e10vk
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 28, 2007
COMMISSION FILE NUMBER 1-9656
LA-Z-BOY INCORPORATED
(Exact name of registrant as
specified in its charter)
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MICHIGAN
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38-0751137
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(State or other jurisdiction
of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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1284 North Telegraph Road,
Monroe, Michigan
(Address of principal
executive offices)
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48162-3390
(Zip Code)
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Registrants telephone number, including area code
(734) 242-1444
Securities registered pursuant to Section 12(b) of the
Act:
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Title of Each Class
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Name of Each Exchange on Which Registered
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Common Shares, $1.00 Par Value
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New York Stock Exchange
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Securities registered pursuant to Section 12(g) of the
Act:
None
Indicate by check mark if the Registrant is a well-known
seasoned issuer, as defined in rule 405 of the Securities
Act. Yes þ No o
Indicate by check mark if the Registrant is not required to file
reports pursuant to Section 13 or 15(d) of the Exchange
Act. Yes o No þ
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 þ No o
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 Registrants 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. þ
Indicate by check mark whether the Registrant is a large
accelerated filer, an accelerated filer, or a non-accelerated
filer. See definition of accelerated filer and
large accelerated filer in
Rule 12b-2
of the Exchange Act. (Check one):
Large accelerated
filer o Accelerated
filer þ Non-accelerated
filer o
Indicate by check mark whether the Registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes o No þ
Based on the closing price on the New York Stock Exchange on
October 28, 2006, the aggregate market value of
Registrants common shares held by non-affiliates of the
Registrant on that date was $650.8 million.
The number of common shares outstanding of the Registrant was
51,784,553 as of June 2, 2007.
DOCUMENTS
INCORPORATED BY REFERENCE:
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(1) |
Portions of the Registrants 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 15, 2007 are incorporated by reference into
Part III.
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LA-Z-BOY
INCORPORATED
FORM 10-K
ANNUAL REPORT FISCAL 2007
TABLE OF
CONTENTS
Note: The responses to Items 10 through 14 are included in
the Companys definitive proxy statement to be filed
pursuant to Regulation 14A for the Annual Meeting of
Shareholders to be held on August 15, 2007. The required
information is incorporated into this
Form 10-K
by reference to that document and is not repeated herein.
2
Cautionary
Statement Concerning Forward-Looking Statements
We are making forward-looking statements in this report.
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:
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future income, margins and cash
flows
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future economic performance
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future growth
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industry and importing trends
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adequacy and cost of financial
resources
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management plans
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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: (a) changes in consumer confidence;
(b) changes in demographics; (c) changes in housing
sales; (d) the impact of terrorism or war;
(e) continued energy price changes; (f) the impact of
logistics on imports; (g) the impact of interest rate
changes; (h) changes in currency exchange rates;
(i) competitive factors; (j) operating factors, such
as supply, labor or distribution disruptions including changes
in operating conditions or costs; (k) effects of
restructuring actions; (l) changes in the domestic or
international regulatory environment; (m) ability to
implement global sourcing organization strategies; (n) fair
value changes to our intangible assets due to actual results
differing from those projected; (o) the impact of adopting
new accounting principles; (p) the impact from natural
events such as hurricanes, earthquakes and tornadoes;
(q) the impact of retail store relocation costs, the
success of new stores or the timing of converting stores to the
New Generation format; (r) the ability to procure fabric
rolls or cut and sewn fabric sets domestically or abroad;
(s) the ability to sell the discontinued operations for
their recorded fair value; (t) those matters discussed in
Item 1A of this Annual Report and factors relating to
acquisitions and other factors identified from time to time in
our reports filed with the Securities and Exchange Commission.
We undertake no obligation to update or revise any
forward-looking statements, either to reflect new developments
or for any other reason.
3
PART I
Edward M. Knabusch and Edwin J. Shoemaker started Floral City
Furniture in 1927, and in 1928 the newly formed company
introduced its first recliner. In 1941, we were incorporated in
the state of Michigan, and in 1996 the name was changed to
La-Z-Boy Incorporated. Since then the
La-Z-Boy
name has become the most recognized brand in the furniture
industry. We have increased our ownership of retail stores
during the past several years.
La-Z-Boy
Incorporated is divided into three segments the
Upholstery Group, the Casegoods Group and the Retail Group.
La-Z-Boy is
the largest reclining-chair manufacturer in the world and North
Americas largest manufacturer of upholstered furniture. We
also manufacture and import casegoods (wood) furniture products
for resale in North America.
La-Z-Boy
Incorporated markets furniture for every room of the home.
According to the May, 2007 Top 100 ranking by Furniture
Today, which is an industry trade publication, the largest
retailer of single-brand upholstered furniture in the
U.S. is the
La-Z-Boy
Furniture
Galleries®
stores retail network.
On July 28, 2006, we completed the sale of our American of
Martinsville operating unit, which supplied contract furniture
to the hospitality, assisted-living and governmental markets,
and on April 28, 2007, we completed the sale of our Sam
Moore operating unit, an upholstered chair manufacturer. During
the third quarter of fiscal 2007, we committed to a plan to sell
the operating units of Clayton Marcus and Pennsylvania House
which were included in the Casegoods Group. As we have continued
to assess our long-term strategic direction, we have determined
that these operating units do not align with our current
strategic plan.
In the fourth quarter of fiscal 2007, we committed to a
restructuring plan which included the closures of our
Lincolnton, North Carolina and Iuka, Mississippi upholstery
manufacturing facilities, the closure of our rough mill lumber
operation in North Wilkesboro, North Carolina, the consolidation
of operations at our Kincaid Taylorsville, North Carolina
upholstery operation and the elimination of a number of
positions throughout the remainder of the organization. The
Lincolnton and Iuka facility closures will occur in the first
quarter of fiscal 2008 and will impact approximately 250 and
150 employees, respectively. The closure of our North
Wilkesboro lumber operation, the consolidation of operations at
Kincaids Taylorsville operation and the elimination of
other positions occurred in the fourth quarter of fiscal 2007
and impacted approximately 100 positions. These decisions were
made to help align our company with the current business
environment and strengthen our positioning going forward.
Applicable accounting rules categorize some of our independent
dealers that do not have sufficient equity to carry out their
businesses without our financial support as variable
interest entities or VIEs. If it is determined
that we are the primary beneficiary of a VIEs business
activities, the rules require us to consolidate the VIEs
assets, liabilities, and results of operations into our
consolidated financial statements. We did not become the primary
beneficiary of any VIEs during fiscal 2007.
Principal
Products and Industry Segments
Our reportable operating segments are the Upholstery Group, the
Casegoods Group and the Retail Group.
Upholstery Group. The operating units in the
Upholstery Group are Bauhaus, England,
La-Z-Boy,
U.K., and
La-Z-Boy.
This group primarily manufactures and sells upholstered
furniture to furniture retailers and proprietary stores.
Upholstered furniture includes recliners and motion furniture,
sofas, loveseats, chairs, ottomans and sleeper sofas.
Casegoods Group. The operating units in the
Casegoods Group are American Drew, Hammary, Kincaid, and Lea.
This group primarily sells manufactured or imported wood
furniture to furniture retailers. Casegoods product includes
tables, chairs, entertainment centers, headboards, dressers,
accent pieces and some coordinated upholstered furniture.
Retail Group. The Retail Group consists of
70 company-owned
La-Z-Boy
Furniture
Galleries®
stores located in nine markets ranging from the Midwest to the
East Coast of the United States and also including
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southeastern Florida. The Retail Group sells mostly upholstered
furniture to end consumers through the retail network.
Due to the dispositions and the impact of discontinued
operations throughout fiscal 2007, segment data was restated
during fiscal 2007. Additional detailed information regarding
our segments and the products which comprise the segments is
contained in Note 14 to our consolidated financial
statements and our Managements Discussion and
Analysis section, both of which are included in this
report.
Raw
Materials and Parts
The principal raw materials for the Upholstery Group are
purchased cover (primarily fabrics and leather), polyester
batting and non-chlorofluorocarbonated polyurethane foam for
cushioning and padding, lumber and plywood for frames and steel
for motion mechanisms. Purchased cover is the largest raw
material cost for this segment, representing about 28% of the
Upholstery Groups total material costs. We purchase cover
from numerous sources, but we do rely on a limited number of
major suppliers. If one of these sources experienced financial
or other difficulties we could experience temporary disruptions
in our manufacturing process until another source could be
found. Most of the cover is purchased in a raw state (a roll or
hide), then cut and sewn into parts in our plants or from third
party offshore suppliers. The cover material costs are 67%
fabric rolls and hides and 33% for cut and sewn parts mainly
from Argentina, Asia and Brazil. Of the cut and sewn parts, 62%
is manufactured by one supplier located in China. In addition we
also import rolled fabric goods from overseas. 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 and fabric sets, we are able to recognize
savings compared to domestic purchases and fabrication of these
parts.
Purchased hardwood parts are also components for the Upholstery
Group. These purchased parts are generally external 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.
Our Casegoods Group today is primarily an importer, marketer,
distributor and manufacturer of casegood furniture. Therefore,
over the last few years the amount of raw materials purchased by
the Casegoods Group has been declining. 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 and purchased hardwood
components are the Casegoods Groups largest raw material
costs, representing about 15% of the segments total raw
material costs, on domestically produced product.
Finished
Goods Imports
The rapid growth of manufacturing capabilities in Asia has
increased production capacities overseas. Due to the low labor
and overhead costs in those areas, the landed manufactured cost
of product coming out of those overseas manufacturing facilities
is much lower than equivalent furniture produced domestically.
During fiscal 2007 and 2006, about 70% of our casegoods finished
goods sales were imported. Imported finished goods represented
less than 13% of our consolidated fiscal 2007 sales. While a
significant portion of upholstered product sold in this country
is domestically produced, there is a growing trend of imported
upholstered product, particularly with leather sofas. Both
imported finished goods and components have lower costs, which
in turn has deflated overall selling prices to consumers in the
last few years.
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 a major contributor to our decision to restructure our
casegoods manufacturing capability over the last few 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.
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 to coincide with
slower sales. We do, however, shut down our plants in July due
to the seasonality of our sales and to perform routine
maintenance on our equipment. A majority of our manufacturing
facilities will shut down their production for one week in July,
2007.
Economic
Cycle and Purchasing Cycle
The success of our business depends to a significant extent upon
the level of consumer spending. A number of economic conditions
affect the level of consumer spending on the products that we
offer, including, among other things, the general state of the
economy, general business conditions, the level of consumer
debt, interest rates, taxation and consumer confidence in future
economic conditions.
While we are pleased with our progress in our Upholstery and
Casegoods divisions, we are concerned about the macro economic
environment as the energy markets remain volatile and housing
starts are down. Our Retail division is continuing to feel the
impact of these factors as well as the inconsistent consumer
confidence across the country, which has created an
unprecedented weakness in the retail environment.
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
With the exception of company-owned stores, we do not carry
significant amounts of upholstered finished goods in inventory
as these goods are usually built to order. However, we generally
build or import casegoods inventory to stock, with warehousing,
in order to attain manufacturing efficiencies
and/or to
meet delivery requirements of customers. This results in higher
levels of finished casegoods product inventories than upholstery
products. Our company-owned
La-Z-Boy
Furniture
Galleries®
stores maintain inventory at the stores and at warehouse
locations to meet customer demand.
Our transition to importing has increased inventory levels of
imported finished goods while reducing domestically manufactured
finished goods. During fiscal 2006 and 2007, we made a concerted
effort to reduce our inventory balances. These efforts have lead
to the consolidation of some of our Casegoods Group warehousing
and more effective management of our inventory. Our overall
inventory levels for the Casegoods Group excluding discontinued
operations declined 21% over the past two years.
Dealer terms generally range between
net 30-120 days.
We offer some extended payment terms as part of sales promotion
programs.
Customers
We sell to a significant number of furniture retailers primarily
throughout the United States and Canada. We also sell to
consumers through our company-owned
La-Z-Boy
Furniture
Galleries®
stores. We did not have any customers whose purchases amounted
to more than 5% of our fiscal year 2007 sales for either the
Upholstery Group or the Casegoods Group. Sales in our Upholstery
and Casegoods Groups are almost entirely to furniture retailers.
The Retail Group sales are to end-consumers.
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. Excluding
sales to consumers by our own retail stores and VIEs, our 2007
customer mix was about 48% proprietary, 14% major dealers (for
example, Art Van, Berkshire Hathaway, Raymour &
Flanigan, Havertys) and 38% general dealers.
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Currently, we own 70 stand-alone
La-Z-Boy
Furniture
Galleries®
stores and consolidate four VIEs owning 29 stores. Additionally,
we have agreements with independent dealers for 237 stand-alone
La-Z-Boy
Furniture
Galleries®
stores and 304 in-store galleries, all dedicated to our
Upholstery furniture products. These stores also sell
accessories that are purchased from approved vendors. There are
194 stand-alone
La-Z-Boy
Furniture
Galleries®
stores in the New Generation format, which generally has more
space and a more updated appearance. The 194 New Generation
format stores represent a 26% increase in this type of
distribution in comparison to last year. About 58% of our 336
stand-alone stores are less than six years old. Additionally,
the New Generation stores on average generate more revenue per
square foot than the older formatted stores. Having dedicated
retail floor space is important to the success of product
distribution. This distribution system originated with our
La-Z-Boy
Furniture
Galleries®
stores network, which continues to have the largest number of
proprietary stores and galleries among our other operating
units. Viewed by itself,
La-Z-Boy
Furniture
Galleries®
stores network would be the sixth largest conventional furniture
retailer in the U.S. Our proprietary distribution also
includes in-store galleries for England, Kincaid and Leas
La-Z-Boy
Kidztm.
Total proprietary floor space is approximately
11 million square feet.
It is a key part of our marketing strategy to continue to expand
proprietary distribution. The network plans to open another
25-30 of our
New Generation format
La-Z-Boy
Furniture
Galleries®
stores during fiscal 2008, with
10-15 of
these being new stores and the remainder being store remodels or
relocations. We select dealers for this proprietary distribution
based on the management and financial qualifications of those
dealers. The location of these proprietary stores is based on
the potential for distribution in a specific geographical area.
This proprietary method of distribution is beneficial to
La-Z-Boy,
our dealers and the consumer. For
La-Z-Boy, 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. For our consumers, these stores provide a
full-service shopping experience with knowledgeable sales
associates and in-home design consultants to support their
purchasing process.
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 units products, but for our non-La-Z-Boy branded
business 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.
Orders
and Backlog
Upholstery orders are primarily built to a specific dealer order
(stock order) or a special order with a down payment from a
consumer (sold orders). These orders are typically shipped
within two to six weeks following receipt of the order.
Casegoods are primarily 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.
Additionally, increased importing of finished product over the
last few years in our Casegoods Group has increased our imported
finished goods inventories due to longer order lead times
necessary for imported product.
As of April 28, 2007 and April 29, 2006, Upholstery
Group backlogs were approximately $116 million and
$154 million, respectively. Casegoods backlogs as of
April 28, 2007 and April 29, 2006 were approximately
$16 million and $21 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.
Competitive
Conditions
We are currently the third largest manufacturer/distributor of
residential (bedroom, dining room, living and family room)
furniture in the United States, as measured by annual sales
volume, according to industry trade
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publication Furniture Today. Competitors include (in
alphabetical order) Ashley, Bassett Furniture, Berkline,
Bernhardt, Ethan Allen, Flexsteel, Furniture Brands
International, Hooker Furniture, Klaussner, Natuzzi, Palliser,
Stanley Furniture and Universal.
In the Upholstery Group, the largest competitors are Ashley,
Bassett Furniture, Berkline, Bernhardt, Ethan Allen, Flexsteel,
Furniture Brands International, Klaussner, Natuzzi, and Palliser.
In the Casegoods Group, our main competitors are Ashley,
Bernhardt, Ethan Allen, Furniture Brands International, Hooker,
Stanley, and Universal. Additionally, there are market pressures
related to foreign manufacturers entering the United States
market, as well as by increased direct purchasing from overseas
by some of the larger United States retailers.
The La-Z-Boy
Furniture
Galleries®
stores operate in the retail furniture industry throughout North
America; consequently, they have different competitors.
La-Z-Boy
Furniture
Galleries®
stores competitors include but are not limited to: Ashley,
Bassett Furniture Direct, Ethan Allen, Thomasville Home
Furnishings Stores, several other regional competitors, and
family-owned independent furniture stores.
In addition to the larger competitors listed above, a
substantial number of small and medium-sized firms operate
within our business segments, all of which are highly
competitive.
During the past couple of years there has been an increase in
alternative distribution affecting our retail markets. Companies
such as Costco, Sams Club, IKEA, Target, Walmart and
others offer products that compete for the same consumer base
that we are targeting.
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.
Research
and Development Activities
We provide information regarding our research and development
activities in Note 1 to our consolidated financial
statements, which is included in Item 8 of this report.
Trademarks,
Licenses and Patents
We own several trademarks including
La-Z-Boy,
our most valuable. The
La-Z-Boy
trademark is essential to the upholstery and retail segments of
our business. To protect our trademarks we have registered them
in the United States and other countries where our products
are sold. The trademarks remain valid for as long as they are
used properly for identification purposes, and we actively
monitor the correct use of our trademarks. We license the use of
the La-Z-Boy
trademark on furniture sold outside the United States. We also
license the use of the
La-Z-Boy
trademark on contract office furniture, outdoor furniture and on
non-furniture products in the United States for the purpose of
enhancing brand awareness. In addition, we license our
proprietary dealers to use our
La-Z-Boy
trademark in connection with the sale of our products and
related services, on their signs, and in other ways, which we
consider to be a key part of our marketing strategies. We
provide more information about those dealers above, under
Customers.
We hold a number of patents that we actively enforce but we
believe that the loss of any single patent or group of patents
would not materially impact our business.
Compliance
with Environmental Regulations
We have been 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
reserves in respect of probable and reasonably estimable losses
arising from environmental matters, and we do not believe that a
material additional loss is reasonably possible for
environmental matters.
8
Employees
We employed 11,729 persons as of April 28, 2007. The
Upholstery Group employed 8,755, the Casegoods Group employed
1,014, the Retail Group employed 992, there were approximately
316 employees from discontinued operations and 652
non-segment personnel, which includes our VIEs. Substantially
all of our employees are employed on a full-time basis. At the
end of April 29, 2006 we had 13,404 employees.
Financial
Information About Foreign and Domestic Operations and Export
Sales
Our direct export sales are approximately 10% of our total
sales. We also sell upholstered furniture to Canadian customers
and to European customers through a United Kingdom subsidiary
and a joint venture,
La-Z-Boy
Europe, BV. We have a manufacturing joint venture in Thailand,
which distributes furniture in Australia, England, Thailand and
other countries in Asia. In addition, we have a sales and
marketing joint venture in Asia, which sells and distributes
furniture in China, Japan and Korea among other Asian countries.
Information about sales in the United States and in Canada and
other countries is contained in Note 14 to our consolidated
financial statements, which is included in Item 8 of this
report. Our property, plant, and equipment in the U.S. was
$179 million, $205 million and $203 million at
the end of fiscal years 2007, 2006 and 2005, respectively. The
property, plant, and equipment in foreign countries was
$5 million in fiscal 2007, $6 million in fiscal 2006
and $8 million in fiscal 2005.
Internet
Availability
Available free of charge through our internet website are links
to 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 being electronically filed with, or furnished
to, the Securities and Exchange Commission (www.sec.gov).
Our business is subject to a variety of risks. You should
carefully consider the risk factors detailed below in
conjunction with the other information contained in this
document. These risks are not the only ones we face. Interest
rates, consumer confidence, housing starts, and other general
economic factors that affect many other businesses are
particularly significant to us because our principal products
are consumer goods. Additional factors that are presently
unknown to us or that we currently believe to be immaterial also
could affect our business.
Our
recently acquired retail markets and others we may acquire in
the future may not achieve the growth and profitability we
anticipate when we acquire them. We could incur charges for
impairment of goodwill if we cannot meet our earnings
expectations for these markets.
To make our recently acquired retail markets successful, we are
remodeling and relocating a significant number of existing
stores, and we will need to add new stores to achieve sufficient
market penetration. Profitability will depend on increased
retail sales justifying the cost of these activities and on our
ability to reduce support costs as a percent of sales in
advertising, warehousing and administration. In addition, if we
are unable to achieve these strategies, the goodwill we recorded
when we acquired these markets could be impaired, which would
result in a non-cash charge on our statement of operations. We
may acquire additional retail markets in the future, and if we
do, they may be subject to many of the same risks.
Increased
reliance on foreign sourcing of our products makes us more
reliant on the capabilities of our foreign vendors and more
vulnerable to potentially adverse actions by foreign
governments.
We have been increasing our offshore capabilities to provide
flexibility in product offerings and pricing to meet competitive
pressures. Our Casegoods Group has moved from primarily
domestically manufactured to mainly foreign sourced products. In
addition, our Upholstery Group has increased its purchases of
cut and sewn fabric and leather sets from foreign sourced
vendors. Our sourcing partners may not be able to produce these
goods in a timely fashion, or the quality of their product may
be rejected by us, causing delays in shipping to our customers
for Casegoods and disruptions in our Upholstery plants due to
not receiving rolled fabric and fabric and leather cut and sewn
sets. The majority of our cut and sewn leather sets are
purchased from a supplier in China.
9
Governments in the foreign countries where we do business may
change their laws, regulations and policies, including those
related to tariffs and trade barriers, investments, taxation,
and exchange controls. All these items could make it more
difficult to service our customers or cause disruptions in our
plants that could reduce our sales, earnings, or both in the
future.
Fluctuations
in the price, availability and quality of raw materials could
cause delays that could result in our inability to provide goods
to our customers and could increase our costs, either of which
could decrease our earnings.
We use various types of wood, fabrics, leathers, upholstered
filling material, steel, and other raw materials in
manufacturing furniture. Because we are dependent on outside
suppliers for our raw material needs, fluctuations in the price,
availability and quality of the raw materials we use in
manufacturing residential furniture could have a negative effect
on our cost of sales and our ability to meet our customers
demands. Inability to meet our customers demands could
result in the loss of future sales, and we may not always be
able to pass along price increases to our customers due to
competitive and marketing pressures. Since we have a higher
concentration in our upholstery business (80%) than most of our
competitors, the effects of steel, polyurethane and fabric price
increases, quantity shortages, or quality issues are more
significant for our business than for most other furniture
companies.
Specifically, the financial condition of some of our domestic
and foreign fabric suppliers could impede their ability to
provide these products to us in a timely manner. We have seen
the number of domestic suppliers declining, and a majority of
those larger suppliers that remain are experiencing financial
difficulties. In addition, upholstered furniture is highly
fashion oriented, and if we are not able to acquire sufficient
fabric variety, or if we are unable to predict or respond to
changes in fashion trends, we may lose sales and have to sell
excess inventory at reduced prices. This would lower our
earnings as well as reduce our sales.
Credit
risk may adversely affect our earnings through collection losses
and/or consolidating variable interest entities into our
financial statements.
Applicable accounting rules categorize some of our independent
dealers that do not have sufficient equity to carry out their
businesses without our financial support as variable
interest entities. If we are considered the primary
beneficiary of a variable interest entitys business
activities, we are required to consolidate its assets,
liabilities, and results of operations into our consolidated
financial statements. Once consolidated, the rules require us to
absorb all of the dealers net losses in excess of its
equity and to recognize its net earnings, but only to the extent
of recouping losses we previously recorded. Consolidating
variable interest entities results into our financial
statements tends to reduce our net income because these dealers
often incur losses, and even if one of them does achieve net
earnings, we can only recognize its earnings to the extent we
previously recognized its losses.
Although we have been working to reduce the number of these
dealers, generally by acquiring their businesses, closing the
operation or arranging for better capitalized operators to take
over their territories, we are still consolidating four of them.
Despite our efforts, we may not be able to eliminate all of
these consolidated dealers as quickly as we would like, and we
may be required to consolidate additional dealers in the future
if warranted by changes in their financial condition.
Manufacturing
realignments could result in a decrease in our near-term
earnings.
We continually review our domestic manufacturing operations and
offshore (import) sourcing capabilities. As a result, we
sometimes realign those operations and capabilities and
institute cost savings programs. These programs can include the
consolidation and integration of facilities, functions, systems
and procedures. We also may shift certain products from domestic
manufacturing to offshore sourcing. These realignments and cost
savings programs generally involve some initial cost and can
result in decreases in our near-term earnings until we achieve
the expected cost reductions. We may not always accomplish these
actions as quickly as anticipated, and we may not fully achieve
the expected cost reductions.
10
Business
failures of large dealers or customers could result in a
decrease in our future sales and earnings.
Although we have no customers who individually represent 5% or
more of the annual sales of any of our segments, business
failures or consolidation of large dealers or customers could
result in a decrease in our future sales and earnings. Also, we
are either lessee on or guarantor of some leases of proprietary
stores operated by independent furniture dealers. Defaults by
any of these dealers could result in our becoming responsible
for payments under these leases thereby reducing our future
earnings.
|
|
ITEM 1B.
|
UNRESOLVED
STAFF
COMMENTS.
|
None.
We owned or leased approximately 13.5 million square feet
of manufacturing, warehousing, office, showroom, and retail
facilities, had approximately 1.4 million square feet of
idle facilities and had about 1.0 million square feet of
discontinued operations facilities at the end of fiscal 2007. Of
the 13.5 million square feet occupied at the end of fiscal
2007, our Upholstery Group occupied approximately
7.0 million square feet, our Casegoods Group occupied
approximately 3.5 million square feet, our Retail Group
occupied approximately 2.1 million square feet and our
corporate and other operations occupied the balance.
We sold several idle facilities during fiscal year 2007, and we
also sold a significant amount of equipment that had been idled
in connection with our restructurings over the last few years.
Our active facilities are located in Arkansas, California,
Connecticut, Delaware, Florida, Georgia, Illinois, Indiana,
Kansas, Maryland, Massachusetts, Michigan, Mississippi,
Missouri, New Hampshire, New Jersey, New York, North Carolina,
Ohio, Pennsylvania, Rhode Island, South Carolina, Tennessee,
Utah, Virginia, Washington D.C., and the countries of Canada,
Thailand and the United Kingdom. Most of them are less than
50 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
for our manufacturing operations. However, we anticipate
increased retail capacity in the 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, which is included in Item 8 of this report.
|
|
ITEM 3.
|
LEGAL
PROCEEDINGS.
|
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 reserves in respect of probable and reasonably
estimable losses arising from legal and environmental matters,
and we do not believe that a material additional loss is
reasonably possible for legal or environmental matters.
|
|
ITEM 4.
|
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS.
|
Nothing was submitted for a vote by our shareholders during the
fourth quarter of fiscal 2007.
EXECUTIVE
OFFICERS OF REGISTRANT
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.
Kurt L. Darrow, age 52
|
|
|
|
|
President and Chief Executive Officer since September 2003
|
|
|
|
Formerly President
La-Z-Boy
Residential Division (August 2001 September 2003)
|
11
Rodney D. England, age 55
|
|
|
|
|
Senior Vice President of
La-Z-Boy and
President of Non-Branded Upholstery since November 2003
|
|
|
|
President, England, Inc. since July 1987
|
Steven M. Kincaid, age 58
|
|
|
|
|
Senior Vice President of
La-Z-Boy and
President of Casegoods since November 2003
|
|
|
|
President, Kincaid Furniture Company, Incorporated since June
1983
|
Louis M. Riccio, Jr., age 44
|
|
|
|
|
Senior Vice President and Chief Financial Officer since July 2006
|
|
|
|
Vice President and Corporate Controller from February 2002
through June 2006
|
Otis S. Sawyer, age 49
|
|
|
|
|
Senior Vice President of Corporate Operations since May 2006
|
|
|
|
Vice President and Chief Information Officer from August 2004
through April 2006
|
|
|
|
Senior Vice President of Finance, England, Incorporated from
December 2001 through August 2004
|
PART II
|
|
ITEM 5.
|
MARKET
FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES.
|
Purchases
of Equity Securities by the Issuer and Affiliated
Purchasers
We did not purchase any of our common shares during the fourth
quarter of fiscal year 2007.
Recent
Sales of Unregistered Securities
During the fourth quarter of fiscal 2007, we sold shares of our
common stock to one of our non-employee directors pursuant to
our Restricted Stock Plan for Non-Employee Directors without
registration under the Securities Act of 1933 in reliance on the
exemption provided in Section 4(2) of the Act. In
accordance with the terms of the plan, we sold these shares to
our non-employee directors upon their acceptance of awards
granted to them to purchase shares at 25% of their fair market
value on the date of grant. The following table shows the date
of these sales, the number of shares sold, and the per share and
aggregate sales price.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Per Share
|
|
|
Aggregate
|
|
Date of Sale
|
|
Shares Sold
|
|
|
Price
|
|
|
Price
|
|
|
February 2007
|
|
|
5,000
|
|
|
$
|
3.18
|
|
|
$
|
15,900
|
|
Equity
Plans
The table below provides information, as of the end of fiscal
2007, concerning our compensation plans under which common
shares may be issued.
12
Equity
Compensation Plan Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Securities
|
|
|
|
|
|
|
|
|
|
Remaining Available
|
|
|
|
|
|
|
|
|
|
for Future Issuance
|
|
|
|
Number of Securities
|
|
|
Weighted-Average
|
|
|
Under Equity
|
|
|
|
to be Issued Upon
|
|
|
Exercise Prices of
|
|
|
Compensation Plans
|
|
|
|
Exercise of Outstanding
|
|
|
Outstanding
|
|
|
(Excluding Securities
|
|
|
|
Options
|
|
|
Options
|
|
|
Reflected in Column (a))
|
|
Plan Category
|
|
(a)
|
|
|
(b)
|
|
|
(c)
|
|
|
Equity compensation plans approved
by shareholders
|
|
|
2,240,882
|
(1)
|
|
$
|
16.63
|
|
|
|
3,458,575
|
(2)
|
Equity compensation plans not
approved by shareholders (Note 3)
|
|
|
15,045
|
|
|
$
|
19.15
|
|
|
|
None
|
|
Note 1: These options were issued under our 2004 Long-Term
Equity Award Plan and our 1997 Incentive Stock Option Plan. No
additional options can be awarded under the 1997 plan.
Note 2: This amount is the aggregate number of shares
available for future issuance under our 2004 Long-Term Equity
Award Plan, which has a stock option component, a restricted
stock component and a performance award component, and our
Restricted Stock Plan for Non-Employee Directors. The stock
component of the Long-Term Equity Award Plan provides for awards
of our common shares. The non-employee directors plan
provides for grants of
30-day
options on our common shares. The performance award component of
the long-term equity award plan provides for awards of our
common shares to selected key employees based on achievement of
pre-set goals over a performance period (normally of three
fiscal years). At the end of fiscal 2007, 3,289,775 shares
were available for future issuance under the long-term equity
award plan, of which a maximum of 1,098,314 shares may be
issued under previously granted performance awards for the
three-year periods ending in April 2008 and 2009 and
168,800 shares were available for future issuance under the
non-employee directors restricted plan.
Note 3: This line of the table relates only to 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. No additional options
or other awards may be made under that plan.
13
Performance
Graph
The graph below shows the return for our last five fiscal years
that would have been realized (assuming reinvestment of
dividends) by an investor who invested $100 on April 27,
2002 in our common shares, in the S&P 500 Composite Index,
and in a peer group comprised of the following publicly traded
furniture industry companies: Bassett Furniture, Chromcraft
Revington, Inc., Ethan Allen Interiors, Flexsteel Industries,
Furniture Brands International, Hooker Furniture Company, and
Stanley Furniture. The stock performance of each company in the
peer group has been weighted according to its relative stock
market capitalization for purposes of arriving at group averages.
COMPARISON
OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among La-Z-Boy Incorporated, The S&P 500 Index And A Peer
Group
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company/Index/Market
|
|
|
2002
|
|
|
2003
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
La-Z-Boy
Incorporated
|
|
|
$
|
100
|
|
|
|
$
|
66.12
|
|
|
|
$
|
71.91
|
|
|
|
$
|
42.01
|
|
|
|
$
|
56.10
|
|
|
|
$
|
44.29
|
|
S&P 500 Composite Index
|
|
|
$
|
100
|
|
|
|
$
|
86.69
|
|
|
|
$
|
106.52
|
|
|
|
$
|
113.28
|
|
|
|
$
|
130.74
|
|
|
|
$
|
150.66
|
|
Peer Group
|
|
|
$
|
100
|
|
|
|
$
|
70.89
|
|
|
|
$
|
92.27
|
|
|
|
$
|
72.81
|
|
|
|
$
|
93.07
|
|
|
|
$
|
75.38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
$100 invested on 4/27/02 in stock or index-including
reinvestment of dividends. Fiscal year ending April 30.
|
Copyright©
2007, Standard & Poors, a division of The McGraw-Hill
Companies, Inc. All rights reserved.
www.researchdatagroup.com/S&P.htm
14
Dividend
and Market Information
The New York Stock Exchange is the principal market in which our
common stock is traded. The tables below show the high and low
sale prices of our common stock on the New York Stock Exchange
during each quarter of our last two fiscal years, as well as the
dividends we paid during each quarter.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
|
|
|
Market Price
|
|
Fiscal 2007 Quarter End
|
|
Paid
|
|
|
High
|
|
|
Low
|
|
|
Close
|
|
|
July 29
|
|
$
|
0.12
|
|
|
$
|
16.40
|
|
|
$
|
11.81
|
|
|
$
|
13.06
|
|
Oct. 28
|
|
$
|
0.12
|
|
|
$
|
15.60
|
|
|
$
|
12.10
|
|
|
$
|
12.67
|
|
Jan. 27
|
|
$
|
0.12
|
|
|
$
|
13.76
|
|
|
$
|
11.25
|
|
|
$
|
12.50
|
|
April 28
|
|
$
|
0.12
|
|
|
$
|
15.20
|
|
|
$
|
11.96
|
|
|
$
|
12.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
|
|
|
Market Price
|
|
Fiscal 2006 Quarter End
|
|
Paid
|
|
|
High
|
|
|
Low
|
|
|
Close
|
|
|
July 30
|
|
$
|
0.11
|
|
|
$
|
15.32
|
|
|
$
|
11.59
|
|
|
$
|
13.37
|
|
Oct. 29
|
|
$
|
0.11
|
|
|
$
|
14.59
|
|
|
$
|
10.13
|
|
|
$
|
11.66
|
|
Jan. 28
|
|
$
|
0.11
|
|
|
$
|
16.15
|
|
|
$
|
11.51
|
|
|
$
|
16.10
|
|
April 29
|
|
$
|
0.11
|
|
|
$
|
17.25
|
|
|
$
|
14.91
|
|
|
$
|
15.32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders
We had about 23,900 shareholders of record at June 13,
2007.
15
|
|
ITEM 6.
|
SELECTED
FINANCIAL DATA.
|
The following table presents our selected financial data. The
table should be read in conjunction with Item 7,
Managements Discussion and Analysis of Financial
Condition and Results of Operations, and Item 8,
Financial Statements and Supplementary Data, of this
Annual Report on
Form 10-K.
This information is derived from our audited financial
statements and should be read in conjunction with those
statements, including the related notes.
Consolidated
Five-Year Summary of Financial Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(52 Weeks)
|
|
|
(52 Weeks)
|
|
|
(53 Weeks)
|
|
|
(52 Weeks)
|
|
|
(52 Weeks)
|
|
Fiscal Year Ended
|
|
4/28/2007
|
|
|
4/29/2006
|
|
|
4/30/2005
|
|
|
4/24/2004
|
|
|
4/26/2003
|
|
|
|
(Dollar amounts in thousands, except per share data)
|
|
|
Sales
|
|
$
|
1,617,302
|
|
|
$
|
1,695,012
|
|
|
$
|
1,815,202
|
|
|
$
|
1,708,858
|
|
|
$
|
1,790,742
|
|
Cost of sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold
|
|
|
1,187,876
|
|
|
|
1,273,505
|
|
|
|
1,371,243
|
|
|
|
1,302,089
|
|
|
|
1,359,244
|
|
Restructuring
|
|
|
3,371
|
|
|
|
8,479
|
|
|
|
2,931
|
|
|
|
8,448
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of sales
|
|
|
1,191,247
|
|
|
|
1,281,984
|
|
|
|
1,374,174
|
|
|
|
1,310,537
|
|
|
|
1,359,244
|
|
Gross profit
|
|
|
426,055
|
|
|
|
413,028
|
|
|
|
441,028
|
|
|
|
398,321
|
|
|
|
431,498
|
|
Selling, general and administrative
|
|
|
386,438
|
|
|
|
375,793
|
|
|
|
362,967
|
|
|
|
291,138
|
|
|
|
281,768
|
|
Restructuring
|
|
|
7,662
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Write-down of intangibles
|
|
|
|
|
|
|
22,695
|
|
|
|
|
|
|
|
29,729
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
31,955
|
|
|
|
14,540
|
|
|
|
78,061
|
|
|
|
77,454
|
|
|
|
149,730
|
|
Interest expense
|
|
|
10,206
|
|
|
|
11,540
|
|
|
|
10,442
|
|
|
|
11,255
|
|
|
|
10,447
|
|
Income from Continued Dumping and
Subsidy Offset Act, net
|
|
|
3,430
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income, net
|
|
|
4,679
|
|
|
|
2,168
|
|
|
|
173
|
|
|
|
4,112
|
|
|
|
2,565
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
before income taxes
|
|
|
29,858
|
|
|
|
5,168
|
|
|
|
67,792
|
|
|
|
70,311
|
|
|
|
141,848
|
|
Income tax expense
|
|
|
10,090
|
|
|
|
10,758
|
|
|
|
25,363
|
|
|
|
33,450
|
|
|
|
53,988
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing
operations
|
|
|
19,768
|
|
|
|
(5,590
|
)
|
|
|
42,429
|
|
|
|
36,861
|
|
|
|
87,860
|
|
Income (loss) from discontinued
operations (net of tax)
|
|
|
(15,629
|
)
|
|
|
2,549
|
|
|
|
(7,338
|
)
|
|
|
(34,333
|
)
|
|
|
8,238
|
|
Extraordinary gains (net of tax)
|
|
|
|
|
|
|
|
|
|
|
2,094
|
|
|
|
|
|
|
|
|
|
Cumulative effect of accounting
change (net of tax)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,324
|
)
|
|
|
(59,782
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
4,139
|
|
|
$
|
(3,041
|
)
|
|
$
|
37,185
|
|
|
$
|
(5,796
|
)
|
|
$
|
36,316
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted average shares
outstanding
|
|
|
51,606
|
|
|
|
51,801
|
|
|
|
52,138
|
|
|
|
53,679
|
|
|
|
57,435
|
|
Diluted income (loss) from
continuing operations per share
|
|
$
|
0.38
|
|
|
$
|
(0.11
|
)
|
|
$
|
0.81
|
|
|
$
|
0.69
|
|
|
$
|
1.53
|
|
Diluted net income (loss) per share
|
|
$
|
0.08
|
|
|
$
|
(0.06
|
)
|
|
$
|
0.71
|
|
|
$
|
(0.11
|
)
|
|
$
|
0.63
|
|
Dividends declared per share
|
|
$
|
0.48
|
|
|
$
|
0.44
|
|
|
$
|
0.44
|
|
|
$
|
0.40
|
|
|
$
|
0.40
|
|
Book value on year-end shares
outstanding
|
|
$
|
9.45
|
|
|
$
|
9.86
|
|
|
$
|
10.10
|
|
|
$
|
10.04
|
|
|
$
|
11.08
|
|
Return on average
shareholders equity*
|
|
|
4.1
|
%
|
|
|
(1.1
|
)%
|
|
|
8.0
|
%
|
|
|
7.1
|
%
|
|
|
14.4
|
%
|
Gross profit as a percent of sales
|
|
|
26.3
|
%
|
|
|
24.4
|
%
|
|
|
24.3
|
%
|
|
|
23.3
|
%
|
|
|
24.1
|
%
|
Operating profit as a percent of
sales
|
|
|
2.0
|
%
|
|
|
0.9
|
%
|
|
|
4.3
|
%
|
|
|
4.5
|
%
|
|
|
8.4
|
%
|
Effective tax rate*
|
|
|
33.8
|
%
|
|
|
208.2
|
%
|
|
|
37.4
|
%
|
|
|
47.6
|
%
|
|
|
38.1
|
%
|
Return on sales*
|
|
|
1.2
|
%
|
|
|
(0.3
|
)%
|
|
|
2.3
|
%
|
|
|
2.2
|
%
|
|
|
4.9
|
%
|
|
|
|
* |
|
Based on income from continuing operations |
16
Consolidated
Five-Year Summary of Financial Data (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(52 Weeks)
|
|
|
(52 Weeks)
|
|
|
(53 Weeks)
|
|
|
(52 Weeks)
|
|
|
(52 Weeks)
|
|
Fiscal Year Ended
|
|
4/28/2007
|
|
|
4/29/2006
|
|
|
4/30/2005
|
|
|
4/24/2004
|
|
|
4/26/2003
|
|
|
|
(Dollar amounts in thousand)
|
|
|
Depreciation and amortization
|
|
$
|
27,204
|
|
|
$
|
29,234
|
|
|
$
|
28,329
|
|
|
$
|
29,112
|
|
|
$
|
30,695
|
|
Capital expenditures
|
|
$
|
25,811
|
|
|
$
|
27,991
|
|
|
$
|
34,771
|
|
|
$
|
31,593
|
|
|
$
|
32,821
|
|
Property, plant and equipment, net
|
|
$
|
183,218
|
|
|
$
|
209,986
|
|
|
$
|
210,565
|
|
|
$
|
212,739
|
|
|
$
|
209,411
|
|
Working capital
|
|
$
|
312,588
|
|
|
$
|
345,354
|
|
|
$
|
409,641
|
|
|
$
|
363,771
|
|
|
$
|
464,907
|
|
Current ratio
|
|
|
2.4 to 1
|
|
|
|
2.5 to 1
|
|
|
|
2.8 to 1
|
|
|
|
2.3 to 1
|
|
|
|
3.2 to 1
|
|
Total assets
|
|
$
|
878,691
|
|
|
$
|
956,752
|
|
|
$
|
1,026,357
|
|
|
$
|
1,040,914
|
|
|
$
|
1,123,066
|
|
Long-term debt
|
|
$
|
111,714
|
|
|
$
|
173,368
|
|
|
$
|
213,549
|
|
|
$
|
181,807
|
|
|
$
|
222,371
|
|
Total debt
|
|
$
|
149,402
|
|
|
$
|
184,212
|
|
|
$
|
226,309
|
|
|
$
|
224,370
|
|
|
$
|
223,990
|
|
Shareholders equity
|
|
$
|
485,348
|
|
|
$
|
510,345
|
|
|
$
|
527,286
|
|
|
$
|
522,328
|
|
|
$
|
609,939
|
|
Ratio of total debt-to-equity
|
|
|
30.8
|
%
|
|
|
36.1
|
%
|
|
|
42.9
|
%
|
|
|
43.0
|
%
|
|
|
36.7
|
%
|
Ratio of total debt-to-capital
|
|
|
23.5
|
%
|
|
|
26.5
|
%
|
|
|
30.0
|
%
|
|
|
30.0
|
%
|
|
|
26.9
|
%
|
Shareholders
|
|
|
23,900
|
|
|
|
31,900
|
|
|
|
26,500
|
|
|
|
28,500
|
|
|
|
29,100
|
|
Employees
|
|
|
11,700
|
|
|
|
13,400
|
|
|
|
14,820
|
|
|
|
16,125
|
|
|
|
16,970
|
|
Unaudited
Quarterly Financial Information Fiscal 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13 Weeks)
|
|
|
(13 Weeks)
|
|
|
(13 Weeks)
|
|
|
(13 Weeks)
|
|
Fiscal Quarter Ended
|
|
7/29/2006
|
|
|
10/28/2006
|
|
|
1/27/2007
|
|
|
4/28/2007
|
|
|
|
(Dollar amounts in thousands, except per share data)
|
|
|
Sales
|
|
$
|
392,851
|
|
|
$
|
413,628
|
|
|
$
|
403,874
|
|
|
$
|
406,949
|
|
Cost of sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold
|
|
|
295,584
|
|
|
|
305,893
|
|
|
|
290,860
|
|
|
|
295,539
|
|
Restructuring
|
|
|
|
|
|
|
(400
|
)
|
|
|
|
|
|
|
3,771
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of sales
|
|
|
295,584
|
|
|
|
305,493
|
|
|
|
290,860
|
|
|
|
299,310
|
|
Gross profit
|
|
|
97,267
|
|
|
|
108,135
|
|
|
|
113,014
|
|
|
|
107,639
|
|
Selling, general and administrative
|
|
|
94,035
|
|
|
|
99,359
|
|
|
|
100,704
|
|
|
|
92,340
|
|
Restructuring
|
|
|
|
|
|
|
2,265
|
|
|
|
2,855
|
|
|
|
2,542
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
3,232
|
|
|
|
6,511
|
|
|
|
9,455
|
|
|
|
12,757
|
|
Interest expense
|
|
|
2,526
|
|
|
|
2,614
|
|
|
|
2,750
|
|
|
|
2,316
|
|
Income from Continued Dumping and
Subsidy Offset Act, net
|
|
|
|
|
|
|
|
|
|
|
3,430
|
|
|
|
|
|
Other income, net
|
|
|
270
|
|
|
|
1,348
|
|
|
|
1,633
|
|
|
|
1,428
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
before income taxes
|
|
|
976
|
|
|
|
5,245
|
|
|
|
11,768
|
|
|
|
11,869
|
|
Income tax expense (benefit)
|
|
|
(116
|
)
|
|
|
1,949
|
|
|
|
4,823
|
|
|
|
3,434
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
1,092
|
|
|
|
3,296
|
|
|
|
6,945
|
|
|
|
8,435
|
|
Income (loss) from discontinued
operations (net of tax)
|
|
|
1,203
|
|
|
|
(1,342
|
)
|
|
|
(14,766
|
)
|
|
|
(724
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
2,295
|
|
|
$
|
1,954
|
|
|
$
|
(7,821
|
)
|
|
$
|
7,711
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted average shares
outstanding
|
|
|
51,971
|
|
|
|
51,639
|
|
|
|
51,609
|
|
|
|
51,522
|
|
Diluted income from continuing
operations per share
|
|
$
|
0.02
|
|
|
$
|
0.06
|
|
|
$
|
0.13
|
|
|
$
|
0.16
|
|
Diluted net income (loss) per share
|
|
$
|
0.04
|
|
|
$
|
0.04
|
|
|
$
|
(0.15
|
)
|
|
$
|
0.15
|
|
17
Unaudited
Quarterly Financial Information Fiscal 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13 Weeks)
|
|
|
(13 Weeks)
|
|
|
(13 Weeks)
|
|
|
(13 Weeks)
|
|
Fiscal Quarter Ended
|
|
7/30/2005
|
|
|
10/29/2005
|
|
|
1/28/2006
|
|
|
4/29/2006
|
|
|
|
(Dollar amounts in thousands, except per share data)
|
|
|
Sales
|
|
$
|
396,695
|
|
|
$
|
402,327
|
|
|
$
|
446,614
|
|
|
$
|
449,376
|
|
Cost of sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold
|
|
|
300,068
|
|
|
|
309,932
|
|
|
|
331,684
|
|
|
|
331,821
|
|
Restructuring
|
|
|
|
|
|
|
7,817
|
|
|
|
594
|
|
|
|
68
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of sales
|
|
|
300,068
|
|
|
|
317,749
|
|
|
|
332,278
|
|
|
|
331,889
|
|
Gross profit
|
|
|
96,627
|
|
|
|
84,578
|
|
|
|
114,336
|
|
|
|
117,487
|
|
Selling, general and administrative
|
|
|
89,864
|
|
|
|
90,976
|
|
|
|
96,648
|
|
|
|
98,305
|
|
Write-down of intangibles
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,695
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
6,763
|
|
|
|
(6,398
|
)
|
|
|
17,688
|
|
|
|
(3,513
|
)
|
Interest expense
|
|
|
2,741
|
|
|
|
3,090
|
|
|
|
2,965
|
|
|
|
2,744
|
|
Other income, net
|
|
|
149
|
|
|
|
414
|
|
|
|
1,390
|
|
|
|
215
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing
operations before income taxes
|
|
|
4,171
|
|
|
|
(9,074
|
)
|
|
|
16,113
|
|
|
|
(6,042
|
)
|
Income tax expense (benefit)
|
|
|
1,556
|
|
|
|
(3,265
|
)
|
|
|
6,132
|
|
|
|
6,335
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing
operations
|
|
|
2,615
|
|
|
|
(5,809
|
)
|
|
|
9,981
|
|
|
|
(12,377
|
)
|
Income (loss) from discontinued
operations (net of tax)
|
|
|
593
|
|
|
|
(638
|
)
|
|
|
487
|
|
|
|
2,107
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
3,208
|
|
|
$
|
(6,447
|
)
|
|
$
|
10,468
|
|
|
$
|
(10,270
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted average shares
outstanding
|
|
|
52,195
|
|
|
|
51,655
|
|
|
|
51,857
|
|
|
|
51,747
|
|
Diluted income (loss) from
continuing operations per share
|
|
$
|
0.05
|
|
|
$
|
(0.11
|
)
|
|
$
|
0.19
|
|
|
$
|
(0.24
|
)
|
Diluted net income (loss) per share
|
|
$
|
0.06
|
|
|
$
|
(0.12
|
)
|
|
$
|
0.20
|
|
|
$
|
(0.20
|
)
|
18
|
|
ITEM 7.
|
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
|
Our Managements Discussion and Analysis is an integral
part of understanding our financial results. This
Managements Discussion and Analysis should be read
in conjunction with the accompanying Consolidated Financial
Statements and related Notes to Consolidated Financial
Statements. We begin the Managements Discussion and
Analysis with an introduction to
La-Z-Boy
Incorporateds key businesses, strategies and significant
operational events in fiscal 2007. We then provide a discussion
of our results of operations, liquidity and capital resources,
quantitative and qualitative disclosures about market risk, and
critical accounting policies.
Introduction
La-Z-Boy
Incorporated is a manufacturer, marketer, distributor and
retailer of upholstery products and an importer and manufacturer
of casegoods (wood) furniture products. Our
La-Z-Boy
brand is the most recognized brand in the furniture industry,
and we are the leading global producer of reclining chairs. We
own 70
La-Z-Boy
Furniture
Galleries®
stores, which are retail locations dedicated to marketing our
La-Z-Boy
branded product. These 70 stores are part of the larger store
network of
La-Z-Boy
Furniture
Galleries®
stores which includes a total of 336 stores, the balance of
which are independently owned and operated. The network
constitutes the industrys largest single-branded
upholstered furniture retailer in North America. These stores
combine the style, comfort and quality of
La-Z-Boy
furniture with our in-home design service to help consumers
furnish certain rooms in their homes.
Accounting rules require us to consolidate certain of our
independent dealers who did not have sufficient equity to carry
out their principal business activities without our financial
support. These dealers are referred to as Variable Interest
Entities (VIEs). During the first quarter of fiscal
2006 we had three VIEs, operating 22 stores, consolidated into
our statement of operations, and for the remaining three
quarters of fiscal 2006, we had four VIEs, operating 28 stores,
in our Consolidated Statement of Operations. We had the same
four consolidated VIEs, operating 29 stores at the end of fiscal
2007.
On July 28, 2006, we completed the sale of our American of
Martinsville operating unit, which supplied contract furniture
to the hospitality, assisted-living and governmental markets.
This operating unit was not strategically aligned with our
current business model, which is centered on providing
comfortable and stylish furnishings for the home, and was not a
large enough component of our overall business to justify our
continued corporate focus and resources. We sold the business
for $33.2 million. This business has been classified within
discontinued operations and as such, all segment data was
restated to reflect this change.
During the third quarter of fiscal 2007, we committed to a plan
to sell Sam Moore, an upholstered chair manufacturer located in
Bedford, VA, included in the Upholstery Group, and to sell the
combined operating unit of Clayton Marcus and Pennsylvania
House, included in the Casegoods Group. As we have continued to
assess our long-term strategic direction, we have determined
that these operating units do not align with our current
strategic plan.
After considering our decision to sell these businesses, we
determined that the carrying value of these operations exceeded
the fair value. After completing our assessment we recorded a
$7.3 million charge to write-down the carrying value of the
business to its fair value. This charge in the third quarter of
fiscal 2007 related entirely to impairment of goodwill.
Impairment charges recorded in the third quarter of fiscal 2007
on the Pennsylvania House and Clayton Marcus businesses amounted
to $10.2 million, principally related to fixed assets
($3.7 million), intangible assets ($3.8 million), and
inventory ($2.7 million). The results of operations,
including these impairment charges are presented with
discontinued operations for all periods and segment data for all
periods has been restated to reflect these changes.
At the end of the fourth quarter of fiscal 2007, we reevaluated
the carrying value of the Pennsylvania House and Clayton Marcus
disposal groups. Based on the difficult operating environment we
have determined the fair value of the disposal group is greater
than the carrying value. In light of this we have recorded an
additional write-down of $1.3 million in fixed assets in
the fourth quarter of fiscal 2007. All other assets and
liabilities are recorded at fair value less costs to sell at
April 28, 2007. Depending on the final disposition of these
businesses we could recognize additional losses when the sales
are completed.
On April 27, 2007, we sold Sam Moore for $9.9 million,
consisting of $9.5 million in cash and a receivable of
$0.4 million, recognizing an after-tax loss in the fourth
quarter of $0.3 million.
19
We completed our annual testing of intangibles under
SFAS No. 142 during the fourth quarter of fiscal 2007
and concluded that the fair values of our remaining goodwill and
intangible assets were greater than their carrying values and as
such no additional impairment charges were necessary.
Our reportable operating segments are the Upholstery Group, the
Casegoods Group and the Retail Group. Below is a chart that
shows the organizational structure of
La-Z-Boy
segments.
In terms of revenue, our largest segment is the Upholstery
Group, which includes
La-Z-Boy,
our largest operating unit. During the fourth quarter of fiscal
2007 we announced a restructuring plan to close two of our
upholstery manufacturing facilities in Lincolnton, North
Carolina and Iuka, Mississippi and shift the production from
these plants to other existing facilities in order to bolster
our overall capacity utilization. In addition, we completed the
restructuring plan started during the second quarter of fiscal
2006 to close our Canadian manufacturing facility in Waterloo,
Ontario. This property was sold during the fourth quarter of
fiscal 2007, and the related pension plan was settled resulting
in a non-cash charge of $1.3 million. We have continued to
import cut and sewn fabric kits to complement our leather kits
that allow us to take full advantage of both the cost-saving
opportunities presented in Asia and the speed to market
advantages of a United States manufacturing base. The Upholstery
Group sells furniture mainly to
La-Z-Boy
Furniture
Galleries®
stores, general dealers and department stores.
Our Casegoods Group today is primarily an importer, marketer and
distributor of casegoods (wood) furniture as well as operates
two manufacturing facilities in North Carolina. Based on our
current strategy for import versus domestically manufactured
casegoods product, we have completed the planned transition of
this business. In order to compete globally, we have
significantly changed the cost structure from fixed to highly
variable. During the fourth quarter of fiscal 2007 we announced
a restructuring plan to close the lumber operation in North
Wilkesboro, North Carolina, and consolidated several operations
in Taylorsville, North Carolina resulting in cost savings for
this group.
The Retail Group consists of 70 company-owned
La-Z-Boy
Furniture
Galleries®
stores in nine markets ranging from the Midwest to the East
Coast of the United States and also including southeastern
Florida. The stores located in the southeastern Florida market
were acquired during the first quarter of fiscal 2007. In the
second and third quarters of fiscal 2007, we closed two stores
in our Rochester, New York market and we consolidated four of
our warehouses into two larger facilities on the East coast. In
January, 2007, we announced our plans to close the four stores
in the Pittsburgh, Pennsylvania market in order to focus on the
larger markets with the greater potential. During fiscal 2008,
we plan to continue to take the following actions to grow sales
and improve the operating results for the Retail Group as well
as to take advantage of synergies between the company-owned
markets:
|
|
|
|
|
Relocate, convert or add stores to our New Generation format,
which are more productive. Our plan is to add three stores and
convert or relocate three stores during fiscal 2008. During
fiscal 2007, we acquired seven stores, opened nine stores,
converted or relocated five stores and closed nine stores.
|
|
|
|
Centralize certain of our advertising and marketing functions,
and take advantage of the efficiencies gained from the warehouse
consolidation we began during the second quarter of fiscal 2007.
|
20
|
|
|
|
|
Consolidate information systems and eliminate redundant
processes. We are currently in the process of consolidating our
information systems into one system and expect to complete this
process by the end of fiscal 2008.
|
|
|
|
Expand our in-home design service, which has increased the
average sale per customer where employed. Currently, 67% of our
company-owned locations have this service available.
|
We believe that expanding our store network will drive top-line
growth as we capitalize on the opportunities presented in larger
urban markets. With the further penetration in these markets we
expect to gain the efficiencies in advertising, distribution and
administration we believe are necessary to achieve desired
profitability. Currently, 47 of our company-owned stores are in
the New Generation format, and we expect to increase this number
throughout fiscal 2008. With this in mind, we continue to remain
optimistic about the future performance of this segment and
believe it will begin to be profitable by the first half of
fiscal 2009. The retail furniture industry as a whole
experienced a significant decline in same store sales during the
first five months of calendar 2007. We believe our lack of sales
growth, which was one of our initiatives to become more
profitable, has extended our breakeven time frame into fiscal
2009.
During fiscal 2007, we incurred restructuring costs totaling
$7.3 million relating to the ongoing restructuring of the
Retail Group. The restructuring costs related to closing the
Pittsburgh, Pennsylvania and Rochester, New York retail
operations, which included asset impairment and lease
termination costs and severance costs, the cost of closing
warehouses as we have consolidated our operations, and other
restructuring costs.
According to the May, 2007 Top 100 ranking by Furniture
Today, an industry trade publication, the
La-Z-Boy
Furniture
Galleries®
stores network ranks as the largest retailer of upholstered
single-brand furniture in the U.S. One of our major
strategic initiatives is to expand the retail opportunities of
the La-Z-Boy
brand name in the United States and Canada by opening new
stores, relocating stores to better locations and converting
existing stores to our New Generation store format. Slightly
more than half of the 336 stores in the network the
majority of which are independently owned are
concentrated in the top 25 markets in the U.S. We will
attempt to increase our market penetration over the next few
years in the top 25 markets, allowing our dealers and
company-owned stores to create operating efficiencies,
particularly in the areas of advertising, distribution and
administration. Additionally, we have an extensive
La-Z-Boy
in-store gallery program with 304 in-store galleries. Beginning
in fiscal 2008, we will begin rolling out a new model for our
in-store galleries referred to as our Comfort Studios. Comfort
Studios are less expensive than the current in-store gallery
model and provide a better presentation to our consumer.
Kincaid, England and Lea also have in-store gallery programs.
The chart below shows the current structure of the
La-Z-Boy
Furniture
Galleries®
store network.
21
Results
of Operations
Analysis
of Operations: Year Ended April 28, 2007
(Fiscal 2007 compared with 2006)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(52 Weeks)
|
|
|
(52 Weeks)
|
|
|
Percent
|
|
|
|
4/28/2007
|
|
|
4/29/2006
|
|
|
Change
|
|
|
|
(Amounts in thousands, except
|
|
|
|
per share amounts and percentages)
|
|
|
Upholstery sales
|
|
$
|
1,194,220
|
|
|
$
|
1,265,952
|
|
|
|
(5.7
|
)%
|
Casegoods sales
|
|
|
262,721
|
|
|
|
292,553
|
|
|
|
(10.2
|
)%
|
Retail sales
|
|
|
220,319
|
|
|
|
213,438
|
|
|
|
3.2
|
%
|
Other/eliminations
|
|
|
(59,958
|
)
|
|
|
(76,931
|
)
|
|
|
22.1
|
%
|
Consolidated sales
|
|
$
|
1,617,302
|
|
|
$
|
1,695,012
|
|
|
|
(4.6
|
)%
|
Consolidated gross profit
|
|
|
426,055
|
|
|
|
413,028
|
|
|
|
3.2
|
%
|
Consolidated gross
margin
|
|
|
26.3
|
%
|
|
|
24.4
|
%
|
|
|
|
|
Consolidated S, G&A
|
|
|
386,438
|
|
|
|
375,793
|
|
|
|
2.8
|
%
|
S, G&A as a percent
of sales
|
|
|
23.9
|
%
|
|
|
22.2
|
%
|
|
|
|
|
Upholstery operating income
|
|
|
78,724
|
|
|
|
83,160
|
|
|
|
(5.3
|
)%
|
Casegoods operating income
|
|
|
20,289
|
|
|
|
17,125
|
|
|
|
18.5
|
%
|
Retail operating loss
|
|
|
(31,161
|
)
|
|
|
(26,006
|
)
|
|
|
(19.8
|
)%
|
Corporate and other
|
|
|
(24,864
|
)
|
|
|
(28,565
|
)
|
|
|
13.0
|
%
|
Write-down of intangible assets
|
|
|
|
|
|
|
(22,695
|
)
|
|
|
|
|
Restructuring
|
|
|
(11,033
|
)
|
|
|
(8,479
|
)
|
|
|
|
|
Consolidated operating
income
|
|
$
|
31,955
|
|
|
$
|
14,540
|
|
|
|
119.8
|
%
|
Upholstery operating margin
|
|
|
6.6
|
%
|
|
|
6.6
|
%
|
|
|
|
|
Casegoods operating margin
|
|
|
7.7
|
%
|
|
|
5.9
|
%
|
|
|
|
|
Retail operating margin
|
|
|
(14.1
|
)%
|
|
|
(12.2
|
)%
|
|
|
|
|
Consolidated operating
margin
|
|
|
2.0
|
%
|
|
|
0.9
|
%
|
|
|
|
|
Income (loss) from continuing
operations
|
|
$
|
19,768
|
|
|
$
|
(5,590
|
)
|
|
|
453.6
|
%
|
Diluted income (loss) per share
from continuing operations
|
|
$
|
0.38
|
|
|
$
|
(0.11
|
)
|
|
|
445.5
|
%
|
Sales
Consolidated sales were down 4.6% when compared with
fiscal 2006. Our Upholstery and Casegoods Groups sales
decreased, while our Retail Group and VIEs sales increased.
Upholstery Group sales were down 5.7% compared with
fiscal 2006. This decrease in sales was mainly due to an overall
weakness at retail. In addition, our non-branded upholstery
business had a significant decrease in sales year over year due
to the ongoing changes in the department store organizations.
Our Casegoods Group sales decreased 10.2% compared with
the prior year. The decrease in sales occurred across all of our
Casegoods operating units and was primarily focused among
smaller customers which have been impacted more severely by the
weak industry retail environment.
Retail Group sales increased 3.2% when compared with
fiscal 2006. The acquisition of the six stores in the
southeastern Florida market generated a 6.5% sales increase for
our Retail Group during fiscal 2007. This increase in sales was
partially offset by the continuing effects of inconsistent
consumer confidence in the retail industry.
Intercompany sales eliminations and sales of VIEs increased
$17.0 million, net, during fiscal 2007 when compared with
fiscal 2006. The majority of this increase was attributable to a
$13.1 million increase in VIEs sales and a
$3.9 million decrease in intercompany sales eliminations.
The reduction of intercompany sales eliminations was a result of
a decrease in same store sales to company-owned stores due to
the weak retail environment. The VIE sales
22
increase was related to additional stores that were opened, the
conversion of existing stores to the New Generation format
and our Canadian VIE being consolidated for four quarters in
fiscal 2007 versus three quarters for fiscal 2006.
Gross
Margin
Gross margin increased during fiscal 2007 in comparison to
fiscal 2006 due to the following:
|
|
|
|
|
Our Retail margins improved during fiscal 2007 when compared
with fiscal 2006 due to better merchandising and selling plans.
The overall retail gross margins were higher than those of our
Upholstery and Casegoods Groups. The changes in Retail created a
0.4 percentage point increase in consolidated gross margin
when compared with the prior year.
|
|
|
|
Our cost reduction efforts, which have been a key focus over the
past year, had about a 4.0 percentage point positive impact on
our gross margins on less sales volume for fiscal 2007. These
improvements were somewhat offset by the decline in margins due
to under-absorption of overhead in our plants, resulting from
lower volumes, cost of living wage increases and price increases
on certain raw materials.
|
|
|
|
Fiscal 2007 was impacted by net restructuring expense totaling
$3.4 million whereas fiscal 2006 had net restructuring
expense of $8.5 million.
|
|
|
|
Due to favorable trends in our severity rate for workers
compensation claims over the past two years, we were able to
reduce our actuarially determined reserve for workers
compensation by about $2.4 million.
|
Selling,
General and Administrative Expenses
Selling, general and administrative expenses (S, G&A)
increased $10.6 million due primarily to the addition of
nine retail stores and the acquisition of six stores in our
Retail Group and expansion in our VIEs. S, G&A also
increased as a percent of sales in fiscal 2007 compared with the
prior year. The higher level of S, G&A in dollars was
mainly attributable to:
|
|
|
|
|
The Retail Group and our VIEs have a higher S, G&A
structure than our Upholstery and Casegoods Groups. As the
retail side of our business grows as an overall percentage of
our net sales, the overall S, G&A percentage increases
as a percent of sales. The impact on fiscal 2007 was
approximately 1.0 percentage point greater than fiscal 2006.
|
|
|
|
We incurred additional expenses in the Retail Group related to
six acquired stores, including increased advertising, higher
occupancy costs and other selling expenses as well as
transitional costs which added to S, G&A for fiscal
2007. In addition the new retail locations impacted our
S, G&A as a percent of sales due to
start-up
costs.
|
|
|
|
The adoption of Statement of Financial Accounting Standards
No. 123 (revised 2004) Share-Based Payment
had a $2.4 million impact during fiscal 2007 for the
expensing of stock options.
|
Somewhat offsetting these increases in S, G&A was a
reduction of our warranty reserve by $4.2 million. This
adjustment of $4.2 million reflects our current trend towards
lower aggregate warranty costs, particularly costs incurred one
year after sale of the product. The adjustment also reflects
remediation of other specific warranty-related issues. Together,
these items have reduced the reserve for future warranty costs.
Additionally we sold several properties during the year
resulting in increased gains of $10.4 million during fiscal 2007
when compared with fiscal 2006.
Restructuring
Restructuring costs totaled $11.0 million for fiscal 2007
as compared with $8.5 million in fiscal 2006. The
restructuring costs in fiscal 2007 related to our closure of
several manufacturing facilities, consolidation of retail
warehouses, closure of underperforming retail stores, and our
decision to exit the Pittsburgh, PA and Rochester, NY retail
markets and were somewhat offset by the sale of several
facilities that were part of previous restructurings. These
costs were comprised mainly of fixed asset impairments and lease
termination, severance and other restructuring costs. Due to the
Retail restructuring costs, the current year expense had
$7.6 million reclassified as an operating expense line item
below S, G&A related to Retail operations. The
restructuring cost for the prior year mainly related to the
closure of our Canadian manufacturing facility and was recorded
as a component of cost of sales.
23
Operating
Margin
Our consolidated operating margin was 2.0% for fiscal 2007 and
included 0.7 percentage points of restructuring charges and
0.9 percentage points of income related to gains on
property sales. Operating margin for fiscal 2006 was 0.9% and
included 1.3 percentage points relating to our write-down
of intangibles, 0.5 percentage points of restructuring
charges and 0.2 percentage points of income related to
gains on property sales.
The Upholstery Group operating margin was flat for fiscal
2007 when compared with the prior year. As discussed under
Selling, General and Administrative expenses, our warranty
reserve decreased $4.2 million during the year which
increased our operating margin by 0.4 percentage points.
Offsetting this was a decline in the margins due to
under-absorption of overhead in our plants resulting from
reduced volume.
Our Casegoods Group operating margin increased
1.8 percentage points during fiscal 2007 versus fiscal
2006. The significant changes that were made in the overhead
structure as a result of transitioning to a primarily import
business model from a manufacturing based business model in
addition to improved manufacturing efficiencies in our remaining
domestic manufacturing plants have allowed us to increase our
operating margin despite the reduction in sales volume.
Our Retail Group operating margin decreased by
1.9 percentage points during fiscal 2007 in comparison to
fiscal 2006. Although our sales increased when compared with the
prior year, we acquired, opened, relocated or converted 22
stores during fiscal 2007 as well as closed nine stores, which
increased our fixed costs as we assimilated these changes. As we
continue to aggressively open these new stores, consolidate our
warehouses, convert our operating systems and reduce our overall
operating costs, we will continue to experience these short-term
excess costs which are affecting our profitability.
Corporate and Other operating loss decreased
$3.7 million during fiscal 2007 when compared with fiscal
2006. Gains recognized in S, G&A on long-lived assets
that we sold were $10.4 million higher than in fiscal 2006.
Offsetting those gains were consulting fees of $2.4 million
for the review of our Retail operations in order to assess our
plan to improve profitability. In addition the adoption of
SFAS 123(R) in the first quarter of fiscal 2007 contributed
$2.4 million of stock option expense in fiscal 2007, and
our VIEs operating losses for fiscal 2007 were
$1.2 million greater than fiscal 2006.
Income
from Continued Dumping and Subsidy Offset Act
We recorded $3.4 million as Income from Continued Dumping
and Subsidy Offset Act, net of legal expenses, during fiscal
2007 from the receipt of funds under the Continued Dumping and
Subsidy Act (CDSOA) of 2000 in connection with the
case involving wooden bedroom furniture imported from China.
Receipt of funds during the prior year was insignificant. The
CDSOA provides for distribution of monies collected by
U.S. Customs and Border Protection from anti-dumping cases
to domestic producers that supported the anti-dumping petition.
Due to the uncertainty associated with the timing and amount of
future receipts we will record such amounts when all conditions
associated with their receipt are removed.
Interest
Expense
Interest expense for fiscal 2007 was less than fiscal 2006 due
to a $47.8 million decrease in our average debt, slightly
offset by a 0.5 percentage point increase in our floating
rate debt.
Income
Taxes
Our effective tax rate for continuing operations was 33.8% in
fiscal 2007 compared with 208.2% in fiscal 2006. The tax rate
for fiscal 2006 was significantly affected by the write-down of
the Bauhaus goodwill. In addition, the effective state income
tax component of our rate was substantially higher in fiscal
2006 compared with fiscal 2007. This was due to a valuation
reserve that was recorded during fiscal 2006 relative to state
tax credits of Bauhaus. Furthermore, during fiscal 2006 it was
necessary to record a valuation reserve against the losses of
our Canadian subsidiary but during fiscal 2007 this reserve was
reversed primarily due to a recent Canadian law change that
increased the carry-forward period from 10 to 20 years.
24
The rate for fiscal 2006 was also favorably impacted due to the
increase in the cash surrender value of company-owned life
insurance policies. Typically the increase in cash surrender
value of such policies is treated as a permanent item not
subject to taxation. During fiscal 2007, we expressed our intent
to redeem a portion of these policies, the redemption of which
would be a taxable event. Consequently during fiscal 2007, the
favorable tax rate impact due to the current year increase in
the value of all of the policies was almost entirely offset by
the tax expense that was accrued relative to the anticipated
gain on the redemption of a portion of the policies.
Other
Income
Other income increased in fiscal 2007 when compared with fiscal
2006 due to a decrease in realized foreign currency exchange
losses and increased interest income.
Discontinued
Operations
As discussed in the introduction, we recorded an after-tax
impairment charge of $14.6 million during fiscal 2007
relating to assets of our discontinued operations. In addition,
our discontinued operations experienced a net operational loss
of $1.7 million after-tax. In the prior year, discontinued
operations earned $2.5 million after-tax which was mostly
attributable to American of Martinsville who had minimal impact
on fiscal 2007 due to their sale in the first quarter.
Results
of Operations
Analysis
of Operations: Year Ended April 29, 2006
(Fiscal 2006 compared with 2005)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(52 Weeks)
|
|
|
(53 Weeks)
|
|
|
Percent
|
|
|
|
4/29/2006
|
|
|
4/30/2005
|
|
|
Change
|
|
|
|
(Amounts in thousands, except per share amounts and
percentages)
|
|
|
Upholstery sales
|
|
|
1,265,952
|
|
|
|
1,379,684
|
|
|
|
(8.2
|
)%
|
Casegoods sales
|
|
|
292,553
|
|
|
|
309,792
|
|
|
|
(5.6
|
)%
|
Retail sales
|
|
|
213,438
|
|
|
|
173,099
|
|
|
|
23.3
|
%
|
Other/eliminations
|
|
|
(76,931
|
)
|
|
|
(47,373
|
)
|
|
|
(62.4
|
)%
|
Consolidated sales
|
|
$
|
1,695,012
|
|
|
$
|
1,815,202
|
|
|
|
(6.6
|
)%
|
Consolidated gross profit
|
|
|
413,028
|
|
|
|
441,028
|
|
|
|
(6.3
|
)%
|
Consolidated gross
margin
|
|
|
24.4
|
%
|
|
|
24.3
|
%
|
|
|
|
|
Consolidated S,G&A
|
|
|
375,793
|
|
|
|
362,967
|
|
|
|
3.5
|
%
|
S,G&A as a percent of
sales
|
|
|
22.2
|
%
|
|
|
20.0
|
%
|
|
|
|
|
Upholstery operating income
|
|
|
83,160
|
|
|
|
99,779
|
|
|
|
(16.7
|
)%
|
Casegoods operating income
|
|
|
17,125
|
|
|
|
14,010
|
|
|
|
22.2
|
%
|
Retail operating loss
|
|
|
(26,006
|
)
|
|
|
(2,859
|
)
|
|
|
(809.6
|
)%
|
Corporate and other
|
|
|
(28,565
|
)
|
|
|
(29,938
|
)
|
|
|
4.6
|
%
|
Write-down of intangible assets
|
|
|
(22,695
|
)
|
|
|
|
|
|
|
|
|
Restructuring
|
|
|
(8,479
|
)
|
|
|
(2,931
|
)
|
|
|
|
|
Consolidated operating
income
|
|
$
|
14,540
|
|
|
$
|
78,061
|
|
|
|
(81.4
|
)%
|
Upholstery operating margin
|
|
|
6.6
|
%
|
|
|
7.2
|
%
|
|
|
|
|
Casegoods operating margin
|
|
|
5.9
|
%
|
|
|
4.5
|
%
|
|
|
|
|
Retail operating margin
|
|
|
(12.2
|
)%
|
|
|
(1.7
|
)%
|
|
|
|
|
Consolidated operating
margin
|
|
|
0.9
|
%
|
|
|
4.3
|
%
|
|
|
|
|
Income (loss) from continuing
operations
|
|
$
|
(5,590
|
)
|
|
$
|
42,429
|
|
|
|
(113.2
|
)%
|
Diluted income (loss) per share
from continuing operations
|
|
$
|
(0.11
|
)
|
|
$
|
0.81
|
|
|
|
(113.6
|
)%
|
25
Sales
Consolidated sales declined 6.6% during fiscal 2006. Our
Upholstery and Casegoods Groups sales were also down when
compared with the prior year due in large part to a volatile
retail environment attributable to weak consumer demand. A
decline in business with rental stores and the liquidation of
several large regional chains accounted for approximately 1% of
the sales decline during the year. Approximately 2% of the sales
decline was attributed to the extra week in fiscal 2005.
Additionally, sales declined approximately 1.5% during the year
due to the polyurethane shortage that affected upholstered
product shipments from October through the middle of December.
The sales declines noted above were mitigated by a 1.6% increase
in sales due to sales price increases and a 1.3% increase in
sales which resulted from the retail stores acquired at the end
of fiscal 2005.
Upholstery Group sales were down 8.2% year-over-year, 2%
of which was attributable to the extra week in fiscal 2005.
Approximately 2% of the decrease in Upholstery Group sales for
the year related to the polyurethane supply shortage, which
limited our ability to fill customer orders. Sales were also
down due to the weak retail environment. Around 1% of our
upholstery sales decline was related to a decline in business
with our rental customers and the liquidation of several large
regional chains in the past 12 months. The sales decline
was mitigated by a 2.0% increase in sales which resulted from
sales price increases.
Our Casegoods Group sales decreased 5.6% during fiscal
2006, of which about 2% related to the extra week in fiscal
2005. The remaining decline was attributed to the weak retail
environment.
Retail Group sales increased 23.3% due to the acquisition
of 21 stores in the fourth quarter of fiscal 2005. Eight of
these stores were consolidated as VIEs prior to our acquiring
them in the fourth quarter of fiscal 2005. Excluding the 21
recently acquired stores, Retail Group sales for our previously
owned markets actually decreased during fiscal 2006 due to slow
retail activity.
The net total of intercompany sales eliminations and sales to
VIEs decreased 62.4% as a result of greater sales to
company-owned retail stores and fewer VIEs in fiscal 2006 versus
fiscal 2005.
Gross
Profit
Our gross profit as a percent of sales (gross
margin) increased in fiscal 2006 in comparison with fiscal
2005 due to the following:
|
|
|
|
|
Our company-owned
La-Z-Boy
Furniture
Galleries®
stores in the Retail Group were a larger part of our
consolidated results in fiscal 2006, and since retail sales
generally carry a higher gross margin than our manufacturing
units, it had a more significant impact on our consolidated
gross margins than in fiscal 2005 by 0.6 percentage points.
|
|
|
|
We initiated a significant cost reduction program during the
current fiscal year focusing on manufacturing cost reductions,
indirect labor, distribution costs and waste reductions that
positively impacted our gross margins.
|
|
|
|
At the end of fiscal 2005, we changed our estimate for unpaid
claims for workers compensation to an actuarial estimate.
As a result, we recorded a charge to increase our claims
liability by $5.9 million, which decreased gross margin by
0.3 percentage points in fiscal 2005 that was not repeated
in fiscal 2006.
|
Factors negatively impacting gross margin in fiscal 2006
included the following:
|
|
|
|
|
Upholstery Group production was disrupted during the period by
the polyurethane shortage, which prevented us from producing and
filling customer orders that we otherwise could have completed
and shipped. The polyurethane shortage decreased gross margin by
0.1 percentage points in fiscal 2006.
|
|
|
|
We had restructuring expense of $8.5 million in fiscal 2006
and $2.9 million in fiscal 2005. The restructuring costs
decreased gross margin by 0.5 percentage points in 2006 and
0.2 percentage points in 2005.
|
|
|
|
We experienced significant price increases in raw materials,
especially in raw steel, during fiscal 2005. Raw steel prices
remained high but stabilized in fiscal 2006. During fiscal 2006,
we experienced rising prices for polyurethane foam, as a result
of the damage inflicted by the hurricane season, which reduced
our gross
|
26
|
|
|
|
|
margin approximately 1.3 percentage points. We increased
our selling prices due to the high raw material costs. This
combined with our normal price increases helped increase our
margins approximately 1.2 percentage points.
|
|
|
|
|
|
Following the acquisition of 21 stores in three markets by our
Retail Group near the end of fiscal 2005, we refreshed
merchandise and cleared out older inventory in fiscal 2006 at
the newly acquired stores, which resulted in a lower gross
margin for our Retail Group.
|
Selling,
General and Administrative Expenses
Selling, general and administrative expense
(S, G&A) increased in dollar amount and as
a percent of sales in fiscal 2006 compared with the prior year.
This was attributable to:
|
|
|
|
|
The increased relative size of the Retail Group increased
consolidated S, G&A because the Retail Group has a
higher S, G&A structure than our Upholstery and
Casegoods segments. The impact on fiscal 2006 was approximately
2.1 percentage points.
|
|
|
|
We incurred additional expenses in the Retail Group related to
the 21 acquired stores, including increased advertising, higher
occupancy costs and other selling expenses as well as costs
involved in establishing new warehousing for two of our
locations.
|
|
|
|
Our company-owned same store sales were down, therefore we were
not able to absorb our fixed expenses resulting in an increase
in S, G&A as a percent of sales.
|
Somewhat offsetting these increases in S, G&A expense
were gains recognized during fiscal 2006 on long-lived assets
that we sold, which reduced S, G&A as a percent of
sales by 0.2 percentage points.
Operating
Margin
Our consolidated operating margin was 0.9% for fiscal 2006 and
included 0.5 percentage points of restructuring costs and
1.3 percentage points of a write-down of intangibles at our
Bauhaus division. Bauhaus was impacted by several large customer
bankruptcies and the merger of two major department stores,
which reduced production causing the closure of several
production facilities. These events impacted our annual
valuation of intangibles resulting in an impairment loss of
$22.7 million. Operating margin for fiscal 2005 was 4.3%
and included 0.2 percentage points of restructuring charges.
The Upholstery Group operating margin decreased due to
lower sales volume caused by the weather-related supply chain
disruptions and soft retail conditions. The Upholstery Group
benefited from selling price increases compared with the same
period last year which somewhat offset these factors.
Our Casegoods Group operating margin increased over the
prior year due to improvements resulting from our continuing
transition to our import model for residential casegoods.
Our Retail Group operating margin decreased by
10.5 percentage points during fiscal 2006 in comparison to
fiscal 2005. Two of the three markets acquired in fiscal 2005
were operating at significant losses and were previously
reported as VIEs and contributed to operating losses during
fiscal 2006. After acquiring the new locations, we refreshed
merchandise at our newly acquired locations by liquidating our
older inventory which resulted in a lower operating margin. The
acquired stores also incurred transitional costs during the
year. The decrease in operating margin was also due in part to
the decrease in both same store sales volume and acquired store
sales volume. Additionally, due to the acquisition of new
markets and a slow retail environment, we increased advertising
spending, which had a negative effect on margins but was
necessary to drive retail traffic. We also had an increase in
occupancy costs and selling expenses. Consequently, due to these
acquisitions and an overall soft retail environment, our retail
operating results for fiscal 2006 were well below our
expectations.
27
Interest
Expense
Interest expense for fiscal 2006 was higher than fiscal 2005 due
to rising interest rates on floating rate debt equating to an
increase of about 1% in our effective interest rate. Our
weighted average debt was down slightly compared with the prior
year, due to the repayment of $26 million in debt occurring
near the end of the fiscal year.
Income
Taxes
Our effective tax rate was 208.2% in fiscal 2006 compared with
37.4% in fiscal 2005. The increase in the effective tax rate was
attributable to the write-off of goodwill at Bauhaus in the
fourth quarter of fiscal 2006, which had no tax benefit, as well
as the restructuring charges incurred at our Canadian upholstery
operation, which is generally taxed at a lower rate, therefore
reducing the tax benefit and increasing the effective rate
relating to those expenses.
Liquidity
and Capital Resources
Our total assets at the end of fiscal 2007 decreased
$78.1 million compared with the end of fiscal 2006. A large
portion of that change related to the sale of our American of
Martinsville and Sam Moore operating units during fiscal 2007. A
portion of the cash generated as a result of the sales was used
to reduce debt. In addition, we wrote off $10.9 million of
intangibles and $7.9 million of inventory and fixed assets
related to the discontinued operations during the year. Although
this write-off was non-cash, it did reduce our overall asset
base.
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 operations,
dividends to shareholders and capital expenditures. We expect
these sources of liquidity to continue to be adequate for the
foreseeable future. Capital expenditures for fiscal 2007 were
$25.8 million compared with $28.0 million during
fiscal 2006. During the first quarter of fiscal 2007 we
exercised a $3.0 million option to purchase property, which
we subsequently sold and leased back. There are no material
purchase commitments for capital expenditures, which are
expected to be in the range of $23 to $26 million in fiscal
2008. After amending our revolving credit facility agreement as
discussed under financing activities, we had unused lines of
credit and commitments of $219.1 million under several
credit arrangements.
The following table illustrates the main components of our cash
flows:
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
Cash Flows Provided From (Used For)
|
|
4/28/2007
|
|
|
4/29/2006
|
|
|
|
(Amounts in thousands)
|
|
|
Operating activities
|
|
|
|
|
|
|
|
|
Net income, depreciation and
deferred taxes
|
|
$
|
14,953
|
|
|
$
|
22,790
|
|
Write-down of assets of businesses
held for sale
|
|
|
14,936
|
|
|
|
|
|
Write-down of intangibles
|
|
|
|
|
|
|
22,695
|
|
Gain on sales of discontinued
operations (net of tax)
|
|
|
(935
|
)
|
|
|
|
|
Restructuring
|
|
|
11,033
|
|
|
|
6,643
|
|
Stock option and restricted stock
expense
|
|
|
3,959
|
|
|
|
762
|
|
Working capital and other
|
|
|
(10,713
|
)
|
|
|
36,887
|
|
|
|
|
|
|
|
|
|
|
Cash provided from operating
activities
|
|
|
33,233
|
|
|
|
89,777
|
|
Investing activities
|
|
|
|
|
|
|
|
|
Proceeds from disposal of assets
|
|
|
46,974
|
|
|
|
11,499
|
|
Proceeds from sale of discontinued
operations
|
|
|
42,659
|
|
|
|
|
|
Other investing activities
|
|
|
(27,589
|
)
|
|
|
(42,172
|
)
|
Financing activities
|
|
|
|
|
|
|
|
|
Repurchase of common stock
|
|
|
(6,947
|
)
|
|
|
(10,890
|
)
|
Net decrease in debt
|
|
|
(36,696
|
)
|
|
|
(43,102
|
)
|
Other financing activities and
exchange rate changes
|
|
|
(24,002
|
)
|
|
|
(18,728
|
)
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash
and cash equivalents
|
|
$
|
27,632
|
|
|
$
|
(13,616
|
)
|
|
|
|
|
|
|
|
|
|
28
Operating
Activities
For fiscal 2007, net cash provided by operating activities was
$33.2 million, compared with $89.8 million for fiscal
2006. The decrease in 2007 operating cash flows was due mainly
to changes in accounts payable and accrued liabilities, which
related to our overall reduction in business. If business
returns to historical levels, we believe these liabilities would
change proportionately. Discontinued operations did not have a
significant impact on the cash provided by operating activities
for fiscal 2007.
Investing
Activities
During fiscal 2007, net cash provided by investing activities
was $62.0 million, whereas $30.7 million was used in
investing activities during fiscal 2006. The increase in cash
provided by investing activities in fiscal 2007 was primarily
due to the $33.2 million in proceeds received for the sale
of our operating unit American of Martinsville and the
$9.5 million in proceeds received for the sale of our
operating unit Sam Moore. Additionally, $47.0 million in
proceeds was generated by the sale of multiple properties during
fiscal 2007. Some involved a sale-leaseback transaction which we
entered into with a third party. These increases in cash flow
were somewhat offset by $25.8 million in capital
expenditures.
Financing
Activities
Our financing activities included borrowings and payments on our
debt facilities, dividend payments, issuances of stock and stock
repurchases. We used $67.2 million of cash in financing
activities in fiscal 2007 compared with $73.2 million of
cash used in financing activities during fiscal 2006. Our
discontinued operations did not have a material impact on cash
flows from financing activities for fiscal 2007.
The following table summarizes our contractual obligations of
the types specified:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments by Period
|
|
|
|
|
|
|
Less Than
|
|
|
|
|
|
|
|
|
More Than
|
|
|
|
Total
|
|
|
1 Year
|
|
|
1-3 Years
|
|
|
4-5 Years
|
|
|
5 Years
|
|
|
|
(Amounts in thousands)
|
|
|
Long-term debt obligations
|
|
$
|
147,620
|
|
|
$
|
36,618
|
|
|
$
|
44,575
|
|
|
$
|
8,661
|
|
|
$
|
57,766
|
|
Capital lease obligations
|
|
|
1,782
|
|
|
|
1,070
|
|
|
|
712
|
|
|
|
|
|
|
|
|
|
Operating lease obligations
|
|
|
362,827
|
|
|
|
42,255
|
|
|
|
83,182
|
|
|
|
62,471
|
|
|
|
174,919
|
|
Interest obligations
|
|
|
24,570
|
|
|
|
7,215
|
|
|
|
9,216
|
|
|
|
5,962
|
|
|
|
2,177
|
|
Other long-term liabilities not
reflected on our balance sheet
|
|
|
8,251
|
|
|
|
1,931
|
|
|
|
3,862
|
|
|
|
2,458
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual obligations
|
|
$
|
545,050
|
|
|
$
|
89,089
|
|
|
$
|
141,547
|
|
|
$
|
79,552
|
|
|
$
|
234,862
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On February 9, 2007, we executed an amendment to our credit
agreement to modify its fixed charge coverage ratio requirements
and interest rate provisions and to reduce our unsecured
revolving credit facility from $150 million to
$100 million.
Our debt-to-capitalization ratio was 23.5% at April 28,
2007, 26.5% at April 29, 2006, and 30.0% at April 30,
2005.
On October 28, 1987, our Board of Directors announced the
authorization of a plan to repurchase company stock. The plan
originally authorized 1.0 million shares and, subsequent to
October 1987, 22.0 million additional shares were added to
this plan for repurchase. As of April 28, 2007,
5.4 million additional shares could be purchased pursuant
to this authorization. We repurchased 0.5 million shares
during fiscal 2007.
We have guaranteed various leases of dealers with proprietary
stores. The total amount of these guarantees is
$14.6 million. Of this, $3.2 million will expire
within one year, $3.9 million in one to three years,
$2.6 million in four to five years, and $4.9 million
thereafter. In recent years, we have increased our imports of
casegoods product and leather and fabric for upholstery product.
At the end of the fourth quarter of fiscal 2007, we had
$66.9 million in open purchase orders, including those of
our discontinued operations, with foreign casegoods, leather and
fabric
29
sources. Some of these open purchase orders are cancelable. We
are not required to make any contributions to our defined
benefit plans; however, we may make discretionary contributions.
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.
Critical
Accounting Policies
An appreciation of our critical accounting policies is necessary
to understand our financial results. These policies may require
management to make difficult and subjective judgments regarding
uncertainties and, as a result, such estimates may significantly
impact our financial results. 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 assumptions 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 to our assumptions in
order to mitigate the likelihood of material adjustments. Our
critical accounting policies and changes to critical estimates
are reviewed by management with the Audit Committee of our Board
of Directors and our independent accountants.
Inventories
Inventories are stated at the lower of cost or market. Cost is
determined using the
last-in,
first-out (LIFO) basis for approximately 63% and 67%
of our inventories at April 28, 2007, and April 29,
2006, respectively. Cost is determined for all other inventories
on a
first-in,
first-out (FIFO) basis.
Revenue
Recognition and Related Allowances
Shipping terms using third-party carriers 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. We
import certain products from foreign ports, which are shipped
directly to our domestic customers. In this case, revenue is not
recognized until title is assumed by our customer, which is
normally after the goods pass through U.S. Customs.
Other incentives offered to customers include cash discounts,
advertising agreements and other sales incentives. Cash
discounts are recorded as a reduction of revenues when the
revenue is recognized. Other sales incentives are recorded as a
reduction to revenue at the time of sale. Our advertising
agreements, expect co-op, give our non-branded customers
advertising allowances based on revenues and are recorded as a
reduction to revenue when the revenue is recognized.
Goodwill
and Trade Names
In accordance with SFAS No. 142, goodwill and trade
names are tested at least annually 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 is tested for impairment by
comparing the fair value of our operating units to their
carrying values. The fair value for each operating unit is
established based on the discounted cash flows. In situations
where the fair value is less than the carrying value, indicating
a potential impairment, a second comparison is performed using a
calculation of implied fair value of goodwill to determine the
monetary value of impairment.
During the third quarter of fiscal 2007, we performed an
evaluation of our goodwill and trade names due to greater than
anticipated decline in net sales for our operating units over
the first half of the year. This sales decline triggered the
need to evaluate our goodwill and intangible assets for
impairment under SFAS No. 142 in advance of our normal
impairment assessment in the fourth quarter. After completing
this assessment, we determined that the goodwill of Sam Moore
and the intangible assets of Pennsylvania House and Clayton
Marcus were recorded above
30
their fair value creating an impairment loss of
$7.3 million for the goodwill at Sam Moore and a
$3.6 million impairment loss for the trade names at
Pennsylvania House and Clayton Marcus. We performed additional
testing during the fourth quarter and found no additional
impairments.
In the fourth quarter of fiscal 2006, the annual evaluation of
goodwill and trade names was performed. Following the evaluation
procedures, it was determined that our trade names were not
impaired. The carrying value of goodwill exceeded its fair value
at Bauhaus, creating an impairment loss of $22.7 million
which was recorded as a component of operating income. In the
latter half of fiscal 2006, Bauhaus was impacted by several
large customer bankruptcies and the merger of two major
department stores, which reduced production causing the closure
of several production facilities. There was no tax benefit
recognized on this impairment charge.
Other
Loss Reserves
The allowance for doubtful accounts reflects our best estimate
of probable losses inherent in the accounts receivable balance.
In fiscal 2007, our allowance for doubtful accounts for trade
accounts receivable and long-term notes decreased from
$17.4 million to $15.6 million. The decrease in the
allowance was due mainly to several write-offs during the fourth
quarter of fiscal 2007 for previously reserved accounts for a
total of $2.7 million.
We have other loss exposures arising from the ordinary course of
business, including inventory obsolescence, litigation,
environmental claims, health insurance, product liability,
warranty, 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, including actuaries 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.
Pensions
We maintain defined benefit pension plans for eligible factory
hourly employees at some operating units. Our largest plan has
been frozen for new participants since January 1, 2001, but
active participants still earn service cost. Additionally, we
closed our Canadian manufacturing facility during fiscal 2006
and terminated the pension plan associated with that business
during the fourth quarter of fiscal 2007. Annual net periodic
expense and benefit liabilities under our defined benefit plans
are determined on an actuarial basis. Each year, we compare the
actual experience to the more significant assumptions used; if
warranted, we make adjustments to the assumptions.
Our pension plan discount rate assumption is evaluated annually.
The discount rate selected for our U.S. plans is based upon
a single rate developed after matching expected benefit payments
to a yield curve for high-quality fixed-income investments.
Long-term interest rates on high-quality debt instruments, which
are used to determine the discount rate, were 5.85% based on the
Citigroup High Grade Credit index at the end of fiscal 2007.
Interest rates were down at the end of fiscal 2007 and were up
slightly at the end of fiscal 2006 after declining in fiscal
2005. Accordingly, we decreased the discount rate used to
determine our pension benefit obligation on our U.S. plans
40 basis points for fiscal 2007, after decreasing the rate
95 basis points for fiscal 2006. For our U.S. plans,
we utilized a discount rate of 6.05% at April 28, 2007,
compared with a rate of 6.45% at April 29, 2006, and 5.50%
at April 30, 2005.
Pension benefits are funded through deposits with trustees and
satisfy, at a minimum, the applicable funding regulations. The
expected long-term rates of return on fund assets are based upon
actual historical returns modified for known changes in the
markets and any expected changes in investment policy.
Besides evaluating the discount rate used to determine our
pension obligation, we also evaluate our assumption relating to
the expected return on plan assets annually. In selecting the
expected long-term rate of return on assets, we considered the
average rate of earnings expected on the funds invested or to be
invested to provide the benefits of these plans. This included
considering the trusts asset allocation, investment
strategy, and the expected returns likely to be earned over the
life of the plans. The rate of return assumption for
U.S. plans as of April 28, 2007, and April 29,
2006, was 8.0%. The expected rate of return assumption as of
April 28, 2007, will be used to determine pension expense
for plans in 2008.
31
Our long-term stated investment objective is to maximize the
investment return with the least amount of risk through a
combination of capital appreciation and income. The strategic
asset allocation targets are 65% equities and 35% fixed income
within a range of 5% of the target. As of April 28, 2007,
our weighted average asset allocation was 71% equity securities
and 29% debt securities. As of April 29, 2006, our weighted
average asset allocation was 69% equity securities and 31% debt
securities.
Our non-qualified retirement plan was not funded at
April 28, 2007. We do not expect to fund our non-qualified
defined benefit retirement plan as we hold funds equal to the
liability of the plan in a Rabbi trust. We are not required to
make any contributions to the other defined benefit plans in
fiscal year 2008; however, we reserve the right to make
discretionary contributions.
As of April 28, 2007, previously unrecognized differences
between actual amounts and estimates based on actuarial
assumptions are included in Accumulated Other Comprehensive
Income/(Loss) in our Consolidated Balance Sheet as required by
SFAS No. 158, Employers Accounting for
Defined Benefit Pension and Other Postretirement
Plans an amendment of FASB Statements No. 87,
88, 106, and 132(R). For fiscal 2007, we recognized
$8.2 million pre-tax ($4.9 million after tax) for
previously unrecognized net actuarial losses in Accumulated
Other Comprehensive Income. In future reporting periods, the
difference between actual amounts and estimates based on
actuarial assumptions will be recognized in Other Comprehensive
Income (Loss) in the period in which they occur.
We expect that the fiscal 2008 pension expense after considering
all relevant assumptions will be minimal compared with
$2.4 million in fiscal 2007, which included
$1.3 million of settlement losses related to our Canadian
pension plan. We do not believe that a 25 basis point
change in our discount rate or our expected return on plan
assets would have a material impact on our financial statements.
In fiscal 2008, we do not expect to amortize any unrecognized
actuarial losses as a component of pension expense.
Financial
Guarantees
We have provided secured and unsecured financial guarantees
relating to leases in connection with certain
La-Z-Boy
Furniture
Galleries®
stores which are not operated by the company. The lease
guarantees are generally for real estate leases and have terms
from five to eleven years. These lease guarantees enhance the
credit of these dealers. The dealer is required to make periodic
fee payments to compensate us for our guarantees. We have
recognized liabilities for the fair values of the lease
agreements that we have entered into, but they 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 lease. The maximum amount of
potential future payments under lease guarantees was
$14.6 million as of April 28, 2007.
We have, on occasion, entered into agreements which resulted in
indemnifying third parties against certain liabilities, mainly
environmental obligations. 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 generally to
accrue an estimated liability at the time the revenue is
recognized. This estimate is based on historical claims and
adjusted for currently known specific warranty issues. Warranty
expense is recorded as a component of S, G&A.
Variable
Interest Entities
Financial Accounting Standards Board Interpretation
No. 46R, Consolidation of Variable Interest Entities
(FIN 46), requires the primary
beneficiary of a VIE to include the VIEs assets,
liabilities and operating results in its consolidated financial
statements. In general, a VIE is a corporation, partnership,
limited-liability company, trust or any other legal structure
used to conduct activities or hold assets that either
(a) has an insufficient amount of equity to carry out its
principal activities without additional subordinated financial
support, (b) has a group of equity owners that are unable
to make significant decisions about its activities, or
(c) has a group of equity owners that do not have the
obligation to absorb losses or the right to receive returns
generated by its operations.
32
La-Z-Boy
Furniture
Galleries®
stores that are not operated by us are operated by independent
dealers. These stores sell
La-Z-Boy
manufactured products as well as various accessories purchased
from approved
La-Z-Boy
vendors. In some cases we have extended credit beyond normal
trade terms to the independent dealers, made direct loans
and/or
guaranteed certain leases. Most of these independent dealers
have sufficient equity to carry out their principal operating
activities without subordinated financial support. However,
there are certain independent dealers that we have determined
may not have sufficient equity.
Based on the criteria for consolidation of VIEs, we have
consolidated several dealers where we were the primary
beneficiary based on the fair value of our variable interests.
All of our consolidated VIEs were recorded at fair value on the
date we became the primary beneficiary. Because these entities
are accounted for as if the entities were consolidated based on
voting interests, we absorb all net losses of the VIEs in excess
of the equity at the dealerships. We recognize all net earnings
of these VIEs to the extent of recouping the losses we recorded.
Earnings in excess of our losses are attributed to equity owners
of the dealers and are recorded as minority interest. We had
three consolidated VIEs for the first quarter of fiscal 2006 and
had four consolidated VIEs for the last three quarters of fiscal
2006 and throughout fiscal 2007.
Our consolidated VIEs recognized $45.6 million and
$36.8 million in sales, net of intercompany eliminations,
in fiscal 2007 and fiscal 2006, respectively. Additionally, we
recognized a net loss per share of $0.11 and $0.09 in fiscal
2007 and fiscal 2006, respectively, resulting from the operating
results of these VIEs. The VIEs had $2.8 million and
$8.6 million of assets net of elimination of intercompany
activity at the end of fiscal 2007 and fiscal 2006,
respectively. During the third quarter of fiscal 2005, one of
the equity owners of one of our VIEs contributed
$2.0 million of capital to the business. Because we
consolidated this entity based on voting interests, we recorded
the capital contribution as income in that period to offset
previously recorded losses. In fiscal 2005, the extraordinary
gain of $3.4 million ($2.1 million net of income
taxes) was a result of the application of purchase accounting
relating to the acquisition of previously consolidated VIEs.
Restructuring
In the fourth quarter of fiscal 2007, we committed to a
restructuring plan which included the closures of our
Lincolnton, North Carolina and Iuka, Mississippi upholstery
manufacturing facilities, the closure of our rough mill lumber
operation in North Wilkesboro, North Carolina, the consolidation
of operations at our Kincaid Taylorsville, North Carolina
upholstery operation and the elimination of a number of
positions throughout the remainder of the organization. The
Lincolnton and Iuka facility closures will occur in the first
quarter of fiscal 2008 and will impact approximately 250 and
150 employees, respectively. The closure of our North
Wilkesboro lumber operation, the consolidation of operations at
Kincaids Taylorsville operation and the remaining
activities occurred in the fourth quarter of fiscal 2007 and
impacted approximately 100 positions. These decisions were made
to help align our company with the current business environment
and strengthen our positioning going forward. We recorded
pre-tax restructuring charges of $4.3 million or $0.05 per
diluted share covering severance and benefits, write-down of
certain fixed assets in addition to other restructuring costs
which were expensed as incurred. Of these costs
$4.0 million was reported as a component of Cost of Sales
with the remainder in Selling, General and Administrative. The
write-down was accounted for in accordance with
SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. All other costs were
accounted for in accordance with SFAS No. 146,
Accounting for Costs Associated with Exit or Disposal
Activities.
Offsetting these expenses during the year was a pre-tax gain of
$2.0 million or $0.02 per diluted share relating to the
sale of properties idled as part of previous restructurings.
These gains were recorded as a component of cost of sales.
During fiscal 2007, several of our Retail warehouses were
consolidated into larger facilities, and several underperforming
stores were closed. Approximately 85 jobs were eliminated as a
result of these closures. We recorded pre-tax restructuring
charges of $7.3 million or $0.08 per diluted share covering
contract termination costs for the leases on these facilities,
severance and benefits, write-down of certain leasehold
improvements in addition to other relocation costs which were
expensed as incurred. These costs were reported as a component
of Selling, General and Administrative costs. The write-down was
accounted for in accordance with SFAS No. 144,
33
Accounting for the Impairment or Disposal of Long-Lived
Assets. All other costs were accounted for in accordance
with SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities.
As of April 28, 2007, we had a remaining restructuring
liability of $3.4 million which is expected to be paid out
or written off as follows: $2.4 million in fiscal 2008,
$0.4 million in fiscal 2009, $0.4 million in fiscal
2010 and $0.2 million thereafter.
In the second quarter of fiscal 2006, the decision was made to
close our Canadian upholstery manufacturing facility due to
underutilization of capacity. The plant closure occurred in the
third quarter of fiscal 2006, and production was absorbed in
other upholstery facilities. Approximately 413 jobs were
eliminated as a result of this closure. During fiscal 2006,
pre-tax restructuring charges for our Canadian facility were
$8.9 million, or $0.11 per diluted share, covering
severance and benefits, appropriate adjustments to our pension
liability and the write-down of certain fixed assets. Severance
costs and other costs for this restructuring were expensed in
accordance with SFAS No. 112, Employers
Accounting for Postemployment Benefits and
SFAS No. 146. The write-down was accounted for
in accordance with SFAS No. 144. During the fourth
quarter of fiscal 2007, we recorded a pre-tax restructuring
charge of $1.3 million or $0.02 per diluted share related
to the settlement of the Canadian pension plan.
Restructuring liabilities along with charges to expense, cash
payments or asset write-downs were as follows:
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2007
|
|
|
|
|
|
|
|
|
|
Cash
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments
|
|
|
|
|
|
|
4/29/2006
|
|
|
Charges to
|
|
|
or Asset
|
|
|
4/28/2007
|
|
|
|
Balance
|
|
|
Expense
|
|
|
Write-Offs
|
|
|
Balance
|
|
|
|
(Amounts in thousands)
|
|
|
Severance and benefit-related costs
|
|
$
|
891
|
|
|
$
|
2,537
|
|
|
$
|
(1,251
|
)
|
|
$
|
2,177
|
|
Fixed asset write-downs, net of
gains
|
|
|
|
|
|
|
1,091
|
|
|
|
(1,091
|
)
|
|
|
|
|
Contract termination costs
|
|
|
|
|
|
|
3,441
|
|
|
|
(2,184
|
)
|
|
|
1,257
|
|
Other
|
|
|
|
|
|
|
3,964
|
|
|
|
(3,964
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total restructuring
|
|
$
|
891
|
|
|
$
|
11,033
|
|
|
$
|
(8,490
|
)
|
|
$
|
3,434
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
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|
|
|
|
|
|
|
|
|
|
|
Fiscal 2006
|
|
|
|
|
|
|
|
|
|
Cash
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments
|
|
|
|
|
|
|
4/30/2005
|
|
|
Charges to
|
|
|
or Asset
|
|
|
4/29/2006
|
|
|
|
Balance
|
|
|
Expense
|
|
|
Write-Offs
|
|
|
Balance
|
|
|
|
(Amounts in thousands)
|
|
|
Fixed asset write-downs, net of
gains
|
|
$
|
|
|
|
$
|
(2,327
|
)
|
|
$
|
2,327
|
|
|
$
|
|
|
Severance and benefit-related costs
|
|
|
38
|
|
|
|
8,970
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|
|
|
(8,117
|
)
|
|
|
891
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total restructuring
|
|
$
|
38
|
|
|
$
|
6,643
|
|
|
$
|
(5,790
|
)
|
|
$
|
891
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Stock-Based
Compensation
On April 30, 2006, we adopted the fair-value recognition
provisions of SFAS No. 123(R) using a
modified-prospective transition method.
SFAS No. 123(R) supersedes APB Opinion No. 25,
Accounting for Stock Issued to Employees and requires us
to record compensation cost for all stock awards granted after
the required effective date and for awards modified, repurchased
or canceled after that date. In addition, we are required to
record compensation expense (as previous awards continue to
vest) for the unvested portion of previously granted awards that
remain outstanding at the date of adoption. In March 2005, the
SEC issued SAB 107 relating to SFAS No. 123(R).
We have applied the provisions of SAB 107 in our adoption
of SFAS No. 123(R).
Under the fair value recognition provisions of this statement,
share-based compensation cost is measured at the grant date
based on the value of the award and is recognized as expense
over the vesting period. Determining the fair value of
share-based awards at the grant date requires judgment,
including estimating expected dividends, future
34
stock-price volatility, expected option lives and the amount of
share-based awards that are expected to be forfeited. We do not
expect that changes in these assumptions would have a material
impact on our results of operations.
The fair value of each option grant was estimated using the
Black-Scholes option-pricing model. For the options granted in
fiscal 2007, expected volatility was estimated based on the
historical volatility of our common shares. The average expected
life was based on the contractual term of the stock option and
expected employee exercise and post-vesting employment
termination trends. The risk-free rate was based on
U.S. Treasury issues with a term equal to the expected life
assumed at the date of grant. Forfeitures were estimated at the
date of grant based on historical experience.
Under the modified-prospective transition method, financial
results for periods prior to fiscal 2007 were not restated. In
accordance with APB Opinion No. 25, there was no
stock-based compensation expense recognized related to employee
stock options during fiscal 2006 or fiscal 2005.
Stock-based compensation expense recognized in Selling, General
and Administrative expense under SFAS No. 123(R) for
fiscal 2007 was $2.4 million, which reduced net income by
$1.7 million and earnings per share by $0.03. As of
April 28, 2007, there was $2.8 million of total
unrecognized compensation cost related to non-vested stock
option awards, which is expected to be recognized over a
weighted-average remaining contractual term of all unvested
awards of 1.72 years.
Regulatory
Developments
The CDSOA provides for distribution of monies collected by
U.S. Customs and Border Protection (CBP) from
anti-dumping cases to domestic producers that supported the
anti-dumping petition. The Dispute Settlement Body of the World
Trade Organization (WTO) ruled that such payments
violate the United States WTO obligations. In response to
that ruling, on February 8, 2006, the President signed
legislation passed by Congress that repeals CDSOA distributions
to eligible domestic producers for duties collected on imports
entered into the United States after September 30, 2007.
CBP has reported that approximately $57.4 million in
preliminary CDSOA amounts were available as of April 30,
2007 for distribution to eligible domestic manufacturers in
connection with the case involving wooden bedroom furniture
imported from China. These funds are subject to adjustment.
Additional antidumping duties actually collected through
September 30, 2007 potentially will be available for
distribution in calendar 2007. The amount of the actual duties
that CBP collects is determined retrospectively for those
imports that are subject to annual administrative reviews
conducted by the U.S. Department of Commerce. Further,
certain importers and Chinese producers have appealed the
initial findings of the anti-dumping order to the
U.S. Court of International Trade, and favorable rulings
for these importers and Chinese producers could reduce the
amount of duties ultimately available for distribution. The
tariffs attributable to importers and Chinese producers whose
imports are subject to appeals and administrative reviews are
not available for distribution until those proceedings have been
completed. Consequently, the amount ultimately available for
distribution in this case during calendar 2007 will depend on
the amount of duties on customs entries that CBP has liquidated
and collected by September 30, 2007 (i.e., that are not
subject to administrative reviews and pending legal appeals).
Also, any amount we may receive will depend on our percentage
allocation, which is based on our qualifying expenditures in
relation to the qualifying expenditures of other domestic
producers requesting distribution for the relevant time periods
under CDSOA. In two cases decided in 2006, the U.S. Court
of International Trade has held unconstitutional CDSOAs
requirement that a company that is not a petitioner must
indicate its support for an antidumping petition in order to be
eligible for a distribution of duties. In Chez Sidney,
L.L.C. v. United States, the Court did not reach the
questions of whether the support requirement is severable and
the appropriate remedy, but it is possible that the Court could
rule that the entire statute is unconstitutional and prohibit
further distributions. In SKF USA v. United States,
the Court did not find the entire statute to be
unconstitutional, but instead ordered CBP and the
U.S. International Trade Commission to reconsider the
plaintiffs eligibility under CDSOA. These decisions are
likely to be appealed to the U.S. Court of Appeals for the
Federal Circuit. Similar judicial challenges filed by domestic
producers of wooden bedroom furniture who currently are not
entitled to CDSOA distributions could affect our percentage
allocation. Our percentage allocation for payments received in
calendar 2006 was approximately 18%. We recorded
$3.4 million, net of legal fees, from CDSOA payments
received in fiscal 2007. The percentage allocation included our
American
35
of Martinsville division. Although we sold the division during
the first quarter of fiscal 2007, we have retained certain
rights to payments received by the division subsequent to the
sale. In view of the uncertainties associated with this program,
we are unable to predict the amounts, if any, we may receive
during the remainder of calendar 2007 or thereafter under CDSOA.
However, assuming CDSOA distributions continue, these
distributions could be material depending on the results of
legal appeals and administrative reviews and our actual
percentage allocation.
Recent
Accounting Pronouncements
FASB
Interpretation No. 48
The FASB issued Interpretation No. 48, Accounting for
Uncertainty in Income Taxes an interpretation of
FASB Statement No. 109, during June, 2006. This
interpretation clarifies the accounting for uncertainty in
income taxes recognized in an enterprises financial
statements in accordance with FASB Statement No. 109,
Accounting for Income Taxes. This interpretation
prescribes a recognition threshold and measurement attribute for
the financial statement recognition and measurement of a tax
position taken or expected to be taken in a tax return. This
interpretation also provides guidance on derecognition,
classification, interest and penalties, accounting in interim
periods, disclosure, and transition. The interpretation is
effective for fiscal years beginning after December 15,
2006. Earlier application is encouraged if the enterprise has
not yet issued financial statements, including interim financial
statements, in the period the interpretation is adopted.
We estimate that upon adoption, a cumulative effect adjustment
of approximately $2 million to $4 million will
increase reserves for uncertain tax positions and decrease
retained earnings in the first quarter of fiscal 2008. This
estimate is subject to revision as we complete our analysis and
will be recorded as a component of stockholders equity.
FASB
Statement of Financial Accounting Standards
No. 157
The FASB issued Statement of Financial Accounting Standards
No. 157, Fair Value Measurements
(SFAS No. 157). SFAS No. 157
clarifies the principle that fair value should be based on the
assumptions market participants would use when pricing an asset
or liability and establishes a fair value hierarchy that
prioritizes the information used to develop those assumptions.
This statement is effective for financial statements issued for
fiscal years beginning after November 15, 2007 and interim
periods within those fiscal years, with early adoption permitted.
We are currently in the process of determining the impact this
pronouncement may have on our financial statements.
FASB
Statement of Financial Accounting Standards
No. 158
The FASB issued Statement of Financial Accounting Standards
No. 158, Employers Accounting for Defined Benefit
Pension and Other Postretirement Plans an amendment
of FASB Statements No. 87, 88, 106, and 132(R)
(SFAS No. 158). SFAS No. 158
requires an employer to recognize the overfunded or underfunded
status of a defined benefit postretirement plan (other than a
multiemployer plan) as an asset or liability in its statement of
financial position and to recognize changes in that funded
status in the year in which the changes occur through
comprehensive income of a business entity or changes in
unrestricted net assets of a not-for-profit organization. This
statement also requires an employer to measure the funded status
of a plan as of the date of its year-end statement of financial
position. The new reporting requirements and related new
footnote disclosure rules of SFAS No. 158 are
effective for fiscal years ending after December 15, 2006.
We adopted SFAS No. 158 as of April 28, 2007 and
the impact on our financials was $8.2 million
($4.9 million after tax) of a decrease in assets and in
accumulated other comprehensive income. The new measurement date
requirement applies for fiscal years ending after
December 15, 2008, however this requirement will not have
an impact on our financial statements as we currently measure
the funded status of our plans as of our year end date.
36
FASB
Statement of Financial Accounting Standards
No. 159
The FASB issued Statement of Financial Accounting Standards
No. 159, The Fair Value Option for Financial Assets and
Financial Liabilities (SFAS No. 159),
which allows a company to choose to measure selected financial
assets and financial liabilities at fair value. Unrealized gains
and losses on items for which the fair value option has been
elected are reported in earnings. SFAS No. 159 is
effective for fiscal years beginning after November 15,
2007.
We are currently evaluating the impact SFAS No. 159
will have on our financial statements. This statement will be
effective for our fiscal 2009 year end.
SEC
Staff Accounting Bulletin No. 108
In September 2006, the SEC issued Staff Accounting
Bulletin No. 108, Considering the Effects of Prior
Year Misstatements when Quantifying Misstatements in Current
Year Financial Statements
(SAB No. 108). SAB No. 108
provides interpretive guidance on how the effects of the
carryover or reversal of prior year misstatements should be
considered in quantifying a current year misstatement. The SEC
staff believes that registrants should quantify errors using
both a balance sheet and an income statement approach and
evaluate whether either approach results in a misstatement that,
when all relevant quantitative and qualitative factors are
considered, is material and therefore must be quantified.
SAB No. 108 is effective for fiscal years ending on or
after November 15, 2006.
Our adoption of SAB No. 108 as of April 28, 2007
had no impact on our results of operations or financial
condition.
Emerging
Issues Task Force Issue
06-5
In June 2006, the Emerging Issues Task Force (EITF)
released Issue
06-5,
Accounting for Purchases of Life Insurance-Determining the
Amount That Could Be Realized in Accordance with FASB Technical
Bulletin No. 85-4,
Accounting for Purchases of Life Insurance. On
September 7, 2006, the EITF concluded that a policyholder
should consider any additional amounts included in the
contractual terms of the policy in determining the amount that
could be realized under the insurance contract. Amounts that are
recoverable by the policyholder at the discretion of the
insurance company should be excluded from the amount that could
be realized. Amounts that are recoverable by the policyholder in
periods beyond one year from the surrender of the policy should
be discounted utilizing an appropriate rate of interest. The
effective date of
EITF 06-5
is for fiscal years beginning after December 15, 2006.
We have reviewed this EITF and it did not have an impact on our
financial statements.
Business
Outlook
The external environment for home furnishings remains very
difficult and the first quarter is typically the companys
slowest period due to seasonal factors. While we have made
progress in managing the cost structure of our wholesale
businesses, we believe challenging conditions in the marketplace
will prevail and, we will continue to focus on matching costs to
our revenue stream. In a move consistent with recent trends
among other public companies, we are moving to yearly guidance
for sales and earnings and will no longer provide quarterly
projections. We expect sales for the fiscal 2008 year to be down
5% to 10% compared with fiscal 2007 and expect earnings per
share to be in the range of $0.45 to $0.60 per share compared
with $0.38 per share from continuing operations in fiscal 2007.
This estimated range does not include restructuring charges,
potential income from any anti-dumping monies or gains/losses on
the sale of discontinued operations.
|
|
ITEM 7A.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK.
|
We are exposed to market risk from changes in interest rates.
Our exposure to interest rate risk results from our lines of
credit and our floating rate $100 million revolving credit
facility under which we had no borrowings at April 28,
2007. Management estimates that a one percentage point change in
interest rates would not have a material impact on our results
of operations for fiscal 2008 based upon the current levels of
exposed liabilities.
37
We are exposed to market risk from changes in the value of
foreign currencies. Our exposure to changes in the value of
foreign currencies is reduced through our use of foreign
currency forward contracts from time to time. Substantially all
of our imports purchased outside of North America are
denominated in U.S. dollars. However, a change in the value
of Chinese currency could be one of several factors that could
inflate costs in the future. 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
2008.
|
|
ITEM 8.
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA.
|
Managements
Report to our Shareholders
Managements
Responsibility for Financial Information
Management of
La-Z-Boy
Incorporated is responsible for the preparation, integrity and
objectivity of
La-Z-Boy
Incorporateds consolidated financial statements and other
financial information contained in this Annual Report to
Shareholders. Those consolidated financial statements were
prepared in conformity with accounting principles generally
accepted in the United States of America. In preparing those
consolidated financial statements, Management was required to
make certain estimates and judgments, which are based upon
currently available information and Managements view of
current conditions and circumstances.
The Audit Committee of the Board of Directors, which consists
solely of independent directors, oversees our process of
reporting financial information and the audit of our
consolidated financial statements. The Audit Committee is
informed of the financial condition of
La-Z-Boy
Incorporated and regularly reviews Managements critical
accounting policies, the independence of our independent
auditors, our internal control and the objectivity of our
financial reporting. Both the independent auditors and the
internal auditors have free access to the Audit Committee and
meet with the Audit Committee periodically, both with and
without Management present.
On September 15, 2006,
La-Z-Boy
Incorporateds Chief Executive Officer submitted his annual
certification to the New York Stock Exchange stating that he was
not aware of any violation by the corporation of the
Exchanges corporate governance listing standards.
La-Z-Boy
filed the certifications by its Chief Executive Officer and
Chief Financial Officer required by Section 302 of the
Sarbanes-Oxley Act of 2002 as exhibits to its Annual Report on
Form 10-K
for the fiscal year ended April 28, 2007.
Managements
Report on Internal Control over Financial
Reporting
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting, as such term
is defined in
Rule 13a-15(f)
of the Exchange Act. Under the supervision and with the
participation of our management, including our Chief Executive
Officer and Chief Financial Officer, we conducted an evaluation
of the effectiveness of our internal control over financial
reporting based upon the framework in Internal Control
Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission. Based on
that evaluation, our management concluded that our internal
control over financial reporting was effective as of
April 28, 2007.
38
Management has excluded two
La-Z-Boy
Furniture
Galleries®
operations from our assessment of internal control over
financial reporting because we do not have the right or
authority to assess the internal controls of the consolidated
entity and we also lack the ability, in practice, to make that
assessment. These two retail furniture businesses were created
prior to December 15, 2003, and were consolidated by
La-Z-Boy
Incorporated on April 24, 2004 upon the adoption of
Financial Accounting Standards Board Interpretation
No. 46R, Consolidation of Variable Interest
Entities. The combined total assets and total revenues of
the excluded businesses represent 0.7% and 1.7%, respectively,
of the related consolidated financial statement amounts as of
and for the year ended April 28, 2007.
PricewaterhouseCoopers LLP, the independent registered public
accounting firm who audited the consolidated financial
statements included in this annual report, has also audited our
managements assessment of the effectiveness of our
internal controls over financial reporting as of April 28,
2007, and the effectiveness of our internal control over
financial reporting as of April 28, 2007, as stated in
their opinion which is included herein.
Kurt L. Darrow
President and Chief Executive Officer
Louis M. Riccio, Jr.
Senior VP and Chief Financial Officer
39
Report of
Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of
La-Z-Boy
Incorporated:
We have completed integrated audits of
La-Z-Boy
Incorporateds consolidated financial statements and of its
internal control over financial reporting as of April 28,
2007, in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Our opinions, based
on our audits, are presented below.
Consolidated
financial statements
In our opinion, the accompanying consolidated balance sheets and
the related consolidated statements of income,
shareholders equity and cash flows present fairly, in all
material respects, the financial position of
La-Z-Boy
Incorporated and its subsidiaries at April 28, 2007 and
April 29, 2006, and the results of their operations and
their cash flows for each of the three years in the period ended
April 28, 2007 in conformity with accounting principles
generally accepted in the United States of America. These
financial statements are the responsibility of the
Companys 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 the
standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit of financial statements 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 Note 12 to the consolidated financial
statements the Company changed its method of accounting for
share based compensation effective April 30, 2006. As
discussed in Note 9 to the consolidated financial
statements the Company changed its method of accounting for
defined benefit pension plans effective April 28, 2007.
Internal
control over financial reporting
Also, in our opinion, managements assessment, included in
the accompanying Managements Report on Internal Control
over Financial Reporting, that the Company maintained effective
internal control over financial reporting as of April 28,
2007 based on criteria established in Internal
Control Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission
(COSO), is fairly stated, in all material respects, based on
those criteria. Furthermore, in our opinion, the Company
maintained, in all material respects, effective internal control
over financial reporting as of April 28, 2007, based on
criteria established in Internal Control
Integrated Framework issued by the COSO. The Companys
management is responsible for maintaining effective internal
control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting. Our
responsibility is to express opinions on managements
assessment and on the effectiveness of the Companys
internal control over financial reporting based on our audit. We
conducted our audit of internal control over financial reporting
in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable
assurance about whether effective internal control over
financial reporting was maintained in all material respects. An
audit of internal control over financial reporting includes
obtaining an understanding of internal control over financial
reporting, evaluating managements assessment, testing and
evaluating the design and operating effectiveness of internal
control, and performing such other procedures as we consider
necessary in the circumstances. We believe that our audit
provides a reasonable basis for our opinions.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (i) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (ii) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of
management and directors of the company; and (iii) provide
reasonable
40
assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
As described in the accompanying Managements Report on
Internal Control over Financial Reporting, management has
excluded two
La-Z-Boy
Furniture Galleries operations from its assessment of internal
control over financial reporting because the Company does not
have the right or authority to assess the internal controls of
the consolidated entity and also lacks the ability in practice,
to make that assessment. The two retail furniture operations
were created prior to December 15, 2003, and were
consolidated by the Company on April 24, 2004 upon the
adoption of Financial Accounting Standards Board Interpretation
(FIN) No. 46R, Consolidation of Variable Interest
Entities. The combined total assets and total revenues of
the excluded businesses represent 0.7% and 1.7% respectively, of
the related consolidated financial statement amounts as of and
for the year ended April 28, 2007.
/s/ PricewaterhouseCoopers LLP
Toledo, Ohio
June 19, 2007
41
LA-Z-BOY
INCORPORATED
CONSOLIDATED
STATEMENT OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
(52 Weeks)
|
|
|
(52 Weeks)
|
|
|
(53 Weeks)
|
|
|
|
4/28/2007
|
|
|
4/29/2006
|
|
|
4/30/2005
|
|
|
|
(Amounts in thousands, except per share data)
|
|
|
Sales
|
|
$
|
1,617,302
|
|
|
$
|
1,695,012
|
|
|
$
|
1,815,202
|
|
Cost of sales
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold
|
|
|
1,187,876
|
|
|
|
1,273,505
|
|
|
|
1,371,243
|
|
Restructuring
|
|
|
3,371
|
|
|
|
8,479
|
|
|
|
2,931
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of sales
|
|
|
1,191,247
|
|
|
|
1,281,984
|
|
|
|
1,374,174
|
|
Gross profit
|
|
|
426,055
|
|
|
|
413,028
|
|
|
|
441,028
|
|
Selling, general and administrative
|
|
|
386,438
|
|
|
|
375,793
|
|
|
|
362,967
|
|
Restructuring
|
|
|
7,662
|
|
|
|
|
|
|
|
|
|
Write-down of intangibles
|
|
|
|
|
|
|
22,695
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
31,955
|
|
|
|
14,540
|
|
|
|
78,061
|
|
Interest expense
|
|
|
10,206
|
|
|
|
11,540
|
|
|
|
10,442
|
|
Income from Continued Dumping and
Subsidy Act, net
|
|
|
3,430
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
2,941
|
|
|
|
2,331
|
|
|
|
3,616
|
|
Other income (expense), net
|
|
|
1,738
|
|
|
|
(163
|
)
|
|
|
(3,443
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
before income taxes
|
|
|
29,858
|
|
|
|
5,168
|
|
|
|
67,792
|
|
Income tax expense
|
|
|
10,090
|
|
|
|
10,758
|
|
|
|
25,363
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing
operations
|
|
|
19,768
|
|
|
|
(5,590
|
)
|
|
|
42,429
|
|
Income (loss) from discontinued
operations (net of tax of $(4,682) in 2007, $1,716 in 2006 and
$(3,856) in 2005)
|
|
|
(15,629
|
)
|
|
|
2,549
|
|
|
|
(7,338
|
)
|
Extraordinary gain (net of tax of
$1,283 in fiscal 2005)
|
|
|
|
|
|
|
|
|
|
|
2,094
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
4,139
|
|
|
$
|
(3,041
|
)
|
|
$
|
37,185
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic average shares
|
|
|
51,475
|
|
|
|
51,801
|
|
|
|
52,082
|
|
Basic income (loss) from
continuing operations per share
|
|
$
|
0.38
|
|
|
$
|
(0.11
|
)
|
|
$
|
0.81
|
|
Discontinued operations (net of
tax)
|
|
|
(0.30
|
)
|
|
|
0.05
|
|
|
|
(0.14
|
)
|
Extraordinary gains (net of tax)
|
|
|
|
|
|
|
|
|
|
|
0.04
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) per share
|
|
$
|
0.08
|
|
|
$
|
(0.06
|
)
|
|
$
|
0.71
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted average shares
|
|
|
51,606
|
|
|
|
51,801
|
|
|
|
52,138
|
|
Diluted income (loss) from
continuing operations per share
|
|
$
|
0.38
|
|
|
$
|
(0.11
|
)
|
|
$
|
0.81
|
|
Discontinued operations (net of
tax)
|
|
|
(0.30
|
)
|
|
|
0.05
|
|
|
|
(0.14
|
)
|
Extraordinary gains (net of tax)
|
|
|
|
|
|
|
|
|
|
|
0.04
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income (loss) per share
|
|
$
|
0.08
|
|
|
$
|
(0.06
|
)
|
|
$
|
0.71
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends paid per share
|
|
$
|
0.48
|
|
|
$
|
0.44
|
|
|
$
|
0.44
|
|
The accompanying Notes to Consolidated Financial Statements are
an integral part of these statements.
42
LA-Z-BOY
INCORPORATED
CONSOLIDATED
BALANCE SHEET
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
|
4/28/2007
|
|
|
4/29/2006
|
|
|
|
(Amounts in thousands, except par value)
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
Cash and equivalents
|
|
$
|
51,721
|
|
|
$
|
24,089
|
|
Receivables, net of allowance of
$13,635 in 2007 and $14,164 in 2006
|
|
|
230,399
|
|
|
|
270,578
|
|
Inventories, net
|
|
|
197,790
|
|
|
|
238,826
|
|
Deferred income taxes
current
|
|
|
17,283
|
|
|
|
12,854
|
|
Assets of discontinued operations
|
|
|
24,278
|
|
|
|
|
|
Other current assets
|
|
|
19,327
|
|
|
|
23,730
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
540,798
|
|
|
|
570,077
|
|
Property, plant and equipment, net
|
|
|
183,218
|
|
|
|
209,986
|
|
Deferred income taxes
long term
|
|
|
15,380
|
|
|
|
|
|
Goodwill
|
|
|
55,659
|
|
|
|
56,926
|
|
Trade names
|
|
|
9,472
|
|
|
|
18,794
|
|
Other long-term assets, net of
allowance of $1,942 in 2007 and $3,267 in 2006
|
|
|
74,164
|
|
|
|
100,969
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
878,691
|
|
|
$
|
956,752
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
Short-term borrowings
|
|
$
|
|
|
|
$
|
8,000
|
|
Current portion of long-term debt
|
|
|
37,688
|
|
|
|
2,844
|
|
Accounts payable
|
|
|
68,089
|
|
|
|
85,561
|
|
Liabilities of discontinued
operations
|
|
|
3,843
|
|
|
|
|
|
Accrued expenses and other current
liabilities
|
|
|
118,590
|
|
|
|
128,318
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
228,210
|
|
|
|
224,723
|
|
Long-term debt
|
|
|
111,714
|
|
|
|
173,368
|
|
Deferred income taxes
|
|
|
|
|
|
|
126
|
|
Other long-term liabilities
|
|
|
53,419
|
|
|
|
48,190
|
|
Contingencies and commitments
|
|
|
|
|
|
|
|
|
Shareholders equity
|
|
|
|
|
|
|
|
|
Preferred shares 5,000
authorized; none issued
|
|
|
|
|
|
|
|
|
Common shares, $1 par
value 150,000 authorized; 51,377 outstanding in 2007
and 51,782 outstanding in 2006
|
|
|
51,377
|
|
|
|
51,782
|
|
Capital in excess of par value
|
|
|
208,283
|
|
|
|
210,826
|
|
Retained earnings
|
|
|
223,896
|
|
|
|
246,387
|
|
Unearned compensation
|
|
|
|
|
|
|
(3,083
|
)
|
Accumulated other comprehensive
income
|
|
|
1,792
|
|
|
|
4,433
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
485,348
|
|
|
|
510,345
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
shareholders equity
|
|
$
|
878,691
|
|
|
$
|
956,752
|
|
|
|
|
|
|
|
|
|
|
The accompanying Notes to Consolidated Financial Statements are
an integral part of these statements.
43
LA-Z-BOY
INCORPORATED
CONSOLIDATED
STATEMENT OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
4/28/2007
|
|
|
4/29/2006
|
|
|
4/30/2005
|
|
|
|
(Amounts in thousands)
|
|
|
Cash flows from operating
activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
4,139
|
|
|
$
|
(3,041
|
)
|
|
$
|
37,185
|
|
Adjustments to reconcile net
income (loss) to cash provided by operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Extraordinary gain (net of tax)
|
|
|
|
|
|
|
|
|
|
|
(2,094
|
)
|
Write-down of intangibles
|
|
|
|
|
|
|
22,695
|
|
|
|
|
|
Write-down of assets from
businesses held for sale (net of tax)
|
|
|
14,936
|
|
|
|
|
|
|
|
|
|
Gain on sale of discontinued
operations (net of tax)
|
|
|
(935
|
)
|
|
|
|
|
|
|
(668
|
)
|
Restructuring
|
|
|
11,033
|
|
|
|
6,643
|
|
|
|
10,294
|
|
Provision for doubtful accounts
|
|
|
3,790
|
|
|
|
4,527
|
|
|
|
176
|
|
Depreciation and amortization
|
|
|
27,204
|
|
|
|
29,234
|
|
|
|
28,329
|
|
Stock option and restricted stock
expense
|
|
|
3,959
|
|
|
|
762
|
|
|
|
312
|
|
Change in receivables
|
|
|
5,064
|
|
|
|
13,529
|
|
|
|
(9,300
|
)
|
Change in inventories
|
|
|
4,486
|
|
|
|
25,132
|
|
|
|
(10,633
|
)
|
Change in payables
|
|
|
(11,607
|
)
|
|
|
2,260
|
|
|
|
(10,032
|
)
|
Change in other assets and
liabilities
|
|
|
(12,446
|
)
|
|
|
(8,561
|
)
|
|
|
(9,236
|
)
|
Change in deferred taxes
|
|
|
(16,390
|
)
|
|
|
(3,403
|
)
|
|
|
11,632
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total adjustments
|
|
|
29,094
|
|
|
|
92,818
|
|
|
|
8,780
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating
activities
|
|
|
33,233
|
|
|
|
89,777
|
|
|
|
45,965
|
|
Cash flows from investing
activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from disposals of assets
|
|
|
46,974
|
|
|
|
11,499
|
|
|
|
11,226
|
|
Proceeds from sale of discontinued
operations
|
|
|
42,659
|
|
|
|
|
|
|
|
10,985
|
|
Capital expenditures
|
|
|
(25,811
|
)
|
|
|
(27,991
|
)
|
|
|
(34,771
|
)
|
Purchases of investments
|
|
|
(18,165
|
)
|
|
|
(25,289
|
)
|
|
|
(14,890
|
)
|
Proceeds from sales of investments
|
|
|
17,342
|
|
|
|
12,983
|
|
|
|
8,120
|
|
Acquisitions, net of cash acquired
|
|
|
|
|
|
|
|
|
|
|
(6,806
|
)
|
Change in other long-term assets
|
|
|
(955
|
)
|
|
|
(1,875
|
)
|
|
|
2,149
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used for)
investing activities
|
|
|
62,044
|
|
|
|
(30,673
|
)
|
|
|
(23,987
|
)
|
Cash flows from financing
activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from debt
|
|
|
91,787
|
|
|
|
103,380
|
|
|
|
126,752
|
|
Payments on debt
|
|
|
(128,483
|
)
|
|
|
(146,482
|
)
|
|
|
(124,813
|
)
|
Stock issued for stock and
employee benefit plans
|
|
|
1,340
|
|
|
|
3,679
|
|
|
|
4,573
|
|
Repurchases of common stock
|
|
|
(6,947
|
)
|
|
|
(10,890
|
)
|
|
|
(2,476
|
)
|
Dividends paid
|
|
|
(24,886
|
)
|
|
|
(22,923
|
)
|
|
|
(22,868
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used for financing
activities
|
|
|
(67,189
|
)
|
|
|
(73,236
|
)
|
|
|
(18,832
|
)
|
Effect of exchange rate changes on
cash and equivalents
|
|
|
(456
|
)
|
|
|
516
|
|
|
|
677
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in cash and equivalents
|
|
|
27,632
|
|
|
|
(13,616
|
)
|
|
|
3,823
|
|
Cash and equivalents at beginning
of period
|
|
|
24,089
|
|
|
|
37,705
|
|
|
|
33,882
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and equivalents at end of
period
|
|
$
|
51,721
|
|
|
$
|
24,089
|
|
|
$
|
37,705
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying Notes to Consolidated Financial Statements are
an integral part of these statements.
44
LA-Z-BOY
INCORPORATED
CONSOLIDATED
STATEMENT OF CHANGES IN SHAREHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
Capital in
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
Common
|
|
|
Excess of
|
|
|
Retained
|
|
|
Unearned
|
|
|
Comprehensive
|
|
|
|
|
|
|
Shares
|
|
|
Par Value
|
|
|
Earnings
|
|
|
Compensation
|
|
|
Income(Loss)
|
|
|
Total
|
|
|
|
(Amounts in thousands)
|
|
|
At April 24, 2004
|
|
$
|
52,031
|
|
|
$
|
216,156
|
|
|
$
|
253,012
|
|
|
$
|
|
|
|
$
|
1,129
|
|
|
$
|
522,328
|
|
Repurchases of common stock
|
|
|
(120
|
)
|
|
|
|
|
|
|
(2,356
|
)
|
|
|
|
|
|
|
|
|
|
|
(2,476
|
)
|
Stock issued for stock and employee
benefit plans
|
|
|
314
|
|
|
|
(2,063
|
)
|
|
|
8,170
|
|
|
|
(1,848
|
)
|
|
|
|
|
|
|
4,573
|
|
Amortization of unearned
compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
312
|
|
|
|
|
|
|
|
312
|
|
Tax benefit from exercise of options
|
|
|
|
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6
|
)
|
Dividends paid
|
|
|
|
|
|
|
|
|
|
|
(22,868
|
)
|
|
|
|
|
|
|
|
|
|
|
(22,868
|
)
|
Comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
37,185
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain on marketable
securities (net of tax of $0.1 million)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
127
|
|
|
|
|
|
Realization of gains on marketable
securities (net of tax)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(93
|
)
|
|
|
|
|
Translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,359
|
|
|
|
|
|
Change in fair value of cash flow
hedges (net of tax)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11
|
)
|
|
|
|
|
Change in additional minimum
pension liability (net of tax of $8.7 million)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14,144
|
)
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,423
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At April 30, 2005
|
|
|
52,225
|
|
|
|
214,087
|
|
|
|
273,143
|
|
|
|
(1,536
|
)
|
|
|
(10,633
|
)
|
|
|
527,286
|
|
Repurchases of common stock
|
|
|
(760
|
)
|
|
|
|
|
|
|
(10,130
|
)
|
|
|
|
|
|
|
|
|
|
|
(10,890
|
)
|
Stock issued for stock and employee
benefit plans
|
|
|
317
|
|
|
|
(3,261
|
)
|
|
|
9,338
|
|
|
|
(2,715
|
)
|
|
|
|
|
|
|
3,679
|
|
Amortization of unearned
compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,168
|
|
|
|
|
|
|
|
1,168
|
|
Dividends paid
|
|
|
|
|
|
|
|
|
|
|
(22,923
|
)
|
|
|
|
|
|
|
|
|
|
|
(22,923
|
)
|
Comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
(3,041
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain on marketable
securities (net of tax of $0.7 million)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,020
|
|
|
|
|
|
Realization of gains on marketable
securities (net of tax of $0.3 million)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(451
|
)
|
|
|
|
|
Translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
988
|
|
|
|
|
|
Change in fair value of cash flow
hedges (net of tax)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(63
|
)
|
|
|
|
|
Change in additional minimum
pension liability (net of tax of $8.4 million)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,572
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,025
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At April 29, 2006
|
|
|
51,782
|
|
|
|
210,826
|
|
|
|
246,387
|
|
|
|
(3,083
|
)
|
|
|
4,433
|
|
|
|
510,345
|
|
Reclassification of unearned
compensation due to adoption of SFAS No. 123(R)
|
|
|
|
|
|
|
(3,083
|
)
|
|
|
|
|
|
|
3,083
|
|
|
|
|
|
|
|
|
|
Repurchases of common stock
|
|
|
(540
|
)
|
|
|
|
|
|
|
(6,407
|
)
|
|
|
|
|
|
|
|
|
|
|
(6,947
|
)
|
Stock issued for stock and employee
benefit plans
|
|
|
135
|
|
|
|
(3,458
|
)
|
|
|
4,663
|
|
|
|
|
|
|
|
|
|
|
|
1,340
|
|
Stock option and restricted stock
expense
|
|
|
|
|
|
|
3,959
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,959
|
|
Tax benefit from exercise of options
|
|
|
|
|
|
|
39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39
|
|
Dividends paid
|
|
|
|
|
|
|
|
|
|
|
(24,886
|
)
|
|
|
|
|
|
|
|
|
|
|
(24,886
|
)
|
Comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
4,139
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain on marketable
securities (net of tax of $0.5 million)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,145
|
|
|
|
|
|
Realized (gain) on marketable
securities (net of tax of $0.3 million)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(458
|
)
|
|
|
|
|
Translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,418
|
|
|
|
|
|
Change in fair value of cash flow
hedges (net of tax)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(118
|
)
|
|
|
|
|
Change in additional minimum
pension liability (net of tax of $0.1 million)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
319
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,445
|
|
Adjustment upon adoption of
SFAS No. 158 for Pension (net of tax of
$3.2 million)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,947
|
)
|
|
|
(4,947
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At April 28, 2007
|
|
$
|
51,377
|
|
|
$
|
208,283
|
|
|
$
|
223,896
|
|
|
$
|
|
|
|
$
|
1,792
|
|
|
$
|
485,348
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying Notes to Consolidated Financial Statements are
an integral part of these statements.
45
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.
Fiscal years 2007 and 2006 included 52 weeks, whereas
fiscal year 2005 included 53 weeks.
Principles
of Consolidation
The consolidated financial statements include the accounts of
La-Z-Boy
Incorporated and its majority-owned subsidiaries (the
Company). All significant intercompany transactions have
been eliminated. Additionally, Financial Accounting Standards
Board Interpretation No. 46R, Consolidation of Variable
Interest Entities (VIE) (FIN 46),
requires us to consolidate several of our independently owned
La-Z-Boy
Furniture
Galleries®
stores.
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 including
goodwill, allowances for doubtful accounts, sales returns,
legal, environmental, restructuring, product liability,
insurance reserves and warranty accruals. Actual results could
differ from those estimates.
New
Pronouncements
FASB
Interpretation No. 48
The FASB issued Interpretation No. 48, Accounting for
Uncertainty in Income Taxes an interpretation of
FASB Statement No. 109, during June 2006. This
interpretation clarifies the accounting for uncertainty in
income taxes recognized in an enterprises financial
statements in accordance with FASB Statement No. 109,
Accounting for Income Taxes. This interpretation
prescribes a recognition threshold and measurement attribute for
the financial statement recognition and measurement of a tax
position taken or expected to be taken in a tax return. This
interpretation also provides guidance on derecognition,
classification, interest and penalties, accounting in interim
periods, disclosure, and transition. The interpretation is
effective for fiscal years beginning after December 15,
2006. Earlier application is encouraged if the enterprise has
not yet issued financial statements, including interim financial
statements, in the period the interpretation is adopted.
We estimate that upon adoption, a cumulative effect adjustment
of approximately $2 million to $4 million will
increase reserves for uncertain tax positions and decrease
retained earnings in the first quarter of fiscal 2008. This
estimate is subject to revision as we complete our analysis.
FASB
Statement of Financial Accounting Standards
No. 157
The FASB issued Statement of Financial Accounting Standards
No. 157, Fair Value Measurements
(SFAS No. 157). SFAS No. 157
clarifies the principle that fair value should be based on the
assumptions market participants would use when pricing an asset
or liability and establishes a fair value hierarchy that
prioritizes the information used to develop those assumptions.
This statement is effective for financial statements issued for
fiscal years beginning after November 15, 2007 and interim
periods within those fiscal years, with early adoption permitted.
We are currently in the process of determining the impact this
pronouncement may have on our financial statements.
46
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
FASB
Statement of Financial Accounting Standards
No. 158
The FASB issued Statement of Financial Accounting Standards
No. 158, Employers Accounting for Defined Benefit
Pension and Other Postretirement Plans an amendment
of FASB Statements No. 87, 88, 106, and 132(R)
(SFAS No. 158). SFAS No. 158
requires an employer to recognize the overfunded or underfunded
status of a defined benefit postretirement plan (other than a
multiemployer plan) as an asset or liability in its statement of
financial position and to recognize changes in that funded
status in the year in which the changes occur through
comprehensive income of a business entity. This statement also
requires an employer to measure the funded status of a plan as
of the date of its year end statement of financial position. The
new reporting requirements and related new footnote disclosure
rules of SFAS No. 158 are effective for fiscal years
ending after December 15, 2006.
We adopted SFAS No. 158 as of April 28, 2007 and
the impact on our financials was $8.2 million
($4.9 million after tax) of a decrease in assets and in
accumulated other comprehensive income. The new measurement date
requirement applies for fiscal years ending after
December 15, 2008, however this requirement will not have
an impact on our financial statements as we currently measure
the funded status of our plans as of our year end date.
FASB
Statement of Financial Accounting Standards
No. 159
The FASB issued Statement of Financial Accounting Standards
No. 159, The Fair Value Option for Financial Assets and
Financial Liabilities (SFAS No. 159),
which allows a company to choose to measure selected financial
assets and financial liabilities at fair value. Unrealized gains
and losses on items for which the fair value option has been
elected are reported in earnings. SFAS No. 159 is
effective for fiscal years beginning after November 15,
2007.
We are currently evaluating the impact SFAS No. 159
will have on our financial statements. This statement will be
effective for our fiscal 2009 year end.
SEC
Staff Accounting Bulletin No. 108
In September 2006, the SEC issued Staff Accounting
Bulletin No. 108, Considering the Effects of Prior
Year Misstatements when Quantifying Misstatements in Current
Year Financial Statements
(SAB No. 108). SAB No. 108
provides interpretive guidance on how the effects of the
carryover or reversal of prior year misstatements should be
considered in quantifying a current year misstatement. The SEC
staff believes that registrants should quantify errors using
both a balance sheet and an income statement approach and
evaluate whether either approach results in a misstatement that,
when all relevant quantitative and qualitative factors are
considered, is material and therefore must be quantified.
SAB No. 108 is effective for fiscal years ending on or
after November 15, 2006.
Our adoption of SAB No. 108 as of April 28, 2007
had no impact on our results of operations or financial
condition.
Emerging
Issues Task Force Issue
06-5
In June 2006, the Emerging Issues Task Force (EITF)
released Issue
06-5,
Accounting for Purchases of Life Insurance-Determining the
Amount That Could Be Realized in Accordance with FASB Technical
Bulletin No. 85-4,
Accounting for Purchases of Life Insurance. On
September 7, 2006, the EITF concluded that a policyholder
should consider any additional amounts included in the
contractual terms of the policy in determining the amount that
could be realized under the insurance contract. Amounts that are
recoverable by the policyholder at the discretion of the
insurance company should be excluded from the amount that could
be realized. Amounts that are recoverable by the policyholder in
periods beyond one year from the surrender of the policy should
be discounted utilizing an appropriate rate of interest. The
effective date of
EITF 06-5
is for fiscal years beginning after December 15, 2006.
We have reviewed this EITF and it did not have an impact on our
financial statements.
47
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Cash
and Equivalents
For purposes of the consolidated balance sheet and 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 63% and 67%
of our inventories at April 28, 2007, and April 29,
2006, respectively. Cost is determined for all other inventories
on a
first-in,
first-out (FIFO) basis.
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.
Disposal
and Impairment of Long-Lived Assets
In accordance with SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, we review the
carrying value of our long-lived assets for impairment on an
annual basis.
Goodwill
and Trade Names
In accordance with SFAS No. 142, Goodwill and Other
Intangible Assets, we test goodwill and indefinite lived
intangibles for impairment on an annual basis as of the end of
our fiscal year, unless conditions arise that warrant a more
frequent evaluation. See Note 4 for additional information
on our goodwill and trade names.
Investments
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.
Life
Insurance
Life insurance policies are recorded at the amount that could be
realized under the insurance contract as of the date of our
consolidated balance sheet. These assets are classified as other
non-current assets on our balance sheet, and we expect to hold
these policies to maturity. The change in cash surrender or
contract value is recorded as income or expense during each
period.
Revenue
Recognition
Shipping terms using third-party carriers 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. We import certain
products from foreign ports, which are shipped directly to our
domestic customers. In this case, revenue is not recognized
until title is assumed by our customer, which is normally after
the goods pass through U.S. Customs.
Other incentives offered to customers include cash discounts,
advertising agreements and other sales incentive programs. Cash
discounts are recorded as a reduction of revenues when the
revenue is recognized. Other sales incentives are recorded as a
reduction to revenue at the time of sale. Our advertising
agreements, except co-op, give customers advertising allowances
based on revenues and are recorded when the revenue is
recognized as a reduction to revenue.
48
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Research
and Development Costs
Research and development costs are charged to expense in the
periods incurred. Expenditures for research and development
costs were $11.7 million, $14.7 million and
$16.2 million for the fiscal years ended April 28,
2007, April 29, 2006, and April 30, 2005, respectively.
Advertising
Expenses
Production costs of commercials and programming and 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 expenses were $60.4 million,
$58.3 million and $59.7 million for the fiscal years
ended April 28, 2007, April 29, 2006, and
April 30, 2005, 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 had derivative instruments consisting of interest rate swap
agreements that were used to fix the interest rate on a portion
of the variable interest rate borrowings on our revolving credit
facility. These agreements were designated and accounted for as
cash flow hedges. These interest rate swap agreements expired in
August 2006. The effect of marking these contracts to fair value
was 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. The fair value of our foreign currency
contracts is based on quoted market prices and the effect of
marking these contracts to fair value is recorded as a component
of shareholders equity in other comprehensive income.
Accounting
for Stock-Based Compensation
On April 30, 2006, we adopted the fair-value recognition
provisions of Statement of Financial Accounting Standards
No. 123 (revised 2004) Share-Based Payment
(SFAS No. 123(R)) using a
modified-prospective transition method.
SFAS No. 123(R) supersedes APB Opinion No. 25,
Accounting for Stock Issued to Employees and requires us
to record compensation cost for all stock awards granted after
the required effective date and for awards modified, repurchased
or canceled after that date. In addition, we are required to
record compensation expense (as previous awards continue to
vest) for the unvested portion of previously granted awards that
remain outstanding at the date of adoption. In March 2005, the
SEC issued Staff Accounting Bulletin No. 107
(SAB 107) relating to
SFAS No. 123(R). We have applied the provisions of
SAB 107 in our adoption of SFAS No. 123(R).
49
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
SFAS No. 123(R) requires us to estimate the fair value
of share-based awards on the date of grant using an
option-pricing model. The value of the portion of the award that
is ultimately expected to vest is recognized as expense over the
requisite service periods in our consolidated statement of
operations using a straight-line single-option method. Prior to
the adoption of SFAS No. 123(R), we accounted for
stock option awards to employees using the intrinsic value
method in accordance with APB 25. Under the intrinsic value
method, no stock option compensation expense was recognized in
our Consolidated Statement of Operations because the exercise
price of our stock options granted to employees equaled the fair
market value of the underlying stock at the date of grant.
As stock-based compensation expense recognized in the
consolidated statement of operations for the twelve months ended
April 28, 2007 was based on awards ultimately expected to
vest, it was reduced for forfeitures.
SFAS No. 123(R) requires forfeitures to be
estimated at the time of grant and revised, if necessary, in
subsequent periods if actual forfeitures differ from those
estimates. In our pro forma information required under
SFAS No. 123(R) for the periods prior to fiscal 2007,
we accounted for forfeitures as they occurred. In accordance
with the modified-prospective transition method, prior periods
have not been restated to include the impact of
SFAS No. 123(R).
As a result of the adoption of SFAS No. 123(R), our
results for the twelve months ended April 28, 2007 include
stock-based compensation expense totaling $2.4 million.
Such amounts have been included in the Consolidated Statement of
Operations within Selling, General and Administrative expenses.
During the same period, we recognized related tax benefits
associated with our stock-based compensation arrangements
totaling $0.7 million.
We adopted the long form method provided in SFAS No. 123(R)
to use for calculating the beginning balance of the additional
paid in capital pool (APIC pool) related to the tax
effects of employee stock-based compensation, and to determine
the subsequent impact on the APIC pool and Statement of Cash
Flows of the tax effects of employee stock-based compensation
awards that are outstanding upon adoption of
SFAS No. 123(R). We have not recognized excess tax
benefits related to employee stock-based compensation and,
therefore, do not currently have an APIC pool.
As permitted by SFAS No. 123(R), we chose the nominal
vesting period approach for recognizing the amount of stock
option expense to be included in the pro forma compensation
expense for retirement eligible employees. Under this method,
expense was recognized over the normal four-year vesting period.
With the adoption of SFAS No. 123(R), we were required
to continue applying the nominal vesting period approach for
unvested options granted prior to the date of adoption of
April 30, 2006. For awards granted after that date we must
apply the non-substantive vesting period approach where expense
is recognized over the period from grant date to the date
retirement eligibility is achieved, if expected to occur during
the nominal vesting period. Our compensation expense for the
twelve months ended April 28, 2007 would have increased by
$0.4 million, under the non-substantive vesting period
approach.
50
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Under the modified-prospective transition method, financial
results for periods prior to fiscal 2007 were not restated.
There was no stock-based compensation expense recognized related
to employee stock options for the year ended April 29, 2006
or the year ended April 30, 2005. The pro forma table
below, which addresses the disclosure requirements of
SFAS No. 148, reflects basic and diluted net earnings
per share for years ended April 29, 2006 and April 30,
2005 assuming that we had accounted for our stock options using
the fair value method promulgated by SFAS No. 123(R)
at that time.
|
|
|
|
|
|
|
|
|
|
|
4/29/2006
|
|
|
4/30/2005
|
|
|
|
(Amounts in thousands, except per share data)
|
|
|
Net income (loss)
|
|
$
|
(3,041
|
)
|
|
$
|
37,185
|
|
Add back stock compensation
expense included in net income (loss) (net of tax)
|
|
|
472
|
|
|
|
193
|
|
Deduct fair value of stock plans
(net of tax)
|
|
|
(2,365
|
)
|
|
|
(2,451
|
)
|
|
|
|
|
|
|
|
|
|
Pro forma net income (loss)
|
|
$
|
(4,934
|
)
|
|
$
|
34,927
|
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) per share
as reported
|
|
$
|
(0.06
|
)
|
|
$
|
0.71
|
|
Pro forma basic net income (loss)
per share
|
|
$
|
(0.10
|
)
|
|
$
|
0.67
|
|
Diluted net income (loss) per
share as reported
|
|
$
|
(0.06
|
)
|
|
$
|
0.71
|
|
Pro forma net income (loss) per
share
|
|
$
|
(0.10
|
)
|
|
$
|
0.67
|
|
The fair value options granted was estimated on the date of
grant using the Black-Scholes model with the following
assumptions (for the fiscal years ended):
|
|
|
|
|
|
|
|
|
|
|
4/29/2006
|
|
|
4/30/2005
|
|
|
Risk-free interest rate
|
|
|
4.25
|
%
|
|
|
3.4
|
%
|
Dividend rate
|
|
|
3.1
|
%
|
|
|
2.1
|
%
|
Expected life in years
|
|
|
5.0
|
|
|
|
5.5
|
|
Stock price volatility
|
|
|
29.0
|
%
|
|
|
36.0
|
%
|
Fair Value Per Share
|
|
$
|
3.21
|
|
|
$
|
5.02
|
|
Reclassifications
Certain prior year information has been reclassified to be
comparable to the current year presentation. Most notably we
have reclassified our Consolidated Statement of Operations and
related footnote data for discontinued operations.
Insurance/Self-Insurance
We use a combination of insurance and self-insurance for a
number of risks, including workers compensation, general
liability, vehicle liability and the company-funded portion of
employee-related health care benefits. Liabilities associated
with these risks are estimated in part by considering historical
claims experience, demographic factors, severity factors and
other actuarial assumptions.
In the fourth quarter of fiscal 2005, we changed our estimate of
workers compensation unpaid claims. Previously, we
established our workers compensation liability using
historical trends as the basis for the liability. The new
estimate uses a third-party actuary to estimate settlement costs
for incurred claims. We recognized an additional expense of
$5.9 million in the fourth quarter of fiscal 2005 based on
our new estimate. In the fourth quarter of fiscal 2007, we
recorded a reduction in our workers compensation liability
of $2.4 million as a result of favorable claims experience.
51
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Discontinued
Operations
Under the provisions of SFAS No. 144, Accounting
for the Impairment or Disposal of Long-Lived Assets, we
classify a business component that has been disposed or has been
approved to be disposed of as a discontinued operation. The
results of operations of our discontinued operations, including
any gains or losses on disposition, are aggregated and presented
on one line in the income statement. SFAS No. 144
requires the reclassification of amounts presented for prior
years as discontinued operations. The amounts presented in the
Consolidated Statement of Operations for years prior to fiscal
2007 were reclassified to comply with SFAS No. 144.
During the fourth quarter of fiscal 2005, we sold our
La-Z-Boy
Contract operating unit. As a result of this divestiture, our
Consolidated Statement of Operations for the prior years have
been reclassified to reflect the results of operations of this
divested business as discontinued operations. The business unit
was previously included in the Upholstery Group, which has also
been reclassified to reflect the discontinued operations.
During the first quarter of fiscal 2007, we sold our American of
Martinsville operating unit. As a result of this divestiture,
our Consolidated Statement of Operations for the prior years
have been reclassified to reflect the results of operations of
this divested business as discontinued operations. The business
unit was previously included in the Casegoods Group, which has
also been reclassified to reflect the discontinued operations.
Additionally, during the third quarter of fiscal 2007, we
committed to a plan to sell Sam Moore, which was a part of our
Upholstery Group, and to sell Clayton Marcus and Pennsylvania
House, which were part of our Casegoods Group. Due to this
decision, these operating units qualified as discontinued
operations. All segment information has been restated to reflect
these discontinued operations. In April 2007 we sold our Sam
Moore operating unit.
In the Consolidated Balance Sheet for fiscal 2007, Clayton
Marcus and Pennsylvania House were classified as businesses held
for sale and the prior year was not reclassified. In the
Consolidated Statement of Cash Flows, the cash flows of
discontinued operations were not reclassified. See Note 18
for additional information regarding our discontinued operations.
Allowance
for Doubtful Accounts
The allowance for doubtful accounts reflects our best estimate
of probable losses inherent in the accounts receivable balance.
We determine the allowance based on known troubled accounts,
historical experience and other currently available evidence.
In fiscal 2005, we reevaluated our allowance for doubtful
accounts after the acquisition of a major
La-Z-Boy
Furniture
Galleries®
store market and reassessment of our credit position of another
significant dealer upon obtaining additional credit-related
information. Based on this valuation, we reduced the allowance
for doubtful accounts by $5.5 million.
|
|
|
|
|
|
|
|
|
|
|
4/28/2007
|
|
|
4/29/2006
|
|
|
|
(Amounts in thousands)
|
|
|
Raw materials
|
|
$
|
69,562
|
|
|
$
|
74,292
|
|
Work in process
|
|
|
19,972
|
|
|
|
37,786
|
|
Finished goods
|
|
|
132,679
|
|
|
|
147,996
|
|
|
|
|
|
|
|
|
|
|
FIFO inventories
|
|
|
222,213
|
|
|
|
260,074
|
|
Excess of FIFO over LIFO
|
|
|
(24,423
|
)
|
|
|
(21,248
|
)
|
|
|
|
|
|
|
|
|
|
Total inventories
|
|
$
|
197,790
|
|
|
$
|
238,826
|
|
|
|
|
|
|
|
|
|
|
52
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 3:
|
Property,
Plant and Equipment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated Useful
|
|
|
|
|
|
|
|
|
|
Lives
|
|
|
4/28/2007
|
|
|
4/29/2006
|
|
|
|
(Amounts in thousands)
|
|
|
Buildings and building fixtures
|
|
|
3-40 years
|
|
|
$
|
186,403
|
|
|
$
|
211,093
|
|
Machinery and equipment
|
|
|
3-30 years
|
|
|
|
151,896
|
|
|
|
171,407
|
|
Information systems
|
|
|
3-10 years
|
|
|
|
48,388
|
|
|
|
48,892
|
|
Land and land improvements
|
|
|
3-40 years
|
|
|
|
27,951
|
|
|
|
29,119
|
|
Transportation equipment
|
|
|
3-10 years
|
|
|
|
16,556
|
|
|
|
17,228
|
|
Other
|
|
|
3-20 years
|
|
|
|
12,135
|
|
|
|
11,464
|
|
Construction in progress
|
|
|
|
|
|
|
5,834
|
|
|
|
9,091
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
449,163
|
|
|
|
498,294
|
|
Accumulated depreciation
|
|
|
|
|
|
|
(265,945
|
)
|
|
|
(288,308
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net property, plant and equipment
|
|
|
|
|
|
$
|
183,218
|
|
|
$
|
209,986
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 4:
|
Goodwill
and Other Intangible Assets
|
In accordance with SFAS No. 142, we test goodwill and
trade names for impairment on an annual basis as of the end of
our fiscal year, unless conditions arise that warrant a more
frequent evaluation. We test our intangible assets by comparing
their fair value to their carrying values. The fair value for
each trade name is established based upon a royalty savings
approach. Additionally, goodwill is tested using a combination
of the discounted cash flows and the projected profitability of
the entity.
During the first quarter of fiscal 2007, we acquired several
La-Z-Boy
Furniture
Galleries®
stores in southeast Florida that were independently owned. We
recorded goodwill of $5.8 million relating to the
acquisition of this market. This acquisition impacted our
consolidated net sales by less than 1.0%. During the first half
of fiscal 2007, we experienced a greater than anticipated
decline in net sales in certain of our reporting units.
Additionally in the third quarter of fiscal 2007 we committed to
a plan to sell Sam Moore, a reporting unit which was part of the
Upholstery Group, and a plan to sell Clayton Marcus and
Pennsylvania House, which were included in our Casegoods Group.
These were considered to be triggering events under
SFAS No. 142 and resulted in evaluating our goodwill
and intangible assets for impairment in the third quarter of
fiscal 2007, in advance of our normal annual impairment
assessment in the fourth quarter. After completing this
assessment we determined that there was an indicated impairment
of the goodwill of Sam Moore and the intangible assets of
Pennsylvania House and Clayton Marcus. As a result we took
an impairment charge of $7.3 million, with no related tax
benefit, for the remaining goodwill of Sam Moore and we reduced
the carrying value of the intangible assets of Pennsylvania
House and Clayton Marcus by $3.6 million, $2.3 million
after tax, in line with the fair value determined by the
impairment assessment. These impairments were included as
discontinued operations in our Consolidated Statement of
Operations. The remaining trade names for these businesses of
$5.7 million were presented as assets of discontinued
operations as of the end of fiscal 2007.
We completed our normal annual assessment of goodwill impairment
under SFAS No. 142 in the fourth quarter of fiscal
2007, and concluded that the fair values of our remaining
goodwill and intangible assets were greater than their carrying
values and as such, no additional impairment charges were
necessary.
In the fourth quarter of fiscal 2006, the annual evaluation of
goodwill and trade names was performed. Following the evaluation
procedures, it was determined that our trade names were not
impaired. The carrying value of goodwill exceeded its fair value
for Bauhaus creating an impairment loss of $22.7 million
which was recorded as a component of operating income. In the
latter half of fiscal 2006, Bauhaus was impacted by several
large customer bankruptcies and the merger of two major
department stores, which reduced production causing the closure
of several production facilities. There was no tax benefit
recognized on this impairment charge.
53
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table summarizes the changes to goodwill and trade
names during fiscal 2007 and fiscal 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
|
|
|
Acquisitions,
|
|
|
Intangible
|
|
|
Transfer to
|
|
|
Balance
|
|
|
|
as of
|
|
|
Dispositions and
|
|
|
Write-
|
|
|
Held for
|
|
|
as of
|
|
Fiscal 2007
|
|
4/29/2006
|
|
|
Other
|
|
|
Down
|
|
|
Sale
|
|
|
4/28/2007
|
|
|
|
(Amounts in thousands)
|
|
|
Goodwill
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Upholstery Group
|
|
$
|
26,959
|
|
|
$
|
|
|
|
$
|
(7,327
|
)
|
|
$
|
|
|
|
$
|
19,632
|
|
Retail Group
|
|
|
21,845
|
|
|
|
6,060
|
|
|
|
|
|
|
|
|
|
|
|
27,905
|
|
Corporate and Other
|
|
|
8,122
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,122
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
56,926
|
|
|
$
|
6,060
|
|
|
$
|
(7,327
|
)
|
|
$
|
|
|
|
$
|
55,659
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tradenames
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Casegoods Group
|
|
$
|
18,794
|
|
|
$
|
|
|
|
$
|
(3,583
|
)
|
|
$
|
(5,739
|
)
|
|
$
|
9,472
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
|
|
|
Acquisitions,
|
|
|
Intangible
|
|
|
Transfer to
|
|
|
Balance
|
|
|
|
as of
|
|
|
Dispositions and
|
|
|
Write-
|
|
|
Held for
|
|
|
as of
|
|
Fiscal 2006
|
|
4/30/2005
|
|
|
Other
|
|
|
Down
|
|
|
Sale
|
|
|
4/29/2006
|
|
|
|
(Amounts in thousands)
|
|
|
Goodwill
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Upholstery Group
|
|
$
|
49,654
|
|
|
$
|
|
|
|
$
|
(22,695
|
)
|
|
$
|
|
|
|
$
|
26,959
|
|
Retail Group
|
|
|
21,994
|
|
|
|
(149
|
)
|
|
|
|
|
|
|
|
|
|
|
21,845
|
|
Corporate and Other
|
|
|
7,714
|
|
|
|
408
|
|
|
|
|
|
|
|
|
|
|
|
8,122
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
79,362
|
|
|
$
|
259
|
|
|
$
|
(22,695
|
)
|
|
$
|
|
|
|
$
|
56,926
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tradenames
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Casegoods Group
|
|
$
|
18,794
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
18,794
|
|
Corporate and other
|
|
|
2,690
|
|
|
|
(2,690
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
21,484
|
|
|
$
|
(2,690
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
18,794
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in other long-term assets were $34.8 million and
$32.4 million at April 28, 2007, and April 29,
2006, respectively, of available-for-sale marketable securities
to fund future obligations of one of our non-qualified
retirement plans and our captive insurance company.
The following is a summary of available-for-sale securities at
April 28, 2007, and April 29, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
Fiscal 2007
|
|
Unrealized Gains
|
|
|
Unrealized Losses
|
|
|
Fair Value
|
|
|
|
(Amounts in thousands)
|
|
|
Equity securities
|
|
$
|
3,278
|
|
|
$
|
(3
|
)
|
|
$
|
12,737
|
|
Fixed income
|
|
|
122
|
|
|
|
(146
|
)
|
|
|
21,014
|
|
Other
|
|
|
5
|
|
|
|
|
|
|
|
1,027
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities
|
|
$
|
3,405
|
|
|
$
|
(149
|
)
|
|
$
|
34,778
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
54
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
Fiscal 2006
|
|
Unrealized Gains
|
|
|
Unrealized Losses
|
|
|
Fair Value
|
|
|
|
(Amounts in thousands)
|
|
|
Equity securities
|
|
$
|
2,717
|
|
|
$
|
(6
|
)
|
|
$
|
12,573
|
|
Fixed income
|
|
|
30
|
|
|
|
(558
|
)
|
|
|
19,400
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
413
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities
|
|
$
|
2,747
|
|
|
$
|
(564
|
)
|
|
$
|
32,386
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes sales of available-for-sale
securities (for the fiscal years ended):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4/28/2007
|
|
|
4/29/2006
|
|
|
4/30/2005
|
|
|
|
(Amounts in thousands)
|
|
|
Proceeds from sales
|
|
$
|
17,342
|
|
|
$
|
12,983
|
|
|
$
|
1,672
|
|
Gross realized gains
|
|
|
987
|
|
|
|
773
|
|
|
|
173
|
|
Gross realized losses
|
|
|
(256
|
)
|
|
|
(91
|
)
|
|
|
(25
|
)
|
The fair value of fixed income available-for-sale securities by
contractual maturity was $2.5 million within one year,
$7.2 million within two to five years, $9.5 million
within six to ten years and $1.8 million thereafter.
|
|
Note 6:
|
Accrued
Expenses and Other Current Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
4/28/2007
|
|
|
4/29/2006
|
|
|
|
(Amounts in thousands)
|
|
|
Payroll and other compensation
|
|
$
|
49,649
|
|
|
$
|
56,411
|
|
Accrued product warranty, current
portion
|
|
|
9,208
|
|
|
|
13,534
|
|
Income taxes
|
|
|
9,820
|
|
|
|
4,901
|
|
Customer deposits
|
|
|
14,141
|
|
|
|
19,683
|
|
Other current liabilities
|
|
|
35,772
|
|
|
|
33,789
|
|
|
|
|
|
|
|
|
|
|
Accrued expenses and other current
liabilities
|
|
$
|
118,590
|
|
|
$
|
128,318
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
|
|
|
|
|
|
|
|
Interest Rate
|
|
|
Maturity
|
|
|
4/28/2007
|
|
|
4/29/2006
|
|
|
|
(Amounts in thousands)
|
|
|
Revolving credit facility
|
|
|
|
|
|
|
2010
|
|
|
$
|
|
|
|
$
|
25,000
|
|
Industrial revenue bonds
|
|
|
3.7-7.0
|
%
|
|
|
2010-2023
|
|
|
|
16,851
|
|
|
|
16,856
|
|
Private placement notes
|
|
|
6.5
|
%
|
|
|
2008
|
|
|
|
35,000
|
|
|
|
35,000
|
|
|
|
|
4.6
|
%
|
|
|
2010
|
|
|
|
36,000
|
|
|
|
36,000
|
|
|
|
|
5.3
|
%
|
|
|
2013
|
|
|
|
50,000
|
|
|
|
50,000
|
|
Other debt
|
|
|
5.5-13.7
|
%
|
|
|
2007-2011
|
|
|
|
9,768
|
|
|
|
11,020
|
|
Capital leases
|
|
|
7.0-8.3
|
%
|
|
|
2007-2011
|
|
|
|
1,783
|
|
|
|
2,336
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
|
|
|
|
|
|
|
|
149,402
|
|
|
|
176,212
|
|
Less: current portion
|
|
|
|
|
|
|
|
|
|
|
(37,688
|
)
|
|
|
(2,844
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
|
|
|
|
|
|
|
$
|
111,714
|
|
|
$
|
173,368
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average interest rate
|
|
|
|
|
|
|
|
|
|
|
5.2
|
%
|
|
|
4.8
|
%
|
Fair value of debt
|
|
|
|
|
|
|
|
|
|
$
|
148,462
|
|
|
$
|
173,415
|
|
55
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
On March 30, 2004, we entered into an unsecured
$150 million revolving credit facility agreement. The
facility has an accordion feature, enabling us to expand the
facility by $50 million with the same terms and conditions,
subject to approval by the banks that are a party to the
agreement. The agreement has a performance-based interest rate
pricing grid ranging from LIBOR plus 0.475% to LIBOR plus
0.800%, determined by our consolidated debt-to-capital ratio.
The agreement also requires that certain financial covenants be
met. On November 11, 2005, we executed a consent and waiver
with the lenders under our credit agreement clarifying that the
assets, liabilities and operating results of VIEs are to be
excluded for purposes of covenant calculations under the
agreement. On November 22, 2005, we executed an amendment
to the credit agreement to modify its fixed charge coverage
ratio requirements and interest rate provisions. On
February 9, 2007, we executed an amendment to our credit
agreement to modify its fixed charge coverage ratio requirements
and interest rate provisions and to reduce the facility from
$150 million to $100 million. The revolving credit
facility expires on May 1, 2009. At April 28, 2007, we
were in compliance with all of the covenants under this
facility. As of April 28, 2007, we had $100.0 million
available for future borrowings under this facility.
We have short-term borrowing arrangements with several banks
that allow us to borrow funds on demand. Our availability of
credit from short-term borrowing lines of credit total
$119.1 million, with no borrowings at April 28, 2007.
Industrial revenue bonds were used to finance the construction
of some of our manufacturing facilities. The facilities
constructed from the bond proceeds are mortgaged as collateral
for the bonds.
We had entered into several interest rate swap agreements with
counter-parties that were 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 was to fix interest rates on a notional
amount of $10 million through August 4, 2006, at 3.05%
plus the applicable borrowing spread under the revolving credit
facility.
Maturities of long-term debt, subsequent to April 28, 2007,
are $37.7 million in 2008, $2.2 million in 2009,
$43.1 million in 2010, $4.2 million in 2011,
$4.5 million in 2012 and $57.7 million thereafter.
Cash paid for interest during fiscal years 2007, 2006 and 2005
was $10.3 million, $11.5 million and
$10.1 million, respectively.
We have operating leases for manufacturing facilities, executive
and sales offices, warehouses, showrooms and retail facilities,
as well as for transportation equipment and data processing. The
operating leases expire at various dates through fiscal 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, data
processing and other equipment under capital leases expiring at
various dates through fiscal 2010.
We have certain retail facilities which we sublease to outside
parties.
56
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The future minimum rentals for all non-cancelable leases and
future rental income from subleases are as follows (for the
fiscal years):
|
|
|
|
|
|
|
|
|
|
|
Future
|
|
|
Future
|
|
|
|
Minimum Rentals
|
|
|
Minimum Income
|
|
|
|
(Amounts in thousands)
|
|
|
2008
|
|
$
|
42,255
|
|
|
$
|
1,430
|
|
2009
|
|
|
43,179
|
|
|
|
1,455
|
|
2010
|
|
|
40,003
|
|
|
|
1,472
|
|
2011
|
|
|
33,330
|
|
|
|
1,508
|
|
2012
|
|
|
29,141
|
|
|
|
1,526
|
|
2013 and beyond
|
|
|
174,919
|
|
|
|
10,770
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
362,827
|
|
|
$
|
18,161
|
|
|
|
|
|
|
|
|
|
|
Rental expense, rental income and contingent rentals for
operating leases were as follows (for the fiscal years ended):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4/28/2007
|
|
|
4/29/2006
|
|
|
4/30/2005
|
|
|
|
(Amounts in thousands)
|
|
|
Rental expense
|
|
$
|
47,357
|
|
|
$
|
43,169
|
|
|
$
|
35,773
|
|
Rental income
|
|
|
1,812
|
|
|
|
994
|
|
|
|
612
|
|
Contingent rents
|
|
|
388
|
|
|
|
390
|
|
|
|
408
|
|
|
|
Note 9:
|
Retirement
and 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 also maintain an
Executive Qualified Deferred Compensation plan for eligible
highly compensated employees. An element of this plan is the
Supplemental Executive Retirement Plan (SERP), which
allows contributions for eligible highly compensated employees.
We had life insurance contracts at April 28, 2007, and
April 29, 2006, of $18.0 million and
$18.3 million, respectively, included in other long-term
assets related to this plan which we expect to be held to
maturity.
We maintain a non-qualified defined benefit retirement plan for
certain former salaried employees. Included in other long-term
liabilities were plan obligations of $14.4 million and
$13.8 million at April 28, 2007, and April 29,
2006, respectively. During fiscal 2007, the interest cost
recognized for this plan was $0.9 million, the actuarial
gain recognized was $0.6 million and the benefit payments
during the year were $0.9 million. During fiscal 2006, the
interest cost recognized for this plan was $0.8 million,
the actuarial gain recognized was $1.3 million and the
benefit payments during the year were $0.8 million. This
plan is not funded and 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 beginning on August 1, 2006, these
contributions were made in cash. Prior to this date, the match
was made in our common shares. We also maintain defined benefit
pension plans for eligible factory hourly employees at some
operating units. Our largest plan has been frozen for new
participants since January 1, 2001, but active participants
still earn service cost. As discussed in Note 15, we closed
our Canadian manufacturing facility during fiscal 2006 and
terminated the pension plan associated with that business, which
caused a curtailment loss of $0.9 million in fiscal 2006
and a settlement charge of $1.3 million in fiscal 2007 as
shown in the table below.
The measurement dates for the pension plan assets and benefit
obligations were April 28, 2007, April 29, 2006, and
April 30, 2005, in the years presented.
As of April 29, 2006, previously unrecognized actuarial
losses were $9.9 million. As of April 28, 2007,
previously unrecognized differences between actual amounts and
estimates based on actuarial assumptions are
57
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
included in Accumulated Other Comprehensive Income (Loss) in our
Consolidated Balance Sheet as required by
SFAS No. 158. For fiscal 2007, we recognized
$8.2 million pre-tax ($4.9 million after tax) for
previously unrecognized net actuarial losses in Accumulated
Other Comprehensive Income. This adoption reduced our long-term
pension assets by $8.2 million in our Consolidated Balance
Sheet as of April 28, 2007. In future reporting periods,
the difference between actual amounts and estimates based on
actuarial assumptions will be recognized in Other Comprehensive
Income (Loss) in the period in which they occur.
The net periodic pension cost and retirement costs for
retirement plans were as follows (for the fiscal years ended):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4/28/2007
|
|
|
4/29/2006
|
|
|
4/30/2005
|
|
|
|
(Amounts in thousands)
|
|
|
Service cost
|
|
$
|
2,190
|
|
|
$
|
2,979
|
|
|
$
|
3,065
|
|
Interest cost
|
|
|
5,489
|
|
|
|
4,880
|
|
|
|
4,695
|
|
Expected return on plan assets
|
|
|
(6,717
|
)
|
|
|
(6,514
|
)
|
|
|
(6,126
|
)
|
Net amortization and deferral
|
|
|
98
|
|
|
|
1,202
|
|
|
|
(53
|
)
|
Curtailment/settlement loss
|
|
|
1,323
|
|
|
|
900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic pension cost
|
|
|
2,383
|
|
|
|
3,447
|
|
|
|
1,581
|
|
Profit sharing/SERP*
|
|
|
2,551
|
|
|
|
6,405
|
|
|
|
10,970
|
|
401(k)*
|
|
|
5,414
|
|
|
|
4,415
|
|
|
|
4,973
|
|
Other*
|
|
|
98
|
|
|
|
755
|
|
|
|
1,130
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total retirement costs
|
|
$
|
10,446
|
|
|
$
|
15,022
|
|
|
$
|
18,654
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Not determined by an actuary |
58
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The funded status of the defined benefit pension plans was as
follows:
|
|
|
|
|
|
|
|
|
|
|
4/28/2007
|
|
|
4/29/2006
|
|
|
|
(Amounts in thousands)
|
|
|
Change in benefit
obligation
|
|
|
|
|
|
|
|
|
Benefit obligation at beginning of
year
|
|
$
|
86,438
|
|
|
$
|
90,222
|
|
Service cost
|
|
|
2,190
|
|
|
|
2,979
|
|
Interest cost
|
|
|
5,489
|
|
|
|
4,880
|
|
Actuarial (gain)/loss
|
|
|
4,639
|
|
|
|
(6,635
|
)
|
Benefits paid
|
|
|
(8,320
|
)
|
|
|
(5,008
|
)
|
Curtailment
|
|
|
(1,241
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at end of year
|
|
|
89,195
|
|
|
|
86,438
|
|
Change in plan assets
|
|
|
|
|
|
|
|
|
Fair value of plan assets at
beginning of year
|
|
|
91,468
|
|
|
|
82,842
|
|
Actual return on plan assets
|
|
|
10,574
|
|
|
|
12,404
|
|
Employer contribution
|
|
|
204
|
|
|
|
1,230
|
|
Benefits paid
|
|
|
(8,320
|
)
|
|
|
(5,008
|
)
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at end
of year
|
|
$
|
93,926
|
|
|
$
|
91,468
|
|
|
|
|
|
|
|
|
|
|
Funded status
|
|
$
|
4,731
|
|
|
$
|
5,030
|
|
|
|
|
|
|
|
|
|
|
Pension plans in which
accumulated benefit obligation exceeds plan assets at end of
year
|
|
|
|
|
|
|
|
|
Accumulated benefit obligation
|
|
$
|
10,982
|
|
|
$
|
3,716
|
|
Fair value of plan assets
|
|
$
|
10,956
|
|
|
$
|
3,671
|
|
Amounts recognized in the Consolidated Balance Sheet consist of:
|
|
|
|
|
|
|
|
|
|
|
4/28/2007
|
|
|
4/29/2006
|
|
|
|
(Amounts in thousands)
|
|
|
Prepaid benefit cost
|
|
$
|
4,757
|
|
|
$
|
14,960
|
|
Accrued benefit liability
|
|
|
(26
|
)
|
|
|
(1,291
|
)
|
Accumulated other comprehensive
loss
|
|
|
|
|
|
|
1,291
|
|
|
|
|
|
|
|
|
|
|
Net amount recognized
|
|
$
|
4,731
|
|
|
$
|
14,960
|
|
|
|
|
|
|
|
|
|
|
The weighted average actuarial assumptions were as follows (for
the fiscal years ended):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4/28/2007
|
|
|
4/29/2006
|
|
|
4/30/2005
|
|
|
Discount rate used to determine
benefit obligations
|
|
|
6.1
|
%
|
|
|
6.4
|
%
|
|
|
5.5
|
%
|
Discount rate used to determine
net benefit cost
|
|
|
6.4
|
%
|
|
|
5.5
|
%
|
|
|
6.0
|
%
|
Long-term rate of return
|
|
|
8.0
|
%
|
|
|
8.0
|
%
|
|
|
8.0
|
%
|
Our non-qualified retirement plan was not funded at
April 28, 2007 or April 29, 2006. We do not expect to
fund our non-qualified defined benefit retirement plan as we
hold funds equal to the liability of the plan in a rabbi trust.
We are not required to make any contributions to the defined
benefit plans in fiscal year 2008; however, we reserve the right
to make discretionary contributions. In fiscal 2008, we do not
expect to amortize any unrecognized actuarial losses as a
component of pension expense.
59
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Our long-term stated investment objective is to maximize the
investment return with the least amount of risk through a
combination of capital appreciation and income. The strategic
asset allocation targets are 65% equities and 35% fixed income
within a range of 5% of the target. In selecting the expected
long-term rate of return on assets, we considered the average
rate of earnings expected on the funds invested or to be
invested to provide the benefits of these plans. This included
considering the trusts asset allocation and the expected
returns likely to be earned over the life of the plans. This
basis is consistent with the prior year.
The weighted average asset allocations at year end were as
follows:
|
|
|
|
|
|
|
|
|
|
|
4/28/2007
|
|
|
4/29/2006
|
|
|
Equity securities
|
|
|
71
|
%
|
|
|
69
|
%
|
Debt securities
|
|
|
29
|
%
|
|
|
31
|
%
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
The expected benefit payments by our pension plans for each of
the next five years and for periods thereafter are presented in
the following table:
|
|
|
|
|
|
|
Benefit Payments
|
|
|
|
(Amounts in thousands)
|
|
|
2008
|
|
$
|
4,058
|
|
2009
|
|
|
3,823
|
|
2010
|
|
|
4,016
|
|
2011
|
|
|
4,217
|
|
2012
|
|
|
4,423
|
|
2013 and thereafter
|
|
|
30,924
|
|
|
|
|
|
|
|
|
$
|
51,461
|
|
|
|
|
|
|
|
|
Note 10:
|
Financial
Guarantees and Product Warranties
|
We have provided secured and unsecured financial guarantees
relating to leases in connection with certain
La-Z-Boy
Furniture
Galleries®
stores which are not operated by the company. The lease
guarantees are generally for real estate leases and have terms
from five to eleven years. These lease guarantees enhance the
credit of these dealers. The dealer is required to make periodic
fee payments to compensate us for our guarantees. We have
recognized liabilities for the fair values of the lease
agreements that we have entered into, but they 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 lease. The maximum amount of
potential future payments under lease guarantees was
$14.6 million as of April 28, 2007.
We have, on occasion, entered into agreements which resulted in
indemnifying third parties against certain liabilities, mainly
environmental obligations. 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 generally to
accrue an estimated liability at the time the revenue is
recognized. This estimate is based on historical claims and
adjusted for currently known specific warranty issues. Warranty
expense is recorded as a component of S,G&A.
60
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
A reconciliation of the changes in our product warranty
liability is as follows:
|
|
|
|
|
|
|
|
|
|
|
4/28/2007
|
|
|
4/29/2006
|
|
|
|
(Amounts in thousands)
|
|
|
Balance as of the beginning of the
year
|
|
$
|
19,655
|
|
|
$
|
18,688
|
|
Accruals during the year
|
|
|
14,938
|
|
|
|
14,347
|
|
Other adjustments during the year
|
|
|
(4,179
|
)
|
|
|
(1,015
|
)
|
Adjustments for discontinued
operations
|
|
|
(1,521
|
)
|
|
|
|
|
Settlements during the period
|
|
|
(14,910
|
)
|
|
|
(12,365
|
)
|
|
|
|
|
|
|
|
|
|
Balance as of the end of the period
|
|
$
|
13,983
|
|
|
$
|
19,655
|
|
|
|
|
|
|
|
|
|
|
Other adjustments of $4.2 million reflect our current trend
towards lower aggregate warranty costs, particularly costs
incurred one year after sale of the product. The adjustment also
reflects remediation of other specific warranty-related issues.
Together, these items have reduced the reserve for future
warranty costs.
|
|
Note 11:
|
Contingencies
and Commitments
|
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 losses arising from legal and environmental matters
and do not believe that a material additional loss is reasonably
possible for legal or environmental matters.
|
|
Note 12:
|
Stock-Based
Compensation
|
On April 30, 2006, we adopted the fair-value recognition
provisions of Statement of Financial Accounting Standards
No. 123 (revised 2004) Share-Based Payment
(SFAS No. 123(R)) using a
modified-prospective transition method.
SFAS No. 123(R) supersedes APB Opinion No. 25,
Accounting for Stock Issued to Employees and requires us
to record compensation cost for all stock awards granted after
the required effective date and for awards modified, repurchased
or canceled after that date. In addition, we are required to
record compensation expense (as previous awards continue to
vest) for the unvested portion of previously granted awards that
remain outstanding at the date of adoption. In March 2005, the
SEC issued Staff Accounting Bulletin No. 107
(SAB 107) relating to
SFAS No. 123(R). We have applied the provisions of
SAB 107 in our adoption of SFAS No. 123(R).
In fiscal 2005, our shareholders approved a long-term equity
award plan which replaced the former employee incentive stock
option plan, the former employee restricted share plan and the
former performance-based stock plan. The new plan allows for
awards in the form of performance awards, restricted shares and
non-qualified stock options. Under this new plan, the aggregate
number of common shares that may be issued through awards of any
form is 5.0 million. No further grants or awards may be
issued under the former plans.
The long-term equity award plan and the former employee
incentive stock option plan provide grants to certain employees
to purchase common shares at a specified price, which may not be
less than 100% of the current market price of the stock at the
date of grant. Granted options generally become exercisable at
25% per year, beginning one year from the date of grant for a
term of five years. Granted options outstanding under the former
plan remain in effect and become exercisable at 25% per year,
beginning one year from the date of grant for a term of five or
ten years. Additionally, we have outstanding options that were
issued to replace outstanding options of a company acquired in
fiscal 2000. The options outstanding under this plan as of
April 28, 2007, were 15,045 with a weighted average
exercise price of $19.15 per share. There are no shares
available for future grant under this plan.
Stock option expense recognized in Selling, General and
Administrative expense under SFAS No. 123(R) for the
twelve months ended April 28, 2007 was $2.4 million.
This expense reduced net income by $1.7 million and
earnings per share by $0.03 for the twelve months ended
April 28, 2007. We received less than $0.1 million in
cash during fiscal 2007 for exercises of stock options.
61
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Plan activity for stock options under the above plans is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
Number of
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
Shares
|
|
|
Price
|
|
|
Term (Years)
|
|
|
Value
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
Outstanding at April 29, 2006
|
|
|
2,325
|
|
|
$
|
18.29
|
|
|
|
4.2
|
|
|
$
|
1,151
|
|
Granted
|
|
|
649
|
|
|
|
13.26
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(4
|
)
|
|
|
13.57
|
|
|
|
|
|
|
|
5
|
|
Expired
|
|
|
(542
|
)
|
|
|
20.21
|
|
|
|
|
|
|
|
|
|
Cancelled
|
|
|
(172
|
)
|
|
|
13.88
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at April 28, 2007
|
|
|
2,256
|
|
|
|
16.63
|
|
|
|
4.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at April 28, 2007
|
|
|
1,128
|
|
|
$
|
19.03
|
|
|
|
4.7
|
|
|
|
|
|
Available for grants at
April 28, 2007
|
|
|
3,290
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of April 28, 2007, there was $2.8 million of total
unrecognized compensation cost related to non-vested stock
option awards which is expected to be recognized over a
weighted-average remaining vesting term of all unvested awards
of 1.7 years. During the twelve months ended April 28,
2007, 0.6 million shares vested. The aggregate intrinsic
value of options exercised during fiscal 2006 and fiscal 2005
was less than $0.1 million and $0.2 million,
respectively.
The fair value of each option grant was estimated using the
Black-Scholes option-pricing model. For the options granted in
the second quarter ended October 28, 2006, expected
volatility was estimated based on the historical volatility of
our common shares. The average expected life was based on the
contractual term of the stock option and expected employee
exercise and post-vesting employment termination trends. The
risk-free rate was based on U.S. Treasury issues with a
term equal to the expected life assumed at the date of grant.
Turnover rate was estimated at the date of grant based on
historical experience. The fair value of employee stock options
granted during the second quarter of fiscal 2007 was calculated
using the following assumptions:
|
|
|
|
|
|
|
4/28/2007
|
|
|
Risk-free interest rate
|
|
|
4.8
|
%
|
Dividend rate
|
|
|
3.2
|
%
|
Expected life in years
|
|
|
4.0
|
|
Stock price volatility
|
|
|
35.0
|
%
|
Turnover rate
|
|
|
3.0
|
%
|
Fair Value Per Share
|
|
$
|
3.47
|
|
Under the long-term equity award plan, the Compensation
Subcommittee of the Board of Directors is authorized to award
restricted common shares to certain employees. The shares are
offered at no cost to the employees, and the plan requires that
all shares be held in an escrow account for a period of three to
five years. In the event of an employees termination
during the escrow period, the shares are returned to the company
at no cost to the company. Restricted stock issued is recorded
based on the market value of our common shares on the date of
the award and the related compensation expense is recognized
over the vesting period. Expense relating to the restricted
shares recorded in Selling, General and Administrative expense
was $1.6 million with an after-tax effect of
$1.0 million during fiscal 2007, and $0.8 million with
an after-tax effect of $0.5 million during fiscal 2006. The
unrecognized compensation cost at April 28, 2007 was
$3.2 million and is expected to be recognized over a
weighted-average remaining contractual term of all unvested
awards of 2.6 years.
62
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table summarizes information about non-vested
share awards as of and for the year ended April 28, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
Number of
|
|
|
Grant Date
|
|
|
|
Shares
|
|
|
Fair Value
|
|
|
|
(In thousands)
|
|
|
|
|
|
Non-vested shares at
April 29, 2006
|
|
|
283
|
|
|
$
|
14.59
|
|
Granted
|
|
|
184
|
|
|
|
13.43
|
|
Vested
|
|
|
(42
|
)
|
|
|
14.81
|
|
Cancelled
|
|
|
(59
|
)
|
|
|
14.28
|
|
|
|
|
|
|
|
|
|
|
Non-vested at April 28, 2007
|
|
|
366
|
|
|
$
|
14.03
|
|
|
|
|
|
|
|
|
|
|
Our shareholders have approved a non-employee directors
restricted share plan, under which shares are offered at 25% of
the fair market value at the date of grant. The plan requires
that all shares be held in an escrow account until the
participants service as a director ceases unless otherwise
approved by the Board of Directors. In the event of a
non-employee directors termination during the escrow
period, the shares must be sold back to us at their cost.
Restricted stock issued is recorded based on the market value of
our common shares on the date of the award and the related
compensation expense is recognized when the grant occurs. Actual
pre-tax expense relating to the restricted shares was
$0.3 million and $0.2 million during fiscal 2007 and
fiscal 2006, respectively.
Additionally under the long-term equity award plan, the
Compensation Subcommittee of the Board of Directors is
authorized to award common shares to certain employees based on
the attainment of certain financial goals over a given
performance period. The shares are offered at no cost to the
employees. In the event of an employees termination during
the performance period, the potential right to earn shares under
this program is generally forfeited. No shares were issued
during fiscal 2007 or fiscal 2006. The cost of performance-based
awards is expensed over the performance period. No expense was
recognized during fiscal 2007 as we did not expect the financial
goals to be attained for any of the outstanding performance
periods. In fiscal 2006 and fiscal 2005, expenses of
$0.5 million and $1.5 million, respectively, were
reversed relating to prior year accruals for previously
anticipated payouts on this plan as financials goals were not
attained.
|
|
Note 13:
|
Accumulated
Other Comprehensive Income
|
The components of accumulated other comprehensive income, are as
follows:
|
|
|
|
|
|
|
|
|
|
|
4/28/2007
|
|
|
4/29/2006
|
|
|
|
(Amounts in thousands)
|
|
|
Translation adjustment
|
|
$
|
5,483
|
|
|
$
|
4,066
|
|
Cash flow hedges
|
|
|
(85
|
)
|
|
|
33
|
|
Unrealized gains/(losses) on
marketable securities
|
|
|
2,049
|
|
|
|
1,362
|
|
Pension
|
|
|
(5,655
|
)
|
|
|
(1,028
|
)
|
|
|
|
|
|
|
|
|
|
Total accumulated other
comprehensive income
|
|
$
|
1,792
|
|
|
$
|
4,433
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 14:
|
Segment
Information
|
Our reportable operating segments are the Upholstery Group, the
Casegoods Group and the Retail Group. On July 28, 2006, we
sold our American of Martinsville division which was part of our
Casegoods Group, as it was not strategically aligned with our
current business model as a residential furniture company. On
April 28, 2007 we sold our Sam Moore operating unit, which
was included in our Upholstery Group, to continue aligning our
business with our strategic plan. Additionally, in the third
quarter of fiscal 2007, we committed to a plan to sell Clayton
Marcus and Pennsylvania House which were included in the
Casegoods Group. These businesses have been presented as
63
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
discontinued operations and prior financial information was
restated for the change in composition of our Upholstery and
Casegoods Groups. Income statement information presented below
is restated accordingly.
Upholstery Group. The operating units in the
Upholstery Group are Bauhaus, England,
La-Z-Boy,
and La-Z-Boy
U.K. 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.
Casegoods Group. The operating units in the
Casegoods Group are American Drew, Lea, Hammary and Kincaid.
This group primarily sells manufactured or imported wood
furniture to furniture retailers. Casegoods product includes
tables, chairs, entertainment centers, headboards, dressers,
accent pieces and some upholstered furniture.
Retail Group. The Retail Group consists of
70 company-owned
La-Z-Boy
Furniture
Galleries®
stores. The Retail Group primarily sells upholstered furniture
to end consumers.
Our largest customer represents less than 5.0% 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 a portion of cash and equivalents), VIEs and
various other assets. Substantially all of our long-lived assets
were located within the U.S. VIEs are included in Corporate
and other in the following table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4/28/2007
|
|
|
4/29/2006
|
|
|
4/30/2005
|
|
|
|
(Amounts in thousands)
|
|
|
Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
Upholstery Group
|
|
$
|
1,194,220
|
|
|
$
|
1,265,952
|
|
|
$
|
1,379,684
|
|
Casegoods Group
|
|
|
262,721
|
|
|
|
292,553
|
|
|
|
309,792
|
|
Retail Group
|
|
|
220,319
|
|
|
|
213,438
|
|
|
|
173,099
|
|
VIEs/Eliminations
|
|
|
(59,958
|
)
|
|
|
(76,931
|
)
|
|
|
(47,373
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
1,617,302
|
|
|
|
1,695,012
|
|
|
|
1,815,202
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
(loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
Upholstery Group
|
|
|
78,724
|
|
|
|
83,160
|
|
|
|
99,779
|
|
Casegoods Group
|
|
|
20,289
|
|
|
|
17,125
|
|
|
|
14,010
|
|
Retail Group
|
|
|
(31,161
|
)
|
|
|
(26,006
|
)
|
|
|
(2,859
|
)
|
Corporate and Other*
|
|
|
(24,864
|
)
|
|
|
(28,565
|
)
|
|
|
(29,938
|
)
|
Restructuring
|
|
|
(11,033
|
)
|
|
|
(8,479
|
)
|
|
|
(2,931
|
)
|
Intangible write-down
|
|
|
|
|
|
|
(22,695
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
31,955
|
|
|
|
14,540
|
|
|
|
78,061
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and
Amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
Upholstery Group
|
|
|
13,723
|
|
|
|
13,282
|
|
|
|
14,230
|
|
Casegoods Group
|
|
|
3,002
|
|
|
|
3,594
|
|
|
|
3,773
|
|
Retail Group
|
|
|
4,806
|
|
|
|
3,801
|
|
|
|
2,710
|
|
Corporate and Other*
|
|
|
4,065
|
|
|
|
3,834
|
|
|
|
3,062
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
25,596
|
|
|
|
24,511
|
|
|
|
23,775
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
64
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4/28/2007
|
|
|
4/29/2006
|
|
|
4/30/2005
|
|
|
|
(Amounts in thousands)
|
|
|
Capital Expenditures
|
|
|
|
|
|
|
|
|
|
|
|
|
Upholstery Group
|
|
|
10,172
|
|
|
|
14,782
|
|
|
|
13,275
|
|
Casegoods Group
|
|
|
1,051
|
|
|
|
3,027
|
|
|
|
3,621
|
|
Retail Group
|
|
|
7,356
|
|
|
|
4,038
|
|
|
|
7,126
|
|
Corporate and Other*
|
|
|
7,232
|
|
|
|
6,144
|
|
|
|
10,749
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
25,811
|
|
|
|
27,991
|
|
|
|
34,771
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Upholstery Group
|
|
|
472,854
|
|
|
|
493,702
|
|
|
|
564,689
|
|
Casegoods Group
|
|
|
125,234
|
|
|
|
231,092
|
|
|
|
250,133
|
|
Retail Group
|
|
|
123,208
|
|
|
|
103,611
|
|
|
|
97,805
|
|
Unallocated Assets
|
|
|
157,395
|
|
|
|
128,347
|
|
|
|
113,730
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
878,691
|
|
|
$
|
956,752
|
|
|
$
|
1,026,357
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales by Country
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
|
90
|
%
|
|
|
92
|
%
|
|
|
91
|
%
|
Canada
|
|
|
7
|
%
|
|
|
6
|
%
|
|
|
6
|
%
|
Other
|
|
|
3
|
%
|
|
|
2
|
%
|
|
|
3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Variable Interest Entities (VIEs) are included in
corporate and other. |
In the fourth quarter of fiscal 2007, we committed to a
restructuring plan which included the closures of our
Lincolnton, North Carolina and Iuka, Mississippi upholstery
manufacturing facilities, the closure of our rough mill lumber
operation in North Wilkesboro, North Carolina, the consolidation
of operations at our Kincaid Taylorsville, North Carolina
upholstery operation and the elimination of a number of
positions throughout the remainder of the organization. The
Lincolnton and Iuka facility closures will occur in the first
quarter of fiscal 2008 and will impact approximately 250 and
150 employees, respectively. The closure of our North
Wilkesboro lumber operation, the consolidation of operations at
Kincaids Taylorsville operation and the remaining
activities occurred in the fourth quarter of fiscal 2007 and
impacted approximately 100 positions. These decisions were made
to help align our company with the current business environment
and strengthen our positioning going forward. We recorded
pre-tax restructuring charges of $4.3 million or $0.05 per
diluted share covering severance and benefits, write-down of
certain fixed assets in addition to other restructuring costs
which were expensed as incurred. Of these costs
$4.0 million was reported as a component of Cost of Sales
with the remainder in Selling, General and Administrative. The
write-down was accounted for in accordance with
SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. All other costs were
accounted for in accordance with SFAS No. 146,
Accounting for Costs Associated with Exit or Disposal
Activities.
Offsetting these expenses during the year was a pre-tax gain of
$2.0 million or $0.02 per diluted share relating to the
sale of properties idled as part of previous restructurings.
These gains were recorded as a component of cost of sales.
During fiscal 2007, several of our Retail warehouses were
consolidated into larger facilities and several underperforming
stores were closed. Approximately 85 jobs were eliminated as a
result of these closures. We recorded pre-tax restructuring
charges of $7.3 million or $0.08 per diluted share covering
contract termination costs for the leases on these facilities,
severance and benefits, write-down of certain leasehold
improvements in addition to other relocation costs which were
expensed as incurred. These costs were reported as a component
of Selling, General and Administrative costs. The write-down was
accounted for in accordance with SFAS No. 144,
65
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Accounting for the Impairment or Disposal of Long-Lived
Assets. All other costs were accounted for in accordance
with SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities.
As of April 28, 2007, we had a remaining restructuring
liability of $3.4 million which is expected to be paid out
or written off as follows: $2.4 million in fiscal 2008,
$0.4 million in fiscal 2009, $0.4 million in fiscal
2010 and $0.2 million thereafter.
In the second quarter of fiscal 2006, the decision was made to
close our Canadian upholstery manufacturing facility due to
underutilization of capacity. The plant closure occurred in the
third quarter of fiscal 2006 and production was absorbed in
other upholstery facilities. Approximately 413 jobs were
eliminated as a result of this closure. During fiscal 2006,
pre-tax restructuring charges for our Canadian facility were
$8.9 million, or $0.11 per diluted share, covering
severance and benefits, appropriate adjustments to our pension
liability and the write-down of certain fixed assets. Severance
costs and other costs for this restructuring were expensed in
accordance with SFAS No. 112, Employers
Accounting for Postemployment Benefits and
SFAS No. 146. The write-down was accounted for
in accordance with SFAS No. 144. During the fourth
quarter of fiscal 2007, we recorded a pre-tax restructuring
charge of $1.3 million or $0.02 per diluted share related
to the settlement of the Canadian pension plan.
Restructuring liabilities along with charges to expense, cash
payments or asset write-downs were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments
|
|
|
|
|
|
|
4/29/2006
|
|
|
Charges to
|
|
|
or Asset
|
|
|
4/28/2007
|
|
|
|
Balance
|
|
|
Expense
|
|
|
Write-Offs
|
|
|
Balance
|
|
|
|
(Amounts in thousands)
|
|
|
Severance and benefit-related costs
|
|
$
|
891
|
|
|
$
|
2,537
|
|
|
$
|
(1,251
|
)
|
|
$
|
2,177
|
|
Fixed asset write-downs, net of
gains
|
|
|
|
|
|
|
1,091
|
|
|
|
(1,091
|
)
|
|
|
|
|
Contract termination costs
|
|
|
|
|
|
|
3,441
|
|
|
|
(2,184
|
)
|
|
|
1,257
|
|
Other
|
|
|
|
|
|
|
3,964
|
|
|
|
(3,964
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total restructuring
|
|
$
|
891
|
|
|
$
|
11,033
|
|
|
$
|
(8,490
|
)
|
|
$
|
3,434
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments
|
|
|
|
|
|
|
4/30/2005
|
|
|
Charges to
|
|
|
or Asset
|
|
|
4/29/2006
|
|
|
|
Balance
|
|
|
Expense
|
|
|
Write-Offs
|
|
|
Balance
|
|
|
|
(Amounts in thousands)
|
|
|
Fixed asset write-downs, net of
gains
|
|
$
|
|
|
|
$
|
(2,327
|
)
|
|
$
|
2,327
|
|
|
$
|
|
|
Severance and benefit-related costs
|
|
|
38
|
|
|
|
8,970
|
|
|
|
(8,117
|
)
|
|
|
891
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total restructuring
|
|
$
|
38
|
|
|
$
|
6,643
|
|
|
$
|
(5,790
|
)
|
|
$
|
891
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
66
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The primary components of our deferred tax assets and
(liabilities) were as follows:
|
|
|
|
|
|
|
|
|
|
|
4/28/2007
|
|
|
4/29/2006
|
|
|
|
(Amounts in thousands)
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Deferred and other compensation
|
|
$
|
14,631
|
|
|
$
|
13,890
|
|
Warranty
|
|
|
5,854
|
|
|
|
7,810
|
|
Allowance for doubtful accounts
|
|
|
5,307
|
|
|
|
7,212
|
|
Consolidation of variable interest
entities
|
|
|
9,221
|
|
|
|
5,705
|
|
State income tax
|
|
|
13,132
|
|
|
|
11,096
|
|
Restructuring
|
|
|
3,411
|
|
|
|
2,002
|
|
Workers compensation
|
|
|
226
|
|
|
|
929
|
|
Pension
|
|
|
4,713
|
|
|
|
|
|
Employee benefits
|
|
|
373
|
|
|
|
4,228
|
|
Other
|
|
|
5,240
|
|
|
|
1,376
|
|
Valuation reserve
|
|
|
(11,520
|
)
|
|
|
(10,422
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
50,588
|
|
|
|
43,826
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Trade names
|
|
|
(8,218
|
)
|
|
|
(7,049
|
)
|
Pension
|
|
|
(1,830
|
)
|
|
|
(5,457
|
)
|
Property, plant and equipment
|
|
|
(7,716
|
)
|
|
|
(13,902
|
)
|
Inventory
|
|
|
|
|
|
|
(2,660
|
)
|
Other
|
|
|
(161
|
)
|
|
|
(2,030
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
(17,925
|
)
|
|
|
(31,098
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
32,663
|
|
|
$
|
12,728
|
|
|
|
|
|
|
|
|
|
|
Our effective tax rate differs from the U.S. federal income
tax rate for the following reasons:
|
|
|
|
|
|
|
|
|
|
|
|
|
(% of Pre-Tax Income)
|
|
4/28/2007
|
|
|
4/29/2006
|
|
|
4/30/2005
|
|
|
Statutory tax rate
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
Increase (reduction) in income
taxes resulting from:
|
|
|
|
|
|
|
|
|
|
|
|
|
State income taxes, net of federal
benefit
|
|
|
1.6
|
|
|
|
28.6
|
|
|
|
4.1
|
|
Goodwill impairment
|
|
|
|
|
|
|
153.7
|
|
|
|
|
|
Dividend from foreign subsidiary
|
|
|
|
|
|
|
|
|
|
|
0.4
|
|
Non-deductible meals and
entertainment
|
|
|
1.1
|
|
|
|
8.0
|
|
|
|
0.6
|
|
ESOP benefit
|
|
|
(1.4
|
)
|
|
|
(8.7
|
)
|
|
|
(0.7
|
)
|
Change in valuation allowance
|
|
|
(2.2
|
)
|
|
|
17.4
|
|
|
|
(1.5
|
)
|
Foreign tax rate differential
|
|
|
(1.7
|
)
|
|
|
(0.5
|
)
|
|
|
(0.5
|
)
|
Increase in value of life
insurance contracts
|
|
|
(0.1
|
)
|
|
|
(12.1
|
)
|
|
|
|
|
Federal income tax credits
|
|
|
(1.6
|
)
|
|
|
(6.2
|
)
|
|
|
(0.2
|
)
|
Deduction for U.S. manufacturing
|
|
|
(0.5
|
)
|
|
|
(6.5
|
)
|
|
|
|
|
Deferred tax
repatriation of foreign earnings
|
|
|
3.2
|
|
|
|
|
|
|
|
|
|
Non-deductible stock option expense
|
|
|
1.0
|
|
|
|
|
|
|
|
|
|
Miscellaneous items
|
|
|
(0.6
|
)
|
|
|
(0.5
|
)
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate
|
|
|
33.8
|
%
|
|
|
208.2
|
%
|
|
|
37.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
67
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
At April 28, 2007 and April 29, 2006, we had state net
operating losses and credits of approximately $12.4 million
and $11.1 million, respectively. Due to the uncertainty of
their actual utilization we have established a valuation reserve
at the end of each year in the amounts of $10.1 million and
$8.7 million, respectively. These state net operating
losses and credits expire between fiscal year 2008 and fiscal
year 2027.
Furthermore at April 28, 2007 and April 29, 2006, our
foreign operating units had realized net operating losses that,
if fully utilized, would result in a tax reduction of
approximately $3.7 million and $3.6 million,
respectively. Due to the uncertainty of their actual
utilization, we have established a valuation reserve of
$1.4 million and $1.8 million at April 28, 2007
and April 29, 2006, respectively. The net decrease of
$0.4 million is due to an increase in the valuation reserve
for our European operations in the amount of $0.4 million
and a decrease of $0.8 million relative to our Canadian
operations. The Canadian reduction is in part due to recent
Canadian legislation that extended the net operating loss carry
forward period from 10 to 20 years.
During fiscal year 2007, our
La-Z-Boy UK
operating unit recognized a substantial gain on the sale of real
estate. Due to our intentions to repatriate the net proceeds
from this transaction, a deferred tax liability of
$0.9 million was recorded relative to all of
La-Z-Boy
UKs undistributed profits.
For our Thailand operating unit, we continue to assert that the
earnings of this operating unit are permanently reinvested.
Consequently, no deferred tax was recorded for their
undistributed earnings. An estimate of these permanently
reinvested earnings is $2.4 million. The potential deferred
tax attributable to these earnings is not currently estimable.
Income tax expense applicable to continuing operations consists
of the following components (for the fiscal years ended):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4/28/2007
|
|
|
4/29/2006
|
|
|
4/30/2005
|
|
|
|
(Amounts in thousands)
|
|
|
Federal current
|
|
$
|
14,475
|
|
|
$
|
14,287
|
|
|
$
|
10,752
|
|
deferred
|
|
|
(7,976
|
)
|
|
|
(4,422
|
)
|
|
|
11,746
|
|
State current
|
|
|
3,501
|
|
|
|
2,091
|
|
|
|
2,479
|
|
deferred
|
|
|
(2,144
|
)
|
|
|
178
|
|
|
|
(1,146
|
)
|
Foreign current
|
|
|
2,682
|
|
|
|
214
|
|
|
|
2,073
|
|
deferred
|
|
|
(448
|
)
|
|
|
(1,590
|
)
|
|
|
(541
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax expense
|
|
$
|
10,090
|
|
|
$
|
10,758
|
|
|
$
|
25,363
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes consists
of the following (for the fiscal years ended):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4/28/2007
|
|
|
4/29/2006
|
|
|
4/30/2005
|
|
|
|
(Amounts in thousands)
|
|
|
United States
|
|
$
|
20,043
|
|
|
$
|
11,588
|
|
|
$
|
62,390
|
|
Foreign
|
|
|
9,815
|
|
|
|
(6,420
|
)
|
|
|
5,402
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
29,858
|
|
|
$
|
5,168
|
|
|
$
|
67,792
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for taxes during the fiscal years ended April 28,
2007, April 29, 2006, and April 30, 2005, was
$16.7 million, $6.2 million, and $23.7 million,
respectively.
|
|
Note 17:
|
Variable
Interest Entities
|
Financial Accounting Standards Board Interpretation
No. 46R, Consolidation of Variable Interest Entities
(FIN 46), requires the primary
beneficiary of a VIE to include the VIEs assets,
liabilities and operating results in its consolidated financial
statements. In general, a VIE is a corporation, partnership,
limited-liability company, trust or any other legal structure
used to conduct activities or hold assets that either
(a) has an insufficient amount of equity to carry out its
principal activities without additional subordinated financial
support, (b) has a group of equity
68
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
owners that are unable to make significant decisions about its
activities, or (c) has a group of equity owners that do not
have the obligation to absorb losses or the right to receive
returns generated by its operations.
La-Z-Boy
Furniture
Galleries®
stores that are not operated by us are operated by independent
dealers. These stores sell
La-Z-Boy
manufactured products as well as various accessories purchased
from approved
La-Z-Boy
vendors. In some cases we have extended credit beyond normal
trade terms to the independent dealers, made direct loans
and/or
guaranteed certain leases. Most of these independent dealers
have sufficient equity to carry out their principal operating
activities without subordinated financial support. However,
there are certain independent dealers that we have determined
may not have sufficient equity.
Based on the criteria for consolidation of VIEs, we have
consolidated several dealers where we were the primary
beneficiary based on the fair value of our variable interests.
All of our consolidated VIEs were recorded at fair value on the
date we became the primary beneficiary. Because these entities
are accounted for as if the entities were consolidated based on
voting interests, we absorb all net losses of the VIEs in excess
of the equity at the dealerships. We recognize all net earnings
of these VIEs to the extent of recouping the losses we recorded.
Earnings in excess of our losses are attributed to equity owners
of the dealers and are recorded as minority interest. We had
three consolidated VIEs for the first quarter of fiscal 2006 and
had four consolidated VIEs for the last three quarters of fiscal
2006 and throughout fiscal 2007.
Our consolidated VIEs recognized $45.6 million,
$36.8 million and $46.0 million of sales, net of
intercompany eliminations, in fiscal 2007, fiscal 2006 and
fiscal 2005, respectively. Additionally, we recognized a net
loss per share of $0.11, $0.09 and $0.11 in fiscal 2007, fiscal
2006 and fiscal 2005, respectively, resulting from the operating
results of these VIEs. The VIEs had $2.8 million and
$8.6 million of assets net of elimination of intercompany
activity at the end of fiscal 2007 and fiscal 2006,
respectively. During the third quarter of fiscal 2005, one of
the equity owners of our VIEs contributed $2.0 million of
capital to their business. Because we consolidated this entity
based on voting interests, we recorded the capital contribution
as income in that period to offset previously recorded losses.
In fiscal 2005, the extraordinary gain of $3.4 million
($2.1 million net of income taxes) is a result of the
application of purchase accounting relating to the acquisition
of previously consolidated VIEs.
|
|
Note 18:
|
Acquisitions,
Dispositions, and Discontinued Operations
|
Acquisitions
In the first quarter of fiscal 2007, we acquired six stores in
the southeastern Florida market from a dealer who was previously
a VIE of which we were not the primary beneficiary. This
acquisition impacted our consolidated net sales by less than
1.0%. Pro forma sales and results of operations were not
presented as they were not materially different from that of our
consolidated results of operations as reported.
Dispositions
During fiscal 2007, we sold several long-lived assets which
generated $47.0 million in cash and $14.1 million of
gains, which were recorded as a component of S,G&A.
Discontinued
Operations
On July 28, 2006, we completed the sale of our American of
Martinsville operating unit which supplied contract furniture to
the hospitality, assisted-living and governmental markets. This
operating unit was not a strategic fit with our current business
model, which is centered on providing comfortable and stylish
furnishings for the home, and was not a large enough component
of our overall business (about 5% of sales) to justify our
continued corporate focus and resources. We sold the business
for $33.2 million, recognizing a pre-tax gain in the first
quarter of $2.1 million. This disposition qualified as
discontinued operations. Accordingly, our Consolidated Statement
of Operations for the prior years have been reclassified to
reflect the results of operations of this divested business as
discontinued operations with taxes allocated based on the
operating units estimated effective tax rate and no
69
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
corporate expenses or interest allocated. The business unit was
previously included in the Casegoods Group, which has also been
reclassified to reflect the discontinued operations.
Additionally, during the third quarter of fiscal 2007, we
committed to a plan to sell Sam Moore, which was a part of our
Upholstery Group, and to sell the combined unit of Clayton
Marcus and Pennsylvania House, which was part of our Casegoods
Group. As we have continued to assess our long-term strategic
direction, we have determined that these operating units do not
align with our current strategic plan. Due to this decision
these operating units are presented as discontinued operations
and segment data has been reclassified. Accordingly, our
Consolidated Statement of Operations for the prior years have
been reclassified to reflect the results of these operations as
discontinued operations, with taxes allocated based on the
operating units estimated effective tax rate and no
corporate expenses or interest allocated.
As a result of the decision to sell Sam Moore, Clayton Marcus
and Pennsylvania House and subsequent testing of the fair value
of the assets remaining to be sold, we recorded a
$17.5 million ($13.7 net of taxes) impairment charge
that is included in discontinued operations on our Consolidated
Statement of Operations. The pretax impairment charge was
comprised of $3.6 million for impairment of the trade
names, $7.3 million for impairment of goodwill,
$0.2 million of other intangibles, $1.7 million for
write-down of LIFO inventory relating to the APB 16 acquisition
adjustment, $1.0 million for allowance for inventory and
$3.7 million for write-down of fixed assets. During the
fourth quarter of fiscal 2007, current market data indicated the
fixed assets for Clayton Marcus and Pennsylvania House were
recorded above fair value which resulted in an additional
$1.3 million impairment of their fixed assets. Their assets
and liabilities as of the end of the fiscal 2007 have been
reclassified as assets and liabilities of discontinued
operations. The assets and liabilities of Pennsylvania House and
Clayton Marcus were recorded at fair value less cost to sell as
of April 28, 2007; however, we could recognize additional
losses depending on the final disposition of these assets and
liabilities. We have ceased depreciation of these assets.
On April 27, 2007, we completed the sale of our Sam Moore
operating unit, an upholstered chair manufacturer. We sold the
business for $9.9 million, consisting of $9.5 million
in cash and a receivable of $0.4 million, recognizing a
loss in the fourth quarter of $0.3 million.
|
|
|
|
|
|
|
4/28/2007
|
|
|
|
(Amounts
|
|
|
|
in thousands)
|
|
|
Assets of discontinued operations:
|
|
|
|
|
Receivables, net
|
|
$
|
7,140
|
|
Inventories, net
|
|
|
10,978
|
|
Trade names
|
|
|
5,740
|
|
Other assets
|
|
|
420
|
|
|
|
|
|
|
|
|
$
|
24,278
|
|
|
|
|
|
|
Liabilities of discontinued
operations:
|
|
|
|
|
Accounts payable
|
|
$
|
1,591
|
|
Accrued expenses
|
|
|
2,057
|
|
Non-current liabilities
|
|
|
195
|
|
|
|
|
|
|
|
|
$
|
3,843
|
|
|
|
|
|
|
70
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The results of the discontinued operations for Sam Moore,
Clayton Marcus, Pennsylvania House,
La-Z-Boy
Contract and American of Martinsville for fiscal 2007, 2006 and
2005 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4/28/2007
|
|
|
4/29/2006
|
|
|
4/30/2005
|
|
|
|
(Amounts in thousands)
|
|
|
Net sales
|
|
$
|
122,713
|
|
|
$
|
221,952
|
|
|
$
|
282,040
|
|
Income (loss) from discontinued
operations, net of tax
|
|
|
(16,564
|
)
|
|
|
2,549
|
|
|
|
(8,006
|
)
|
Gain on sale of discontinued
operations, net of tax
|
|
|
935
|
|
|
|
|
|
|
|
668
|
|
In the consolidated statement of cash flows, the cash flows of
discontinued operations were not reclassified for fiscal 2005,
2006 and 2007. The assets and liabilities of these operating
units were not reclassified for fiscal 2006. They are reported
in the respective categories of the consolidated balance sheet
and statement of cash flows along with those of our continuing
operations.
|
|
Note 19:
|
Earnings
per Share
|
Basic earnings 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 be outstanding if the dilutive potential common
shares issuable under employee stock options and unvested
restricted stock were issued. A reconciliation of basic and
diluted weighted average common shares outstanding follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4/28/2007
|
|
|
4/29/2006
|
|
|
4/30/2005
|
|
|
|
(Amounts in thousands)
|
|
|
Weighted average common shares
outstanding (basic)
|
|
|
51,475
|
|
|
|
51,801
|
|
|
|
52,082
|
|
Effect of options and unvested
restricted stock
|
|
|
131
|
|
|
|
|
|
|
|
56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares
outstanding (diluted)
|
|
|
51,606
|
|
|
|
51,801
|
|
|
|
52,138
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted average common shares outstanding (diluted) at
April 29, 2006 excludes outstanding stock options of
0.2 million because the net loss from continuing operations
in the fiscal year would cause the effect of options to be
anti-dilutive.
The effect of options to purchase 1.7 million,
1.7 million and 1.9 million shares for the fiscal
years ended April 28, 2007, April 29, 2006, and
April 30, 2005, with a weighted average exercise price of
$17.86, $20.11 and $20.10, respectively, were excluded from the
diluted share calculation because the exercise prices of these
options were higher than the weighted average share price for
the fiscal years and would have been anti-dilutive.
The former Chairman of our Board of Directors, who retired in
August, 2006, was a member and lead director of the Board of
Directors of Culp, Inc through August, 2006. Culp, Inc. provided
$33.3 million or 24.9% of the total fabric purchased by us
during fiscal 2006. The purchases from Culp were at prices
comparable to other vendors and under similar terms. Our former
Chairman had no involvement in our selection or purchase
processes related to fabrics.
|
|
Note 21:
|
Income
from Continued Dumping and Subsidy Offset Act
|
We recorded $3.4 million as Income from Continued Dumping
and Subsidy Offset Act, net of legal expenses, during fiscal
2007 from the receipt of funds under the Continued Dumping and
Subsidy Act (CDSOA) of 2000 in connection with the
case involving wooden bedroom furniture imported from China.
Receipt of funds during the prior year were insignificant. The
CDSOA provides for distribution of monies collected by
U.S. Customs and Border Protection from anti-dumping cases
to domestic producers that supported the anti-dumping petition.
71
|
|
ITEM 9.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
|
None.
|
|
ITEM 9A.
|
CONTROLS
AND PROCEDURES
|
Disclosure Controls and Procedures. As of the
end of the period covered by this report, we carried out an
evaluation, under the supervision and with the participation of
our management, including our Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and
operation of our disclosure controls and procedures, as such
term is defined in
Rule 13a-15(e)
of the Exchange Act. Based upon that evaluation, our Chief
Executive Officer and Chief Financial Officer concluded that
such disclosure controls and procedures are effective to ensure
that information required to be disclosed in our periodic
reports filed under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified by the
Securities and Exchange Commissions rules and forms and is
accumulated and communicated to our management, including our
Chief Executive Officer and Chief Financial Officer, as
appropriate to allow timely decisions regarding required
disclosure.
Managements Annual Report on Internal Control over
Financial Reporting. Our managements report
on internal control over financial reporting and our registered
public accounting firms attestation report on
managements assessment of our internal control over
financial reporting are included in Item 8 of this report.
Changes in Internal Control over Financial
Reporting. There were no changes in our internal
control over financial reporting during our fourth fiscal
quarter of 2007 that have materially affected, or are reasonably
likely to materially affect, our internal control over financial
reporting.
|
|
ITEM 9B.
|
OTHER
INFORMATION
|
On June 11, 2007, the Compensation Committee established,
pursuant to our executive incentive compensation plan, the
annual bonus criteria for the year ending April 27, 2008
that will apply to our executive officers, including each of the
executive officers who will be named in the summary compensation
table in the proxy statement for our 2007 annual meeting. The
information is included in Exhibit (10.7) to this report and
incorporated in this item by reference.
PART III
|
|
ITEM 10.
|
DIRECTORS
AND EXECUTIVE OFFICERS OF THE REGISTRANT.
|
We have adopted a Code of Business Conduct, which applies to all
of our officers, directors, and employees. A current copy of the
code is posted at our website
http://www.la-z-boy.com.
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 will be included in our proxy
statement for our 2007 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 will be
included in our proxy statement for our 2007 annual meeting, and
all of that information is incorporated in this item by
reference.
|
|
ITEM 12.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS.
|
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 will be
included in our proxy statement for our 2007 annual meeting, and
all of that information is incorporated in this item by
reference.
72
|
|
ITEM 13.
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE.
|
All information required to be reported under this item will be
included in our proxy statement for our 2007 annual meeting, and
all of that information is incorporated in this item by
reference.
|
|
ITEM 14.
|
PRINCIPAL
ACCOUNTANT FEES AND SERVICES.
|
All information required to be reported under this item will be
included in our proxy statement for our 2007 annual meeting, and
all of that information is incorporated in this item by
reference.
PART IV
|
|
ITEM 15.
|
EXHIBITS AND
FINANCIAL STATEMENT SCHEDULES
|
The following documents are filed as part of this report:
(1) Financial Statements:
Consolidated Statement of Operations for each of the three
fiscal years ended April 28, 2007, April 29, 2006 and
April 30, 2005
Consolidated Balance Sheet at April 28, 2007 and
April 29, 2006
Consolidated Statement of Cash Flows for the fiscal years ended
April 28, 2007, April 29, 2006 and April 30, 2005
Consolidated Statement of Changes in Shareholders Equity
for the fiscal years ended April 28, 2007, April 29,
2006 and April 30, 2005
Notes to Consolidated Financial Statements
Managements Report to Our Shareholders
Report of Independent Registered Public Accounting Firm
(2) Financial Statement Schedules
Report of Independent Registered Public Accounting Firm on
Financial Statement Schedule
Schedule II Valuation and Qualifying Accounts
for each of the three fiscal years in the period ended
April 28, 2007
The Report of Independent Registered Public Accounting Firm and
Schedule II 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
|
|
(2)
|
|
Not applicable
|
(3.1)
|
|
La-Z-Boy Incorporated Restated
Articles of Incorporation (Incorporated by reference to an
exhibit to Form 10-Q for the quarter ended October 26, 1996)
|
(3.2)
|
|
Amendment to Restated Articles of
Incorporation (Incorporated by reference to an exhibit to
Form 10-K/A filed September 27, 1999)
|
(3.3)
|
|
La-Z-Boy Incorporated Amended and
Restated Bylaws (as of August 16, 2006) (Incorporated by
reference to an exhibit to Form 8-K filed August 21, 2006)
|
73
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
(4.1)
|
|
$150 million dollar Credit
Agreement dated as of March 30, 2004 among La-Z-Boy
Incorporated, the banks listed therein and Wachovia Bank, N.A.,
as Administrative Agent (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) (Incorporated by reference to
an exhibit to Form 10-K for the fiscal year ended April 24, 2004)
|
(4.2)
|
|
Consent and Waiver, dated as of
November 11, 2005 to Credit Agreement dated as of March 30, 2004
(Incorporated by reference to an exhibit to Form 10-Q for the
quarter ended October 29, 2005)
|
(4.3)
|
|
First Amendment, dated as of
November 22, 2005 to Credit Agreement dated as of March 30, 2004
(Incorporated by reference to an exhibit to Form 10-Q for the
quarter ended October 29, 2005)
|
(4.4)
|
|
Second Amendment, dated as of
February 9, 2007 to Credit Agreement dated as of March 30, 2004
(Incorporated by reference to an exhibit to Form 10-Q for the
quarter ended January 27, 2007)
|
(9)
|
|
Not applicable
|
(10.1)*
|
|
La-Z-Boy Incorporated Restricted
Stock Plan for Non-Employee Directors, amended and restated
through August 12, 2003 (Incorporated by reference to an exhibit
to definitive proxy statement dated July 9, 2003)
|
(10.2)*
|
|
La-Z-Boy Incorporated 1997
Incentive Stock Option Plan (Incorporated by reference to an
exhibit to definitive proxy statement dated June 27, 1997)
|
(10.3)*
|
|
Form of Change in Control
Agreement (Incorporated by reference to an exhibit to Form 8-K
dated February 6, 1995). In effect for: Kurt L. Darrow, Steven
M. Kincaid, Rodney D. England, Louis M. Riccio, Jr.,
and Otis Sawyer.
|
(10.4)*
|
|
Form of Indemnification Agreement
(covering all directors, including employee-directors)
(Incorporated by reference to an exhibit to Form 8, Amendment
No. 1, dated November 3, 1989)
|
(10.5)*
|
|
2005 La-Z-Boy Incorporated
Executive Deferred Compensation Plan (Incorporated by reference
to an exhibit to Form 10-Q for the quarter ended January 28,
2006)
|
(10.6)*
|
|
La-Z-Boy Incorporated 2004
Long-Term Equity Award Plan as Amended on June 11, 2007
|
(10.7)*
|
|
Summary of fiscal 2008 salaries
for named executive officers
|
(10.8)*
|
|
Performance Awards Goals (for
Performance Cycle Ending April 2008) (Incorporated by reference
to an exhibit to Form 10-Q for the quarter ended July 30, 2005)
|
(10.9)*
|
|
Performance Awards Goals (for
Performance Cycle Ending April 2009) (Incorporated by reference
to an exhibit to Form 10-K for the fiscal year ended April 29,
2006)
|
(10.10)*
|
|
Sample award agreement under the
2004 Long Term Equity Award Plan (Incorporated by reference to
an exhibit to Form 10-K for the fiscal year ended April 29, 2006)
|
(10.11)*
|
|
Executive Incentive Compensation
Plan Description as of June 16, 2006 (Incorporated
by reference to an exhibit to Form 10-K for the fiscal year
ended April 29, 2006)
|
(10.12)*
|
|
Compensation of non-employee
directors
|
(11)
|
|
Statement regarding computation of
per share earnings (See Note 19 to the Consolidated Financial
Statements included in Item 8)
|
(12)
|
|
Not applicable
|
(13)
|
|
Not applicable
|
(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
|
(31)
|
|
Certifications pursuant to Rule
13a-14(a)
|
74
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
(32)
|
|
Certifications pursuant to
18 U.S.C. Section 1350
|
(33)
|
|
Not applicable
|
(34)
|
|
Not applicable
|
(35)
|
|
Not applicable
|
(100)
|
|
Not applicable
|
|
|
|
* |
|
Indicates a management contract or compensatory plan or
arrangement under which a director or executive officer may
receive benefits. |
75
Report of
Independent Registered Public Accounting Firm on Financial
Statement Schedule
To the Board of Directors of
La-Z-Boy
Incorporated:
Our audits of the consolidated financial statements, of
managements assessment of the effectiveness of internal
control over financial reporting and of the effectiveness of
internal control over financial reporting referred to in our
report dated June 19, 2007 appearing in the 2007 Annual
Report to Shareholders of
La-Z-Boy
Incorporated (which report, consolidated financial statements
and assessment are incorporated by reference in this Annual
Report on
Form 10-K)
also included an audit of the financial statement schedule
listed in Item 15(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.
PricewaterhouseCoopers LLP
Toledo, Ohio
June 19, 2007
76
LA-Z-BOY
INCORPORATED AND SUBSIDIARIES SCHEDULE II
VALUATION
AND QUALIFYING ACCOUNTS
Allowance for Doubtful Accounts and Long-Term Notes
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Trade
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Accounts
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Reductions
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Additions
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Receivable
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Balance at
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from
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Charged
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Written
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Balance at
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Beginning
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Discontinued
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Consolidation of
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to Costs and
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Off Net of
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End of
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Fiscal Year Ended
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of Year
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Operations
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VIEs
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Expenses
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Recoveries
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Year
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(Dollars in thousands)
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April 28, 2007
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$
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17,431
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$
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(925
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$
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$
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3,790
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$
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(4,719
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)
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$
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15,577
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April 29, 2006
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20,489
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(891
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)
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4,527
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(6,694
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)
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17,431
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April 30, 2005
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23,678
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176
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(1)
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(3,365
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)
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20,489
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(1) |
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Additions charged to costs and expenses includes a
$5.5 million reduction relating mostly to the acquisition
of La-Z-Boy
Furniture
Galleries®
Stores and reassessment of our credit position with respect to
another significant dealer. |
77
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.
LA-Z-BOY
INCORPORATED
President and Chief Executive Officer
DATE: June 19, 2007
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below, as of June 19,
2007, by the following persons on behalf of the Registrant and
in the capacities indicated.
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/s/ J.
W.
Johnston
J.
W. Johnston
Chairman of the Board of Directors
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/s/ J.
H.
Foss
J.
H. Foss
Director
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/s/ K.
L.
Darrow
K.
L. Darrow
President and Chief Executive Officer, Director
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/s/ D.
K.
Hehl
D.
K. Hehl
Director
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/s/ R.
M.
Gabrys
R.
M. Gabrys
Director
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/s/ R.
E.
Lipford
R.
E. Lipford
Director
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/s/ H.
G.
Levy
H.
G. Levy
Director
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/s/ N.
R.
Qubein
N.
R. Qubein
Director
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/s/ W.
A.
McCollough
W.
A. McCollough
Director
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/s/ J.
L.
Thompson
J.
L. Thompson
Director
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/s/ L.
M. Riccio,
Jr.
L.
M. Riccio, Jr.
Senior Vice President, Chief Financial Officer and Chief
Accounting Officer
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78
EXHIBIT INDEX
Note: For all exhibits incorporated by reference, the SEC file
number is 1-9656. Exhibits not incorporated by reference are
being filed or furnished with this report.
(3) Exhibits
The following exhibits are filed as part of this report:
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Exhibit
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Number
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Description
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(2)
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Not applicable
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(3.1)
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La-Z-Boy Incorporated Restated
Articles of Incorporation (Incorporated by reference to an
exhibit to Form 10-Q for the quarter ended October 26, 1996)
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(3.2)
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Amendment to Restated Articles of
Incorporation (Incorporated by reference to an exhibit to
Form 10-K/A filed September 27, 1999)
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(3.3)
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La-Z-Boy Incorporated Amended and
Restated Bylaws (as of August 16, 2006) (Incorporated by
reference to an exhibit to Form 8-K filed August 21, 2006)
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(4.1)
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$150 million dollar Credit
Agreement dated as of March 30, 2004 among La-Z-Boy
Incorporated, the banks listed therein and Wachovia Bank, N.A.,
as Administrative Agent (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) (Incorporated by reference to
an exhibit to Form 10-K for the fiscal year ended April 24, 2004)
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(4.2)
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Consent and Waiver, dated as of
November 11, 2005 to Credit Agreement dated as of March 30, 2004
(Incorporated by reference to an exhibit to Form 10-Q for the
quarter ended October 29, 2005)
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(4.3)
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First Amendment, dated as of
November 22, 2005 to Credit Agreement dated as of March 30, 2004
(Incorporated by reference to an exhibit to Form 10-Q for the
quarter ended October 29, 2005)
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(4.4)
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Second Amendment, dated as of
February 9, 2007 to Credit Agreement dated as of March 30, 2004
(Incorporated by reference to an exhibit to Form 10-Q for the
quarter ended January 27, 2007)
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(9)
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Not applicable
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(10.1)*
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La-Z-Boy Incorporated Restricted
Stock Plan for Non-Employee Directors, amended and restated
through August 12, 2003 (Incorporated by reference to an exhibit
to definitive proxy statement dated July 9, 2003)
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(10.2)*
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La-Z-Boy Incorporated 1997
Incentive Stock Option Plan (Incorporated by reference to an
exhibit to definitive proxy statement dated June 27, 1997)
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(10.3)*
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Form of Change in Control
Agreement (Incorporated by reference to an exhibit to Form 8-K
dated February 6, 1995). In effect for: Kurt L. Darrow, Steven
M. Kincaid, Rodney D. England, Louis M. Riccio, Jr.,
and Otis Sawyer.
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(10.4)*
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Form of Indemnification Agreement
(covering all directors, including employee-directors)
(Incorporated by reference to an exhibit to Form 8, Amendment
No. 1, dated November 3, 1989)
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(10.5)*
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2005 La-Z-Boy Incorporated
Executive Deferred Compensation Plan (Incorporated by reference
to an exhibit to Form 10-Q for the quarter ended January 28,
2006)
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(10.6)*
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La-Z-Boy Incorporated 2004
Long-Term Equity Award Plan as Amended on June 11, 2007
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(10.7)*
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Summary of fiscal 2008 salaries
for named executive officers
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(10.8)*
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Performance Awards Goals (for
Performance Cycle Ending April 2008) (Incorporated by reference
to an exhibit to Form 10-Q for the quarter ended July 30, 2005)
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(10.9)*
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Performance Awards Goals (for
Performance Cycle Ending April 2009) (Incorporated by reference
to an exhibit to Form 10-K for the fiscal year ended April 29,
2006)
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(10.10)*
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Sample award agreement under the
2004 Long Term Equity Award Plan (Incorporated by reference to
an exhibit to Form 10-K for the fiscal year ended April 29, 2006)
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(10.11)*
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Executive Incentive Compensation
Plan Description as of June 16, 2006 (Incorporated
by reference to an exhibit to Form 10-K for the fiscal year
ended April 29, 2006)
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(10.12)*
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Compensation of non-employee
directors
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79
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Exhibit
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Number
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Description
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(11)
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Statement regarding computation of
per share earnings (See Note 19 to the Consolidated Financial
Statements included in Item 8)
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(12)
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Not applicable
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(13)
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Not applicable
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(14)
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Not applicable
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(16)
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Not applicable
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(18)
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Not applicable
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(21)
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List of subsidiaries of La-Z-Boy
Incorporated
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(22)
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Not applicable
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(23)
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Consent of PricewaterhouseCoopers
LLP (EDGAR filing only)
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(24)
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Not applicable
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(31)
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Certifications pursuant to Rule
13a-14(a)
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(32)
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Certifications pursuant to
18 U.S.C. Section 1350
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(33)
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Not applicable
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(34)
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Not applicable
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(35)
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Not applicable
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(100)
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Not applicable
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* |
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Indicates a management contract or compensatory plan or
arrangement under which a director or executive officer may
receive benefits. |
80