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 July 24, 1999 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 July 24, 1999 - ------------------------------ ------------------------------- Common Shares, $1.00 par value 52,233,696 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 August 4, 1999 and are incorporated herein by reference. ------------------------------------------------------ LA-Z-BOY INCORPORATED CONSOLIDATED STATEMENTS OF CASH FLOWS INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (Unaudited, dollar amounts in thousands) Three Months Ended ----------------------- July 24, July 25, 1999 1998 ---------- ---------- Cash Flows from Operating Activities Net income $13,293 $7,184 Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization 5,780 5,417 Change in receivables 50,000 42,571 Change in inventories (11,614) (9,368) Change in other assets and liabilities (17,396) (9,809) Change in deferred taxes 21 73 ---------- ---------- Total adjustments 26,791 28,884 ---------- ---------- Cash Provided by Operating Activities 40,084 36,068 Cash Flows from Investing Activities Proceeds from disposals of assets 67 205 Capital expenditures (13,568) (4,105) Acquisition of operating division, net of cash acquired (58,316) -- Change in other investments (166) (1,890) ---------- ---------- Cash Used for Investing Activities (71,983) (5,790) Cash Flows from Financing Activities Long term debt 57,000 -- Retirements of debt (2,704) (3,091) Capital lease principal payments (86) (442) Stock for stock option plans 2,171 1,451 Stock for 401(k) employee plans 687 379 Purchase of La-Z-Boy stock (6,142) (7,603) Payment of cash dividends (4,185) (3,743) ---------- ---------- Cash Provided/(Used) for Financing Activities 46,741 (13,049) Effect of exchange rate changes on cash (288) (310) ---------- ---------- Net change in cash and equivalents 14,554 16,919 Cash and equivalents at begin. of period 33,550 28,700 ---------- ---------- Cash and equivalents at end of period $48,104 $45,619 ========== ========== Cash paid during period -Income taxes $2,289 $475 -Interest $486 $543 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. 1
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 1999 Annual Report 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 sheet as of July 24, 1999 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 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 were issued. This includes employee stock options. Three Months Ended ----------------------- July 24, July 25, (Amounts in thousands) 1999 1998 - ---------------------- -------- -------- Weighted average common shares outstanding (basic) 52,286 53,392 Effect of options 341 330 -------- -------- Weighted average common shares outstanding (diluted) 52,627 53,722 ======== ======== 2
4. Segment Information The Company's reportable operating segments include Residential upholstery and Residential casegoods. Financial results of the Company's operating segments for the quarters ended July 24, 1999 and July 25, 1998 are as follows: Three Months Ended ------------------- July 24, July 25, (Amounts in thousands) 1999 1998 - ---------------------- -------- -------- Net revenues Residential upholstery $255,088 $206,634 Residential casegoods 50,253 45,575 Other 38,577 29,494 Eliminations (22,259) (12,823) -------- -------- Consolidated $321,659 $268,880 ======== ======== Operating profit Residential upholstery $18,592 $11,691 Residential casegoods 5,094 2,579 Other 430 (777) Unallocated corporate costs & eliminations (2,459) (1,332) -------- -------- Consolidated $21,657 $12,161 ======== ======== LA-Z-BOY INCORPORATED MANAGEMENT'S 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) 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. 3
Financial Position The Company's strong financial position is reflected in the debt to capital percentage of 23% and a current ratio of 3.4 to 1 at the end of the first quarter. At April 24, 1999, the debt to capital percentage was 14% and the current ratio was 3.2 to 1. At the end of the preceding year's first quarter, the debt to capital percentage was 15% and the current ratio was 3.8 to 1. As of July 24, 1999, there was $124 million of unused lines of credit available under several credit arrangements. Stock Repurchase Program Approximately 11% 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, including the Company's recent acquisition, Bauhaus. The Company has included IT systems and non-IT systems as well as third party readiness in the scope of its Year 2000 project. The Company remains on schedule with regard to its internal plan. 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 regard 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, assessment and remediation phases. The Company has substantially completed the testing and implementation phases. 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 and the testing phase is substantially complete. The Company believes these systems to be compliant and compatible. The Company is presently completing the testing phase of its non-IT projects 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. Multiple approaches are being used to determine compliance based on the priority assigned to the third party. Based on communications with these third parties, the Company believes that all material third parties will be sufficiently prepared for the Year 2000 or the Company will make alternative plans. For critical third parties, testing will be performed as deemed necessary. 4
While the Company believes that it is preparing adequately for all Year 2000 concerns, there is no guarantee against internal or external system failures. Such failures could have a material adverse effect on the Company's results of operations, liquidity and financial condition. The Company continues to assess the operational risks related to the Year 2000 issue. To the extent such risks are identified, the Company has or will devise contingency plans to minimize such risks. 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 $14 million. To date, the Company has spent approximately $10 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 4. Submission of Matters to a Vote of Security Holders The Annual Meeting of Shareholders of La-Z-Boy Incorporated was held on July 26, 1999, for the purposes of electing four members to the board of directors. Proxies for the meeting were solicited pursuant to Section 14(a) of the Securities and Exchange Act of 1934 and there was no solicitation in opposition to management's solicitations. The shareholders elected all of management's nominees for directors as listed in the proxy statement. The distribution of shareholders' votes was as follows: Shares Voted Percent Shares Shares In Favor In Favor Withheld Election of Directors: ------------ -------------- --------- John F. Weaver 45,427,825 98.1% 894,100 James W. Johnston 45,005,270 97.2% 1,316,655 H. George Levy, M.D. 45,251,847 97.7% 1,070,078 Gerald L. Kiser 45,523,768 98.3% 798,157 5
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 first quarter results and Management Discussion dated August 4, 1999. 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 July 24, 1999 to be signed on its behalf by the undersigned thereunto duly authorized. LA-Z-BOY INCORPORATED (Registrant) Date August 4, 1999 /s/Gene M. Hardy ------------------------------ Gene M. Hardy Secretary and Treasurer (Principal Accounting Officer) 6