Original Source: FD (FAIR DISCLOSURE) WIRE
OPERATOR: Good morning. My name is Jeff and I will be your conference facilitator today. At this time I would like welcome everyone to the La-Z-Boy first quarter operating results conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question and answer period. If you would like ask a question during that time simply press star then the number one on your telephone key pad. If you would like to withdraw your question press the pound key. Thank you. I would now like to turn the conference over to Mark Stegeman, treasurer of La-Z-Boy Incorporated. Please go ahead, sir.
MARK STEGEMAN, TREASURER, LA-Z-BOYS INC.: Thank you, Jeff. Good morning, I am Mark Stegeman, treasurer of La-Z-Boy, and thank you for joining our fiscal 2004 first quarter conference call. Before we begin I want to apologize in advance for having an incorrect replay access code in yesterday's news release. To make sure everyone has the correct code, it is 169-5940, for that replay. With us this morning are Gerald Kiser, La-Z-Boy's President and CEO, and David Risley, our Chief Financial Officer, as well as our Chairman, Patrick Norton. Today's primary subject is the financial results of our July 1 first quarter and, as usual, Jerry and Dave will begin with some prepared remarks about La-Z-Boy's performance for the quarter as well as the current business environment and what we see ahead at this point. We would like to try to end the call by noon but we will be happy to go as long as there are unanswered questions.
This call is being web cast live and a replay will be available on our Web site beginning this afternoon. A telephone replay of the call will also be available for a week beginning early this afternoon at the replay number that I announced earlier. These regular quarterly investor conference calls are one of our primary vehicles for providing guidance to and communicating with investors in the investment community about our current operations and our future prospects of La-Z-Boy Incorporated. We will be making forward-looking statements during this call so I will repeat our usual caveat. While these statements reflect the best judgment of management at the present time they are subject to various risks and uncertainties as detailed in our regular filings with the SEC and they may differ materially from actual results due to a wide range of factors. We undertake no obligation to update any forward-looking statement made during this call and with that let me introduce our President and Chief Executive Officer, Gerald Kiser.
GERALD KISER, PRES.& CEO, LA-Z-BOYS INC.: Thanks, Mark. Good morning. As you know we reported our first quarter operating results yesterday morning. So I am sure all of you had plenty of time to look over them. Our annual shareholders meeting and directors meeting took up most of the day yesterday which is why we have a one-day delay this quarter between releasing our results and conducting the conference call. We followed the same schedule last year at this time, also.
I will let Dave Risley get into whatever detail he wishes on the results. In general it was a very challenging quarter for the furniture industry and La-Z-Boy. Consumer furniture demand remained mostly lackluster during the summer despite what most in the industry feel was a very good Memorial Day Weekend sales period. This weak consumer demand basically reflects low consumer confidence levels and an economy which is continuing to lose jobs. Even as indications of an economic recovery are increasingly beginning to surface here and there, our sales for the quarter were down from a year earlier in both upholstery and casegoods and our total sales were off 9% compared against a very strong July 2002 quarter. As noted in the news release we took much more than the usual amount of plant downtime during the quarter and were successful in controlling our inventories. However, we paid the price for this in terms of lower profit margins. Our operating margin for the quarter was less than half that of the year earlier period. While there hasn't been a substantial improvement in our business at this point, we continue to believe that we will see at least some of the usual seasonal pick up in demand as we enter the fall selling season. But regardless of when business does pick up you should know that we are working very hard to improve our productivity and profitability throughout the organization.
In that context I would like to spend some time reviewing our casegoods group reorganization which we announced in early June, as well as give you some insight into our offshore sourcing initiatives and what we are doing there. As I am sure most of you know, the casegoods reorganization has several main points. Number one, the appointment of Bill Johnson as president of operations for our casegoods group with responsibility for all product sourcing, whether that be domestically manufactured products or imported. And, number two, the formation of a formal international sourcing organization, La-Z-Boy Global Limited. La-Z-Boy Global is being headed by Lamont Hope, former president of our Lea Industries business. The appointment of Jack Richardson as president of Lea in addition to Jack's continuing responsibility as president of American Drew. The American Drew and Lea product lines will continue to be designed and marketed as distinct, independent brands but we have taken a block of business that previously had two presidents, five sales managers and a non dedicated sales force and made it into an organization with one president, consolidated sales management responsibility and a sales force that is dedicated to selling these two La-Z-Boy casegoods lines and only these two lines. And number four, the additional rationalization of our casegoods facilities. We are closing our two Lea casegoods facilities in Morristown, Tennessee, and our Pennsylvania House upholstery plant in Monroe, North Carolina. The closures are expected to be completed before the end of calendar 2003 and this production will either be moved to other La-Z-Boy plants or sourced offshore which fits our strategic model of blending domestically sourced and internationally sourced products. These plant closures will eliminate about 405 jobs net. We expect annual savings in the range of 5 to $6 million once the transition is completed, beginning around the start of our April 4 quarter, i.e., in the December, January time frame. We are taking a pretax restructuring charge of $10 million, or 11 cents per share after taxes. Of this amount, 7 cents was taken in our just ended July quarter. Most of the balance representing severance and relocation costs will be taken in our second and third fiscal quarters. Following these latest plant closures, we will have nine remaining domestic casegoods plants with a total employment base of about 3,000 people. And we have another 29 domestic upholstery plants which employ about 13,000 people. As I'm sure you know we get 75% of our total sales from upholstery, and 25% from casegoods. Of course the reason for this …