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 24, 1998 COMMISSION FILE NUMBER 1-9656
LA-Z-BOY INCORPORATED
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(Exact name of registrant as specified in its charter)
MICHIGAN 38-0751137
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1284 North Telegraph Road, Monroe, Michigan 48162-3390
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(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (734) 241-4414
None
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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 24, 1998
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Common Shares, $1.00 par value 52,908,743
Part 1. Financial Information
The Consolidated Balance Sheet and Consolidated Statement of Income required
for Part 1 are contained in the Registrant's Financial Information Release
dated November 4, 1998 and are incorporated herein by reference.
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LA-Z-BOY INCORPORATED CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(Unaudited, amounts in thousands)
Three Months Ended Six Months Ended
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Oct 24, Oct 25, Oct 24, Oct 25,
1998 1997 1998 1997
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Cash Flows from Operating Activities
Net income $ 18,447 $ 16,822 $ 25,631 $ 18,548
Adjustments to reconcile net income to
net cash provided by operating activities
Depreciation and amortization 5,936 5,195 11,353 10,068
Change in receivables (60,025) (52,888) (17,454) (3,986)
Change in inventories 1,393 6,416 (7,975) (7,742)
Change in other assets and liabilities 31,233 25,967 21,424 10,744
Change in deferred taxes (2,815) (1,960) (2,742) (1,960)
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Total adjustments (24,278) (17,270) 4,606 7,124
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Cash Provided (Used) by Operating Activities (5,831) (448) 30,237 25,672
Cash Flows from Investing Activities
Proceeds from disposals of assets 88 76 293 392
Capital expenditures (4,128) (5,775) (8,233) (11,343)
Change in other investments (537) 159 (2,427) (288)
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Cash Used for Investing Activities (4,577) (5,540) (10,367) (11,239)
Cash Flows from Financing Activities
Retirements of debt (120) (116) (3,211) (2,041)
Capital lease principal payments (361) (513) (803) (1,040)
Stock for stock option plans 3,237 1,091 4,688 3,103
Stock for 401(k) employee plans 458 283 837 686
Purchase of La-Z-Boy stock (11,160) (6,973) (18,763) (9,397)
Payment of cash dividends (4,263) (3,775) (8,006) (7,543)
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Cash Used for Financing Activities (12,209) (10,003) (25,258) (16,232)
Effect of exchange rate changes on cash (281) 62 (591) 98
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Net change in cash and equivalents (22,898) (15,929) (5,979) (1,701)
Cash and equivalents at beginning of period 45,619 39,610 28,700 25,382
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Cash and equivalents at end of period $ 22,721 $ 23,681 $ 22,721 $ 23,681
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Cash paid during period -Income taxes $7,403 $6,222 $7,878 $7,663
-Interest $588 $955 $1,131 $1,794
<FN>
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.
</FN>
LA-Z-BOY INCORPORATED AND OPERATING DIVISIONS
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The financial information is prepared in conformity with generally accepted
accounting principles and such principles are applied on a basis consistent
with those reflected in the 1998 Annual Report filed with the Securities
and Exchange Commission. The financial information included herein, other
than the consolidated balance sheet as of April 25, 1998, has been prepared
by management without audit by independent certified public accountants.
The consolidated balance sheet as of October 24, 1998 has been prepared on
a basis consistent with, but does not include all the disclosures contained
in, the audited consolidated financial statements for the year ended April
25, 1998. 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 24, 1999.
3. Forward-Looking Information
Any forward-looking statements contained in this report represent
management's current expectations based on present information and current
assumptions. These statements can be identified by the use of
forward-looking terminology such as "believes", "expects", "may", "should",
or "anticipates". Forward-looking statements are inherently subject to
risks and uncertainties. Actual results could differ materially from those
which are anticipated or projected due to a number of factors. These
factors include, but are not limited to, anticipated growth in sales;
success of product introductions; fluctuations of interest rates, changes
in consumer confidence/demand and other risks and factors identified from
time to time in the Company's reports filed with the Securities and
Exchange Commission.
4. Earnings per Share
The Company adopted Statement of Financial Accounting Standards (SFAS) No.
128, "Earnings per Share" in 1998. The Statement requires both basic and
diluted earnings per share to be presented. 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 were issued.
This includes employee stock options. Prior period earnings per share
information has been restated to be in compliance with SFAS No. 128.
Three Months Ended Six Months Ended
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Oct. 24, Oct. 25, Oct. 24, Oct. 25,
(Amounts in thousands) 1998 1997* 1998 1997*
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Weighted average common
shares outstanding (basic) . 53,121 53,665 53,250 53,759
Effect of options ............. 308 170 296 152
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Weighted average common
shares outstanding (diluted) 53,429 53,835 53,546 53,911
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<FN>
*Restated to reflect a three-for-one stock split, in the form of a 200%
stock dividend effective September 1998.
</FN>
LA-Z-BOY INCORPORATED MANAGEMENT DISCUSSION AND ANALYSIS
Due to the cyclical nature of the Company's business, comparison of operations
between the most recently completed quarter and the immediate preceding quarter
would not be meaningful and could be misleading to the reader of these financial
statements.
For further Management Discussion, see attached Exhibit 99.(a)
Financial Position
The Company's strong financial position is reflected in the debt to capital
percentage of 15% and a current ratio of 3.1 to 1 at the end of the second
quarter. At April 25, 1998, the debt to capital percentage was 16% and the
current ratio was 3.5 to 1. At the end of the preceding year's second quarter,
the debt to capital percentage was 14% and the current ratio was 3.2 to 1. As of
October 24, 1998, there was $116 million of unused lines of credit available
under several credit arrangements.
Stock Repurchase Program
Approximately 18% of the 12 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.
Year 2000
The Year 2000 issue arises from the use of two-digit date fields used in
computer programs which may cause problems as the year changes from 1999 to
2000. These problems could cause disruptions of operations or processing of
transactions.
To address the Year 2000 challenge, the Company established a Year 2000 Program
Office guided by a steering committee consisting of senior executive management.
This office serves as the central coordination point for all Year 2000
compliance efforts of the Company. The Company has included IT (Information
Technologies) systems and non-IT systems as well as third party readiness in the
scope of its Year 2000 project. The Company is on schedule with regards to its
internal plan.
The Company is in the process of having an independent verification and
assessment completed to assure that the Company has adequately identified
possible areas of risk. This is expected to be complete in February, 1999.
Management believes that the Company is taking the steps necessary to minimize
the impact of the Year 2000 challenge.
The challenges the Company faces with regards to its IT systems include
upgrading of operating systems, hardware and software, and modifying order entry
and invoicing programs. For the IT challenges, the Company has completed the
inventory and assessment phases. The Company is presently in the remediation
(defined as repairing, replacing, or retiring) phase of the project with
expected completion by February, 1999. The Company expects to have its critical
IT systems compliant and compatible, with the appropriate testing completed, by
September, 1999.
The primary challenges the Company faces with regards to its non-IT systems
include plant floor machinery and facility related items. For these systems, the
inventory and assessment phases have been completed. The Company believes these
systems to be compliant and compatible. The Company is presently in the testing
phase of its non-IT project with expected completion by September, 1999.
With respect to third party readiness, the Company continues to work with
customers, suppliers, and service providers in order to prevent disruption of
business activities. Based on communications with these third parties, the
Company believes that all material third parties will be sufficiently prepared
for the Year 2000. For critical third parties, testing will be performed as
deemed necessary.
While the Company believes that it is preparing adequately for all Year 2000
concerns, there is no guarantee against internal or external systems failures.
Such failures could have a material adverse effect on the Company's results of
operations, liquidity and financial condition. The Company believes that its
most likely worst case scenario would be business interruptions caused by third
party failures. The Company expects to have contingency plans in place prior to
the Year 2000 for IT and non-IT systems, as well as for areas of concern with
relation to third parties.
At the present time, the total Year 2000 related costs are estimated to be
$12 to $16 million. To date, the Company has spent approximately $5 million.
Included in the total estimated expenditures are both remediation and, in some
cases, enhancement or improvement related costs that cannot easily be separated
from remediation costs. Some of these enhancements or improvements were
previously planned and were merely accelerated as a means to address Year 2000
challenges.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K (a) (27) Financial Data Schedule (EDGAR
only).
(99) News Releases and Financial Information Release: re Actual second
quarter results and Management Discussion dated November 4, 1998.
(b) An 8-K was filed on July 27, 1998 to disclose a three-for-one stock split
to be effected as a 200% stock dividend effective September 14, 1998.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused the Quarterly Report on Form 10-Q for the quarter
ended October 24, 1998 to be signed on its behalf by the undersigned thereunto
duly authorized.
LA-Z-BOY INCORPORATED
(Registrant)
Date November 4, 1998 /s/Gene M. Hardy
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Gene M. Hardy
Secretary and Treasurer
(Principal Accounting Officer)