UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
FOR THE FISCAL YEAR ENDED APRIL 26, 2003
Commission File No. 1-9656
LA-Z-BOY INCORPORATED
1284 N. Telegraph Road, Monroe, MI 48162
(734) 241-4414
Incorporated in Michigan I.R.S. Employer Identification Number 38-0751137
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Exchanges on Which Registered
- ------------------------------ -----------------------------
Common Shares, $1.00 Par Value New York Stock Exchange
Pacific Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2).
Yes [X] No [ ]
Based on the closing price on the New York Stock Exchange on June 6, 2003, the
aggregate market value of Registrant's common shares held by nonaffiliates of
the Registrant was $1,223 million.
The number of common shares outstanding of the Registrant was 54,722,232 as of
June 6, 2003.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Registrant's 2003 Annual Report to Shareholders for the year
ended April 26, 2003 are filed as an exhibit and incorporated by reference into
Parts I and II.
(1) Portions of the Registrant's Proxy Statement to be filed with the
Securities and Exchange Commission pursuant to Regulation 14A for the
Annual Meeting of Shareholders to be held on August 12, 2003 are
incorporated by reference into Part III.
Page 1
LA-Z-BOY INCORPORATED FORM 10-K ANNUAL REPORT - 2003
TABLE OF CONTENTS
Page
Number(s)
Cautionary Statement Concerning Forward-Looking Statements 3
PART I
Item 1. Business........................................................... 3-10
Item 2. Properties......................................................... 10
Item 3. Legal Proceedings ................................................. 10
Item 4. Submission of Matters to a Vote of Security Holders................ 11
Executive Officers of the Registrant ....................................... 11
PART II
Item 5. Market Price for Registrant's Common Equity and
Related Stockholder Matters...................................... 12-13
Item 6. Selected Financial Data............................................ 13
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operation............................... 13
Item 7a. Quantitative and Qualitative Disclosures about
Market Risk...................................................... 13
Item 8. Financial Statements and Supplementary Data........................ 13
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosures.......................... 14
PART III
Item 10. Directors and Executive Officers of the Registrant................ 14
Item 11. Executive Compensation............................................ 14
Item 12. Security Ownership of Certain Beneficial Owners
and Management................................................... 14
Item 13. Certain Relationships and Related Transactions.................... 14
PART IV
Item 14. Controls and Procedures........................................... 14
Item 15. Principal Accountant Fees and Services............................ 14
Item 16. Exhibits, Financial Statement Schedules and
Reports on Form 8-K.............................................. 15-17
Note: The responses to Items 10 through 13 are included in the Company's definitive proxy statement to
be filed pursuant to Regulation 14A for the Annual Meeting of Shareholders to be held on August 12, 2003.
The required information is incorporated into this Form 10-K by reference to that document and is not
repeated herein.
Page 2
Cautionary Statement Concerning Forward-Looking Statements
We are making forward-looking statements in Parts I and II of this document and
in the portions of Exhibit (13) incorporated by reference into those Parts,
which are subject to risks and uncertainties. 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 and importing 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.
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 demographics, changes in housing
sales, the impact of terrorism or war, energy price changes, the impact of SARS
on imports, the impact of logistics on imports, the impact of interest rate
changes, the availability and cost of capital, the impact of imports as it
relates to continued domestic production, changes in currency rates, competitive
factors, operating factors, such as supply, labor, or distribution disruptions
including changes in operating conditions or costs, effects of restructuring
actions, changes in the regulatory environment, the impact of new manufacturing
technologies, factors relating to acquisitions 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.
PART I
ITEM 1. BUSINESS.
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The successor to a business founded over 75 years ago, La-Z-Boy Incorporated is
the second largest residential furniture manufacturer and import distributor in
the United States in terms of sales and the leading global producer of reclining
chairs. We have two segments consisting of 14 operating units. These operating
units market a wide range of upholstery and wood furnishings. In addition to
upholstery and wood, we market contract furniture to the hospitality, healthcare
and assisted living industries.
During our fiscal year ended April 29, 2000 (fiscal 2000), we acquired three
furniture manufacturers: Bauhaus USA, Inc., Alexvale Furniture, Inc. and LADD
Furniture, Inc. These acquisitions, all of which were accounted for as
purchases, increased our sales and number of employees by about 50% on an
annualized basis. In addition to these acquisitions, we have increased our
ownership of retail stores during the past several years.
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During fiscal years 2002 and 2001, we recorded $22.2 million and $11.2 million,
respectively, in expenses relating to several restructuring plans. Also during
fiscal 2002, we sold the operations of Pilliod Furniture, which we acquired as
part of the LADD acquisition. Pilliod's product line did not strategically align
with our other product lines. During fiscal 2003, our HickoryMark division, also
a part of the LADD acquisition, ceased operations. In June 2003, we announced an
additional restructuring plan within our Casegoods segment. The restructuring
related expenses are expected to be approximately $10.0 million to be recorded
mainly in our first half of fiscal 2004. You can find more information about our
restructurings, and the Pilliod divestiture in Notes 14 and 15 to our
consolidated financial statements (pages 82 and 83) included in Exhibit (13)
which is incorporated in this item by reference. The restructuring and Pilliod
divestiture as well as the HickoryMark cessation of operations are also
discussed in the "Management's Discussion and Analysis" section included in
Exhibit (13) (pages 87 through 104), which is incorporated in this item by
reference.
Principal Products and Industry Segments
Our reportable operating segments are the Upholstery Group and the Casegoods
Group. These segments parallel the organizational restructuring announced July
23, 2001 that realigned our top management team to streamline and focus our
business. The Upholstery Group segment and the Casegoods Group segment each have
a president (the Casegoods president position is currently vacant) with support
staff positions. Within each segment there are several operating units that
share best practices to achieve purchasing, cross-manufacturing and
cross-selling synergies.
Our largest segment in terms of sales is the Upholstery Group. The operating
units in the Upholstery Group are Bauhaus, Clayton Marcus, England, La-Z-Boy,
La-Z-Boy Contract, La-Z-Boy UK and Sam Moore. This group primarily manufactures
and sells upholstered furniture to furniture retailers. Upholstered furniture
includes recliners and motion furniture, sofas, loveseats, chairs, ottomans and
sleeper sofas.
Our second segment is the Casegoods Group. The operating units in the Casegoods
Group are Alexvale, American Drew, American of Martinsville, Hammary, Kincaid,
Lea and Pennsylvania House. This group primarily sells manufactured or imported
hardwood or hardwood veneer furniture to furniture retailers and the hospitality
industry. Approximately 31% of this segment's fiscal 2003 finished goods sales
was imported product. Casegoods product includes tables, chairs, entertainment
centers, headboards, dressers, and accent pieces.
You can find additional detailed information regarding our segments and the
products which comprise the segments in Note 18 to our consolidated financial
statements (pages 84 and 85) and our "Management's Discussion and Analysis"
section (pages 87 through 104), both of which are included in Exhibit (13) and
are incorporated in this item by reference.
Raw Materials & Parts
In fiscal 2003, raw material costs were about 39% of sales. The raw material
costs as a percent of sales was 40% for the Upholstery Group and 34% for the
Casegoods Group in fiscal 2003.
The principal raw materials for the Upholstery Group are purchased cover, steel
for motion mechanisms, polyester batting and non-chlorofluorocarbonated
polyurethane foam for cushioning and padding, and lumber and plywood for frames
and exposed wood parts. Purchased cover, primarily fabrics and leather, is the
largest raw material for this segment, representing about 42% of the Upholstery
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Group's total raw material costs. We generally buy purchased cover from a few
sources, but we foresee no significant difficulty if we needed to switch to
other sources. Most of the purchased cover is in a raw state (a roll or hide),
then cut and sewn into parts in our plants. There is a growing practice,
especially for leather, to purchase fully cut and sewn parts from areas outside
of the United States including but not limited to: Argentina, Brazil, China,
Italy, Thailand and Uruguay. We expect this trend to continue given the lower
labor costs in some of these areas and other existing economic conditions. By
importing cut and sewn leather parts, we are able to recognize savings of 15-20%
compared to what we could purchase and fabricate these parts for in the U.S.
The principal raw materials used in the Casegoods Group are hardwoods, plywood
and chipwood, veneers and liquid stains, paints and finishes and decorative
hardware. Hardwood lumber is the Casegoods Group's largest raw material cost,
representing about 19% of the segment's total raw material costs.
We are experiencing price increases in some of our major raw materials and we
expect the trend to continue in the near term. Polyurethane foam, the second
largest raw material for our Upholstery Group which is generally purchased
in the vicinity of any given plant, has seen price increases of about 3%-5%
due to its sensitivity to changes in the price of oil. Over the past twelve
months, hardwood lumber costs have fluctuated depending on the type of lumber
ranging from a 3% increase in soft maple to a 35% increase in cherry. Hardwood
lumber historically has had measurable changes in price over the short term.
Purchased hardwood parts are a growing source of components for both the
Casegoods and Upholstery Groups. These purchased parts are generally external
(exposed wood) parts as opposed to frame or structural parts. The production
process of these parts is relatively labor intensive, making it more cost
effective to import these parts from countries which have lower labor costs. The
trend of importing these parts is expected to continue.
Finished Goods Imports
Imported finished goods for our Casegoods Group represented 31% of the segment's
fiscal 2003 sales up from 21% in fiscal 2002. Imported finished goods
represented only about 8% of our consolidated fiscal 2003 sales. Most of these
imports are from the Far East. Increased imported casegoods is a trend being
seen throughout the furniture industry and this trend is expected to continue.
While the majority of upholstered product sold in this country is domestically
produced, there is a growing presence of imported fully-upholstered product,
particularly leather. Imported finished goods and components are lowering costs
which in turn are deflating selling prices to consumers. As a result of these
deflated selling prices, there has been some decline in our domestic margins due
to our domestic manufactured costs being higher than our imported costs. The
importing of furniture is also changing how some large retailers and dealers are
purchasing goods for their stores. Some retailers are buying direct from
overseas and bypassing domestic distribution altogether. This increased import
activity was the major contributor to our decision to restructure our casegoods
manufacturing capability over the last three years. We are improving our
purchasing, logistics and warehousing capabilities for these imports across our
different operating units as our importing continues to grow. Specifically, we
have negotiated contracts with freight forwarders that allow us to utilize
consolidated purchasing power for shipping to obtain favorable rates based on
volume.
Page 5
Seasonal Business
We generally experience our lowest level of sales during our first fiscal
quarter for our Upholstery Group and during our first and third fiscal quarters
for the Casegoods Group. When possible, we schedule production to maintain
uniform manufacturing activity throughout the year, except for mid-summer plant
shutdowns, to coincide with slower sales.
Economic Cycle and Purchasing Cycle
Housing activity, which encompasses new and existing home and apartment sales
and rentals, as well as residential remodeling, is a good leading indicator of
potential or "pent-up" consumer furniture demand. Every time a household forms,
moves or modifies its living quarters, a subsequent consideration frequently is
the purchase of new furnishings to improve the new or remodeled living space or
furnish additional space.
Other factors also come into play in determining the actual level of demand
during any given period. These include interest rates (as furniture is often
purchased on credit) and overall consumer confidence levels (as furniture is
inherently a more easily postponed purchase than many other durable goods). With
interest rates having been historically low for the past several years, many
furniture industry observers conclude that the apparent "disconnect" between
recent high levels of housing activity and actual consumer furniture purchases
has been falling consumer confidence levels - due to the weak U.S. economy and
various geopolitical uncertainties, including the 2003 war with Iraq.
Upholstered furniture has a shorter life cycle and exhibits a less volatile
sales pattern over an economic cycle than does casegoods. This is because
upholstery is typically more fashion and design oriented, and is often purchased
one or two pieces at a time. In contrast, casegoods products are longer-lived,
less fashion-oriented, and frequently purchased in groupings or "suites,"
resulting in a much larger dollar outlay by the consumer.
Practices Regarding Working Capital Items
We do not carry significant amounts of upholstered finished goods in inventory
as these goods are usually built to order. However, we generally build casegoods
inventory to stock, with warehousing, in order to attain manufacturing
efficiencies and to meet delivery requirements of customers. This results in
higher levels of finished casegoods product than upholstery products.
Due to longer lead times necessary on imported casegoods, higher levels of
inventory are required. Since our casegoods import percentage has increased from
21% of our casegoods sales to 31%, we have seen an increase in inventory.
Additionally, we are adjusting to managing a hybrid of domestic and imported
inventory. Inventories also increased this year in the Casegoods segment due to
lower than forecasted sales in the last half of fiscal 2003.
Dealer terms for stock orders range between net 30 - 105 days. Terms are 30 - 45
days for sales to dealers that have received an order from a consumer. We often
offer extended dating as part of sales promotion programs.
Page 6
Customers
We sell to over 6,500 customers. We did not have any customer whose sales
amounted to more than 2.2% of our fiscal year 2003 sales for either the
Upholstery Group or the Casegoods Group. Over 94% of the sales in our Upholstery
Group are to dealers or furniture retailers (our customers) at "wholesale"
pricing. The remaining Upholstery Group sales are directly to end users (our
consumers) through wholly-owned retail stores. Sales in our Casegoods Group are
almost entirely to furniture retailers and the hospitality industry.
We have formal agreements with many of our retailers for them to display and
merchandise products from one or more of our operating units and sell them to
consumers in dedicated retail space, either in stand-alone stores or in
dedicated galleries within their stores. We consider these stores, as well as
our own retail stores, to be "proprietary." As a percentage of total sales, our
2003 customer mix was about 42% proprietary, (including sales to end users by
our own retail stores), 6% major regionals (for example, Art Van, Havertys), 5%
department stores (Federated, The May Company) and 47% general dealers.
Currently, we own 29 stand-alone La-Z-Boy Furniture Galleries stores, and we
have agreements with independent dealers for 285 stand-alone La-Z-Boy Furniture
Galleries stores and 317 in-store galleries, all dedicated entirely to our
products and accessory products that we approve. The stand-alone La-Z-Boy
Furniture Galleries(R) stores feature 46 of the new generation format, which
generally has more space and a more updated appearance. Control of retail floor
space is important to the success of product distribution. This distribution
system originated with our La-Z-Boy Furniture Galleries(R) program, which
continues to have the largest number of proprietary stores and galleries among
our operating units. Viewed by itself, La-Z-Boy Furniture Galleries would be the
fourth largest conventional furniture retailer in the U.S. In addition, we are
expanding this proprietary approach to apply across all of our operating units.
This expansion includes over 1,100 in-store galleries for Clayton Marcus,
England, Kincaid, Lea and Pennsylvania House. Our total "proprietary" floor
space is approximately 9.1 million square feet.
It is a key part of our marketing strategy to continue to expand proprietary
distribution. Plans are to open another 40-45 of our La-Z-Boy Furniture
Galleries(R) new generation format stores during the current fiscal year, with
20-25 of these being new stores and the remainder being store remodels or
relocations. We select dealers for this proprietary distribution based on the
dealer's management and financial qualifications. The location of these
proprietary stores is based on the potential for distribution in a certain
geographical area. This proprietary method of distribution is beneficial to both
La-Z-Boy and our dealers. For us, it allows us to have a concentration of
marketing of our product by sales personnel dedicated to our entire product
line, and only that line. For our dealers who join this proprietary group, it
allows them to take advantage of practices that have been proven successful
based on past experiences of other proprietary dealers. As a part of this, we
facilitate forums and communications for these dealers to share best practices
among their peers.
Sales Representatives
Similar to most of the U.S. furniture industry, independent sales
representatives sell our products to our dealer-customers. Typically these
representatives represent one or more of our operating unit's products, but they
may also represent products of other furniture companies. Independent sales
representatives are usually compensated based on a percentage of their actual
sales for their territory plus other performance criteria. In general, we sign
one-year contracts with our independent sales representatives.
Page 7
Orders and Backlog
Upholstery orders are primarily built to a specific dealer order (stock order)
or a dealer order with a down payment from a consumer. These orders are
typically shipped within two to six weeks following receipt of the order.
Casegoods primarily are produced to our internal order (not a customer or
consumer order), which results in higher finished goods inventory on hand but
quicker availability to ship to customers and greater batch size manufacturing
efficiencies. Casegoods importing has increased over the last few years which
has increased inventories due to imported items requiring longer order lead
times.
As of May 31, 2003 and June 1, 2002, Upholstery Group backlogs were
approximately $95 million and $151 million, respectively. Casegoods backlogs as
of May 31, 2003 and June 1, 2002 were approximately $63 million and $78 million,
respectively. The measure of backlog at a point in time may not be indicative of
future sales performance. We do not rely entirely on backlogs to predict future
sales.
For most operating units, an order cannot be canceled after it has been selected
for production. Orders from pre-built stock inventory, though, may be canceled
up to the time of shipment.
Competitive Conditions
We are currently the second largest manufacturer of residential (bedroom, dining
room, living and family room) furniture in the United States, as measured by
annual sales volume, according to industry trade publication Furniture/Today.
Our larger competitors include (in alphabetical order) Ashley, Bassett
Furniture, Bernhardt, Ethan Allen, Flexsteel, Furniture Brands International,
Hooker Furniture, Klaussner, Natuzzi, Palliser, The Rowe Companies, Stanley
Furniture and Universal.
In the Upholstery Group, the largest competitors are Ashley, Bassett Furniture,
Bernhardt, Ethan Allen, Flexsteel, Furniture Brands, Klaussner, Natuzzi,
Palliser and The Rowe Companies.
In the Casegoods Group, our main competitors are Ashley, Bernhardt, Ethan Allen,
Fleetwood, Furniture Brands, Hooker, Kimball International, Stanley and
Universal. Additional market pressures may be created in the future by foreign
manufacturers entering the United States market, as well as by increased direct
purchasing from overseas by some of the larger United States retailers.
In addition to the larger competitors listed above, a substantial number of
small and medium-sized firms operate within our business segments, both of which
are highly competitive.
We compete primarily by emphasizing our brand names and the comfort, quality and
styling of our products. In addition, we strive to offer good product value,
strong dealer support and above average customer service and delivery. Our
proprietary stores, discussed above under "Customers," also are a key initiative
for us in striving to remain competitive with others in the furniture industry.
Page 8
Several years ago, our industry witnessed the bankruptcies of Montgomery Ward,
HomeLife and Heilig-Meyers, three of the then top ten U.S. furniture retailers.
The recent weak economic and industry environment has again placed many
furniture retailers under considerable financial stress, and in the absence of
improved consumer demand, there is a significant risk of additional retail
fallout.
Research and Development Activities
We provide information regarding our research and development activities in Note
1 to our consolidated financial statements (page 72), which is included in
Exhibit (13) to this report and is incorporated in this item by reference.
Patents, Licenses and Franchises
We hold several patents but we believe that the loss of any single patent or
group of patents would not materially affect our business. We have no material
licenses or franchises. Our agreements with our "proprietary" dealers are a key
part of our marketing strategies. We provide more information about those
dealers above, under "Customers."
Compliance with Environmental Regulations
We have been named as a defendant in various lawsuits arising in the ordinary
course of business including being named as a potentially responsible party at
six environmental clean-up sites. Based on a review of all currently known facts
and our experience with previous environmental matters, we have recorded expense
in respect of probable and reasonably estimable environmental matters and we do
not believe that a material additional loss is reasonably possible for
environmental matters.
Employees
We employed approximately 16,800 persons as of May 31, 2003. The Upholstery
Group employed approximately 13,110, the Casegoods Group employed approximately
3,550, and there were approximately 140 non-segment personnel. Substantially all
of our employees are employed on a full-time basis. Less than 5% of our
employees are unionized.
At the end of June last year we had 17,850 employees. The reduction in employees
since then was due mainly to the cessation of operations at our HickoryMark
division in addition to residual effects of our fiscal 2002 restructurings.
Financial Information about Foreign and Domestic Operations and Export Sales
Our export sales are approximately 2% of our total sales. We sell upholstered
furniture to Canadian customers through a Canadian subsidiary and to European
customers through a United Kingdom subsidiary and a joint venture, La-Z-Boy
Europe BV. We have a joint venture in Thailand, which sells furniture in
Australia and the Far East.
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Internet Availability
Available free of charge through our internet website are our forms 10-K, 10-Q,
8-K and amendments to those reports. These reports can be found on our internet
website www.la-z-boy.com as soon as reasonably practicable after electronically
filed with, or furnished to the Securities & Exchange Commission.
ITEM 2. PROPERTIES.
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We owned or leased approximately 14 million square feet of manufacturing,
warehousing, office, showroom, and retail facilities and had approximately 1.1
million square feet of idle facilities at the end of fiscal 2003. Of the 14
million in fiscal 2003, our Upholstery Group occupied approximately 9 million
square feet of space and our Casegoods Group occupied approximately 5 million
square feet of space. At the end of fiscal 2002 we owned or leased approximately
16 million square feet of space of which our Upholstery Group occupied
approximately 10 million square feet of space and our Casegoods Group occupied
approximately 6 million square feet of space. The reduction in floor space in
fiscal 2003 was due to rationalizing production capacity through restructuring
and other efforts, as well as to importing more parts and finished goods.
Our active facilities are located in Arkansas, California, Delaware, Kansas,
Maryland, Massachusetts, Michigan, Mississippi, Missouri, New Jersey, North
Carolina, Pennsylvania, South Carolina, Tennessee, Utah, Virginia, Washington
D.C. and the countries of Canada, and the United Kingdom. Most of them are less
than 40 years old, and all of them are well maintained and insured. We do not
expect any major land or building additions will be needed to increase capacity
in the foreseeable future. We own most of our plants, some of which have been
financed under long-term industrial revenue bonds and we lease the majority of
our retail stores. For information on terms of operating leases for our
properties, see Note 8 to our consolidated financial statements (page 77),
which is included in Exhibit (13) to this report and incorporated in this item
by reference.
ITEM 3. LEGAL PROCEEDINGS.
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We have been named as a defendant in various lawsuits arising in the ordinary
course of business including being named as a potentially responsible party at
six environmental clean-up sites. Based on a review of all currently known facts
and our experience with previous legal and environmental matters, we have
recorded expense in respect of probable and reasonably estimable legal and
environmental matters and we do not believe that a material additional loss is
reasonably possible for legal or environmental matters.
Page 10
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY.
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Nothing was submitted for a vote by our shareholders during the fourth quarter
of fiscal 2003.
EXECUTIVE OFFICERS OF REGISTRANT
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Listed below are the names, ages and current positions of our executive officers
and, if they have not held those positions for at least five years, their former
positions during that period with us or other companies.
Patrick H. Norton, age 81
o Chairman of the Board since October 1997
Gerald L. Kiser, age 56
o President and Chief Executive Officer since July 2001
o Formerly President and Chief Operating Officer (October 1997 - July 2001)
David M. Risley, age 58
o Senior Vice President and Chief Financial Officer since April 2001
o Formerly Vice President and Chief Financial Officer of Aeroquip-Vickers, a
global manufacturer servicing industrial, aerospace and the automotive
industry (October 1991 - December 1999)
John J. Case, age 52
o Senior Vice President and President Upholstery Group since July 2001
o Formerly President, La-Z-Boy Residential (September 1999 - July 2001)
o Formerly Vice President of Marketing, La-Z-Boy Residential
(April 1993 - September 1999)
Page 11
PART II
ITEM 5. MARKET PRICE FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
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MATTERS.
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EQUITY PLANS
The table below provides information, as of the end of fiscal 2003, concerning
our compensation plans under which common shares may be issued.
Equity Compensation Plan Information (see Note 1)
Number of securities
remaining available
Number of Weighted- for future issuance
securities to be average under equity
issued upon exercise compensation plans
exercise of prices of (excluding securities
outstanding outstanding reflected in column
options options (a)) Note 2
Plan category (a) (b) (c)
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Equity compensation plans
approved by shareholders 2,139,119 $20.03 5,480,127
Note 1: This table relates only to our shareholder-approved equity plans. We
also have an option plan that we adopted without shareholder approval at the
time we acquired LADD solely in order to replace options on LADD common shares
with options on our common shares. At the end of fiscal 2003, options on 67,403
of our common shares were outstanding under that replacement plan, with a
weighted-average exercise price of $19.24 per share. No additional options or
other awards may be made under that plan. Except for that plan, the
shareholder-approved plans to which this table relates, and broad-based
retirement plans intended to meet the requirements of Section 401(a) of the
Internal Revenue Code, at the end of fiscal 2003 we had no plans (including
individual compensation arrangements) under which any equity securities were
authorized for issuance.
Note 2: The amount reported in this column is the aggregate number of shares
available for future issuance under our 1997 Incentive Stock Option Plan
(excluding shares reported in column (a)), our 1997 Restricted Share Plan, our
Restricted Stock Plan for Non-Employee Directors, or our 1993 Performance-Based
Stock Plan. Both restricted stock plans provide for grants of 30-day options on
our common shares. The performance-based plan provides for grants of our common
shares or 30-day options on common shares to selected key employees based on
achievement of pre-set goals over a performance period (normally of three fiscal
years). No options were outstanding under any of these plans except the
incentive plan at the end of fiscal 2003. At that time, 437,965 shares were
available for future issuance under the 1997 restricted plan, 61,200 shares were
available for future issuance under the non-employee directors restricted plan,
and 507,982 shares were available for future issuance under the
performance-based plan.
Page 12
Shareholders
We had about 29,100 shareholders of record at June 6, 2003.
Other Information
All other information required to be reported under this item is included in
Exhibit (13) to this report (page 107) and is incorporated in this item by
reference.
ITEM 6. SELECTED FINANCIAL DATA.
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All information required to be reported under this item is included in Exhibit
(13) to this report (page 105) and is incorporated in this item by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
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RESULTS OF OPERATION.
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Our "Management's Discussion and Analysis" section included in Exhibit (13) of
this report (pages 87 through 104) is incorporated by reference in response to
this item.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
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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 $70 million borrowed at April 26, 2003. We have
entered into several interest rate swap agreements with counter-parties that are
participants in the revolving credit facility to negate the impact of changes in
interest rates on 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%. Upon maturity of this swap
during our third fiscal quarter, we expect that the debt under our revolving
credit facility will be on a floating rate basis. Management estimates that a 1%
change in interest rates would not have a material impact on the results of
operations for fiscal 2004 based upon the year end levels of exposed
liabilities.
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. At April 26,
2003, we had foreign exchange forward contracts outstanding, relating to the
Canadian dollar. Substantially all of our imported purchased parts are
denominated in U.S. dollars. 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 2004.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
- -----------------------------------------------------
Our consolidated financial statements and all other information required by this
item are included in Exhibit (13) of this report (pages 66 through 86 and page
105), and all of that information is incorporated in this item by reference.
Page 13
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- ------------------------------------------------------------------------
FINANCIAL DISCLOSURE.
- ---------------------
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
- -------------------------------------------------------------
We provide some information about our executive officers in Part I of this
report, under the heading "Executive Officers of Registrant." All other
information required to be reported under this item is included in our proxy
statement for our 2003 annual meeting, and all of that information is
incorporated in this item by reference.
ITEM 11. EXECUTIVE COMPENSATION.
- ---------------------------------
All information required to be reported under this item is included in our proxy
statement for our 2003 annual meeting, and all of that information is
incorporated in this item by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
- -------------------------------------------------------------------------
The information required to be reported under Item 201(d) of Regulation S-K is
contained in Item 5 of this report. All other information required to be
reported under this item is included in our proxy statement for our 2003 annual
meeting, and all of that information is incorporated in this item by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
- ---------------------------------------------------------
All information required to be reported under this item is included in our proxy
statement for our 2003 annual meeting, and all of that information is
incorporated in this item by reference.
ITEM 14. 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.
ITEM 15. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
- -------------------------------------------------
No information is required under this item.
Page 14
PART IV
ITEM 16. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K.
- -------------------------------------------------------------------------
(a) The following documents are filed as part of this report:
(1) Financial Statements:
Report of Management Responsibilities
Report of Independent Accountants
Consolidated Statement of Income for each of the three fiscal
years ended April 26, 2003, April 27, 2002 and April
28, 2001
Consolidated Balance Sheet at April 26, 2003 and April 27, 2002
Consolidated Statement of Cash Flows for the fiscal years ended
April 26, 2003, April 27, 2002 and April 28, 2001
Consolidated Statement of Changes in Shareholders' Equity for the
fiscal years ended April 26, 2003, April 27, 2002 and April
28, 2001
Notes to Consolidated Financial Statements
(2) Financial Statement Schedules:
Report of Independent Accountants on Financial Statement Schedule
Schedule II - Valuation and Qualifying Accounts for each of the
three fiscal years in the period ended April 26, 2003.
Both immediately follow this item.
All other schedules are omitted because they are not applicable or
not required because the required information is included in the
financial statements or notes thereto.
(3) Exhibits
The following exhibits are filed as part of this report:
Exhibit
Number Description of Exhibit (Note 1)
- ------- -------------------------------
(2) Not applicable
(3.1) La-Z-Boy Incorporated Restated Articles of Incorporation (Note 2)
(3.2) Amendment to Restated Articles of Incorporation (Note 3)
(3.3) La-Z-Boy Incorporated Amended and Restated Bylaws
Page 15
(4) $300 million dollar Credit Agreement dated as of May 12, 2000 among
La-Z-Boy Incorporated, the banks listed therein, Comerica Bank, as
Syndication Agent, Suntrust Bank, as Documentation Agent, and
Wachovia Bank, N.A., as Administrative Agent (Note 4) (Registrant
hereby agrees to furnish to the SEC, upon its request, a copy of
each other instrument or agreement defining the rights of holders
of long-term debt of Registrant and its subsidiaries).
(9) Not applicable
(10.1.1)* La-Z-Boy Incorporated Amended and Restated 1993 Performance-Based
Stock Plan (Note 5)
(10.1.2)* La-Z-Boy Incorporated Further Amended and Restated 1993
Performance-Based Stock Plan (Note 6)
(10.2.1)* La-Z-Boy Incorporated Restricted Stock Plan for Non-Employee
Directors (Note 7)
(10.2.2)* First Amendment to the La-Z-Boy Incorporated Restricted Stock Plan
for Non-Employee Directors
(10.3)* La-Z-Boy Incorporated Executive Incentive Compensation Plan
Description
(10.4.1)* La-Z-Boy Chair Company Supplemental Executive Retirement Plan (as
revised in 1995) (Note 9)
(10.4.2)* First Amendment to the La-Z-Boy Chair Company Supplemental
Executive Retirement Plan (Note 10)
(10.4.3)* Second Amendment to the La-Z-Boy Chair Company Supplemental
Executive Retirement Plan (Note 10)
(10.5)* La-Z-Boy Incorporated Amended and Restated 1997 Restricted
Share Plan (Note 11)
(10.6)* La-Z-Boy Incorporated 1997 Incentive Stock Option Plan (Note 11)
(10.7)* Form of Change in Control Agreement (Note 9). Only directors or
executive officers currently covered: Patrick H. Norton, Gerald L.
Kiser, David M. Risley, John J. Case
(10.8)* Form of Indemnification Agreement (covering all directors,
including employee-directors) (Note 12)
(10.9)* Description of Agreements Related to Termination of Personal
Executive Life Insurance Program (Note 10)
(10.10)* Summary Plan Description and Partial Plan Document for the La-Z-Boy
Incorporated Personal Executive Life Insurance Program (Note 13).
Only director or executive officers covered: Gerald L. Kiser and
John J. Case
(10.11)* La-Z-Boy Incorporated Executive Deferred Compensation Plan
(11) Statement regarding computation of per share earnings (See Note
17 to the Consolidated Financial Statements included in Exhibit
(13)).
(12) Not applicable
(13) Portions of the 2003 Annual Report to Shareholders (Note 14)
(14) Not applicable
(16) Not applicable
(18) Not applicable
(21) List of subsidiaries of La-Z-Boy Incorporated
(22) Not applicable
(23) Consent of PricewaterhouseCoopers LLP (EDGAR filing only)
(24) Not applicable
(99) Certifications pursuant to 18 U.S.C. Section 1350
Page 16
Notes to Exhibits
- -----------------
* Indicates a management contract or compensatory plan or arrangement
under which a director or executive officer may receive benefits.
Note 1. For all documents incorporated by reference, the SEC file number is
1-9656 unless otherwise indicated below. All exhibit description
references to previous filings are references to filings by
La-Z-Boy. Unless otherwise indicated, the described exhibit is
being filed with this Report.
Note 2. Incorporated by reference to an exhibit to Form 10-Q for the
quarter ended October 26, 1996.
Note 3. Incorporated by reference to an exhibit to Form 10-K/A filed
September 27, 1999.
Note 4. Incorporated by reference to an exhibit to Form 8-K dated May 31,
2000.
Note 5. Incorporated by reference to an exhibit to definitive proxy
statement dated June 27, 1996.
Note 6. Incorporated by reference to an exhibit to definitive proxy
statement dated June 29, 2001.
Note 7. Incorporated by reference to an exhibit to definitive proxy
statement dated July 6, 1989.
Note 8. Incorporated by reference to an exhibit to Form 10-K for the fiscal
year ended April 26, 1997.
Note 9. Incorporated by reference to an exhibit to Form 8-K dated February
6, 1995.
Note 10. Incorporated by reference to an exhibit to Form 10-K dated June
24, 2002.
Note 11. Incorporated by reference to an exhibit to definitive proxy
statement dated June 27, 1997.
Note 12. Incorporated by reference to an exhibit to Form 8, Amendment No. 1,
dated November 3, 1989.
Note 13. Incorporated by reference to an exhibit to Form 10-K for the fiscal
year ended April 26, 1997.
Note 14. With the exception of the information incorporated in Parts I
and II, this document is not deemed to be filed as part of this
Report.
(b) Reports on Form 8-K
No Reports on Form 8-K were filed by the company during the fourth
quarter of fiscal 2003.
Page 17
Report of Independent Accountants on Financial Statement Schedule
To the Board of Directors and Shareholders of La-Z-Boy Incorporated:
Our audits of the consolidated financial statements referred to in our report
dated May 28, 2003 appearing in the 2003 Annual Report to Shareholders of
La-Z-Boy Incorporated (which report and consolidated financial statements are
incorporated by reference in this Annual Report on Form 10-K) also included an
audit of the financial statement schedule listed in Item 16(a)(2) of this Form
10-K. In our opinion, this financial statement schedule presents fairly, in
all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements.
/s/PricewaterhouseCoopers LLP
Toledo, Ohio
May 28, 2003
Page 18
LA-Z-BOY INCORPORATED AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(Dollars in thousands)
Allowance for Doubtful Accounts and Long-Term Notes
Trade
accounts
Additions receivable
Balance at Additions charged to "written off" Balance
beginning from new costs and net of at end of
Fiscal year ended: of year acquisitions expenses recoveries Year
- ------------------ ------------ ------------ ------------ -------------- -----------
April 26, 2003 $33,491 -- $6,560 ($3,934) $36,117
April 27, 2002 36,950 -- 9,231 (12,690) 33,491
April 28, 2001 32,221 -- 17,253 (12,524) 36,950
Page 19
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Form 10-K to be signed on its
behalf by the undersigned, thereunto duly authorized.
DATE: June 20, 2003 LA-Z-BOY INCORPORATED
BY /s/ G.L. Kiser
-------------------------------
G.L.Kiser
President and Chief Executive Officer
Page 20
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below, as of June 20, 2003, by the following persons on behalf
of the Registrant and in the capacities indicated.
/s/ P.H. Norton /s/ J.W. Johnston
- ---------------------------- -----------------------------
P.H. Norton J.W. Johnston
Chairman of the Board Director
/s/ G.L. Kiser /s/ H.G. Levy
- ---------------------------- -----------------------------
G.L. Kiser H.G. Levy
President and Chief Executive Director
Officer, Director
/s/ D.M. Risley /s/ R.E. Lipford
- ---------------------------- -----------------------------
D.M. Risley R.E. Lipford
Senior Vice President and Director
Chief Financial Officer
/s/ L.M. Riccio, Jr. /s/ D.L. Mitchell
- ---------------------------- -----------------------------
L.M. Riccio, Jr. D.L. Mitchell
Chief Accounting Officer and Director
Corporate Controller
/s/ J.H. Foss /s/ H.O. Petrauskas
- ---------------------------- -----------------------------
J.H. Foss H.O. Petrauskas
Director Director
/s/ D.K. Hehl /s/ J.L. Thompson
- ---------------------------- -----------------------------
D.K. Hehl J.L. Thompson
Director Director
Page 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 annual report on Form 10-K of La-Z-Boy Incorporated;
2. Based on my knowledge, this annual 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 annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual 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
annual 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 annual 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 annual report (the "Evaluation Date"); and
c) Presented in this annual 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 functions):
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
annual 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: June 18, 2003 /s/ Gerald L. Kiser
---------------------------------
Gerald L. Kiser
Chief Executive Officer
Page 22
CERTIFICATION OF CHIEF FINANCIAL OFFICER PER
SECTION 302 OF THE SARBANES-OXLEY ACT
I, David M. Risley, certify that:
1. I have reviewed this annual report on Form 10-K of La-Z-Boy Incorporated;
2. Based on my knowledge, this annual 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 annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual 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 annual
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 annual 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 annual report (the "Evaluation Date"); and
c) Presented in this annual 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 functions):
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
annual 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: June 18, 2003 /s/ David M. Risley
---------------------------------
David M. Risley
Chief Financial Officer
Page 23
EXHIBIT INDEX
-------------
Exhibit
Number Description of Exhibit (Note 1)
- ------- -------------------------------
(2) Not applicable
(3.1) La-Z-Boy Incorporated Restated Articles of Incorporation (Note 2)
(3.2) Amendment to Restated Articles of Incorporation (Note 3)
(3.3) La-Z-Boy Incorporated Amended and Restated Bylaws
(4) $300 million dollar Credit Agreement dated as of May 12, 2000 among
La-Z-Boy Incorporated, the banks listed therein, Comerica Bank,
as Syndication Agent, Suntrust Bank, as Documentation Agent, and
Wachovia Bank, N.A., as Administrative Agent (Note 4) (Registrant
hereby agrees to furnish to the SEC, upon its request, a copy of
each other instrument or agreement defining the rights of holders
of long-term debt of Registrant and its subsidiaries).
(9) Not applicable
(10.1.1)* La-Z-Boy Incorporated Amended and Restated 1993 Performance-Based
Stock Plan (Note 5)
(10.1.2)* La-Z-Boy Incorporated Further Amended and Restated 1993
Performance-Based Stock Plan (Note 6)
(10.2.1)* La-Z-Boy Incorporated Restricted Stock Plan for Non-Employee
Directors (Note 7)
(10.2.2)* First Amendment to the La-Z-Boy Incorporated Restricted Stock Plan
for Non-Employee Directors
(10.3)* La-Z-Boy Incorporated Executive Incentive Compensation Plan
Description
(10.4.1)* La-Z-Boy Chair Company Supplemental Executive Retirement Plan (as
revised in 1995) (Note 9)
(10.4.2)* First Amendment to the La-Z-Boy Chair Company Supplemental
Executive Retirement Plan (Note 10)
(10.4.3)* Second Amendment to the La-Z-Boy Chair Company Supplemental
Executive Retirement Plan (Note 10)
(10.5)* La-Z-Boy Incorporated Amended and Restated 1997 Restricted Share
Plan (Note 11)
(10.6)* La-Z-Boy Incorporated 1997 Incentive Stock Option Plan (Note 11)
(10.7)* Form of Change in Control Agreement (Note 9). Only directors or
executive officers currently covered: Patrick H. Norton, Gerald L.
Kiser, David M. Risley, John J. Case
(10.8)* Form of Indemnification Agreement (covering all directors,
including employee-directors) (Note 12)
(10.9)* Description of Agreements Related to Termination of Personal
Executive Life Insurance Program (Note 10)
(10.10)* Summary Plan Description and Partial Plan Document for the La-Z-Boy
Incorporated Personal Executive Life Insurance Program (Note 13).
Only director or executive officers covered: Gerald L. Kiser and
John J. Case
(10.11)* La-Z-Boy Incorporated Executive Deferred Compensation Plan
(11) Statement regarding computation of per share earnings (See Note 17
to the Consolidated Financial Statements included in Exhibit (13)).
(12) Not applicable
(13) Portions of the 2003 Annual Report to Shareholders (Note 14)
Page 24
(14) Not applicable
(16) Not applicable
(18) Not applicable
(21) List of subsidiaries of La-Z-Boy Incorporated
(22) Not applicable
(23) Consent of PricewaterhouseCoopers LLP (EDGAR filing only)
(24) Not applicable
(99) Certifications pursuant to 18 U.S.C. Section 1350
Notes to Exhibits
- -----------------
* Indicates a management contract or compensatory plan or arrangement
under which a director or executive officer may receive benefits.
Note 1. For all documents incorporated by reference, the SEC file number is
1-9656 unless otherwise indicated below. All exhibit description
references to previous filings are references to filings by
La-Z-Boy. Unless otherwise indicated, the described exhibit is
being filed with this Report.
Note 2. Incorporated by reference to an exhibit to Form 10-Q for the
quarter ended October 26, 1996.
Note 3. Incorporated by reference to an exhibit to Form 10-K/A filed
September 27, 1999.
Note 4. Incorporated by reference to an exhibit to Form 8-K dated May 31,
2000.
Note 5. Incorporated by reference to an exhibit to definitive proxy
statement dated June 27, 1996.
Note 6. Incorporated by reference to an exhibit to definitive proxy
statement dated June 29, 2001.
Note 7. Incorporated by reference to an exhibit to definitive proxy
statement dated July 6, 1989.
Note 8. Incorporated by reference to an exhibit to Form 10-K for the fiscal
year ended April 26, 1997.
Note 9. Incorporated by reference to an exhibit to Form 8-K dated
February 6, 1995.
Note 10. Incorporated by reference to an exhibit to Form 10-K dated June
24, 2002.
Note 11. Incorporated by reference to an exhibit to definitive proxy
statement dated June 27, 1997.
Note 12. Incorporated by reference to an exhibit to Form 8, Amendment No. 1,
dated November 3, 1989.
Note 13. Incorporated by reference to an exhibit to Form 10-K for the fiscal
year ended April 26, 1997.
Note 14. With the exception of the information incorporated in Parts I
and II, this document is not deemed to be filed as part of this
Report.
Page 25
EXHIBIT (3.3)
AMENDED AND RESTATED BYLAWS
OF
LA-Z-BOY INCORPORATED
(as of May 28, 2003)
ARTICLE I
Name and Office
Section 1. Name. The name of this corporation is La-Z-Boy Incorporated.
Section 2. Reistered Office. The principal and registered office of the
corporation shall be located at 1284 North Telegraph Road, Monroe, Michigan.
Section 3. Other Offices. The corporation may also have other offices for the
transaction of business located at such places, both within and without the
State of Michigan, as the Board of Directors may from time to time determine.
ARTICLE II
Capital Stock and Transfers
Section 1. Share Certificates.
------------------
(A) Required Signatures. The shares of the corporation shall be
represented by certificates signed by the Chairman of the Board or the President
or an Executive Vice President and the Secretary or an Assistant Secretary or
the Treasurer or an Assistant Treasurer of the corporation, and may be sealed
with the seal of the corporation or a facsimile thereof. The signatures of the
officers of the corporation upon a certificate may be facsimiles if the
certificate is countersigned by a transfer agent, or is registered by a
registrar, other than the corporation itself or an employee of the corporation.
In case any officer, transfer agent or registrar who has signed or whose
facsimile signature has been placed upon such certificate shall have ceased to
be such officer, transfer agent or registrar before such certificate is issued,
it may be issued by the corporation with the same effect as if the signer were
still such officer, transfer agent or registrar at the date of the certificate's
issue.
(B) Required Information. A certificate representing shares of the
corporation shall state upon its face all of the following:
(a) That the corporation is formed under the laws of this state.
(b) The name of the person to whom issued.
(c) The number and class of shares, and the designation of the series,
if any, which the certificate represents.
Page 26
Section 2. Lien. The corporation shall have a first lien on all the shares of
its capital stock, and upon all dividends declared upon the same for any
indebtedness of the respective holders thereof to the corporation.
Section 3. Transfers. Upon surrender to the corporation or the transfer agent of
the corporation of a certificate representing shares fully endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer, a new certificate shall be issued to the person entitled thereto, and
the old certificate canceled and the transaction recorded upon the books of the
corporation.
Section 4. Replacement of Lost, Stolen or Destroyed Share Certificates. The
Board of Directors may direct a new certificate to be issued in place of any
certificate theretofore issued by the corporation alleged to have been lost,
stolen or destroyed. When authorizing such issue of a new certificate, the Board
of Directors, in its discretion and as a condition precedent to the issuance
thereof, may prescribe such terms and conditions as it deems expedient, and may
require such indemnities as it deems adequate, to protect the corporation from
any claim that may be made against it with respect to any such certificate
alleged to have been lost, stolen or destroyed.
Section 5. Transfer Agent and Registration. The Board of Directors may appoint a
transfer agent and a registrar in the registration of transfers of its
securities.
Section 6. Rules of Issue and Transfer. The Board of Directors shall have power
and authority to make all such rules and regulations as the board shall deem
expedient regulating the issue, transfer and registration of certificates for
shares in the corporation.
Section 7. Registered Shareholders. The corporation shall have the right to
treat the registered holder of any share as the absolute owner thereof, and
shall not be bound to recognize any equitable or other claim to, or interest in,
such share on the part of any other person, whether or not the corporation shall
have express or other notice thereof, save as may be otherwise provided by the
statutes of Michigan.
ARTICLE III
Shareholders and Meetings
Section 1. Annual Meeting of Shareholders. The 1991 Annual Meeting of
Shareholders was held August 5, 1991 and all subsequent Annual Meetings of
Shareholders shall be held on the last Monday in July of each year, or at such
other date as shall be designated by the Board of Directors and stated in the
notice of the meeting. At said meeting the shareholders shall elect by a
plurality vote the Directors to be elected at such meeting, and shall transact
such other business as may properly be brought before the meeting.
Section 2. Special Meetings of Shareholders. A special meeting of the
shareholders for any purpose or purposes other than election of Directors may be
called at any time and place by the Chairman of the Board, and in his absence,
by the President; or by the Directors. It shall be the duty of the Directors,
the Chairman of the Board, or the President to call such meeting whenever so
requested in writing by shareholders owning, in the aggregate, at least
seventy-five percent (75%) of the entire capital stock of the corporation
entitled to vote at such special meeting. Such request shall state the purpose
or purposes of the proposed meeting.
Section 3. Notice of Meetings of Shareholders. Notice of the time, date and
place of all annual and special meetings shall be mailed by the Secretary to
each shareholder entitled to vote at such meeting not less than ten (10) days
nor more than sixty (60) days before the date thereof. The business transacted
at any special meeting of shareholders shall be limited to the purpose(s) stated
in the notice.
Page 27
Section 4. Presiding Officer. The Chairman of the Board, or in his absence, the
President, or in his absence such Vice President as the Board of Directors may
designate, shall preside at any meeting of shareholders.
Section 5. Vote of Shareholders; Proxies. At every such meeting each shareholder
entitled to vote thereat may cast such vote or votes either in person, or by
proxy, but no proxy shall be voted after three (3) years from its date, unless
the proxy provides for a longer period. A shareholder may authorize one or more
persons to act for him by proxy. All proxies shall be in writing by the
shareholder or by his duly authorized agent or representative and shall be filed
with the Secretary.
Section 6. Quorum of Shareholders. The holders of a majority of the shares of
stock issued and outstanding and entitled to vote thereat, represented in person
or by proxy, shall constitute a quorum at all meetings of the shareholders for
the transaction of business except as otherwise provided by statute or by the
Articles of Incorporation. If, however, such quorum shall not be present or
represented at any meeting of the shareholders, the shareholders present in
person or represented by proxy shall have power to adjourn the meeting from time
to time, without notice other than announcement at the meeting, until a quorum
shall be present or represented. At such adjourned meeting at which a quorum
shall be present or represented any business may be transacted which might have
been transacted at the meeting as originally notified.
Section 7. Required Vote. If a quorum is present, the affirmative vote of the
holders of a majority of the shares of stock represented at the meeting shall be
the act of the shareholders unless the vote of a greater number of shares of
stock is required by law or the Articles of Incorporation.
Section 8. Removal. The shareholders shall have power by a majority vote at any
such meeting, to remove any Director from office.
Section 9. List of Shareholders Entitled to Vote. The officer or agent having
charge of the stock transfer books for shares of the corporation shall make and
certify a complete list of the shareholders entitled to vote at a shareholders'
meeting or any adjournment thereof. The list shall:
(a) Be arranged alphabetically within each class and series, with
the address of, and the number of shares held by, each
shareholder.
(b) Be produced at the time and place of the meeting.
(c) Be subject to inspection by any shareholder during the whole
time of the meeting.
(d) Be prima facie evidence as to who are the shareholders entitled
to examine the list or to vote at the meeting.
Section 10. Record Date for Determination of Shareholders. For the purpose of
determining shareholders entitled to notice of and to vote at a meeting of
shareholders or an adjournment of a meeting, the Board of Directors may fix a
record date, which shall not precede the date on which the resolution fixing the
record date is adopted by the Board. The date shall not be more than sixty (60)
nor less than ten (10) days before the date of the meeting. If a record date is
not fixed, the record date for determination of shareholders entitled to notice
of or to vote at a meeting of shareholders shall be the close of business on the
day next preceding the day on which notice is given, or if no notice is given,
the day next preceding the day on which the meeting is held. When a
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determination of shareholders of record entitled to notice of or to vote at a
meeting of shareholders has been made as provided in this Section, the
determination applies to any adjournment of the meeting, unless the Board of
Directors fixes a new record date under this Section for the adjourned meeting.
For the purpose of determining shareholders entitled to receive payment of a
share dividend or distribution, or allotment of a right, or for the purpose of
any other action, the Board of Directors may fix a record date, which shall not
precede the date on which the resolution fixing the record date is adopted by
the Board. The date shall not be more than sixty (60) days before the payment of
the share dividend or distribution or allotment of a right or other action. If a
record date is not fixed, the record date shall be the close of business on the
day on which the resolution of the Board of Directors relating to the corporate
action is adopted.
Section 11. Inspectors of Election. The Board of Directors may appoint one or
more inspectors of election to act at the meeting or any adjournment thereof. If
inspectors are not so appointed, the person presiding at a shareholders' meeting
may, and on request of a shareholder entitled to vote thereat shall, appoint one
or more inspectors. The inspectors shall determine the number of shares
outstanding and the voting power of each, the shares represented at the meeting,
the existence of a quorum, the validity and effect of proxies, and shall receive
votes, ballots or consents, hear and determine challenges and questions arising
in connection with the right to vote, count and tabulate votes, ballots or
consents, determine the result, and do such acts as are proper to conduct the
election or vote with fairness to all shareholders. On request of the person
presiding at the meeting or a shareholder entitled to vote thereat, the
inspectors shall make and execute a written report to the person presiding at
the meeting of any of the facts found by them and matters determined by them.
The report is prima facie evidence of the facts stated and of the vote as
certified by the inspectors.
ARTICLE IV
Directors
Section 1. Number and Powers of Directors. The business and affairs of the
corporation shall be managed by a Board of Directors consisting of 10 Directors
who shall be elected by the shareholders. The Directors shall be elected at the
annual meeting of the shareholders, as detailed hereinafter, and each Director
shall serve until his successor shall have been elected and qualified. When
acting as such, the Board of Directors may exercise all powers and do all such
lawful acts and things (including, without limitation, the making of such
adjustments in the number of Directors in any Director class or classes that may
be determined by the Board to be necessary or appropriate in light of an
increase or decrease in the total number of Directors specified in these bylaws)
as are not by statute or by the Articles of Incorporation or these bylaws
directed or required to be exercised or done by the shareholders.
Section 2. Classification and Term of Office. The Directors shall be severally
classified with the respect to the time for which they shall hold office by
dividing them into three classifications, with the number of Directors in each
class being as nearly equal as possible to the number of directors in each other
class.
Section 3. Regular Meetings of Board. Regular meetings of the Directors shall be
held immediately after the adjournment of each annual shareholders' meeting and
may be held at such time and at such place as shall from time to time be
determined by the Board.
Section 4. Special Meetings of Board. Special meetings of the Board of Directors
may be called by the Chairman, and, in his absence, by the President or any four
members of the Board of Directors. By unanimous consent of the Directors,
special meetings of the Board may be held without notice, at any time and place.
The presence of a Director at a meeting shall constitute a Waiver of Notice
except where the Director attends solely to protest the legality of the meeting.
Page 29
Section 5. Notice. Notice of all regular and special meetings, except those
specified in the second sentence of Section 4 or in Section 7 of this article,
shall be delivered in person, mailed, e-mailed, faxed, or sent by telegram to
each Director, by the Secretary, at least one day previous to the time fixed for
the meetings. All notices of special meetings shall state the purposes thereof.
Section 6. Quorum and Required Vote. A majority of the Directors shall
constitute a quorum for the transaction of business unless a greater number is
required by law or by the Articles of Incorporation. The act of a majority of
the Directors present at any meeting at which a quorum is present shall be the
act of the Board of Directors, unless the act of a greater number is required by
statute, these bylaws, or by the Articles of Incorporation. If a quorum shall
not be present at any meeting of Directors, the Directors present thereat may
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum shall be present.
Section 7. Annual Meeting; Election of Officers. The Directors shall elect
officers of the corporation, and fix their salaries; such elections to be held
at the Directors' meeting following each annual shareholders' meeting. No notice
of such meeting shall be necessary to any newly elected Director in order to
legally constitute the meeting, provided a quorum shall be present. The Board of
Directors also may elect other officers, and fix the salaries of such officers,
at other times and from time to time as the Board may deem necessary or
appropriate for transaction of the business of the corporation. Any officer may
be removed at any time by a two-thirds vote of the full Board of Directors.
Section 8. Vacancies. All vacancies occurring in the Board of Directors, whether
caused by resignation, death or otherwise, may be filled by the affirmative vote
of two-thirds of the remaining Directors though less than a quorum of the Board
of Directors. A Director elected to fill a vacancy shall be elected for the
unexpired portion of the term of his predecessor in office.
Section 9. Directors' Report. At each annual shareholders' meeting the Directors
shall submit a statement of the business done during the preceding year,
together with a report of the general financial condition of the corporation,
and of the condition of its tangible property.
Section 10. Committees of Directors. The Board of Directors may, by resolution
passed by a majority of the whole Board, designate one or more committees, each
committee to consist of one or more of the Directors of the corporation. Any
such committee, to the extent provided in the resolution of the Board of
Directors, or in these bylaws, shall have and may exercise all of the power and
authority of the Board of Directors in the management of the business and
affairs of the corporation, but no such committee shall have the power or
authority in reference to amending the Articles of Incorporation, adopting an
agreement of merger or consolidation, recommending to shareholders the sale,
lease, or exchange of all or substantially all of the corporation's property and
assets, recommending to the shareholders the dissolution of the corporation or
revocation of a dissolution, amending the bylaws of the corporation, or filling
vacancies in the Board, and unless a resolution of the Board of Directors, the
Articles of Incorporation or the bylaws expressly so provides, no such committee
shall have the power or authority to declare a distribution, dividend, or to
authorize the issuance of stock.
Section 11. Compensation of Directors. The Board of Directors, by the
affirmative vote of a majority of the Directors then in office, and irrespective
of any personal interest of any of them, shall have authority to fix the
compensation of all Directors for services to the corporation as directors,
officers, or otherwise.
Page 30
Section 12. Action by Written Consent. Unless otherwise restricted by the
Articles of Incorporation or these Bylaws, any action required or permitted to
be taken at any meeting of the Board of Directors or of any Committee thereof
may be taken without a meeting, if all members of the Board or Committee, as the
case may be, consent thereto in writing, and the writing or writings are filed
with the minutes or proceedings of the Board or Committee.
Section 13. Participation in Meeting by Telephone. By oral or written permission
of a majority of the Board of Directors, a member of the Board of Directors or
of a Committee designated by the Board may participate in a meeting by means of
conference telephone or similar communications equipment through which all
persons participating in the meeting can communicate with the other
participants. Participation in a meeting pursuant to this Section constitutes
presence in person at the meeting.
Section 14. Nomination of Director Candidates. Nomination of candidates for
election as Directors of the Corporation at any meeting of shareholders called
for election of Directors (an "Election Meeting") may be made by the Board of
Directors or by any shareholder entitled to vote at such Election Meeting but
only in accordance with the procedure outlined herein.
(a) Procedure for Nominations by the Board of Directors. Nominations
made by the Board of Directors shall be made at a meeting of the
Board of Directors, or by written consent of Directors in lieu of
a meeting, not less than 30 days prior to the date of the Election
Meeting, and such nominations shall be reflected in the minute
books of the corporation as of the date made. At the request of
the Secretary of the corporation each proposed nominee shall
provide the corporation with such information concerning himself
or herself as is required, under the rules of the Securities and
Exchange Commission, to be included in the corporation's proxy
statement soliciting proxies for his or her election as a
director.
Any shareholder who wishes to recommend a director candidate for
consideration for nomination by the Board of Directors must send
the recommendation to the Secretary of the Corporation, who shall
forward it to the Committee on the Board. The recommendation must
include a description of the candidate's qualifications for board
service, the candidate's consent to be considered for nomination
and to serve if nominated and elected, and addresses and telephone
numbers for contacting the recommending shareholder and the
candidate for more information. The deadline for the corporation's
receipt of such a recommendation shall be as follows: (1) if the
proposal is submitted for a regularly scheduled annual meeting of
shareholders, the deadline shall be 120 calendar days before the
date of the corporation's proxy statement in connection with the
previous year's annual meeting, except that if the corporation did
not hold an annual meeting in the previous year, or if the date of
annual meeting for which the recommendation is submitted has been
changed by more than 30 days from the date of the previous year's
annual meeting, the deadline shall be a reasonable time (as
determined by the Secretary of the corporation) before the
corporation begins to print and mail its proxy materials; and (2)
if the proposal is submitted for a meeting other than a regularly
scheduled annual meeting, the deadline shall be a reasonable time
(as determined by the Secretary of the corporation) before the
corporation begins to print and mail its proxy materials.
(b) Procedure for Nominations by Shareholders. Not less than 90 days
prior to the first anniversary of the preceding year's annual
meeting any shareholder who intends to make a nomination at the
Election Meeting shall deliver a notice to the Secretary of the
Corporation setting forth (i) the name, age, business address and
residence of each nominee proposed in each such notice, (ii) the
principal occupation or employment of each such nominee, (iii) the
number of shares of capital stock of the Corporation which are
beneficially owned by each such nominee and (iv) such other
information concerning each such nominee as would be required,
under the rules of the Securities and Exchange Commission, in a
proxy statement soliciting proxies for the election of such
nominee.
Page 31
(c) Determination of Compliance with Procedures. If the Chairman of
the Election Meeting determines that a nomination was not in
accordance with the foregoing procedures, such nomination shall be
void.
ARTICLE V
Officers
Section 1. In General. The officers of this corporation shall include a Chairman
of the Board, a President, a Secretary and a Treasurer, and may include a Vice
Chairman of the Board, one or more Vice Presidents, Senior Vice Presidents or
Executive Vice Presidents and such Assistant Secretaries and Treasurers or other
officers as shall seem necessary or appropriate to the Board of Directors from
time to time. None of said officers, except the Chairman of the Board, the
President, and the Vice Chairman of the Board, need be a Director. Any of the
aforementioned offices, except those of Chairman of the Board and President, of
Chairman of the Board and Vice-Chairman of the Board, of President and
Vice-President or Executive Vice President, of Treasurer and Assistant
Treasurer, or of Secretary and Assistant Secretary, may be held by the same
person, but no officer shall execute, acknowledge, or verify any instrument or
document in more than one capacity. As and whenever it determines the same to be
appropriate, the Board of Directors may designate the President, an Executive
Vice President, a Vice President, or the Treasurer as the Chief Financial
Officer of the corporation, and any such officer so designated (while he
continues to hold the office held at the time of such designation and until such
designation is revoked or a different officer is so designated by the Board of
Directors) may identify himself and execute instruments and other documents
using the title of Chief Financial Officer.
Section 2. Chairman of the Board. The Chairman of the Board shall be selected
by, and from among the membership of, the Board of Directors. Except as
otherwise indicated in these bylaws, the Chairman of the Board shall preside at
all meetings of the shareholders and of the Board of Directors and of any Board
committee at which he is in attendance. He shall serve as principal adviser
with respect to all sales and marketing activities of the corporation and its
subsidiaries, shall sign stock certificates as provided in Section 1 of Article
II of these bylaws and shall perform such other duties and functions as shall
be assigned to him from time to time by the Board of Directors. Except where by
law the signature of the President of the corporation is required, the Chairman
of the Board shall possess the same power and authority as the President to sign
all certificates, contracts, instruments, papers, and documents of every
conceivable kind and character whatsoever, in the name of and on behalf of the
corporation, as may be authorized by the Board of Directors. During the absence
or disability of the President, the Chairman of the Board shall exercise all of
the powers and discharge all of the duties of the President. In case of the
absence or the disability of the Chairman of the Board, his duties shall be
performed by the President, and in case of the President's absence, by the Vice
Chairman of the Board or, with respect to a shareholder meeting, by such Vice
President or Executive Vice President as the Board of Directors may designate.
Section 3. Vice Chairman of the Board. If the Board of Directors elects a Vice
Chairman of the Board, he shall be selected from the membership of the Board of
Directors. During the absence or disability of both the Chairman of the Board
and the President, or while both such offices are vacant, he shall preside at
all meetings of the Board of Directors and of any Board committee at which he is
in attendance. During the absence or disability of both the President and the
Page 32
Chairman of the Board, or while both such offices are vacant for any reason, the
Vice Chairman of the Board shall have and may exercise any and all of the powers
and duties of the President and of the Chairman of the Board. At all other times
the Vice Chairman of the Board shall be responsible to the Chairman of the Board
and through him (or during the absence or disability of the Chairman of the
Board or while that office is vacant for any reason, directly) to the Board of
Directors for the exercise, performance, and discharge of such powers, duties,
and responsibilities as the Chairman of the Board or the Board of Directors
shall see fit to vest in or delegate to him or which are vested in or imposed
upon him by the bylaws.
Section 4. President and Chief Executive Officer. The President shall be
selected by, and from among the membership of, the Board of Directors. The
President shall be (and may identify himself and execute instruments and other
documents using the title of) the Chief Executive Officer of the corporation and
shall, in general, supervise and manage the business affairs of the corporation,
including, but not limited to, by discharging any and all duties normally and
customarily incident to the office of President and Chief Executive Officer of a
corporation and such other duties and functions as shall be assigned to him from
time to time by the Board of Directors. During the absence or disability of the
Chairman of the Board, or while such office is vacant, the President shall
perform all duties and functions, and while so acting shall have all of the
powers and authority, of the Chairman of the Board.
Section 5. Vice Presidents. The Board of Directors may elect or appoint one or
more Vice Presidents and may designate one or more Vice Presidents as Executive
Vice Presidents. Unless the Board of Directors shall otherwise provide by
resolution duly adopted by it, or as otherwise provided in these bylaws, such of
the Vice Presidents as shall have been designated Executive Vice Presidents and
who are members of the Board of Directors in the order specified by the Board of
Directors shall perform the duties and exercise the powers of the President
during the absence or disability of the President if the office of the Chairman
of the Board is vacant. The Vice Presidents shall perform such other duties as
may be delegated to them by the Board of Directors, the Chairman of the Board or
the President.
Section 6. Secretary and Assistant Secretaries. The Secretary shall issue
notices of all Directors' and shareholders' meeting, and shall attend and keep
the minutes of the same; shall have charge of all corporation books, records and
papers; shall be custodian of the corporate seal, all stock certificates and
written contracts of the corporation; and shall perform all such other duties as
are incident to his office. The Secretary shall also perform such duties as are
assigned to him from time to time by the Board of Directors. The Assistant
Secretary or Assistant Secretaries, in the absence or disability of the
Secretary, shall perform the duties and exercise the powers of the Secretary.
Section 7. Treasurer and Assistant Treasurers. The Treasurer shall have custody
of all corporate funds and securities and shall keep in books belonging to the
corporation full and accurate accounts of all receipts and disbursements; he
shall deposit all moneys, securities and other valuable effects in the name of
the corporation in such depositories as may be designated for that purpose by
the Board of Directors. He shall disburse the funds of the corporation as may be
ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the Chairman of the Board, the President, and
the Board of Directors whenever requested by them an account of all his
transactions as Treasurer. If required by the Board of Directors, he shall keep
in force a bond, in form, amount and with a surety or sureties satisfactory to
the Board of Directors, conditioned for faithful performance of the duties of
his office, and for restoration to the corporation in case of his death,
resignation, retirement or removal from office, of all books, papers, vouchers,
money and property of whatever kind in his possession or under his control
belonging to the corporation. He shall perform such other duties as may be
delegated to him by the Board of Directors or the President. The Assistant
Treasurer or Assistant Treasurers, in the absence or disability of the
Treasurer, shall perform the duties and exercise the powers of the Treasurer. If
required by the Board of Directors, any Assistant Treasurer also shall keep in
force a bond as provided in this Section.
Page 33
Section 8. Indemnification of Directors, Officers and Others. Pursuant to the
provisions of Article XI of the Articles of Incorporation of the corporation,
the corporation shall indemnify any of its Directors and officers and may
indemnify any of its employees and agents (in each case including such person1s
heirs, executors, administrators and legal representatives) in accordance with
the following provisions of this bylaw:
A. Indemnification of Directors and Officers: Claims by Third Parties.
The corporation shall, to the fullest extent authorized or permitted by
the Michigan Business Corporation Act, as amended (the "Act") or other
applicable law, as the same presently exist or may hereafter be
amended, but, in the case of any such amendment, only to the extent
such amendment permits the corporation to provide broader
indemnification rights than before such amendment, indemnify a Director
or officer (an "Indemnitee") who was or is a party or is threatened to
be made a party to a threatened, pending, or completed action, suit,
or proceeding, whether civil, criminal, administrative, or
investigative and whether formal or
informal, other than an action by or in the right of the corporation,
by reason of the fact that he or she is or was a Director, officer,
employee or agent of the corporation, or is or was serving at the
request of the corporation as a Director, officer, partner, trustee,
employee, or agent of another foreign or domestic corporation,
partnership, joint venture, trust, or other enterprise, whether for
profit or not, against expenses, including attorneys' fees, judgments,
penalties, fines, and amounts paid in settlement actually and
reasonably incurred by him or her in connection with the action, suit,
or proceeding, if the Indemnitee acted in good faith and in a manner he
or she reasonably believed to be in or not opposed to the best
interests of the corporation or its shareholders, and with respect to a
criminal action or proceeding, if the Indemnitee had no reasonable
cause to believe his or her conduct was unlawful. The termination of
an action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, does
not, of itself, create a presumption that the Indemnitee did not act in
good faith and in a manner which he or she reasonably believed to be in
or not opposed to the best interests of the corporation or its
shareholders, and, with respect to a criminal action or proceeding,
had reasonable cause to believe that his or her conduct was unlawful.
B. Indemnification of Directors and Officers: Claims Brought by or in the
Right of the Corporation. The corporation shall, to the fullest exten
authorized or permitted by the Act or other applicable law, as the same
presently exist or may hereafter be amended, but, in the case of any
such amendment, only to the extent such amendment permits the
corporation to provide broader indemnification rights than before such
amendment, indemnify an Indemnitee who was or is a party or is
threatened to be made a party to a threatened, pending, or completed
action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that he or she is or was a
Director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a Director, officer,
partner, trustee, employee, or agent of another foreign or domestic
corporation, partnership, joint venture, trust, or other enterprise,
whether for profit or not, against expenses, including attorneys' fees,
and amounts paid in settlement actually and reasonably incurred by the
Indemnitee in connection with the action or suit, if the Indemnitee
acted in good faith and in a manner the Indemnitee reasonably
believed to be in or not opposed to the best interests of the
corporation or its shareholders. However, indemnification shall not
be made under this Section B for a claim, issue, or matter in which the
Indemnitee has been found liable to the corporation unless and only to
the extent that the Court in which the action or suit was brought
has determined upon application that, despite the adjudication of
liability but in view of all circumstances of the case, the Indemnitee
is fairly and reasonably entitled to indemnification for the expenses
which the Court considers proper.
Page 34
C. Actions Brought by the Indemnitee. Notwithstanding the provisions of
Subsections A and B of this Section 8, the corporation shall not be
required to indemnify an Indemnitee in connection with an action, suit,
proceeding or claim (or part thereof) brought or made by such
Indemnitee, unless such action, suit, proceeding or claim (or part
thereof): (i) was authorized by the Board of Directors of the
corporation; or (ii) was brought or made to enforce this Section 8 and
the Indemnitee has been successful in such action, suit, proceeding or
claim (or part thereof).
D. Approval of Indemnification. Except as otherwise provided in
Subsection G of this Section 8, an indemnification under
Subsections A or B of this Section 8, unless ordered by the court,
shall be made by the corporation only as authorized in the specific
case upon a determination that indemnification of the Indemnitee is
proper in the circumstances because such Indemnitee has met the
applicable standard of conduct set forth in Subsections A or B
of this Section 8, as the case may be, and upon an evaluation of
the reasonableness of expenses and amounts paid in settlement. This
determination and evaluation shall be made in any of the following
ways: (a) By a majority vote of a quorum of the Board of Directors
consisting of Directors who are not parties or threatened to be made
parties to the action, suit, or proceeding. (b) If a quorum cannot
be obtained in subsection (a), then by majority vote of a committee
of Directors who are not parties to the action. The committees shall
consist of not less than three (3) disinterested Directors. (c) By
independent legal counsel in a written opinion. (d) By the
shareholders.
E. Advancement of Expenses. The corporation may pay or reimburse the
reasonable expenses incurred by an Indemnitee who is a party or
threatened to be made a party to an action, suit, or proceeding
in advance of final disposition of the proceeding if all of the
following apply: (a) The Indemnitee furnishes the corporation a
written affirmation of his or her good faith belief that he or she has
met the applicable standard of conduct set forth in Subsections
A and B above. (b) The Indemnitee furnishes the corporation a
written undertaking, executed personally or on his or her behalf, to
repay the advance if is ultimately determined that he or she did
not meet the standard of conduct. (c) A determination is made that
the facts then known to those making the determination would not
preclude indemnification under the Act. The undertaking required by
subsection (b) must be an unlimited general obligation of the
Indemnitee but need not be secured. Determinations of payments under
this Section shall be made in the manner specified in Subsection D
above.
F. Partial Indemnification. If an Indemnitee is entitled to
indemnification under Subsections A or B of this Section 8 for a
portion of expenses, including reasonable attorneys' fees, judgments,
penalties, fines, and amounts paid in settlement, but not for the total
amount, the corporation shall indemnify the Indemnitee for the portion
of the expenses, judgments, penalties, fines, or amounts paid in
settlement for which the Indemnitee is entitled to be indemnified.
G. Article Provision Eliminating or Limiting Director Liability. To the
extent that the Articles of Incorporation of the Corporation include a
provision eliminating or limiting the liability of a Director
pursuant to Section 209(1)(c) of the Act, the corporation shall
indemnify a Director for the expenses and liabilities described in this
Subsection G without a determination that the Director has met the
standard of conduct set forth in Subsections A and B of this Section 8,
but no indemnification may be made except to the extent authorized in
Section 564c of the Act if the Director received a financial benefit to
which he or she was not entitled, intentionally inflicted harm on the
corporation or its shareholders, violated Section 551 of the Act, or
intentionally committed a criminal act. In connection with an action
or suit by or in the right of the corporation as described in
Subsection B of this Section 8, indemnification under this Subsection
G shall be for expenses, including attorneys' fees, actually and
reasonably incurred. In connection with an action, suit, or proceeding
other than an action, suit, or proceeding by or in the right of the
corporation, as described in Subsection A of this Section 8,
indemnification under this Subsection G shall be for expenses,
including attorneys' fees, actually and reasonably incurred, and for
judgments, penalties, fines, and amounts paid in settlement actually
and reasonably incurred.
Page 35
H. Indemnification of Employees and Agents. Any person who is not covered
by the foregoing provisions of this Section 8 and who is or was an
employee or agent of the corporation, or is or was serving at the
request of the corporation as a Director, officer, partner, trustee,
employee or agent of another foreign or domestic corporation,
partnership, joint venture, trust or other enterprise, whether for
profit or not, may be indemnified to the fullest extent authorized or
permitted by the Act or other applicable law, as the same exists or may
hereafter be amended, but, in the case of any such amendment, only to
the extent such amendment permits the corporation to provide broader
indemnification rights than before such amendment, but in any event
only to the extent authorized at any time or from time to time by the
Board of Directors.
I. Other Rights of Indemnification. The indemnification or advancement of
expenses provided under Subsections A through H of this Section 8 is
not exclusive of other rights to which a person seeking indemnification
or advancement of expenses may be entitled under the articles of
incorporation, bylaws, or a contractual agreement. The total amount of
expenses advanced or indemnified from all sources combined shall not
exceed the amount of actual expenses incurred by the person seeking
indemnification or advancement of expenses. The indemnification
provided for in Subsections A through H of this Section 8 continues as
to a person who ceases to be a Director, officer, employee, or agent
and shall inure to the benefit of the heirs, executors, and
administrators of the person.
J. Definitions. "Other enterprises" shall include employee benefit plans;
"fines" shall include any excise taxes assessed on a person with
respect to an employee benefit plan; and "serving at the request of the
corporation" shall include any service as a Director, officer,
employee, or agent of the corporation which imposes duties on, or
involves services by, the Director, officer, employee or agent with
respect to an employee benefit plan, its participants or its
beneficiaries; and a person who acted in good faith and in a manner he
or she reasonably believed to be in the interest of the participants
and beneficiaries of an employee benefit plan shall be considered to
have acted in a manner "not opposed to the best interests of the
corporation or its shareholders" as referred to in Subsections A and B
of this Section 8.
K. Liability Insurance. The corporation shall have the power to purchase
and maintain insurance on behalf of any person who is or was a
Director, officer, employee or agent of the corporation or is or was
serving at the request of the corporation as a Director, officer,
partner, trustee, employee or agent of another corporation,
partnership, joint venture, trust, or other enterprise, whether for
profit or not, against any liability asserted against him or her and
incurred by him or her in any such capacity or arising out of his or
her status as such, whether or not the corporation would have power to
indemnify him or her against liability under the pertinent provisions
of the Act.
L. Enforcement. If a claim under this Section 8 is not paid in full by
the corporation within thirty (30) days after a written claim has been
received by the corporation, the claimant may at any time thereafter
bring suit against the corporation to recover the unpaid amount of the
claim, and, if successful in whole or in part, the claimant shall be
entitled to be paid also the expense of prosecuting such claim.
It shall be a defense to any such action (other than an action brought
to enforce a claim for expenses incurred in defending any proceeding in
advance of its final disposition where the required undertaking,
if any is required, has been tendered to the corporation) that the
claimant has not met the standards of conduct which make it permissible
under the Act for the corporation to indemnify the claimant for the
amount claimed, but the burden of proving such defense shall be on the
corporation. Neither the failure of the corporation (including its
Board of Directors, a committee thereof, independent legal counsel, or
its shareholders) to have made a determination prior to the
commencement of such action that indemnification of the claimant is
proper in the circumstances because such claimant has met the
applicable standard of conduct set forth in the Act nor an actual
determination by the corporation (including its Board of Directors, a
committee thereof, independent legal counselor its shareholders)
that the claimant has not met such applicable standard of conduct,
shall be a defense to the action or create a presumption that the
claimant has not met the applicable standard of conduct.
Page 36
M. Contract with the Corporation. The right to indemnification conferred
in this Section 8 shall be deemed to be a contract right between the
corporation and each Director or officer who serves in any such
capacity at any time while this Section 8 is in effect, and any repeal
or modification of this Section 8 shall not affect any rights or
obligations then existing with respect to any state of facts then or
theretofore existing or any action, suit or proceeding theretofore or
thereafter brought or threatened based in whole or in part upon any
such state of facts.
N. Application to a Resulting or Surviving Corporation or Constituent
Corporation. The definition for "corporation" found in Section 569 of
the Act, as the same exists or may hereafter be amended is, and shall
be, specifically excluded from application to this Section 8. The
indemnification and other obligations set forth in this Section 8 of
the corporation shall be binding upon any resulting or surviving
corporation after any merger or consolidation with the corporation.
Notwithstanding anything to the contrary contained herein or in Section
569 of the Act, no person shall be entitled to the indemnification and
other rights set forth in this Section 8 for acting as a Director or
officer of another corporation prior to such other corporation entering
into a merger or consolidation with the corporation.
O. Severability. Each and every paragraph, sentence, term and provision of
this Section 8 shall be considered severable in that, in the event a
court finds any paragraph, sentence, term or provision to be invalid or
unenforceable, the validity and enforceability, operation, or effect of
the remaining paragraphs, sentences, terms, or provisions shall not be
affected, and this Section 8 shall be construed in all respects as if
the invalid or unenforceable matter had been omitted.
ARTICLE VI
Dividends and Finance
Section 1. Dividends. Dividends, to be paid out of the surplus earnings of the
corporation, or as otherwise permitted in accordance with the provisions of the
governing statute, may be declared from time to time by resolution of the Board
of Directors; but no dividend shall be paid that will impair the capital of the
corporation. Dividends may be paid in cash, in property or in shares of the
capital stock, subject to any provisions of the governing statute or the
Articles of Incorporation.
Section 2. Deposits. The funds of the corporation shall be deposited in such
banks or trust companies as the Directors shall designate and shall be withdrawn
only upon checks issued and signed in accordance with regulations adopted by the
Board of Directors.
Section 3. Checks. All checks, drafts and orders for the payment of money shall
be signed in the name of the corporation in such manner and by such officer or
officers or such other person or persons as the Board of Directors shall from
time to time designate for that purpose.
Page 37
ARTICLE VII
Fiscal Year
Section 1. The fiscal year of this corporation shall end on the last Saturday of
April each year. The fiscal year may be changed by the Board of Directors by
resolution of the Board of Directors.
ARTICLE VIII
Amendments
These bylaws may be altered, amended or repealed in whole or in part and new
bylaws may be adopted either:
(a) By the affirmative vote of the holders of record of not less than 67%
of the outstanding stock of the Corporation entitled to vote in
elections of Directors; or
(b) By the affirmative vote of a majority of the Board of Directors at any
meeting of the Board, or by written consent signed by all members of the
Board of Directors; provided, however, no such alteration, amendment or
repeal of Article VIII (a) of these bylaws shall be made by the Board of
Directors or be effective unless such alteration, amendment or repeal
shall be first approved by the affirmative vote of the holders of record
of not less than 67% of the outstanding stock of the corporation
entitled to vote in elections of Directors.
ARTICLE IX
General Provisions
Section 1. Distributions in Cash or Property. The Board of Directors may
authorize and the corporation may make distributions to its shareholders subject
to restriction by the Articles of Incorporation and/or unless otherwise limited
by the Articles of Incorporation, these bylaws or the Act.
Section 2. Reserves. The Board of Directors shall have power and authority to
set apart such reserve or reserves, for any proper purpose, as the Board in its
discretion shall approve, and the Board shall have the power and authority to
abolish any reserve created by the Board.
Section 3. Voting Securities. Unless otherwise directed by the Board of
Directors, the President or in the case of his absence or inability to act, the
Chairman of the Board or the Vice Chairman of the Board, or in the case of their
absence or inability to act, the Vice Presidents, including Executive Vice
Presidents, in order of their seniority, shall have full power and authority on
behalf of the corporation to attend and to act and to vote, or to execute in the
name or on behalf of the corporation a consent in writing in lieu of a meeting
of shareholders or a proxy authorizing an agent or attorney-in-fact for the
corporation to attend and vote at any meetings of security holders of
corporations in which the corporation may hold securities, and at such meetings
he or his duly authorized agent or attorney-in-fact shall possess and may
exercise on behalf of the corporation any and all rights and powers incident to
the ownership of such securities and which, as the owner thereof, the
corporation might have possessed and exercised if present. The Board of
Directors by resolution from time to time may confer like power upon any other
person or persons.
Page 38
Section 4. Contracts, Conveyances, Etc. When the execution of any contract,
conveyance or other instrument has been authorized without specification of the
executing officers, the Chairman of the Board, the Vice Chairman of the Board,
the President or any Vice President, and the Secretary or any Assistant
Secretary, may execute the same in the name and on behalf of this corporation
and may affix the corporate seal thereto. The Board of Directors shall have
power to designate the officers and agents who shall have authority to execute
any instrument in behalf of the corporation.
Section 5. Corporate Books and Records. The corporation shall keep books and
records of account and minutes of the proceedings of its shareholders, Board of
Directors and executive committees, if any. The corporation shall keep at its
registered office, or at the office of its transfer agent in or outside the
State of Michigan, records containing the names and addresses of all
shareholders, the number, class and series of shares held by each and the dates
when they respectively became holders of record. Any of the books, records or
minutes may be in written form or in any other form capable of being converted
into written form within a reasonable time. The corporation shall convert into
written form without charge any record not in written form, unless otherwise
requested by a person entitled to inspect the records.
Section 6. Seal. The seal of the corporation shall have inscribed thereon the
name of the corporation and the words "Corporate Seal" and "Michigan." The seal
may be used by causing it or a facsimile to be affixed, impressed or reproduced
in any other manner.
Page 39
EXHIBIT (10.2.2)
FIRST AMENDMENT TO
LA-Z-BOY CHAIR COMPANY
RESTRICTED STOCK PLAN FOR NON-EMPLOYEE DIRECTORS
This First Amendment made and executed this 3rd day of March, 2003, but
to be effective February 14, 2003, by La-Z-Boy Incorporated (formerly known as
La-Z-Boy Chair Company), ("Company"), a Michigan corporation.
WHEREAS, the Company established the La-Z-Boy Chair Company Restricted
Stock Plan for Non-Employee Directors (the "Plan"), a plan to provide ownership
of the Company's capital stock to non-employee members of the Board of
Directors, effective September 1, 1989.
WHEREAS, the directors constituting all the Company employee members of
the Board approved on February 14, 2003, an amendment to the Plan which permits
transfer of Restricted Stock to Immediate Family members.
NOW, THEREFORE, the Plan is hereby amended as follows:
1. Section VII of the Plan shall be deleted in its entirety and
replaced with the following:
VII. Terms and Conditions of Restricted Stock. A stock certificate
representing the number of shares of restricted stock purchased under
the Plan shall be registered in the Participant's name but shall be
held in custody by the Company for the Participant's account. Each
restricted stock certificate shall bear a legend giving notice of the
restrictions. Each Participant must also endorse in blank and return to
the Company a stock power for each restricted stock certificate.
During the restricted period, the Participant shall not be
entitled to delivery of the certificate and cannot sell, transfer,
assign, pledge, or otherwise encumber or dispose of the restricted
stock. If the Participant has remained a member of the Board for the
entire restricted period, the restrictions shall lapse at the end of
the restricted period. If the Participant ceases to be a member of the
Board prior to the expiration of the restricted period, the Participant
shall sell the restricted shares back to the Company at the original
purchase price thereof, appropriately adjusted for the declaration of
any share dividend, share split or recapitalization, merger,
consolidation or sale of assets occurring between the date of sale of
the shares and the repurchase thereof by the Company, and all right,
title, and interest of the Participant to such shares shall terminate
without further obligation on the part of the Company.
A Participant may transfer a Restricted Stock purchased hereunder,
including, but not limited to, transfers to members of his or her
Immediate Family (as defined below), to one or more trusts for the
benefit of such Immediate Family members, to one or more partnerships
where such Immediate Family members are the only partners, or to one or
more limited liability companies where such Immediate Family members
are the only members if (i) the Participant does not receive any
consideration in any form whatsoever for such transfer, (ii) such
transfer is permitted under applicable tax laws, and (iii) if such
transfer is permitted under Rule 16b-3 of the Exchange Act as in effect
from time to time. Any Restricted Stock so transferred shall continue
Page 40
to be subject to the same terms and conditions in the hands of the
transferee as were applicable to said Restricted Stock immediately
prior to the transfer thereof. Any reference in this Plan to services
as a director of the Company by the Participant shall continue to refer
to the services of, or performance by, the transferring Participant.
For purposes hereof, "Immediate Family" shall mean the Participant and
the Participant's spouse, children and grandchildren.
To the extent applicable, each Participant under the Plan may,
from time to time, name any beneficiary or beneficiaries (who may be
named contingently or successively) to whom any benefit, which has not
been exercised or distributed, under the Plan is to be exercised or
distributed in case of his or her death. Each such designation shall
revoke all prior designations by the same Participant, shall be in a
form prescribed by the Company and shall be effective only when filed
by the Participant, in writing, with the Company during the
Participant's lifetime. In the absence of any such designation, any
rights exercisable by the Participant or benefits remaining
undistributed at the Participant's death shall be exercisable by, or
distributed to, the Participant's estate. If required, the spouse of a
married Participant domiciled in a community property jurisdiction
shall join in any designation of a beneficiary or beneficiaries other
than the spouse.
At the expiration of the restricted period, a stock certificate
free of all restrictions for the number of shares of restricted stock
registered in the name of a Participant shall be delivered to that
Participant or that Participant's estate.
2. Except as amended herein, the Plan shall remain in full force and
effect.
IN WITNESS WHEREOF, La-Z-Boy Incorporated has caused this First
Amendment to be executed this 3rd day of March, 2003.
Attest: La-Z-Boy Incorporated
By:
- ------------------------- ----------------------------
James P. Klarr Gerald L. Kiser
Secretary President & Chief Executive Officer
Page 41
EXHIBIT (10.3)
LA-Z-BOY INCORPORATED
EXECUTIVE INCENTIVE COMPENSATION PLAN
DESCRIPTION
The purpose of the Executive Incentive Compensation Plan is to provide a cash
award to key management employees for the achievement of specific annual goals.
The Compensation Committee of the Board of Directors (the Committee) annually
establishes short-term performance criteria covering areas such as sales growth
and improved earnings. The specific focus and weighting of the criteria is based
on key short-term priorities of the corporation. The performance criteria are
established at the start of the fiscal year or as shortly thereafter as
possible.
The target and maximum award opportunity for each participant is established by
the Committee. The target award for participants ranges from 10% to 80% of base
pay with a maximum award of 200% of the target (i.e. 20% to 160% of base pay).
The award paid is based on actual results compared to the established
performance targets. Payment of the award occurs within 90 days after the end of
the fiscal year. A participant must be on the payroll at the end of the fiscal
year (or have retired during the fiscal year) to be eligible for an award.
Page 42
EXHIBIT (10.11)
LA-Z-BOY INCORPORATED
Executive Deferred Compensation Plan
Amended and Restated
Effective August 1, 2002
Table of Contents
- ------------------------------------------------------------------------------
Preamble.................................................................. 44
Section I - Definitions................................................... 45
Section II - Eligibility.................................................. 49
Section III - CONTRIBUTIONS AND BENEFITS.................................. 49
SECTION IV - ACCOUNTS..................................................... 52
SECTION V - VESTING....................................................... 53
SECTION VI - DISTRIBUTION OF BENEFITS..................................... 54
Article VII - Funding..................................................... 57
SECTION VIII - PLAN ADMINISTRATION........................................ 58
Article IX - Amendment and Discontinuance................................. 61
SECTION X - GENERAL PROVISIONS............................................ 62
Page 43
Preamble
- -------------------------------------------------------------------------------
WHEREAS, the Company established the La-Z-Boy Chair Company Supplemental
Executive Retirement Plan, a nonqualified deferred compensation plan, originally
effective May 1, 1991 and amended effective May 1, 2001 and April 28, 2002, and
WHEREAS, La-Z-Boy Incorporated. ("Company") desires to provide competitive total
compensation to its key Employees so the Company can attract and retain the
executive talent necessary to drive the success of the Company; and
WHEREAS, the Employee Retirement Income Security Act of 1974 ("ERISA") requires
limits be set on the maximum contributions and benefits, which may be made to or
paid from a tax-qualified retirement plan on behalf of or to a Participant in
such a plan; and
WHEREAS, the Company and its subsidiaries have established qualified retirement
plans which include nondiscrimination and coverage limitations as imposed under
section 401(k), section 401(m) and section 410(b) of the Internal Revenue Code
as well as maximum benefit limitations imposed by section 402(g), section 415
and section 401(a)(17) of the Internal Revenue Code which may limit the maximum
contributions and benefits which may be made to the tax qualified plans on
behalf of the key Employees of the Company; and
WHEREAS, the Company now desires to provide a tax deferred capital accumulation
opportunity to a select group of management or highly compensated Employees
through the deferral of compensation in order to encourage the Employees to
maintain a long-term relationship with the Company and provide flexibility to
the Employee in his or her financial planning; and
WHEREAS, the Company now desires to modify the name of the plan in conjunction
with the plan amendment and restatement to read the La-Z-Boy Incorporated
Executive Deferred Compensation Plan.
NOW, THEREFORE, the Company amends and restates the La-Z-Boy Incorporated
Executive Deferred Compensation Plan ("Plan") effective August 1, 2002.
Page 44
Section I - Definitions
- -------------------------------------------------------------------------------
1.1 "Account" means the account established on the books of the Company for
a Participant credited with an allocation hereunder.
1.2 "Administrative Committee" or "Committee" means the group charged
with administration of the Plan and having the powers provided in
Section VIII and shall consist of the Compensation Committee of the
Board of Directors.
1.3 "Base Compensation" means the Participant's annual base salary,
excluding bonus, commissions, incentive and all other remunerations
for services rendered to Company and prior to reduction for any
salary contributions to a plan established pursuant to section 125 of
the Code or qualified pursuant to section 401(k) of the Code.
1.4 "Beneficiary" means any person(s) designated in writing (on the form
approved by the Committee) by a Participant to receive payment under
this Plan in the event of the Participant's death. In the event the
Participant has designated no beneficiary (or if the designated
beneficiary has predeceased the Participant), Beneficiary shall mean
the Participant's estate.
1.5 "Board" means the Board of Directors of La-Z-Boy Incorporated.
1.6 "Change in Control" means any change required to be reported in Item
6(e) of Schedule 14A of Regulation 14A issued under the Securities
Exchange Act of 1934 (the Exchange Act). A Change in Control will be
considered to have occurred as of the date that:
a) Any person (including a group, within the meaning of Sections
13(d)(3) and 14(d)(2) of the Securities Exchange Act of
1934), other than a Participant, the trustee of a
Company-sponsored benefit plan, the Company or any of its
Subsidiaries, acquires beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Securities
Exchange Act of 1934) of 25% or more of the combined voting
power of the Company's then outstanding voting securities;
b) Shares of the common stock of the Company have been purchased
under a tender offer or exchange offer for 25% or more of the
combined voting power of the Company's then outstanding
voting securities, other than an offer by a Participant, the
Company or any of its Subsidiaries;
c) Individuals who, as of the date hereof, constitute the Board
(the "Incumbent Board") cease for any reason to constitute at
least a majority of the Board, provided that any person
becoming a director subsequent to the date hereof whose
election, or nomination for election by the Company's
shareholders, was approved by a vote of at least a
three-quarters of the directors then comprising the Incumbent
Board (either by a specific vote or by approval of the proxy
statement of the Company in which such person is named as a
nominee for director, without objection to such nomination)
shall be considered as though such person were a member of
the Incumbent Board; or
d) More than fifty percent (50%) in value of the assets of the
Company, or of the particular Subsidiary for which a given
Employee's services are principally performed, are disposed
of by the Company or particular Subsidiary pursuant to a
partial or complete liquidation, a sale of assets or
Page 45
otherwise. In the event this provision applies to a
particular Subsidiary, only those whose services are
principally performed for that Subsidiary shall be deemed to
be affected by a Change in Control.
1.7 "Code" means the Internal Revenue Code of 1986, as amended.
1.8 "Company" means La-Z-Boy Incorporated, a Michigan Corporation, and its
successors and assigns.
1.9 "Company Contribution Account" shall mean the bookeeping account
maintained by the Company for each Participant that is credited with
an amount equal to the Company Discretionary Contribution, if any,
the Company Matching Contribution, if any, and earnings and losses
on such amounts pursuant to Section 4.2.
1.10 "Company Discretionary Contribution" shall mean such discretionary
amount, if any, contributed by the Company for each eligible
Participant for a Plan Year. Such amount shall generally represent,
but may not necessarily be, the amount of profit sharing or
discretionary contribution, which cannot be contributed to the
respective qualified retirement plan and may differ from Participant
to Participant both in amount, (including no contribution) and as a
percentage of Compensation.
1.11 "Company Matching Contribution" means any addition made by the
Company to a Participant's Account attributable to a compensation
deferral election made by such Participant to the Qualified 401(k)
Plan.
1.12 "Compensation" means the Participant's remuneration as defined in the
Qualified 401(k) Plan, but without the Code section 401(a)(17)
limitation.
1.13 "Deferral Account" shall mean the bookkeeping account maintained by
the Company for each Participant that is credited with amounts equal
to the portion of the Participant's Compensation that he or she
elects to defer, if any, and earnings and losses on such amounts
pursuant to Section 4.1.
1.14 "Disability" or "Disabled" means total and permanent disability as
defined under the long term disability program sponsored by the
Company for the benefit of its Employees and applicable to the
Participant.
1.15 "Distributable Amount" shall mean the vested balances in the
Participant's Deferral Account, Company Contribution Account and Prior
Company Contribution Account.
1.16 "Early Distribution" shall mean an election by the Participant in
accordance with Section 6.2 to receive a withdrawal of amounts from
his or her Account prior to the time at which such Participant would
otherwise be entitled to such amounts.
1.17 "Effective Date" shall be August 1, 2002.
1.18 "Eligible Employee" shall mean any Employee or former Employee who
is or was among a select group of management or highly compensated
Employees of the Company and (i) has a Base Compensation of at least
$125,000, (ii) is a General Manager of a Company-owned La-Z-Boy
Retail store, (iii) is selected by the Administrative Committee and
approved by the Board to participate in the Plan or (iv) a Former
Participant.
Page 46
1.19 "Employee" means any individual employed by the Company or any of its
subsidiaries.
1.20 "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
1.21 "Former Participant" means an Employee or former Employee of the
Company or one of its subsidiaries with existing account balances as
of the Effective Date of this Plan in the LADD Furniture, Inc.
Management Deferred Compensation Plan, the Alexvale Deferral Plan or
the La-Z-Boy Chair Company Supplemental Executive Retirement Plan.
1.22 "Former Plan" shall mean any one or a combination of the LADD
Furniture, Inc. Management Deferred Compensation Plan, Alexvale
Deferral Plan or the La-Z-Boy Chair Company Supplemental Executive
Retirement Plan.
1.23 "Fund or Funds" shall mean one or more of the investment funds selected
by the Committee pursuant to Sections 3.4(b) and 8.2.
1.24 "Hardship" shall mean a severe financial hardship to the Participant
resulting from a sudden and unexpected illness or accident of the
Participant or of his or her dependent (as defined in section 152(a) of
the Internal Revenue Code of 1986, as amended), loss of a
Participant's property due to casualty, or other similar or
extraordinary and unforeseeable circumstances arising as a result of
events beyond the control of the Participant. The circumstances that
would constitute an unforeseeable emergency will depend upon the
facts of each case, but in any case a Hardship distribution may not
be made to the extent that such hardship is or may be relieved (i)
through reimbursement or compensation by insurance or otherwise,
(ii) by liquidation of the Participant's assets, to the extent the
liquidation of assets would not itself cause severe financial
hardship, or (iii) by cessation of deferrals under this Plan.
1.25 "Incentive Compensation" means any additional cash remuneration that
is paid pursuant to the La-Z-Boy Incorporated Bonus program over and
above any Base Compensation, and any other amounts as determined by
the Administrative Committee.
1.26 "Initial Election Period" shall mean the 30-day period prior to the
Effective Date of the Plan, or the 30-day period following the date
the Company designates the employee as an Eligible Employee.
1.27 "Interest Rate" shall mean, for each Fund, an amount equal to the net
gain or loss on the assets of such Fund.
1.28 "Participant" shall mean any Eligible Employee who becomes a
Participant in this Plan in accordance with Section II.
1.29 "Payment Date" shall be the date in March as designated by the
Committee for payment of distributions from the Plan.
Page 47
1.30 "Plan" means the La-Z-Boy Incorporated Executive Deferred Compensation
Plan, formerly known as the La-Z-Boy Chair Company Supplemental
Executive Retirement Plan.
1.31 "Plan Year" means the twelve-month period beginning May 1 through
April 30 provided that the first Plan Year shall begin on the Effective
Date of the Plan and end on April 30, 2003.
1.32 "Prior Account" shall mean the bookeeping account maintained by the
Company for each Former Participant that is credited with an amount
equal to the existing account balances as of the Effective Date of
this Plan in the LADD Deferral Plan, the Alexvale Deferral Plan and
the La-Z-Boy Chair Company Supplemental Executive Retirement Plan,
if any, and earnings and losses on such amounts pursuant to Section
4.3.
1.33 "Qualified 401(k) Plan" means the La-Z-Boy Incorporated Matched
Retirement Savings Plan or the qualified plan of the Company or
Subsidiary having section 401(k) and or section 401(m) features
applicable to the Participant.
1.34 "Qualified Profit Sharing Plan" means the La-Z-Boy Incorporated
Profit Sharing Plan or the qualified plan of the Company or
Subsidiary having employer profit sharing allocations applicable to
the Participant.
1.35 "Rabbi Trust" or "Trust" shall mean the La-Z-Boy Incorporated
Executive Deferred Compensation Plan Trust, a grantor trust
established by the Company to hold funds equal to the liability of
the Plan.
1.36 "Salary Deferral" means the total amount deferred by the Participant
from his or her Base or Incentive Compensation under Section 3.1.
1.37 "Scheduled Withdrawal Date" shall mean the distribution date elected
by the Participant for a withdrawal of amounts from such Accounts
deferred in a given Plan Year, and earnings and losses attributable
thereto, as set forth on the election form for such Plan Year.
1.38 "Subsidiary" means a corporation, domestic or foreign, the majority of
whose voting stock is owned directly or indirectly by the Company.
1.39 "Trustee" shall mean Wachovia Bank, NA, and its successors and assigns.
1.40 "Vested" shall mean the nonforfeitable portion of a Participant's
Account.
1.41 "Year of Service" means a year of Company service.
Page 48
Section II - Eligibility
- -------------------------------------------------------------------------------
2.1 Eligibility
Any Eligible Employee who is selected by the Committee and approved
by the Board shall be eligible to participate in the Plan.
2.2 Time of Participation
Once selected, the Eligible Employee shall become a Participant and
begin accruing benefits at the time specified by the Committee upon
completion of all election forms including the insurance
application. The Committee shall designate which subsections of
Section III of the Plan each Participant shall be eligible to
participate in.
Section III - CONTRIBUTIONS AND BENEFITS
- -------------------------------------------------------------------------------
3.1 In General
The Company, in its sole discretion shall determine upon each
Participant's initial participation in the Plan, which Participant
shall be eligible to receive benefits pursuant to Sections 3.2, 3.3,
and 3.4.
3.2 Elections to Defer Compensation
a) Initial Election Period. Subject to the provisions of Section
II, each Participant may elect to defer Base and/or Incentive
Compensation by filing with the Committee an election that
conforms to the requirements of this Section 3.2, on a form
provided by the Committee, no later than the last day of his
or her Initial Election Period.
b) General Rule. A Participant may elect to defer Base and Incentive
Compensation earned on or after the time at which the Participant
elects to defer in accordance with this Section 3.1. The deferral
election may be expressed as a flat dollar amount or percentage
which shall not exceed 100% of the Participant's Compensation,
provided that the total amount deferred by a Participant shall be
limited in any calendar year, if necessary, to satisfy Social
Security Tax (including Medicare), income tax and employee benefit
plan withholding requirements as determined in the sole and
absolute discretion of the Committee. The minimum contribution
which may be made in any Plan Year by a Participant shall not be
less than 5% of such Participant's Base or Incentive Compensation,
provided such minimum contribution can be satisfied from any
element of Compensation.
Page 49
c) Duration of Compensation Deferral Election. A Participant's
initial election to defer Compensation must be made prior to the
Effective Date and is to be effective with respect to
Compensation received after such deferral election is
processed. A Participant may increase, decrease or terminate
a deferral election with respect to Base Compensation for any
subsequent month by filing a new election not less than 15
days prior to the beginning of the next month. Such election
shall be effective on the first day of the following month. A
Participant's election to defer Incentive Compensation is
irrevocable with respect to the Plan Year for which the
election is made. A Participant may increase, decrease or
terminate a deferral election with respect to Incentive
Compensation for any subsequent Plan Year by filing a new
election not less than 15 days prior to the beginning of the
following Plan Year. In the case of an employee who becomes a
Participant after the Effective Date, such Participant shall
have 30 days from the date he or she is notified by the
Committee that he or she is eligible to participate under
this Section 3.2 to make an Initial Election with respect to
Compensation. Such election shall be for the remainder of the
Plan Year, in the event the Plan Year has commenced.
d) Elections other than Elections during the Initial Election
Period. Subject to the limitations of Section 3.2(b) above,
any Participant who has terminated a prior Base Compensation
deferral election may elect to again defer Compensation by
filing an election an a form provided by the Committee to
defer Base Compensation as described in Sections 3.2(b) and
3.2(c) above. An election to defer Compensation must be filed
in a timely manner in accordance with Section 3.2(c).
3.3 Company Matching Contributions
If eligible to participate in this Section 3.3, the Company shall
credit the Account of each Participant at least annually within 90
days after the end of the Plan Year, with a matching contribution
amount which is equal to the excess, if any, of A over B, where:
"A" is the amount of matching contribution that would have
been contributed to the applicable Qualified 401(k) Plan for
the Plan Year determined without the limitations imposed by
section 401(k), section 401(m), section 401(a)(17), section 412(g)
or section 415 of the Code, and based on the Participant's
compensation deferral contributions to the Qualified 401(k) Plan
for the Plan Year; and
"B" is the actual matching contribution made on behalf of the
Participant to the Qualified section 401(k) Plan
Page 50
3.4 Company Discretionary Contributions
If eligible to participate in this Section 3.4, the Company shall
determine the amount of Company Discretionary Contribution to be
credited to the Account of each Participant within 90 days after the
end of the Plan Year. The amount may vary by Participant and each
allocation may have a different vesting schedule attached.
However, with respect to Participants whose profit sharing
contributions are limited under the respective Company Qualified
Profit Sharing Plan, the Company shall credit the Account within 90
days after the end of the Plan Year, with a discretionary
contribution amount which is at least equal to the excess, if any,
of A over B, where:
"A" is the amount of profit sharing contribution that would
have been contributed to the applicable Qualified Profit
Sharing Plan for the Plan Year determined without the
limitations imposed by section 401(a)(17) or section 415 of the;
and
"B" is the actual profit sharing contribution made on behalf of
the Participant to the Qualified Profit Sharing Plan
3.5 Investment Elections
a) At the time of initial participation in the Plan under Section II
or upon making the deferral elections described in Section 3.2,
the Participant shall designate, on a form provided by the
Committee, the types of investment funds in which the
Participant's Account will be deemed to be invested for purposes
of determining the amount of earnings to be credited to that
Account. In making the designation pursuant to this Section 3.5,
the Participant may specify that all or any multiple of his or her
Account be deemed to be invested, in whole percentage increments,
in one or more of the types of investment funds provided under
the plan as communicated from time to time by the Committee.
Effective as of the end of any business day, a Participant may
change the designation made under this Section 3.5 by filing an
election, on a form provided by the Committee. If a Participant
fails to elect a type of fund under this Section 3.5, he or she
shall be deemed to have elected the Money Market type of
investment fund.
b) Although the Participant may designate the type of investments,
the Committee shall not be bound by such designation. The
Committee shall select from time to time, in its sole and absolute
discretion, commercially available investments for each of the
types of Funds communicated by the Committee to the Participant
pursuant to Section 3.5(a) above to be the Funds. The Interest
Rate of each such commercially available investment fund shall be
used to determine the amount of earnings or losses to be credited
to the Participant's Account under Section IV.
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SECTION IV - ACCOUNTS
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4.1 Deferral Accounts.
The Committee shall establish and maintain a Deferral Account for
each Participant under the Plan. Each Participant's Deferral Account
shall be further divided into separate sub accounts ("investment
fund sub accounts"), each of which corresponds to an investment fund
elected by the Participant pursuant to Section 3.5(a). A
Participant's Deferral Account shall be credited as follows:
a) On the third business day after amounts are withheld and
deferred from a Participant's Compensation, the Committee
shall credit the investment fund sub accounts of the
Participant's Deferral Account with an amount equal to
Compensation deferred by the Participant in accordance with
the Participant's election under Section 3.5(a); that is, the
portion of the Participant's deferred Compensation that the
Participant has elected to be deemed to be invested in a
certain type of investment fund shall be credited to the
investment fund sub account corresponding to that investment
fund;
b) Each business day, each investment fund sub account of a
Participant's Deferral Account shall be credited with
earnings or losses in an amount equal to that determined by
multiplying the balance credited to such investment fund sub
account as of the prior day plus contributions credited that
day to the investment fund sub account by the Interest Rate
for the corresponding fund selected by the Company pursuant
to Section 3.5 (b).
c) In the event that a Participant elects for a given Plan
Year's deferral of Compensation to have a Scheduled
Withdrawal Date, all amounts attributed to the deferral of
Compensation for such Plan Year shall be accounted for in a
manner which allows separate accounting for the deferral of
Compensation and investment gains and losses associated with
such Plan Year's deferral of Compensation.
4.2 Company Contribution Account.
The Committee shall establish and maintain a Company Contribution
Account for each Participant under the Plan. Each Participant's
Company Contribution Account shall be further divided into separate
investment fund sub accounts corresponding to the investment fund
elected by the Participant pursuant to Section 3.5(a). A
Participant's Company Contribution Account shall be credited as
follows:
a) On the third business day after a Company Discretionary
Contribution Amount or Company Matching Contribution Amount
is calculated and approved, the Committee shall credit the
investment fund sub accounts of the Participant's Company
Contribution Account with an amount equal to the Company
Discretionary Contribution Amount, if any, applicable to that
Participant, that is, the proportion of the Company
Discretionary Contribution Amount, if any, or Company
Matching Contribution Amount, if any, which the Participant
Page 52
elected to be deemed to be invested in a certain type of
investment fund shall be credited to the corresponding
investment fund sub account; and
b) Each business day, each investment fund sub account of a
Participant's Company Contribution Account shall be credited
with earnings or losses in an amount equal to that determined
by multiplying the balance credited to such investment fund
sub account as of the prior day plus contributions credited
that day to the investment fund sub account by the Interest
Rate for the corresponding Fund selected by the Company
pursuant to Section 3.5(b).
4.3 Prior Account.
The Committee shall establish and maintain a Prior Account for each
Former Participant under the Plan. Each Former Participant's Prior
Account shall be further divided into separate investment fund sub
accounts corresponding to the investment fund elected by the Former
Participant pursuant to Section 3.5(a). A Former Participant's Prior
Account shall be credited as follows:
a) Each business day, each investment fund sub account of a
Former Participant's Prior Account shall be credited with
earnings or losses in an amount equal to that determined by
multiplying the balance credited to such investment fund sub
account as of the prior day plus contributions credited that
day to the investment fund sub account by the Interest Rate
for the corresponding Fund selected by the Company pursuant
to Section 3.5(b).
SECTION V - VESTING
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5.1 Vesting In General
Subject to the right of the Company to discontinue the Plan as
provided in Section IX, a Participant shall have a nonforfeitable
interest in benefits payable from his or her Account as follows:
a) Deferral Account - A Participant shall have a 100% nonforfeitable
interest in benefits payable from his or her Deferral account.
b) Company Contributions Account - A Participant shall have a
nonforfeitable interest in benefits payable under the Plan
from his or her Company Contributions Account attributable to
matching or profit sharing contributions, which were not able
to be contributed to the respective Qualified section 401(k) or
Profit Sharing Plan at a rate of 25% per year of Company
Service.
c) Prior Account - A Former Participant shall have a 100%
nonforfeitable interest in benefits payable under the Plan
from his or her Prior Account which are attributable to prior
employee salary deferrals and interest thereon and shall vest
at a rate of 25% per year of Company Service in benefits
payable under the Plan from his or her Prior Account which are
attributable to prior contributions made by the Company and
any interest thereon.
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5.2 Vesting upon Plan Termination or Change in Control
Notwithstanding the above, in the event the Plan is terminated by
the Board, or there is a Change in Control, all Participants who are
actively employed on the date the Plan is terminated or the Change
in Control occurs shall be immediately vested in the benefit under
the Plan.
5.3 Vesting upon Sale of Company-Owned Retail Store
Notwithstanding the above, in the event the Company sells one of its
retail stores, and as a result the employment of the manager of such
retail store is terminated by the Company, then such manager shall
be immediately vested in his or her benefit under the Plan.
SECTION VI - DISTRIBUTION OF BENEFITS
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6.1 General Rule
a) Termination Distributions. In the case of a Participant who
terminates employment with Company and has an Account balance of
more than $25,000, the Distributable Amount shall be paid to the
Participant (and after his or her death to his or her Beneficiary)
in a lump sum commencing on the Participant's Payment Date in the
year following the Participant's termination of employment. An
optional form of benefit may be elected by the Participant, on
the form provided by Company, during his or her Initial Election
Period from among the following:
(1) Substantially equal annual installments over a period of
time not to exceed fifteen (15) years beginning on the
Participant's Payment Date,
(2) A lump sum payment commencing on a date certain but no
later than five (5) years after termination, or
(3) Substantially equal annual installments, commencing on a
date certain but no later than five (5) years after
termination, over a period of time not to exceed fifteen
(15) years.
A Participant may amend the form of benefit that he or she has
previously elected, provided such modification occurs at least
one (1) year before the Participant terminates employment with
Company.
Page 54
In the case of a Participant who terminates employment with
Company and has an Account balance of $25,000 or less the
Distributable Amount shall be paid to the Participant (and
after his or her death to his or her Beneficiary) in a lump
sum distribution on the Participant's Payment Date.
The Participant's Account shall continue to be credited with
earnings pursuant to Section IV of the Plan until all amounts
credited to his or her Account under the Plan have been
distributed.
b) Scheduled Future Date Distributions. In the case of a
Participant who has elected a Scheduled Withdrawal Date for a
distribution of his or her Salary Deferral Account while still
in the employ of the Company, such Participant shall receive
his or her Distributable Amount in a lump sum payment or
substantially equal annual installments, as shall have been
elected by the Participant, to be subject to the Scheduled
Withdrawal Date in accordance with Section 1.37 of the Plan.
Notwithstanding the above, if a Participant's Distributable
Amount does not exceed $25,000, such amount shall
automatically be paid to the Participant on the Scheduled
Withdrawal Date in a lump sum payment.
A Participant's Scheduled Withdrawal Date in a given Plan Year
may be no earlier than two (2) years from the last day of the
Plan Year for which the deferral of Compensation is made. A
Participant may extend the Scheduled Withdrawal Date for any
Plan Year, provided such extension occurs at least one (1)
year before the Scheduled Withdrawal Date and is for a period
of not less than two (2) years from the Scheduled Withdrawal
Date.
c) Distribution for Termination of Employment due to Death. In
the event a Participant dies while in the employ of the
Company, the Company shall distribute Participant's
undistributed Account, including any unvested portion of
Participant's Company Contributions Account to the
Participant's Beneficiary as a lump sum payment.
d) Post-Termination Death Benefit. In the event a Participant
dies after his or her termination of employment and still has
a vested balance in his or her Account, the vested balance of
such Account shall be paid to the Participant's Beneficiary as
a lump sum payment.
6.2 Early Non-Scheduled Distributions.
A Participant shall be permitted to elect an Early Distribution from
his or her Deferral Account prior to the Payment Date, subject to
the following restrictions:
a) The election to take an Early Distribution shall be made by
filing a form provided by and filed with the Committee.
b) The amount of the Early Distribution shall be equal to 90% of
the requested amount.
Page 55
c) The amount described in subsection (b) above shall be paid in
a single cash lump sum as soon as practicable.
d) If a Participant requests an Early Distribution of his or her
entire Deferral Account, the remaining balance of his or her
Deferral Account (10% of the Deferral Account) shall be
permanently forfeited and the Company shall have no obligation
to the Participant or his Beneficiary with respect to such
forfeited amount. If a Participant receives an Early
Distribution of less than his or her entire Deferral Account,
such Participant shall forfeit 10% of the gross amount to be
distributed from the Participant's Account and the Company
shall have no obligation to the Participant or his or her
Beneficiary with respect to such forfeited amount.
e) If a Participant receives an Early Distribution of either all
or a part of his or her Deferral Account, the Participant will
be ineligible to participate in the Plan for the balance of
the Plan Year and the following Plan Year. All distributions
shall be made on a pro rata basis from among a Participant's
Deferral Accounts.
6.3 Hardship Distribution
A Participant shall be permitted to elect a Hardship distribution
from his or her Deferral Accounts in accordance with Section 1.24 of
the Plan prior to the Payment Date, subject to the following
restrictions:
a) The election to take a Hardship distribution shall be made by
filing a form provided by and filed with the Committee.
b) The Committee shall have made a determination that the
requested distribution constitutes a Hardship in accordance
with Section 1.24 of the Plan.
c) The amount determined by the Committee as a Hardship shall be
paid in a single cash lump sum as soon as practicable.
6.4 Tax Withholding
With respect to any benefit payments under the Plan, Company shall
make all appropriate income tax withholdings; however, the
Participant will be solely liable for any and all income taxes
applicable on such benefit payments.
The benefits, which accrue under the Plan, are subject to FICA taxes
(which include the Old-Age, Survivors and Disability Insurance tax
and/or Medicare tax as the case may be) which may become due before
the benefits are actually paid as provided under Code section 3121(v)
(2) and related IRS regulations.
To ensure proper compliance with these regulations, Company will
calculate the amount of FICA tax when it becomes due and notify the
Participant of the amount of his or her share of such tax. Company
will remit the entire tax to the IRS and arrange for the collection
Page 56
of the Participant's share of the tax from the Participant. Company
may provide the Participant with additional compensation to offset
his or her share of such tax, however, the Participant will be
solely liable for his or her share of FICA taxes on benefits accrued
under the Plan.
6.5 Other
Notwithstanding any other provisions of the Plan, if any amounts
held in trust are found, due to the creation or operation of Trust,
in a final decision by a court of competent jurisdiction, or under a
"determination" by the Internal Revenue Service in a closing
agreement tin audit or a final refund disposition (within the
meaning of section 1313(a) of Internal Revenue Code of 1986, as
amended), to have been includable in the gross income of a Participant
or Beneficiary prior to payment of such amounts from Trust, the trustee
for the Trust shall, as soon as practicable, pay to such Participant
or Beneficiary an amount equal to the amount determined to have been
includable in gross income in such determination, and shall
accordingly reduce the Participant's or Beneficiary's Account. The
trustee shall not make any distribution to a Participant or
Beneficiary pursuant to this Section 6.5 unless it has received a
copy of the written determination described above together with any
legal opinion which it may request as to the applicability thereof.
6.6 Inability to Locate Participant
In the event that the Committee is unable to locate a Participant or
Beneficiary within two (2) years following the required Payment
Date, the amount allocated to the Participant's Account shall be
forfeited. If, after such forfeiture, the Participant or Beneficiary
later claims such benefit, such benefit shall be reinstated without
interest or earnings.
Article VII - Funding
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7.1 Unfunded Plan
Benefits under this Plan shall be paid from the general assets of
the Company. The Plan shall be administered as an unfunded plan
which is maintained primarily for the purpose of providing
supplemental retirement compensation "for a select group of
management or highly compensated employees" as set forth in Sections
201(2), 301(3), and 401(a)(1) of the ERISA, and is not intended to
meet the qualification requirements of section 401 of the Code. Any use
of the words "contributions" or "contribute," or any similar phrase,
shall not require actual contributions or funding of this Plan and
is only used for convenience when describing the deferral and
supplemental retirement benefit activities of this Plan.
Page 57
7.2 Rabbi Trust
Company shall establish the Rabbi Trust and, subject to the rules of
this section, make contributions to it for the purpose of providing
a source of funds to meet the liabilities of the Plan. It is
generally intended that contributions to the Rabbi Trust will be
made by Company at least annually in an amount equal to the Salary
Deferrals Contributions and any Company Matching Contributions or
other Company Discretionary Contributions related to the Plan for
the year as calculated and approved pursuant to Sections 3.3 and
3.4. However, no contribution shall be required if the fair value of
the assets in the Rabbi Trust exceeds the value of all benefits
under the Plan. Salary Deferrals shall always be contributed to the
Rabbi Trust, but the Company shall have discretion regarding whether
to transfer funds to the Rabbi Trust for the Company Matching
Contribution and Company Discretionary Contribution. Contributions
to the Rabbi Trust shall be made at approximately the same time as
contributions of like amounts would have been made to the respective
Qualified 401(k) Plan or the Qualified Profit Sharing Plan.
In the event of a Change in Control, the Company shall be required
to make additional contributions (if any) to the Rabbi Trust within
30 days of the date of the Change in Control and annually thereafter
within 90 days after the end of each Plan Year, such that the fair
value of the assets in the Rabbi Trust are sufficient to fund the
value of all benefits of the Plan accrued at the date of Change in
Control and thereafter at the end of the Plan Year.
Any assets set aside in the Rabbi Trust shall not be deemed to be
the property of the Participant and shall be subject to claims of
the creditors of Company. No Participant or Beneficiary shall have
any claim against, right to, or security or other interest in, any
fund, account or asset of Company from which any payment under the
Plan may be made.
SECTION VIII - PLAN ADMINISTRATION
- -------------------------------------------------------------------------------
8.1 General Duty
The Plan shall be administered by the Administrative Committee.
Members of the Administrative Committee shall serve in such capacity
until resignation or removal by the Board. It shall be the principal
duty of the Administrative Committee to determine that the
provisions of the Plan are carried out in accordance with its terms,
for the exclusive benefit of persons entitled to participate in the
Plan.
8.2 Committee Action
The Committee shall act at meetings by affirmative vote of a
majority of the members of the Committee. Any action permitted to be
taken at a meeting may be taken without a meeting if, prior to such
action, a written consent to the action is signed by all members of
the Committee and such written consent is filed with the minutes of
the proceedings of the Committee. A member of the Committee shall
not vote or act upon any matter which relates solely to himself or
herself as a Participant. The Chairman or any other member or
members of the Committee designated by the Chairman may execute any
certificate or other written direction on behalf of the Committee.
Page 58
8.3 General Powers, Rights and Duties of the Committee
The Committee shall have full power to administer the Plan in all of
its details, subject to the applicable requirements of the law on
behalf of the Participants and their Beneficiaries, shall enforce
the Plan in accordance with its terms, shall be charged with the
general administration of the Plan, and shall have all powers
necessary to accomplish its purposes, including, but not by way of
limitation, the following:
(1) To select the Funds in accordance with Section 3.4(b) hereof;
(2) To construe and interpret the terms and provisions of this
Plan;
(3) To compute and certify to the amount and kind of benefits
payable to Participants and their Beneficiaries;
(4) To maintain all records that may be necessary for the
administration of the Plan;
(5) To provide for the disclosure of all information and the
filing or provision of all reports and statements to
Participants, Beneficiaries or governmental agencies as
shall be required by law;
(6) To make and publish such rules for the regulation of the
Plan and procedures for the administration of the Plan as are
not inconsistent with the terms hereof;
(7) To appoint a Plan administrator or any other agent, and to
delegate to them such powers and duties in connection with
the administration of the Plan as the Committee may from time
to time prescribe; and
(8) To take all actions necessary for the administration of the
Plan, including determining whether to hold or discontinue
the Policies.
8.4 Construction and Interpretation
The Committee shall have full discretion to construe and interpret
the terms and provisions of this Plan, which interpretations or
construction shall be final and binding on all parties, including
but not limited to the Company and any Participant or Beneficiary.
The Committee shall administer such terms and provisions in a
uniform and nondiscriminatory manner and in full accordance with any
and all laws applicable to the Plan.
Page 59
8.5 Information
To enable the Committee to perform its functions, the Company shall
supply full and timely information to the Committee on all matters
relating to the Compensation of all Participants, their death or
other events which cause termination of their participation in this
Plan, and such other pertinent facts as the Committee may require.
8.6 Compensation, Expenses and Indemnity
a) The members of the Committee shall serve without compensation
for their services hereunder.
b) The Committee is authorized at the expense of the Company to
employ such legal counsel as it may deem advisable to assist
in the performance of its duties hereunder. Expenses and fees
in connection with the administration of the Plan shall be
paid by the Company.
c) To the extent permitted by applicable state law, the Company
shall indemnify and hold harmless the Committee and each
member thereof, the Board of Directors and any delegate of the
Committee who is an employee of the Company against any and
all expenses, liabilities and claims, including legal fees to
defend against such liabilities and claims arising out of
their discharge in good faith of responsibilities under or
incident to the Plan, other than expenses and liabilities
arising out of willful misconduct. This indemnity shall not
preclude such further indemnities as may be available under
insurance purchased by the Company or provided by the Company
under any bylaw, agreement or otherwise, as such indemnities
are permitted under state law.
8.7 Claims and Review Procedures
a) Claim - A person who believes that he or she is being denied a
benefit to which he or she is entitled under this Plan
(hereinafter referred to as "Claimant") must file a written
request for such benefit with the Company, setting forth his
or her claim. The request must be addressed to the President
of the Company at its then principal place of business.
b) Claim Decision - Upon receipt of a claim, the Company shall
advise the Claimant that a reply will be forthcoming within
ninety (90) days and shall, in fact, deliver such reply within
such period. The Company may, however, extend the reply period
for an additional ninety (90) days for special circumstances.
If the claim is denied in whole or in part, the Company shall
inform the Claimant in writing, using language calculated to
be understood by the Claimant, setting forth: (A) the
specified reason or reasons for such denial; (B) the specific
reference to pertinent provisions of this Plan on which such
Page 60
denial is based; (C) a description of any additional material
or information necessary for the Claimant to perfect his or
her claim and an explanation of why such material or such
information is necessary; (D) appropriate information as to
the steps to be taken if the Claimant wishes to submit the
claim for review; and (E) the time limits for requesting a
review under subsection (c).
c) Request For Review - Within sixty (60) days after the receipt
by the Claimant of the written opinion described above, the
Claimant may request in writing that the Committee review the
determination of the Company. Such request must be addressed
to the Secretary of the Company, at its then principal place
of business. The Claimant or his or her duly authorized
representative may, but need not, review the pertinent
documents and submit issues and comments in writing for
consideration by the Committee. If the Claimant does not
request a review within such sixty (60) day period, he or she
shall be barred and estopped from challenging the Company's
determination.
d) Review of Decision - Within sixty (60) days after the
Committee's receipt of a request for review, after considering
all materials presented by the Claimant, the Committee will
inform the Participant in writing, in a manner calculated to
be understood by the Claimant, the decision setting forth the
specific reasons for the decision containing specific
references to the pertinent provisions of this Plan on which
the decision is based. If special circumstances require that
the sixty (60) day time period be extended, the Committee will
so notify the Claimant and will render the decision as soon as
possible, but no later than one hundred twenty (120) days
after receipt of the request for review.
8.8 Furnishing Information or Providing Other Reports
The Committee shall provide Participant under procedures established
by the Committee (i) a statement with respect to such Participant's
Accounts on a least a quarterly basis, (ii) a description of the
Plan, and (iii) such other information or notices as required by
ERISA or other applicable law. After Payment by the Participant of a
reasonable charge, which charge may be waived by the Committee, the
Committee shall provide the Participant with a copy of the Plan upon
written request by the Participant. The Committee shall also file
with government authorities any reports or returns required.
Article IX - Amendment and Discontinuance
- -------------------------------------------------------------------------------
9.1 In General
The Company hereby reserves the right and power, by action of the
Board or the Administrative Committee, to amend, suspend or
terminate the Plan in whole or in part, at any time. Included in the
Company's right to amend, suspend or terminate is the Company's
right at any time to no longer permit any additional participants
under the Plan, to cease making benefit allocations, and to
Page 61
distribute all Account balances upon Plan termination. The
Administrative Committee may promulgate rules and procedures from
time to time to carry out the provisions of this Section IX.
However, in no event shall the Company or Administrative Committee
have the right to eliminate or reduce any benefit which has been
vested or become nonforfeitable under the Plan pursuant to Section
V. No adopting Company other than the Company shall have the right
to amend or terminate the Plan, but a Company shall have the right
to cease or suspend participation in the Plan.
SECTION X - GENERAL PROVISIONS
- -------------------------------------------------------------------------------
10.1 Unsecured General Creditor.
Participants and their Beneficiaries, heirs, successors, and assigns
shall have no legal or equitable rights, claims, or interest in any
specific property or assets of the Company. No assets of the Company
shall be held in any way as collateral security for the fulfilling
of the obligations of the Company under this Plan. Any and all of
the Company's assets shall be, and remain, the general unpledged,
unrestricted assets of the Company. The Company's obligation under
the Plan shall be merely that of an unfunded and unsecured promise
of the Company to pay money in the future, and the rights of the
Participants and Beneficiaries shall be no greater than those of
unsecured general creditors. It is the intention of the Company that
this Plan be unfunded for purposes of the Code and for purposes of
Title 1 of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA").
10.2 Restriction Against Assignment.
The Company shall pay all amounts payable hereunder only to the
person or persons designated by the Plan and not to any other person
or corporation. No part of a Participant's Accounts shall be liable
for the debts, contracts, or engagements of any Participant, his or
her Beneficiary, or successors in interest, nor shall a
Participant's Accounts be subject to execution by levy, attachment,
or garnishment or by any other legal or equitable proceeding, nor
shall any such person have any right to alienate, anticipate, sell,
transfer, commute, pledge, encumber, or assign any benefits or
payments hereunder in any manner whatsoever. If any Participant,
Beneficiary or successor in interest is adjudicated bankrupt or
purports to anticipate, alienate, sell, transfer, commute, assign,
pledge, encumber or charge any distribution or payment from the
Plan, voluntarily or involuntarily, the Committee, in its
discretion, may cancel such distribution or payment (or any part
thereof) to or for the benefit of such Participant, Beneficiary or
successor in interest in such manner as the Committee shall direct.
10.3 Receipt or Release.
Any payment to a Participant or the Participant's Beneficiary in
accordance with the provisions of the Plan shall, to the extent
thereof, be in full satisfaction of all claims against the Committee
and the Company. The Committee may require such Participant or
Beneficiary, as a condition precedent to such payment, to execute a
receipt and release to such effect.
Page 62
10.4 Payments on Behalf of Persons Under Incapacity.
In the event that any amount becomes payable under the Plan to a
person who, in the sole judgment of the Committee, is considered by
reason of physical or mental condition to be unable to give a valid
receipt therefore, the Committee may direct that such payment be
made to any person found by the Committee, in its sole judgment, to
have assumed the care of such person. Any payment made pursuant to
such determination shall constitute a full release and discharge of
the Committee and the Company.
10.5 Limitation of Rights and Employment Relationship
Neither the establishment of the Plan and Trust nor any modification
thereof, nor the creating of any fund or account, nor the payment of
any benefits shall be construed as giving to any Participant, or
Beneficiary or other person any legal or equitable right against the
Company or the trustee of the Trust except as provided in the Plan
and Trust; and in no event shall the terms of employment of any
Employee or Participant be modified or in any way be affected by the
provisions of the Plan and Trust.
10.6 Governing Law.
This Plan shall be construed, governed and administered in
accordance with the laws of the State in which the Company is
incorporated, except where pre-empted by federal law.
10.7 Statutory References
All references to the Code and ERISA include reference to any
comparable or succeeding provisions of any legislation which amends,
supplements or replaces such section or subsection.
10.8 Severability
In case any provisions of the Plan shall be held illegal or invalid
for any reason, such illegality or invalidity shall not affect the
remaining provisions of the Plan, and the Plan shall be construed
and enforced as if such illegal and invalid provisions had never
been set forth in the Plan.
Page 63
10.9 Gender and Number
Where the context permits, words denoting the masculine gender shall
include the feminine gender, the singular shall include the plural,
and the plural shall include the singular.
10.10 Headings
Headings and subheadings in this Plan are inserted for convenience
of reference only and are not to be considered in the construction
of the provisions hereof. In the event of a conflict between a
heading and the content of a section, the content of the section
shall control.
10.11 Non-taxable Benefits
It is the intention of each Company that the Plan meets all
requirements of the Code so that the benefits provided are
non-taxable during the period of deferral and until actual
distribution is made.
10.12 Action by the Company
Any action to be performed by the Company under the Plan shall be by
resolution of its Board, by a duly authorized committee of its
Board, or by a person or persons authorized by resolution of its
Board or by resolution of such committee, or by the Administrative
Committee.
Executed this _______ day of____________, 2002
LA-Z-BOY INCORPORATED
By:_____________________________
President and Chief Executive Officer
Page 64
EXHIBIT (13)
Financial Report
Report of Management Responsibilities
The management of La-Z-Boy Incorporated is responsible for the preparation,
integrity, and objectivity of the financial statements and the other financial
related information in this report.
Management is further responsible for establishing and maintaining a
system of internal controls as a critical requirement for the operational and
financial integrity of results. The system of internal controls is reviewed,
evaluated, and revised as necessary in light of the results based on constant
management oversight, internal and independent audits, changes in business, and
other conditions. Management believes that the system of internal controls and
disclosure procedures, taken as a whole, provides reasonable assurance that (i)
financial records are adequate and can be relied upon to allow the preparation
of financial statements in conformity with accounting principles generally
accepted in the United States of America; (ii) all disclosures, financial and
non-financial, are appropriately made and (iii) access to assets occurs only in
accordance with management's authorizations. We comply with applicable changes
in the regulatory environment, including the certification of our financial
statements.
The Audit Committee of the Board of Directors, which is composed of
directors who are not employees of the company meets regularly with management,
internal auditors, and the independent accountants to review accounting,
auditing, and financial matters, including the disclosure of critical accounting
estimates and policies. The independent accountants and internal auditors have
full and free access to the Audit Committee to discuss their audit work, the
company's internal controls, and financial reporting matters.
The financial statements have been audited by PricewaterhouseCoopers
LLP, independent certified public accountants. Their audit was conducted in
accordance with auditing standards generally accepted in the United States of
America, which included consideration of the company's internal control
structure. The Report of Independent Accountants follows.
Gerald L. Kiser
President and Chief Executive Officer
David M. Risley
Senior VP and Chief Financial Officer
Report of Independent Accountants
To the Board of Directors and Shareholders of La-Z-Boy Incorporated:
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income, of cash flows and of changes in shareholders'
equity, including pages 66 through 86, present fairly, in all material respects,
the financial position of La-Z-Boy Incorporated and its subsidiaries at April
26, 2003, and April 27, 2002, and the results of their operations and their cash
flows for each of the three fiscal years in the period ended April 26, 2003, in
conformity with accounting principles generally accepted in the United States of
America. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with auditing standards generally accepted in the United States of
America, which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
As discussed in Notes 1 and 2 to the consolidated financial statements, the
Company changed its method of accounting for goodwill and trade names effective
April 28, 2002.
/s/ PricewaterhouseCoopers LLP
Toledo, Ohio
May 28, 2003
Page 65
Consolidated Statement of Income
(Amounts in thousands,
except per share data) Fiscal year ended 4/26/03 4/27/02 4/28/01
- -----------------------------------------------------------------------------------------------
Sales................................................. $2,111,830 $2,153,952 $2,248,491
Cost of sales......................................... 1,617,261 1,691,657 1,794,474
------------ ------------- ------------
Gross profit....................................... 494,569 462,295 454,017
Selling, general and administrative................... 331,695 353,906 333,223
Loss on divestiture................................... -- 11,689 --
------------ ------------- ------------
Operating income................................... 162,874 96,700 120,794
Interest expense...................................... 10,510 10,063 17,960
Other income, net..................................... 2,633 2,299 9,210
------------ ------------- ------------
Pre-tax income..................................... 154,997 88,936 112,044
Income tax expense.................................... 58,899 27,185 43,708
------------ ------------- ------------
Income before cumulative effect of
accounting change................................ 96,098 61,751 68,336
Cumulative effect of accounting change
(net of tax of $17,920) ........................... (59,782) -- --
------------ ------------- ------------
Net income......................................... $36,316 $61,751 $68,336
============ ============= ============
Basic average common shares........................ 57,120 60,739 60,550
Basic net income per share before
cumulative effect of accounting change........... $1.68 $1.02 $1.13
Cumulative effect of accounting change
per share........................................ (1.04) -- --
------------ ------------- ------------
Basic net income per common share.................. $0.64 $1.02 $1.13
============ ============= ============
Diluted weighted average common shares............. 57,435 61,125 60,692
Diluted net income per share before
cumulative effect of accounting change........... $1.67 $1.01 $1.13
Cumulative effect of accounting change
per share........................................ (1.04) -- --
------------ ------------- ------------
Diluted net income per common share................ $0.63 $1.01 $1.13
============ ============= ============
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
Page 66
Consolidated Balance Sheet
(Amounts in thousands, except par value) As of 4/26/03 4/27/02
-----------------------------------------------------------------------------------------------
Assets
Current assets
Cash and equivalents......................................... $28,817 $26,771
Receivables, less allowance of $29,636 in 2003 and
$28,063 in 2002............................................ 340,467 382,843
Inventories, net............................................. 252,537 208,657
Deferred income taxes........................................ 37,734 36,086
Other current assets......................................... 19,939 18,386
------------ ------------
Total current assets................................... 679,494 672,743
Property, plant and equipment, net.............................. 209,411 205,463
Goodwill........................................................ 78,807 108,244
Trade names..................................................... 71,144 116,772
Other long-term assets, less allowance of $6,481 in
2003 and $5,428 in 2002...................................... 84,210 58,605
------------ ------------
Total assets......................................... $1,123,066 $1,161,827
============ ============
Liabilities and shareholders' equity
Current liabilities
Current portion of long-term debt and capital leases......... $1,619 $2,276
Accounts payable............................................. 78,931 68,497
Accrued expenses and other current liabilities............... 134,037 156,120
------------ ------------
Total current liabilities.............................. 214,587 226,893
Long-term debt.................................................. 221,099 137,444
Capital leases.................................................. 1,272 1,942
Deferred income taxes........................................... 36,928 47,196
Other long-term liabilities..................................... 39,241 34,830
Contingencies and commitments
Shareholders' equity
Preferred shares-5,000 authorized; none issued............... -- --
Common shares, $1 par value-150,000 authorized;
55,027 outstanding in 2003 and 59,953 outstanding
in 2002.................................................... 55,027 59,953
Capital in excess of par value............................... 216,081 215,060
Retained earnings............................................ 342,628 444,173
Accumulated other comprehensive loss......................... (3,797) (5,664)
------------ ------------
Total shareholders' equity............................... 609,939 713,522
------------ ------------
Total liabilities and shareholders' equity........... $1,123,066 $1,161,827
============ ============
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
Page 67
Consolidated Statement of Cash Flows
(Amounts in thousands) Fiscal year ended 4/26/03 4/27/02 4/28/01
- ----------------------------------------------------------------------------------------------------------------
Cash flows from operating activities
Net income....................................................... $36,316 $61,751 $68,336
Adjustments to reconcile net income to
net cash provided by operating activities
Cumulative effect of accounting change - net of
income taxes............................................. 59,782 -- --
Loss on divestiture......................................... -- 11,689 --
Depreciation and amortization............................... 30,695 43,988 45,697
Change in receivables....................................... 42,376 (7,418) 13,488
Change in inventories....................................... (41,028) 39,848 (3,159)
Change in payables.......................................... 9,927 (23,335) 2,438
Change in other assets and liabilities...................... (19,080) 15,122 (7,542)
Change in deferred taxes.................................... 6,004 (8,431) (8,365)
Proceeds from insurance recovery............................ -- -- 5,116
---------- ---------- ----------
Total adjustments...................................... 88,676 71,463 47,673
---------- ---------- ----------
Net cash provided by operating activities.................. 124,992 133,214 116,009
Cash flows from investing activities
Proceeds from disposals of assets................................ 4,348 2,341 2,302
Capital expenditures............................................. (32,821) (32,966) (37,416)
Proceeds from divestiture........................................ -- 6,048 --
Acquisitions, net of cash acquired............................... (3,089) -- --
Change in other long-term assets................................. (30,210) 10,198 (2,476)
---------- ---------- ----------
Net cash used for investing activities..................... (61,772) (14,379) (37,590)
Cash flows from financing activities
Proceeds from debt............................................... 187,173 93,482 87,380
Payments on debt................................................. (106,606) (166,915) (121,830)
Capital leases................................................... (578) (549) 424
Stock issued for stock option & 401(k) plans..................... 11,462 20,478 9,909
Repurchase of common stock....................................... (130,287) (40,198) (23,251)
Dividends paid................................................... (22,941) (21,886) (21,189)
---------- ---------- ----------
Net cash used for financing activities..................... (61,777) (115,588) (68,557)
Effect of exchange rate changes on cash and equivalents............. 603 (41) (650)
---------- ---------- ----------
Net increase in cash and equivalents................................ 2,046 3,206 9,212
Cash and equivalents at beginning of the year....................... 26,771 23,565 14,353
---------- ---------- ----------
Cash and equivalents at end of the year............................. $28,817 $26,771 $23,565
========== ========== ==========
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
Page 68
Consolidated Statement of Changes in Shareholders' Equity
Accumulated
Capital in other com-
Common excess of Retained prehensive
(Amounts in thousands) shares par value earnings loss Total
- ------------------------------------------------------------------------------------------------------------------
At April 29, 2000......................... $61,328 $211,450 $392,458 ($2,144) $663,092
Repurchases of common stock.......................... (1,600) (21,651) (23,251)
Stock issued for stock options/401(k)................ 773 (800) 9,662 9,635
Tax benefit from exercise of options................. 274 274
Dividends paid....................................... (21,189) (21,189)
Comprehensive income
Net income........................................ 68,336
Unrealized loss on marketable
securities, net of taxes..................... (768)
Translation adjustment............................ (983)
Total comprehensive income...................... 66,585
-------- --------- --------- -------- ---------
At April 28, 2001............................ 60,501 210,924 427,616 (3,895) 695,146
Repurchases of common stock.......................... (1,750) (38,448) (40,198)
Stock issued for stock options/401(k)................ 1,202 1,528 15,140 17,870
Tax benefit from exercise of options................. 2,608 2,608
Dividends paid....................................... (21,886) (21,886)
Comprehensive income
Net income........................................ 61,751
Unrealized loss on marketable
securities, net of taxes..................... (482)
Realization of losses on marketable
securities, net of taxes..................... 1,250
Translation adjustment............................ (378)
Change in fair value of cash flow
hedges, net of taxes......................... (2,159)
Total comprehensive income...................... 59,982
-------- --------- --------- -------- ---------
At April 27, 2002.......................... 59,953 215,060 444,173 (5,664) 713,522
Repurchases of common stock.......................... (5,491) (124,796) (130,287)
Stock issued for stock options/401(k)................ 565 162 9,876 10,603
Tax benefit from exercise of options................. 859 859
Dividends paid....................................... (22,941) (22,941)
Comprehensive income
Net income........................................ 36,316
Unrealized loss on marketable
securities, net of taxes..................... (793)
Realization of losses on marketable
securities, net of taxes..................... 194
Translation adjustment............................ 2,354
Change in fair value of cash flow
hedges, net of taxes......................... 112
Total comprehensive income...................... 38,183
-------- --------- --------- -------- ---------
At April 26, 2003................... $55,027 $216,081 $342,628 ($3,797) $609,939
======== ========= ========= ======== =========
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
Page 69
Notes to Consolidated Financial Statements
Note 1: Accounting Policies
The following is a summary of significant accounting policies followed in
the preparation of these consolidated financial statements. Our fiscal year ends
on the last Saturday of April.
Principles of Consolidation
The consolidated financial statements include the accounts of La-Z-Boy
Incorporated and its wholly-owned subsidiaries. All significant intercompany
transactions have been eliminated.
Use of Estimates
The consolidated financial statements are prepared in conformity with
accounting principles generally accepted in the United States of America, which
require management to make estimates and assumptions that affect the reported
amounts of assets, liabilities, sales and expenses for the reporting periods.
Some of the more significant estimates include depreciation, valuation of
inventories, valuation of intangibles, allowances of doubtful accounts, sales
returns, legal, environmental, restructuring, product liability and warranty
accruals. Actual results could differ from those estimates.
New Pronouncements
Recently the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 143, "Accounting for
Asset Retirement Obligations," SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets," and SFAS No. 145, "Rescission of FASB Statements
No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical
Corrections." The adoption of SFAS No. 143 and SFAS No. 145 had no financial
impact on our consolidated financial statements. SFAS No. 144 will be
implemented in our first quarter of fiscal 2004 as it relates to assets to be
disposed of as a result of our recently announced restructuring. See Note 14
for additional information on this restructuring.
In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." SFAS No. 146 is effective for
exit or disposal activities occurring after December 31, 2002. SFAS No. 146
will be implemented in our first quarter of fiscal 2004 as it relates to our
recently announced restructuring. See Note 14 for additional information on
this restructuring.
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation-Transition and Disclosure." SFAS No. 148 amends SFAS No. 123,
"Accounting for Stock-Based Compensation" in that it requires additional
disclosures about our stock-based compensation plans. SFAS No. 148 is effective
for periods beginning after December 15, 2002. We account for our stock-based
compensation plans using the intrinsic value method of recognition and
measurement principles under APB Opinion No. 25, "Accounting for Stock Issued to
Employees," and related interpretations. We adopted the disclosure-only
provisions of SFAS No. 123. Assuming that we had accounted for our stock-based
compensation programs using the fair value method promulgated by SFAS No. 123,
proforma net income and net income per share would have been as follows (for the
fiscal years ended):
(Amounts in thousands,
except per share data) 4/26/03 4/27/02 4/28/01
- ------------------------------------------------------------
Net income................... $36,316 $61,751 $68,336
Fair value of stock plan..... (2,132) (2,010) (2,618)
-------- -------- --------
Proforma net income.......... $34,184 $59,741 $65,718
======== ======== ========
Proforma basic net income
per share................. $0.60 $0.98 $1.09
Proforma diluted net income
per share................. $0.60 $0.98 $1.08
See Note 11: "Stock Option Plans" for further FASB information on stock option
accounting.
Page70
In January 2003, the FASB issued FASB Interpretation Number ("FIN") 46,
"Consolidation of Variable Interest Entities." A variable interest entity is
generally defined as an entity which has insufficient equity to finance its
activities or the owners of the entity lack the risk and rewards of ownership.
FIN 46 requires a company to consolidate a variable interest entity if it is
designated as the primary beneficiary of that entity even if the company does
not have a majority of voting interests. The provisions of this statement apply
at inception for any entity created after January 31, 2003. We will apply FIN 46
to new entities as applicable. The provisions of this statement apply to
existing entities as of our second quarter of fiscal 2004. We have not yet
determined the impact of this FIN on our consolidated financial statements as it
relates to existing entities.
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities," and in May 2003, the FASB issued
SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics
of both Liabilities and Equity." We have not yet determined the impact, if any,
on our consolidated financial statements of SFAS No. 149 and SFAS No. 150, which
are effective in our fiscal year 2004.
Cash and Equivalents
For purposes of the consolidated statement of cash flows, we consider all
highly liquid debt instruments purchased with maturities of three months or less
to be cash equivalents.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined
using the last-in, first-out (LIFO) basis for approximately 79% and 77% of our
inventories at April 26, 2003, and April 27, 2002, respectively. Cost is
determined for all other inventories on a first-in, first-out (FIFO) basis.
Excess of FIFO over the LIFO basis at April 26, 2003, and April 27, 2002,
includes $11.4 million for inventory written-up to fair value for acquisitions
that occurred in fiscal 2000. This purchase accounting adjustment reduces
earnings in periods that the related inventory is sold.
Property, Plant and Equipment
Items capitalized, including significant betterments to existing
facilities, are recorded at cost. All maintenance and repair costs are expensed
when incurred. Depreciation is computed using accelerated and straight-line
methods over the estimated useful lives of the assets.
Goodwill and Trade Names
In prior fiscal years, goodwill and trade names were amortized on a
straight-line basis over 30 years from the date of acquisition. As of the
beginning of fiscal 2003, we adopted SFAS No. 142, "Goodwill and Other
Intangible Assets." Under this accounting standard, our goodwill and trade names
are required to be reviewed at least annually for impairment. See Note 2 for
additional information on our goodwill and trade names and the effect of
adopting SFAS No. 142.
Investments
Trading securities are recorded at fair value with unrealized gains and
losses included in income. Available-for-sale securities are recorded at fair
value with the net unrealized gains and losses reported, net of tax, as a
component of other comprehensive income. Realized gains and losses for
available-for-sale securities are based on the first-in, first-out method.
Page 71
Revenue Recognition
Shipping terms are FOB shipping point and revenue is recognized upon
shipment of product. For product shipped on our company-owned trucks, revenue is
recognized upon delivery. This revenue includes amounts billed to customers for
shipping. Provision is made at the time revenue is recognized for estimated
product returns and warranties as well as other incentives that may be offered
to customers.
Other incentives offered to customers include cash discounts, volume
discounts and advertising agreements. Cash discounts are recorded as a reduction
of revenues when the revenue is recognized. Volume discounts are recorded at the
time of sale as a reduction to revenue. Our advertising agreements give
customers advertising allowances based on revenues and are recorded when the
revenue is recognized as a reduction to revenue.
Research and Development Costs
Research and development costs are charged to expense in the periods
incurred. Expenditures for research and development costs were $16.4 million,
$18.7 million, and $19.4 million for the fiscal years ended April 26, 2003,
April 27, 2002 and April 28, 2001, respectively.
Advertising Expenses
Production costs of commercials and programming are charged to expense when
the advertising is first aired. The costs of other advertising, promotion and
marketing programs are charged to income in the period incurred. Cooperative
advertising agreements exist with some customers to reimburse them for actual
advertising expenses. The reimbursements are recorded as advertising expense
when the customer substantiates the advertising. Advertising expense was $43.1
million, $40.1 million, and $35.8 million for the fiscal years ended April 26,
2003, April 27, 2002 and April 28, 2001, respectively.
Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the estimated future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates in effect for the year in which
those temporary differences are expected to be recovered or settled.
Foreign Currency Translation
The functional currency of each foreign subsidiary is the respective local
currency. Assets and liabilities are translated at the year-end exchange rates
and revenues and expenses are translated at average exchange rates for the
period. Resulting translation adjustments are recorded as a component of
shareholders' equity in other comprehensive income.
Financial Instruments and Hedging
We have derivative instruments which consist of interest rate swap
agreements that are used to fix the interest rate on a portion of the variable
interest rate borrowings on our revolving credit facility. These agreements,
which match the terms of the credit facility, are designated and accounted for
as cash flow hedges. Currently, there is no gain or loss recognized in earnings
relating to the changes in the fair value of these interest rate swap
agreements. The effect of marking these contracts to fair value is recorded as a
component of shareholders' equity in other comprehensive income.
We also enter into forward foreign currency exchange contracts to limit our
exposure from changes in foreign currency exchange rates. These foreign exchange
contracts are entered into to support product sales, purchases and financing
transactions made in the normal course of business, and accordingly, are not
speculative in nature. These contracts are designed to match our currency needs
and are therefore designated and accounted for as cash flow hedges.
Reclassification
Certain prior year information has been reclassified to be comparable to
the current year presentation.
Page 72
Note 2: Goodwill and Other Intangible Assets
Effective April 28, 2002, we adopted 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 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.
In accordance with SFAS No. 142, trade names were tested for impairment
by comparing their fair value to their carrying values. The fair value for each
trade name was established based upon a royalty savings approach. Additionally,
goodwill was tested for impairment by comparing the fair value of our operating
units to their carrying values. The fair value for each operating unit was
established based upon a combination of the discounted cash flows and the
projected profitability of the market in which the entity operates.
Using these procedures, we determined that, as of April 28, 2002, the
carrying value of trade names exceeded their fair value creating an impairment
loss of $48.3 million, all of which was attributable to the Casegoods segment,
and the carrying value of goodwill exceeded its fair value creating an
impairment loss of $29.4 million. Of the pre-tax impairment loss for goodwill,
$17.1 million was attributable to the Upholstery segment and $12.3 million was
attributable to the Casegoods segment. The after-tax effect of $59.8 million for
these impairment losses was included in the "Cumulative effect of accounting
change" in the consolidated statement of income. In the fourth quarter of fiscal
2003, we reevaluated the trade names and goodwill for impairment by comparing
the fair values to the carrying values and determined that there was no
additional impairment.
The trade names and goodwill recorded in our April 27, 2002 financial
statements, which included the $77.7 million described above, were supported by
the undiscounted estimated future cash flow of the related operations in
accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of." SFAS No. 142 prescribes a
different approach than SFAS No. 121, requiring the post-acquisition carrying
amounts of goodwill and indefinite-lived intangible assets to be compared to
their fair values. The impairments recognized in the first quarter of 2003 were
the result of changing the impairment assessment model for our intangible assets
from the undiscounted cash flows approach of SFAS No. 121 to the fair value
approach prescribed by SFAS No. 142. Additionally, our impairment charges were
consistent with the recent sales declines in our Casegoods segment.
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 fiscal 2002 would have been increased to $69.3 million from $61.8 million
and our diluted net income per common share would have been increased to $1.13
from $1.01 per common share.
Page 73
The following table summarizes changes to goodwill and trade names 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 4/26/03.................. $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 4/26/03.................... $16,945 $54,199
========== ==========
Note 3: Inventories
(Amounts in thousands) 4/26/03 4/27/02
- ----------------------------------------------------------
Raw materials................... $78,713 $72,389
Work in progress................ 50,041 53,947
Finished goods.................. 137,037 94,062
--------- ---------
FIFO inventories............. 265,791 220,398
Excess of FIFO over LIFO..... (13,254) (11,741)
--------- ---------
Total inventories....... $252,537 $208,657
========= =========
Note 4: Property, Plant and Equipment
Estimated
(Amounts in thousands) Useful Lives 4/26/03 4/27/02
- --------------------------------------------------------------------
Buildings and building
fixtures.................... 3-40 yrs. $199,177 $189,051
Machinery and equipment......... 8-15 yrs. 183,063 178,222
Information systems............. 3-10 yrs. 42,527 39,597
Land and land improvements...... 20 yrs. 30,827 27,423
Transportation equipment........ 5-10 yrs. 15,961 17,425
Other........................... 3-10.yrs. 9,680 16,459
Construction in progress........ 10,989 6,949
--------- ---------
492,224 475,126
Less: accumulated
depreciation.............. 282,813 269,663
--------- ---------
Property, plant and
equipment, net............ $209,411 $205,463
========= =========
Page 74
Note 5: Investments
Included in other long-term assets were $13.0 million and $12.4 million at
April 26, 2003, and April 27, 2002, respectively, of available-for-sale
marketable securities to fund future obligations of one of our retirement plans.
In addition, we had $9.4 million of trading securities in other long-term assets
as of April 26, 2003. The following is a summary of current trading and
available-for-sale securities at April 26, 2003 and April 27, 2002:
Gross Gross
(Amounts in thousands) Unrealized Unrealized Fair
Fiscal 2003 Gains Losses Value
- ----------------------------------------------------------
Trading securities..... $19 ($82) $9,363
Available-for-sale
Equity securities.... 35 (1,070) 8,401
Fixed income......... 80 -- 4,154
Other................ 3 -- 476
---------- ---------- --------
Total
available-for-sale
securities........ 118 (1,070) 13,031
---------- ---------- --------
Total securities $137 ($1,152) $22,394
========== ========== ========
Fiscal 2002
- --------------------------------------------------------
Available-for-sale
Other................ -- -- $12,412
========== ========== ========
The following table summarizes sales of available-for-sale securities for
the fiscal years ended 2003, 2002, and 2001.
(Amounts in thousands) 4/26/03 4/27/02 4/28/01
- -----------------------------------------------------------
Proceeds from sales........ $5,140 $12,651 $60
Gross realized gains....... 187 161 177
Gross realized losses...... ($496) ($2,314) --
The fair value of available-for-sale securities by contractual maturity
were $0.3 million within one year, $2.1 million within two to five years, $1.3
million within six to ten years and $0.8 million thereafter.
Page 75
Note 6: Accrued Expenses and Other Current Liabilities
(Amounts in thousands) 4/26/03 4/27/02
- ---------------------------------------------------------------
Payroll and other compensation............. $73,335 $74,905
Accrued product warranty................... 12,109 15,039
Income taxes............................... 6,965 18,379
Other current liabilities.................. 41,628 47,797
---------- ---------
Accrued expenses and other
current liabilities.................. $134,037 $156,120
========== =========
Note 7: Debt
Fiscal
Interest Year
(Amounts in thousands) Rate Maturity 4/26/03 4/27/02
- --------------------------------------------------------------------------
Revolving credit
facility............ 6.65% 2006 $70,000 $70,000
Industrial
revenue bonds....... 1.3-7.0% 2005-27 30,478 30,855
Private placement notes 6.47% 2008 35,000 35,000
4.56% 2010 36,000 --
5.25% 2013 50,000 --
Other debt............. 6.75% 2004 602 3,319
--------- ---------
Total debt................................... 222,080 139,174
Less: current portion ................... 981 1,730
--------- ---------
Long-term debt ................... $221,099 $137,444
========= =========
Weighted avg. interest rate ................... 5.3% 5.6%
--------- ---------
Fair value of debt ................... $225,504 $140,215
========= =========
We have a $300 million unsecured revolving credit facility with a group of
banks which uses a performance based interest rate grid with pricing ranging
from LIBOR plus 0.475% to LIBOR plus 0.800% based on our consolidated debt to
capital ratio and also requires that certain covenants be met. The revolving
credit facility expires on May 12, 2005. At April 26, 2003 we are in compliance
with all of the covenants under this facility.
In addition to our previously existing credit facilities, on December 19,
2002 we completed a private placement of $86 million in La-Z-Boy Incorporated
unsecured notes with $36 million of these notes having a maturity of seven years
and the remaining $50 million having a maturity of ten years. The fixed rate on
the seven year notes is 4.56% and on the ten year notes is 5.25%. The proceeds
from this debt issuance were used to reduce the company's bank borrowings and
for general corporate purposes.
Page 76
Industrial revenue bonds were used to finance the construction of some of
our manufacturing facilities. The facilities constructed from the bond proceeds
are pledged as collateral for the bonds.
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 the floating rate debt. We believe
that the risk of 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 through December 8, 2003 at 6.095% plus the applicable
borrowing spread under the revolving credit facility. The fair market value of
the swaps would require payment of $2.6 million at April 26, 2003, if we were to
have terminated the agreements.
Maturities of long-term debt, subsequent to April 26, 2003, are $1.0
million in 2004, $4.3 million in 2005, $70.3 million in 2006, $0.3 million in
2007, $39.6 million in 2008 and $106.6 million thereafter. As of April 26, 2003,
unused lines of credit and commitments were $321.8 million under several credit
arrangements.
Cash paid for interest during fiscal years 2003, 2002 and 2001 was $8.9
million, $10.2 million and $17.5 million, respectively.
Note 8: Leases
We have operating leases for manufacturing facilities, executive and sales
offices, warehouses, showrooms and retail facilities as well as for equipment
for manufacturing, transportation and data processing. The operating leases
expire at various dates through 2027. Certain transportation leases contain a
provision for the payment of contingent rentals based on mileage in excess of
stipulated amounts. We lease additional transportation and other equipment under
capital leases expiring at various dates through 2010. The majority of these
capital leases include bargain purchase options.
The future minimum lease payments under non-cancelable leases are as
follows (for the fiscal years):
Operating Capital
(Amounts in thousands) Leases Leases
-----------------------------------------------------
2004................ $18,632 $779
2005................ 16,507 1,022
2006................ 12,285 55
2007................ 8,524 47
2008................ 6,812 47
2009 and beyond..... 23,226 89
----------- ----------
85,986 2,039
Less: interest.... -- 129
----------- ----------
Total....... $85,986 $1,910
----------- ----------
Rental expense and contingent rentals for capital and operating leases were
as follows (for the fiscal years ended):
(Amounts in thousands) 4/26/03 4/27/02 4/28/01
------------------------------------------------------------
Rental expense.............. $25,444 $20,215 $22,591
Contingent rentals.......... $473 $615 $573
Page 77
Note 9: Financial Guarantees and Product Warranties
Effective for the third quarter of fiscal 2003, we adopted FIN 45,
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others." The Interpretation elaborates on
the existing disclosure requirements for most guarantees, including loan
guarantees. It also clarifies that at the time a company issues a guarantee, the
company must recognize an initial liability for the fair value of the
obligations it assumes under that guarantee and must disclose that information
in its interim and annual financial statements. The initial recognition and
initial measurement provisions apply on a prospective basis to guarantees issued
or modified after December 31, 2002.
Prior to December 31, 2002 we provided secured and unsecured financial
guarantees relating to loans and leases in connection with certain independent
La-Z-Boy Furniture Galleries(R) dealers whose stores are not owned by the
company. Loan guarantees are generally for real estate mortgages and have terms
lasting from one to five years. Lease guarantees are generally for real estate
leases and have terms lasting from one to five years. These loan and lease
guarantees enhance the credit of these dealers. The guaranteed party is required
to make periodic fee payments to us in exchange for the guarantees. The fair
values of the loan and lease agreements we have entered into since December 31,
2002 are not material to our financial position.
We would be required to perform under these agreements only if the dealer
were to default on the loan or lease. The maximum amount of potential future
payments under loan guarantees and lease guarantees were $10.1 million and $7.3
million, respectively, as of April 26, 2003. Should a dealer default on a
collateralized loan, we expect to be able to liquidate the collateral, the
proceeds of which we anticipate would cover substantially all of the maximum
amount of our potential future payments under our guarantee obligation.
We have, from time to time, entered into agreements which resulted in
indemnifying third parties against certain liabilities, mainly environmental. We
believe that judgments, if any, against us related to such agreements would not
have a material effect on our business or financial condition.
Our accounting policy for product warranties is to accrue an estimated
liability at the time the revenue is recognized. This estimate is based on
historical claims and adjusted for currently known warranty issues.
A reconciliation of the changes in our product warranty liability is as
follows:
(Amounts in thousands) 4/26/03 4/27/02
- -----------------------------------------------------------------
Balance as of the beginning of the year.. $23,038 $21,444
Accruals during the year................. 9,732 14,676
Settlements during the year.............. (13,704) (13,082)
-------- --------
Balance as of the end of the year........ $19,066 $23,038
======== ========
Note 10: Contingencies
We have been named as a defendant in various lawsuits arising in the
ordinary course of business including being named as a potentially responsible
party at six environmental clean-up sites. Based on a review of all currently
known facts and our experience with previous legal and environmental matters, we
have recorded expense in respect of probable and reasonably estimable legal and
environmental matters and we do not believe that a material additional loss is
reasonably possible for legal or environmental matters.
Page 78
Note 11: Stock Option Plans
Our shareholders have approved an employee incentive stock option plan that
provides grants to certain employees to purchase common shares at not less than
their fair market value at the date of grant. Granted options become exercisable
at 25% per year beginning one year from the date of grant for up to five or ten
years. The plan authorized option grants of up to 7,500,000 common shares.
Plan activity is as follows:
Number of Weighted avg.
shares exercise price
- -------------------------------------------------------------------
Outstanding at April 29, 2000......... 2,400,904 $15.65
Granted............................... 716,930 15.50
Exercised............................. (449,852) 10.84
Expired or cancelled.................. (139,697) 18.11
-----------
Outstanding at April 28, 2001......... 2,528,285 16.33
Granted............................... 663,885 19.80
Exercised............................. (935,735) 13.80
Expired or cancelled.................. (211,500) 18.59
-----------
Outstanding at April 27, 2002......... 2,044,935 18.37
Granted............................... 662,800 22.59
Exercised............................. (358,095) 15.29
Expired or cancelled.................. (143,118) 20.42
-----------
Outstanding at April 26, 2003......... 2,206,522 20.01
-----------
Exercisable at April 26, 2003......... 835,417 $19.12
Shares available for grants at
April 26, 2003..................... 4,472,980
Information regarding currently outstanding and exercisable options is as
follows:
Weighted
avg.
Number Weighted remaining
outstanding avg. contractual
Range of at April 26, exercise life in
exercise prices 2003 price years
- -----------------------------------------------------------------
$9.54 - $13.99 5,605 $11.54 3.78
14.41 - 20.10 1,252,647 17.78 2.45
$22.60 - $25.43 948,270 23.00 6.76
- ---------------------------------------------------------------
2,206,522 $20.01 4.30
===============================================================
Number
exercisable Weighted
Range of at April 26, avg. exercise
exercise prices 2003 price
--------------------------------------------------
$9.54 - $13.99 5,605 $11.54
14.41 - 20.10 592,146 17.29
$22.60 - $25.43 237,666 23.86
--------------------------------------------------
835,417 $19.12
==================================================
The tables above include options that were issued to replace outstanding
options of a company acquired in fiscal 2000. The options outstanding under this
plan as of April 26, 2003 were 67,403 with a weighted average exercise price of
$19.24 per share. There are no shares available for future grant under this
plan.
Our shareholders have also approved two restricted share plans. Under one
plan, a committee of the board of directors is authorized to offer for sale up
to an aggregate of 750,000 common shares to certain employees. Under a second
plan, up to an aggregate of 150,000 common shares are authorized for sale to
non-employee directors. Under the restricted share plans, shares are offered at
25% of the fair market value at the date of grant. The plans require that all
shares be held in an escrow account for a period of three years in the case of
an employee, or until the participant's service as a director ceases in the case
of a non-employee director. In the event of an employee's or non-employee
director's termination during the escrow period, the shares must be sold back to
us at their cost.
Page 79
Common shares aggregating 71,825 and 71,875 were granted and issued during
fiscal years 2003 and 2002, respectively, under the employee restricted share
plan. Common shares remaining for future grants under this plan amounted to
437,965 at April 26, 2003.
Common shares aggregating 9,300 and 13,200 were granted and issued during
fiscal years 2003 and 2002, respectively, under the non-employee directors'
restricted share plan. Common shares remaining for future grants under this plan
amounted to 61,200 at April 26, 2003.
Shareholders have also approved a performance-based restricted stock plan.
This plan authorized awards up to an aggregate of 1,200,000 common shares to key
employees. Grants of shares or short-term options to purchase shares are based
on achievement of goals over a three-year performance period. At April 26, 2003,
target awards were outstanding for which up to approximately 532,000 common
shares may be issued in fiscal years 2004 through 2006 based on three
outstanding target awards, depending on the extent to which certain performance
objectives are met. The cost of awards is expensed over the performance period.
In fiscal year 2003, 28,087 common shares were issued for the three-year period
that ended in 2002.
Actual expense relating to the restricted share plans and the
performance-based restricted stock plan was $3.8 million in fiscal 2003, $2.4
million in fiscal 2002 and $0.8 million in fiscal 2001.
As permitted by SFAS No. 123, "Accounting for Stock-Based Compensation," we
have chosen to continue to account for stock-based compensation using the
intrinsic value method prescribed in Accounting Principles Board (APB) Opinion
No. 25, "Accounting for Stock Issued to Employees," and related interpretations.
Had we elected to recognize compensation cost for stock options based on
the fair value method of accounting prescribed by SFAS No. 123, the additional
after tax expense relating to the stock options would have been $2.1 million in
fiscal 2003, $2.0 million in fiscal 2002 and $2.6 million in fiscal 2001. See
Note 1 for proforma information.
The fair value of each option grant was estimated on the date of grant
using the Black-Scholes model with the following assumptions:
4/26/03 4/27/02 4/28/01
----------------------------------------------------------------
Risk free interest rate.. 3.0% 4.4% 4.95%
Dividend rate............ 1.7% 1.7% 1.9%
Expected life in years... 5.0 5.0 5.0
Stock price volatility... 40.0% 43.0% 45.0%
Note 12: Retirement/Welfare
Eligible salaried employees are covered under a trusteed profit sharing
retirement plan. Discretionary cash contributions to a trust are made annually
based on profits. We maintain a Non-Qualified Deferred Compensation (NQDC) plan
for eligible highly compensated employees.
We maintain a non-qualified defined benefit retirement plan for certain
existing and former salaried employees. Included in other long-term liabilities
were plan obligations of $13.2 million and $12.2 million at April 26, 2003, and
April 27, 2002, respectively. This plan is excluded from the obligation charts
that follow.
Voluntary 401(k) retirement plans are offered to eligible employees within
certain U.S. operating units. For most operating units, we make matching
contributions based on specific formulas and this match is made in our common
shares. We also maintain defined benefit pension plans for eligible factory
hourly employees at some operating units.
Page 80
The net periodic pension cost and retirement costs for retirement plans
were as follows (for the fiscal years ended):
(Amounts in thousands) 4/26/03 4/27/02 4/28/01
-------------------------------------------------------------
Service cost................ $2,559 $2,918 $2,676
Interest cost............... 4,616 4,254 4,013
Actual return on plan
assets................... 3,600 (109) (1,903)
Net amortization and
deferral................. (7,491) (4,260) (2,648)
----------- ---------- ---------
Net periodic pension cost... 3,284 2,803 2,138
Profit sharing/NQDC*........ 10,615 10,864 10,579
401(k)*..................... 5,601 4,191 3,744
Other*...................... 795 3,875 1,716
----------- ---------- --------
Total retirement costs...... $20,295 $21,733 $18,177
----------- ---------- --------
* Not determined by an actuary.
The funded status of the pension plans was as follows:
(Amounts in thousands) 4/26/03 4/27/02
- ------------------------------------------------------------------
Change in benefit obligation
Benefit obligation at beginning of year.. $61,953 $55,543
Service cost............................. 2,559 2,918
Interest cost............................ 4,616 4,254
Amendments and new plans................. 22 2,016
Actuarial gain (loss).................... 3,656 (128)
Benefits paid............................ (3,432) (2,650)
-------- --------
Benefit obligation at year end......... 69,374 61,953
Change in plan assets
Fair value of plan assets at
beginning of year..................... 59,807 56,417
Actual return on plan assets............ (3,600) 109
Employer contribution................... 15,738 5,931
Benefits paid........................... (3,432) (2,650)
-------- --------
Fair value of plan assets at year end.. 68,513 59,807
-------- --------
Funded (underfunded) status.............. (861) (2,146)
Unrecognized actuarial loss.............. 20,298 8,821
Unamortized prior service cost........... 643 769
-------- --------
Prepaid benefit cost.................. $20,080 $7,444
======== ========
The expected long-term rate of return on defined benefit plan assets was
8.0% for fiscal years 2003, 2002 and 2001. The weighted-average discount rate
used in determining the actuarial present value of projected benefit obligations
was 6.6% in fiscal year 2003, 7.2% in fiscal year 2002 and 7.7% for fiscal year
2001. Plan assets are invested in a diversified portfolio that consists
primarily of debt and equity securities.
Page 81
Note 13: Health Care
Eligible employees have an opportunity to participate in group health
plans. Most participating employees pay their portion of health care costs
through pre-tax payroll deductions. Health care expenses were as follows (for
the fiscal years ended):
(Amounts in thousands) 4/26/03 4/27/02 4/28/01
- ----------------------------------------------------------------
Gross health care......... $71,275 $76,071 $76,989
Participant payments...... (20,159) (19,178) (19,132)
---------- ---------- ----------
Net health care....... $51,116 $56,893 $57,857
========== ========== ==========
Note 14: Restructuring
In fiscal years 2002 and 2001, we recorded restructuring charges of $22.2
million and $11.2 million, respectively. The $22.2 million, which was recorded
in cost of sales, was the result of closing down four manufacturing facilities
and converting three others to warehousing, subassembly and import service
operations. Of the $22.2 million, $3.7 million was attributable to the
Upholstery segment and $18.5 million was attributable to the Casegoods segment.
The total restructuring charges were comprised of $13.2 million in the second
quarter and $9.0 million in the fourth quarter of fiscal 2002. The $11.2 million
in fiscal 2001, which was recorded in cost of sales, was the result of strategic
decisions to rationalize production capacity to achieve more efficient
production utilization and exit certain unprofitable product lines. Of the $11.2
million, $2.3 million was attributable to the Upholstery segment and $8.9
million was attributable to the Casegoods segment. As of April 26, 2003,
substantially all of the 1,132 employees expected to be terminated as a result
of these plans are no longer employed by the company. The remaining liability
will be paid out in fiscal 2004.
Restructuring liabilities along with charges to expense, cash payments or
asset write-downs were as follows:
Fiscal 2003
-----------------------
Cash
Charges Payment or
4/27/02 to Asset 4/26/03
(Amounts in thousands) Balance expense Write-down Balance
- --------------------------------------------------------------------------
Fixed asset write-downs... $ -- $ -- $ -- $ --
Severance and benefit
related costs........... 1,500 1,070 (2,257) 313
Inventory write-downs..... -- -- -- --
Other..................... 3,100 -- (2,557) 543
---------------------------------------------
Total..................... $4,600 $1,070 ($4,814) $856
=============================================
Fiscal 2002
-----------------------
Cash
Charges Payment or
4/28/01 to Asset 4/27/02
(Amounts in thousands) Balance expense Write-down 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..................... $3,900 $22,200 ($21,500) $4,600
=============================================
Page 82
The above fiscal 2003 table shows additional charges relating to health
insurance and workers' compensation for plants previously shut down.
Subsequent to year end, we announced an additional restructuring plan in
our Casegoods segment as a result of the continued pressure on domestic
manufacturing caused by imports. This restructuring will result in pre-tax
charges of approximately $10.0 million or $0.11 per diluted share on an after-
tax basis. Of these pre-tax charges, approximately $6.4 million will be taken
primarily in the first quarter of fiscal 2004 and will cover the write-down of
certain fixed assets and inventories. The write-down of fixed assets will be
accounted for in accordance with SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets" and covers two manufacturing plants expected to
be disposed of by sale in fiscal year 2004. Most of the remaining balance of
$3.6 million of the charges represents severance and other costs and will be
incurred in the first half of fiscal 2004 in accordance with SFAS No. 146,
"Accounting for Costs Associated with Exit or Disposal Activities."
Note 15: Divestiture
On November 30, 2001, we sold the operations of our Pilliod Furniture unit.
We acquired Pilliod, which produces promotionally priced bedroom and occasional
furniture at its manufacturing facility in Nichols, S.C., as part of our
acquisition of LADD Furniture, Inc. in fiscal 2000. The product line produced by
Pilliod did not strategically align with our other product lines. The
transaction generated a pretax loss of $11.7 million. A tax benefit of $11.8
million was also generated, resulting in a small net gain with no earnings per
share effect. Pilliod's sales, included in our consolidated statement of income,
were $24.2 million and $69.7 million for the fiscal years ended April 27, 2002,
and April 28, 2001, respectively, and Pilliod had net losses of $1.1 million and
$6.5 million for the fiscal years ended April 27, 2002, and April 28, 2001,
respectively. Pilliod's 2001 net loss included $3.7 million of after-tax
restructuring charges.
Note 16: Income Taxes
The primary components of our deferred tax assets and (liabilities) were as
follows:
(Amounts in thousands) 4/26/03 4/27/02
- ---------------------------------------------------------------
Current
Bad debt.............................. $13,288 $13,760
Warranty.............................. 7,821 9,222
Workers' compensation................. 3,052 2,951
Deferred and other compensation....... 7,665 4,386
Inventory............................. (5,120) (6,459)
State income tax...................... 1,325 820
Restructuring......................... 3,979 3,881
Other................................. 5,724 7,525
-------- ---------
Total current deferred tax assets.... 37,734 36,086
Noncurrent
Trade names*.......................... (24,711) (43,142)
Property, plant and equipment......... (14,758) (12,514)
Pension............................... (3,452) 1,760
Other................................. 5,993 6,700
-------- ---------
Total noncurrent deferred tax
liabilities........................ (36,928) (47,196)
-------- ---------
Net deferred tax asset
(liability)....................... $806 ($11,110)
======== =========
*Deferred tax liabilities of $17.9 million were eliminated in connection
with the write-down of trade names upon the adoption of SFAS No. 142 on April
28, 2002.
Page 83
Our effective tax rate differs from the U.S. federal income tax rate for
the following reasons:
(% of pre-tax income) 4/26/03 4/27/02 4/28/01
- ----------------------------------------------------------------------
Statutory tax rate................. 35.0% 35.0% 35.0%
Increase (reduction) in income
taxes resulting from:
State income taxes net of
federal benefit................ 3.0 3.2 3.4
Goodwill......................... -- 1.8 1.4
Worthless stock deduction........ -- (8.4) --
Miscellaneous items.............. -- (1.0) (0.8)
----- ----- ----
Effective tax rate............... 38.0% 30.6% 39.0%
===== ===== =====
As a result of the sale of the operations of Pilliod Furniture during
fiscal year 2002, we recognized a substantial "worthless stock" deduction. This
deduction is attributable to the difference between the tax basis in the stock
of Pilliod and its underlying assets and resulted in a net reduction of federal
and state income tax of $7.5 million.
In fiscal 2004, we intend to repatriate earnings of a Canadian subsidiary.
The related income tax expense will be offset by available tax credits.
Income tax expense is comprised of the following:
(Amounts in thousands) 4/26/03 4/27/02 4/28/01
- -------------------------------------------------------------------
Federal -current.............. $46,678 $29,730 $44,866
-deferred............. 5,087 (7,081) (6,930)
State -current.............. 6,420 4,870 6,576
-deferred............. 714 (334) (804)
---------- ----------- ---------
Total income tax expense........ $58,899 $27,185 $43,708
---------- ----------- ---------
Cash paid for taxes during the fiscal years ended April 26, 2003, April 27,
2002 and April 28, 2001, was $60.9 million, $24.0 million and $57.4 million,
respectively.
Note 17: Earnings Per Share
Basic net income per share is computed using the weighted average number of
shares outstanding during the period. Diluted net income per share uses the
weighted average number of shares outstanding during the period plus the
additional common shares that would have been outstanding if the dilutive
potential common shares had been issued. Our dilutive potential common shares
are for employee stock related plans described in Note 11. Outstanding share
information is as follows (for the fiscal years ended):
(Amounts in thousands) 4/26/03 4/27/02 4/28/01
- ---------------------------------------------------------------
Weighted average common
shares outstanding (basic).... 57,120 60,739 60,550
Effect of options............... 315 386 142
------- ------- -------
Weighted average common
shares outstanding (diluted).. 57,435 61,125 60,692
------- ------- -------
The weighted average common shares outstanding for diluted earnings per
share calculation at April 26, 2003, excludes the incremental effect related to
outstanding stock options whose exercise price is in excess of the average price
of our stock of $23.06 for the fiscal year. These options are excluded due to
their antidilutive effect at April 26, 2003.
Note 18: Segments
Our reportable operating segments are the Upholstery Group segment and the
Casegoods Group segment.
Page 84
The Upholstery Group is comprised of operating units that primarily
manufacture and sell to dealers, furniture which is mostly or fully covered with
fabric, leather or vinyl. Upholstered furniture includes products which function
as seating for the home and commercial markets such as reclining and
non-reclining chairs, motion and stationary sofas, loveseats, chaises and
ottomans. The operating units included in the Upholstery Group are Bauhaus USA,
Clayton Marcus, England, La-Z-Boy, La-Z-Boy Contract, La-Z-Boy UK, and Sam
Moore. HickoryMark is included through the cessation of its operations in
October 2002.
The Casegoods Group is comprised of operating units that primarily
manufacture or sell to dealers, products that function as storage, display or
table units for the home and commercial markets, such as dining room furniture,
bedroom suites, occasional tables, chests, desks, wall units and accent pieces.
These products are mostly made of hardwood or hardwood veneers. The operating
units included in the Casegoods Group are Alexvale, American Drew, American of
Martinsville, Hammary, Kincaid, Lea and Pennsylvania House. Pilliod Furniture is
included in the segment information provided through its sale date of November
30, 2001.
Our largest customer represents less than 2.2% of each of our segments'
sales.
The accounting policies of the operating segments are the same as those
described in Note 1. Segment operating income is based on profit or loss from
operations before interest expense, other income and income taxes. Identifiable
assets are cash and equivalents, notes and accounts receivable, net
inventories, net property, plant, and equipment, goodwill and trade names. Our
unallocated assets include deferred income taxes, corporate assets (including
cash and equivalents) and various other assets.
Information used to evaluate segments is as follows (for the fiscal years
ended):
(Amounts in thousands) 4/26/03 4/27/02 4/28/01
- ------------------------------------------------------------------
Sales
Upholstery Group......... $1,589,778 $1,543,756 $1,488,111
Casegoods Group.......... 526,168 611,268 762,159
Eliminations............. (4,116) (1,072) (1,779)
---------- ---------- ----------
Consolidated............ 2,111,830 2,153,952 2,248,491
========== ========== ==========
Operating income
Upholstery Group......... 154,617 134,337 129,178
Restructuring............ -- (3,735) (2,300)
---------- ---------- ----------
Net Upholstery Group... 154,617 130,602 126,878
Casegoods Group.......... 32,110 19,569 23,231
Restructuring............ -- (18,452) (8,900)
Loss on divestiture...... -- (11,689) --
---------- ---------- ----------
Net Casegoods Group.... 32,110 (10,572) 14,331
Corporate and other...... (23,853) (23,330) (20,415)
========== ========== ==========
Consolidated............ 162,874 130,576 131,994
Restructuring........... -- (22,187) (11,200)
Loss on divestiture..... -- (11,689) --
---------- ---------- ----------
Net consolidated....... 162,874 96,700 120,794
========== ========== ==========
Depreciation and amortization
Upholstery Group......... 19,115 20,655 21,972
Casegoods Group.......... 9,981 12,560 12,979
Corporate and other...... 1,599 10,773 10,746
---------- ---------- ----------
Consolidated........... 30,695 43,988 45,697
========== ========== ==========
Capital expenditures
Upholstery Group......... 22,871 21,997 20,966
Casegoods Group.......... 6,976 9,206 14,231
Corporate and other...... 2,974 1,763 2,219
---------- ---------- ----------
Consolidated............ 32,821 32,966 37,416
========== ========== ==========
Assets
Upholstery Group......... 617,225 617,093 637,198
Casegoods Group.......... 351,387 397,277 488,718
Unallocated assets....... 154,454 147,457 99,881
---------- ---------- ----------
Consolidated............ $1,123,066 $1,161,827 $1,225,797
========== ========== ==========
Sales by country
United States............ 93% 95% 96%
Canada and other......... 7% 5% 4%
---- ---- ----
100% 100% 100%
==== ==== ====
Page 85
Note 19: Share Repurchases
The company is authorized to repurchase common stock under the repurchase
program approved by our Board of Directors, and the restricted share plans. At
April 26, 2003, approximately 4.2 million additional shares can be repurchased
pursuant to the repurchase programs. Our repurchases were as follows (for the
fiscal years ended):
(Amounts in thousands) 4/26/03 4/27/02 4/28/01
- -----------------------------------------------------------------
Shares repurchased......... 5,491 1,750 1,600
Cash used for
repurchases............. $130,287 $40,198 $23,251
Note 20: Related Parties
The Chairman of our Board of Directors is a member of the Board of
Directors of Culp, Inc. and chairs its compensation committee. Culp provided
16.5% of the total fabric purchased by us during the fiscal year. The purchases
from Culp were at prices comparable to other vendors and under similar terms.
Our Chairman has no involvement in our selection or purchase processes related
to fabrics.
Page 86
Management's Discussion and Analysis
This Management's Discussion and Analysis should be read in conjunction
with the accompanying Report of Management Responsibilities, Report of
Independent Accountants, Consolidated Financial Statements and related Notes to
Consolidated Financial Statements.
In terms of sales, we are the second largest furniture manufacturer in the
United States of America, the largest reclining-chair manufacturer in the world
and North America's largest manufacturer of upholstered furniture. We also
import furniture products from outside the U.S. for resale in North America. We
sell mostly to independent retailers who resell to end-users, and we also own a
small number of retail stores where we sell our own manufactured and imported
products to end-users. Besides our own retail stores, we have agreements with
many independent retailers to display and merchandise products from one or more
of our operating units and sell them to end-user consumers in dedicated retail
space, either through stand-alone stores or in dedicated galleries within their
stores. We consider these stores as well as our own retail stores to be
"proprietary" and one of the keys to our success.
The furniture industry experienced soft retail conditions in the last half
of the year as retail conditions were adversely affected by waning consumer
confidence and unsettling world events. The furniture industry is experiencing
significant changes in the sourcing of manufacturing production as over the past
few years a growing percentage of production has shifted from domestic to
foreign manufacturing.
The framework of the casegoods furniture industry is
changing from domestic producer to a hybrid of importer and domestic producer.
The rapid growth of manufacturing capabilities in the Far East has resulted in
increasing production capacities of these countries, which has decreased the
utilization of domestic production capacity. Imported finished goods and
components are lowering costs which in turn is deflating retail furniture prices
to consumers. As a result of these deflated sales prices, there has been some
decline in margins on domestic products. Some large retailers and dealers are
also buying direct from overseas manufacturers. To address these challenges, we
have significantly increased importing of finished goods and sourced parts from
overseas, and this has had a significant impact on improving our margins in our
casegoods segment. We recently announced the closing of three more domestic
manufacturing facilities, decreasing casegoods manufacturing space by
approximately 51% over the last two years.
We have disclosed non-GAAP ("generally accepted accounting principles")
financial measures in this report, including normalized net sales, normalized
operating margin, and normalized diluted earnings per share. A reconciliation
table of GAAP to non-GAAP normalized results appears at the end of this section.
We believe that the presentation of normalized sales, which excludes the
sales of Pilliod which was divested in November 2001, HickoryMark which ceased
operations in October 2002 and the fiscal 2003 retail acquisitions, provides
useful information to investors because it enables investors to make additional
meaningful comparisons of our sales between one reporting period and another.
We believe that the presentation of normalized operating margin, which
excludes restructuring and divestiture charges as well as amortization expense
of goodwill and trade names, provides useful information to investors because it
enables investors to make additional meaningful comparisons of our performance
from one reporting period to another. Because restructuring charges occur on an
irregular basis, are often material and are not predictable, and because the
discontinuation of amortization is a result of new accounting guidance, we
believe that the non-GAAP presentation may be useful in assessing the operating
performance of our company. The normalized operating margin is calculated by
taking the normalized operating income divided by sales as reported.
We believe that the presentation of normalized diluted earnings per share,
which excludes the cumulative effect of accounting change relating to our
adoption of Statement of Financial Accounting Standards ("SFAS") No. 142,
"Goodwill and Intangible Assets," as well as the adjustments discussed above,
provides useful information to investors in evaluating the overall net effect of
the foregoing adjustments and to make meaningful comparisons against the GAAP
results that are presented.
Page 87
Analysis of Operations
Year Ended April 26, 2003
(2003 compared with 2002)
FY03 over Fiscal year ended
(under) -----------------------
FY02** 4/26/03 4/27/02
- -------------------------------------------------------------------
Sales......................... (2.0%) 100.0% 100.0%
Cost of sales................. (4.4%) 76.6% 78.5%
------- ------- -------
Gross profit................ 7.0% 23.4% 21.5%
Selling, general and
administrative.............. (6.3%) 15.7% 16.4%
Loss on divestiture........... N/M -- 0.5%
------- ------- -------
Operating income............ 68.4% 7.7% 4.5%
Interest expense.............. 4.4% 0.5% 0.5%
Other income.................. 14.5% 0.1% 0.1%
------- ------- -------
Pretax income............... 74.3% 7.3% 4.1%
Income tax expense*........... 116.7% 38.0% 30.6%
------- ------- -------
Income before cumulative
effect of accounting change. 55.6% 4.6% 2.9%
------- ------- -------
Diluted earnings per share
before cumulative effect... 65.3%
*As a percent of pretax income.
**This column represents the dollar change from fiscal 2003 to fiscal 2002.
Segment Analysis
- -------------------------------------------------------------------
Operating Income
Sales ---------------------------
FY03 FY03
Over Over Percent of Sales
(Under) (Under) -----------------
FY02* FY02* FY03 FY02
- -------------------------------------------------------------------
Upholstery Group............. 3.0% 18.4% 9.7% 8.5%
Casegoods Group.............. (13.9%) N/M 6.1% (1.7%)
Unallocated corporate
costs and eliminations..... N/M N/M N/M N/M
Consolidated................. (2.0%) 68.4% 7.7% 4.5%
Segment Operating Income Analysis Excluding
Restructuring, Divestiture, and Amortization
---------------------------------------------------------
FY03
Over Percent of Sales
(Under) ----------------------
FY02* FY03 FY02
---------------------------------------------------------
Upholstery Group.......... 12.3% 9.7% 8.9%
Casegoods Group........... 25.8% 6.1% 4.2%
Unallocated corporate
costs and eliminations... N/M N/M N/M
Consolidated.............. 16.5% 7.7% 6.5%
*This column represents the dollar change from fiscal 2003 to fiscal 2002.
N/M = not meaningful
Page 88
Fiscal 2003 sales declined 2.0% to $2.112 billion from the prior year due
to the following factors: (i) cessation of operations by HickoryMark in the
second quarter of fiscal 2003; (ii) soft retail demand across the entire
furniture industry; and (iii) decision to not sacrifice margins for the sake of
generating sales. This decline was somewhat offset by the strength of the
La-Z-Boy Furniture Galleries(R) store system (part of our proprietary
distribution system dedicated to La-Z-Boy products, that is mainly comprised of
independent owners), which experienced a 2.7% increase over fiscal 2002 same
store sales. On a normalized basis, sales in fiscal 2003 were flat.
Our Upholstery Group sales increased 3.0% from last year. On a normalized
basis, the Upholstery segment had a 4.0% increase in sales. The increase in
sales was due to the performance of the La-Z-Boy Furniture Galleries(R) store
system, especially the growth in the new generation La-Z-Boy Furniture
Galleries. During fiscal 2003, 26 new generation stores were opened. With regard
to the prior store format, 6 were closed, 5 relocated and 3 remodeled into the
new generation format.
Our Casegoods Group sales declined 13.9% from last year. On a normalized
basis the Casegoods segment had a 10.4% decline in sales. The decline was due to
the following factors: (i) weak sales in the hospitality sector; (ii) some
leading furniture retailers buying casegoods products directly from overseas
manufacturers; (iii) a more dramatic decline in customer demand in the upper
middle price points, where some of our products are positioned, than in the
lower price points, and (iv) a concentrated effort to increase or retain
operating margins, which led to a sacrifice in sales.
Gross profit as a percent of sales for fiscal 2003 increased to 23.4% from
21.5% in fiscal 2002. On a normalized basis, fiscal 2002's gross profit as a
percent of sales was 22.5%. This improvement, despite a 2.0% sales decline,
primarily reflected the results of management's efforts to adjust capacity and
fixed costs in response to waning consumer confidence and a shift to overseas
production. The restructuring measures we put into effect late in fiscal 2001
and during fiscal 2002 resulted in annualized savings of approximately $15.0
million, and in fiscal 2003, we benefited from a full year of those savings. The
restucturing resulted in increased capacity utilization at our remaining plants,
which allowed us to achieve better absorption of costs by producing a similar
volume of product in fewer facilities. We do not expect significant additional
savings in fiscal 2004 compared to fiscal 2003 related to the fiscal 2002 and
fiscal 2001 restructurings. Restructuring charges included in gross profit for
fiscal 2002 were $22.2 million.
On June 3, 2003 we announced plans for additional restructuring, which
includes the closure of three plants. These actions will result in pre-tax
charges of approximately $10.0 million, or $0.11 per diluted share on an after-
tax basis. Of these pre-tax charges, approximately $6.4 million will be taken
primarily in the first quarter of fiscal 2004 and will cover the write-down of
certain fixed assets and inventories. The write-down of fixed assets will be
accounted for in accordance with SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets" and covers two manufacturing plants expected to
be disposed of by sale in fiscal year 2004. Most of the remaining balance of
$3.6 million of the charges represents severance and other costs and will be
incurred in the first half of fiscal 2004 in accordance with SFAS No. 146,
"Accounting for Costs Associated with Exit or Disposal Activities." The plant
closures and resultant shifting of production to other La-Z-Boy casegoods
facilities should produce annual savings in the range of $5.0 to $6.0 million,
after the transition is fully implemented by the beginning of our 2004 fiscal
fourth quarter.
Selling, general and administrative expense (S,G&A) decreased to 15.7% of
sales in fiscal 2003 from 17.0% in fiscal 2002. On a normalized basis, S,G&A as
a percent of sales would have been 16.0% in fiscal 2002. This decline was
attributable to our cost cutting efforts, a decline in warranty expense, and
efficiencies created by restructurings in both fiscal 2002 and fiscal 2001.
Warranty expense decreased in the current year by 33.7% due to (i) discontinuing
certain products; (ii) implementing various quality improvement initiatives; and
(iii) improving our ability to track and charge outside vendors for defects in
materials that were used in our products. Additionally, bad debt expense as a
percent of sales was 0.3% in fiscal 2003 and 0.4% in fiscal 2002. Due to our
experience rate over the past two years we have been able to reduce our bad debt
expense. Expenditures for research and development costs decreased by $2.3
million in fiscal 2003. Approximately half of the decrease in research and
development costs is attributed to the divestiture of Pilliod and the cessation
of operations of HickoryMark.
Our operating margin increased to 7.7% in fiscal 2003 from 4.5% in fiscal
2002. On a normalized basis operating margins were 6.5% in fiscal 2002. The
increase in operating margin was attributable to the positive impact of the
restructurings and the increase in upholstery sales. Additionally, increased
sales of imported goods had a positive impact on operating margin for the
Casegoods Group.
Page 89
The Upholstery Group operating margin increased to 9.7% from 8.5% in the
previous year. On a normalized basis, fiscal 2002 operating margin was 8.9%. The
increase in sales and the performance of our proprietary store network
contributed to the increased margin in fiscal 2003. The Casegoods Group
operating margin increased to 6.1% in fiscal 2003 from (1.7%) in fiscal 2002. On
a normalized basis, fiscal 2002 operating margin was 4.2%. With the closing of
four Casegoods plants and converting two other plants to warehouse, subassembly
and import service operations, as well as divesting Pilliod, this segment was
able to reduce its overhead costs at a faster rate than the sales decline. Sales
of imported finished goods product increased to approximately 31% of total
Casegoods sales in fiscal year 2003, compared to 21% in fiscal 2002. The
operating margin on import sales is higher than on domestic sales; therefore,
the increased Casegoods sales of imported goods had a favorable impact on our
operating margin.
Interest expense increased 4.4% over the prior year. The increase in
interest expense was due to a $19.4 million increase in weighted average debt in
fiscal 2003. However, the effective interest rate decreased 0.2%, partially
offsetting the increase in debt levels during the year. As a result of our
interest rate swap agreements, we have fixed interest rates at 6.095% plus the
applicable borrowing spread under the revolving credit facility on a notional
amount of $70 million. On December 19, 2002 we completed a private placement of
$86 million in La-Z-Boy Incorporated unsecured notes with $36 million of these
notes having a maturity of seven years and the remaining $50 million having a
maturity of ten years. The fixed rate on the seven year notes is 4.56% and on
the ten year notes is 5.25%. As a result of the private placements and our
interest rate swap agreements, there was only a minor decrease in our weighted
average interest rate in fiscal 2003. The private placement was consistent with
management's objective to maintain the debt-to-capitalization ratio in the
mid-twenties percentage range and to also take advantage of interest rates that
are at 40-year lows, allowing us to lower our weighted average cost of capital.
Diluted earnings per share were impacted by the $130.3 million used to
repurchase common stock in the current year. During fiscal 2003, 5.5 million
shares were purchased compared to the 1.8 million in fiscal 2002. The
significant repurchase of stock is consistent with management initiatives and
objectives. The repurchase of shares was somewhat offset by the stock issued for
stock options and 401(k) contributions. The net decrease in diluted weighted
average common shares was 3.7 million. This decrease in the diluted weighted
average common shares had the impact of increasing diluted earnings per share
$0.03 after the cumulative effect of accounting change and $0.08 before the
cumulative effect of accounting change.
Income tax expense as a percent of pretax income was 38.0% in fiscal 2003,
compared to 30.6% in fiscal 2002. Without the $11.8 million Pilliod divestiture
tax benefit, the prior year's income tax rate would have been 39.0%.
Page 90
Analysis of Operations
Fourth Quarter April 26, 2003
(2003 compared with 2002)
FY03 over Fourth quarter ended
(under) -----------------------
FY02** 4/26/03 4/27/02
- -------------------------------------------------------------------
Sales........................... (9.4%) 100.0% 100.0%
Cost of sales................... (10.1%) 76.5% 77.1%
------- ------- -------
Gross profit.................. (7.0%) 23.5% 22.9%
Selling, general and
administrative............... (10.9%) 15.5% 15.8%
------- ------- -------
Operating income............. 1.7% 8.0% 7.1%
Interest expense................ 64.3% 0.6% 0.3%
Other income.................... N/M 0.1% 0.0%
------- ------- -------
Pretax income................ 0.3% 7.5% 6.8%
Income tax expense*............. (0.8%) 38.0% 38.4%
------- ------- -------
Net income................... 1.0% 4.6% 4.2%
======= ======= =======
Diluted earnings per share
before cumulative effect..... 9.8%
*As a percent of pretax income.
**This column represents the dollar change from fiscal 2003 fourth quarter
to fiscal 2002 fourth quarter.
Segment Analysis
- -----------------------------------------------------------------
Operating Income
Sales -----------------------------
FY03 Percent of Sales
Over FY03 Over -----------------
(Under) (Under) 4th Qtr 4th Qtr
FY02* FY02* FY03 FY02
- -----------------------------------------------------------------
Upholstery Group........ (7.8%) (13.2%) 10.3% 10.9%
Casegoods Group......... (13.8%) 571.9% 4.8% (0.9%)
Unallocated corporate
costs and eliminations. N/M N/M N/M N/M
Consolidated............ (9.4%) 1.7% 8.0% 7.1%
Segment Operating Income Analysis Excluding
Restructuring, Divestiture, and Amortization
--------------------------------------------------------
FY03 Percent of Sales
Over --------------------
(Under) 4th Qtr 4th Qtr
FY02* FY03 FY02
--------------------------------------------------------
Upholstery Group........... (14.6%) 10.3% 11.1%
Casegoods Group............ (34.6%) 4.8% 6.3%
Unallocated corporate
costs and eliminations.... N/M N/M N/M
Consolidated............... (19.7%) 8.0% 9.0%
*This column represents the dollar change from fiscal 2003 fourth quarter
to fiscal 2002 fourth quarter.
N/M = not meaningful
Page 91
Fourth quarter fiscal 2003 sales declined 9.4% compared to the prior year
due to weakened consumer confidence by the ongoing conflict in Iraq, weak retail
sales and the strong upholstery sales comparisons in last year's fourth
quarter. On a normalized basis, sales in the fourth quarter of fiscal 2003
decreased by 8.9% compared to the fourth quarter in the prior year.
Our Upholstery Group sales decreased 7.8% from last year. On a normalized
basis, the Upholstery segment had a 7.1% decrease in sales. The decline in sales
is a result of weak retail sales, particularly in relation to the strong sales
last year.
The Casegoods Group sales declined 13.8% from last year. The decline was
due to the following factors: (i) weak sales in the hospitality sector; (ii)
leading furniture retailers buying casegoods products directly from overseas
manufacturers; and (iii) a more dramatic decline in customer demand in the upper
middle price points, where some of our products are positioned, than in the
lower price points.
Gross profit as a percent of sales for fiscal 2003 increased to 23.5% from
22.9% in fiscal 2002. On a normalized basis, fiscal 2002 gross profit as a
percent of sales was 24.4%. The decrease in the normalized gross margin was due
to pricing pressures on our product and the 9.4% decrease in sales and the
resulting under-absorption of fixed costs.
S,G&A decreased to 15.5% of sales in fiscal 2003 from 15.8% in fiscal 2002.
On a normalized basis, fiscal 2002 S,G&A as a percent of sales was 15.4%.
Despite the 9.4% decrease in sales, we were able to realize an 8.0%
operating margin in the fourth quarter of fiscal 2003 compared to 7.1% in fiscal
2002. On a normalized basis, the operating margin in the fourth quarter of
fiscal 2002 was 9.0%. The decision to not sacrifice margin for the sake of
generating sales, and the efficiencies created from our restructuring in fiscal
2002 and fiscal 2001, somewhat offset the effect of the sales decline on our
operating margin.
The Upholstery Group operating margin decreased to 10.3% from 10.9% in the
previous year's fourth quarter. On a normalized basis, operating margins for the
fourth quarter of fiscal 2002 were 11.1%. The decrease in sales contributed to
the decreased operating margin in the fourth quarter of fiscal 2003. The
Casegoods Group operating margin increased to 4.8% from (0.9%). On a normalized
basis, fiscal 2002 operating margins were 6.3%. Although sales decreased 13.8%,
the normalized operating margin only decreased to 4.8% from 6.3%. By closing
four Casegoods plants and converting two other plants to warehouse, subassembly
and import service operations, the Casegoods group was able to somewhat offset
the negative trends in operating margins.
Interest expense increased from the prior year's fourth quarter by 64.3%
due to the $83.7 million increase in weighted average debt in the fiscal 2003
fourth quarter compared to the prior year fourth quarter. Additional debt was
borrowed during the year, mainly through the previously mentioned private
placement, to repurchase $130.3 million in our stock. Our new financing
strengthened the financial flexibility of our overall capital structure by
staggering our debt maturities. The private placement is consistent with
management's objective to maintain the debt-to-capitalization ratio in the
mid-twenties percentage range and to also take advantage of interest rates that
are at 40-year lows.
Diluted earnings per share were nominally impacted by the $17.7 million
used to repurchase common stock in the fourth quarter, which was somewhat offset
by the stock issued for stock options and 401(k).
Income tax expense as a percent of pretax income in the fourth quarter was
38.0% in fiscal 2003, compared to 38.4% in fiscal 2002.
Page 92
Analysis of Operations
Year Ended April 27, 2002
(2002 compared with 2001)
FY02 over Fiscal year ended
(under) ---------------------
FY01** 4/27/02 4/28/01
- -----------------------------------------------------------------
Sales........................... (4.2%) 100.0% 100.0%
Cost of sales................... (5.7%) 78.5% 79.8%
------- ------- -------
Gross profit.................. 1.8% 21.5% 20.2%
Selling, general and
administrative................ 6.2% 16.4% 14.8%
Loss on divestiture............. N/M 0.6% --
------- ------- -------
Operating income.............. (19.9%) 4.5% 5.4%
Interest expense................ (44.0%) 0.5% 0.8%
Other income.................... (75.0%) 0.1% 0.4%
------- ------- -------
Pre-tax income................ (20.6%) 4.1% 5.0%
Income tax expense*............. (37.8%) 30.6% 39.0%
------- ------- -------
Net income.................... (9.6%) 2.9% 3.0%
------- ------- -------
Diluted earnings per share.... (10.6%)
Segment Analysis
- -----------------------------------------------------------------
Operating Income
Sales --------------------------
FY02 Percent of
Over FY02 Over Sales
(Under) (Under) ----------------
FY01** FY01** FY02 FY01
- -----------------------------------------------------------------
Upholstery Group........... 3.7% 2.9% 8.5% 8.5%
Casegoods Group............ (19.8%) (173.8%) (1.7%) 1.9%
Unallocated corporate
costs and eliminations.... N/M N/M N/M N/M
Consolidated............... (4.2%) (19.9%) 4.5% 5.4%
Segment Operating Income Analysis Excluding
Restructuring and Divestiture
--------------------------------------------------------
FY02
Over Percent of Sales
(Under) -------------------
FY01** FY02 FY01
--------------------------------------------------------
Upholstery Group.......... 4.0% 8.7% 8.7%
Casegoods Group........... (15.8%) 3.2% 3.0%
Unallocated corporate
costs and eliminations... N/M N/M N/M
Consolidated.............. (1.1%) 6.1% 5.9%
*As a percent of pre-tax income.
**This column represents the dollar change from fiscal 2002 to fiscal 2001.
N/M = not meaningful
Page 93
Fiscal 2002 sales declined 4.2% to $2.154 billion from fiscal 2001 due to
the following factors: (i) the divestiture of Pilliod Furniture on November 30,
2001; (ii) continued weak furniture industry demand for most of the year; and
(iii) the impact of retailers going out of business or experiencing financial
difficulty. This decline was offset in part by the strength of the La-Z-Boy
Furniture Galleries(R) store system (part of our proprietary distribution system
dedicated to La-Z-Boy products), which enjoyed an 11.0% increase over the same
store sales from the 2001 fiscal year.
Our Upholstery Group sales increased 3.7% from fiscal 2001. This was mainly
due to the strength of the above-mentioned La-Z-Boy Furniture Galleries(R) store
system. With 297 stand-alone Gallery stores, most of which are independently
owned, and 317 in-store La-Z-Boy galleries, exclusively promoting and selling
the La-Z-Boy brand name, we are able to focus our marketing efforts and
concentrate our advertising dollars to gain market share.
The Casegoods Group sales declined 19.8%. The Pilliod divestiture accounted
for about 1/3 of the decline in casegoods sales. In addition, our casegoods
sales were still being negatively impacted by the bankruptcies of HomeLife,
Montgomery Ward, and Heilig-Meyers. It has taken some time for us to fill the
sales void that these major bankruptcies created in fiscal 2001. The continued
weakness in the hospitality sector of our casegoods business also significantly
contributed to the sales decline in our Casegoods segment.
Gross profit as a percent of sales for fiscal 2002 increased to 21.5% from
20.2% in fiscal 2001. This improvement, despite a 4.2% sales decline, primarily
reflected the results of management's efforts to adjust capacity and fixed costs
in response to a weak sales environment. In particular, restructuring and other
productivity improvements announced in April 2001 and October 2001 positively
impacted gross profit margins. Restructuring charges included in gross profit
for fiscal years 2002 and 2001 were $22.2 million and $11.2 million,
respectively.
Selling, general and administrative expense (S,G&A) increased to 16.4% of
sales in fiscal 2002 from 14.8% in fiscal 2001 due in part to the inability to
absorb the fixed portion of the S,G&A expenses on the reduced sales.
Additionally, as of April 27, 2002 we owned 23 retail stores which had a higher
percentage of S,G&A expenses as compared to our manufacturing operating units.
As the sales of our retail stores grew through the acquisition of stores and
same store sales increases, there was a larger mix of S,G&A from the retail
stores causing an increase in the percentage. Warranty expenses declined in
fiscal 2002 by 5.7%. Over the past several years we have implemented quality
improvement initiatives which have decreased our warranty claims. Also
contributing to our decreased warranty expense is our improved ability to track
and charge outside vendors for defects in fabric and for parts used in our
products. Bad debt expense decreased to $9.2 million in fiscal 2002 from $17.3
million in fiscal 2001. Bad debt expense in fiscal year 2001 was higher in large
part due to the bankruptcies of three major furniture retailers. These three
customers (Heilig-Meyers, Montgomery Ward, and HomeLife) accounted for
approximately half of the bad debt expense for fiscal year 2001.
The operating margin declined to 4.5% in fiscal 2002 from 5.4% in fiscal
2001. Since April 2001, we have closed three casegoods plants and one upholstery
plant, converted two other casegoods plants into warehouse, subassembly and
import service operations, divested a casegoods business and announced the
closing of another casegoods plant to be effective in June 2002. These actions
are the result of an increased ratio of imported components and finished
products as compared to the domestically produced products, which allowed us to
reduce our domestic production capacity. The restructuring charges in fiscal
2002 contributed to approximately half of the decline in the margin over the
charges in fiscal 2001. The pre-tax loss on our Pilliod divestiture contributed
the remaining margin degradation in fiscal 2002.
The Upholstery Group operating margin remained flat at 8.5% of sales.
Although the Upholstery Group has had increased sales due to the strength of its
proprietary store network, the $3.7 million restructuring charge for the closing
of an upholstery plant and declines in the profitability of some lower price
point product lines has offset the gains from the sales increase.
Page 94
The Casegoods Group operating margin declined to (1.7%) of sales from 1.9%.
A majority of the decline was a result of the restructuring charges absorbed in
the fiscal 2002 operating profit, as well as the $11.7 million pre-tax loss on
the Pilliod divestiture. We continue to experience some disruptions in the
casegoods plants as we blend our domestic production needs with our import
purchases. We believe that the actions taken during the past two years will
return this segment back to profitability.
Interest expense declined 44.0% over fiscal 2001 mainly due to a net
decline of $74.0 million in our total debt for the year. A majority of the debt
decline occurred in the first nine months of fiscal 2002. As a result of our
interest rate swap agreements, we have fixed interest rates at 6.095% plus the
applicable borrowing spread under the revolving credit facility on a notional
amount of $70 million. Therefore, there was no significant fluctuation in our
weighted average interest rate.
Income tax expense as a percent of pre-tax income of 30.6% in fiscal 2002
was down from 39.0% in fiscal 2001 primarily due to the $11.8 million tax
benefit recorded on the divestiture of the Pilliod operating unit. Without the
Pilliod effect included, our tax rate would have remained flat at 39.0%.
Other income decreased $6.9 million or 75.0% over fiscal 2001. Fiscal 2001
included an increase of about $5.0 million as a result of a one-time business
interruption insurance recovery offset in part by $2.4 million of miscellaneous
non-operating expenses. In fiscal 2002 there was a realized loss of $2.0 million
recorded in the fourth quarter from the sale of marketable securities available
for sale.
Liquidity and Financial Condition
Our sources of cash liquidity include cash and equivalents, cash from
operations and amounts available under credit facilities. These sources have
been adequate for day-to-day expenditures, dividends to shareholders and capital
expenditures. We expect these sources of liquidity to continue to be adequate
for the future. Capital expenditures for fiscal 2004 are planned at $35.0
million to $40.0 million compared to $32.8 million in fiscal 2003.
Cash flows from operations amounted to $125.0 million in fiscal 2003,
$133.2 million in fiscal 2002 and $116.0 million in fiscal 2001. The decrease in
cash flows from operations was mainly due to the increase in inventories offset
by the increase in income before the cumulative effect of accounting change. The
increase in inventory was due to (i) imported product requiring longer order
lead times; (ii) build up of inventory in the last half of year due to lower
than forecasted sales; (iii) the challenges of managing a hybrid of domestic and
imported inventory; and (iv) higher than expected fourth quarter fiscal 2002
sales, which resulted in lower than normal inventory levels in fiscal 2002.
Capital expenditures, dividends and stock repurchases totaled approximately
$186.0 million in fiscal 2003, $95.1 million in fiscal 2002 and $81.9 million in
fiscal 2001. The increase was primarily attributable to stock repurchases, which
were $90.1 million higher than the previous year. We used $130.3 million to
repurchase common stock under the repurchase program approved by our Board of
Directors and the Restricted Share Plans. The increase in debt related to our
stock repurchase program has allowed us to meet our target
debt-to-capitalization range of mid-twenty percent.
Page 95
As of April 26, 2003, there were unused lines of credit and commitments of
$321.8 million under several credit arrangements. Our main credit arrangement is
a $300 million unsecured revolving credit facility, maturing in fiscal 2006. The
borrowing rate under this credit agreement can range from LIBOR plus 0.475% to
LIBOR plus 0.800% based on the consolidated debt-to-capital ratio. 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 the floating rate debt. We believe that the risk of 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 through
December 8, 2003, at 6.095% plus the applicable borrowing spread under the
revolving credit facility. In addition to our previously existing credit
facilities, on December 19, 2002, we completed a private placement of $86
million in La-Z-Boy Incorporated unsecured notes with $36 million of these notes
having a maturity of seven years and the remaining $50 million having a maturity
of ten years. The fixed rate on the seven-year notes is 4.56% and on the ten-
year notes is 5.25%. The proceeds from this debt issuance were used to reduce
our bank borrowings and for general corporate purposes. This financing
strengthened the financial flexibility of our overall capital structure by
staggering our debt maturities and diversifying our financing sources.
Our debt-to-capitalization percentage was 26.9% at April 26, 2003, and
16.6% at April 27, 2002. The debt-to-capital percentage was significantly
impacted by the stock repurchases in the current year. Our debt-to-capitali-
zation ratio is total debt as a percent of the sum of shareholders' equity plus
total debt. We feel that the availability of funds under our unused lines of
credit and the cash flows from operations are sufficient to fund our capital
needs. Management has targeted our debt-to-capitalization percentage to be in
the mid-twenties range in order to effectively blend our cost of equity with the
cost of debt.
The following table summarizes our contractual obligations:
Payments by Period
----------------------------------------
Less
(Amounts in than 1 1-3 4-5 More than
thousands) Total Year Years Years 5 Years
- ------------------------------------------------------------------------
Long-term debt
obligations........ $222,080 $981 $74,637 $39,955 $106,507
Capital lease
obligations........ 2,039 779 1,077 94 89
Operating lease
obligations........ 85,986 18,632 28,792 15,336 23,226
Other long-term
liabilities
reflected on our
balance sheet...... 4,250 2,000 2,250 -- --
--------------------------------------------------
Total
contractual
obligations.... $314,355 $22,392 $106,756 $55,385 $129,822
======== ======= ======== ======= =========
Page 96
In addition to the above obligations, we have guaranteed various mortgages
and leases of dealers with proprietary stores. The total amount of these
guarantees is $17.4 million. Of this, $0.4 million will expire within one year,
$12.8 million in one to three years, and $4.2 million in four to five years.
Our Board of Directors has authorized the repurchase of company stock.
Shares acquired in fiscal years 2003, 2002 and 2001 totaled 5.5 million, 1.8
million and 1.6 million, respectively. As of April 26, 2003, 4.2 million
additional shares could be purchased pursuant to this authorization. With the
expected cash flows we anticipate generating in fiscal 2004, we will continue to
be opportunistic in our repurchase program; but we have no commitments for
repurchases.
Continuing compliance with existing federal, state and local statutes
dealing with protection of the environment is not expected to have a material
effect upon our capital expenditures, earnings, competitive position or
liquidity. We will continue a program of conducting voluntary compliance audits
at our facilities.
Critical Accounting Policies
The following is a discussion of our significant accounting policies. These
policies were identified as critical because they are broadly applicable within
our operating units. The expenses and accrued liabilities or allowances related
to certain of these policies are initially based on our best estimates at the
time of original entry in our accounting records. Adjustments are recorded when
our actual experience differs from the anticipated experience underlying the
estimates. These adjustments could be material if our experience were to change
significantly in a short period of time. We make frequent comparisons of actual
experience and expected experience in order to mitigate the likelihood of
material adjustments.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined
using the last-in, first-out (LIFO) basis for approximately 79% and 77% of our
inventories at April 26, 2003, and April 27, 2002, respectively. Cost is
determined for all other inventories on a first-in, first-out (FIFO) basis.
Excess of FIFO over the LIFO basis at April 26, 2003, and April 27, 2002,
includes $11.4 million, for inventory written-up to fair value for acquisitions
that occurred in fiscal 2000. This purchase accounting adjustment reduces
earnings in the periods that the related inventory is sold.
Revenue Recognition and Related Allowances
Shipping terms are FOB shipping point and revenue is recognized upon
shipment of product. For product shipped on our company-owned trucks, revenue is
recognized upon delivery. This revenue includes amounts billed to customers for
shipping. Provision is made at the time revenue is recognized for estimated
product returns and warranties as well as other incentives that may be offered
to customers.
Other incentives offered to customers include cash discounts, volume
discounts and advertising agreements. Cash discounts are recorded as a reduction
of revenues when the revenue is recognized. Volume discounts are recorded at the
time of sale as a reduction to revenue. Our advertising agreements give
customers advertising allowances based on revenues and are recorded when the
revenue is recognized as a reduction to revenue.
Page 97
Impairment of Goodwill and Trade Names
Effective April 28, 2002, we adopted 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 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.
In accordance with SFAS No. 142, trade names were tested for
impairment by comparing their fair value to their carrying values. The fair
value for each trade name was established based upon a royalty savings approach.
Additionally, goodwill was tested for impairment by comparing the fair value of
our operating units to their carrying values. The fair value for each operating
unit was established based upon a combination of the discounted cash flows and
the projected profitability of the market in which the entity operates.
Using these procedures, we determined that, as of April 28, 2002, the
carrying value of trade names exceeded their fair value creating an impairment
loss of $48.3 million, all of which was attributable to the Casegoods segment,
and the carrying value of goodwill exceeded its fair value creating an
impairment loss of $29.4 million. Of the pre-tax impairment loss for goodwill,
$17.1 million was attributable to the Upholstery segment and $12.3 million was
attributable to the Casegoods segment. The after-tax effect of $59.8 million for
these impairment losses was included in the "Cumulative effect of accounting
change" in the consolidated statement of income.
The trade names and goodwill recorded in our April 27, 2002, financial
statements, which included the $77.7 million described above, were supported by
the undiscounted estimated future cash flow of the related operations in
accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of." SFAS No. 142 prescribes a
different approach than SFAS No. 121, requiring the post-acquisition carrying
amounts of goodwill and indefinite-lived intangible assets to be compared to
their fair values. The impairments recognized in the first quarter of fiscal
2003 were the result of changing the impairment assessment model for our
intangible assets from the undiscounted cash flows approach of SFAS No. 121 to
the fair value approach prescribed by SFAS No. 142. Additionally, our impairment
charges were consistent with the recent sales declines in our Casegoods segment.
Of the remaining $78.8 million goodwill on our books, $53.2 million is
associated with the Upholstery segment and $25.6 million with the Casegoods
segment. The remaining $71.1 million of tradenames is comprised of $54.2 million
for Casegoods and $16.9 million for Upholstery.
In the fourth quarter of fiscal 2003 we reevaluated the trade names and
goodwill for impairment by comparing the fair values to the carrying values.
Based on our future projections and historical operating performance, we
determined that there was no further impairment. These evaluations are dependent
upon the future projections, which are subject to deviations due to changes in
facts and circumstances, relating to underlying assumptions surrounding the
projections.
Other Loss Reserves
Allowances for doubtful accounts are recorded based on the use of estimates
and judgment in regards to risk exposure and collectibility. We have other loss
exposures arising from the ordinary course of business including inventory
obsolescence, litigation, environmental claims, product liability, restructuring
charges and the recoverability of deferred income tax benefits. Establishing
loss reserves requires the estimate and judgment of management with respect to
risk exposure and ultimate liability. We use legal counsel or other experts as
appropriate to assist in developing estimates. Due to the uncertainties and
potential changes in facts and circumstances additional charges related to these
reserves could be required in the future.
Page 98
Financial Guarantees
Effective for the third quarter of fiscal 2003, we adopted FIN 45,
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others." The Interpretation elaborates on
the existing disclosure requirements for most guarantees, including loan
guarantees. It also clarifies that, at the time a company issues a guarantee,
the company must recognize an initial liability for the fair value of the
obligations it assumes under that guarantee and must disclose that information
in its interim and annual financial statements. The initial recognition and
initial measurement provisions apply on a prospective basis to guarantees issued
or modified after December 31, 2002.
Prior to December 31, 2002, we provided secured and unsecured financial
guarantees relating to loans and leases in connection with certain independent
La-Z-Boy Furniture Galleries(R) dealers whose stores are not owned by the
company. Loan guarantees are generally for real estate mortgages and have terms
lasting from one to five years. Lease guarantees are generally for real estate
leases and have terms lasting from one to five years. These loan and lease
guarantees enhance the credit of these dealers. The guaranteed party is required
to make periodic fee payments to us in exchange for the guarantees. The fair
values of the loan and lease agreements we have entered into since December 31,
2002, are not material to our financial position.
We would be required to perform under these agreements only if the dealer
were to default on the loan or lease. The maximum amount of potential future
payments under loan guarantees and lease guarantees were $10.1 million and $7.3
million, respectively, as of April 26, 2003. Should a dealer default on a
collateralized loan, we expect to be able to liquidate the collateral, the
proceeds of which we anticipate would cover most of the maximum amount of
potential future payments under our guarantee obligation.
We have, from time to time, entered into agreements which resulted in
indemnifying third parties against certain liabilities, mainly environmental. We
believe that judgments, if any, against us related to such agreements would not
have a material effect on our business or financial condition.
Our accounting policy for product warranties is to accrue an estimated
liability at the time the revenue is recognized. This estimate is based on
historical claims and adjusted for currently known warranty issues.
The Critical Accounting Policies and changes to critical estimates are
reviewed by management with our Audit Committee of the Board of Directors and
our independent accountants.
Restructuring
In fiscal years 2002 and 2001, we recorded restructuring charges of $22.2
million and $11.2 million, respectively. The $22.2 million, which was recorded
in cost of sales, was the result of closing down four manufacturing facilities
and converting three others to warehousing, subassembly and import service
operations. Of the $22.2 million, $3.7 million was attributable to the
Upholstery segment and $18.5 million was attributable to the Casegoods segment.
The total restructuring charges were comprised of $13.2 million in the second
quarter and $9.0 million in the fourth quarter of 2002. The $11.2 million in
fiscal 2001, which was recorded in cost of sales, was the result of strategic
decisions to rationalize production capacity to achieve more efficient
production utilization and exit certain unprofitable product lines. Of the $11.2
million, $2.3 million was attributable to the Upholstery segment and $8.9
million was attributable to the Casegoods segment. As of April 26, 2003,
substantially all of the 1,132 employees expected to be terminated as a result
of these plans are no longer employed by the company. The remaining liability
will be paid out in fiscal 2004.
Page 99
Restructuring liabilities along with charges to expense, cash payments or
asset write-downs were as follows:
Fiscal 2003
-----------------------
Cash
Payment
4/27/02 Charges to or Asset 4/26/03
(Amounts in thousands) Balance expense Write-down Balance
- ----------------------------------------------------------------------
Fixed asset write-
downs............... $ -- $ -- $ -- $ --
Severance and benefit
related costs....... 1,500 1,070 (2,257) 313
Inventory write-
downs............... -- -- -- --
Other.................. 3,100 -- (2,557) 543
----------------------------------------------
Total.................. $4,600 $1,070 ($4,814) $856
==============================================
Fiscal 2002
-----------------------
Cash
Payment
4/28/01 Charges to or Asset 4/27/02
(Amounts in thousands) Balance expense Write-down 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.................. $3,900 $22,200 ($21,500) $4,600
==============================================
The above fiscal 2003 table shows additional charges relating to health
insurance and workers' compensation for plants previously shut down.
Subsequent to year end, we announced an additional restructuring plan
in our Casegoods segment as a result of the continued pressure on domestic
manufacturing caused by imports. This restructuring will result in pre-tax
charges of approximately $10.0 million, or $0.11 per diluted share on an
after-tax basis. Of these pre-tax charges, approximately $6.4 million will be
taken primarily in the first quarter of fiscal 2004 and will cover the write-
down of certain fixed assets and inventories. The write-down of fixed assets
will be accounted for in accordance with SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" and covers two manufacturing plants
expected to be disposed of by sale in fiscal year 2004. Most of the remaining
balance of $3.6 million of the charges represents severance and other costs and
will be incurred in the first half of fiscal 2004 in accordance with SFAS No.
146, "Accounting for Costs Associated with Exit or Disposal Activities."
Page 100
Outlook Section
Statements in this Outlook Section and throughout this Management's
Discussion and Analysis are "forward-looking" within the meaning of the Private
Securities Litigation Reform Act of 1995. Our future results may not match our
current expectations because key variables such as economic, political and
industry trends, competitive and operating circumstances, and
acquisition-related factors may change suddenly or unexpectedly, causing our
future results or other outcomes to differ materially from those anticipated or
implied in our forward-looking statements. Many of the aforementioned variables
are difficult or impossible to predict, and we undertake no obligation to update
or revise any of our forward-looking statements for any reason.
Short-Term Outlook
The U.S. economy continues to remain unstable. On the positive side, the
Iraqi conflict is over and consumer confidence showed some recovery, but a
clear trend line is not visible. Housing remains strong as interest rates
remain low and the recent tax bill should provide some stimulus to the sagging
economy. On the negative side, unemployment has moved up with the lack of job
growth and energy costs remain high. Retail activity has been especially weak
and there has been significant pressure on pricing.
These factors are having a negative impact on our industry and us,
especially as compared to last year. As the first quarter of fiscal 2003
unfolded, we were coming out of a very strong double-digit sales growth period,
backlogs were high and inventory levels were low. This year, sales have been
falling, backlogs are down and inventory has grown. Our first fiscal quarter is
normally our weakest and summer shutdowns of manufacturing plants are typical.
This year we expect to take extended shutdowns due to the level of activity.
Accordingly, we are expecting a significant reduction in sales and
operating income for the first fiscal quarter when compared to last year. Due to
the extent of the uncertainties facing us, we have suspended providing specific
earnings guidance to the investment community.
Longer-Term Outlook
Our long-term outlook is closely linked to that of our industry in general.
Excluding the recession of 2001, the residential furniture industry over the
past ten years has grown at an annual rate slightly in excess of 5%, with the
upholstery segment growing somewhat faster than the casegoods segment and
exhibiting less volatility. Underlying or "pent up," consumer demand for
furniture is believed to be large at present and demand is expected to remain
strong over the next few years at least, as a result of the very high level of
U.S. housing refinancing activity and new home starts of the past several years,
which has been fueled in part by historically low mortgage rates and a falling
stock market. In addition, demographic factors for the industry remain positive,
with the prime furniture-buying years being ages 35-54, for upholstered chairs
and recliners.
Our goal is to grow sales from existing operations at a faster pace than
the overall North American furniture industry (the "industry"). Continued growth
in the number of our proprietary outlets is one reason we believe our sales
growth rates can continue to exceed those of the industry at large. We have a
substantial number of proprietary outlets in each of our two business segments
and, as a whole, our proprietary distribution (retail sales through these
proprietary outlets) accounts for approximately 42% of our total sales volume.
This proprietary percentage has been growing, excluding the effect of
acquisitions. It is management's objective to maintain that growth trend in the
years immediately ahead.
Page 101
Continued increases in the sales per square foot generated by the La-Z-Boy
proprietary retail outlets is another reason we believe our sales can continue
to exceed industry growth rates. The dedicated marketing focus associated with
multi-outlet proprietary distribution in specific metropolitan areas typically
results in improved retail sales per square foot over time.
The residential furniture industry has been slowly consolidating at both
the retail and manufacturing levels over time, and this trend is expected to
continue. Smaller and/or financially weaker retailers are finding it
increasingly difficult to remain competitive with larger, better-managed and/or
financially stronger retailers. On the production side, progress in
manufacturing methodologies, information systems and other technologies,
business processes and financial and general management methods, combined with
economies of scale, have continually put additional competitive pressure on
smaller manufacturers. Additional market pressures are anticipated in the future
as a continued result of foreign manufacturers entering the U.S. market and
increased direct importing by U.S. retailers.
Our continued ability to leverage dealer relationships across a large
number of distinct La-Z-Boy business units is another reason we believe our
sales growth can exceed that of the industry. We are striving to ensure that
each of our operating units will continue to benefit from its association with
the La-Z-Boy name. The development and implementation of various
"cross-marketing" and "cross-manufacturing" programs to facilitate this benefit
by association is an area of ongoing management emphasis.
Finally, our importation of finished goods and furniture components
continues to increase, representing another avenue for our company to be able to
sustain market share by offering an attractive price/quality relationship to our
dealers and consumers. These imports are either resold fully assembled or have
additional manufacturing value added prior to being marketed. Imported finished
goods currently account for approximately 8% of our total sales. In the
Casegoods segment, these imports accounted for 31% of fiscal 2003 sales, and
they are growing at a much faster rate than our overall business. This
above-average growth trend is expected to continue for the foreseeable future
for both our industry and our company. Import activity is more geared toward
cut and sewn cover, primarily leather, in the Upholstery group as opposed to
finished goods.
While furniture is sourced from many different countries, the vast majority
of our fiscal 2003 imports came from the Far East, and we expect we will
increase our Far East imports even more in the future. These products typically
benefit from substantially lower overseas labor costs, and provide higher value
to our domestic customers, whether delivered fully assembled or blended with our
domestically manufactured products prior to resale. In many cases, retailers buy
these products from us rather than importing them directly in order to minimize
their inventories, reduce financing and freight costs, obtain quicker delivery
and obtain access to a broader assortment of products.
Page 102
Another of our financial goals is to continually improve the company's
operating margin - operating income as a percent of sales - with a management
target level of 10.0%. Operating margin hit a recent high of 8.0% in both fiscal
1999 and fiscal 2000, before declining to 5.4% in fiscal 2001. Our "normalized"
operating margin (excluding restructuring and divestiture expenses and
discontinued amortization) was 6.5% in fiscal 2002 and 7.7% in fiscal 2003. On a
quarterly basis, our overall operating margin in fiscal 2003 ranged from a low
of 6.6% in the July first quarter to a high of 8.4% in the October second
quarter. The margin improvement last year was primarily due to progressively
increasing benefits from our cost-cutting actions and restructuring moves. Our
first quarter is historically our lowest quarter for both sales and operating
margins.
We also expect increased outsourcing of components to lower-cost suppliers
outside of North America to remain competitive. In addition, increased importing
of components has been an industry trend over the last three to five years.
Changes in foreign exchange rates are not expected to affect this outsourcing
trend in the next year.
Recently the Financial Accounting Standards Board ("FASB") issued SFAS No.
143, "Accounting for Asset Retirement Obligations," SFAS No. 144, "Accounting
for the Impairment or Disposal of Long-Lived Assets," and SFAS No. 145,
"Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No.
13, and Technical Corrections." The adoption of SFAS No. 143, and SFAS No. 145
had no financial impact on our consolidated financial statements. SFAS No. 144
will be implemented in our first quarter of fiscal 2004 as it relates to assets
to be disposed of as a result of our recently announced restructuring. See
Note 14 for additional information on this restructuring.
In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit and Disposal Activities." SFAS No. 146 is effective for
exit or disposal activities occurring after December 31, 2002. SFAS No. 146
will be implemented in our first quarter of fiscal 2004 as it relates to our
recently announced restructuring. See Note 14 for additional information on
this restructuring.
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation-Transition and Disclosure." SFAS No.148 amends SFAS No. 123,
"Accounting for Stock-Based Compensation" in that it requires additional
disclosures about our stock-based compensation plans. SFAS No. 148 is effective
for periods beginning after December 15, 2002. We account for our stock-based
compensation plans using the intrinsic value method of recognition and
measurement principles under APB Opinion No. 25, "Accounting for Stock Issued to
Employees," and related interpretations. We adopted the disclosure-only
provisions of SFAS No. 123. Accordingly, we provide proforma disclosures
assuming that we had accounted for our stock-based compensation programs using
the fair value method promulgated by SFAS No. 123.
In January 2003, the FASB issued FASB Interpretation Number ("FIN") 46,
"Consolidation of Variable Interest Entities." A variable interest entity is
generally defined as an entity which has insufficient equity to finance its
activities or the owners of the entity lack the risk and rewards of ownership.
FIN 46 requires a company to consolidate a variable interest entity if it is
designated as the primary beneficiary of that entity even if the company does
not have a majority of voting interests. The provisions of this statement apply
at inception for any entity created after January 31, 2003. We will apply FIN 46
to new entities as applicable. The provisions of this statement apply to
existing entities as of our second quarter of fiscal 2004. We have not yet
determined the impact of this FIN on our consolidated financial statements as it
relates to existing entities.
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities," and in May 2003 SFAS No. 150 was
issued, "Accounting for Certain Financial Instruments with Characteristics of
both Liabilities and Equity." We have not yet determined the impact, if any, on
our financial statements of SFAS No. 149 and SFAS No. 150, which are effective
in our fiscal year 2004.
Page 103
Management's Discussion and Analysis
Reconciliation of Non-GAAP Normalized Financial Information to GAAP Financial Information
(Amounts in thousands, except per share data)
Unaudited Quarter Ended Unaudited Year Ended
-------------------------- ------------------------------
Sales 4/26/03 4/27/02 4/26/03 4/27/02
------------ ------------ ------------- -------------
Upholstery Group as reported $414,386 $449,566 $1,589,778 $1,543,756
HickoryMark and Retail (1) (2,067) (5,531) (21,308) (35,145)
---------- ---------- ----------- -----------
Normalized Upholstery Group 412,319 444,035 1,568,470 1,508,611
Casegoods Group as reported 126,633 146,870 526,168 611,268
Pilliod (2) -- -- -- (24,203)
---------- ---------- ----------- -----------
Normalized Casegoods Group 126,633 146,870 526,168 587,065
Eliminations (690) (374) (4,116) (1,072)
---------- ---------- ----------- -----------
Consolidated as reported 540,329 596,062 2,111,830 2,153,952
HickoryMark, Retail and Pilliod (1)(2) (2,067) (5,531) (21,308) (59,348)
---------- ---------- ----------- -----------
Normalized consolidated $538,262 $590,531 $2,090,522 $2,094,604
========== ========== =========== ===========
Operating income
Upholstery Group as reported $42,666 $49,144 $154,617 $130,602
Restructuring (3) -- -- -- 3,735
Amortization (4) -- 822 -- 3,286
---------- ---------- ----------- -----------
Normalized Upholstery Group 42,666 49,966 154,617 137,623
Casegoods Group as reported 6,031 (1,278) 32,110 (10,572)
Restructuring (3) -- 9,000 -- 18,452
Loss on divestiture of Pilliod -- -- -- 11,689
Amortization (4) -- 1,493 -- 5,964
---------- ---------- ----------- -----------
Normalized Casegoods Group 6,031 9,215 32,110 25,533
Other (5,507) (5,418) (23,853) (23,330)
---------- ---------- ----------- -----------
Consolidated as reported 43,190 42,448 162,874 96,700
Restructuring (3) -- 9,000 -- 22,187
Loss on divestiture of Pilliod -- -- -- 11,689
Amortization (4) -- 2,315 -- 9,250
---------- ---------- ----------- -----------
Normalized consolidated $43,190 $53,763 $162,874 $139,826
========== ========== =========== ===========
Operating margin
Upholstery Group as reported 10.3% 10.9% 9.7% 8.5%
Normalized Upholstery Group 10.3% 11.1% 9.7% 8.9%
Casegoods Group as reported 4.8% (0.9%) 6.1% (1.7%)
Normalized Casegoods Group 4.8% 6.3% 6.1% 4.2%
Consolidated as reported 8.0% 7.1% 7.7% 4.5%
Normalized consolidated 8.0% 9.0% 7.7% 6.5%
Diluted net income per share
Consolidated as reported $0.45 $0.41 $0.63 $1.01
Restructuring (3) -- 0.09 -- 0.22
Amortization (4) -- 0.03 -- 0.12
---------- ---------- ---------- ----------
Normalized consolidated $0.45 $0.53 $0.63 $1.35
========== ========== ========== ==========
(1) Excludes sales of fiscal 2003 retail store acquisitions and fiscal 2002 and fiscal 2003 sales of
HickoryMark through its cessation of operations in October 2002.
(2) Excludes fiscal 2002 sales of Pilliod through its November 2001 divestiture.
(3) Excludes the fiscal 2002 restructuring charges.
(4) Excludes amortization prior to our adoption of SFAS No. 142.
Page 104
Consolidated Six-Year Summary of Selected Financial Data
(Amounts in thousands, Fiscal year ended 4/26/03 4/27/02 4/28/01 4/29/00 4/24/99 4/25/98
except per share data) (52 weeks) (52 weeks) (52 weeks) (53 weeks) (52 weeks) (52 weeks)
- ------------------------------------------------------------------------------------------------------------------------------------
Sales............................................ $2,111,830 $2,153,952 $2,248,491 $1,778,225 $1,339,016 $1,152,171
Cost of sales.................................... 1,617,261 1,691,657 1,794,474 1,383,428 1,027,154 891,717
----------- ---------- ---------- ---------- ---------- ----------
Gross profit................................ 494,569 462,295 454,017 394,797 311,862 260,454
Selling, general and administrative.............. 331,695 353,906 333,223 251,949 205,103 183,251
Loss on divestiture.............................. -- 11,689 -- -- -- --
----------- ---------- ---------- ---------- ---------- ----------
Operating income............................ 162,874 96,700 120,794 142,848 106,759 77,203
Interest expense................................. 10,510 10,063 17,960 9,655 4,440 4,157
Other income, net................................ 2,633 2,299 9,210 7,120 4,919 6,228
----------- ---------- ---------- ---------- ---------- ----------
Pre-tax income.............................. 154,997 88,936 112,044 140,313 107,238 79,274
Income tax expense............................... 58,899 27,185 43,708 52,699 41,096 29,354
----------- ---------- ---------- ---------- ---------- ----------
Income before cumulative effect
of accounting change........................ 96,098 61,751 68,336 87,614 66,142 49,920
Cumulative effect of accounting change
(net of tax of $17,920)..................... (59,782) -- -- -- -- --
----------- ---------- ---------- ---------- ---------- ----------
Net income.................................. $36,316 $61,751 $68,336 $87,614 $66,142 $49,920
----------- ---------- ---------- ---------- ---------- ----------
Diluted weighted average shares
outstanding*................................ 57,435 61,125 60,692 54,860 53,148 53,821
Diluted net income per share before
cumulative effect of accounting change....... $1.67 $1.01 $1.13 $1.60 $1.24 $0.93
Diluted net income per share*.................... $0.63 $1.01 $1.13 $1.60 $1.24 $0.93
Dividends declared per share..................... $0.40 $0.36 $0.35 $0.32 $0.31 $0.28
Book value on year-end shares outstanding*....... $11.08 $11.90 $11.49 $10.81 $7.93 $7.25
Return on average shareholders' equity**......... 14.5% 8.8% 10.1% 16.3% 16.5% 13.4%
Gross profit as a percent of sales............... 23.4% 21.5% 20.2% 22.2% 23.3% 22.6%
Operating profit as a percent of sales........... 7.7% 4.5% 5.4% 8.0% 8.0% 6.7%
Income tax expense as a percent of
pre-tax income.............................. 38.0% 30.6% 39.0% 37.6% 38.3% 37.0%
Return on sales**................................ 4.6% 2.9% 3.0% 4.9% 4.9% 4.3%
- ------------------------------------------------------------------------------------------------------------------------------------
Depreciation and amortization.................... $30,695 $43,988 $45,697 $30,342 $22,081 $21,021
Capital expenditures............................. $32,821 $32,966 $37,416 $37,968 $25,316 $22,016
Property, plant and equipment, net............... $209,411 $205,463 $230,341 $227,883 $125,989 $121,762
- ------------------------------------------------------------------------------------------------------------------------------------
Working capital.................................. $464,907 $445,850 $458,861 $455,363 $293,160 $274,739
Current ratio.................................... 3.2 to 1 3.0 to 1 2.8 to 1 2.9 to 1 3.2 to 1 3.5 to 1
Total assets..................................... $1,123,066 $1,161,827 $1,225,797 $1,220,895 $630,994 $581,583
- ------------------------------------------------------------------------------------------------------------------------------------
Total debt....................................... $223,990 $141,662 $215,644 $249,670 $65,473 $73,458
Shareholders' equity............................. $609,939 $713,522 $695,146 $663,092 $414,915 $388,209
Ratio of total debt to equity.................... 36.7% 19.9% 31.0% 37.7% 15.8% 18.9%
Ratio of total debt to capital................... 26.9% 16.6% 23.7% 27.4% 13.6% 15.9%
- ------------------------------------------------------------------------------------------------------------------------------------
Shareholders..................................... 29,100 33,000 23,600 22,300 16,300 13,600
Employees........................................ 16,970 17,850 20,400 21,600 12,800 12,200
- ------------------------------------------------------------------------------------------------------------------------------------
*Fiscal 1998 has been restated to reflect the September 1998 three-for-one stock split, in the form of a 200% stock dividend.
**Based on income before the cumulative effect of accounting change in fiscal 2003.
Some prior year information has been reclassified in order to be comparable to current year information.
Page 105
Unaudited Quarterly Financial Information
(Amounts in thousands, except per share data)
Quarter ended 7/27/02 10/26/02 1/25/03 4/26/03
- -------------------------------------------------------------------------------------------------
Sales........................................... $497,375 $563,587 $510,539 $540,329
Cost of sales................................... 382,552 429,161 392,247 413,301
--------- --------- --------- ---------
Gross profit................................. 114,823 134,426 118,292 127,028
Selling, general and administrative............. 81,936 87,190 78,731 83,838
--------- --------- --------- ---------
Operating income............................. 32,887 47,236 39,561 43,190
Interest expense................................ 2,027 2,153 2,948 3,382
Other income, net............................... 116 1,394 435 688
--------- --------- --------- ---------
Pre-tax income............................... 30,976 46,477 37,048 40,496
Income tax expense.............................. 11,848 17,777 13,887 15,387
--------- --------- --------- ---------
Income before cumulative effect of
accounting change......................... 19,128 28,700 23,161 25,109
Cumulative effect of accounting change
(net of tax of $17,920)....................... (59,782) -- -- --
--------- --------- --------- ---------
Net income (loss)......................... ($40,654) $28,700 $23,161 $25,109
========= ========= ========= =========
Diluted average shares outstanding.............. 59,667 57,760 56,765 55,601
Diluted net income per share before
cumulative effect of accounting change....... $0.32 $0.50 $0.41 $0.45
Cumulative effect of accounting change
per share.................................... (1.00) -- -- --
--------- --------- --------- ---------
Diluted net income (loss) per share*............ ($0.68) $0.50 $0.41 $0.45
========= ========= ========= =========
*Due to the repurchase of common shares throughout the fiscal
year, quarterly earnings per share will not sum to the annual
earnings per share calculation.
(Amounts in thousands, except per share data)
Quarter ended 7/28/01 10/27/01 1/26/02 4/27/02
- -------------------------------------------------------------------------------------------------
Sales........................................... $456,935 $557,408 $543,547 $596,062
Cost of sales................................... 369,729 446,105 416,295 459,528
--------- --------- --------- ---------
Gross profit................................. 87,206 111,303 127,252 136,534
Selling, general and administrative............. 80,229 89,697 89,894 94,086
Loss on divestiture............................. -- -- 11,689 --
--------- --------- --------- ---------
Operating income............................. 6,977 21,606 25,669 42,448
Interest expense................................ 2,956 2,044 3,004 2,059
Other income (expense), net..................... 621 750 946 (18)
--------- --------- --------- ---------
Pre-tax income............................... 4,642 20,312 23,611 40,371
Income tax expense.............................. 1,811 7,921 1,948 15,505
--------- --------- --------- ---------
Net income................................ $2,831 $12,391 $21,663 $24,866
========= ========= ========= =========
Diluted average shares outstanding............. 61,021 61,052 61,062 61,063
Diluted net income per share................... $0.05 $0.20 $0.35 $0.41
Some quarterly information has been reclassified in order to be comparable.
Page 106
Dividend and Market Information
Fiscal Fiscal
2003 Market Price 2002 Market Price
quarter Dividends ------------------------- quarter Dividends -------------------------
ended paid High Low Close ended paid High Low Close
- -------------------------------------------------------------------------------------------------
July 27 $0.10 $30.25 $19.95 $21.75 July 28 $0.09 $20.00 $17.51 $19.85
Oct. 26 0.10 27.10 20.03 24.52 Oct. 27 0.09 20.85 14.70 18.08
Jan. 25 0.10 26.00 19.90 20.50 Jan. 26 0.09 23.30 17.53 21.23
April 26 0.10 $21.00 $16.20 $18.07 April 27 0.09 $30.94 $21.15 $30.20
------ ------
$0.40 $0.36
====== ======
Fiscal Year
Market Price End P/E ratio
Fiscal Dividends Dividend Dividend ------------------------- Market Value -------------
year paid yield payout ratio High Low Close (in millions) High Low
- ------------------------------------------------------------------------------------------------
2003 $0.40 1.7% 24.0% $30.25 $16.20 $18.07 $994 18 10
2002 0.36 1.7% 35.6% 30.94 14.70 30.20 1,811 31 15
2001 0.35 2.2% 31.0% 18.50 13.44 18.02 1,090 16 12
2000 0.32 1.7% 19.9% 24.44 13.69 15.69 962 15 10
1999 0.31 1.7% 24.8% 22.50 15.25 19.00 994 18 12
1998 $0.28 2.1% 30.1% $17.83 $10.58 $17.83 $955 19 11
La-Z-Boy Incorporated common shares are traded on the NYSE and PCX (symbol LZB).
Various data has been restated to reflect the September 1998 three-for-one stock split.
2003 ratios are based on income before the cumulative effect of accounting change.
Page 107
EXHIBIT (21)
LA-Z-BOY INCORPORATED LIST OF SUBSIDIARIES
Subsidiary Jurisdiction of Incorporation
- ----------- -----------------------------
La-Z-Boy Canada Limited Canada
Kincaid Furniture Company, Incorporated Delaware
La-Z-Boy Export Ltd. Barbados
LZB Finance, Inc. Michigan
England, Inc. Michigan
LZB Properties, Inc. Michigan
LZB Carolina Properties, Inc. Michigan
Centurion Furniture plc (DBA La-Z-Boy UK) United Kingdom
Sam Moore Furniture Industries, Inc. Virginia
La-Z-Boy Logistics, Inc. Michigan
Bauhaus U.S.A., Inc. Mississippi
Alexvale Furniture, Inc. North Carolina
LADD Furniture, Inc. North Carolina
American Furniture Company, Incorporated Virginia
Clayton-Marcus Company, Inc. North Carolina
LADD Contract Sales Corporation North Carolina
Pennsylvania House, Inc. North Carolina
LADD Transportation, Inc. (DBA La-Z-Boy Transportation) North Carolina
LFI Capital Management, Inc. Delaware
LZB Furniture Galleries of Washington D.C., Inc. Michigan
LZB Furniture Galleries of St. Louis, Inc. Michigan
Montgomeryville Home Furnishings, Inc. Pennsylvania
LZB Furniture Galleries of Boston, Inc. Michigan
LZB Furniture Galleries of Kansas City, Inc. Michigan
LZB Furniture Galleries of Rochester, Inc. Michigan
LZB Furniture Galleries of Paramus, Inc. Michigan
Redd Level, Ltd. Delaware
LADD International Sales Corporation Virgin Islands
La-Z-Boy Global Ltd. Michigan
La-Z-Boy (Thailand) Ltd. Thailand
La-Z-Boy Europe B.V. Netherlands
La-Z-Boy Germany GmbH Germany
All other subsidiaries, when considered in the aggregate as a single subsidiary, would not constitute a
significant subsidiary and therefore have been omitted from this exhibit.
Page 108
EXHIBIT (23)
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Nos. 33-8996, 33-8997, 333-34155, 333-34157, 333-03097,
033-54743, and 333-95651) of La-Z-Boy Incorporated of our report dated May 28,
2003 relating to the financial statements, which appears in the Annual Report to
Shareholders, which is incorporated in this Annual Report on Form 10-K. We also
consent to the incorporation by reference of our report dated May 28, 2003
relating to the financial statement schedule, which appears in this Form 10-K.
/s/PricewaterhouseCoopers LLP
Toledo, Ohio
June 19, 2003
Page 109
EXHIBIT (99.1)
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 Annual Report on Form 10-K for the period ended April 26, 2003
(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
June 18, 2003
A signed original of this written statement required by Section 906 has been
provided to La-Z-Boy Incorporated and will be retained by La-Z-Boy Incorporated
and furnished to the Securities and Exchange Commission or its staff upon
request.
*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.
Page 110
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 Annual Report on Form 10-K for the period ended April 26, 2003
(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
June 18, 2003
A signed original of this written statement required by Section 906 has been
provided to La-Z-Boy Incorporated and will be retained by La-Z-Boy Incorporated
and furnished to the Securities and Exchange Commission or its staff upon
request.
*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.
Page 111