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 22, 2000 COMMISSION FILE NUMBER 1-9656 LA-Z-BOY INCORPORATED - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) MICHIGAN 38-0751137 - -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1284 North Telegraph Road, Monroe, Michigan 48162-3390 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (734) 241-4414 None - -------------------------------------------------------------------------------- Former name, former address and former fiscal year, if changed since last report. Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate the number of shares outstanding of each issuer's classes of common stock, as of the last practicable date: Class Outstanding at January 22, 2000 - ---------------------------------- ------------------------------- Common Shares, $1.00 par value 52,544,083
PART I-FINANCIAL INFORMATION Item 1. Financial Statements LA-Z-BOY INCORPORATED CONSOLIDATED STATEMENT OF INCOME (Amounts in thousands, except per share data) Third Quarter Ended Nine Months Ended (Unaudited) (Unaudited) ----------------------- ----------------------- Jan. 22, Jan. 23, Jan. 22, Jan. 23, 2000 1999 2000 1999 ---------- ---------- ---------- ---------- Sales $ 376,872 $ 318,105 $1,086,267 $ 921,816 Cost of sales 281,358 230,923 808,904 681,416 ---------- ---------- ---------- ---------- Gross profit 95,514 87,182 277,363 240,400 Selling, general and administrative 62,226 58,758 184,122 169,556 ---------- ---------- ---------- ---------- Operating profit 33,288 28,424 93,241 70,844 Interest expense 2,128 1,110 5,433 3,461 Interest income 320 430 1,526 1,478 Other income 1,317 962 3,025 2,182 ---------- ---------- ---------- ---------- Pretax income 32,797 28,706 92,359 71,043 Income tax expense 11,460 10,978 34,459 27,684 ---------- ---------- ---------- ---------- Net income $ 21,337 $ 17,728 $ 57,900 $ 43,359 ========== ========== ========== ========== Basic earnings per share $ 0.41 $ 0.34 $ 1.11 $ 0.82 Diluted earnings per share $ 0.41 $ 0.33 $ 1.10 $ 0.81 Diluted average shares 52,274 52,925 52,498 53,331 Dividends per share $ 0.08 $ 0.08 $ 0.24 $ 0.23 The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. <TABLE> <CAPTION> LA-Z-BOY INCORPORATED CONSOLIDATED BALANCE SHEET (Amounts in thousands, except par value) Unaudited Increase ---------------------- (Decrease) Audited Jan. 22, Jan. 23, --------------------- Apr. 24, 2000 1999 Dollars Percent 1999 --------- --------- -------- --------- --------- <S> <C> <C> <C> <C> <C> Current assets Cash & equivalents $ 16,531 $ 44,037 ($ 27,506) -62% $ 33,550 Receivables 268,165 228,820 39,345 17% 265,157 Inventories Raw materials 58,711 52,122 6,589 13% 47,197 Work-in-process 47,181 41,271 5,910 14% 37,447 Finished goods 46,298 36,984 9,314 25% 34,920 --------- --------- --------- --------- --------- FIFO inventories 152,190 130,377 21,813 17% 119,564 Excess of FIFO over LIFO (23,405) (22,780) (625) -3% (23,053) --------- --------- --------- --------- --------- Total inventories 128,785 107,597 21,188 20% 96,511 Deferred income taxes 24,062 18,936 5,126 27% 20,028 Other current assets 10,176 4,672 5,504 118% 10,342 --------- --------- --------- --------- --------- Total current assets 447,719 404,062 43,657 11% 425,588 Property, plant & equipment, net 147,080 121,135 25,945 21% 125,989 Goodwill 102,301 47,501 54,800 115% 46,985 Other long-term assets 43,805 29,139 14,666 50% 31,230 --------- --------- --------- --------- --------- Total assets $ 740,905 $ 601,837 $ 139,068 23% $ 629,792 ========= ========= ========= ========= ========= Current liabilities Current portion - long-term debt $ 1,629 $ 4,647 ($ 3,018) -65% $ 2,001 Current portion - capital leases 844 1,099 (255) -23% 784 Accounts payable 57,893 48,952 8,941 18% 45,419 Payroll/other compensation 44,261 39,316 4,945 13% 53,697 Income taxes 2,136 4,596 (2,460) -54% 4,103 Other current liabilities 28,201 24,917 3,284 13% 26,424 --------- --------- --------- --------- --------- Total current liabilities 134,964 123,527 11,437 9% 132,428 Long-term debt 121,264 63,279 57,985 92% 62,469 Capital leases 1,983 204 1,779 872% 219 Deferred income taxes 5,380 5,459 (79) -1% 5,697 Other long-term liabilities 16,702 12,551 4,151 33% 14,064 Commitments & contingencies Shareholders' equity Common shares, $1 par 52,544 52,397 147 0% 52,340 Capital in excess of par 35,099 30,441 4,658 15% 31,582 Retained earnings 374,429 316,158 58,271 18% 332,934 Currency translation (1,460) (2,179) 719 33% (1,941) --------- --------- --------- --------- --------- Total shareholders' equity 460,612 396,817 63,795 16% 414,915 Total liabilities and --------- --------- --------- --------- --------- shareholders' equity $ 740,905 $ 601,837 $ 139,068 23% $ 629,792 ========= ========= ========= ========= ========= <FN> The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. </FN> </TABLE> <TABLE> <CAPTION> LA-Z-BOY INCORPORATED CONSOLIDATED STATEMENT OF CASH FLOWS INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (Unaudited, dollar amounts in thousands) Three Months Ended Nine Months Ended -------------------- -------------------- Jan. 22, Jan. 23, Jan. 22, Jan. 23, 2000 1999 2000 1999 -------- -------- -------- -------- <S> <C> <C> <C> <C> Cash Flows from Operating Activities Net income $ 21,337 $ 17,728 $ 57,900 $ 43,359 Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization 6,833 5,709 18,961 17,062 Change in receivables 16,172 27,209 8,241 9,755 Change in inventories (1,091) (7,718) (19,070) (15,693) Change in other assets and liabilities (12,915) (3,124) (12,654) 18,300 Change in deferred taxes (563) 465 (3,117) (2,277) -------- -------- -------- -------- Total adjustments 8,436 22,541 (7,639) 27,147 -------- -------- -------- -------- Cash Provided by Operating Activities 29,773 40,269 50,261 70,506 Cash Flows from Investing Activities Proceeds from disposals of assets 240 20 790 313 Capital expenditures (6,849) (6,749) (28,801) (14,982) Acquisition of operating division, net of cash acquired (2,099) -- (60,780) -- Change in other investments (3,726) 700 (6,039) (1,727) -------- -------- -------- -------- Cash Used by Investing Activities (12,434) (6,029) (94,830) (16,396) Cash Flows from Financing Activities Long term debt -- -- 57,000 -- Retirements of debt (792) (119) (3,598) (3,330) Capital leases 722 -- 1,657 -- Capital lease principal payments (440) (96) (642) (899) Stock for stock option plans 219 226 4,402 4,914 Stock for 401(k) employee plans 612 545 1,811 1,382 Purchase of La-Z-Boy stock (9,916) (8,931) (20,862) (27,694) Payment of cash dividends (4,170) (4,216) (12,544) (12,222) -------- -------- -------- -------- Cash Provided/(Used) by Financing Activities (13,765) (12,591) 27,224 (37,849) Effect of exchange rate changes on cash 188 (333) 326 (924) -------- -------- -------- -------- Net change in cash and equivalents 3,762 21,316 (17,019) 15,337 Cash and equivalents at beginning of period 12,769 22,721 33,550 28,700 -------- -------- -------- -------- Cash and equivalents at end of period $ 16,531 $ 44,037 $ 16,531 $ 44,037 ======== ======== ======== ======== Cash paid during period -Income taxes $ 15,957 $ 10,620 $ 39,264 $ 18,498 -Interest $ 1,478 $ 1,631 $ 4,144 $ 2,762 <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 Consolidated Financial Statements are an integral part of these statements. </FN> </TABLE> NOTES TO 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 Company's 1999 Annual Report on Form 10-K, as amended, filed with the Securities and Exchange Commission. The financial information included herein, other than the consolidated balance sheet as of April 24, 1999, has been prepared by management without audit by independent certified public accountants. The consolidated balance sheets as of January 22, 2000 and January 23, 1999 have been prepared on a basis consistent with, but do not include all the disclosures contained in, the audited consolidated financial statements for the year ended April 24, 1999. 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, 2000. 3. Earnings per Share Basic earnings per share is computed using the weighted-average number of shares outstanding during the period. Diluted earnings per share uses the weighted-average number of shares outstanding during the period plus the additional common shares that would be outstanding if the dilutive potential common shares issuable under employee stock options were issued. Three Months Nine Months Ended Ended -------------------- -------------------- Jan. 22, Jan. 23, Jan. 22, Jan. 23, (Amounts in thousands) 2000 1999 2000 1999 - ------------------------ --------- --------- --------- --------- Weighted average common shares outstanding (basic) 52,088 52,680 52,232 53,061 Effect of options 186 245 266 270 --------- --------- --------- --------- Weighted average common shares outstanding (diluted) 52,274 52,925 52,498 53,331 ========= ========= ========= =========
4. Segment Information The Company's reportable operating segments are Residential upholstery and Residential casegoods. Financial results of the Company's operating segments for the three and nine months ended January 22, 2000 and January 23, 1999 are as follows: <TABLE> <CAPTION> Three Months Ended Nine Months Ended -------------------------- -------------------------- Jan. 22, Jan. 23, Jan. 22, Jan. 23, (Amounts in thousands) 2000 1999 2000 1999 - --------------------------- ----------- ----------- ----------- ----------- <S> <C> <C> <C> <C> Net revenues Residential upholstery $ 310,191 $ 252,536 $ 879,465 $ 721,897 Residential casegoods 50,488 47,129 154,551 145,018 Other 41,848 40,202 125,448 108,291 Eliminations (25,655) (21,762) (73,197) (53,390) =========== =========== =========== =========== Consolidated $ 376,872 $ 318,105 $ 1,086,267 $ 921,816 =========== =========== =========== =========== Operating profit Residential upholstery $ 30,358 $ 25,888 $ 83,433 $ 65,441 Residential casegoods 3,596 2,335 13,223 7,656 Other 491 359 1,655 635 Unallocated corporate costs & eliminations (1,157) (158) (5,070) (2,888) =========== =========== =========== =========== Consolidated $ 33,288 $ 28,424 $ 93,241 $ 70,844 =========== =========== =========== =========== </TABLE> 5. Subsequent Event On January 27, 2000, the shareholders of LADD Furniture, Inc., then a publicly traded furniture manufacturer, approved a stock-for-stock-merger of a La-Z-Boy acquisition subsidiary into LADD. The merger became effective January 29, 2000. When the merger became effective, LADD became a wholly-owned subsidiary of La-Z-Boy Incorporated; the holders of LADD stock received in consideration for their LADD shares, approximately 9.2 million shares of La-Z-Boy common stock (valued at approximately $191 million); and the LADD employee options then outstanding were replaced by options on approximately 984 thousand La-Z-Boy common shares. LADD's sales for its fiscal year ended January 2, 1999 were approximately $571 million. After giving effect to the merger, the transaction results in the former LADD shareholders owning approximately 15% of La-Z-Boy's outstanding common stock.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Cautionary Statement Concerning Forward-Looking Statements This document contains forward-looking statements that are subject to risks and uncertainties. Generally, forward-looking statements include information concerning possible or assumed future actions, events or results of operations. More specifically, forward-looking statements include the information in this document regarding: future income and margins future economic performance growth industry trends adequacy and cost of financial resources management plans Forward-looking statements also include those preceded or followed by the words "anticipates," "believes," "estimates," "hopes," "plans," " intends" and "expects" or similar expressions. With respect to all forward-looking statements, the Company claims the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. The reader should understand that the following important factors, as well as others, could affect the Company's future results and could cause those results or other outcomes to differ materially from those expressed or implied in forward-looking statements: Economic and Industry Conditions * materially adverse changes in economic and industry conditions and customer demand generally or in the markets served by the Company * supply and demand for and pricing of supplies and components * availability of qualified labor * changes in demographics and consumer preferences or demands for the Company's products * the impact of e-commerce on the distribution of the Company's products * changes in the availability or cost of capital Competitive Factors * the competitiveness of foreign-made products * the actions of competitors * new manufacturing technologies * industry consolidation Operating Factors * supply, labor, or distribution disruptions * acquisitions or divestitures * changes in operating conditions and costs * changes in regulatory environment Factors Relating to Recent Acquisitions * integration challenges diverting management's focus and resources from other strategic opportunities or operational matters during the integration process * experienced employees leaving for other positions Recent Acquisitions The Company acquired Bauhaus USA, Inc., a manufacturer of upholstered furniture primarily marketed to department stores, on June 1, 1999 for approximately $57 million in cash. Bauhaus' operations are included in the Company's results for the entire quarter ended January 22, 2000 and for approximately eight of the nine months ended on that date, but not in the comparable periods of the prior fiscal year. The Company acquired Alexvale Furniture, Inc., a manufacturer of medium priced upholstered furniture, on December 28, 1999 for a combination of cash and La-Z-Boy common stock. Alexvale's sales for its fiscal year ended April 30, 1999 were approximately $61 million. Alexvale's operations are included in the Company's results for approximately one month of the quarter ended January 22, 2000, but not in the comparable period of the prior fiscal year. Because the LADD acquisition, which is to be accounted for as a purchase, was consummated on January 29, 2000, no LADD financial results are included in the Company's results for the quarter and nine month periods ended January 22, 2000.
Results of Operations Quarter Ended Jan. 22, 2000 Compared to Quarter Ended Jan. 23, 1999 Income Statement Analysis Third Quarter Ended ------------------------------------ FY00 Over % of Sales (Under) ---------------------- FY99 2000 1999 ---------- ---------- ---------- Sales 18% 100.0% 100.0% Cost of sales 22% 74.7% 72.6% ---------- ---------- ---------- Gross profit 10% 25.3% 27.4% Selling, general and administrative 6% 16.5% 18.5% ---------- ---------- ---------- Operating profit 17% 8.8% 8.9% Interest expense 92% 0.6% 0.3% Interest income (26%) 0.1% 0.1% Other income 37% 0.4% 0.3% ---------- ---------- ---------- Pretax income 14% 8.7% 9.0% Income tax expense 4% 34.9%* 38.2%* ---------- ---------- ---------- Net income 20% 5.7% 5.6% ========== ========== ========== Basic earnings per share 21% Diluted earnings per share 24% Dividends per share 0% * As a percent of pretax income, not sales. <TABLE> <CAPTION> Segment Analysis Third Quarter Ended --------------------------------------------------------------------- Net Revenues Operating Profit ----------------------------------- ------------------------------- FY00 FY00 Over % of Total Over % of Revenues (Under) ---------------------- (Under) ------------------ FY99 FY00 FY99 FY99 FY00 FY99 ---------- ---------- --------- ---------- -------- -------- <S> <C> <C> <C> <C> <C> <C> Residential upholstery 23% 82.3% 79.4% 17% 9.8% 10.3% Residential casegoods 7% 13.4% 14.8% 54% 7.1% 5.0% Other 4% 11.1% 12.6% (94%) 1.2% 0.9% Unallocated corporate costs & eliminations 18% (6.8%) (6.8%) N/A N/A N/A ---------- ---------- --------- ---------- -------- -------- Consolidated 18% 100.0% 100.0% 17% 8.8% 8.9% ========== ========== ========= ========== ======== ======== </TABLE> Sales in the third quarter of fiscal year 2000 were up 18% over the prior year's third quarter. Roughly half of the increase was caused by the acquisition of Bauhaus. "Other" sales were only up 4% due mainly to lower than average contract sales for the quarter. Gross profit margin decreased to 25.3% of sales from 27.4% of sales in last year's third quarter on an 18% increase in sales and a 15% increase in unit volume. One factor affecting the decline was a below average gross profit margin at Bauhaus. However, the primary reason for the gross profit margin decline was unfavorable labor and overhead costs associated with improving plant floor layouts. Plant floor disruptions caused by creating additional major upholstery production capacity, the installation of an improved lumber processing system, and the implementation of upholstery related plant floor process improvements have been more severe, and have been more prolonged than previously estimated. The employee training costs incurred in acquiring and retaining labor in a low unemployment environment are still present. As expected, the cost of plywood did decline and the cost of cardboard packaging did increase compared to the second quarter. Third quarter selling, general and administrative expenses decreased to 16.5% of sales from 18.5% last year. Bonus related, bad debt and selling expenses as a percent of sales were below the prior year. Also, Bauhaus' selling, general and administrative expenses were measurably lower than the Company's average. In addition to the above, many other selling, general and administrative expenses were flat or increased at a rate less than the sales increase. These reductions more than offset an increase in accrued warranty expense. Operating profit as a percent of sales declined from 10.3% to 9.8% in the upholstery segment. Improvements in La-Z-Boy Canada Ltd. were more than offset by declines in the U.S. Residential and England/Corsair divisions. Most of the declines in these two divisions were in the gross margin area as described above. However, advertising and higher other selling, general and administrative costs at England/Corsair also contributed to the decline even though sales significantly increased. Operating profit as a percent of sales improved from 5.0% to 7.1% in the casegoods segment. This continues a trend from the first and second quarters, although, casegoods' absolute level of profitability is still less than upholstery. The primary reasons for the improvement in third quarter profitability in the casegoods segment were a lower level of selling price incentives and reductions in advertising and showroom renovation expenses. Interest expense as a percent of sales increased from 0.3% last year to 0.6% due to financing obtained in the first quarter for the acquisition of Bauhaus. Income tax expense as a percent of pretax income declined to 34.9% from 38.2% last year. Canadian operating results during the year have shown significant improvements thus allowing the Company to reverse valuation allowances associated with net operating losses during the third quarter.
Nine Months Ended Jan. 22, 2000 Compared to Nine Months Ended Jan. 23, 1999 Income Statement Analysis Nine Months Ended ------------------------------------- FY00 Over % of Sales (Under) ---------------------- FY99 2000 1999 ---------- --------- ---------- Sales 18% 100.0% 100.0% Cost of sales 19% 74.5% 73.9% ---------- --------- ---------- Gross profit 15% 25.5% 26.1% Selling, general and administrative 9% 16.9% 18.4% ---------- --------- ---------- Operating profit 32% 8.6% 7.7% Interest expense 57% 0.5% 0.4% Interest income 3% 0.1% 0.2% Other income 39% 0.3% 0.2% ---------- --------- ---------- Pretax income 30% 8.5% 7.7% Income tax expense 24% 37.3%* 39.0%* ========== ========= ========== Net income 34% 5.3% 4.7% ========== ========= ========== Basic earnings per share 35% Diluted earnings per shares 36% Dividends per share 4% * As a percent of pretax income, not sales. <TABLE> <CAPTION> Segment Analysis Nine Months Ended ------------------------------------------------------------------------ Net Revenues Operating Profit ------------------------------------ -------------------------------- FY00 FY00 Over % of Total Over % of Revenues (Under) ---------------------- (Under) ------------------- FY99 FY00 FY99 FY99 FY00 FY99 ---------- ---------- ---------- ---------- -------- --------- <S> <C> <C> <C> <C> <C> <C> Residential upholstery 22% 81.0% 78.3% 28% 9.5% 9.1% Residential casegoods 7% 14.2% 15.7% 73% 8.6% 5.3% Other 16% 11.5% 11.7% 87% 1.3% 0.6% Unallocated corporate costs & eliminations 37% (6.7%) (5.8%) N/A N/A N/A ---------- ---------- ---------- ---------- -------- --------- Consolidated 18% 100.0% 100.0% 32% 8.6% 7.7% ========== ========== ========== ========== ======== ========= </TABLE> Sales in the nine months ended January 22, 2000 were up 18% over the prior year. Roughly 7% of the sales increase was caused by the June 1, 1999 acquisition of Bauhaus. Gross profit margin decreased to 25.5% of sales from 26.1% of sales on an 18% increase in sales and a 16% increase in unit volume. The favorable effect of fixed cost absorption was more than offset by the higher labor and overhead costs associated with improving plant floor layouts to accommodate additional product lines and implement lean manufacturing processes. The gross profit margin was also somewhat impacted by increased cost for plywood and cardboard packaging, which were only partially offset by decreased costs for leather. In addition, the below average gross profit margin at Bauhaus also had a negative impact on the consolidated gross profit margin. For the nine months ended January 22, 2000, selling, general and administrative expenses decreased to 16.9% of sales from 18.4% last year. Bonus related, information technology, bad debt and selling expenses as a percent of sales were below the prior year. In addition to the above, many other selling, general and administrative expenses were flat or increased at a rate less than the sales increase. These reductions more than offset an increase in accrued warranty expense. Operating profit as a percent of sales improved from 9.1% to 9.5% in the upholstery segment. The favorable first and second quarter impacts more than offset the unfavorable third quarter impacts. Operating profit as a percent of sales improved from 5.3% to 8.6% in the casegoods segment. This improvement in profitability in the casegoods segment was mainly due to lower levels of selling price incentives and reductions in advertising and showroom renovation expenses. Interest expense as a percent of sales increased from 0.4% last year to 0.5% due to financing obtained in the first quarter for the acquisition of Bauhaus. Income tax expense as a percent of pretax income declined to 37.3% from 39.0% last year caused by the favorable Canadian operating results previously discussed in the third quarter analysis. Liquidity and Capital Resources Cash flows from operations amounted to $50.3 million in the first nine months of fiscal year 2000 compared to $70.5 million in the prior year. Capital expenditures, dividends and stock repurchases totaled approximately $62 million during the nine month period, while cash and cash equivalents decreased by $17.0 million. Total FIFO inventory at January 22, 2000 was 27% higher than at the end of fiscal 1999 and 17% higher than at the end of last year's third quarter. Of this increase, 7% was due to the acquisition of Bauhaus, 6% was due to the acquisition of Alexvale and 3% was an increase in finished goods to support additional sales volume. The increase in other long term assets was primarily due to the Company's additional investments to help support sales growth of the retail market. The Company's financial strength 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). Total debt is defined as current portion of long-term debt plus current portion of capital leases plus long-term debt plus capital leases. The Company's current ratio was 3.3 to 1 at January 22, 2000, 3.2 to 1 at the end of fiscal 1999 and 3.3 to 1 at the end of last year's third quarter. At January 22, 2000, the debt to capital ratio was 21%, compared to 14% at the end of fiscal 1999 and 15% at the end of last year's third quarter. As of January 22, 2000, the Company had $100 million of unused lines of credit available under several credit arrangements. To finance the acquisition of Bauhaus on June 1, 1999, the Company borrowed $57 million, which was replaced on December 29, 1999 by a borrowing under its $75 million unsecured revolving credit line. The Alexvale acquisition required approximately $2.2 million for the cash portion of the purchase price, which the Company paid out of cash flow from operations. On January 31, 2000, the Company terminated LADD's $175 million credit facility and paid off all borrowings, which totaled about $106 million, with an unsecured $150 million bridge loan facility with a current borrowing rate of LIBOR plus 0.75% which matures June 29, 2001. In addition, LADD finances a significant amount of machinery and equipment through operating lease lines which La-Z-Boy has guaranteed. As of January 31, 2000, the Company has guaranteed $10 million on these operating leases. The Company's capital expenditures during the nine months ended January 22, 2000 were $28.8 million. As of January 22, 2000, approximately 4% of the 12 million shares of Company stock authorized for purchase on the open market was still available for purchase by the Company. As of the filing date of this Form 10-Q, the Company's year 2000 remediation program is complete and business operations have not been adversely affected by year 2000 matters. Total expenditures by the Company on the year 2000 program were just under $11 million. Outlook Comparable sales growth is moderating primarily due to exceptionally strong results in last year's fourth quarter. Excluding the extra week in this year's fourth quarter, comparable sales are expected to be roughly equal to those in the prior year's fourth quarter. Cost trends affecting gross margin in the areas of unfavorable plant floor disruptions, employee training costs and cardboard costs and favorable plywood costs as experienced in the third quarter are expected to continue into the fourth quarter. By the first or second quarter of fiscal 2001, management expects a significant improvement in these unfavorable cost areas not only due to the absence of the initial start-up costs but also due to the benefits from the process improvements. Selling, general and administrative expenses as a percent of sales are expected to remain below the prior year in the next quarter. Interest expense is expected to remain substantially higher for the foreseeable future. No major price increases or decreases to purchased parts and raw materials are expected in the near term. The Company intends to pay off all borrowings under the $75 million unsecured revolving credit line and the $150 million bridge loan facility by the end of April using a new $250 million syndicated credit facility, the terms of which are currently being negotiated. Total debt is not expected to be substantially increased or decreased in the near future. The Company expects capital expenditures of approximately $8 to $12 million during the fourth quarter. Fiscal year 2001 capital expenditure estimates are not yet available. The estimates are currently being developed and will include the three companies acquired during this fiscal year. The Company does not currently have any material commitments for capital expenditures. The Company expects to continue to be in the open market for purchasing its shares from time to time as changes in its stock price and other factors present appropriate opportunities. The Company expects to meet its cash needs for capital expenditures, stock repurchases and dividends during the remainder of fiscal year 2000 and fiscal year 2001 from cash generated by operations and borrowings under available lines of credit. As a result of the LADD acquisition, the Company's assets, liabilities and results of operations for its fourth quarter and future periods will differ substantially from those in comparable prior periods. Detailed information about LADD's historical operations and financial results is publicly available in the reports and proxy statements it has filed with the SEC. Additional information about the LADD acquisition is contained in the Form S-4 registration statement that La-Z-Boy filed with the SEC to register the stock to be issued to LADD shareholders as merger consideration. Subsequent to the LADD acquisition, the Company will be reporting the results of an additional business segment, a contract segment. The contract business segment markets its products to dealers or directly to customers in the office, hospitality and healthcare industries or other non residential "business" furniture customers. LADD has a large contract division called American of Martinsville (AOM). For segment disclosure purposes, AOM's operations will be combined with the La-Z-Boy contract division (which presently is included under "Other"). Item 3: Quantitative & Qualitative Disclosures About Market Risk No information is presented in response to this item because the Company has no material market risk relating to derivative financial instruments, derivative commodity instruments or other financial instruments. PART II - OTHER INFORMATION Item 2. Changes in Securities and Use of Proceeds (c) On December 28, 1999, La-Z-Boy issued an aggregate 879,331 of its common shares to the former owners of the Alexvale companies, as part of the consideration paid to them in the Alexvale acquisition. The shares issued in this transaction were not registered under the Securities Act of 1933, in reliance on the private placement exemption afforded by Section 4(2) of the Securities Act and Rule 506 of SEC Regulation D. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits Exhibit No. Description (4) $150 million Credit Agreement dated as of January 28, 2000, among La-Z-Boy Incorporated, The Banks Listed Therein and Wachovia Bank, N.A. as agent (filed herewith). (10) Amendment No. 1, dated as of December 13, 1999, to Agreement and Plan of Merger among La-Z-Boy Incorporated, LZB Acquisition Corp., and LADD Furniture, Inc (Incorporated by reference to an exhibit to La-Z-Boy's Form S-4 Registration Statement filed December 15, 1999; registration no. 333-92763) (27) Financial Data Schedule (EDGAR only) (99) La-Z-Boy Incorporated Replacement Plan for LADD Stock Options (Incorporated by reference to an exhibit to La-Z-Boy's Form S-8 Registration Statement filed January 28, 2000; registration no. 333-95651) (b) Reports on Form 8-K A Form 8-K concerning the Company's second quarter financial results as of October 23, 1999 filed with the SEC on November 3, 1999. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. LA-Z-BOY INCORPORATED (Registrant) Date February 7, 2000 /s/Gene M. Hardy ---------------------------- Gene M. Hardy Secretary and Treasurer Exhibit Index (4) $150 million Credit Agreement dated as of January 28, 2000, among La-Z-Boy Incorporated, The Banks Listed Therein and Wachovia Bank, N.A. as agent (filed herewith). (10) Amendment No. 1, dated as of December 13, 1999, to Agreement and Plan of Merger among La-Z-Boy Incorporated, LZB Acquisition Corp., and LADD Furniture, Inc. (Incorporated by reference to an exhibit to La-Z-Boy's Form S-4 Registration Statement filed December 15, 1999; registration no. 333-92763) (27) Financial Data Schedule (EDGAR only) (99) La-Z-Boy Incorporated Replacement Plan for LADD Stock Options (Incorporated by reference to an exhibit to La-Z-Boy's Form S-8 Registration Statement filed January 28, 2000; registration no. 333-95651)