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 26, 2008
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 o No þ
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. o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in Rule
12b-2 of the
Exchange Act. (Check one):
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Large
accelerated
filer o
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Accelerated
filer þ
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Non-accelerated
filer o
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Smaller
reporting
company o
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(Do not check if a smaller reporting company)
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 26, 2007, the aggregate market value of
Registrants common shares held by non-affiliates of the
Registrant on that date was $362.0 million.
The number of common shares outstanding of the Registrant was
51,887,395 as of May 31, 2008.
DOCUMENTS INCORPORATED BY REFERENCE:
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(1) |
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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 20, 2008 are incorporated by reference into
Part III. |
LA-Z-BOY
INCORPORATED
FORM 10-K
ANNUAL REPORT FISCAL 2008
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 20, 2008. 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) further changes in
the housing market; (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 ability to procure fabric rolls and leather hides
or cut and sewn fabric and leather sets domestically or abroad;
(r) 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. The
La-Z-Boy
name is the most recognized brand in the furniture industry.
La-Z-Boy
Incorporated operates in 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 one of
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, 2008 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.
The following significant changes in our business occurred
during fiscal 2008:
On March 31, 2008, we committed to a restructuring plan
which included two major initiatives designed to strengthen our
North American operations. As a result of this restructuring
plan, we will consolidate all of our domestic cutting and sewing
operations in Mexico and will transfer production from our
Tremonton, Utah plant, which will be closed, to the five
remaining
La-Z-Boy
branded upholstery manufacturing facilities. The transition of
our domestic cutting and sewing operations to Ramos Arizpe,
Mexico, in the State of Coahuila, will impact approximately
1,050 employees at the five remaining facilities and will
take place over a period of 18 to 24 months. We expect to
begin production at the Mexican facility in early calendar 2009.
The Utah facility, which employed 630 people, will cease
operations during the summer of 2008 and production will be
shifted to the remaining five facilities. We will be hiring
approximately 1,200 employees to operate the new Mexico
facility. These decisions were made to help strategically align
our company with the current business environment and strengthen
our ability to competitively produce custom orders and still
maintain speed to market. As a result of these moves, we expect
to realize in excess of $25 million in annual cost savings,
with the full benefit beginning in fiscal 2011.
Over the past year we consolidated our retail warehouses into
four regional distribution centers and implemented a new
computer system in each retail market, which allowed us to
centralize some of our business processes and streamline our
inventory warehousing function. We expect these changes to
generate cost savings in the future as well as enable our Retail
Group to operate more efficiently.
During fiscal 2008, we substantially completed the transition to
a cellular manufacturing model in our branded manufacturing
facilities. The transition to cellular manufacturing improved
the efficiency of our manufacturing process while improving the
quality of our product and reducing the time it takes to
complete custom orders.
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, 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, sleeper sofas, sectionals
and modulars.
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 coordinated upholstered furniture.
Retail Group. The Retail Group consists of
70 company-owned
La-Z-Boy
Furniture
Galleries®
stores located in eight markets ranging from the Midwest to the
East Coast of the United States and also including southeastern
Florida. The Retail Group sells mostly upholstered furniture to
end consumers through the retail network.
4
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 40% 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. Our cover is purchased either in a raw state (a roll or
hide), then cut and sewn into parts in our plants or as cut and
sewn parts from third party offshore suppliers. The cover
material costs are 51% fabric rolls and hides and 49% for cut
and sewn parts mainly from China. There are five primary
suppliers of cut and sewn leather and fabric products, and 98%
of cut and sewn sets come from China. Of the cut and sewn parts,
66% is manufactured by one supplier located in China. During
fiscal 2009, we will be shifting our internal cutting and sewing
operations from the United States to a facility in Mexico. We
expect all of our cut and sewn parts to be supplied from
suppliers in China or from our Mexico facility given the lower
labor costs in these areas and because there are few sources of
these products domestically at these labor costs. 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 and
distributor of casegoods furniture. It also operates two
manufacturing facilities in North Carolina. 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 20% of the segments total raw material costs, on
domestically produced product.
Over the next year we expect to be negatively impacted by higher
material costs. Specifically, the cost of steel (mechanisms),
polyurethane foam (cushions and padding) and cover (fabric and
leather) have seen significant cost increases over the past
several months. The rising cost of steel did not have a
significant financial impact during fiscal 2008 as we had annual
purchasing contracts in place to help control these costs. These
contracts expire during the summer of 2008 and we expect to see
an impact from these rising costs during fiscal 2009. We have
increased our sales prices in order to help offset the continued
increases in material costs.
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 2008 and 2007, about 72% and 71%, respectively of
our casegoods finished goods sales were imported. Imported
finished goods represented approximately 13% of our consolidated
fiscal 2008 sales. There is also a growing trend of imported
upholstered product, particularly with leather sofas.
During the fourth quarter of fiscal 2008 we began experiencing
higher cost on a large portion of our imported casegoods. The
most notable increases were on products produced in China, which
is experiencing increases related to higher labor, raw
materials, currency valuations and transportation costs. We
intend to continue raising our wholesale prices to offset these
increases; as well as sourcing products in other countries.
5
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.
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 at least one week
in July, 2008.
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.
We are concerned about the macro economic environment as the
energy markets remain volatile and the continued uncertainty in
the housing market. 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.
In terms of our product segments, 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 2007 and 2008, 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 declined 44% over the
past two years. When the effect of discontinued operations is
removed from the calculation, inventory for the Casegoods Group
declined 19% over the past two years.
Over the past year we have created four regional distribution
centers in order to stream-line our warehousing and distribution
processes for our Retail Group. Our move to distribution centers
allowed us to reduce the number of individual warehouses needed
to supply our retail outlets and have helped us to manage our
inventory levels. Our overall inventory levels for the Retail
Group have declined 12% 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.
6
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 2008 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 or
studios 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
(see the Introduction to our Managements discussion and
Analysis of Financial Condition and Results of Operations for an
explanation of the term VIE), our 2008 customer mix
was about 49% proprietary, 17% major dealers (for example, Art
Van, Berkshire Hathaway, Raymour & Flanigan, Havertys)
and 33% other independent retail customers.
Currently, we own 70 stand-alone
La-Z-Boy
Furniture
Galleries®
stores. Additionally, we have agreements with independent
dealers for 265 stand-alone
La-Z-Boy
Furniture
Galleries®
stores, of which 34 stores are owned by VIEs whom we
consolidate. These stores also sell accessories that are
purchased from approved vendors. There are 216 stand-alone
La-Z-Boy
Furniture
Galleries®
stores in the New Generation format, which generally has more
space and a more updated appearance. The 216 New Generation
format stores represent an 11% increase in this type of
distribution in comparison to last year. 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. According to the May 26, 2008 Furniture Today,
viewed by itself,
La-Z-Boy
Furniture
Galleries®
stores network would be the sixth largest conventional furniture
retailer in the U.S. In addition to the stand-alone stores
we also have 57 in-store galleries and 333 Comfort Studios all
dedicated to our upholstery furniture products. Comfort Studios
are a more adaptable format of the in-store gallery that we
began to rollout during fiscal 2008. Our proprietary
distribution also includes in-store galleries for England,
Kincaid and Leas
La-Z-Boy
Kidztm.
Total proprietary floor space is approximately
8.8 million square feet.
It is a key part of our marketing strategy to continue to expand
proprietary distribution. We expect that throughout the
La-Z-Boy
Furniture Gallery network another
15-20 of our
New Generation format stores will be opened during fiscal 2009,
with 5-10 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.
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),
7
which results in higher finished goods inventory on hand but
quicker availability to ship to customers. 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 26, 2008 and April 28, 2007, Upholstery
Group backlogs were approximately $80.0 million and
$118.6 million, respectively. Casegoods backlogs as of
April 26, 2008 and April 28, 2007 were approximately
$19.9 million and $17.7 million, respectively. The
measure of backlog at a point in time may not be indicative of
future sales performance. Due to manufacturing efficiencies
gained over the past several years and our casegoods stocking
position, 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. The decline in the
Upholstery Group backlog from fiscal 2007 was due mainly to
efficiencies gained from cellular manufacturing in addition to
the decline in sales volume.
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 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, Home Depot,
Walmart and others are now offering products that compete with
our product lines.
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
8
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 defendant in various lawsuits arising in
the ordinary course of business and as a potentially responsible
party at certain 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 currently do not anticipate any material additional loss for
legal or environmental matters.
Employees
We employed 10,057 persons as of April 26,
2008. The Upholstery Group employed 7,688, the Casegoods
Group employed 873, the Retail Group employed 861 and there were
approximately 635 non-segment personnel, which includes our
VIEs. Substantially all of our employees are employed on a
full-time basis. As of April 28, 2007 we had
11,729 employees which included 316 employees from
Pennsylvania House and Clayton Marcus that were discontinued
operations.
Financial
Information About Foreign and Domestic Operations and Export
Sales
In fiscal 2008, our direct export sales, including sales in
Canada, were approximately 11% of our total sales In addition to
our Canadian customers, we sell to European customers through a
United Kingdom subsidiary. We have a manufacturing joint venture
in Thailand, which distributes furniture in Australia, New
Zealand, 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 $162 million and
$178 million at the end of fiscal years 2008 and 2007 ,
respectively. The property, plant, and equipment in foreign
countries was $9 million and $5 million in fiscal 2008
and 2007, respectively.
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).
The information on our website is not part of this report.
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 overall housing
market, 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.
9
Our
current 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 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, leather hides and fabric and
leather cut and sewn sets. The majority of our cut and sewn
leather sets are purchased from one supplier in China. During
fiscal 2009, we will be moving our domestic cutting and sewing
operations to a new facility in Mexico. All of our cut and sewn
sets will be supplied from Mexico and China after this move.
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 upholstery sales (75%) than most of our
competitors, the effects of steel, polyurethane and fabric price
increases or quantity shortages 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,
10
liabilities, and results of operations into our consolidated
financial statements. Once consolidated, we recognize a
dealers net losses in excess of its equity and a
dealers net earnings to the extent we have previously
recognized losses. 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. In
addition, we continue to increase our allowance for doubtful
accounts due to the deteriorating financial condition of some of
our customers resulting from the current state of the economy.
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 foreign sourcing and manufacturing. 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.
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 12.0 million square feet
of manufacturing, warehousing, office, showroom, and retail
facilities, had approximately 1.7 million square feet of
idle facilities at the end of fiscal 2008. Of the
12.0 million square feet occupied at the end of fiscal
2008, our Upholstery Group occupied approximately
6.3 million square feet, our Casegoods Group occupied
approximately 3.0 million square feet, our Retail Group
occupied approximately 1.8 million square feet and our
corporate and other operations occupied the balance.
We sold several idle facilities during fiscal years 2008 and
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, 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 all 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.
11
|
|
ITEM 3.
|
LEGAL
PROCEEDINGS.
|
We have been named as a defendant in various lawsuits arising in
the ordinary course of business and as a potentially responsible
party at certain 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 currently do not anticipate any material additional loss for
legal or environmental matters. As of the end of fiscal 2008,
there were no cases that would result in a material charge to
our financial statements.
|
|
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 2008.
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 53
|
|
|
|
|
President and Chief Executive Officer since September 2003
|
|
|
|
Formerly President
La-Z-Boy
Residential Division from August 2001 through September 2003
|
Steven M. Kincaid, age 59
|
|
|
|
|
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 45
|
|
|
|
|
Senior Vice President and Chief Financial Officer since July 2006
|
|
|
|
Treasurer from April 2007 through August 2007
|
|
|
|
Vice President and Corporate Controller from February 2002
through June 2006
|
Otis S. Sawyer, age 50
|
|
|
|
|
Senior Vice President of
La-Z-Boy and
President of Non-Branded Upholstery since February 2008
|
|
|
|
President, England, Incorporated since February 2008
|
|
|
|
Senior Vice President Corporate Operations from May 2006 through
February 2008
|
|
|
|
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 2008.
Recent
Sales of Unregistered Securities
There were no sales of unregistered securities during the fourth
quarter of fiscal year 2008.
12
Equity
Plans
The table below provides information concerning our compensation
plans under which common shares may be issued.
Equity
Compensation Plan Information as of April 26,
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
2,657,465
|
(1)
|
|
$
|
15.51
|
|
|
|
1,605,145
|
(2)
|
Equity compensation plans not approved by shareholders
(Note 3)
|
|
|
10,325
|
|
|
$
|
18.98
|
|
|
|
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
however, 703,140 are still outstanding 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. At the end of fiscal
2008, 2,497,425 shares were available for future issuance
under the long-term equity award plan, of which a maximum of
1,043,080 shares may be issued under previously granted
performance awards for the performance periods ending in April
2008, 2009 and 2010 and 150,800 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 28,
2003 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
|
|
|
2003
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
La-Z-Boy
Incorporated
|
|
|
$
|
100
|
|
|
|
$
|
108.76
|
|
|
|
$
|
63.54
|
|
|
|
$
|
84.85
|
|
|
|
$
|
66.99
|
|
|
|
$
|
38.18
|
|
S&P 500 Composite Index
|
|
|
$
|
100
|
|
|
|
$
|
122.88
|
|
|
|
$
|
130.66
|
|
|
|
$
|
150.81
|
|
|
|
$
|
173.79
|
|
|
|
$
|
165.66
|
|
Peer Group
|
|
|
$
|
100
|
|
|
|
$
|
130.17
|
|
|
|
$
|
102.71
|
|
|
|
$
|
131.29
|
|
|
|
$
|
106.34
|
|
|
|
$
|
87.25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
$100 invested on 4/30/03 in stock or index-including
reinvestment of dividends. Fiscal year ending April 30.
|
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 2008 Quarter End
|
|
Paid
|
|
|
High
|
|
|
Low
|
|
|
Close
|
|
|
July 28
|
|
$
|
0.12
|
|
|
$
|
12.30
|
|
|
$
|
10.29
|
|
|
$
|
10.29
|
|
Oct. 27
|
|
$
|
0.12
|
|
|
$
|
10.47
|
|
|
$
|
6.94
|
|
|
$
|
7.04
|
|
Jan. 26
|
|
$
|
0.12
|
|
|
$
|
8.99
|
|
|
$
|
5.46
|
|
|
$
|
7.32
|
|
April 26
|
|
$
|
0.04
|
|
|
$
|
9.27
|
|
|
$
|
6.91
|
|
|
$
|
6.91
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The new credit agreement would prohibit us from paying dividends
if excess availability, as defined in the new credit
agreement, fell below $30 million. As of April 26,
2008 we had $80 million of excess availability under the
new credit agreement. Refer to Note 7 of the consolidated
financial statements in Item 8 for further discussion of
our new credit agreement.
Shareholders
We had about 20,200 shareholders of record at June 13, 2008.
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)
|
|
|
(52 Weeks)
|
|
|
(53 Weeks)
|
|
|
(52 Weeks)
|
|
Fiscal Year Ended
|
|
4/26/2008
|
|
|
4/28/2007
|
|
|
4/29/2006
|
|
|
4/30/2005
|
|
|
4/24/2004
|
|
|
|
(Dollar amounts in thousands, except per share data)
|
|
|
Sales
|
|
$
|
1,450,941
|
|
|
$
|
1,621,460
|
|
|
$
|
1,699,806
|
|
|
$
|
1,820,408
|
|
|
$
|
1,714,456
|
|
Cost of sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold
|
|
|
1,051,656
|
|
|
|
1,189,734
|
|
|
|
1,275,053
|
|
|
|
1,373,046
|
|
|
|
1,304,085
|
|
Restructuring
|
|
|
5,057
|
|
|
|
3,371
|
|
|
|
8,479
|
|
|
|
2,931
|
|
|
|
8,448
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of sales
|
|
|
1,056,713
|
|
|
|
1,193,105
|
|
|
|
1,283,532
|
|
|
|
1,375,977
|
|
|
|
1,312,533
|
|
Gross profit
|
|
|
394,228
|
|
|
|
428,355
|
|
|
|
416,274
|
|
|
|
444,431
|
|
|
|
401,923
|
|
Selling, general and administrative
|
|
|
399,470
|
|
|
|
388,738
|
|
|
|
379,039
|
|
|
|
366,370
|
|
|
|
294,742
|
|
Restructuring
|
|
|
3,078
|
|
|
|
7,662
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Write-down of intangibles
|
|
|
8,426
|
|
|
|
|
|
|
|
22,695
|
|
|
|
|
|
|
|
29,729
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
(16,746
|
)
|
|
|
31,955
|
|
|
|
14,540
|
|
|
|
78,061
|
|
|
|
77,452
|
|
Interest expense
|
|
|
13,899
|
|
|
|
10,206
|
|
|
|
11,540
|
|
|
|
10,442
|
|
|
|
11,255
|
|
Income from Continued Dumping and Subsidy Offset Act, net
|
|
|
7,147
|
|
|
|
3,430
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
3,614
|
|
|
|
3,952
|
|
|
|
3,101
|
|
|
|
3,744
|
|
|
|
4,617
|
|
Other income (expense), net
|
|
|
5,393
|
|
|
|
727
|
|
|
|
(933
|
)
|
|
|
(3,571
|
)
|
|
|
(503
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income taxes
|
|
|
(14,491
|
)
|
|
|
29,858
|
|
|
|
5,168
|
|
|
|
67,792
|
|
|
|
70,311
|
|
Income tax expense (benefit)
|
|
|
(6,954
|
)
|
|
|
10,090
|
|
|
|
10,758
|
|
|
|
25,363
|
|
|
|
33,450
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
(7,537
|
)
|
|
|
19,768
|
|
|
|
(5,590
|
)
|
|
|
42,429
|
|
|
|
36,861
|
|
Income (loss) from discontinued operations (net of tax)
|
|
|
(6,000
|
)
|
|
|
(15,629
|
)
|
|
|
2,549
|
|
|
|
(7,338
|
)
|
|
|
(34,333
|
)
|
Extraordinary gains (net of tax)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,094
|
|
|
|
|
|
Cumulative effect of accounting change (net of tax)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,324
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(13,537
|
)
|
|
$
|
4,139
|
|
|
$
|
(3,041
|
)
|
|
$
|
37,185
|
|
|
$
|
(5,796
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted average shares outstanding
|
|
|
51,408
|
|
|
|
51,606
|
|
|
|
51,801
|
|
|
|
52,138
|
|
|
|
53,679
|
|
Diluted income (loss) from continuing operations per share
|
|
$
|
(0.15
|
)
|
|
$
|
0.38
|
|
|
$
|
(0.11
|
)
|
|
$
|
0.81
|
|
|
$
|
0.69
|
|
Diluted net income (loss) per share
|
|
$
|
(0.26
|
)
|
|
$
|
0.08
|
|
|
$
|
(0.06
|
)
|
|
$
|
0.71
|
|
|
$
|
(0.11
|
)
|
Dividends declared per share
|
|
$
|
0.40
|
|
|
$
|
0.48
|
|
|
$
|
0.44
|
|
|
$
|
0.44
|
|
|
$
|
0.40
|
|
Book value on year-end shares outstanding
|
|
$
|
8.76
|
|
|
$
|
9.45
|
|
|
$
|
9.86
|
|
|
$
|
10.10
|
|
|
$
|
10.04
|
|
Return on average shareholders equity*
|
|
|
(1.6
|
)%
|
|
|
4.0
|
%
|
|
|
(1.1
|
)%
|
|
|
8.1
|
%
|
|
|
6.5
|
%
|
Gross profit as a percent of sales
|
|
|
27.2
|
%
|
|
|
26.4
|
%
|
|
|
24.5
|
%
|
|
|
24.4
|
%
|
|
|
23.4
|
%
|
Operating profit as a percent of sales
|
|
|
(1.2
|
)%
|
|
|
2.0
|
%
|
|
|
0.9
|
%
|
|
|
4.3
|
%
|
|
|
4.5
|
%
|
Effective tax rate*
|
|
|
48.0
|
%
|
|
|
33.8
|
%
|
|
|
208.2
|
%
|
|
|
37.4
|
%
|
|
|
47.6
|
%
|
Return on sales*
|
|
|
(0.5
|
)%
|
|
|
1.2
|
%
|
|
|
(0.3
|
)%
|
|
|
2.3
|
%
|
|
|
2.2
|
%
|
|
|
|
* |
|
Based on income from continuing operations |
16
Consolidated
Five-Year Summary of Financial Data (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(52 Weeks)
|
|
|
(52 Weeks)
|
|
|
(52 Weeks)
|
|
|
(53 Weeks)
|
|
|
(52 Weeks)
|
|
Fiscal Year Ended
|
|
4/26/2008
|
|
|
4/28/2007
|
|
|
4/29/2006
|
|
|
4/30/2005
|
|
|
4/24/2004
|
|
|
|
(Dollar amounts in thousands)
|
|
|
Depreciation and amortization
|
|
$
|
24,696
|
|
|
$
|
27,204
|
|
|
$
|
29,234
|
|
|
$
|
28,329
|
|
|
$
|
29,112
|
|
Capital expenditures
|
|
$
|
27,386
|
|
|
$
|
25,811
|
|
|
$
|
27,991
|
|
|
$
|
34,771
|
|
|
$
|
31,593
|
|
Property, plant and equipment, net
|
|
$
|
171,001
|
|
|
$
|
183,218
|
|
|
$
|
209,986
|
|
|
$
|
210,565
|
|
|
$
|
212,739
|
|
Working capital
|
|
$
|
263,575
|
|
|
$
|
314,046
|
|
|
$
|
346,667
|
|
|
$
|
409,641
|
|
|
$
|
363,771
|
|
Current ratio
|
|
|
2.6 to 1
|
|
|
|
2.4 to 1
|
|
|
|
2.5 to 1
|
|
|
|
2.8 to 1
|
|
|
|
2.3 to 1
|
|
Total assets
|
|
$
|
768,870
|
|
|
$
|
878,691
|
|
|
$
|
956,752
|
|
|
$
|
1,026,357
|
|
|
$
|
1,040,914
|
|
Long-term debt
|
|
$
|
99,578
|
|
|
$
|
113,172
|
|
|
$
|
174,680
|
|
|
$
|
213,549
|
|
|
$
|
181,807
|
|
Total debt
|
|
$
|
104,370
|
|
|
$
|
151,248
|
|
|
$
|
185,682
|
|
|
$
|
226,309
|
|
|
$
|
224,370
|
|
Shareholders equity
|
|
$
|
450,596
|
|
|
$
|
485,348
|
|
|
$
|
510,345
|
|
|
$
|
527,286
|
|
|
$
|
522,328
|
|
Ratio of total debt-to-equity
|
|
|
23.2
|
%
|
|
|
31.2
|
%
|
|
|
36.4
|
%
|
|
|
42.9
|
%
|
|
|
43.0
|
%
|
Ratio of total debt-to-capital
|
|
|
18.8
|
%
|
|
|
23.8
|
%
|
|
|
26.7
|
%
|
|
|
30.0
|
%
|
|
|
30.0
|
%
|
Shareholders
|
|
|
20,200
|
|
|
|
23,900
|
|
|
|
31,900
|
|
|
|
26,500
|
|
|
|
28,500
|
|
Employees
|
|
|
10,057
|
|
|
|
11,700
|
|
|
|
13,400
|
|
|
|
14,820
|
|
|
|
16,125
|
|
Unaudited
Quarterly Financial Information Fiscal 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13 Weeks)
|
|
|
(13 Weeks)
|
|
|
(13 Weeks)
|
|
|
(13 Weeks)
|
|
Fiscal Quarter Ended
|
|
7/28/2007
|
|
|
10/27/2007
|
|
|
1/26/2008
|
|
|
4/26/2008
|
|
|
|
(Dollar amounts in thousands, except per share data)
|
|
|
Sales
|
|
$
|
344,396
|
|
|
$
|
365,434
|
|
|
$
|
373,081
|
|
|
$
|
368,030
|
|
Cost of sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold
|
|
|
259,143
|
|
|
|
266,658
|
|
|
|
265,078
|
|
|
|
260,777
|
|
Restructuring
|
|
|
2,561
|
|
|
|
518
|
|
|
|
(632
|
)
|
|
|
2,610
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of sales
|
|
|
261,704
|
|
|
|
267,176
|
|
|
|
264,446
|
|
|
|
263,387
|
|
Gross profit
|
|
|
82,692
|
|
|
|
98,258
|
|
|
|
108,635
|
|
|
|
104,643
|
|
Selling, general and administrative
|
|
|
94,508
|
|
|
|
98,098
|
|
|
|
104,672
|
|
|
|
102,192
|
|
Restructuring
|
|
|
1,120
|
|
|
|
449
|
|
|
|
877
|
|
|
|
632
|
|
Write-down of intangibles
|
|
|
|
|
|
|
5,809
|
|
|
|
|
|
|
|
2,617
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
(12,936
|
)
|
|
|
(6,098
|
)
|
|
|
3,086
|
|
|
|
(798
|
)
|
Interest expense
|
|
|
2,097
|
|
|
|
2,120
|
|
|
|
2,148
|
|
|
|
7,534
|
|
Income from Continued Dumping and Subsidy Offset Act, net
|
|
|
|
|
|
|
|
|
|
|
7,147
|
|
|
|
|
|
Interest income
|
|
|
882
|
|
|
|
1,023
|
|
|
|
1,134
|
|
|
|
575
|
|
Other income, net
|
|
|
566
|
|
|
|
351
|
|
|
|
3,785
|
|
|
|
691
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income taxes
|
|
|
(13,585
|
)
|
|
|
(6,844
|
)
|
|
|
13,004
|
|
|
|
(7,066
|
)
|
Income tax expense (benefit)
|
|
|
(5,043
|
)
|
|
|
(3,192
|
)
|
|
|
3,876
|
|
|
|
(2,595
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
(8,542
|
)
|
|
|
(3,652
|
)
|
|
|
9,128
|
|
|
|
(4,471
|
)
|
Income (loss) from discontinued operations (net of tax)
|
|
|
(152
|
)
|
|
|
(6,282
|
)
|
|
|
384
|
|
|
|
50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(8,694
|
)
|
|
$
|
(9,934
|
)
|
|
$
|
9,512
|
|
|
$
|
(4,421
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted average shares outstanding
|
|
|
51,380
|
|
|
|
51,410
|
|
|
|
51,590
|
|
|
|
51,425
|
|
Diluted income (loss) from continuing operations per share
|
|
$
|
(0.17
|
)
|
|
$
|
(0.07
|
)
|
|
$
|
0.18
|
|
|
$
|
(0.09
|
)
|
Diluted net income (loss) per share
|
|
$
|
(0.17
|
)
|
|
$
|
(0.19
|
)
|
|
$
|
0.18
|
|
|
$
|
(0.09
|
)
|
17
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
|
|
$
|
393,923
|
|
|
$
|
414,614
|
|
|
$
|
404,845
|
|
|
$
|
408,078
|
|
Cost of sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold
|
|
|
296,008
|
|
|
|
306,351
|
|
|
|
291,322
|
|
|
|
296,053
|
|
Restructuring
|
|
|
|
|
|
|
(400
|
)
|
|
|
|
|
|
|
3,771
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of sales
|
|
|
296,008
|
|
|
|
305,951
|
|
|
|
291,322
|
|
|
|
299,824
|
|
Gross profit
|
|
|
97,915
|
|
|
|
108,663
|
|
|
|
113,523
|
|
|
|
108,254
|
|
Selling, general and administrative
|
|
|
94,683
|
|
|
|
99,887
|
|
|
|
101,213
|
|
|
|
92,955
|
|
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
|
|
|
|
|
|
Interest income
|
|
|
815
|
|
|
|
773
|
|
|
|
1,109
|
|
|
|
1,255
|
|
Other income (expense), net
|
|
|
(545
|
)
|
|
|
575
|
|
|
|
524
|
|
|
|
173
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
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 2008. 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 manufactures, markets, imports, distributes and
retails upholstery products and 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 network
of La-Z-Boy
Furniture
Galleries®
stores, which includes a total of 335 stores, the balance of
which are independently owned and operated. According to the
May, 2008 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. 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.
In addition to our company-owned stores, we 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 fiscal 2008, we had
four VIEs, operating 34 stores, in our Consolidated Statement of
Operations. At the end of fiscal 2007, we had four VIEs,
operating 29 stores, in our Consolidated Statement of Operations.
Our reportable operating segments are the Upholstery Group, the
Casegoods Group and the Retail Group.
Upholstery Group. In terms of revenue, our
largest segment is the Upholstery Group, which includes
La-Z-Boy,
our largest operating unit. Also included in the Upholstery
Group are the operating units Bauhaus and England. This group
primarily manufactures and sells upholstered furniture to
furniture retailers and proprietary stores. We import cut and
sewn fabric and 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. Upholstered
furniture includes recliners and motion furniture, sofas,
loveseats, chairs, ottomans and sleeper sofas.
Casegoods Group. Our Casegoods Group today is
primarily an importer, marketer and distributor of casegoods
(wood) furniture. It also operates two manufacturing facilities
in North Carolina. The operating units in the Casegoods Group
are American Drew/Lea, Hammary and Kincaid. 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 eight markets ranging from the Midwest to the
East Coast of the United States and also including southeastern
Florida. The Retail Group sells mostly upholstered furniture to
end consumers through the retail network.
19
The chart below shows the current structure of the
La-Z-Boy
Furniture
Galleries®
store network.
Additionally, we have a
La-Z-Boy
in-store gallery program with 57 in-store galleries. During the
first quarter of fiscal 2008, we began rolling out a new model
for our in-store galleries referred to as Comfort Studios.
Comfort Studios can be smaller and more adaptable than the
current in-store gallery model. Over the last twelve months we
have opened 333 Comfort Studios, of which some were new studios
and the rest were conversions of in-store galleries and general
dealers. We expect to open or convert approximately 80 more
Comfort Studios during fiscal 2009. Kincaid, England and Lea
also have in-store gallery programs.
Highlights
of Our Current Year
All of our segments experienced a decline in sales when compared
with the previous year. This can be attributed to the overall
weak consumer demand and the decline in the U.S. housing
market. We continue to aggressively focus on advertising and
merchandising of our product in an attempt to reverse this
trend. In addition, we have focused on cutting costs and will
continue to do so as needed to keep our expenses in line with
revenue.
In the fourth quarter of fiscal 2008, we committed to a
restructuring plan which will consolidate all of our branded
domestic cutting and sewing operations in Mexico and transfer
production from our Tremonton, Utah plant, which will be closed,
to other manufacturing facilities within North America. We,
expect over the next two years, to incur approximately $17 to
$20 million in expenses related to our Mexican facility and
the closure of our Tremonton, Utah plant. To date we have
incurred restructuring expenses totaling $2.6 million
related to the Tremonton, Utah plant and $3.2 million in
restructuring costs related to the closure of our Lincolnton,
North Carolina upholstery manufacturing facility, which was
closed in the first quarter of fiscal 2008. As a result of these
moves, we expect to realize in excess of $25 million in
annual cost savings, with the full benefit beginning in fiscal
2011.
Over the past year we have consolidated our retail warehouses
into four regional distribution centers and have implemented a
new computer system in each retail market, which has allowed us
to centralize some of our business processes and has streamlined
our inventory warehousing function. We expect these changes to
generate cost savings in the future as well as enable our Retail
Group to operate more efficiently.
During fiscal 2008, we substantially completed the transition to
a cellular manufacturing model in our branded manufacturing
facilities. The transition to cellular manufacturing has
improved the efficiency of our manufacturing process while
improving the quality of our product and reducing the time it
takes to complete custom orders.
20
On February 6, 2008, we entered into a new
$220 million credit agreement that replaced our previous
$100 million dollar credit agreement.
The new credit agreement is secured primarily by our accounts
receivable, inventory, cash deposit and securities accounts, and
substantially all patents and trademarks, including the
La-Z-Boy
brand name.
Initial borrowings under the new credit agreement were utilized
to repay our outstanding private placement notes in the
principal amount of $121 million, a make-whole premium of
approximately $6 million, accrued interest of approximately
$1.3 million, and fees related to the new credit agreement
of approximately $2 million. The make whole premium was
expensed in the fourth quarter of fiscal 2008 and the fees
related to the new credit agreement were capitalized and will be
amortized over the life of the debt. We intend to use any future
borrowings for general corporate purposes.
During the second quarter of fiscal 2008, we completed the sale
of our Clayton Marcus operating unit and our Pennsylvania House
trade name. The stock of Clayton Marcus was sold to Rowe Fine
Furniture, Incorporated and resulted in a loss of about
$5.8 million ($3.6 million net of taxes), of which
about $3.4 million related to the intangible assets of
Clayton Marcus. The Pennsylvania House trade name was sold to
Universal Furniture for $1.7 million resulting in a pre-tax
charge of about $0.6 million ($0.4 million net of
taxes). We liquidated the remaining Pennsylvania House
inventory, and as a result, recorded an additional loss of
$3.0 million.
Since the acquisition of the South Florida retail market during
the first quarter of fiscal 2007, the housing market,
specifically in that area experienced significant decline;
therefore, at the end of the second quarter of fiscal 2008 we
re-evaluated our goodwill in South Florida. As a result of the
significant change in our expected future cash flows for this
business, we recorded an impairment charge of $5.8 million
($3.7 million net of tax), which represents the entire
goodwill amount related to South Florida.
In the fourth quarter of fiscal 2008, we completed our annual
testing of goodwill and trade names and as a result of this test
we recorded an additional impairment charge of $2.6 million
($1.9 million net of tax), which represents a portion of
goodwill related to one of our VIEs due to a decline in
expected future cash flows.
21
Results
of Operations
Analysis
of Operations: Year Ended April 26, 2008
(Fiscal 2008 compared with 2007)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(52 Weeks)
|
|
|
(52 Weeks)
|
|
|
Percent
|
|
|
|
4/26/2008
|
|
|
4/28/2007
|
|
|
Change
|
|
|
|
(Amounts in thousands, except
|
|
|
|
per share amounts and percentages)
|
|
|
Upholstery sales
|
|
$
|
1,084,418
|
|
|
$
|
1,198,378
|
|
|
|
(9.5
|
)%
|
Casegoods sales
|
|
|
213,896
|
|
|
|
262,721
|
|
|
|
(18.6
|
)%
|
Retail sales
|
|
|
190,180
|
|
|
|
220,319
|
|
|
|
(13.7
|
)%
|
Other/eliminations
|
|
|
(37,553
|
)
|
|
|
(59,958
|
)
|
|
|
37.4
|
%
|
Consolidated sales
|
|
$
|
1,450,941
|
|
|
$
|
1,621,460
|
|
|
|
(10.5
|
)%
|
Consolidated gross profit
|
|
|
394,228
|
|
|
|
428,355
|
|
|
|
(8.0
|
)%
|
Consolidated gross margin
|
|
|
27.2
|
%
|
|
|
26.4
|
%
|
|
|
|
|
Consolidated S,G&A
|
|
|
399,470
|
|
|
|
388,738
|
|
|
|
2.8
|
%
|
S,G&A as a percent of sales
|
|
|
27.5
|
%
|
|
|
24.0
|
%
|
|
|
|
|
Upholstery operating income
|
|
|
70,332
|
|
|
|
78,724
|
|
|
|
(10.7
|
)%
|
Casegoods operating income
|
|
|
10,151
|
|
|
|
20,289
|
|
|
|
(50.0
|
)%
|
Retail operating loss
|
|
|
(40,265
|
)
|
|
|
(31,161
|
)
|
|
|
(29.2
|
)%
|
Corporate and other
|
|
|
(40,403
|
)
|
|
|
(24,864
|
)
|
|
|
(62.5
|
)%
|
Write-down of intangible assets
|
|
|
(8,426
|
)
|
|
|
|
|
|
|
N/A
|
|
Restructuring
|
|
|
(8,135
|
)
|
|
|
(11,033
|
)
|
|
|
26.3
|
%
|
Consolidated operating income (loss)
|
|
$
|
(16,746
|
)
|
|
$
|
31,955
|
|
|
|
(152.4
|
)%
|
Upholstery operating margin
|
|
|
6.5
|
%
|
|
|
6.6
|
%
|
|
|
|
|
Casegoods operating margin
|
|
|
4.7
|
%
|
|
|
7.7
|
%
|
|
|
|
|
Retail operating margin
|
|
|
(21.2
|
)%
|
|
|
(14.1
|
)%
|
|
|
|
|
Consolidated operating margin
|
|
|
(1.2
|
)%
|
|
|
2.0
|
%
|
|
|
|
|
Income (loss) from continuing operations
|
|
$
|
(7,537
|
)
|
|
$
|
19,768
|
|
|
|
(138.1
|
)%
|
Diluted income (loss) per share from continuing operations
|
|
$
|
(0.15
|
)
|
|
$
|
0.38
|
|
|
|
(139.5
|
)%
|
Sales
Consolidated sales were down 10.5% when compared with
fiscal 2007 due in large part to a weak retail environment
attributable to weak consumer demand.
Upholstery Group sales were down 9.5% compared with
fiscal 2007. Sales price increases resulted in a 2.1% increase
in sales; however this was offset by a decrease in sales volume
due to an overall weak consumer demand, which we associate with
the significant decline in consumer confidence and the
uncertainty in the housing market.
Our Casegoods Group sales decreased 18.6% compared with
fiscal 2007. Sales price increases resulted in a 1.1% increase
in sales; however, this was offset by a decrease in sales volume
which occurred across all of our Casegoods operating units due
to weak consumer demand. In addition to weak demand, our sales
also were impacted by the increase in liquidation sales of
distressed furniture of other companies, which flooded the
market with deeply discounted product.
Retail Group sales decreased 13.7% when compared with
fiscal 2007. During the second half of fiscal 2008, we exited
the Pittsburgh, Pennsylvania and Rochester, NY markets which
resulted in a 6.9% decline in sales in fiscal 2008 when compared
to fiscal 2007. The remaining decrease in sales was related to
the negative effect that housing sales declines have had on the
home furnishings market and the weak consumer demand.
22
Included in Other/eliminations are the sales by our VIEs and the
elimination of sales from our Upholstery and Casegoods Groups to
our Retail Group. The majority of the change in
Other/eliminations was attributable to a $3.4 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
consumer demand. Sales of our VIEs increased in fiscal 2008 when
compared to fiscal 2007 as the result of having five additional
stores in fiscal 2008.
Gross
Margin
Gross margin increased during fiscal 2008 in comparison to
fiscal 2007. Over the past several years we closed several
manufacturing plants and converted our remaining plants to a
cellular manufacturing process. These changes helped increase
our gross margin in fiscal 2008. In addition to these changes,
the following items also impacted gross margin during fiscal
2008:
|
|
|
|
|
Our sales price increases, mainly on our
La-Z-Boy
branded product, increased our gross margin by
1.8 percentage points; however, most of our other operating
units experienced lower gross margins due to the decline in
volume.
|
|
|
|
In the fall of 2007, we began a joint national advertising
campaign with our
La-Z-Boy
Furniture
Galleries®
stores where costs are shared between our company-owned and
dealer-owned stores. In fiscal 2008 the reimbursed advertising
from our dealers that was included in sales increased our gross
margin by 0.3 percentage points.
|
|
|
|
Restructuring related expense increased during fiscal 2008 when
compared to fiscal 2007, which reduced gross margin by
0.1 percentage points. The increase was primarily related
to the Tremonton, Utah plant closure.
|
Selling,
General and Administrative Expenses
Selling, general and administrative expenses (S,G&A)
increased $10.7 million or 2.8% when compared with the
prior year. S,G&A also increased as a percent of sales in
fiscal 2008 compared with fiscal 2007.
|
|
|
|
|
During fiscal 2007, we recorded $14.4 million in gains from
the sale of several properties whereas in fiscal 2008 we
recorded a loss of $0.3 million related to several property
sales.
|
|
|
|
During fiscal 2008, expense for bad debts increased by about
$4.1 million when compared with fiscal 2007 due to the
overall weakness in the retail environment and an increase in
our past due accounts.
|
|
|
|
In fiscal 2007, we reduced our warranty reserve by
$3.9 million due to a trend of lower warranty costs
incurred beyond one year after the sale of the product. Our
trends showed that a majority of our claims were from product
sold in the past twelve months thus reducing our liability,
along with estimated amounts required for currently known
warranty issues. This adjustment was not duplicated in fiscal
2008.
|
|
|
|
Advertising costs increased over the prior year by approximately
$3.0 million due to our national advertising campaign which
began in the fall of 2007. This campaign is a shared advertising
program with our
La-Z-Boy
Furniture
Galleries®
stores, which are reimbursing us for about one third of the cost
of the program. Because of this shared cost arrangement, the
increase in advertising expense was reported as a component of
SG&A and was partially offset by the reimbursement of the
dealers portion of the cost which was reported as a
component of sales.
|
Restructuring
Restructuring costs (including those included in total cost of
sales) totaled $8.1 million for fiscal 2008 as compared
with $11.0 million in fiscal 2007. The restructuring costs
in fiscal 2008 related to our closure of several manufacturing
facilities, consolidation of retail warehouses and closure of
underperforming retail stores. These costs were comprised mainly
of fixed asset impairments and lease termination, severance and
other restructuring costs. Of the $8.1 million and
$11.0 million in restructuring costs during fiscal 2008 and
2007, respectively, $5.1 million and $3.4 million were
classified in total cost of sales. The remaining restructuring
costs of $3.0 million
23
and $7.6 million were classified as an operating expense
line item below S,G&A related to Retail operations. The
restructuring costs in S,G&A for fiscal 2008 and 2007
related to the consolidation of retail warehouses and the
closure of underperforming retail stores.
Operating
Margin
Our consolidated operating margin was (1.2)% for fiscal 2008 and
included 0.6 percentage points of restructuring charges and
an additional 0.6 percentage points for a write-down of
intangibles related to one of our VIEs. Operating margin for
fiscal 2007 was 2.0% and included 0.7 percentage points of
restructuring charges and 0.9 percentage points of income
related to gains on property sales. While we have increased our
gross margin as a percent of sales as compared to fiscal 2007,
our S,G&A expenses have increased both in dollars and as a
percent of net sales. With the significant decline in sales as
compared to fiscal 2007, we have been unable to absorb the fixed
S,G&A expenses to maintain our operating margin.
The Upholstery Group operating margin was flat for fiscal
2008 when compared with the prior year. Selling price increases
accounted for a 2.1 percentage point increase in our
operating margin over the prior year, however the significant
decrease in volume more than offset the benefit received from
increasing our sales price. Provision for doubtful accounts
increases in fiscal 2008 accounted for a 0.4 percentage
point decrease when compared with fiscal 2007 due to the overall
depressed economic climate. Increases in advertising expense
accounted for a 0.4 percentage point decrease due to the
previously discussed national advertising campaign.
Our Casegoods Group operating margin decreased
3.0 percentage points during fiscal 2008 versus fiscal
2007. The 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 reduced the affect
that the significant volume reduction had on margins; however,
with the 18.6% decline in sales volume, we were unable to offset
our fixed costs.
Our Retail Group operating margin decreased by
7.1 percentage points during fiscal 2008 in comparison to
fiscal 2007. Our occupancy costs have increased
6.4 percentage points during fiscal 2008 as we continued to
convert, relocate and build new stores in our retail market, but
the significant decline in our net sales significantly impacted
our operating margins as we were not able to absorb these higher
fixed costs. In addition, we completed the consolidation of our
warehouses and computer systems during the fiscal year, which
further affected our margins as we absorbed duplicate costs,
start-up
costs and additional discounting of product as we consolidated
warehouses.
Corporate and Other operating loss increased
$15.5 million during fiscal 2008 when compared with fiscal
2007. Gains recognized in S,G&A in the prior year on
long-lived assets that we sold were $14.4 million higher in
fiscal 2007 than in fiscal 2008. Additionally, during the first
half of fiscal 2008, we concluded an overall retail test
marketing program which increased our expenses by
$1.9 million. In contrast, our VIEs operating losses
for fiscal 2008 were $0.6 million less than fiscal 2007,
which related in part to a $2.6 million legal settlement.
This favorable settlement was offset by lower operating results.
Write-down
of Intangibles
Since the acquisition of the South Florida retail market during
the first quarter of fiscal 2007, the housing market in that
area has experienced significant decline; therefore, at the end
of the second quarter of fiscal 2008 we re-evaluated our
goodwill in South Florida. As a result of the significant change
in our expected future cash flows for this business, we recorded
an impairment charge of $5.8 million, $3.7 million net
of tax, which represents the entire goodwill amount related to
South Florida.
In the fourth quarter of fiscal 2008, we completed our annual
testing of goodwill and trade names and as a result of this test
we recorded an additional impairment charge of $2.6 million
($1.9 million net of tax), which represents a portion of
goodwill related to one of our VIEs due to a decline in
expected future cash flows.
Income
from Continued Dumping and Subsidy Offset Act
We recorded $7.1 million and $3.4 million as Income
from Continued Dumping and Subsidy Offset Act, net of legal
expenses, during fiscal 2008 and fiscal 2007, respectively, from
the receipt of funds under the Continued
24
Dumping and Subsidy Act (CDSOA) of 2000 involving
wooden bedroom furniture imported from China. 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 upon receipt.
Interest
Expense
Interest expense for fiscal 2008 was significantly more than
fiscal 2007 due primarily to a $6 million make-whole
premium paid to our private placement note-holders when we
settled the notes with the proceeds from our new credit
facility. Interest expense is expected to be less in fiscal 2009
compared to fiscal 2008 due to the absence of a make whole
premium in fiscal 2009 and the effective interest rate of our
new facility being lower than the interest rates on the private
placement notes that were settled.
Income
Taxes
Our effective tax rate for continuing operations was 48.0% in
fiscal 2008 compared with 33.8% in fiscal 2007. During fiscal
2008 we realized a benefit from the prior years losses of
our European joint venture. In addition during fiscal 2008 the
tax rate was significantly affected by the foreign tax rate
differential, this was primarily related to the dividend from
our operating unit in the United Kingdom.
The rate for fiscal 2008 was also unfavorably impacted by a
decrease in the cash surrender value of company owned life
insurance policies, which resulted in an expense under
accounting rules but no deductions for income tax purposes.
Other
Income
Other income, net, increased during fiscal 2008 by
$4.8 million when compared with fiscal 2007. During the
third quarter of fiscal 2008 we sold several investments
resulting in a $3.8 million gain in order to utilize our
capital loss carry-forwards.
Discontinued
Operations
During fiscal 2008, we recognized a loss from discontinued
operations of $6.0 million after tax. We completed the sale
of our Clayton Marcus operating unit and our Pennsylvania House
trade name. The stock of Clayton Marcus was sold to Rowe Fine
Furniture, Incorporated and resulted in a loss of about
$5.8 million ($3.6 million net of taxes), of which
about $3.4 million related to the intangible assets of
Clayton Marcus. The Pennsylvania House trade name was sold to
Universal Furniture for $1.7 million resulting in a pre-tax
charge of about $0.6 million ($0.4 million net of
taxes). We liquidated the remaining Pennsylvania House
inventory, and as a result, recorded an additional loss of
$3.0 million.
25
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
|
|
|
1,198,378
|
|
|
|
1,270,746
|
|
|
|
(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
|
|
$
|
1,621,460
|
|
|
$
|
1,699,806
|
|
|
|
(4.6
|
)%
|
Consolidated gross profit
|
|
|
428,355
|
|
|
|
416,274
|
|
|
|
2.9
|
%
|
Consolidated gross margin
|
|
|
26.4
|
%
|
|
|
24.5
|
%
|
|
|
|
|
Consolidated S,G&A
|
|
|
388,738
|
|
|
|
379,039
|
|
|
|
2.6
|
%
|
S,G&A as a percent of sales
|
|
|
24.0
|
%
|
|
|
22.3
|
%
|
|
|
|
|
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
|
)
|
|
|
N/A
|
|
Restructuring
|
|
|
(11,033
|
)
|
|
|
(8,479
|
)
|
|
|
(30.1
|
)%
|
Consolidated operating income
|
|
$
|
31,955
|
|
|
$
|
14,540
|
|
|
|
119.8
|
%
|
Upholstery operating margin
|
|
|
6.6
|
%
|
|
|
6.5
|
%
|
|
|
|
|
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
fiscal 2006. The decrease in sales occurred across all of our
Casegoods operating units and was primarily focused among
smaller customers which were 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.
Included in Other/eliminations are the sales by our VIEs and the
elimination of sales between our Upholstery and Casegoods Groups
to our Retail Group. The majority of the change in
Other/eliminations 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 increase was related to additional
stores that were opened, the
26
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. Over the last couple years we closed several
manufacturing plants and began the process of converting our
remaining plants to a cellular manufacturing process. These
changes have increased our gross margin for fiscal 2007. In
addition to these changes, the following items also impacted
gross margin during fiscal 2007:
|
|
|
|
|
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.
|
|
|
|
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 $9.7 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 grew as an overall percentage of our net sales, the
overall S,G&A percentage increased 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 reflected a trend towards lower
aggregate warranty costs, particularly costs incurred one year
after sale of the product. The adjustment also reflected
remediation of other specific warranty-related issues. Together,
these items 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 fiscal 2007 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.
27
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 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.
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, net of legal expenses,
during fiscal 2007 from the receipt of funds under the CDSOA
involving wooden bedroom furniture imported from China. Receipt
of funds during the prior year was insignificant.
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.
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.
28
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,
we recorded a loss of $1.7 million after-tax from our
discontinued operations. In the prior year, discontinued
operations earned $2.5 million after-tax which was mostly
attributable to American of Martinsville and had minimal impact
on fiscal 2007 due to its sale in the first quarter.
Liquidity
and Capital Resources
Our total assets at the end of fiscal 2008 decreased
$109.8 million compared with the end of fiscal 2007. The
majority of this decrease related to cash, which decreased
$36.7 million when compared to fiscal 2007 as a result of
payments on our debt. The remaining decrease was related to the
sale of our Clayton Marcus operating unit and the Pennsylvania
House trade name during fiscal 2008 as well as declines in our
trade accounts receivable and inventory. In addition, we wrote
off $8.4 million ($5.6 million net of tax) of
intangibles.
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 however we have recently reduced our
quarterly dividend from $0.12 per share to $0.04 per share.
Capital expenditures for fiscal 2008 were $27.4 million
compared with $25.8 million during fiscal 2007. In fiscal
2008, we exercised a $5.2 million option to purchase
property, which we subsequently sold and leased back. Similarly
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 $25 to $28 million in fiscal
2009.
On February 6, 2008, we entered into a new
$220 million credit agreement that replaced our previous
$100 million dollar credit agreement.
The new credit agreement is secured primarily by all of our
accounts receivable, inventory, cash deposit and securities
accounts, and substantially all patents and trademarks,
including the
La-Z-Boy
brand name. The new credit agreement is a revolving credit
facility with a commitment of $220 million subject to a
borrowing base of certain eligible accounts receivable and
inventory. The new credit agreement also allows for the issuance
of letters of credit. Interest under the new credit agreement is
set at LIBOR plus 2.0% for the first six months and thereafter
will fluctuate from LIBOR plus 1.75% to 2.25%.
Initial borrowings under the new credit agreement were utilized
to repay the outstanding private placement notes in the
principal amount of $121 million, along with a make-whole
premium of approximately $6 million, which was expensed in
the fourth quarter, accrued interest of approximately
$1.3 million, and fees related to the new credit agreement
of approximately $2 million, which was capitalized and
amortized over the life of the debt. We intend to use any future
borrowings for general corporate purposes.
The new credit agreement would prohibit us from paying dividends
if excess availability, as defined in the new credit
agreement, fell below $30 million. Certain covenants and
restrictions, including a fixed charge coverage ratio, also
would become effective if excess availability under the new
credit agreement fell below $30 million. As of
April 26, 2008 we had $75 million outstanding and
$80 million of excess availability under the new credit
agreement.
29
The following table illustrates the main components of our cash
flows:
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
Cash Flows Provided From (Used For)
|
|
4/26/2008
|
|
|
4/28/2007
|
|
|
|
(Amounts in thousands)
|
|
|
Operating activities
|
|
|
|
|
|
|
|
|
Net income, depreciation and deferred taxes
|
|
$
|
5,132
|
|
|
$
|
14,953
|
|
Write-down of assets of businesses held for sale
|
|
|
2,159
|
|
|
|
14,936
|
|
Write-down of intangibles
|
|
|
8,426
|
|
|
|
|
|
(Gain) loss on sales of discontinued operations (net of tax)
|
|
|
3,696
|
|
|
|
(935
|
)
|
Restructuring
|
|
|
8,135
|
|
|
|
11,033
|
|
Stock option, performance-based and restricted stock expense
|
|
|
4,527
|
|
|
|
3,959
|
|
Working capital and other
|
|
|
17,164
|
|
|
|
(10,713
|
)
|
|
|
|
|
|
|
|
|
|
Cash provided from operating activities
|
|
|
49,239
|
|
|
|
33,233
|
|
Investing activities
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(27,386
|
)
|
|
|
(25,811
|
)
|
Proceeds from disposal of assets
|
|
|
8,761
|
|
|
|
46,974
|
|
Proceeds from sale of discontinued operations
|
|
|
4,169
|
|
|
|
42,659
|
|
Other investing activities
|
|
|
313
|
|
|
|
(1,778
|
)
|
|
|
|
|
|
|
|
|
|
Cash provided from (used for) investing activities
|
|
|
(14,143
|
)
|
|
|
62,044
|
|
Financing activities
|
|
|
|
|
|
|
|
|
Repurchase of common stock
|
|
|
|
|
|
|
(6,947
|
)
|
Net decrease in debt
|
|
|
(50,929
|
)
|
|
|
(36,696
|
)
|
Dividends paid
|
|
|
(20,746
|
)
|
|
|
(24,886
|
)
|
Other financing activities
|
|
|
(269
|
)
|
|
|
1,340
|
|
|
|
|
|
|
|
|
|
|
Cash used for financing activities
|
|
|
(71,944
|
)
|
|
|
(67,189
|
)
|
Exchange rate changes
|
|
|
109
|
|
|
|
(456
|
)
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
$
|
(36,739
|
)
|
|
$
|
27,632
|
|
|
|
|
|
|
|
|
|
|
Operating
Activities
For fiscal 2008, net cash provided by operating activities was
$49.2 million, compared with $33.2 million for fiscal
2007. The increase in 2008 operating cash flows was due mainly
to changes in accounts receivable, inventory and accrued
liabilities. Discontinued operations did not have a significant
impact on the cash provided by operating activities for fiscal
2008.
Investing
Activities
During fiscal 2008, net cash used for investing activities was
$14.1 million, whereas $62.0 million was provided by
investing activities during fiscal 2007. In fiscal 2008,
$6.4 million in proceeds was generated by a sale-leaseback
transaction we entered into with a third party. We exercised an
option to purchase a property, sold it to a third party and then
subsequently leased it back. Also, during fiscal 2008,
$4.2 million of proceeds were received for the sale of
Clayton Marcus operating unit and Pennsylvania House trade name.
These proceeds were offset by our capital expenditures of
$27.4 million. During fiscal 2007, $33.2 million of
proceeds were received for the sale of our operating unit
American of Martinsville, along with $47.0 million of
proceeds for the sale of multiple properties, offset by
$25.8 million of capital expenditures.
30
Financing
Activities
Our financing activities included borrowings and payments on our
debt facilities, dividend payments, issuances of stock and stock
repurchases. We used $71.9 million of cash in financing
activities in fiscal 2008 compared with $67.2 million of
cash used in financing activities during fiscal 2007. Our
discontinued operations did not have a material impact on cash
flows from financing activities for fiscal 2008.
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
|
|
$
|
103,097
|
|
|
$
|
3,978
|
|
|
$
|
12,236
|
|
|
$
|
79,750
|
|
|
$
|
7,133
|
|
Capital lease obligations
|
|
|
1,275
|
|
|
|
814
|
|
|
|
461
|
|
|
|
|
|
|
|
|
|
Operating lease obligations
|
|
|
351,613
|
|
|
|
40,617
|
|
|
|
75,679
|
|
|
|
62,580
|
|
|
|
172,737
|
|
Interest obligations
|
|
|
20,851
|
|
|
|
4,651
|
|
|
|
8,629
|
|
|
|
7,376
|
|
|
|
195
|
|
Other long-term liabilities not reflected on our balance sheet
|
|
|
210
|
|
|
|
105
|
|
|
|
105
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual obligations
|
|
$
|
477,046
|
|
|
$
|
50,165
|
|
|
$
|
97,110
|
|
|
$
|
149,706
|
|
|
$
|
180,065
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In the first quarter of fiscal 2008 we adopted FIN 48 and
as a consequence, the balance sheet at the end of the fiscal
year reflected a $4.9 million liability for uncertain
income tax positions. We reasonably expect that a portion of
this liability will be settled within the next 12 months.
This amount expected to be resolved within the next
12 months is comprised of gross unrecognized tax benefits
of $1.5 million and interest of $0.6 million, net of
deferred taxes of $0.7 million and penalties of $0.4
million. The remaining balance, to the extent it is ever paid,
will be paid as tax audits are completed or settled.
Our debt-to-capitalization ratio was 18.8% at April 26,
2008, 23.8% at April 28, 2007, and 26.5% at April 29,
2006.
Our Board of Directors has authorized the repurchase of company
stock. As of April 26, 2008, 5.4 million additional
shares could be purchased pursuant to this authorization. No
shares were repurchased during fiscal 2008.
We have guaranteed various leases of dealers with proprietary
stores. The total amount of these guarantees is
$13.4 million. Of this, $2.7 million will expire
within one year, $4.1 million in one to three years,
$2.5 million in four to five years, and $4.1 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 2008, we had
$50.5 million in open purchase orders with foreign
casegoods, leather and fabric 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
31
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.
Inventories
Inventories are stated at the lower of cost or market. Cost is
determined using the
last-in,
first-out (LIFO) basis for approximately 61% and 63%
of our inventories at April 26, 2008, and April 28,
2007, respectively. Cost is determined for all other inventories
on a
first-in,
first-out (FIFO) basis.
Revenue
Recognition and Related Allowances
For our largest division, from inception through the third
quarter of fiscal 2008, we recognized revenue for certain
shipments using
third-party
carriers upon shipment of the product. In the fourth quarter of
fiscal 2008, we determined that we should not recognize revenue
until product delivery date for this division. We performed a
detailed analysis and determined that the impact of recording
the cumulative impact of the correction in the fourth quarter of
fiscal 2008 was immaterial to the full year and fourth quarter
of fiscal 2008 and all prior periods. As a result, we recorded
the cumulative impact of this correction in the fourth quarter
of fiscal 2008. This change resulted in a deferral of
$11.0 million of revenue, and a decrease in cost of goods
sold of $8.2 million, which increased our net loss by
$1.5 million.
For the remainder of the company, shipping terms using
third-party
carriers are FOB shipping point and revenue is recognized upon
shipment of product. For product sold by our Retail segment or
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 of 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.
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 which require us
to make significant estimates and assumptions, including
long-term projections of cash flows, market conditions and
discount rates. While we believe that the estimates and
assumptions, underlying the valuation methodology are
reasonable, different estimates and assumptions and changes in
economic conditions could result in additional impairment. 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 second quarter of fiscal 2008, we performed an
evaluation of goodwill in our South Florida retail market due to
the drastic decline in the housing market as well as
double-digit declines in sales over the twelve month period
ending October, 2007. These declines 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. As a result of the significant
change in our expected future cash flows for this business, we
recorded an impairment charge of $5.8 million,
($3.6 million after tax), which represented the entire
goodwill amount.
32
In the fourth quarter of fiscal 2008, we completed our annual
testing of goodwill and trade names and as a result of this test
we recorded an additional impairment charge of $2.6 million
($1.6 million net of tax), which represents a portion of
goodwill related to one of our VIEs due to a decline in
expected future cash flows.
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 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.
Other
Loss Reserves
The allowance for doubtful accounts reflects our best estimate
of probable losses inherent in the accounts receivable balance.
In fiscal 2008, our allowance for doubtful accounts for trade
accounts receivable and long-term notes increased from
$15.6 million to $20.7 million. This increase is
mainly attributed to the effect of weak consumer demand on our
customers which has impacted their ability to pay.
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 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.
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 carry-forwards. 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. In periods when deferred
tax assets are recorded, we are required to estimate whether
recoverability is more likely than not, based on forecasts of
taxable earnings in the related tax jurisdiction. We use
historical and projected future operating results, including a
review of the eligible carry-forward period, tax planning
opportunities and other relevant considerations. Additional
factors that we consider when making judgments about the tax
valuation include tax law changes, a recent history of
cumulative losses, and variances in future projected
profitability.
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 2007
and terminated the pension plan associated with that business
during the fourth quarter of fiscal 2008. Annual net periodic
expense and benefit liabilities under our defined benefit plans
are determined on an actuarial basis using various assumptions
and estimates including discount rates, long-term rates of
return, estimated remaining years of service and estimated life
expectancy. 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.
Yields on high-quality fixed-income investments, were 6.21%
based on the Citigroup High Grade Credit index at the end of
fiscal 2008. For our U.S. plans, we utilized a discount
rate of 6.60% at April 26, 2008, compared with a rate of
6.05% at April 28, 2007, and 6.45% at April 29, 2006.
33
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 26, 2008, and April 28,
2007, was 8.0%. The expected rate of return assumption as of
April 26, 2008, will be used to determine pension expense
for plans in 2009.
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 26, 2008,
our weighted average asset allocation was 63% equity securities
and 37% fixed-income investments. As of April 28, 2007, our
weighted average asset allocation was 71% equity securities and
29% fixed-income investments.
Our non-qualified retirement plan was not funded at
April 26, 2008. We hold investments in a Rabbi trust that
supports the liability of the plan. We are not required to make
any contributions to the other defined benefit plans in fiscal
year 2009.
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.
We expect that the fiscal 2009 pension expense after considering
all relevant assumptions will be minimal compared with
$0.2 million in fiscal 2008. 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.
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
remaining terms from one to nine 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 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
$13.4 million as of April 26, 2008.
We have, from time to time, 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 to accrue an
estimated liability at the time the revenue is recognized. This
estimate is based on historical claims and adjusted for
currently known warranty issues.
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
34
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. 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. In some cases we have extended credit beyond
normal trade terms to the independent dealers, made direct
loans, entered into leases
and/or
guaranteed certain leases.
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 their equity. We recognize all net earnings of these VIEs to
the extent of recouping the losses previously recorded. Earnings
in excess of our losses are attributed to equity owners of the
dealers and are recorded as minority interest. We had four
consolidated VIEs for fiscal 2008 and 2007.
Our consolidated VIEs recognized $51.9 million and
$45.6 million in sales, net of intercompany eliminations,
in fiscal 2008 and fiscal 2007, respectively. Additionally, we
recognized a net loss per share of $0.11 and $0.11 in fiscal
2008 and fiscal 2007, respectively, resulting from the operating
results of these VIEs. The VIEs, after the elimination of
intercompany activity, had the impact of reducing our assets by
$3.8 million for fiscal 2008 and increasing our assets by
$2.8 million for fiscal 2007.
Restructuring
During the fourth quarter of fiscal 2008, we expressed our
commitment to a restructuring plan which will consolidate all of
our domestic cutting and sewing operations in Mexico and will
transfer production from our Tremonton, Utah plant, which will
be closed, to our five remaining
La-Z-Boy
branded upholstery manufacturing facilities. The transition of
our cutting and sewing operations to Ramos Arizpe, Mexico, in
the state of Coahuila, will impact approximately 1,050
La-Z-Boy
employees at the five remaining facilities and will take place
over a period of 18 to 24 months. We expect to begin
production at our Mexican facility in early calendar 2009. Our
Utah facility, which employed 630 people, will cease
operations during the summer of 2008 and production will be
shifted to our remaining manufacturing facilities. As a result
of this transition, we expect to add approximately
400 positions to our other plants. In connection with these
activities, we expect to record pre-tax restructuring and
related asset impairment charges of $17 to $20 million or
$0.20 to $0.24 per share for severance and benefits, write-down
of certain fixed assets, and other restructuring costs. To date,
we have incurred $2.6 million in restructuring expenses,
which included severance, benefit related costs and asset
impairment.
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 occurred in the first
quarter of fiscal 2008 and impacted 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.
During fiscal 2008, we recorded pre-tax restructuring charges of
$8.1 million or $0.10 per diluted share, using our marginal
tax rate, covering severance and benefits, write-down of certain
fixed assets in addition to other restructuring costs which were
expensed as incurred. Of these costs $5.1 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.
35
During fiscal 2007 and 2008, several of our Retail warehouses
were consolidated into larger facilities, and several
underperforming stores were closed. Approximately 127 jobs were
eliminated as a result of these closures. During fiscal 2008, we
recorded pre-tax restructuring charges of $3.0 million or
$0.04 per diluted share, using our marginal tax rate, 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,
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 26, 2008, we had a remaining restructuring
liability of $3.8 million which is expected to be paid out
or written off as follows: $2.7 million in fiscal 2009,
$0.9 million in fiscal 2010, $0.1 million in fiscal
2011 and $0.1 million thereafter.
Restructuring liabilities along with charges to expense, cash
payments or asset write-downs were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2008
|
|
|
|
|
|
|
|
|
|
Cash
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments
|
|
|
|
|
|
|
4/28/2007
|
|
|
Charges to
|
|
|
or Asset
|
|
|
4/26/2008
|
|
|
|
Balance
|
|
|
Expense
|
|
|
Write-Offs
|
|
|
Balance
|
|
|
|
(Amounts in thousands)
|
|
|
Severance and benefit-related costs
|
|
$
|
2,177
|
|
|
$
|
3,253
|
|
|
$
|
(2,588
|
)
|
|
$
|
2,842
|
|
Fixed asset write-downs, net of gains
|
|
|
|
|
|
|
364
|
|
|
|
(364
|
)
|
|
|
|
|
Contract termination costs
|
|
|
1,257
|
|
|
|
2,019
|
|
|
|
(2,337
|
)
|
|
|
939
|
|
Other
|
|
|
|
|
|
|
2,499
|
|
|
|
(2,499
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total restructuring
|
|
$
|
3,434
|
|
|
$
|
8,135
|
|
|
$
|
(7,788
|
)
|
|
$
|
3,781
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 Staff Accounting Bulletin No. 107, Share
Based Payments (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 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.
36
The fair value of each option grant was estimated using a
Black-Scholes option-pricing model. For the options granted in
fiscal 2008, 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.
Stock-based compensation expense recognized in Selling, General
and Administrative expense under SFAS No. 123(R) for
fiscal 2008 was $1.8 million, which reduced net income by
$1.1 million using our marginal tax rate and earnings per
share by $0.02. As of April 26, 2008, there was
$2.5 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 1.5 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. We received $7.1 million of CDSOA
payments during fiscal 2008 and $3.4 million during fiscal
2007. In view of the uncertainties associated with this program,
we are unable to predict the amounts, if any, we may receive in
the future 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
Refer to Note 1 of the consolidated financial statements in
Item 8 for detailed information regarding accounting
pronouncements.
Business
Outlook
Overall macroeconomic factors continue to impact the home
furnishings industry and we believe it will be some time before
the environment improves. As we experienced in fiscal 2008, due
to seasonality issues and the way in which our fiscal year rolls
out (May through April), we anticipate the second half of our
fiscal year to be stronger than the first half. We will continue
to make changes to our business to positively impact both the
top and bottom lines; however, we remain cautious in our outlook
for the full fiscal 2009 year and anticipate a 3% to 7%
decrease in sales compared with fiscal 2008 and earnings per
share to be in the range of $0.15 to $0.25. Our guidance does
not include restructuring charges, potential income from
anti-dumping monies, or any further effect from discontinued
operations or the write-down of intangible assets.
|
|
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 revolving credit facility under which we had
$75 million of borrowings at April 26, 2008.
Subsequent to April 26, 2008 we entered into a three year
interest rate swap agreement in order to fix $20 million of
our floating rating debt under our revolving credit facility.
Management estimates that a one percentage point change in
interest rates would not have a material impact on our
operations.
We are exposed to market risk from changes in the value of
foreign currencies. Our exposure to changes in the value of
foreign currencies is reduced through our use of foreign
currency forward contracts from time to time. At April 26,
2008, we had no foreign currency forward contracts outstanding.
Substantially all of our imports purchased outside of North
America are denominated in U.S. dollars. However, a change
in the value of the Chinese currency could be one of several
factors that could inflate costs in the future.
37
|
|
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 on
Form 10-K.
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 August 22, 2007,
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 26, 2008.
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 26, 2008. The effectiveness of the Companys
internal control over financial reporting as of April 26,
2008, has been audited by PricewaterhouseCoopers, LLP, an
independent registered public accounting firm, as stated in
their report which appears herein.
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 represented 1.3% and 2.5%, respectively,
of the related consolidated financial statement amounts as of
and for the year ended April 26, 2008.
Kurt L. Darrow
President and Chief Executive Officer
Louis M. Riccio, Jr.
Senior VP and Chief Financial Officer
38
Report of
Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of
La-Z-Boy
Incorporated:
In our opinion, the accompanying consolidated balance sheets and
the related consolidated statements of operations, changes in
shareholders equity and cash flows present fairly, in all
material respects, the financial position of
La-Z-Boy
Incorporated and its subsidiaries at April 26, 2008 and
April 28, 2007, and the results of their operations and
their cash flows for each of the three years in the period ended
April 26, 2008 in conformity with accounting principles
generally accepted in the United States of America. Also in our
opinion, the Company maintained, in all material respects,
effective internal control over financial reporting as of
April 26, 2008, based on criteria established in
Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). The Companys management is responsible
for these financial statements, for maintaining effective
internal control over financial reporting and for its assessment
of the effectiveness of internal control over financial
reporting, included in Managements Report on Internal
Control over Financial Reporting. Our responsibility is to
express opinions on these financial statements and on the
Companys internal control over financial reporting based
on our integrated audits. We conducted our audits in accordance
with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether
the financial statements are free of material misstatement and
whether effective internal control over financial reporting was
maintained in all material respects. Our audits of the financial
statements included 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. Our audit of internal
control over financial reporting included obtaining an
understanding of internal control over financial reporting,
assessing the risk that a material weakness exists, and testing
and evaluating the design and operating effectiveness of
internal control based on the assessed risk. Our audits also
included performing such other procedures as we considered
necessary in the circumstances. We believe that our audits
provide a reasonable basis for our opinions.
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. As
discussed in Note 16 to the consolidated financial
statements the Company changed its method of accounting for
uncertainties in income taxes effective April 29, 2007.
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 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.
39
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, as of April 26, 2008,
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 1.3% and 2.5% respectively, of the related
consolidated financial statement amounts as of and for the year
ended April 26, 2008. We have also excluded these
operations from our assessment.
/s/ PricewaterhouseCoopers LLP
Toledo, Ohio
June 17, 2008
40
LA-Z-BOY
INCORPORATED
CONSOLIDATED
STATEMENT OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
(52 Weeks)
|
|
|
(52 Weeks)
|
|
|
(52 Weeks)
|
|
|
|
4/26/2008
|
|
|
4/28/2007
|
|
|
4/29/2006
|
|
|
|
(Amounts in thousands, except per share data)
|
|
|
Sales
|
|
$
|
1,450,941
|
|
|
$
|
1,621,460
|
|
|
$
|
1,699,806
|
|
Cost of sales
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold
|
|
|
1,051,656
|
|
|
|
1,189,734
|
|
|
|
1,275,053
|
|
Restructuring
|
|
|
5,057
|
|
|
|
3,371
|
|
|
|
8,479
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of sales
|
|
|
1,056,713
|
|
|
|
1,193,105
|
|
|
|
1,283,532
|
|
Gross profit
|
|
|
394,228
|
|
|
|
428,355
|
|
|
|
416,274
|
|
Selling, general and administrative
|
|
|
399,470
|
|
|
|
388,738
|
|
|
|
379,039
|
|
Restructuring
|
|
|
3,078
|
|
|
|
7,662
|
|
|
|
|
|
Write-down of intangibles
|
|
|
8,426
|
|
|
|
|
|
|
|
22,695
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
(16,746
|
)
|
|
|
31,955
|
|
|
|
14,540
|
|
Interest expense
|
|
|
13,899
|
|
|
|
10,206
|
|
|
|
11,540
|
|
Income from Continued Dumping and Subsidy Act, net
|
|
|
7,147
|
|
|
|
3,430
|
|
|
|
|
|
Interest income
|
|
|
3,614
|
|
|
|
3,952
|
|
|
|
3,101
|
|
Other income (expense), net
|
|
|
5,393
|
|
|
|
727
|
|
|
|
(933
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income taxes
|
|
|
(14,491
|
)
|
|
|
29,858
|
|
|
|
5,168
|
|
Income tax (benefit) expense
|
|
|
(6,954
|
)
|
|
|
10,090
|
|
|
|
10,758
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
(7,537
|
)
|
|
|
19,768
|
|
|
|
(5,590
|
)
|
Income (loss) from discontinued operations (net of tax of
$(3,990) in 2008, $(4,682) in 2007 and $1,716 in 2006)
|
|
|
(6,000
|
)
|
|
|
(15,629
|
)
|
|
|
2,549
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(13,537
|
)
|
|
$
|
4,139
|
|
|
$
|
(3,041
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic average shares
|
|
|
51,408
|
|
|
|
51,475
|
|
|
|
51,801
|
|
Basic income (loss) from continuing operations per share
|
|
$
|
(0.15
|
)
|
|
$
|
0.38
|
|
|
$
|
(0.11
|
)
|
Discontinued operations (net of tax)
|
|
|
(0.11
|
)
|
|
|
(0.30
|
)
|
|
|
0.05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) per share
|
|
$
|
(0.26
|
)
|
|
$
|
0.08
|
|
|
$
|
(0.06
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted average shares
|
|
|
51,408
|
|
|
|
51,606
|
|
|
|
51,801
|
|
Diluted income (loss) from continuing operations per share
|
|
$
|
(0.15
|
)
|
|
$
|
0.38
|
|
|
$
|
(0.11
|
)
|
Discontinued operations (net of tax)
|
|
|
(0.11
|
)
|
|
|
(0.30
|
)
|
|
|
0.05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income (loss) per share
|
|
$
|
(0.26
|
)
|
|
$
|
0.08
|
|
|
$
|
(0.06
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends paid per share
|
|
$
|
0.40
|
|
|
$
|
0.48
|
|
|
$
|
0.44
|
|
The accompanying Notes to Consolidated Financial Statements are
an integral part of these statements.
41
LA-Z-BOY
INCORPORATED
CONSOLIDATED
BALANCE SHEET
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
|
4/26/2008
|
|
|
4/28/2007
|
|
|
|
(Amounts in thousands, except par value)
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
Cash and equivalents
|
|
$
|
14,982
|
|
|
$
|
51,721
|
|
Receivables, net of allowance of $17,942 in 2008 and $13,635 in
2007
|
|
|
200,422
|
|
|
|
230,399
|
|
Inventories, net
|
|
|
178,361
|
|
|
|
197,790
|
|
Deferred income taxes current
|
|
|
12,398
|
|
|
|
17,283
|
|
Assets of discontinued operations
|
|
|
|
|
|
|
24,278
|
|
Other current assets
|
|
|
21,325
|
|
|
|
19,327
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
427,488
|
|
|
|
540,798
|
|
Property, plant and equipment, net
|
|
|
171,001
|
|
|
|
183,218
|
|
Deferred income taxes long term
|
|
|
26,922
|
|
|
|
15,380
|
|
Goodwill
|
|
|
47,233
|
|
|
|
55,659
|
|
Trade names
|
|
|
9,006
|
|
|
|
9,472
|
|
Other long-term assets, net of allowance of $2,801 in 2008 and
$1,942 in 2007
|
|
|
87,220
|
|
|
|
74,164
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
768,870
|
|
|
$
|
878,691
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
Current portion of long-term debt
|
|
$
|
4,792
|
|
|
$
|
38,076
|
|
Accounts payable
|
|
|
56,421
|
|
|
|
66,242
|
|
Liabilities of discontinued operations
|
|
|
|
|
|
|
3,843
|
|
Accrued expenses and other current liabilities
|
|
|
102,700
|
|
|
|
118,591
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
163,913
|
|
|
|
226,752
|
|
Long-term debt
|
|
|
99,578
|
|
|
|
113,172
|
|
Other long-term liabilities
|
|
|
54,783
|
|
|
|
53,419
|
|
Contingencies and commitments
|
|
|
|
|
|
|
|
|
Shareholders equity
|
|
|
|
|
|
|
|
|
Preferred shares 5,000 authorized; none issued
|
|
|
|
|
|
|
|
|
Common shares, $1 par value 150,000 authorized;
51,428 outstanding in 2008 and 51,377 outstanding in 2007
|
|
|
51,428
|
|
|
|
51,377
|
|
Capital in excess of par value
|
|
|
209,388
|
|
|
|
208,283
|
|
Retained earnings
|
|
|
190,215
|
|
|
|
223,896
|
|
Accumulated other comprehensive income (loss)
|
|
|
(435
|
)
|
|
|
1,792
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
450,596
|
|
|
|
485,348
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$
|
768,870
|
|
|
$
|
878,691
|
|
|
|
|
|
|
|
|
|
|
The accompanying Notes to Consolidated Financial Statements are
an integral part of these statements.
42
LA-Z-BOY
INCORPORATED
CONSOLIDATED
STATEMENT OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
4/26/2008
|
|
|
4/28/2007
|
|
|
4/29/2006
|
|
|
|
(Amounts in thousands)
|
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(13,537
|
)
|
|
$
|
4,139
|
|
|
$
|
(3,041
|
)
|
Adjustments to reconcile net income (loss) to cash provided by
(used for) operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Write-down of intangibles
|
|
|
8,426
|
|
|
|
|
|
|
|
22,695
|
|
Write-down of assets from businesses held for sale (net of tax)
|
|
|
2,159
|
|
|
|
14,936
|
|
|
|
|
|
(Gain) loss on sale of discontinued operations (net of tax)
|
|
|
3,696
|
|
|
|
(935
|
)
|
|
|
|
|
Restructuring
|
|
|
8,135
|
|
|
|
11,033
|
|
|
|
6,643
|
|
Provision for doubtful accounts
|
|
|
8,550
|
|
|
|
3,790
|
|
|
|
4,527
|
|
Depreciation and amortization
|
|
|
24,696
|
|
|
|
27,204
|
|
|
|
29,234
|
|
Stock option, restricted and performance based stock expense
|
|
|
4,527
|
|
|
|
3,959
|
|
|
|
762
|
|
Change in receivables
|
|
|
20,956
|
|
|
|
5,064
|
|
|
|
13,529
|
|
Change in inventories
|
|
|
23,471
|
|
|
|
4,486
|
|
|
|
25,132
|
|
Change in payables
|
|
|
(10,394
|
)
|
|
|
(11,607
|
)
|
|
|
2,260
|
|
Change in other assets and liabilities
|
|
|
(25,419
|
)
|
|
|
(12,446
|
)
|
|
|
(8,561
|
)
|
Change in deferred taxes
|
|
|
(6,027
|
)
|
|
|
(16,390
|
)
|
|
|
(3,403
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total adjustments
|
|
|
62,776
|
|
|
|
29,094
|
|
|
|
92,818
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
49,239
|
|
|
|
33,233
|
|
|
|
89,777
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from disposals of assets
|
|
|
8,761
|
|
|
|
46,974
|
|
|
|
11,499
|
|
Proceeds from sale of discontinued operations
|
|
|
4,169
|
|
|
|
42,659
|
|
|
|
|
|
Capital expenditures
|
|
|
(27,386
|
)
|
|
|
(25,811
|
)
|
|
|
(27,991
|
)
|
Purchases of investments
|
|
|
(34,562
|
)
|
|
|
(18,165
|
)
|
|
|
(25,289
|
)
|
Proceeds from sales of investments
|
|
|
35,580
|
|
|
|
17,342
|
|
|
|
12,983
|
|
Change in other long-term assets
|
|
|
(705
|
)
|
|
|
(955
|
)
|
|
|
(1,875
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used for) investing activities
|
|
|
(14,143
|
)
|
|
|
62,044
|
|
|
|
(30,673
|
)
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from debt
|
|
|
93,861
|
|
|
|
91,787
|
|
|
|
103,380
|
|
Payments on debt
|
|
|
(144,790
|
)
|
|
|
(128,483
|
)
|
|
|
(146,482
|
)
|
Stock issued/(canceled) for stock and employee benefit plans
|
|
|
(269
|
)
|
|
|
1,340
|
|
|
|
3,679
|
|
Repurchases of common stock
|
|
|
|
|
|
|
(6,947
|
)
|
|
|
(10,890
|
)
|
Dividends paid
|
|
|
(20,746
|
)
|
|
|
(24,886
|
)
|
|
|
(22,923
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used for financing activities
|
|
|
(71,944
|
)
|
|
|
(67,189
|
)
|
|
|
(73,236
|
)
|
Effect of exchange rate changes on cash and equivalents
|
|
|
109
|
|
|
|
(456
|
)
|
|
|
516
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in cash and equivalents
|
|
|
(36,739
|
)
|
|
|
27,632
|
|
|
|
(13,616
|
)
|
Cash and equivalents at beginning of period
|
|
|
51,721
|
|
|
|
24,089
|
|
|
|
37,705
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and equivalents at end of period
|
|
$
|
14,982
|
|
|
$
|
51,721
|
|
|
$
|
24,089
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying Notes to Consolidated Financial Statements are
an integral part of these statements.
43
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 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, restricted stock and performance based 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
|
|
Stock issued/(cancelled) for stock and employee benefit plans
|
|
|
51
|
|
|
|
(3,422
|
)
|
|
|
3,102
|
|
|
|
|
|
|
|
|
|
|
|
(269
|
)
|
Stock option, performance-based and restricted stock expense
|
|
|
|
|
|
|
4,527
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,527
|
|
Dividends paid
|
|
|
|
|
|
|
|
|
|
|
(20,746
|
)
|
|
|
|
|
|
|
|
|
|
|
(20,746
|
)
|
Comprehensive income (loss) Net loss
|
|
|
|
|
|
|
|
|
|
|
(13,537
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss on marketable securities (net of tax of
$0.1 million)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(222
|
)
|
|
|
|
|
Realized gain on marketable securities (net of tax of
$1.4 million)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,420
|
)
|
|
|
|
|
Translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(117
|
)
|
|
|
|
|
Net actuarial gain (net of tax of $0.2 million)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
532
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15,764
|
)
|
Impact of adoption of FIN 48
|
|
|
|
|
|
|
|
|
|
|
(2,500
|
)
|
|
|
|
|
|
|
|
|
|
|
(2,500
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At April 26, 2008
|
|
$
|
51,428
|
|
|
$
|
209,388
|
|
|
$
|
190,215
|
|
|
$
|
|
|
|
$
|
(435
|
)
|
|
$
|
450,596
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying Notes to Consolidated Financial Statements are
an integral part of these statements.
44
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 2008, 2007 and 2006 included 52 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
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.
In February 2008, the FASB decided to issue a final Staff
Position to allow a one-year deferral of adoption of
SFAS No. 157 for nonfinancial assets and nonfinancial
liabilities that are recognized or disclosed at fair value in
the financial statements on a nonrecurring basis. The FASB also
decided to amend SFAS No. 157 to exclude FASB
Statement No. 13 and its related interpretive accounting
pronouncements that address leasing transactions. 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 for all
assets and liabilities that have not been specifically deferred.
We are currently in the process of determining the impact this
pronouncement may have on our financial statements and as such
have not elected early adoption. This statement will be
effective for the first quarter of fiscal 2009.
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 the first quarter of fiscal 2009.
FASB
Statement of Financial Accounting Standards
No. 160
The FASB issued Statement of Financial Accounting Standards
No. 160, Noncontrolling Interests in Consolidated
Financial Statements an amendment of ARB No. 51
(SFAS No. 160). It is effective for
financial statements issued for fiscal years beginning after
December 15, 2008, and interim periods within those fiscal
years.
45
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Earlier application is prohibited. SFAS No. 160
requires that accounting and reporting for minority interests
will be re-characterized as non-controlling interests and
classified as a component of equity. SFAS No. 160 also
establishes reporting requirements that provide disclosures that
clearly identify and distinguish between the interests of the
parent and the interests of the non-controlling owners. This
statement applies to all entities that prepare consolidated
financial statements, but will affect only those entities that
have an outstanding non-controlling interest in one or more
subsidiaries or that deconsolidate a subsidiary.
We are currently evaluating the impact SFAS No. 160
will have on our financial statements. This statement will be
effective for interim periods beginning in fiscal 2010.
FASB
Statement of Financial Accounting Standards
No. 141(R)
The FASB issued Statement of Financial Accounting Standards
No. 141 (Revised 2007), Business Combinations,
(SFAS No. 141(R)), which replaces FASB
Statement No. 141. SFAS No. 141(R) establishes
principles and requirements for how an acquirer recognizes and
measures in its financial statements the identifiable assets
acquired, the liabilities assumed, any non-controlling interest
in the acquiree and the goodwill acquired. The Statement also
establishes disclosure requirements that will enable users to
evaluate the nature and financial effects of the business
combination. SFAS No. 141(R) is effective for business
combinations that occur during or after fiscal years that begin
after December 15, 2008.
We are currently evaluating the impact SFAS No. 141(R)
will have on our financial statements. This statement will be
effective in fiscal 2010.
FASB
Statement of Financial Accounting Standards
No. 161
The FASB issued Statement of Financial Accounting Standards
No. 161, Disclosures about Derivative Instruments and
Hedging Activities, (SFAS No. 161). It
is effective for financial statements issued for fiscal years
beginning after November 15, 2008, and interim periods
within, with early adoption encouraged. The objective of this
statement is to require enhanced disclosures about an
entitys derivative and hedging activities and to improve
the transparency of financial reporting. Entities are required
to provide enhanced disclosures about (a) how and why an
entity uses derivative instruments, (b) how derivative
instruments and related hedged items are accounted for under
Statement 133 and its related interpretations, and (c) how
derivative instruments and related hedged items affect an
entitys financial position, financial performance, and
cash flows requires disclosure of the fair values of derivative
instruments and their gains and losses in tabular format and
derivative features that are credit risk related.
We are currently determining the impact this pronouncement will
have on our financial statements. This statement will be
effective for interim periods beginning in fiscal 2010.
FASB
Statement of Financial Accounting Standards
No. 162
The FASB issued Statement of Financial Accounting Standards
No. 162, The Hierarchy of Generally Accepted Accounting
Principles, (SFAS No. 162). This
statement is effective 60 days following the SECs
approval of the Public Company Accounting Oversight Board
Auditing amendments to AU Section, 411 The Meaning of
Present Fairly in Conformity with Generally Accepted
Accounting Principles. The statement is intended to
improve financial reporting by identifying a consistent
hierarchy for selecting accounting principles to be used in
preparing financial statements that are presented in conformity
with U.S. generally accepted accounting principles (GAAP).
SFAS No. 162 is only effective for nongovernmental
entities.
We are currently evaluating the impact, if any,
SFAS No. 162 will have on our financial statements.
This statement will be adopted by us 60 days following the
SECs approval.
Cash
and Equivalents
For purposes of the consolidated balance sheet and statement of
cash flows, we consider all highly liquid debt instruments
purchased with initial maturities of three months or less to be
cash equivalents.
46
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Inventories
Inventories are stated at the lower of cost or market. Cost is
determined using the
last-in,
first-out (LIFO) basis for approximately 61% and 63%
of our inventories at April 26, 2008, and April 28,
2007, 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 when
conditions arise that warrants an evaluation.
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 (that are deemed to be
temporary) reported, net of tax, as a component of other
comprehensive income. Realized gains and losses and charges for
other-than-temporary impairments are included in determining net
income, with related purchase costs 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, and will be held to maturity. These
assets are classified as other non-current assets on our balance
sheet. The change in cash surrender or contract value is
recorded as income or expense during each period.
Revenue
Recognition and Related Allowances
For our largest division, from inception through the third
quarter of fiscal 2008, we recognized revenue for certain
shipments using third-party carriers upon shipment of the
product. In the fourth quarter of fiscal 2008, we determined
that we should not recognize revenue until product delivery date
for this division. We performed a detailed analysis and
determined that the impact of recording the cumulative impact of
the correction in the fourth quarter of fiscal 2008 was
immaterial to the full year and fourth quarter of fiscal 2008
and all prior periods. As a result, we recorded the cumulative
impact of this correction in the fourth quarter of fiscal 2008.
This change resulted in a deferral of $11.0 million of
revenue, and a decrease in cost of goods sold of
$8.2 million, which increased our net loss by
$1.5 million.
For the remainder of the company, shipping terms using
third-party carriers are FOB shipping point and revenue is
recognized upon shipment of product. For product sold by our
Retail segment or 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
47
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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.
Research
and Development Costs
Research and development costs are charged to expense in the
periods incurred. Expenditures for research and development
costs were $9.5 million, $11.7 million and
$14.7 million for the fiscal years ended April 26,
2008, April 28, 2007, and April 29, 2006, 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. In the Fall of 2007, we began a national
advertising campaign. This campaign is a shared advertising
program with our
La-Z-Boy
Furniture
Galleries®
stores, which are reimbursing us for about one third of the cost
of the program. Because of this shared cost arrangement, the
increase in advertising expense was reported as a component of
SG&A and was partially offset by the reimbursement of the
dealers portion of the cost which was reported as a
component of sales. Advertising expenses were
$63.4 million, $60.4 million and $58.3 million
for the fiscal years ended April 26, 2008, April 28,
2007, and April 29, 2006, 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 carry-forwards. Deferred tax
assets and liabilities are measured using enacted tax rates in
effect for the year in which those temporary differences are
expected to be recovered or settled.
Foreign
Currency Translation
The functional currency of each foreign subsidiary is the
respective local currency. Assets and liabilities are translated
at the year-end exchange rates, and revenues and expenses are
translated at average exchange rates for the period. Resulting
translation adjustments are recorded as a component of
shareholders equity in other comprehensive income.
Financial
Instruments and Hedging
We have historically entered into 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. The
effect of marking these contracts to fair value was recorded as
a component of shareholders equity in other comprehensive
income.
We have historically entered 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. We had no forward contracts as of
April 26, 2008.
48
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 SAB 107 relating to SFAS No. 123(R). We
have applied the provisions of SAB 107 in our adoption of
SFAS No. 123(R).
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 a result of the adoption of SFAS No. 123(R), our
results for the twelve months ended April 26, 2008 include
stock-based compensation expense totaling $4.5 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 $1.8 million.
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. The impact on our compensation
expense for the twelve months ended April 26, 2008 would
have been immaterial under the non-substantive vesting period
approach.
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. The pro forma table below, which addresses the disclosure
requirements of SFAS No. 148, reflects basic and
diluted net earnings per share for the year ended April 29,
2006 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
|
|
|
|
(Amounts in thousands,
|
|
|
|
except per share data)
|
|
|
Net loss
|
|
$
|
(3,041
|
)
|
Add back stock compensation expense included in net loss (net of
tax)
|
|
|
472
|
|
Deduct fair value of stock plans (net of tax)
|
|
|
(2,365
|
)
|
|
|
|
|
|
Pro forma net loss
|
|
$
|
(4,934
|
)
|
|
|
|
|
|
Basic net loss per share as reported
|
|
$
|
(0.06
|
)
|
Pro forma basic net loss per share
|
|
$
|
(0.10
|
)
|
Diluted net loss per share as reported
|
|
$
|
(0.06
|
)
|
Pro forma net loss per share
|
|
$
|
(0.10
|
)
|
Reclassifications
Certain prior year information has been reclassified to be
comparable to the current year presentation.
49
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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.
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
2008 were reclassified to comply with SFAS No. 144.
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.
|
|
|
|
|
|
|
|
|
|
|
4/26/2008
|
|
|
4/28/2007
|
|
|
|
(Amounts in thousands)
|
|
|
Raw materials
|
|
$
|
71,346
|
|
|
$
|
69,562
|
|
Work in process
|
|
|
14,624
|
|
|
|
19,972
|
|
Finished goods
|
|
|
119,270
|
|
|
|
132,679
|
|
|
|
|
|
|
|
|
|
|
FIFO inventories
|
|
|
205,240
|
|
|
|
222,213
|
|
Excess of FIFO over LIFO
|
|
|
(26,879
|
)
|
|
|
(24,423
|
)
|
|
|
|
|
|
|
|
|
|
Total inventories
|
|
$
|
178,361
|
|
|
$
|
197,790
|
|
|
|
|
|
|
|
|
|
|
During fiscal 2008, inventory quantities were reduced. This
reduction resulted in a liquidation of LIFO inventory quantities
carried at lower costs in prior years as compared to the cost of
fiscal 2008 purchases; the effect of which decreased cost of
goods sold by approximately $1.9 million.
|
|
Note 3:
|
Property,
Plant and Equipment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated Useful
|
|
|
|
|
|
|
|
|
|
Lives
|
|
|
4/26/2008
|
|
|
4/28/2007
|
|
|
|
(Amounts in thousands)
|
|
|
Buildings and building fixtures
|
|
|
3-40 years
|
|
|
$
|
172,824
|
|
|
$
|
186,403
|
|
Machinery and equipment
|
|
|
3-30 years
|
|
|
|
151,982
|
|
|
|
151,896
|
|
Information systems
|
|
|
3-10 years
|
|
|
|
50,005
|
|
|
|
48,388
|
|
Land and land improvements
|
|
|
3-40 years
|
|
|
|
24,977
|
|
|
|
27,951
|
|
Transportation equipment
|
|
|
3-10 years
|
|
|
|
16,248
|
|
|
|
16,556
|
|
Other
|
|
|
3-20 years
|
|
|
|
12,819
|
|
|
|
12,135
|
|
Construction in progress
|
|
|
|
|
|
|
9,729
|
|
|
|
5,834
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
438,584
|
|
|
|
449,163
|
|
Accumulated depreciation
|
|
|
|
|
|
|
(267,583
|
)
|
|
|
(265,945
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net property, plant and equipment
|
|
|
|
|
|
$
|
171,001
|
|
|
$
|
183,218
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 4:
|
Goodwill
and Other Intangible Assets
|
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 second quarter of fiscal 2008, we performed an
evaluation of goodwill in our South Florida retail market due to
the drastic decline in the housing market as well as
double-digit declines in sales over the twelve month period
ending October, 2007. These declines 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. As a result of the significant
change in our expected future cash flows for this business, we
recorded an impairment charge of $5.8 million,
($3.6 million after tax), which represented the entire
goodwill amount.
In the fourth quarter of fiscal 2008, we completed our annual
testing of goodwill and trade names and as a result of this test
we recorded an additional impairment charge of $2.6 million
($1.6 million net of tax), which represents a portion of
goodwill related to one of our VIEs due to a decline in
expected future cash flows.
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 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.
The following table summarizes the changes to goodwill and trade
names during fiscal 2008 and fiscal 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
|
|
|
Acquisitions,
|
|
|
Intangible
|
|
|
Transfer to
|
|
|
Balance
|
|
|
|
as of
|
|
|
Dispositions and
|
|
|
Write-
|
|
|
Held for
|
|
|
as of
|
|
Fiscal 2008
|
|
4/28/2007
|
|
|
Other
|
|
|
Down
|
|
|
Sale
|
|
|
4/26/2008
|
|
|
|
(Amounts in thousands)
|
|
|
Goodwill
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Upholstery Group
|
|
$
|
19,632
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
19,632
|
|
Retail Group
|
|
|
27,905
|
|
|
|
|
|
|
|
(5,809
|
)
|
|
|
|
|
|
|
22,096
|
|
Corporate and Other
|
|
|
8,122
|
|
|
|
|
|
|
|
(2,617
|
)
|
|
|
|
|
|
|
5,505
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
55,659
|
|
|
$
|
|
|
|
$
|
(8,426
|
)
|
|
$
|
|
|
|
$
|
47,233
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade names
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Casegoods Group
|
|
$
|
9,472
|
|
|
$
|
(466
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
9,006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade names
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Casegoods Group
|
|
$
|
18,794
|
|
|
$
|
|
|
|
$
|
(3,583
|
)
|
|
$
|
(5,739
|
)
|
|
$
|
9,472
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
51
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Included in other long-term assets were $34.0 million and
$34.8 million at April 26, 2008, and April 28,
2007, 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 26, 2008, and April 28, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
Fiscal 2008
|
|
Unrealized Gains
|
|
|
Unrealized Losses
|
|
|
Fair Value
|
|
|
|
(Amounts in thousands)
|
|
|
Equity securities
|
|
$
|
247
|
|
|
$
|
(1,543
|
)
|
|
$
|
11,111
|
|
Fixed income
|
|
|
456
|
|
|
|
(100
|
)
|
|
|
21,947
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
925
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities
|
|
$
|
703
|
|
|
$
|
(1,643
|
)
|
|
$
|
33,983
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes sales of available-for-sale
securities (for the fiscal years ended):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4/26/2008
|
|
|
4/28/2007
|
|
|
4/29/2006
|
|
|
|
(Amounts in thousands)
|
|
|
Proceeds from sales
|
|
$
|
35,580
|
|
|
$
|
17,342
|
|
|
$
|
12,983
|
|
Gross realized gains
|
|
|
4,078
|
|
|
|
987
|
|
|
|
773
|
|
Gross realized losses
|
|
|
(213
|
)
|
|
|
(256
|
)
|
|
|
(91
|
)
|
The fair value of fixed income available-for-sale securities by
contractual maturity was $1.6 million within one year,
$9.2 million within two to five years, $9.2 million
within six to ten years and $1.9 million thereafter.
|
|
Note 6:
|
Accrued
Expenses and Other Current Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
4/26/2008
|
|
|
4/28/2007
|
|
|
|
(Amounts in thousands)
|
|
|
Payroll and other compensation
|
|
$
|
47,337
|
|
|
$
|
49,649
|
|
Accrued product warranty, current portion
|
|
|
9,184
|
|
|
|
9,508
|
|
Income taxes
|
|
|
2,669
|
|
|
|
9,820
|
|
Customer deposits
|
|
|
14,100
|
|
|
|
14,141
|
|
Other current liabilities
|
|
|
29,410
|
|
|
|
35,473
|
|
|
|
|
|
|
|
|
|
|
Accrued expenses and other current liabilities
|
|
$
|
102,700
|
|
|
$
|
118,591
|
|
|
|
|
|
|
|
|
|
|
52
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
4/26/2008
|
|
|
4/28/2007
|
|
|
|
(Amounts in thousands)
|
|
|
Revolving credit facility
|
|
$
|
75,000
|
|
|
$
|
|
|
Industrial revenue bonds
|
|
|
16,845
|
|
|
|
16,851
|
|
Private placement notes
|
|
|
|
|
|
|
121,000
|
|
Other debt
|
|
|
11,250
|
|
|
|
11,614
|
|
Capital leases
|
|
|
1,275
|
|
|
|
1,783
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
104,370
|
|
|
|
151,248
|
|
Less: current portion
|
|
|
(4,792
|
)
|
|
|
(38,076
|
)
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
$
|
99,578
|
|
|
$
|
113,172
|
|
|
|
|
|
|
|
|
|
|
On February 6, 2008, we entered into a $220 million
5-year
revolving credit agreement with a group of banks. The new credit
agreement supersedes and terminates a $150 million dollar
credit agreement dated as of March 30, 2004 (subsequently
amended to $100 million). The credit agreement is secured
primarily by all of our accounts receivable, inventory, cash
deposit and securities accounts, and substantially all patents
and trademarks, including the
La-Z-Boy
brand name. Availability under the credit agreement fluctuates
based on a borrowing base calculation consisting of eligible
accounts receivable and inventory. The agreement includes
affirmative and negative covenants, and certain restrictions,
including a fixed charge coverage ratio that would become
effective if excess availability under the credit agreement
falls below $30 million. As of April 26, 2008 excess
availability was $80 million.
We are able to select interest rates based on LIBOR or the Prime
rate. Interest on our LIBOR loans is set at the applicable LIBOR
rate plus 2% for the first six months of our new credit
agreement and thereafter will fluctuate from 1.75% to 2.25%. At
year-end our borrowing rates ranged from 4.75% to 5.5%.
Initial borrowings under the credit agreement were utilized to
repay the outstanding private placement notes in the principal
amount of $121 million, along with a make-whole premium of
approximately $6 million, accrued interest of approximately
$1.3 million, and fees related to the credit agreement of
approximately $2 million. We intend to use any future
borrowings for general corporate purposes. The credit agreement
also allows for the issuance of letters of credit.
The new credit agreement contains customary events of default,
including nonpayment of principal when due, nonpayment of
interest after a stated grace period; inaccuracy of
representations and warranties; violations of covenants; certain
acts of bankruptcy and liquidation; defaults of certain material
contracts; certain ERISA-related events; certain material
environmental claims; and a change in control (as defined in the
new credit agreement). In the event of a default under the new
credit agreement, the Lenders may terminate the commitments made
under the new credit agreement, declare amounts outstanding,
including accrued interest and fees, payable immediately, and
enforce any and all rights and interests. In addition, following
an event of default, the Lenders could exercise remedies with
respect to the collateral including foreclosure and other
remedies available to secured creditors.
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. Interest for these bonds is at a variable rate
and at fiscal year-end was approximately 2%. Maturities range
from June 2009 June 2024.
Other debt includes foreign and domestic debt as well as
$2.8 million of VIE debt that we are required to
consolidate. Maturities range from fiscal 2009 2013
with interest rates ranging from 2.6%-8.2%.
Capital leases consist primarily of long-term commitments for
the purchase of IT equipment and transportation equipment and
have maturities ranging from fiscal 2009 2011.
Interest rates range from 7.0%-8.3%.
Maturities of long-term debt, subsequent to April 26, 2008,
are $4.8 million in 2009, $12.1 million in 2010,
$0.6 million in 2011, $4.6 million in 2012,
$75.2 million in 2013 and $7.1 million thereafter.
53
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Cash paid for interest during fiscal years 2008, 2007 and 2006
was $15.4 million, $10.3 million and
$11.5 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.
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)
|
|
|
2009
|
|
$
|
40,617
|
|
|
$
|
1,540
|
|
2010
|
|
|
40,378
|
|
|
|
1,557
|
|
2011
|
|
|
35,301
|
|
|
|
1,595
|
|
2012
|
|
|
32,712
|
|
|
|
1,617
|
|
2013
|
|
|
29,868
|
|
|
|
1,569
|
|
2014 and beyond
|
|
|
172,737
|
|
|
|
10,026
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
351,613
|
|
|
$
|
17,904
|
|
|
|
|
|
|
|
|
|
|
Rental expense, rental income and contingent rentals for
operating leases were as follows (for the fiscal years ended):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4/26/2008
|
|
|
4/28/2007
|
|
|
4/29/2006
|
|
|
|
(Amounts in thousands)
|
|
|
Rental expense
|
|
$
|
52,240
|
|
|
$
|
47,357
|
|
|
$
|
43,169
|
|
Rental income
|
|
|
1,547
|
|
|
|
1,812
|
|
|
|
994
|
|
Contingent rents
|
|
|
12
|
|
|
|
388
|
|
|
|
390
|
|
|
|
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.
As of April 26, 2008 and April 28, 2007, we had
$13.7 million and $17.0 million, respectively, of
obligations for this plan included in other long-term
liabilities. We had life insurance contracts at April 26,
2008, and April 28, 2007, of $17.1 million and
$18.0 million, respectively, included in other long-term
assets related to this plan which will be held until maturity.
We maintain a non-qualified defined benefit retirement plan for
certain former salaried employees. Included in our liabilities
were plan obligations of $13.7 million and
$14.4 million at April 26, 2008, and April 28,
2007, respectively. During fiscal 2008, 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 $1.0 million. 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. This
plan is not funded and is excluded from the obligation charts
that follow.
54
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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. Effective, August 1, 2006, these
contributions are 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 26, 2008, April 28, 2007, and
April 29, 2006, 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 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. For fiscal 2008, we recognized
$8.0 million pre-tax ($4.9 million after tax) for net
actuarial losses in Accumulated Other Comprehensive Income. We
do not expect to amortize any net loss or prior service costs
for the defined benefit pension plans from accumulated other
comprehensive income into net periodic benefit cost over the
next fiscal year.
The net periodic pension cost and retirement costs for
retirement plans were as follows (for the fiscal years ended):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4/26/2008
|
|
|
4/28/2007
|
|
|
4/29/2006
|
|
|
|
(Amounts in thousands)
|
|
|
Service cost
|
|
$
|
1,764
|
|
|
$
|
2,190
|
|
|
$
|
2,979
|
|
Interest cost
|
|
|
5,382
|
|
|
|
5,489
|
|
|
|
4,880
|
|
Expected return on plan assets
|
|
|
(7,354
|
)
|
|
|
(6,717
|
)
|
|
|
(6,514
|
)
|
Net amortization and deferral
|
|
|
|
|
|
|
98
|
|
|
|
1,202
|
|
Curtailment/settlement loss
|
|
|
|
|
|
|
1,323
|
|
|
|
900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic pension cost
|
|
|
(208
|
)
|
|
|
2,383
|
|
|
|
3,447
|
|
Profit sharing/SERP*
|
|
|
2,197
|
|
|
|
2,551
|
|
|
|
6,405
|
|
401(k)*
|
|
|
5,145
|
|
|
|
5,414
|
|
|
|
4,415
|
|
Other*
|
|
|
97
|
|
|
|
98
|
|
|
|
755
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total retirement costs
|
|
$
|
7,231
|
|
|
$
|
10,446
|
|
|
$
|
15,022
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Not determined by an actuary |
55
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The funded status of the defined benefit pension plans was as
follows:
|
|
|
|
|
|
|
|
|
|
|
4/26/2008
|
|
|
4/28/2007
|
|
|
|
(Amounts in thousands)
|
|
|
Change in benefit obligation
|
|
|
|
|
|
|
|
|
Benefit obligation at beginning of year
|
|
$
|
89,195
|
|
|
$
|
86,438
|
|
Service cost
|
|
|
1,764
|
|
|
|
2,190
|
|
Interest cost
|
|
|
5,382
|
|
|
|
5,489
|
|
Actuarial (gain)/loss
|
|
|
(8,050
|
)
|
|
|
4,639
|
|
Benefits paid
|
|
|
(4,685
|
)
|
|
|
(8,320
|
)
|
Curtailment
|
|
|
(131
|
)
|
|
|
(1,241
|
)
|
|
|
|
|
|
|
|
|
|
Benefit obligation at end of year
|
|
|
83,475
|
|
|
|
89,195
|
|
Change in plan assets
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year
|
|
|
93,926
|
|
|
|
91,468
|
|
Actual return on plan assets
|
|
|
(398
|
)
|
|
|
10,574
|
|
Employer contribution
|
|
|
|
|
|
|
204
|
|
Benefits paid
|
|
|
(4,685
|
)
|
|
|
(8,320
|
)
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at end of year
|
|
$
|
88,843
|
|
|
$
|
93,926
|
|
|
|
|
|
|
|
|
|
|
Funded status
|
|
$
|
5,368
|
|
|
$
|
4,731
|
|
|
|
|
|
|
|
|
|
|
Pension plans in which accumulated benefit obligation exceeds
plan assets at end of year
|
|
|
|
|
|
|
|
|
Accumulated benefit obligation
|
|
$
|
|
|
|
$
|
10,982
|
|
Fair value of plan assets
|
|
$
|
|
|
|
$
|
10,956
|
|
Amounts recognized in the Consolidated Balance Sheet consist of:
|
|
|
|
|
|
|
|
|
|
|
4/26/2008
|
|
|
4/28/2007
|
|
|
|
(Amounts in thousands)
|
|
|
Non-current assets
|
|
$
|
5,368
|
|
|
$
|
4,757
|
|
Current liabilities
|
|
|
|
|
|
|
(26
|
)
|
|
|
|
|
|
|
|
|
|
Net amount recognized
|
|
$
|
5,368
|
|
|
$
|
4,731
|
|
|
|
|
|
|
|
|
|
|
The weighted average actuarial assumptions were as follows (for
the fiscal years ended):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4/26/2008
|
|
|
4/28/2007
|
|
|
4/29/2006
|
|
|
Discount rate used to determine benefit obligations
|
|
|
6.6
|
%
|
|
|
6.1
|
%
|
|
|
6.4
|
%
|
Discount rate used to determine net benefit cost
|
|
|
6.1
|
%
|
|
|
6.4
|
%
|
|
|
5.5
|
%
|
Long-term rate of return
|
|
|
8.0
|
%
|
|
|
8.0
|
%
|
|
|
8.0
|
%
|
Our non-qualified retirement plan was not funded at
April 26, 2008 or April 28, 2007. 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 2009; however, we have the discretion to make
contributions. In fiscal 2009, we do not expect to amortize any
unrecognized actuarial losses as a component of pension expense.
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.
56
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The weighted average asset allocations at year end were as
follows:
|
|
|
|
|
|
|
|
|
|
|
4/26/2008
|
|
|
4/28/2007
|
|
|
Equity securities
|
|
|
63
|
%
|
|
|
71
|
%
|
Debt securities
|
|
|
37
|
%
|
|
|
29
|
%
|
|
|
|
|
|
|
|
|
|
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)
|
|
|
2009
|
|
$
|
4,919
|
|
2010
|
|
|
4,322
|
|
2011
|
|
|
4,459
|
|
2012
|
|
|
4,622
|
|
2013
|
|
|
4,790
|
|
2014 to 2018
|
|
|
33,173
|
|
|
|
|
|
|
|
|
$
|
56,285
|
|
|
|
|
|
|
|
|
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
remaining terms from one to nine years. These lease guarantees
enhance the ability of these dealers to acquire rights to real
estate in quality locations. The dealer is required to make
periodic fee payments to compensate us for our guarantees.
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
$13.4 million as of April 26, 2008.
We have, from time to time, 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 to accrue an
estimated liability at the time the revenue is recognized. This
estimate is based on historical claims and adjusted for
currently known warranty issues.
A reconciliation of the changes in our product warranty
liability is as follows:
|
|
|
|
|
|
|
|
|
|
|
4/26/2008
|
|
|
4/28/2007
|
|
|
|
(Amounts in thousands)
|
|
|
Balance as of the beginning of the year
|
|
$
|
14,283
|
|
|
$
|
19,655
|
|
Accruals during the year
|
|
|
17,798
|
|
|
|
17,538
|
|
Other adjustments during the year
|
|
|
(320
|
)
|
|
|
(4,179
|
)
|
Adjustments for discontinued operations
|
|
|
|
|
|
|
(1,521
|
)
|
Settlements during the period
|
|
|
(17,427
|
)
|
|
|
(17,210
|
)
|
|
|
|
|
|
|
|
|
|
Balance as of the end of the period
|
|
$
|
14,334
|
|
|
$
|
14,283
|
|
|
|
|
|
|
|
|
|
|
Other adjustments of $0.3 million in fiscal 2008 and
$4.2 million in fiscal 2007 resulted from reductions in
historical claims due to improved product quality, and
reductions in estimated amounts required for specific currently
known warranty issues.
57
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 11:
|
Contingencies
and Commitments
|
We have been named as a defendant in various lawsuits arising in
the ordinary course of business and as a potentially responsible
party at certain 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 currently do not anticipate any material additional loss for
legal or environmental matters. As of the end of fiscal 2008,
there were no cases that would result in a material charge to
our financial statements.
|
|
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 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. At April 26, 2008,
1.5 million shares are available assuming 200% of the
fiscal year 2007 and 2008 performance shares are issued. 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 26, 2008, were 10,325 with a weighted average
exercise price of $18.98 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 26, 2008 and April 28, 2007
was $1.8 million and $2.4 million, respectively. This
expense reduced net income by $1.1 million and
$1.7 million using our marginal tax rate and earnings per
share by $0.02 and $0.03 for the twelve months ended
April 26, 2008 and April 28, 2007, respectively. We
received no cash during fiscal 2008 and less than
$0.1 million during fiscal 2007 for exercises of stock
options.
58
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Plan activity for stock options under the above plans is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
|
Number of
|
|
|
Exercise
|
|
|
Contractual
|
|
|
|
Shares
|
|
|
Price
|
|
|
Term (Years)
|
|
|
|
(In Thousands)
|
|
|
|
|
|
|
|
|
Outstanding at April 28, 2007
|
|
|
2,256
|
|
|
$
|
16.63
|
|
|
|
4.3
|
|
Granted
|
|
|
626
|
|
|
|
11.45
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
(93
|
)
|
|
|
19.02
|
|
|
|
|
|
Canceled
|
|
|
(121
|
)
|
|
|
12.66
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at April 26, 2008
|
|
|
2,668
|
|
|
|
15.51
|
|
|
|
3.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at April 26, 2008
|
|
|
1,422
|
|
|
$
|
18.02
|
|
|
|
3.4
|
|
As of April 26, 2008, there was $2.5 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 1.5 years. During the twelve months ended April 26,
2008, 0.4 million shares vested.
The fair value of each option grant was estimated using a
Black-Scholes option-pricing model. For the options granted in
the first quarter ended July 28, 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. Turnover rate was
estimated at the date of grant based on historical experience.
The fair value of employee stock options granted during the
first quarter of fiscal 2008 was calculated using the following
assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4/26/2008
|
|
|
4/28/2007
|
|
|
4/29/2006
|
|
|
Risk-free interest rate
|
|
|
5.0
|
%
|
|
|
4.8
|
%
|
|
|
4.25
|
%
|
Dividend rate
|
|
|
3.8
|
%
|
|
|
3.2
|
%
|
|
|
3.1
|
%
|
Expected life in years
|
|
|
4.0
|
|
|
|
4.0
|
|
|
|
5.0
|
|
Stock price volatility
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
29.0
|
%
|
Turnover rate
|
|
|
2.5
|
%
|
|
|
3.0
|
%
|
|
|
|
|
Fair Value Per Share
|
|
$
|
2.88
|
|
|
$
|
3.47
|
|
|
$
|
3.21
|
|
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 $1.8 million with an after-tax effect of
$1.0 million during fiscal 2008, and $1.6 million with
an after-tax effect of $1.0 million during fiscal 2007. The
unrecognized compensation cost at April 26, 2008 was
$3.0 million and is expected to be recognized over a
weighted-average remaining contractual term of all unvested
awards of 3.2 years.
59
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table summarizes information about non-vested
share awards as of and for the year ended April 26, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
Number of
|
|
|
Grant Date
|
|
|
|
Shares
|
|
|
Fair Value
|
|
|
|
(In thousands)
|
|
|
|
|
|
Non-vested shares at April 28, 2007
|
|
|
366
|
|
|
$
|
14.03
|
|
Granted
|
|
|
188
|
|
|
|
11.43
|
|
Vested
|
|
|
(41
|
)
|
|
|
15.68
|
|
Canceled
|
|
|
(54
|
)
|
|
|
12.74
|
|
|
|
|
|
|
|
|
|
|
Non-vested at April 26, 2008
|
|
|
459
|
|
|
$
|
12.97
|
|
|
|
|
|
|
|
|
|
|
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
$0.1 million and $0.3 million during fiscal 2008 and
fiscal 2007, 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 vesting period, the potential right to earn shares under
this program is generally forfeited. No shares were issued
during fiscal 2008 or fiscal 2007. The cost of performance-based
awards is expensed over the vesting period. Expense of
$0.9 million was recognized during fiscal 2008 for the
performance periods ended April 26, 2008 and April 25,
2009. The awards for these performance periods will be issued to
recipients still employed by the company on April 24, 2010.
No expense was recognized during fiscal 2007 as we did not
attain the financial goals for any of the outstanding
performance periods. In fiscal 2006, expense of
$0.5 million was reversed relating to prior year accruals
for previously anticipated payouts on this plan as financial
goals were not attained.
|
|
Note 13:
|
Accumulated
Other Comprehensive Income
|
The components of accumulated other comprehensive income, are as
follows:
|
|
|
|
|
|
|
|
|
|
|
4/26/2008
|
|
|
4/28/2007
|
|
|
|
(Amounts in thousands)
|
|
|
Translation adjustment
|
|
$
|
5,366
|
|
|
$
|
5,483
|
|
Cash flow hedges
|
|
|
|
|
|
|
(85
|
)
|
Unrealized gains/(losses) on marketable securities
|
|
|
(678
|
)
|
|
|
2,049
|
|
Net actuarial loss
|
|
|
(5,123
|
)
|
|
|
(5,655
|
)
|
|
|
|
|
|
|
|
|
|
Total accumulated other comprehensive income (loss)
|
|
$
|
(435
|
)
|
|
$
|
1,792
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 14:
|
Segment
Information
|
Our reportable operating segments based on Managements
approach for evaluating performance and resource allocation 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. During
60
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
the second quarter of fiscal 2008, we completed the sale of our
Clayton Marcus operating unit and our Pennsylvania House trade
name. These businesses were presented as 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, and
La-Z-Boy.
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4/26/2008
|
|
|
4/28/2007
|
|
|
4/29/2006
|
|
|
|
(Amounts in thousands)
|
|
|
Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
Upholstery Group
|
|
$
|
1,084,418
|
|
|
$
|
1,198,378
|
|
|
$
|
1,270,746
|
|
Casegoods Group
|
|
|
213,896
|
|
|
|
262,721
|
|
|
|
292,553
|
|
Retail Group
|
|
|
190,180
|
|
|
|
220,319
|
|
|
|
213,438
|
|
VIEs/Eliminations
|
|
|
(37,553
|
)
|
|
|
(59,958
|
)
|
|
|
(76,931
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
1,450,941
|
|
|
|
1,621,460
|
|
|
|
1,699,806
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income (Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
Upholstery Group
|
|
|
70,332
|
|
|
|
78,724
|
|
|
|
83,160
|
|
Casegoods Group
|
|
|
10,151
|
|
|
|
20,289
|
|
|
|
17,125
|
|
Retail Group
|
|
|
(40,265
|
)
|
|
|
(31,161
|
)
|
|
|
(26,006
|
)
|
Corporate and Other*
|
|
|
(40,403
|
)
|
|
|
(24,864
|
)
|
|
|
(28,565
|
)
|
Restructuring
|
|
|
(8,135
|
)
|
|
|
(11,033
|
)
|
|
|
(8,479
|
)
|
Intangible write-down
|
|
|
(8,426
|
)
|
|
|
|
|
|
|
(22,695
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
(16,746
|
)
|
|
|
31,955
|
|
|
|
14,540
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and Amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
Upholstery Group
|
|
|
13,211
|
|
|
|
13,723
|
|
|
|
13,282
|
|
Casegoods Group
|
|
|
2,370
|
|
|
|
3,002
|
|
|
|
3,594
|
|
Retail Group
|
|
|
4,910
|
|
|
|
4,806
|
|
|
|
3,801
|
|
Corporate and Other*
|
|
|
4,205
|
|
|
|
4,065
|
|
|
|
3,834
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
24,696
|
|
|
|
25,596
|
|
|
|
24,511
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
61
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4/26/2008
|
|
|
4/28/2007
|
|
|
4/29/2006
|
|
|
|
(Amounts in thousands)
|
|
|
Capital Expenditures
|
|
|
|
|
|
|
|
|
|
|
|
|
Upholstery Group
|
|
|
10,245
|
|
|
|
10,172
|
|
|
|
14,782
|
|
Casegoods Group
|
|
|
392
|
|
|
|
1,051
|
|
|
|
3,027
|
|
Retail Group
|
|
|
5,910
|
|
|
|
7,356
|
|
|
|
4,038
|
|
Corporate and Other*
|
|
|
10,839
|
|
|
|
7,232
|
|
|
|
6,144
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
27,386
|
|
|
|
25,811
|
|
|
|
27,991
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Upholstery Group
|
|
|
428,177
|
|
|
|
472,854
|
|
|
|
493,702
|
|
Casegoods Group
|
|
|
107,338
|
|
|
|
125,234
|
|
|
|
231,092
|
|
Retail Group
|
|
|
107,835
|
|
|
|
123,208
|
|
|
|
103,611
|
|
Unallocated Assets
|
|
|
125,520
|
|
|
|
157,395
|
|
|
|
128,347
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
768,870
|
|
|
$
|
878,691
|
|
|
$
|
956,752
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales by Country
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
|
89
|
%
|
|
|
90
|
%
|
|
|
92
|
%
|
Canada
|
|
|
8
|
%
|
|
|
7
|
%
|
|
|
6
|
%
|
Other
|
|
|
3
|
%
|
|
|
3
|
%
|
|
|
2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Variable Interest Entities (VIEs) are included in
Corporate and Other. |
During the fourth quarter of fiscal 2008, we expressed our
commitment to a restructuring plan which will consolidate all of
our domestic cutting and sewing operations in Mexico and will
transfer production from our Tremonton, Utah plant, which will
be closed, to our five remaining
La-Z-Boy
branded upholstery manufacturing facilities. The transition of
our cutting and sewing operations to Ramos Arizpe, Mexico, in
the state of Coahuila, will impact approximately 1,050
La-Z-Boy
employees at the five remaining facilities and will take place
over a period of 18 to 24 months. We expect to begin
production at our Mexican facility in early calendar 2009. Our
Utah facility, which employed 630 people, will cease
operations during the summer of 2008 and production will be
shifted to our remaining manufacturing facilities. As a result
of this transition, we expect to add approximately
400 positions to our other plants. In connection with these
activities, we expect to record pre-tax restructuring and
related asset impairment charges of $17 to $20 million or
$0.20 to $0.24 per share for severance and benefits, write-down
of certain fixed assets, and other restructuring costs. To date,
we have incurred $2.6 million in restructuring expenses,
which included severance and benefit related costs.
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 occurred in the first
quarter of fiscal 2008 and impacted 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.
62
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
During fiscal 2008, we recorded pre-tax restructuring charges of
$8.1 million or $0.10 per diluted share, using our marginal
tax rate, covering severance and benefits, write-down of certain
fixed assets in addition to other restructuring costs which were
expensed as incurred. Of these costs $5.1 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.
During fiscal 2007 and 2008, several of our Retail warehouses
were consolidated into larger facilities, and several
underperforming stores were closed. Approximately 127 jobs were
eliminated as a result of these closures. We recorded pre-tax
restructuring charges of $3.0 million or $0.04 per diluted
share, using our marginal tax rate, 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, 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 26, 2008, we had a remaining restructuring
liability of $3.8 million which is expected to be paid out
or written off as follows: $2.7 million in fiscal 2009,
$0.9 million in fiscal 2010, $0.1 million in fiscal
2011 and $0.1 million thereafter.
Restructuring liabilities along with charges to expense, cash
payments or asset write-downs were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments
|
|
|
|
|
|
|
4/28/2007
|
|
|
Charges to
|
|
|
or Asset
|
|
|
4/26/2008
|
|
|
|
Balance
|
|
|
Expense
|
|
|
Write-Offs
|
|
|
Balance
|
|
|
|
(Amounts in thousands)
|
|
|
Severance and benefit-related costs
|
|
$
|
2,177
|
|
|
$
|
3,253
|
|
|
$
|
(2,588
|
)
|
|
$
|
2,842
|
|
Fixed asset write-downs, net of gains
|
|
|
|
|
|
|
364
|
|
|
|
(364
|
)
|
|
|
|
|
Contract termination costs
|
|
|
1,257
|
|
|
|
2,019
|
|
|
|
(2,337
|
)
|
|
|
939
|
|
Other
|
|
|
|
|
|
|
2,499
|
|
|
|
(2,499
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total restructuring
|
|
$
|
3,434
|
|
|
$
|
8,135
|
|
|
$
|
(7,788
|
)
|
|
$
|
3,781
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
63
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The primary components of our deferred tax assets and
(liabilities) were as follows:
|
|
|
|
|
|
|
|
|
|
|
4/26/2008
|
|
|
4/28/2007
|
|
|
|
(Amounts in thousands)
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Deferred and other compensation
|
|
$
|
14,639
|
|
|
$
|
14,631
|
|
Warranty
|
|
|
5,802
|
|
|
|
5,854
|
|
Allowance for doubtful accounts
|
|
|
6,933
|
|
|
|
5,307
|
|
Consolidation of variable interest entities
|
|
|
12,275
|
|
|
|
9,221
|
|
State income tax
|
|
|
11,948
|
|
|
|
13,132
|
|
Restructuring
|
|
|
1,078
|
|
|
|
3,411
|
|
Workers compensation
|
|
|
462
|
|
|
|
226
|
|
Employee benefits
|
|
|
2,889
|
|
|
|
4,713
|
|
Inventory
|
|
|
|
|
|
|
373
|
|
Federal capital loss
|
|
|
1,901
|
|
|
|
|
|
Other
|
|
|
7,466
|
|
|
|
5,240
|
|
Valuation reserve
|
|
|
(12,119
|
)
|
|
|
(11,520
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
53,274
|
|
|
|
50,588
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Trade names
|
|
|
(5,695
|
)
|
|
|
(8,218
|
)
|
Pension
|
|
|
(2,179
|
)
|
|
|
(1,830
|
)
|
Property, plant and equipment
|
|
|
(5,336
|
)
|
|
|
(7,716
|
)
|
Inventory
|
|
|
(744
|
)
|
|
|
|
|
Other
|
|
|
|
|
|
|
(161
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
(13,954
|
)
|
|
|
(17,925
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
39,320
|
|
|
$
|
32,663
|
|
|
|
|
|
|
|
|
|
|
Our effective tax rate differs from the U.S. federal income
tax rate for the following reasons:
|
|
|
|
|
|
|
|
|
|
|
|
|
(% of Pre-Tax Income)
|
|
4/26/2008
|
|
|
4/28/2007
|
|
|
4/29/2006
|
|
|
Statutory tax rate
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
Increase (reduction) in income taxes resulting from:
|
|
|
|
|
|
|
|
|
|
|
|
|
State income taxes, net of federal benefit
|
|
|
6.2
|
|
|
|
1.6
|
|
|
|
28.6
|
|
Goodwill impairment
|
|
|
|
|
|
|
|
|
|
|
153.7
|
|
Repatriation of foreign earnings
|
|
|
0.6
|
|
|
|
3.2
|
|
|
|
|
|
Non-deductible meals and entertainment
|
|
|
(1.7
|
)
|
|
|
1.1
|
|
|
|
8.0
|
|
ESOP benefit
|
|
|
1.9
|
|
|
|
(1.4
|
)
|
|
|
(8.7
|
)
|
Change in valuation allowance
|
|
|
3.6
|
|
|
|
(2.2
|
)
|
|
|
17.4
|
|
Foreign tax rate differential
|
|
|
3.6
|
|
|
|
(1.7
|
)
|
|
|
(0.5
|
)
|
Change in value of life insurance contracts
|
|
|
(2.0
|
)
|
|
|
(0.1
|
)
|
|
|
(12.1
|
)
|
Federal income tax credits
|
|
|
1.4
|
|
|
|
(1.6
|
)
|
|
|
(6.2
|
)
|
Deduction for U.S. manufacturing
|
|
|
|
|
|
|
(0.5
|
)
|
|
|
(6.5
|
)
|
Change in tax rates
|
|
|
(0.8
|
)
|
|
|
|
|
|
|
|
|
Non-deductible stock option expense
|
|
|
(0.8
|
)
|
|
|
1.0
|
|
|
|
|
|
Miscellaneous items
|
|
|
1.0
|
|
|
|
(0.6
|
)
|
|
|
(0.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate
|
|
|
48.0
|
%
|
|
|
33.8
|
%
|
|
|
208.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
64
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
At both April 26, 2008 and April 28, 2007 we had state
net operating losses and credits of approximately
$12.4 million. Due to the uncertainty of their actual
utilization we have established a valuation reserve at the end
of each year in the amounts of $9.5 million and
$10.1 million, respectively. These state net operating
losses and credits expire between fiscal year 2009 and fiscal
year 2028.
During fiscal year 2008
La-Z-Boy
incurred a capital loss on its stock sale of Clayton Marcus. The
amount available for carry forward is approximately
$5.4 million. We have recorded a valuation reserve of
$1.9 million against the full amount of this potential
benefit. This loss can be carried forward three years.
At April 28, 2007, our European operations had incurred net
operating losses that, if fully utilized, would result in a tax
reduction of approximately $1.4 million. At April 28,
2007 a valuation reserve was recorded against this full amount.
During fiscal 2008 this valuation reserve was reduced by
$0.8 million, reflecting a partial utilization of these tax
attributes.
During fiscal 2008 our UK operations incurred an operating loss
that resulted in a future tax benefit of $0.6 million. This
loss can be carried forward indefinitely.
For our Thailand operating unit, we continue to reinvest its
earnings and consequently do not record a deferred tax liability
relative to its undistributed earnings. We have reinvested
approximately $2.5 million of its earnings. 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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4/26/2008
|
|
|
4/28/2007
|
|
|
4/29/2006
|
|
|
|
(Amounts in thousands)
|
|
|
Federal - current
|
|
$
|
(652
|
)
|
|
$
|
14,475
|
|
|
$
|
14,287
|
|
- deferred
|
|
|
(5,556
|
)
|
|
|
(7,976
|
)
|
|
|
(4,422
|
)
|
State - current
|
|
|
(68
|
)
|
|
|
3,501
|
|
|
|
2,091
|
|
- deferred
|
|
|
(600
|
)
|
|
|
(2,144
|
)
|
|
|
178
|
|
Foreign - current
|
|
|
(4
|
)
|
|
|
2,682
|
|
|
|
214
|
|
- deferred
|
|
|
(74
|
)
|
|
|
(448
|
)
|
|
|
(1,590
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax expense
|
|
$
|
(6,954
|
)
|
|
$
|
10,090
|
|
|
$
|
10,758
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes consists
of the following (for the fiscal years ended):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4/26/2008
|
|
|
4/28/2007
|
|
|
4/29/2006
|
|
|
|
(Amounts in thousands)
|
|
|
United States
|
|
$
|
(14,431
|
)
|
|
$
|
20,043
|
|
|
$
|
11,588
|
|
Foreign
|
|
|
(60
|
)
|
|
|
9,815
|
|
|
|
(6,420
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(14,491
|
)
|
|
$
|
29,858
|
|
|
$
|
5,168
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We adopted the provisions of FASB Interpretation No. 48,
Accounting for Uncertainty in Income Taxes, on
April 29, 2007. As a result of the adoption of this new
accounting standard, we recorded a $3.4 million increase in
our liability for uncertain tax positions and related interest
and penalties ($2.5 million net of tax), which was
accounted for as a cumulative effect of an accounting change,
reducing the opening balance of retained earnings. As
65
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
of April 26, 2008, we had a gross unrecognized tax benefit
of $7.2 million. A reconciliation of the beginning and
ending balance of unrecognized tax benefits is as follows:
|
|
|
|
|
|
|
4/26/2008
|
|
|
|
(Amounts
|
|
|
|
in thousands)
|
|
|
Balance as of April 29, 2007
|
|
$
|
9,628
|
|
Additions:
|
|
|
|
|
Positions taken during the current year
|
|
|
337
|
|
Positions taken during the prior year
|
|
|
303
|
|
Reductions:
|
|
|
|
|
Positions taken during the current year
|
|
|
|
|
Positions taken during the prior year
|
|
|
(1,317
|
)
|
Decreases related to settlements with taxing authorities
|
|
|
(721
|
)
|
Reductions resulting from the lapse of the statute of limitations
|
|
|
(999
|
)
|
|
|
|
|
|
Balance as of April 26, 2008
|
|
$
|
7,231
|
|
|
|
|
|
|
We recognize interest and penalties associated with uncertain
tax positions in income tax expense. Accrued interest and
penalties decreased by $1.0 million during fiscal year
2008. We had approximately $1.5 million accrued for
interest and penalties as of April 26, 2008.
It is reasonably possible that various issues relating to
$1.5 million of the total gross unrecognized tax benefits
totaling $7.2 million as of April 26, 2008 will be
resolved within the next twelve months.
If recognized $5.4 million of the total $7.2 million
of unrecognized tax benefits would decrease our effective tax
rate.
The majority of this accrual for uncertain income tax positions
relates to issues with various state taxing authorities. The
issues related to our U.S. federal return are minimal,
relating primarily to potential timing adjustments.
Our U.S. federal income tax returns for fiscal years 2005
and subsequent are still subject to audit. In addition, we
conduct business in various states. The potential audit periods
range from fiscal year April 24, 1999 to April 26,
2008.
Cash paid for taxes during the fiscal years ended April 26,
2008, April 28, 2007 and April 29, 2006 was
$2.6 million, $16.7 million and $6.2 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 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. 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. In some cases we have
extended credit beyond normal trade terms to the independent
dealers, made direct loans, entered into leases
and/or
guaranteed certain leases.
66
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 their equity. We recognize all net earnings of these VIEs to
the extent of recouping the losses previously recorded. Earnings
in excess of our losses are attributed to equity owners of the
dealers and are recorded as minority interest. We had four
consolidated VIEs for fiscal 2008 and 2007.
Our consolidated VIEs recognized $51.9 million,
$45.6 million and $36.8 million of sales, net of
intercompany eliminations, in fiscal 2008, fiscal 2007 and
fiscal 2006, respectively. Additionally, we recognized a net
loss per share of $0.11, $0.11 and $0.09 in fiscal 2008,
fiscal 2007 and fiscal 2006, respectively, resulting from the
operating results of these VIEs. The VIEs, after the elimination
of intercompany activity, had the impact of reducing our assets
by $3.8 million for fiscal 2008 and increasing our assets
by $2.8 million for fiscal 2007.
|
|
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
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 were presented as discontinued operations beginning in the
third quarter of fiscal 2007.
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 million net of taxes) impairment
charge in the third quarter of fiscal 2007 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 the 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.
During the second quarter of fiscal 2008, we completed the sale
of our Clayton Marcus operating unit and we completed the sale
of our Pennsylvania House trade name. The stock of Clayton
Marcus was sold to Rowe Fine Furniture, Incorporated and
resulted in a loss of about $5.8 million ($3.6 million
net of taxes), of which about $3.4 million related to the
intangible assets of Clayton Marcus. The Pennsylvania House
trade name was sold to Universal Furniture for $1.7 million
resulting in a pre-tax charge of about $0.6 million
($0.4 million net of taxes). We liquidated the remaining
Pennsylvania House inventory, and as a result, recorded an
additional loss, in the second quarter of fiscal 2008, of
$3.0 million.
On April 27, 2007, we completed the sale of our Sam Moore
operating unit 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.
The receivable was collected in the first quarter of fiscal 2008.
67
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
During the first quarter of fiscal 2007, 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 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 fiscal 2007 of
$2.1 million. Our Consolidated Statement of Operations
reflects 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
corporate expenses or interest allocated. The business unit was
previously included in the Casegoods Group, which was
reclassified to reflect the discontinued operations.
For Clayton Marcus and Pennsylvania House, the assets and
liabilities for fiscal 2007 were reclassified as assets and
liabilities of discontinued operations. As of the end of fiscal
2008 we no longer had any discontinued operations:
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
The results of the discontinued operations for Sam Moore,
Clayton Marcus, Pennsylvania House, and American of Martinsville
for fiscal 2008, 2007 and 2006 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4/26/2008
|
|
|
4/28/2007
|
|
|
4/29/2006
|
|
|
|
(Amounts in thousands)
|
|
|
Net sales
|
|
$
|
22,622
|
|
|
$
|
122,713
|
|
|
$
|
221,952
|
|
Income (loss) from discontinued operations, net of tax
|
|
|
(2,304
|
)
|
|
|
(16,564
|
)
|
|
|
2,549
|
|
Gain (loss) on sale of discontinued operations, net of tax
|
|
|
(3,696
|
)
|
|
|
935
|
|
|
|
|
|
In the Consolidated Statement of Cash Flows, the cash flows of
discontinued operations were not reclassified for fiscal 2008,
2007 and 2006. The activity of these operating units was not
reclassified in the Statement of Cash Flows but was
included along with the activity from 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
68
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
employee stock options and unvested restricted stock were
issued. A reconciliation of basic and diluted weighted average
common shares outstanding follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4/26/2008
|
|
|
4/28/2007
|
|
|
4/29/2006
|
|
|
|
(Amounts in thousands)
|
|
|
Weighted average common shares outstanding (basic)
|
|
|
51,408
|
|
|
|
51,475
|
|
|
|
51,801
|
|
Effect of options and unvested restricted stock
|
|
|
|
|
|
|
131
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding (diluted)
|
|
|
51,408
|
|
|
|
51,606
|
|
|
|
51,801
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted average common shares outstanding (diluted) at
April 26, 2008 and April 29, 2006 exclude 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 2.7 million,
1.7 million and 1.7 million shares for the fiscal
years ended April 26, 2008, April 28, 2007, and
April 29, 2006, with a weighted average exercise price of
$15.51, $17.86 and $20.11, 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 $7.1 million and $3.4 million in fiscal
2008 and fiscal 2007, respectively, as income from CDSOA, net of
legal expenses, from the receipt of funds under the CDSOA of
2000 involving wooden bedroom furniture imported from China. 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.
69
|
|
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 is 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 2008 that have materially affected, or are reasonably
likely to materially affect, our internal control over financial
reporting.
|
|
ITEM 9B.
|
OTHER
INFORMATION
|
Bylaws
Amendment
On June 13, 2008, the Board of Directors amended our bylaws
to refine the advance notice requirement for shareholder
director nominations and to add an advance notice requirement
for other shareholder proposals outside of SEC
Rule 14a-8.
Under the amended bylaws:
|
|
|
|
|
A shareholder who wishes to nominate a candidate for election to
the board or present a proposal at a shareholder meeting must
give us advance written notice within a specified timeframe. For
annual meetings, we must receive the notice at least
90 days and no more than 120 days before the first
anniversary of the previous years annual meeting, except
that if the meeting date is more than 30 days before or
60 days after that anniversary, different rules apply.
(Before the amendment, our bylaws required at least
120 days notice for director nominations.)
|
|
|
|
The notice must include specified information, including:
|
|
|
|
|
¡
|
the number of shares the shareholder owns;
|
|
|
¡
|
a description of any derivative instruments the shareholder owns
for which our shares are the underlying security or any other
direct or indirect opportunity the shareholder has to profit
from any increase or decrease in the value of our shares;
|
|
|
¡
|
any proxy, contract, arrangement, understanding, or relationship
under which the shareholder has a right to vote any of our
shares;
|
|
|
¡
|
the extent to which the shareholder or any associated
shareholder has entered into any transaction or series of
transactions, including hedging, short selling, borrowing
shares, or lending shares, with the effect or intent to mitigate
loss or manage the risks of changes in share price or to profit
from any decrease in share price, or to increase or decrease the
voting power of the shareholder or any associated shareholder;
|
|
|
¡
|
any rights to dividends on our shares the shareholder has that
are separated or separable from the underlying shares;
|
|
|
¡
|
any performance-related fees (other than an asset-based fee) the
shareholder is entitled to based on any increase or decrease in
the value of our shares or related derivative instruments,
including any such interests held by members of the
shareholders family; and
|
|
|
¡
|
any other information about the shareholder that would be
required to be disclosed in a proxy statement.
|
70
|
|
|
|
|
A notice relating to a proposal other than director nominations
also must include:
|
|
|
|
|
¡
|
a brief description of the business desired to be brought before
the meeting, the reasons for conducting that business at the
meeting, and any material interest the shareholder has in that
business; and
|
|
|
¡
|
a description of any agreements, arrangements, and
understandings between the shareholder and any other person in
connection with the proposal.
|
|
|
|
|
|
A notice relating to a director nomination must include:
|
|
|
|
|
¡
|
all information about the nominee that would be required in a
proxy statement (including the nominees written consent to
being named in the proxy statement as a nominee and to serving
as a director if elected); and
|
|
|
¡
|
a description of all direct and indirect compensation, and other
material monetary arrangements during the past three years, and
any other material relationships between the proposing
shareholder and specified related persons, on the one hand, and
the nominee and specified related persons, on the other.
|
|
|
|
|
|
A notice relating to a director nomination must be accompanied
by a completed directors questionnaire.
|
The bylaws do not purport to affect shareholders rights to
submit proposals under
Rule 14a-8.
The foregoing is only a summary. Please refer to the copy of our
bylaws filed as an exhibit to this report for all of the
detailed requirements.
Long-Term
Equity Award Plan Amendment
Also on June 13, 2008, the Compensation Committee of the
Board of Directors adopted an amendment to the
La-Z-Boy
Incorporated 2004 Long-term Equity Award Plan that, among other
things:
|
|
|
|
|
permits us to grant an additional type of award
cash-settled restricted stock units to participants
other than named executive officers;
|
|
|
|
provides the Compensation Committee discretion to allocate
awards among the various award types rather than fixing the
allocation in the plan;
|
|
|
|
changes the vesting schedule for restricted stock, except for
awards to named executive officers, so that 50% of the award
vests on the third anniversary of the award date and the
remaining 50% vests on the fourth anniversary (awards to named
executive officers continue to vest 25% on the third
anniversary, 25% on the fourth, and 50% on the fifth);
|
|
|
|
clarifies the prohibition on option repricing; and
|
|
|
|
limits the chief executive officers discretion to award
restricted shares to newly hired or promoted employees.
|
The foregoing is only a summary. Please refer to the copy of the
amended plan filed as an exhibit to this report for more
detailed information.
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 2008 annual meeting, and all of that
information is incorporated in this item by reference.
71
|
|
ITEM 11.
|
EXECUTIVE
COMPENSATION.
|
All information required to be reported under this item will be
included in our proxy statement for our 2008 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 2008 annual meeting, and
all of that information is incorporated in this item by
reference.
|
|
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 2008 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 2008 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 26, 2008, April 28, 2007 and
April 29, 2006
Consolidated Balance Sheet at April 26, 2008 and
April 28, 2007
Consolidated Statement of Cash Flows for the fiscal years ended
April 26, 2008, April 28, 2007 and April 29, 2006
Consolidated Statement of Changes in Shareholders Equity
for the fiscal years ended April 26, 2008, April 28,
2007 and April 29, 2006
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 26, 2008
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.
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.
72
(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
June 13, 2008)
|
(4.1)
|
|
Credit Agreement dated as of February 6, 2008 among La-Z-Boy
Incorporated, certain of its subsidiaries, the lenders named
therein, and Wachovia Capital Finance Corporation (Central), as
administrative agent for the lenders (Incorporated by reference
to an exhibit to Form 8-K filed February 12, 2008).
|
(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, 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 through June 13, 2008
|
(10.7)*
|
|
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)
|
(10.8)*
|
|
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)
|
(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)
|
(32)
|
|
Certifications pursuant to 18 U.S.C. Section 1350
|
(33)
|
|
Not applicable
|
(34)
|
|
Not applicable
|
(35)
|
|
Not applicable
|
(99)
|
|
Not applicable
|
(100)
|
|
Not applicable
|
|
|
|
* |
|
Indicates a management contract or compensatory plan or
arrangement under which a director or executive officer may
receive benefits. |
73
Report of
Independent Registered Public Accounting Firm on Financial
Statement Schedule
To the Board of Directors and Shareholders of
La-Z-Boy
Incorporated:
Our audits of the consolidated financial statements and of the
effectiveness of internal control over financial reporting
referred to in our report dated June 17, 2008 appearing in
the 2008 Annual Report to Shareholders of
La-Z-Boy
Incorporated (which report and consolidated financial statements
are included 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.
/s/ PricewaterhouseCoopers LLP
Toledo, Ohio
June 17, 2008
74
LA-Z-BOY
INCORPORATED AND SUBSIDIARIES SCHEDULE II
VALUATION
AND QUALIFYING ACCOUNTS
Allowance
for Doubtful Accounts and Long-Term Notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
Reductions
|
|
|
Additions
|
|
|
Receivable
|
|
|
|
|
|
|
Balance at
|
|
|
|
|
|
from
|
|
|
Charged
|
|
|
Written
|
|
|
Balance at
|
|
|
|
Beginning
|
|
|
Discontinued
|
|
|
Consolidation of
|
|
|
to Costs and
|
|
|
Off Net of
|
|
|
End of
|
|
Fiscal Year Ended
|
|
of Year
|
|
|
Operations
|
|
|
VIEs
|
|
|
Expenses
|
|
|
Recoveries
|
|
|
Year
|
|
|
|
(Dollars in thousands)
|
|
|
April 26, 2008
|
|
$
|
15,577
|
|
|
|
|
|
|
|
|
|
|
$
|
8,550
|
|
|
$
|
(3,384
|
)
|
|
$
|
20,743
|
|
April 28, 2007
|
|
|
17,431
|
|
|
|
(925
|
)
|
|
|
|
|
|
|
3,790
|
|
|
|
(4,719
|
)
|
|
|
15,577
|
|
April 29, 2006
|
|
|
20,489
|
|
|
|
|
|
|
|
(891
|
)
|
|
|
4,527
|
|
|
|
(6,694
|
)
|
|
|
17,431
|
|
75
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 17, 2008
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below, as of June 17,
2008, by the following persons on behalf of the Registrant and
in the capacities indicated.
|
|
|
/s/ J.
W. Johnston
J.
W. Johnston
Chairman of the Board of Directors
|
|
/s/ J.
H. Foss
J.
H. Foss
Director
|
|
|
|
/s/ K.
L. Darrow
K.
L. Darrow
President and Chief Executive Officer, Director
|
|
/s/ D.
K. Hehl
D.
K. Hehl
Director
|
|
|
|
/s/ R.
M. Gabrys
R.
M. Gabrys
Director
|
|
/s/ R.
E. Lipford
R.
E. Lipford
Director
|
|
|
|
/s/ H.
G. Levy
H.
G. Levy
Director
|
|
/s/ N.
R. Qubein
N.
R. Qubein
Director
|
|
|
|
/s/ W.
A. McCollough
W.
A. McCollough
Director
|
|
/s/ J.
L. Thompson
J.
L. Thompson
Director
|
|
|
|
/s/ L.
M. Riccio, Jr.
L.
M. Riccio, Jr.
Senior Vice President, and Chief Financial Officer
|
|
/s/ M.L.
Mueller
M.L.
Mueller
Vice President, Corporate Controller and Chief Accounting
Officer
|
76