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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 26, 2002 COMMISSION FILE NUMBER 1-9656
---------------- ------
LA-Z-BOY INCORPORATED
- -------------------------------------------------------------------------------
(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
- -------------------------------------------------------------------------------
(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 October 26, 2002
- ------------------------------ -------------------------------
Common Shares, $1.00 par value 56,717,154
LA-Z-BOY INCORPORATED
FORM 10-Q SECOND QUARTER OF FISCAL 2003
TABLE OF CONTENTS
Page
Number(s)
--------
PART I Financial Information
Item 1. Financial Statements
Consolidated Statements of Income.......................... 3-4
Consolidated Balance Sheet................................. 5
Consolidated Statement of Cash Flows....................... 6
Notes to Consolidated Financial Statements
Note 1. Basis of Presentation............................ 7
Note 2. Interim Results.................................. 7
Note 3. Reclassification................................. 7
Note 4. Earnings per Share............................... 7
Note 5. Inventories...................................... 8
Note 6. Restructuring.................................... 8
Note 7. Segment Information.............................. 9
Note 8. New Accounting Pronouncement..................... 9-10
Note 9. Comprehensive Income............................. 10
Note 10. Share Repurchases ............................... 11
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Cautionary Statement Concerning Forward-Looking Statements.. 11
Results of Operations....................................... 12-15
Liquidity and Capital Resources............................. 15-16
Outlook..................................................... 16-17
Item 3. Quantitative and Qualitative Disclosures About Market Risk.. 17-18
Item 4. Controls and Procedures..................................... 18
PART II Other Information
Item 4. Results of Votes of Security Holders........................ 18
Item 6. Exhibits and Reports on Form 8-K............................ 19
Signature Page.......................................................... 19
Certifications of Officers per Section 302 of the Sarbanes-Oxley
Act.............................................................. 20-21
Page 2 of 21
LA-Z-BOY INCORPORATED
CONSOLIDATED STATEMENT OF INCOME
(Unaudited, amounts in thousands, except per share data)
Second Quarter Ended
--------------------------------------------------
Percent of Sales
% Over ------------------
10/26/02 10/27/01 (Under) 10/26/02 10/27/01
---------- -------- ------- -------- --------
Sales $563,587 $557,408 1.1% 100.0% 100.0%
Cost of sales 429,161 446,105 -3.8% 76.1% 80.0%
---------- -------- ------- -------- --------
Gross profit 134,426 111,303 20.8% 23.9% 20.0%
Selling, general &
administrative 87,190 89,697 -2.8% 15.5% 16.1%
---------- -------- ------- -------- --------
Operating income 47,236 21,606 118.6% 8.4% 3.9%
Interest expense 2,153 2,044 5.3% 0.4% 0.4%
Other income (expense), net 1,394 750 85.9% 0.2% 0.1%
---------- -------- ------- -------- --------
Pretax income 46,477 20,312 128.8% 8.2% 3.6%
Tax expense 17,777 7,921 124.4% 38.2%* 39.0%*
---------- -------- ------- -------- --------
Net income $28,700 $12,391 131.6% 5.1% 2.2%
========== ======== ======= ======== ========
Basic average shares 57,388 60,914
Basic net income per share $0.50 $0.20
Diluted average shares 57,760 61,052
Diluted net income per share $0.50 $0.20
Dividends paid per share $0.10 $0.09
* As a percent of pretax income, not sales.
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
Page 3 of 21
LA-Z-BOY INCORPORATED
CONSOLIDATED STATEMENT OF INCOME
(Unaudited, amounts in thousands, except per share data)
Six Months Ended
---------------------------------------------------------------------
Percent of Sales
% Over -------------------------
10/26/02 10/27/01 (Under) 10/26/02 10/27/01
----------- ----------- ------------- ------------ -----------
Sales $1,060,962 $1,014,343 4.6% 100.0% 100.0%
Cost of sales 811,713 815,834 -0.5% 76.5% 80.4%
----------- ----------- ------------- ------------ ------------
Gross profit 249,249 198,509 25.6% 23.5% 19.6%
Selling, general &
administrative 169,126 169,926 -0.5% 15.9% 16.8%
----------- ----------- ------------- ------------ ------------
Operating income 80,123 28,583 180.3% 7.6% 2.8%
Interest expense 4,180 5,000 -16.4% 0.4% 0.5%
Other income (expense), net 1,510 1,371 10.1% 0.1% 0.2%
----------- ----------- ------------- ------------ ------------
Pretax income 77,453 24,954 210.4% 7.3% 2.5%
Tax expense 29,625 9,732 204.4% 38.2%* 39.0%*
----------- ----------- ------------- ------------ ------------
Income before cumulative effect
of accounting change 47,828 15,222 214.2% 4.5% 1.5%
Cumulative effect of accounting change
(net of tax of $17,920) (59,782) -- N/M -5.6% --
----------- ----------- ------------- ------------ ------------
Net income (loss) ($11,954) $15,222 -178.5% -1.1% 1.5%
=========== =========== ============= ============ ============
Basic average shares 58,257 60,842
=========== ===========
Basic net income per share before
cumulative effect of accounting change $0.82 $0.25
Cumulative effect of accounting change
per share (1.03) --
----------- -----------
Basic net income (loss) per share ($0.21) $0.25
=========== ===========
Diluted average shares 58,726 60,994
=========== ===========
Diluted net income per share before
cumulative effect of accounting change $0.81 $0.25
Cumulative effect of accounting change
per share (1.01) --
----------- -----------
Diluted net income (loss) per share ($0.20) $0.25
=========== ===========
Dividends paid per share $0.20 $0.18
* As a percent of pretax income, not sales.
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
Page 4 of 21
LA-Z-BOY INCORPORATED
CONSOLIDATED BALANCE SHEET
(Unaudited, amounts in thousands)
Increase/(Decrease)
10/26/02 10/27/01 Dollars Percent 4/27/02
--------------- ---------------- ----------- ------------- ---------------
Current assets
Cash and equivalents $23,723 $24,797 ($1,074) -4.3% $26,771
Receivables, net 358,939 377,744 (18,805) -5.0% 382,843
Inventories, net 246,352 244,455 1,897 0.8% 208,657
Deferred income taxes 32,159 19,771 12,388 62.7% 35,035
Other current assets 17,953 19,077 (1,124) -5.9% 18,386
--------------- ---------------- -------------- ----------- ---------------
Total current assets 679,126 685,844 (6,718) -1.0% 671,692
Property, plant and equipment, net 212,305 219,656 (7,351) -3.3% 205,463
Goodwill 78,807 110,497 (31,690) -28.7% 108,244
Trade names 71,144 118,876 (47,732) -40.2% 116,745
Other long-term assets 68,490 55,503 12,987 23.4% 58,632
--------------- ---------------- -------------- ----------- ---------------
Total assets $1,109,872 $1,190,376 ($80,504) -6.8% $1,160,776
=============== ================ ============== =========== ===============
Current liabilities
Lines of credit $22,100 $ -- $22,100 N/M $ --
Current portion of long-term
debt and capital leases 2,277 7,047 (4,770) -67.7% 2,276
Accounts payable 85,904 88,604 (2,700) -3.0% 68,497
Accrued expenses and other
current liabilities 137,941 136,933 1,008 0.7% 156,120
--------------- ---------------- -------------- ----------- ---------------
Total current liabilities 248,222 232,584 15,638 6.7% 226,893
Long-term debt 187,784 171,477 16,307 9.5% 137,444
Capital leases 1,658 2,278 (620) -27.2% 1,942
Deferred income taxes 28,513 46,236 (17,723) -38.3% 46,145
Other long-term liabilities 37,745 39,380 (1,635) -4.2% 34,830
Contingencies and commitments
Shareholders' equity
Common shares, $1 par value 56,717 60,763 (4,046) -6.7% 59,953
Capital in excess of par value 215,561 211,138 4,423 2.1% 215,060
Retained earnings 339,532 434,348 (94,816) -21.8% 444,173
Accumulated other
comprehensive loss (5,860) (7,828) 1,968 25.1% (5,664)
--------------- ---------------- -------------- ----------- ---------------
Total shareholders' equity 605,950 698,421 (92,471) -13.2% 713,522
--------------- ---------------- -------------- ----------- ---------------
Total liabilities and
shareholders' equity $1,109,872 $1,190,376 ($80,504) -6.8% $1,160,776
=============== ================ ============== =========== ===============
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
Page 5 of 21
LA-Z-BOY INCORPORATED
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited, amounts in thousands)
Second Quarter Ended Six Months Ended
------------------------------- ---------------------------------
10/26/02 10/27/01 10/26/02 10/27/01
---------------- -------------- ----------------- --------------
Cash flows from operating activities
Net income (loss) $28,700 $12,391 ($11,954) $15,222
Adjustments to reconcile net income (loss) to
cash provided by operating activities
Cumulative effect of accounting change - net
of income taxes -- -- 59,782 --
Depreciation and amortization 8,060 10,700 15,126 21,621
Change in receivables (34,252) (72,396) 23,904 3,602
Change in inventories (11,452) 15,723 (34,926) 13,432
Change in payables 7,555 11,759 16,900 (4,226)
Change in other assets and liabilities 8,193 33,257 (14,323) 77
Change in deferred taxes 3,639 3,465 3,191 6,924
---------------- -------------- ----------------- --------------
Total adjustments (18,257) 2,508 69,654 41,430
---------------- -------------- ----------------- --------------
Net cash provided by operating activities 10,443 14,899 57,700 56,652
Cash flows from investing activities
Proceeds from disposals of assets 1,084 304 1,147 843
Capital expenditures (9,821) (5,871) (18,766) (11,956)
Acquisitions, net of cash acquired (1,923) -- (3,089) --
Change in other long-term assets (18,407) (3,973) (14,279) (737)
---------------- -------------- ----------------- --------------
Net cash used for investing activities (29,067) (9,540) (34,987) (11,850)
Cash flows from financing activities
Proceeds from debt 67,119 6,206 77,727 41,576
Payments on debt (7,494) (21,050) (7,627) (76,147)
Capital leases (143) (134) (284) (271)
Stock issued for stock option & 401(k) plans 7,873 4,580 8,566 9,528
Repurchase of common stock (44,850) (6,586) (92,304) (6,586)
Dividends paid (5,712) (5,492) (11,685) (10,956)
---------------- -------------- ----------------- --------------
Net cash provided by (used for) financing
activities 16,793 (22,476) (25,607) (42,856)
Effect of exchange rate changes on cash and
equivalents 4 (533) (154) (714)
---------------- -------------- ----------------- --------------
Net increase (decrease) in cash and equivalents (1,827) (17,650) (3,048) 1,232
Cash and equivalents at beginning of period 25,550 42,447 26,771 23,565
---------------- -------------- ----------------- --------------
Cash and equivalents at end of period $23,723 $24,797 $23,723 $24,797
================ ============== ================= ==============
Cash paid during period -Income taxes $20,774 $5,437 $33,419 $8,500
-Interest $2,191 $2,954 $3,162 $5,216
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
Page 6 of 21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1: Basis of Presentation
The interim financial information is prepared in conformity with generally
accepted accounting principles and, except as indicated in Note 8, such
principles are applied on a basis consistent with those reflected in our
2002 Annual Report on Form 10-K, filed with the Securities and Exchange
Commission, but does not include all the disclosures required by generally
accepted accounting principles. In the opinion of management, the interim
financial information includes all adjustments and accruals, consisting
only of normal recurring adjustments other than the adoption of Statement
of Financial Accounting Standard (SFAS) No. 142 discussed in Note 8, which
are, in our opinion, necessary for a fair presentation of results for the
respective interim period.
Note 2: Interim Results
The foregoing interim results are not necessarily indicative of the results
of operations for the full fiscal year ending April 26, 2003.
Note 3: Reclassification
Certain prior period information has been reclassified to be comparable to
the current year presentation.
Note 4: 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.
(Unaudited)
Second Quarter Six Months
Ended Ended
--------------------- -------------------
(Amounts in thousands) 10/26/02 10/27/01 10/26/02 10/27/01
--------- -------- -------- --------
Weighted average common shares
outstanding (basic) 57,388 60,914 58,257 60,842
Effect of options 372 138 469 152
--------- -------- -------- --------
Weighted average common shares
outstanding (diluted) 57,760 61,052 58,726 60,994
========= ======== ======== ========
Page 7 of 21
Note 5: Inventories
A summary of inventory follows:
(Unaudited)
-------------------------------------
(Amounts in thousands) 10/26/02 10/27/01 4/27/02
--------- ---------- ----------
Raw materials $78,425 $82,045 $72,389
Work-in-progress 50,649 60,250 53,947
Finished goods 129,229 113,010 94,062
--------- ---------- ----------
FIFO inventories 258,303 255,305 220,398
Excess of FIFO over LIFO (11,951) (10,850) (11,741)
--------- ---------- ----------
Inventories, net $246,352 $244,455 $208,657
========= ========== ==========
Note 6: Restructuring
In fiscal years 2002 and 2001, we recorded restructuring charges of
$22.2 million and $11.2 million, respectively. Of the $22.2 million
recorded in fiscal 2002, $13.2 million was recorded in the second quarter.
This expense, which was recorded in cost of sales, was the result of
closing down three manufacturing facilities and converting two others to
warehousing, sub-assembly and import service operations. Of the $13.2
million, $3.7 million was attributable to the Upholstery segment and $9.5
million was attributable to the Casegoods segment. As of October 26, 2002,
substantially all of the 1,132 employees expected to be terminated as a
result of these plans are no longer employed by the company. Restructuring
liabilities along with charges to expense, cash payments or asset
write-offs were as follows:
Fiscal 2003
------------------
Cash
Charges Payments
4/27/02 to or Asset 10/26/02
(Amounts in thousands) Balance Expense Write-offs Balance
------------ --------- ---------- --------
Severance and benefit
related costs $1,500 -- ($1,372) $128
Other 3,100 -- (1,767) 1,333
------------ --------- ---------- --------
Total restructuring $4,600 -- ($3,139) $1,461
============ ========= ========== ========
Fiscal 2002
------------------
Cash
Charges Payments
4/28/01 to or Asset 4/27/02
(Amounts in thousands) Balance Expense Write-offs Balance
------------ --------- ---------- -------
Fixed asset write-downs -- $11,000 ($11,000) --
Severance and benefit
related costs $1,200 4,600 (4,300) $1,500
Inventory write-downs -- 3,500 (3,500) --
Other 2,700 3,100 (2,700) 3,100
------------ --------- ---------- -------
Total restructuring $3,900 $22,200 ($21,500) $4,600
============ ========= ========== =======
Page 8 of 21
Note 7: Segment Information
Our reportable operating segments are the Upholstery segment and the
Casegoods segment. Operating income for the quarter and six months ended
October 27, 2001 is net of $2.3 million and $4.6 million, respectively, of
goodwill and trade name amortization expense. See Note 8 for additional
information.
(Unaudited)
Second Quarter Ended Six Months Ended
------------------------------- -------------------------------
(Amounts in thousands) 10/26/02 10/27/01 10/26/02 10/27/01
-------------- ------------ ------------- -------------
Sales
Upholstery segment $422,333 $389,239 $789,222 $697,637
Casegoods segment 142,778 168,441 274,052 317,124
Eliminations (1,524) (272) (2,312) (418)
-------------- ------------ ------------- -------------
Consolidated $563,587 $557,408 $1,060,962 $1,014,343
============== ============ ============= =============
Operating income
Upholstery segment $42,690 $35,950 $73,749 $47,916
Restructuring -- (3,735) -- (3,735)
-------------- ------------ ------------- -------------
Net Upholstery segment 42,690 32,215 73,749 44,181
Casegoods segment 11,322 4,433 18,915 4,406
Restructuring -- (9,452) -- (9,452)
-------------- ------------ ------------- -------------
Net Casegoods segment 11,322 (5,019) 18,915 (5,046)
Corporate and other (6,776) (5,590) (12,541) (10,552)
-------------- ------------ ------------- -------------
Consolidated 47,236 34,793 80,123 41,770
Restructuring -- (13,187) -- (13,187)
-------------- ------------ ------------- --------------
Net Consolidated $47,236 $21,606 $80,123 $28,583
============== ============ ============= ==============
Note 8: New Accounting Pronouncement
Effective April 28, 2002, we adopted Statement of Financial Accounting
Standards (SFAS) No. 142, "Goodwill and Other Intangible Assets." SFAS No.
142 eliminates the amortization of goodwill and indefinite-lived intangible
assets and requires a review at least annually for impairment. We have
determined that our trade names are indefinite-lived assets, as defined by
SFAS No. 142, and therefore not subject to amortization beginning in fiscal
2003. Amortization expense for goodwill and trade names was $9.3 million
($7.5 million after tax) in fiscal 2002. Of this $9.3 million, $3.3 million
was attributable to the Upholstery segment and $6.0 million was
attributable to the Casegoods segment. Excluding the effect of
amortization, our reported net income for the second quarter of fiscal 2002
would have been increased to $14.3 million from $12.4 million and our
diluted net income per common share would have been increased to $0.23 from
$0.20 per common share. Excluding the effect of amortization, our reported
net income for the first six months of fiscal 2002 would have been
increased to $19.0 million from $15.2 million and our diluted net income
per common share would have been increased to $0.31 from $0.25 per common
share.
Page 9 of 21
In accordance with SFAS No. 142, trade names were tested for impairment by
comparing their fair value to their carrying values. As of April 28, 2002,
the carrying value of trade names exceeded their fair value creating an
impairment loss of $48.3 million. Additionally, goodwill was tested for
impairment by comparing the fair value of our operating units to their
carrying values. As of April 28, 2002, the carrying value of goodwill
exceeded its fair value creating an impairment loss of $29.4 million. Of the
pre-tax impairment loss, $17.1 million is attributable to the Upholstery
segment and $60.6 million is attributable to the Casegoods segment. The
after-tax effect of $59.8 million for these impairment losses is included
in the "Cumulative effect of accounting change" in the Consolidated State-
ment of Income.
The following table summarizes changes to goodwill and tradenames in fiscal
2003:
Upholstery Casegoods
(Amounts in thousands) Group Group
--------------- --------------
Goodwill
Balance as of 4/27/02 $70,265 $37,979
Effect of adopting SFAS No. 142 (17,062) (12,349)
Dispositions (26) --
--------------- --------------
Balance at 10/26/02 $53,177 $25,630
=============== ==============
Trade names
Balance as of 4/27/02 $14,255 $102,490
Effect of adopting SFAS No. 142 -- (48,291)
Acquisitions 2,690 --
--------------- --------------
Balance at 10/26/02 $16,945 $54,199
=============== ==============
Note 9: Comprehensive Income
On an annual basis, disclosure of comprehensive income is incorporated into
the Statement of Shareholders' Equity. This statement is not presented on a
quarterly basis. Comprehensive income includes net income and components of
other comprehensive income such as foreign currency translation adjustments
and unrealized gains and losses on certain marketable securities and
derivative instruments. Our total comprehensive income (loss) is as
follows:
(Unaudited)
Second Quarter Ended Six Months Ended
------------------------------- -------------------------------
(Amounts in thousands) 10/26/02 10/27/01 10/26/02 10/27/01
-------------- ------------- --------------- ------------
Net Income (loss) $28,700 $12,391 ($11,954) $15,222
Translation adjustment (804) (532) 587 (713)
Unrealized loss on marketable
securities, net of taxes 143 (299) (719) (475)
Unrealized loss on interest rate
swap agreements, net of taxes 257 63 (64) (2,745)
-------------- ------------- --------------- ------------
Total comprehensive income (loss) $28,296 $11,623 ($12,150) $11,289
============== ============= =============== ============
Page 10 of 21
Note 10: Share Repurchases
The company is authorized to repurchase common stock under the repurchase
program approved by our Board of Directors, the Incentive Stock Option Plan
and the Restricted Share Plans. Our repurchases were as follows:
(Unaudited)
Second Quarter Six Months
Ended Ended
------------------- -------------------
(Amounts in thousands) 10/26/02 10/27/01 10/26/02 10/27/01
--------- -------- -------- --------
Shares repurchased 1,899 418 3,692 475
Cash used for repurchases $44,850 $6,586 $92,304 $6,586
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Cautionary Statement Concerning Forward-Looking Statements
We are making forward-looking statements in this item. 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
future 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, we claim the protection of the safe harbor for forward-looking
statements contained in the Private Securities Litigation Reform Act of 1995.
Many important factors, including future economic, political and industry
conditions (for example, changes in interest rates, changes in consumer demand,
changes in currency exchange rates, changes in demographics and consumer
preferences, changes in housing sales, oil price changes, terrorism impacts, war
and changes in the availability and cost of capital); competitive factors (such
as the competitiveness of foreign-made products, new manufacturing technologies,
or other actions taken by current or new competitors); operating factors (for
example, supply, labor, or distribution disruptions including logistics of
imports, changes in operating conditions or costs, effects of restructuring
actions and changes in regulatory environment); and factors relating to
acquisitions, could affect our future results and could cause those results or
other outcomes to differ materially from what may be expressed or implied in our
forward-looking statements. We undertake no obligation to update or revise any
forward-looking statements for new developments or otherwise.
Page 11 of 21
Results of Operations
Second Quarter Ended October 26, 2002 Compared to Second Quarter Ended
October 27, 2001.
See page 3 for the consolidated statement of income with analysis of percentages
and calculations.
Our results for the second quarter of fiscal 2002 included the operations of our
former Pilliod subsidiary, which is included in the Casegoods segment and which
we divested effective November 30, 2001.
Second quarter sales increased 1.1% from the prior year second quarter to $563.6
million. On a comparable basis, excluding Pilliod's sales, the cessation of
operations by HickoryMark during the second quarter of fiscal 2003, and the
acquisition of five retail stores in our Retail division during the first half
of fiscal 2003, the increase in sales totaled 3.6%. After eliminating the
effects of the Retail acquisitions and HickoryMark, the Upholstery segment had a
9.7% increase in sales, while the Casegoods segment had a 10.0% decline in sales
after taking into account the Pilliod 2002 second quarter sales.
The following table shows the impact of dispositions, acquisitions and
cessations of operations on our second quarter sales:
Upholstery Casegoods
(Amounts in thousands) 10/26/02 10/27/01 10/26/02 10/27/01
------------- ------------- ------------- -------------
Sales as reported $422,333 $389,239 $142,778 $168,441
Year over year change 8.5% (15.2%)
Dispositions, acquisitions and
cessations (9,890) (13,118) -- (9,839)
------------- ------------- ------------- -------------
Adjusted sales 412,443 376,121 142,778 158,602
Adjusted year over year change 9.7% (10.0%)
Consolidated
10/26/02 10/27/01
------------- -------------
Sales as reported $563,587 $557,408
Year over year change 1.1%
Dispositions, acquisitions and
cessations (9,890) (22,957)
------------- -------------
Adjusted sales 553,697 534,451
Adjusted year over year change 3.6%
The major factor contributing to the increased sales was the ongoing strength of
the La-Z-Boy Furniture Galleries(R) proprietary store system, which had
increases in both same store sales and total sales due to new store openings.
The hospitality sector of our Casegoods segment is still experiencing weak sales
activity as hotel occupancies and refurbishments continue to be below prior year
levels.
Page 12 of 21
Gross profit as a percent of sales increased to 23.9% as compared to 20.0% in
the fiscal 2002 second quarter. On a comparable basis, excluding restructuring
expense from the prior year quarter, gross profit as a percent of sales would
have been 22.3% for the fiscal 2002 second quarter. Although the increased
Upholstery sales volume contributed to the increased gross margins through
better absorption of overhead in the factories, the main reason for the increase
was management's continued efforts to adjust capacity of the plants to
production requirements. The restructurings announced in both fiscal 2001 and
2002 continued to positively impact the current year gross margins as we better
matched domestic production requirements and plant manufacturing capacity.
Additionally, the Casegoods segment margins improved due to our increased sales
of imported goods, which we are able to sell at higher margins than comparable
products manufactured domestically.
Selling, General & Administrative (S, G & A) expenses as a percent of sales
declined from 16.1% in second quarter fiscal 2002 to 15.5% in the current
quarter. On a comparable basis, excluding amortization expense from the prior
year quarter, S, G&A as a percent of sales would have been 15.7% for the fiscal
2002 second quarter. The decline was attributable to the Upholstery segment's
8.5% increase in sales volume, which absorbed the fixed portion of the S,G & A
expenses at a better rate than the previous year as well as continued cost
cutting efforts.
Operating income as a percent of sales increased to 8.4% from 3.9% in the
previous year's second quarter. Excluding the restructuring expense and
amortization expense in the 2002 fiscal quarter, operating margins would have
been 6.7% in the previous year's quarter. The Casegoods margin went from 3.5% in
the 2002 fiscal quarter to an operating margin of 7.9% in the current year
quarter, excluding restructuring and amortization expense. With the closing of
four casegoods plants and converting two other plants to warehouse, sub-assembly
and import service operations, as well as divesting Pilliod, the Casegoods
segment was able to reduce its overhead at a faster rate than the sales decline.
In addition, the Upholstery segment, benefiting from its strong sales growth,
increased its margins to 10.1% from 9.4% in the previous year's quarter,
excluding restructuring and amortization expense.
The increase in interest expense was mainly attributable to the $62.0 million
increase in debt during the second quarter. Interest rates on current borrowings
are lower than rates during similar time periods last year, therefore we expect
interest expense in future quarters to be lower than prior year quarters as long
as debt levels do not materially increase.
Our income tax rate of 38.2% was lower than the 39.0% rate of last year's second
quarter due mainly to the elimination of goodwill amortization.
Six Months Ended October 26, 2002 Compared to Six Months Ended October 27, 2001.
See page 4 for the consolidated statement of income with analysis of percentages
and calculations.
Our results for the six months ended October 27, 2001 included the operations of
our former Pilliod subsidiary, which is included in the Casegoods segment and
which we divested effective November 30, 2001.
Page 13 of 21
Six months sales increased 4.6% to $1,061.0 million from the prior year
comparable period. On a comparable basis, excluding Pilliod's sales, the
cessation of operations by HickoryMark during the second quarter, and the
acquisition of five retail stores, the increase in sales totaled 8.0%.
The following table shows the impact of dispositions, acquisitions and
cessations of operations on our six month's ended sales:
Upholstery Casegoods
(Amounts in thousands) 10/26/02 10/27/01 10/26/02 10/27/01
-------------- --------------- -------------- ------------
Sales as reported $789,222 $697,637 $274,052 $317,124
Year over year change 13.1% (13.6%)
Dispositions, acquisitions
and cessations (17,208) (27,081) -- (20,745)
-------------- --------------- -------------- ------------
Adjusted sales 772,014 670,556 274,052 296,379
Adjusted year over year
change 15.1% (7.5%)
Consolidated
10/26/02 10/27/01
--------------- --------------
Sales as reported $1,060,962 $1,014,343
Year over year change 4.6%
Dispositions, acquisitions
and cessations (17,208) (47,826)
--------------- --------------
Adjusted sales 1,043,754 966,517
Adjusted year over year
change 8.0%
The major factor contributing to the increased sales was the ongoing strength of
the La-Z-Boy Furniture Galleries(R) proprietary store system. Our previously
mentioned acquisition of five retail stores also contributed to our sales growth
for the first six months. The Upholstery segment had a 13.1% increase in sales
while the Casegoods segment had a 7.5% decline in sales after taking into
account the Pilliod 2002 six months sales. Our Casegoods segment sales are still
being affected by the weak sales activity in the hospitality sector as hotel
occupancies and refurbishments continue to be below prior year levels.
Gross profit as a percent of sales increased to 23.5% as compared to 19.6% in
the fiscal 2002 six months. On a comparable basis, excluding restructuring
expense from the prior year, gross profit as a percent of sales would have been
20.9% for the fiscal 2002 six months. Although the increased Upholstery sales
volume attributed to the increased gross margins through better absorption of
overhead in the factories, the main reason for the increase was management's
continued efforts to adjust capacity of the plants to production requirements.
The restructurings announced in both fiscal 2001 and 2002 continued to
positively impact the current year gross margins as we better matched domestic
production requirements and plant manufacturing capacity. Additionally, the
Casegoods segment margins improved due to our increased sales of imported goods,
which we are able to sell at higher margins than comparable products
manufactured domestically.
Page 14 of 21
Selling, General & Administrative (S, G & A) expenses as a percent of sales
declined from 16.8% in first six months of fiscal 2002 to 15.9% in the first six
months of the current fiscal year. On a comparable basis, excluding amortization
expense from the prior year six months, S,G&A as a percent of sales would have
been 16.3% for the fiscal 2002 six months. This decline was primarily
attributable to the Upholstery segment's 13.1% increase in sales volume, which
absorbed the fixed portion of the S,G&A expenses at a better rate than the
previous year.
Operating income as a percent of sales increased to 7.6% from 2.8% in the
previous year's first six months. Excluding the restructuring and amortization
expense in the first six months of fiscal 2002, operating margins were 4.6%. The
Casegoods operating margin went from 2.3% in the first six months of 2002,
compared to 6.9% in the current six months, excluding restructuring and
amortization expense. With the closing of four casegoods plants and converting
two other plants to warehouse, sub-assembly and import service operations, as
well as divesting Pilliod, the Casegoods segment was able to reduce its overhead
at a faster rate than the sales decline. In addition, the Upholstery segment,
benefiting from its strong sales growth, increased its margins from 7.1% to 9.3%
in the current year's first six months, excluding restructuring and amortization
expense.
The decline in interest expense was mainly attributable to the $24.6 million
decline in average debt over the first six months of fiscal 2003 as it compares
to the first six months of fiscal 2002. In addition, the average interest rate
has declined 1.2 percent during the first six months of fiscal 2003. The effects
of fluctuating interest rates were somewhat mitigated by various interest rate
swap agreements that have fixed interest rates.
Our income tax rate of 38.2% was lower than the 39.0% rate of last year's first
six months due mainly to the elimination of goodwill amortization. We expect the
income tax rate for the full year to remain at about 38.2%.
Liquidity and Capital Resources
See pages 3 through 6 for our Consolidated Statement of Income, Consolidated
Balance Sheet and Consolidated Statement of Cash Flows.
Cash flows from operations amounted to $57.7 million in the first six months of
fiscal year 2003 compared to $56.7 million in the prior year. Due to the normal
seasonal sales trends of our business, second quarter working capital is
generally higher than other quarters. In the aggregate, capital expenditures,
dividends and stock repurchases totaled approximately $122.8 million during the
first six months of fiscal 2003, which was up from about $29.5 million in the
first six months of fiscal 2002. The amount of this increase attributable to the
stock repurchase program was $85.7 million. Cash and equivalents decreased by
$3.0 million during the six month period compared to an increase of $1.2 million
in the prior year.
Page 15 of 21
Capital expenditures were $18.8 million during the first six months ended
October 26, 2002 compared to last year's $12.0 million. The increase over the
prior year is attributable to building remodeling and additions relating mainly
to our Retail operations, excluding acquisitions, as well as increased
expenditures on information technology related items.
During the first six months of the current fiscal year, we used $92.3 million to
repurchase common stock under the repurchase program approved by our Board of
Directors, the Incentive Stock Option Plan and the Restricted Share Plans. We
used $6.6 million to repurchase common stock during the first six months last
year. As of October 26, 2002, approximately 6.0 million additional shares
can be repurchased pursuant to the repurchase program.
Our debt-to-total-capitalization percentage (total debt divided by
shareholders' equity plus total debt) was 26.1% at October 26, 2002, 16.6% at
April 27, 2002, and 20.6% at October 27, 2001. Our second quarter is generally
our lowest cash generation period, due to the normal seasonal sales trends of
our business, therefore causing our higher debt-to-capital ratio at the end of
the second quarter. Additionally, the debt-to-capital percentage was
significantly impacted by the stock repurchases in the current year quarter. We
do not expect our debt-to-total-capitalization ratio to exceed 30.0% in fiscal
2003.
As of October 26, 2002, we had lines of credit availability of approximately
$287.4 million under several credit agreements.
Outlook
The current outlook for our industry is very different in each of our two
operating segments. The upholstery segment of the industry is expected to
perform better, particularly in the middle price points, because upholstery
tends to be influenced by changing styles and colors, typically can be bought as
a single item, typically has a moderate wear life cycle and is not a "big
ticket" purchase. On the contrary, casegoods are often a multiple item, lifetime
"big ticket" purchase with styles that change less.
The factors that currently are impacting the industry include the stimulative
impact of housing turnover, new home sales, and low interest rate refinancings,
all of which should benefit the industry. However, this has been offset by a
waning consumer confidence caused by higher unemployment and a declining stock
market. Additionally, U.S. furniture manufacturers continue to face the
competitive threat of imports as many retailers consider sourcing product
direct, particularly casegoods.
We believe the longer-term outlook for our industry remains positive -
especially for a company such as La-Z-Boy, operating under the umbrella of a
powerful consumer brand name and a strong and growing proprietary distribution
system. We expect the recent declines in U.S. interest rates to ultimately
rejuvenate consumer spending and strengthen housing turnover and home remodeling
- - both strong drivers of retail furniture demand.
Page 16 of 21
We expect interest expense for the remainder of fiscal 2003 to be less than last
year's comparable period.
We are anticipating our fiscal 2003 full year income tax rate to be
approximately 38.2% down from 39.0% excluding the tax benefit of the Pilliod
divestiture mainly due to the elimination of goodwill amortization.
We estimate that our diluted net income per share for the third quarter ending
January 25, 2003 will be between $0.40-$0.45 compared to $0.35 last year with
sales being flat or slightly up - excluding the impact of Pilliod and
HickoryMark. Diluted net income per share before cumulative effect of accounting
change is expected to be $1.70 - $1.80 for our full fiscal year ending April 26,
2003 with flat sales or a slight increase for the second half of the year. This
compares to earnings per share in FY 2002 of $1.01. Prior to restructuring
charges of $0.22 in fiscal 2002 earnings per diluted share were $1.23.
We expect total capital expenditures to be between $35.0 million and $40.0
million for fiscal 2003. This compares to $33.0 million of capital expenditures
in fiscal 2002.
We expect to continue to be in the open market for purchasing our shares from
time to time as changes in our stock price and other factors present appropriate
opportunities, but we have no commitments for repurchases. It is not anticipated
that our leverage, as measured by debt to capitalization, would exceed 30% in
fiscal 2003.
We expect to meet our cash needs for capital expenditures, stock repurchases and
dividends during fiscal year 2003 from cash generated by operations and
borrowings under available lines of credit.
Recently the Financial Accounting Standards Board issued SFAS No. 143,
"Accounting for Asset Retirement Obligations," SFAS No. 145, "Rescission of
FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and
Technical Corrections" and SFAS No. 146, "Accounting for Costs Associated
with Exit and Disposal Activities." SFAS No. 146 is effective for activities
occurring after December 31, 2002, and SFAS No. 143 and 145 must be implemented
during our next fiscal year. We have not yet determined the impact, if any, of
these standards on our financial statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risk from changes in interest rates. Our exposure to
interest rate risk results from our floating rate $300 million revolving credit
facility under which we had $120.0 million borrowed at October 26, 2002. We have
entered into several interest rate swap agreements with counter-parties that are
participants in the revolving credit facility to reduce the impact of changes in
interest rates on a portion of this floating rate debt. We believe that
potential credit loss from counter-party non-performance is minimal. The purpose
of these swaps is to fix interest rates on a notional amount of $70 million for
a three year period at 6.095% plus our applicable borrowing spread under the
revolving credit facility, which can range from 0.475% to 0.800%. Management
estimates that a 1% change in interest rates would not have a material impact on
the results of operations for fiscal 2003 based upon the year end levels of
exposed liabilities.
Page 17 of 21
We are exposed to market risk from changes in the value of foreign currencies.
Our exposure to changes in the value of foreign currencies is reduced through
our use of foreign currency forward contracts from time to time. Substantially
all of our imported purchased parts and finished goods are denominated in U.S.
dollars. Thus, we believe that gains or losses resulting from changes in the
value of foreign currencies will not be material to our results from operations
in fiscal year 2003.
ITEM 4. CONTROLS AND PROCEDURES
Our Chief Executive Officer (CEO) and Chief Financial Officer (CFO) have
evaluated our disclosure controls and procedures, as defined in the rules of the
SEC, within 90 days of the filing date of this report and have determined that
such controls and procedures were effective in ensuring that information
required to be disclosed by us in the reports we file under the Securities
Exchange Act of 1934 is recorded, processed, summarized and reported within the
time periods specified in the SEC's rules and forms.
There were no significant changes in our internal controls or in other factors
that could significantly affect internal controls subsequent to the date of the
CEO's and CFO's most recent evaluation.
PART II - OTHER INFORMATION
ITEM 4. RESULTS OF VOTES OF SECURITY HOLDERS
The Annual Meeting of Shareholders of La-Z-Boy Incorporated was held on August
14, 2002. The shareholders elected four directors for three-year terms expiring
in 2005.
Shares Voted Percent Shares Shares
Election of Directors: In Favor In Favor Withheld
-------- -------- --------
James W. Johnston 49,034,021 94% 3,293,433
Gerald L. Kiser 49,716,603 95% 2,610,851
H. George Levy, M.D. 49,622,164 95% 2,705,290
Donald L. Mitchell 48,612,530 93% 3,714,924
Page 18 of 21
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(11) Statement of Computation of Per Share Earnings
See note 4 to the financial statements included in this report.
(99.1) Press Release dated November 11, 2002
(99.2) Certifications Pursuant to 18 U.S.C. Section 1350
(b) Reports on Form 8-K
We filed a Form 8-K on August 14, 2002 containing a press release with
respect to the second quarter dividends and the board authorization of
additional share repurchases.
We filed a Form 8-K on August 22, 2002 containing a press release with
respect to the realignment of Upholstery group manufacturing.
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: November 12, 2002 /s/Louis M.Riccio, Jr.
----------------------
Louis M. Riccio, Jr.
On behalf of the registrant and as
Chief Accounting Officer
Page 19 of 21
CERTIFICATION OF CHIEF EXECUTIVE OFFICER PER
SECTION 302 OF THE SARBANES-OXLEY ACT
I, Gerald L. Kiser, certify that:
1. I have reviewed this quarterly report on Form 10-Q of La-Z-Boy Incorporated;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flow of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified
for the registrant's auditors any material weaknesses in internal
controls; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. the registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies
and material weaknesses.
Date: November 12, 2002 /s/Gerald L. Kiser
------------------
Gerald L. Kiser
Chief Executive Officer
Page 20 of 21
CERTIFICATION OF CHIEF FINANCIAL OFFICER PER
SECTION 302 OF THE SARBANES-OXLEY ACT
I, David M. Risley, certify that:
1. I have reviewed this quarterly report on Form 10-Q of La-Z-Boy Incorporated;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flow of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified
for the registrant's auditors any material weaknesses in internal
controls; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 12, 2002 /s/David M. Risley
------------------
David M. Risley
Chief Financial Officer
Page 21 of 21
Exhibit 99.1 (press release)
Contact: Mark Stegeman (734) 241-4418 mark.stegeman@la-z-boy.com
--------------------------
LA-Z-BOY REPORTS SECOND QUARTER RESULTS
---------------------------------------
MONROE MI, November 11, 2002 - La-Z-Boy Incorporated (NYSE, PCX: LZB) today
reported results for its second fiscal quarter ended October 26, 2002. Net sales
for the quarter were $564 million, a 1.1% increase over the prior year. Net
sales for the six months rose 4.6% compared to the same period of fiscal 2002.
On a comparable basis, excluding the impact of the divestiture of Pilliod last
November, the cessation of operations by HickoryMark announced in August, and
the acquisition of five retail stores in Boston and Kansas City, net sales for
the second quarter and first half would have risen from year earlier levels by
3.6% and 8.0%, respectively.
Diluted earnings per share for this year's second quarter totaled $0.50 - at the
top of management's guidance range. This compares to $0.33 earned per diluted
share in the same quarter of fiscal 2002, prior to a $0.13 per share
restructuring charge taken that quarter. First half earnings for fiscal 2003
totaled $0.81 per diluted share before the cumulative effect of a change in
accounting principle for goodwill and intangible assets resulting from the
company's recent adoption of Statement of Financial Accounting Standards No. 142
("SFAS 142"). In the first six months of fiscal 2002, the company earned $0.38
per diluted share before the previously-mentioned $0.13 restructuring charge.
The elimination of goodwill and trade name amortization under SFAS 142 added
$0.03 and $0.06, respectively, to diluted earnings per share for this year's
second quarter and first half, and would have added the same amounts to earnings
per share for the prior year periods, had SFAS 142 been in effect at that time.
Including the cumulative effect of the change in accounting principle, the net
loss for the six months ended October 26, 2002 was $0.20 per diluted share.
Operating margin for the October quarter rose to 8.4%, from 6.6% in the previous
quarter and 6.7% in the year-earlier quarter, adjusted for amortization and
restructuring expenses. This represented the company's fourth consecutive
quarter of year-over-year improvement in operating margin, as "normalized" to
exclude amortization expense and the various restructuring and divestiture
expenses recorded during fiscal year 2002.
President and CEO Jerry Kiser said, "The relatively slower revenue growth in the
most recent quarter reflected weak and tenuous U.S. consumer confidence which
strongly correlates with furniture sales. Also impacting the industry were the
volatile equity markets and spotty demand trends, especially for higher price
point products. Fortunately, our mix of business is dominated by the middle
price point upholstered product which is currently being less impacted by these
factors."
La-Z-Boy's upholstery group continues to outpace the industry at large. Same
store sales in the predominately independently owned La-Z-Boy Furniture
Galleries(R) store system continue to show year over year improvement.
Additionally, newly opened stores in the "new generation" format are adding
significantly to the volume increases. Other upholstery brands within the
portfolio also experienced increases. This sales performance offset weaker
casegoods sales and the minor impact from the West Coast dock strike on our
casegoods business.
Kiser continued "Particularly encouraging this quarter was the continued
improvement in gross profit and operating profit margins as our casegoods
sourcing initiatives, capacity rationalizations and other management initiatives
have proven successful. We continue to see opportunities for continuous
improvements and are striving to further expand our margins."
Business segments
- -----------------
Second quarter upholstery sales rose 8.5% from a year earlier, or 9.7% excluding
the phase-out of the HickoryMark brand and the company's acquisition of the five
retail stores mentioned earlier and operating margin for the quarter was 10.1%,
compared to a normalized 9.4% a year earlier. For the first six months of fiscal
2003, upholstery sales were up 13.1%, with an operating margin of 9.3%, compared
to a normalized margin of 7.1% in the first half of fiscal 2002. Overall, the
upholstery segment has continued to benefit from the fact that the product lines
are predominantly at the middle price point ranges where consumer demand has
held up relatively well.
Kiser noted, "La-Z-Boy also remains strongly committed to its dedicated store
program, with 12 more "new generation" La-Z-Boy Furniture Galleries(R) stores
opening for business during the October fiscal quarter. In addition, the first
remodel of an older format La-Z-Boy Furniture Galleries(R) store was completed
in Greensboro, NC. Many of our dealers toured this store during the recent High
Point Furniture Market and expressed enthusiasm for the new format and committed
to reformatting their existing stores. Current plans call for us to add another
10 "new generation" La-Z-Boy Furniture Galleries(R) stores over the next two
quarters."
Casegoods remained weaker than upholstery during the quarter, with sales
declining 15.2% from a year earlier. Excluding Pilliod, second quarter casegoods
sales were down 10.0%. Through the first six months, casegoods segment sales
were off 13.6% in total, and down 7.5% after excluding Pilliod. The hospitality
market remains particularly weak and is not expected to rebound until late
calendar 2003. Despite this revenue softness, casegoods operating margins moved
up to 7.9% in the most recent quarter from a "normalized" 3.5% in the year
earlier period, due to previous restructuring and cost-cutting efforts and a
growing mix of imported products augmenting domestic production. First half
operating margin for the casegoods segment rose to 6.9% this year from a
normalized 2.3% in the same period of fiscal 2002.
Kiser stated, "We were disappointed with the lower than anticipated level of
sales in our casegoods group. We will continue to place emphasis on increasing
dedicated distribution in that group similar to the emphasis in our upholstery
group. The Pennsylvania House in-store Collectors' Gallery program, in addition
to focusing on increasing its dedicated distribution, is beginning to benefit
from a revamped and very successful product line. Kincaid Furniture continues to
expand its proprietary distribution and opened two more stand-alone stores
during the second quarter. Lea continues to have strong demand from dealers for
its in-store La-Z-Boy Youth Collection SM by Lea displays."
Balance sheet
- -------------
Inventories increased by 5% during the October quarter as the result of a normal
seasonal pickup and additional import inventories. The company also repurchased
1.9 million shares for $45 million and, through the first six months, has
repurchased a total of 3.7 million shares, or about 6% of the total shares
outstanding, for $92 million. The company has 6 million shares remaining under
its stock repurchase authorization. Total debt rose by $62 million during the
quarter, and the debt-to-capitalization ratio stood at 26.1% as of quarter-end.
Kiser said, "Our second fiscal quarter is historically our lowest cash
generation period, due to the normal seasonal sales trends of our business. When
combined with our stock repurchase program, we intentionally engineered an
increase in our leverage. As we have noted in the past, we've been an
underleveraged company; however, we do not expect our debt-to-capitalization
ratio to exceed 30%. The last half of the year is anticipated to generate cash
and our stock repurchase program will remain an opportunistic effort."
Business outlook
- ----------------
Commenting on the current business outlook, Kiser said, "While we have
experienced an upswing in business through the first half of our current fiscal
year, our comparables become much more difficult over the next six months. This
same period last year was the beginning of a pickup which now appears to be
leveling off. Recent consumer confidence measurements hit nine-year lows, and
numerous U.S. retail sales projections are currently flat-to-down. Accordingly,
we expect our third fiscal quarter and second fiscal half sales volumes to be
flat to slightly up - excluding the impact of Pilliod and HickoryMark."
He concluded, "We do believe, nevertheless, that La-Z-Boy's profit improvement
momentum will continue, and our guidance for the January 2003 third fiscal
quarter calls for diluted per share earnings in the $0.40 - $0.45 range. For the
full fiscal year ending next April, we continue to believe we can reach the
$1.70 - $1.80 range per diluted share, excluding the cumulative effect of our
adoption of SFAS 142. This would compare with fiscal 2002's normalized earnings
of $1.35 per diluted share, excluding amortization and restructuring expenses."
Conference Call Information
- ---------------------------
The dial-in phone number for tomorrow's live conference call at 8 a.m. ET is
(800) 374-1298 for persons calling from within the U.S. or Canada, and (706)
634-5855 for international callers. The call will also be webcast live and
archived on the Internet, with both accessible at www.la-z-boy.com. A telephone
replay will be available from approximately noon tomorrow, November 12th,
through noon on November 19th. This replay will be available to callers from the
U.S. and Canada at (800) 642-1687 and to international callers at (706)
645-9291, with a passcode of 6158197.
Forward-looking Information
- ---------------------------
Any forward-looking statements contained in this report are based on current
information and assumptions and represent management's best judgment at the
present time. Actual results could differ materially from those anticipated or
projected due to a number of factors. These factors include, but are not limited
to: changes in consumer sentiment or demand, changes in housing sales, the
impact of terrorism or war, the impact of logistics on imports, the impact of
interest rate changes, the impact of imports, changes in currency rates,
competitive factors, operating factors, and other factors identified from time
to time in the company's reports filed with the Securities and Exchange
Commission. The company undertakes no obligation to update or revise any
forward-looking statements, either to reflect new developments, or for any other
reason.
Additional Information
- ----------------------
This news release is just one part of La-Z-Boy's financial disclosures and
should be read in conjunction with other information filed with the Securities
and Exchange Commission. Tomorrow we plan on filing a Form 10-Q report which
includes a condensed balance sheet, income and cash flow statements, for the
fiscal quarter and six-months ended October 26, 2002, and will be available at
http://www.la-z-boy.com. Investors and others wishing to be notified of future
news releases, SEC filings and conference calls may sign up at:
http://my.lazboy.com/mygallery/investor_relations.htm.
Background Information
- ----------------------
With annual sales in excess of $2 billion, La-Z-Boy Incorporated is one of the
world's leading residential furniture producers, marketing furniture for every
room of the home and office, as well as for the hospitality, health care and
assisted-living industries. The La-Z-Boy Upholstery Group companies are Bauhaus,
Centurion, Clayton Marcus, England, La-Z-Boy, La-Z-Boy Contract Furniture Group
and Sam Moore, and the La-Z-Boy Casegoods Group companies are Alexvale, American
Drew, American of Martinsville, Hammary, Kincaid, Lea and Pennsylvania House.
The corporation's vast proprietary distribution network is dedicated exclusively
to selling La-Z-Boy Incorporated products and brands, and includes 308
stand-alone La-Z-Boy Furniture Galleries(R) and 319 La-Z-Boy In-Store Gallerys,
in addition to in-store gallery programs at the company's Kincaid, Pennsylvania
House, Clayton Marcus, England and Lea operating units. According to industry
trade publication Furniture/Today, the La-Z-Boy Furniture Galleries retail
network by itself represents the industry's fifth largest U.S. furniture
retailer. Additional information is available at www.la-z-boy.com.
Exhibit 99.2
CERTIFICATION OF EXECUTIVE OFFICER
Pursuant to 18 U.S.C. section 1350, the undersigned officer of La-Z-Boy
Incorporated (the "Company") hereby certifies, to such officer's knowledge, that
the Company's Quarterly Report on Form 10-Q for the period ended October 26,
2002 (the "Report") fully complies with the requirements of section 13(a) or
15(d), as applicable, of the Securities Exchange Act of 1934 and the information
contained in the Report fairly presents, in all material respects, the financial
condition and result of operations of the Company.
/s/ David M. Risley
- ----------------------------------------------
David M. Risley
Senior Vice President and Chief Financial Officer
November 12, 2002
The foregoing certification is being furnished solely pursuant to 18 U.S.C.
section 1350 and is not being filed as part of the Report or as a separate
disclosure document.
CERTIFICATION OF EXECUTIVE OFFICER
Pursuant to 18 U.S.C. section 1350, the undersigned officer of La-Z-Boy
Incorporated (the "Company") hereby certifies, to such officer's knowledge, that
the Company's Quarterly Report on Form 10-Q for the period ended October 26,
2002 (the "Report") fully complies with the requirements of section 13(a) or
15(d), as applicable, of the Securities Exchange Act of 1934 and the information
contained in the Report fairly presents, in all material respects, the financial
condition and result of operations of the Company.
/s/ Gerald L. Kiser
- -----------------------------------
Gerald L. Kiser
President and Chief Executive Officer
November 12, 2002
The foregoing certification is being furnished solely pursuant to 18 U.S.C.
section 1350 and is not being filed as part of the Report or as a separate
disclosure document.