La-Z-Boy Announces Domestic Plant Closure

Furniture World Magazine

La-Z-Boy Incorporated announced two major initiatives designed to strengthen its North American operations. The company will consolidate all of its domestic cutting and sewing operations in Mexico and will transfer production from its Tremonton, Utah plant, which will be closed, to its five remaining La-Z-Boy branded upholstery manufacturing facilities. The transition of the company's domestic cutting and sewing operations to Ramos Arizpe, Mexico, in the State of Coahuila, will impact approximately 1,050 La-Z-Boy employees at the five remaining facilities and will take place over a period of 18 to 24 months. La-Z-Boy expects to begin production at its Mexican facility in early calendar 2009. The company's Utah facility employs 630 people, accounts for 13% of the La-Z-Boy branded business total upholstery manufacturing capacity and produces recliners, motion furniture and stationary upholstery. La-Z-Boy will cease operations at the Utah facility during the summer of 2008 and production will be shifted to the company's remaining five facilities. As a result, La-Z-Boy expects to add approximately 400 production positions to its other facilities. Kurt L. Darrow, La-Z-Boy's President and Chief Executive Officer, said, "Speed to market for custom orders is a tenet of our brand promise to the consumer and the strength of our U.S. facilities enables us to deliver on that promise. With its proximity to the U.S. and the lower cost structure inherent in a Mexican-based operation, we made the decision to transition our domestic cutting and sewing operations while streamlining the assembly aspect of production in the United States. Our new Mexican facility will be able to rapidly supply our domestic plants with cut-and-sewn fabrics and leather for custom orders and will complement the existing cut-and-sew program from China, which supplies our U.S. manufacturing operations with kits for our high-volume SKUs." Darrow continued, "Once we made the decision to transition the domestic cut-and-sew operations to Mexico, we analyzed our remaining total capacity. With the floor space created by consolidating six cut-and-sew operations into one in Mexico, and with our manufacturing facilities dedicated solely to production, we determined we could service our existing and future demand with one less facility. Importantly, our remaining facilities will be able to increase their capacity utilization as a result of this change. Therefore, we made the difficult decision to close our Tremonton, Utah facility. We are confident this reallocation of resources, combined with the many changes we have made to our production processes, will continue to strengthen our operations. We regret the impact these moves will have on the families and lives of those employees affected and greatly appreciate the contribution of each employee and thank them for their years of dedicated service." Darrow added, "With the normal attrition rate at our production facilities and the time with which we plan to transition our cutting and sewing operations, employees working in that capacity will have the opportunity to learn new skills and be considered for other positions within their facilities as they become available, particularly as we shift production from Utah." Following the closure of its Utah facility, La-Z-Boy's upholstery segment will have a total of 5.5 million square feet of upholstery manufacturing space in North America, including 4.8 million in the United States and 700,000 square feet in Mexico and will employ approximately 8,000 people in those facilities. Darrow said, "With the breadth and size of our operation, we will ensure that our dealers and their customers will continue to receive excellent service with on-time deliveries as we transition production between facilities. Additionally, our manufacturing footprint will allow us to flex our capacity as we execute on our strategic growth plan." The Utah facility, which is approximately 675,000 square feet, will be idled after operations cease and will be marketed for sale. As a result of these actions, La-Z-Boy will take a pre-tax restructuring charge in the range of $17 - $20 million, or $0.20 to $0.24 per share. This charge will be principally for severance and other benefit costs and will also include training costs to begin production in the other facilities, the write-down of certain fixed assets and other associated costs. As the plant is closed and the cut-and-sew operations are transferred, these charges will be incurred as follows: $2.0 - $2.5 million in the fourth quarter of fiscal 2008; $9.0 - $10.0 million in fiscal 2009; and the balance in 2010. Once these moves are completed, the company expects to realize in excess of $25 million in annual cost savings, with the full benefit beginning in fiscal 2011. Background Information: La-Z-Boy Incorporated is one of the world's leading residential furniture producers, marketing furniture for every room of the home. The La-Z-Boy Upholstery Group companies are Bauhaus, England, La-Z-Boy and La-Z-Boy, U.K. The La-Z-Boy Casegoods Group companies are American Drew, Hammary, Kincaid and Lea. The corporation's 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® stores, 168 La-Z-Boy In-Store Galleries and 186 Comfort Studios, in addition to in-store gallery programs at the company's Kincaid, 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/ .