was due to the decline in the Canadian exchange rate from
.7627 to .7069 (Canadian dollar to U.S. dollar ratio). This reduced the
present valuation of investments in the Canadian division.
5
1,000
Apr-29-1995
Jan-28-1995
9-MOS
41,552
0
184,486
17,980
75,634
306,596
215,850
118,298
441,424
76,164
0
17,969
0
0
276,452
441,424
615,787
615,787
458,237
458,237
115,408
0
2,455
40,613
17,044
23,569
0
0
0
23,569
1.30
1.30
