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 30, 1996
(Date of Report (Date of Earliest Event Reported))
LA-Z-BOY CHAIR COMPANY
(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-CHAIR COMPANY
Date: May 30, 1996 James J. Korsnack
Corporate Controller
5
1,000
APR-27-1996
APR-27-1996
12-MOS
27,060
0
206,430
0
79,192
337,101
265,438
149,239
517,546
96,518
0
18,385
0
0
324,991
517,546
947,263
947,263
705,379
705,379
174,376
0
5,306
66,200
26,947
39,253
0
0
0
39,253
2.12
2.12
Receivables are reported net of allowances for doubtful accounts on the
Statement of Financial Position.
News Release
------------
STRONGER SALES AND EARNINGS FOR LA-Z-BOY
MONROE, MI., May 30, 1996: For its 1996 fiscal fourth quarter and year ended
April 27, 1996, La-Z-Boy Chair Company continued to improve its sales and
profits compared to last year. Fourth quarter sales rose 14% and net income
increased 10%. For the year, sales were up 11% and net income was up 8%.
Financial Details:
- ------------------
1996 Fourth Quarter sales were $267 million vs. last year's $234 million,
an increase of 14%. Comparable sales--after including England/Corsair's sales
on a pro forma basis in last year's sales, increased 2%. England/Corsair was
acquired at the beginning of fiscal 1996 and is a separate operating division.
Fourth quarter net income rose 10% to $14.0 million vs. last year's $12.7
million. Net income per share increased to $0.76 vs. $0.71 last year.
1996 full year sales were $947 million vs. last year's $850 million, an
increase of 11%. Comparable sales (including England/Corsair) were about 1%
less than last year's level. Net income was up 8% to $39.3 million vs. last
year's $36.3 million. Net income per share increased 5% to $2.12 from $2.01
last year.
Chairman Comments:
- ------------------
La-Z-Boy Chairman and President Charles T. Knabusch said, "We finished our
1996 fiscal year with record sales overall, and comparable sales up 2% from last
year's strong fourth quarter. This was a marked improvement from the third
quarter in which comparable sales declined 4%.
"On the profit side, we showed a 10% gain over last year's strong fourth
quarter, and finished the year with record earnings of $2.12 per share.
"At the recent international home furnishings trade show in High Point,
N.C., La-Z-Boy's Hammary and Kincaid divisions successfully launched an
extensive new product group they developed in a exclusive arrangement
with Ducks Unlimited, a national conservation and wildlife organization. Our
newest TV advertising campaign also is being acclaimed for featuring wildlife
in the form of two playful raccoons. And, from its start in early 1995, our
national TV advertising has generated some 400,000 responses from American
consumers."
A continuing upgrading of Residential Division Showcase Shoppes to
larger, more comprehensive La-Z-Boy Furniture Galleries stores, plus the
opening of new Furniture Galleries in the key market areas is equipping
La-Z-Boy with one of the residential furniture industry's most powerful
proprietary distribution networks. The company's first overseas Furniture
Galleries store is scheduled to open this fall.
More:
- -----
The rate of incoming sales orders in recent weeks has been above the
rate for the similar period last year. Sales backlogs generally are lower,
due in part to La-Z-Boy's success in filling sales orders more promptly.
La-Z-Boy's Form 8-K filed with the SEC (and available on EDGAR) includes a
full income statement, balance sheet, cash flow statement, additional management
discussion and financial sections of the annual report.
NYSE & PSE: LZB Contact: Jim Korsnack (313) 241-4208
La-Z-Boy Chair Company Financial Information Release 1 of 3
CONSOLIDATED STATEMENT OF INCOME 5/30/96
(Amounts in thousands, except per share data)
FOURTH QUARTER ENDED (UNAUDITED)
----------------------------------------------
Amounts
------------------
Apr. 27, Apr. 29, Percent of Sales
1996 1995 % Over ----------------
(13 weeks)(13 weeks) (Under) 1996 1995
--------- -------- ------- ------- -------
Sales $266,832 $234,484 14% 100.0% 100.0%
Cost of sales 194,755 170,985 14% 73.0% 72.9%
--------- -------- ------- ------- -------
Gross profit 72,077 63,499 14% 27.0% 27.1%
S, G & A 48,751 42,364 15% 18.3% 18.1%
--------- -------- ------- ------- -------
Operating profit 23,326 21,135 10% 8.7% 9.0%
Interest expense 1,188 879 35% 0.4% 0.4%
Interest Income 645 626 3% 0.2% 0.3%
Other income 736 526 40% 0.3% 0.2%
--------- -------- ------- ------- -------
Pretax income 23,519 21,408 10% 8.8% 9.1%
Income taxes 9,481 8,675 9% 40.3%* 40.5%*
--------- -------- ------- ------- -------
Net income $14,038 $12,733 10% 5.3% 5.4%
========= ======== ======= ======= =======
Average shares 18,457 17,927 3%
Net income per share $0.76 $0.71 7%
Dividends per share $0.19 $0.17 12%
TWELVE MONTHS ENDED (AUDITED)
----------------------------------------------
Amounts
------------------
Apr. 27, Apr. 29, Percent of Sales
1996 1995 % Over ----------------
(52 weeks) (52 weeks) (Under) 1996 1995
-------- -------- ------- ------- -------
Sales $947,263 $850,271 11%* 100.0% 100.0%
Cost of sales 705,379 629,222 12% 74.5% 74.0%
-------- -------- ------- ------- -------
Gross profit 241,884 221,049 9% 25.5% 26.0%
S,G & A 174,376 158,551 10% 18.4% 18.6%
-------- -------- ------- ------- -------
Operating profit 67,508 62,498 8% 7.1% 7.4%
Interest expense 5,306 3,334 59% 0.6% 0.4%
Interest Income 1,975 1,628 21% 0.2% 0.2%
Other income 2,023 1,229 65% 0.3% 0.1%
-------- -------- ------- ------- -------
Pretax income 66,200 62,021 7% 7.0% 7.3%
Income taxes 26,947 25,719 5% 40.7%* 41.5%*
-------- -------- ------- ------- -------
Net income $39,253 $36,302 8% 4.1% 4.3%
======== ======== ======= ======= =======
Average shares 18,498 18,044 3%
Net income per share $2.12 $2.01 5%
Dividends per share $0.74 $0.68 9%
* As a percent of pretax income, not sales.
England/Corsair was included in the fourth quarter and twelve months ended April
27, 1996 results, but not in the fourth quarter and twelve months ended April
29, 1995 results.
La-Z-Boy Chair Company Financial Information Release 2 of 3
CONSOLIDATED BALANCE SHEET 5/30/96
(Dollars in thousands)
Audited Increase
------------------- (Decrease)
Apr. 27, Apr. 29, -----------------
1996 1995 Dollars Percent
--------- --------- --------- -------
Current assets
Cash & equivalents $27,060 $27,048 12 0%
Receivables 206,430 192,938 13,492 7%
Inventories
Raw materials 37,274 39,604 (2,330) -6%
Work-in-process 35,241 35,036 205 1%
Finished goods 28,333 29,051 (718) -2%
--------- --------- --------- -------
FIFO inventories 100,848 103,691 (2,843) -3%
Excess of FIFO over LIFO (21,656) (22,600) 944 4%
--------- --------- --------- -------
Total inventories 79,192 81,091 (1,899) -2%
Deferred income taxes 19,271 18,242 1,029 6%
Other current assets 5,148 6,081 (933) -15%
--------- --------- -------- -------
Total current assets 337,101 325,400 11,701 4%
Property, plant & equipment 116,199 117,175 (976) -1%
Goodwill 40,359 41,701 (1,342) -3%
Other long-term assets 23,887 19,542 4,345 22%
--------- --------- --------- --------
Total assets $517,546 $503,818 $13,728 3%
========= ========= ========= ========
Audited Increase
------------------- (Decrease)
Apr. 27, Apr. 29, -----------------
1996 1995 Dollars Percent
--------- --------- --------- -------
Current liabilities
Current portion-l/t debt $5,625 $4,676 $949 20%
Current portion-cap. leases 2,114 2,078 36 2%
Accounts payable 30,997 29,323 1,674 6%
Payroll/Other Comp. 34,609 31,845 2,764 9%
Estimated income taxes 5,572 4,855 717 15%
Other current liabilities 17,601 15,343 2,258 15%
--------- --------- --------- -------
Total current liabilities 96,518 88,120 8,398 10%
Long-term debt 57,075 71,149 (14,074) -20%
Capital leases 4,219 5,298 (1,079) -20%
Deferred income taxes 6,663 6,610 53 1%
Other long-term liabilities 9,695 9,001 694 8%
Shareholders' equity
18,385,041 shares, $1.00 par 18,385 18,562 (177) -1%
Capital in excess of par 28,016 28,085 (69) 0%
Retained earnings 297,750 277,738 20,012 7%
Currency translation (775) (745) (30) -4%
--------- --------- --------- -------
Total shareholders' equity 343,376 323,640 19,736 6%
--------- --------- --------- -------
Total liabilities and
shareholders' equity $517,546 $503,818 $13,728 3%
========= ========= ========= =======
La-Z-Boy Chair Company Financial Information Release 3 of 3
5/30/96
Overall:
- --------
Refer to today's press release for additional information.
Gross Profit:
- -------------
The fourth quarter gross profit of 27.0% of sales was slightly lower than last
years' 27.1% of sales. The decline was primarily due to the inclusion of the
historically lower gross profit of England/Corsair (E/C). The E/C effect was
partially offset by the favorable effect of the sales growth in the quarter
exceeding the twelve month growth rate.
S, G and A:
- -----------
The S, G & A as a percent of sales of 18.3% in the fourth quarter was up from
18.1% last year. In the previous quarters, S, G & A as a percent of sales had
been lower than the prior year due to the inclusion of E/C which has
historically incurred lower S, G & A expense. In the fourth quarter, a one-
time year-to-date reclassification of expense occurred increasing S, G & A
by 0.4 points as a percent of sales. The offset was to sales. In addition,
a one-time amortization adjustment increased S, G & A by 0.3 points as a
percent of sales.
Other Income:
- -------------
Other income in the fourth quarter exceeded last year largely due to gains on
the sale of some assets of the health-care trust fund.
Receivables:
- ------------
At the end of the fourth quarter, receivables were up 7% from the prior year on
a 2% increase in comparable fourth quarter sales. The Company attributes this
growth in receivables to the past year's uncertain economic climate, to some
extended terms offered last winter, and to some temporary slowdowns in payments.
Inventories:
- ------------
The raw materials inventories at the end of the fourth quarter were 6% lower
than the prior year. Lumber, leather and fabric inventories were down from
last year. In addition , the leather and fabric inventories declined in the
fourth quarter from the end of the third quarter as expected.
Financial Report
Report of Management Responsibilities
La-Z-Boy Chair Company
The management of La-Z-Boy Chair Company 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 Chair Company 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 state-
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 Chair Company:
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income, of cash flows and of changes in share-
holders' equity, present fairly, in all material respects, the financial
position of La-Z-Boy Chair Company and its subsidiaries at April 27, 1996 and
April 29, 1995, and the results of their operations and their cash flows for
each of the three fiscal years in the period ended April 27, 1996, 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.
As discussed in Note 10 to the Consolidated Financial Statements, on April
25, 1993, the Company changed its method of accounting for income taxes.
Price Waterhouse LLP
Toledo, Ohio
May 30, 1996
Consolidated Balance Sheet
(Amounts in thousands, except par value)
- ----------------------------------------------------------------------------
As of April 27, April 29,
1996 1995
- ----------------------------------------------------------------------------
Assets
- ------
Current assets
Cash and equivalents.............................. $27,060 $27,048
Receivables, less allowances of $15,253 in 1996
and $16,092 in 1995............................. 206,430 192,938
Inventories
Raw materials................................... 37,274 39,604
Work-in-process................................. 35,241 35,036
Finished goods.................................. 28,333 29,051
--------- ---------
FIFO inventories.............................. 100,848 103,691
Excess of FIFO over LIFO...................... (21,656) (22,600)
--------- ---------
Total inventories........................... 79,192 81,091
Deferred income taxes............................. 19,271 18,242
Other current assets.............................. 5,148 6,081
--------- ---------
Total current assets............................ 337,101 325,400
Property, plant and equipment, net.................. 116,199 117,175
Goodwill, less accumulated amortization of
$8,087 in 1996 and $6,463 in 1995................. 40,359 41,701
Other long-term assets, less allowances of
$2,780 in 1996 and $1,737 in 1995................. 23,887 19,542
--------- ---------
Total assets.................................... $517,546 $503,818
========= =========
Liabilities and Shareholders' Equity
- ------------------------------------
Current liabilities
Current portion of long-term debt................. $5,625 $4,676
Current portion of capital leases................. 2,114 2,078
Accounts payable.................................. 30,997 29,323
Payroll/other compensation........................ 34,609 31,845
Estimated income taxes............................ 5,572 4,855
Other current liabilities......................... 17,601 15,343
--------- ---------
Total current liabilities....................... 96,518 88,120
Long-term debt...................................... 57,075 71,149
Capital leases...................................... 4,219 5,298
Deferred income taxes............................... 6,663 6,610
Other long-term liabilities......................... 9,695 9,001
Shareholders' equity
Preferred shares - 5,000 authorized; 0 issued..... -- --
Common shares, $1 par value - 40,000 authorized;
18,385 issued in 1996 and 18,562 in 1995......... 18,385 18,562
Capital in excess of par value.................... 28,016 28,085
Retained earnings................................. 297,750 277,738
Currency translation adjustments.................. (775) (745)
--------- ---------
Total shareholders' equity...................... 343,376 323,640
--------- ---------
Total liabilities and shareholders' equity.... $517,546 $503,818
========= =========
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 27, April 29, April 30,
1996 1995 1994
(52 weeks) (52 weeks) (53 weeks)
- -----------------------------------------------------------------------------
Sales................................ $947,263 $850,271 $804,898
Cost of sales........................ 705,379 629,222 593,890
--------- --------- ---------
Gross profit....................... 241,884 221,049 211,008
Selling, general and administrative.. 174,376 158,551 151,756
--------- --------- ---------
Operating profit................... 67,508 62,498 59,252
Interest expense..................... 5,306 3,334 2,822
Interest income...................... 1,975 1,628 1,076
Other income......................... 2,023 1,229 649
--------- --------- ---------
Income before income tax expense..... 66,200 62,021 58,155
Income tax expense
Federal - current.................. 23,383 22,716 19,719
- deferred................. (818) (1,205) (445)
State - current.................. 4,540 4,177 4,283
- deferred................. (158) 31 (119)
--------- --------- ---------
Total tax expense................ 26,947 25,719 23,438
--------- --------- ---------
Net income before accounting change.. 39,253 36,302 34,717
Accounting change.................... -- -- 3,352
--------- --------- ---------
Net income....................... $39,253 $36,302 $38,069
========= ========= =========
Weighted average shares.............. 18,498 18,044 18,268
========= ========= =========
Net income per share before
accounting change.................. $2.12 $2.01 $1.90
Accounting change.................... -- -- .18
--------- --------- ---------
Net income per share............. $2.12 $2.01 $2.08
========= ========= =========
The year ended April 27, 1996 includes England/Corsair. The previous two years
do 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 27, April 29, April 30,
1996 1995 1994
(52 weeks) (52 weeks) (53 weeks)
- -----------------------------------------------------------------------------
Cash flows from operating activities:
Net income.............................. $39,253 $36,302 $38,069
Adjustments to reconcile net income to net
cash provided by operating activities:
Accounting change................... -- -- (3,352)
Depreciation and amortization....... 20,147 15,156 14,014
Change in receivables............... (13,492) (6,013) (13,165)
Change in inventories............... 1,899 (4,142) (6,749)
Change in other assets and liab..... 5,184 1,624 (168)
Change in deferred taxes............ (975) (2,619) (564)
--------- --------- ---------
Total adjustments................. 12,763 4,006 (9,984)
--------- --------- ---------
Cash provided by operating
activities...................... 52,016 40,308 28,085
Cash flows from investing activities:
Proceeds from disposals of assets....... 1,063 1,442 177
Capital expenditures.................... (18,168) (18,980) (17,485)
Acquisition of operating division, net
of cash acquired....................... -- (2,486) --
Change in other investments............. (1,229) (254) (2,981)
--------- --------- ---------
Cash used for investing activities (18,334) (20,278) (20,289)
Cash flows from financing activities:
Short-term debt......................... -- 261 727
Long-term debt.......................... -- 7,500 --
Retirements of debt..................... (13,125) (5,011) (1,269)
Capital leases.......................... 1,161 -- --
Capital lease principal payments (2,204) -- --
Sale of stock under stock option plans.. 2,876 1,834 1,850
Stock for 40l(k) employee plans......... 1,378 1,521 2,952
Purchase of La-Z-Boy stock.............. (10,035) (12,722) (2,928)
Payment of cash dividends............... (13,706) (12,286) (11,692)
--------- --------- ---------
Cash used for financing activities (33,655) (18,953) (10,360)
Effect of exchange rate changes on cash... (15) 45 (318)
--------- --------- ---------
Net change in cash and equivalents........ 12 1,122 (2,882)
Cash and equiv. at beginning of the year.. 27,048 25,926 28,808
--------- --------- ---------
Cash and equiv. at end of the year........ $27,060 $27,048 $25,926
========= ========= =========
Cash paid during the year - Income taxes.. $27,024 $28,010 $29,116
- Interest...... $5,408 $3,281 $2,675
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 Consolidated Financial Statements are an integral
part of these statements.
Statement of Changes in Shareholders' Equity
(Amounts in thousands)
- ------------------------------------------------------------------------------
Capital Currency
in Trans-
Excess lation
Common of Par Retained Adjust-
Shares Value Earnings ments Total
- ------------------------------------------------------------------------------
At April 24, 1993.. $18,195 $8,494 $236,842 ($145) $263,386
Purchases of La-Z-Boy stock.. (91) (2,837) (2,928)
Currency translation......... (726) (726)
Stock options/401(k)......... 183 1,653 2,966 4,802
Dividends paid............... (11,692) (11,692)
Net income................... 38,069 38,069
-------- ------- --------- ------- ---------
At April 30, 1994.. 18,287 10,147 263,348 (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
======= ======= ======== ======= ========
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 Chair
Company 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.
In March 1995, the Financial Accounting Standards Board issued SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of." This statement was adopted in 1996 and had no effect.
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.
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. In fiscal 1994, the Company changed its
method of accounting for income taxes (see Note 10).
Note 2: Acquisitions
On April 29, 1995, the Company acquired all of the capital stock of
England/Corsair, Inc., a manufacturer of upholstered furniture.
The Company paid $2.6 million in cash, $10.0 million in notes and $18.0
million common sock, which resulted in goodwill approximating $21.8 million.
The notes and stock issued do not appear on the Consolidated Statement of Cash
Flows.
The acquisition has been accounted for as a purchase and, accordingly, assets
and liabilities but not results of operations were included in the Company's
financial statements for the year ended April 29, 1995.
For the twelve months ended April 1995, England/Corsair sales were $103.2
million, and income before income tax expense was $3.9 million.
Note 3: Cash and Equivalents
(Amounts in thousands)
- -----------------------------------------------------------------
April 27, April 29,
1996 1995
- -----------------------------------------------------------------
Cash in bank........................... $7,060 $8,048
Certificates of deposit................ 20,000 19,000
------- -------
Total cash and equivalents........... $27,060 $27,048
======= =======
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 1996 and 1995, $16 million and $13 million, respectively, was invested
in this bank's certificates.
Note 4: Property, Plant and Equipment
(Amounts in thousands)
- -------------------------------------------------------------------------
Estimated Depreciation April 27, April 29,
Life(years) Method 1996 1995
- -------------------------------------------------------------------------
Land and land improvements...... 0-20 150% DB $ 10,753 $ 10,559
Buildings and building fixtures. 15-30 150% DB 108,120 105,996
Machinery and equipment......... 10 200% DB 99,869 93,796
Information systems............. 5 200% DB 15,141 12,571
Transportation equipment........ 5 SL 16,680 16,533
Other........................... 3-10 Various 14,875 12,330
-------- --------
265,438 251,785
Less: accumulated depreciation....... 149,239 134,610
-------- --------
Property, plant and equipment, net.. $116,199 $117,175
======== ========
DB = Declining Balance SL = Straight Line
Note 5: Debt and Capital Lease Obligations
(Dollar amounts in thousands)
- -------------------------------------------------------------------------
Interest April 27, April 29,
rates Maturities 1996 1995
- -------------------------------------------------------------------------
Credit lines.............. 5.7% 1998-02 $15,000 $17,824
Private placement......... 8.8% 1996-01 7,500 11,250
La-Z-Boy notes............ 8.0% 1996-99 7,476 9,969
Industrial revenue bonds.. 3.8%-4.5% 1997-15 31,870 31,870
Other debt................ 5.0%-7.0% 1996-02 854 4,912
------- -------
Total debt................................... $62,700 $75,825
Less: current portion........................ 5,625 4,676
------- -------
Long-term debt............................... $57,075 $71,149
======= =======
Weighted average interest 5.5% 6.4%
Fair value of long-term debt $62,931 $76,267
The Company has a $50 million unsecured revolving credit line (Credit Agreement)
through August 1999, requiring interest only payments through August 1999 and
requiring principal payment in August 1999. 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 include
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 27, 1996 are $6 million, $5 million, $6 million, $17 million and
$1 million, respectively. As of April 27,1996, 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 27, 1996 April 29, 1995
Contract Amount Contract Amount
- ------------------------------------------------------------------------------
Lease Guarantees......................... $4,403 $3,928
Loan Guarantees.......................... $16,713 $16,057
- ------------------------------------------------------------------------------
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 stock option plan that provides
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 is authorized to grant options for up to 1,600,000 common
shares.
- --------------------------------------------------------------------
Number of Per share
shares option price
- --------------------------------------------------------------------
Outstanding at April 30, 1994.... 489,974 $14.13 - $29.63
Granted........................ 109,412 $27.00
Exercised...................... (73,759) $14.13 - $29.63
Expired or cancelled........... (40,927)
--------
Outstanding at April 29, 1995.... 484,700 $14.13 - $29.63
Granted........................ 140,245 $30.50
Exercised...................... (87,917) $14.13 - $29.63
Expired or cancelled........... (4,478)
--------
Outstanding at April 27, 1996.... 532,550 $20.00 - $30.50
=========
Exercisable at April 29, 1995.... 224,897
Shares available for grants at
April 27, 1996................. 673,473
- --------------------------------------------------------------------
The Company's shareholders have adopted Restricted Share Plans. Under one plan,
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. Under
a second plan, up to an aggregate of 50,000 common shares were authorized for
sale to non-employee directors. These shares are offered at 25% of the fair
market value. 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 12,300 and 11,330 were granted and issued during the fiscal
years 1996 and 1995, respectively, under the Restricted Share Plans. Shares
remaining for future grants under the above plans amounted to 418,445 at
April 27, 1996.
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. 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 Committee after judging all relevant factors. At
April 27, 1996, performance awards were outstanding pursuant to which up to
approximately 130,000 shares may be issued in fiscal years 1997 through 1999
for the four outstanding plans, depending on the extent to which certain
specified performance objectives are met. The costs of performance awards
are expensed over the performance period. In 1996, 47,000 shares were
exersiced.
In October 1995, the Financial Accounting Standards Board issued SFAS 123,
"Accounting for Stock Based Compensation," which is effective for 1997.
Under SFAS 123, companies can elect, but are not required, to recognize
compensation expense for all stock-based awards, using a fair value methodology.
The company expects to implement in 1997 the disclosure only provisions, as
permitted by SFAS 123.
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 a specific formula. 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 years ended):
(Amounts in thousands)
- ------------------------------------------------------------------------------
April 27, April 29, April 30,
1996 1995 1994
(52 weeks) (52 weeks) (53 weeks)
- ------------------------------------------------------------------------------
Service cost........................... $1,802 $1,739 $1,526
Interest cost.......................... 2,051 1,861 1,683
Actual return on plan assets........... (5,468) (2,737) (719)
Net amortization and deferral.......... 3,031 (571) (1,575)
------- ------- -------
Net periodic pension cost............ 1,416 1,434 915
Profit sharing......................... 4,798 4,892 4,659
SERP................................... 883 818 795
40l(k)................................. 1,429 1,388 1,145
Other.................................. 497 508 442
------- ------- -------
Total retirement costs............... $9,023 $9,040 $7,956
======= ======= =======
The funded status of the pension plans was as follows:
(Amounts in thousands)
- ------------------------------------------------------------------------------
April 27, April 29,
1996 1995
- ------------------------------------------------------------------------------
Actuarial present value of accumulated benefit
obligation........................................ ($29,035) ($26,403)
Plan assets at fair value........................... 37,503 31,566
--------- ---------
Excess of plan assets over projected benefit
obligation...................................... 8,468 5,163
Prior year service cost not yet recognized in net
periodic pension cost............................. 921 1,019
Unrecognized net loss............................... 1,320 4,536
Unrecognized initial asset.......................... (3,333) (3,664)
--------- ---------
Prepaid pension asset............................. $7,376 $7,054
========= =========
The expected long-term rate of return on plan assets was 8.0% for 1996 and 1995,
and 8.5% for 1994. The discount rate used in determining the actuarial present
value of accumulated benefit obligations was 7.5% for 1996, 1995, and 1994.
Vested benefits included in the accumulated benefit obligation were $26 million
and $23 million at April 27, 1996 and April 29, 1995, respectively. Plan assets
are invested in a diversified portfolio that consists primarily of debt and
equity securities.
The Company's pension plan funding policy has been to contribute annually the
maximum amount that can be deducted for federal income tax purposes.
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 27, April 29, April 30,
1996 1995 1994
(52 weeks) (52 weeks) (53 weeks)
- ----------------------------------------------------------------------------
Gross health care................. $30,122 $30,414 $29,061
Participant payments.............. (6,005) (4,783) (4,442)
-------- -------- --------
Net health care................. $24,117 $25,631 $24,619
======== ======== ========
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
Effective April 25, 1993, the Company adopted Statement of Financial Accounting
Standards No. 109 (SFAS 109), "Accounting for Income Taxes," which applies a
balance sheet approach to income tax accounting. The Company recorded a tax
credit of $3 million or $0.18 per share, which represented the net increase
in the net deferred tax as of that date, as an accounting change.
The primary components of the Company's deferred tax assets and liabilities
as of April 27, 1996 and April 29, 1995 are as follows:
(Amounts in thousands)
- ---------------------------------------------------------------------------
April 27, April 29,
1996 1995
- ---------------------------------------------------------------------------
Current
Deferred income tax assets (liabilities):
Bad debt................................... $7,395 $7,330
Warranty................................... 3,941 3,478
Workers' compensation...................... 1,464 1,411
SERP....................................... 1,452 1,285
Inventory.................................. 900 998
State Income tax........................... 987 990
Performance based restricted stock plan.... 717 856
Other...................................... 2,603 2,055
Valuation allowance........................ (188) (161)
-------- --------
Total current deferred tax assets...... 19,271 18,242
Noncurrent
Deferred income tax assets (liabilities):
Property, plant and equipment.............. (3,627) (3,723)
Pension.................................... (3,055) (2,921)
Net operating losses....................... 1,458 1,187
Other...................................... 212 202
Valuation allowance........................ (1,651) (1,355)
-------- --------
Total noncurrent deferred tax liabilities (6,663) (6,610)
-------- --------
Net deferred tax asset............... $12,608 $11,632
======== ========
The differences between the provision for income taxes and income taxes
computed using the U.S. federal statutory rate are as follows (for the years
ended):
(% of pretax income)
- ------------------------------------------------------------------------------
April 27, April 29, April 30,
1996 1995 1994
- ------------------------------------------------------------------------------
Statutory tax rate......................... 35.0 35.0 35.0
Increase (reduction) in taxes resulting in:
State income taxes net of federal benefit.. 4.3 4.4 4.8
Tax credits................................ (1.1) (0.5) (0.2)
Acquisition amortization................... 1.5 0.7 0.7
Unutilized loss carryforwards.............. 0.9 1.6 0.2
Miscellaneous items........................ 0.1 0.3 (0.2)
----- ----- -----
Effective tax rate......................... 40.7 41.5 40.3
===== ===== =====
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 and the Company's
legal counsel believe 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 may be issued additional Company common
stock based on England/Corsair's actual profit performance in each of the two
years following acquisition. Any additional incentives will be recorded as an
increase to goodwill in the year earned.
The Company has been identified as a Potentially Responsible Party (PRP) at
two clean-up sites: Organic Chemical and Seaboard Chemical Company. At each
site, the Company has been identified as a de minimis or de micromis
contributor and volumetric assessments indicate that the Company's
contributions to each site have been less than one-tenth of one percent (0.1%)
of the total. Each site has either completed or has begun the first phase of
clean-up and has completed or has begun a remedial investigation/feasibility
study. The Company has partially settled its liability at these sites for
amounts ranging from less than $1,000 to $20,000. The Company's facilities
that have not settled at these sites are expected to fully resolve the
Company's liability as part of the de minimis PRP settlements.
The Company is also participating with a number of other companies in the
voluntary RCRA closure of the Caldwell Systems site. The Company's volumetric
assessment at this site is in the 1% range. The Steering Committee
responsible for negotiating the clean-up plan with the EPA has reinitiated its
negotiations in anticipation of clean-up activities. Accurate estimates of the
clean-up costs at the Caldwell site are being developed.
The number of PRP's and voluntary participants at the three sites range from
182 to in excess of 1,750. Based on a review of the number, composition
and financial stability of the PRP's and voluntary participant at each site,
along with clean-up costs already expended and the preliminary estimates
currently available, management does not believe that any significant risk
exists that the Company will be required to incur total costs in excess of
$100,000 at the Organic Chemical sites and Seaboard Chemical Company
combined or $200,000 at the Caldwell site. At April 27, 1996, a total of
$300,000 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 1996 1995 1994
- ------------- ---- ---- ----
Residential (home)
Upholstery 78% 76% 76%
Wood & other 16% 18% 18%
--- --- ---
94% 94% 94%
Contract (office) 6% 6% 6%
--- --- ---
100% 100% 100%
---- ---- ----
Sales by country 1996 1995 1994
- ---------------- ---- ---- ----
United States 94% 94% 94%
Canada and other 6% 6% 6%
--- --- ---
100% 100% 100%
---- ---- ----
La-Z-Boy is organized into six operating divisions. Residential
(69 years in business) accounts for the majority of the upholstery
category and approximately two-thirds of consolidated sales.
U.S. Residential sales
by dealer type 1996 1995 1994
- -------------- ---- ---- ----
Galleries/proprietary 49% 47% 46%
General dealers 38% 40% 39%
Dept. stores/chains 13% 13% 15%
--- --- ---
100% 100% 100%
---- ---- ----
Kincaid (50 years) is part of the wood category. England/Corsair (32 years),
acquired in April 1995 and only included in the 1996 column of the tables
above, is part of the upholstery category. La-Z-Boy Contract Furniture Group
(24 years) is all of the Contract line. Hammary (52 years) is primarily in
the wood category. La-Z-Boy Canada (67 years) is part of the upholstery
category.
La-Z-Boy is the third largest furniture maker in the U.S., the largest
reclining-chair manufacturer in the world and America's largest manufacturer
of upholstered furniture.
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 (gross profit dollars as a percent of sales) 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.
Analysis of Operations
Year Ended April 29, 1995
(1995 compared with 1994)
La-Z-Boy's sales increased 6% in fiscal 1995 over 1994. However, on a
comparable per-week basis, the increase was 8% due to 1995 containing 52
weeks compared to 53 weeks in 1994. La-Z-Boy believes the increase was
primarily the result of the general economic recovery. Selling price
increases were generally in the 2-3% range with the remainder of the sales
increase due to volume. Major product lines that experienced growth above
the Company average were the lower end recliners, modulars, tables and wall
units (wood and other), and sofas.
All sales growth over the past seven years has been internally generated.
The 1995 sales on a per-week basis increased over 1994 at all five
operating divisions with particular strength at Hammary.
The 1995 gross margin of 26.0% declined from the 26.2% gross margin in 1994.
The favorable impacts of selling price increases and improved plant
efficiency at most plants were offset by cost increases relating to leather,
fabric, cartoning and premium (not frame stock) lumber. Product line mix
changes toward products with lower gross margins also continued in 1995. In
addition, the gross margins for the contract and Canadian divisions were
below the prior year. The contract decline was largely due to incentives and
costs associated with the introduction of new products. The Canadian decline
was primarily due to the unfavorable Canadian/U.S. dollar exchange rate along
with product line mix changes toward products with lower gross margins.
The 1995 S, G & A expense of 18.6% of sales was down slightly from 18.8% in
1994. Advertising expense increased in 1995 primarily due to the launch of
a national television advertising program. A reduction in bad debt expense
in 1995 partially offset the advertising increase.
As expected, the La-Z-Boy Contract Furniture Group did not generate a profit
in 1995. This division was formed in 1994 through the merger of two former
divisions. In addition to the gross margin effects discussed above, the
division incurred increased research and development expenditures,
reorganization costs and startup costs associated with the merger.
Income tax expense as a percent of pretax income increased to 41.5% in 1995
from 40.3% in 1994. The increase was primarily due to changes in profitability
among divisions that were partially offset by some favorable adjustments
relating to the 1994 change in accounting for income taxes.
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
million La-Z-Boy common stock, $10.0 notes and $2.6 million cash. E/C debt
and capital lease obligations of $14.4 million were assumed by La-Z-Boy.
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.
(Amounts in thousands)
- -----------------------------------------------------------------------
Year ended April 27, April 29, April 30,
1996 1995 1994
(52 weeks) (52 weeks) (53 weeks)
- -----------------------------------------------------------------------
Cash flows provided by (used for):
Net income $39,253 $36,302 $38,069
Other operating activities 12,763 4,006 (9,984)
Investing activities (18,334) (20,278) (20,289)
Free cash flow 33,682 20,030 7,796
Cash flows provided by (used for):
Financing activities (33,655) (18,953) (10,360)
Exchange (15) 45 (318)
Increase (decrease) in cash 12 1,122 (2,882)
Cash flows from operations amounted to $52 million in 1996, $40 million
in 1995 and $28 million in 1994 and have been adequate for day-to-day
expenditures, dividends to shareholders and capital expenditures.
Capital expenditures were $18.2 million in 1996, $19.0 million in 1995
and $17.5 million in 1994. Capacity utilization was approximately 70% at
the end of 1996 and 1995.
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
$1 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 27, 1996. The primary
credit arrangement, a $50 million unsecured revolving credit line
(Credit Agreement) through August 1999, requires interest only
payments through August 1999 and a payment of principal in August 1999.
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.
The La-Z-Boy Board of Directors has authorized the repurchase of Company
stock. Shares acquired in 1996, 1995 and 1994 were 372,000, 529,000 and
91,000, respectively. As of April 27, 1996, 1,121,000 shares were
available for repurchase. 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 1996 and 1995 was 3.5:1
and 3.7:1, respectively. The debt to capital ratio was 16.7% at the end of
1996 and 20.5% at the end of 1995.
La-Z-Boy provides for all current and future potential liabilities as
required, including those relating to postretirement benefits.
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 to achieve sales increases of 10% per
year or increases at least greater than that of the furniture industry.
Some furniture industry forecasts for calendar year 1996 over 1995 are in
the 2-4% range. For 1996, La-Z-Boy sales, on a comparable basis, declined
1% from 1995 which the Company believes was similar to the industry average.
While a 10% sales increase is not anticipated in 1997, sales are expected to
exceed the industry average.
The Company's major residential efforts and opportunities for 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.
During 1996, the backlog of orders remained 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 1997.
The La-Z-Boy Contract Furniture Group sales growth rate in the next few
years is expected to exceed the average of the other divisions.
A second financial goal is to improve operating profit as a percent of
sales each year. For 1996, the operating profit margin was 7.1% of sales
which was below the prior year largely due to the inclusion of E/C. In
1997, the operating margin is expected to improve slightly. The gross
margin as a percent of sales is expected to increase somewhat due to
efficiencies of higher production. In addition, selling price increases
are expected to be small while material costs are not expected to
increase. Increased S, G and A expense as a percent of sales, largely
due to increased computer related expenses, is expected to offset most
of the margin change.
A third goal is to achieve a 20% return on capital (operating profit,
interest income and other income as a percent of beginning of year
capital). For 1996, return on capital was 17.6% which was a decline
from the 1995 return of 18.9%. This goal has been in place for several
years and has become more difficult to achieve partly due to the
addition of capital relating to the E/C acquisition.
La-Z-Boy has an opportunity to improve its 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 $20 to $25 million
in 1996 compared to $18.2 million in 1995.
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, consumer sentiment toward furniture purchases
and new and existing home sales.
Consolidated Six-Year Summary of Selected Financial Data
(Dollar amounts in thousands, except per share data)
- -------------------------------------------------------------------------------
Year Ended in April 1996 1995 1994 1993 1992 1991
(52 wks) (52 wks) (53 wks) (52 wks) (52 wks) (52 wks)
- -------------------------------------------------------------------------------
Sales..............$947,263 $850,271 $804,898 $684,122 $619,471 $608,032
Cost of sales...... 705,379 629,222 593,890 506,435 453,055 449,502
--------- --------- --------- --------- --------- ---------
Gross profit..... 241,884 221,049 211,008 177,687 166,416 158,530
Sell, gen & admin.. 174,376 158,551 151,756 131,894 123,927 116,278
--------- --------- --------- --------- --------- ---------
Oper profit...... 67,508 62,498 59,252 45,793 42,489 42,252
Interest expense... 5,306 3,334 2,822 3,260 5,305 6,374
Interest income.... 1,975 1,628 1,076 1,474 1,093 1,215
Other income....... 2,023 1,229 649 1,292 1,628 1,277
--------- --------- --------- --------- --------- ---------
Income before tax.. 66,200 62,021 58,155 45,299 39,905 38,370
Income tax expense. 26,947 25,719 23,438 18,015 14,805 15,009
--------- --------- --------- --------- --------- ---------
Net income....... 39,253 $36,302 $34,717** $27,284 $25,100 $23,361
========= ========= ========= ========= ========= =========
Weighted avg shares
outstg ('000s)... 18,498 18,044 18,268 18,172 18,064 17,941
Per com shr outstg
Net income....... $2.12 $2.01 $1.90** $1.50 $1.39 $1.30
Cash div paid.... $0.74 $0.68 $0.64 $0.60 $0.58 $0.56
BV on YE shr outst. $18.68 $17.44 $15.91 $14.48 $13.58 $12.75
Rtn avg shrhdr eqt. 11.8% 12.2%* 12.5%** 10.7% 10.6% 10.5%
Gr prft % of sales. 25.5% 26.0% 26.2% 26.0% 26.9% 26.1%
Op prft % of sales. 7.1% 7.4% 7.4% 6.7% 6.9% 6.9%
Op prft, int inc &
oth inc as % of
BOY capital...... 17.6% 18.9% 19.1% 15.8% 15.1% 15.3%
Net inc % of sales. 4.1% 4.3% 4.3%** 4.0% 4.1% 3.8%
Income tax expense
% pretax income.. 40.7% 41.5% 40.3% 39.8% 37.1% 39.1%
- ------------------------------------------------------------------------------
Deprec & amortiz... $20,147 $15,156 $14,014 $14,061 $14,840 $14,039
Capital expendtrs.. $18,168 $18,980 $17,485 $12,248 $12,187 $21,428
Prty,plt,eqpt,net..$116,199 $117,175 $94,277 $90,407 $93,440 $95,508
- ------------------------------------------------------------------------------
Working capital....$240,583 $237,280 $224,122 $202,398 $184,431 $172,989
Current ratio......3.5 to 1 3.7 to 1 4.1 to 1 3.8 to 1 3.7 to 1 3.7 to 1
Total assets.......$517,546 $503,818 $430,253 $401,064 $376,722 $363,085
- -----------------------------------------------------------------------------
Lt.Dt. & Cap.Leases $61,294 $76,447 $52,495 $55,370 $55,912 $62,187
Debt & Cap. leases. $69,033 $83,201 $55,370 $55,912 $60,726 $70,867
Shareholders' eqty.$343,376 $323,640 $290,911 $263,386 $246,359 $229,217
Ending capital.....$412,409 $406,841 $346,281 $319,298 $307,085 $300,084
Ratio debt to eqty. 20.1% 25.7% 19.0% 21.2% 24.6% 30.9%
Ratio debt to capl. 16.7% 20.5% 16.0% 17.5% 19.8% 23.6%
- ------------------------------------------------------------------------------
Shareholders....... 12,293 12,665 12,615 9,032 8,081 7,208
Employees.......... 10,733 11,149 9,370 8,724 8,153 7,828
- ------------------------------------------------------------------------------
* 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
$.18 per share.
Dividend and Market Information
----------------------------------------------------
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
=====
----------------------------------------------------
1995 Divi- Market Price
Year dends
Ended Paid High Low Close
-----------------------------------------------------
July 30 $0.17 $33 3/4 $25 3/8 $26 1/2
Oct. 29 0.17 30 26 1/2 29 3/4
Jan. 28 0.17 32 5/8 27 7/8 30 5/8
Apr. 29 0.17 29 1/8 26 1/4 27
-----
$0.68
=====
- -------------------------------------------------------------------------------
Dividend Market Price P/E Ratio
Dividends Dividend Payout ----------------------- ---------
Year Paid Yield Ratio High Low Close Earnings High Low
- -------------------------------------------------------------------------------
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
1991 0.56 2.6% 43.1% 21 1/2 12 1/4 21 1/4 1.30 17 9
La-Z-Boy Chair Company 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 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 72,077 241,844
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..... 375 476 436 736 2,023
-------- -------- -------- --------- ---------
Inc before tax. 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
======== ======== ======== ========= =========
- -------------------------------------------------------------------------------
Quarter Ended July 30 October 29 January 28 April 29 Year 1995
- -------------------------------------------------------------------------------
Sales............ $174,387 $230,586 $210,814 $234,484 $850,271
Cost of sales.... 133,654 166,816 157,767 170,985 629,222
-------- -------- -------- --------- ---------
Gross profit... 40,733 63,770 53,047 63,499 221,049
Selling, general
& admin........ 33,032 43,539 39,616 42,364 158,551
-------- -------- -------- --------- ---------
Opertg profit.. 7,701 20,231 13,431 21,135 62,498
Interest expense. 662 752 1,041 879 3,334
Interest income.. 273 355 374 626 1628
Other Income..... 273 506 (76) 526 1229
-------- -------- -------- --------- ---------
Inc before tax. 7,585 20,340 12,688 21,408 62,021
Income tax exp... 3,315 8,262 5,467 8,675 25,719
-------- -------- -------- --------- ---------
Net income... $4,270 $12,078 $7,221 $12,733 $36,302
======== ======== ======== ========= =========
Net income
per share.. $0.23 $0.67 $0.40 $0.71 $2.01
======== ======== ======== ========= =========
* Excludes the income effect of adopting SFAS 109 in May 1993 of $3,352 or
$.18 per share.
