Foam Shortage Looming: Supplier Puts La-Z-Boy On Allocation

Furniture World Magazine

La-Z-Boy Incorporated announced that one of its key suppliers of polyurethane foam has put its customers, including La-Z-Boy, on notice of allocation, due to the lack of availability of TDI (toluene diisocyanate), a key chemical component of polyurethane foam which is used throughout the upholstery and bedding industry. The company also said that this situation, coupled with the continued soft retail environment and damage to one of its plants by a tornado spawned from Hurricane Rita, will have a significant adverse impact on its results for the fiscal 2006 second quarter and potentially beyond. Kurt Darrow, President and CEO of La-Z-Boy said, "Several TDI suppliers have communicated that because of the effects of Hurricanes Katrina and Rita they have had to declare Force Majeure, a condition which allows companies to depart from the strict terms of a contract because of an event that cannot be reasonably controlled. As a result they will be limiting the amount of TDI they will be supplying which will limit the amount of polyurethane that can be produced. We have been advised by one of our significant polyurethane suppliers to the La-Z-Boy(R) branded product of their industry-wide notice of an allocation of 50% of normal polyurethane supply. This situation will have a greater impact on us relative to the rest of the furniture industry given the higher percentage of upholstery in our overall product mix." Darrow noted, "Polyurethane foam, because of the volume of storage space it requires, is shipped on a just in time inventory basis and therefore our inventories of this raw material are very minimal. Each of our divisions has a different mix of polyurethane suppliers and finished goods inventories and thus will be individually impacted. We anticipate that the price of polyurethane will increase and that our production schedules at various plants will also be modified according to availability of supply. We will therefore work judiciously to minimize the potential interruption to our customers in all effected divisions by closely communicating with them to assess and balance their product needs to the degree possible." Darrow continued, "Additionally, our plywood parts cutting facility in Newton, Mississippi which manufactures frame parts for our La-Z-Boy Residential upholstery operations, sustained severe structural damage from a tornado related to Hurricane Rita. We were prepared and executed our disaster contingency plans in order to meet our production needs and quickly shifted production to several of our other facilities and outside suppliers, although we are not operating at our normal levels of efficiency or cost effectiveness." Darrow concluded, "Given these disruptive events and the continued softness at the retail level, we will significantly miss our estimates for sales and earnings for the second quarter, although at this point, it is not readily quantifiable. We intend to provide an update on our second fiscal quarter guidance prior to the beginning of the International Home Furnishings Market the week of October 17, 2005." Background Information: With annual sales of over $2 billion, La-Z-Boy Incorporated is one of the world's leading residential furniture producers, marketing furniture for every room of the home, 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, and Sam Moore. The La-Z-Boy Casegoods Group companies are 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 336 stand-alone La-Z-Boy Furniture Galleries(R) stores and 340 La-Z-Boy In- Store Galleries, 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 In Furniture, the La-Z-Boy Furniture Galleries retail network is North America's largest single-brand furniture retailer. Additional information is available at http://www.la-z-boy.com/ .