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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
FOR THE FISCAL YEAR ENDED APRIL 28, 2001
Commission File No. 1-9656
LA-Z-BOY INCORPORATED
1284 N. Telegraph Road, Monroe, MI 48162
(734) 241-4414
Incorporated in Michigan I.R.S. Employer Identification Number 38-0751137
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Exchanges on Which Registered
- ------------------------------ -----------------------------
Common Shares, $1.00 Par Value New York Stock Exchange
Pacific Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No __
Indicate by check mark if the disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. X
Based on the closing price on the New York Stock Exchange on June 22, 2001, the
aggregate market value of Registrant's common shares held by nonaffiliates of
the Registrant was $1,091 million.
The number of common shares outstanding of the Registrant was 60,801,895 as of
June 22, 2001.
DOCUMENTS INCORPORATED BY REFERENCE:
(1) Portions of the Registrant's 2001 Annual Report to Shareholders for the
year ended April 28, 2001 are filed as an exhibit and incorporated by
reference into Parts I and II.
(2) Portions of the Registrant's Proxy Statement filed with the Securities and
Exchange Commission on June 29, 2001 are incorporated by reference into
Part III.
1
LA-Z-BOY INCORPORATED FORM 10-K ANNUAL REPORT - 2001
TABLE OF CONTENTS
Page
Number(s)
Cautionary Statement Concerning Forward-Looking Statements 4
PART I
Item 1. Business............................................... 4-9
Item 2. Properties............................................. 9-10
Item 3. Legal Proceedings ..................................... 10
Item 4. Submission of Matters to a Vote of Security Holders.... 10
Executive Officers of the Registrant ........................... 11
PART II
Item 5. Market Price for Registrant's Common Equity and
Related Stockholder Matters............................ 11
Item 6. Selected Financial Data................................ 12
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operation..................... 12
Item 7a. Quantitative and Qualitative Disclosures about
Market Risk............................................ 12
Item 8. Financial Statements and Supplementary Data............ 12
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosures................ 12
PART III
Item 10. Directors and Executive Officers of the Registrant.... 13
Item 11. Executive Compensation................................ 13
Item 12. Security Ownership of Certain Beneficial Owners
and Management........................................ 13
Item 13. Certain Relationships and Related Transactions........ 13
2
LA-Z-BOY INCORPORATED FORM 10-K ANNUAL REPORT - 2001
TABLE OF CONTENTS
(continued)
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K................................. 13-16
Financial Statement Schedule Documents.......................... 17-18
Report of Independent Accountants................... 17
Schedule II Valuation and Qualifying Accounts....... 18
Signatures...................................................... 19-20
Exhibit Index................................................... 21-23
Exhibit (3.3) Current La-Z-Boy Incorporated Bylaws.............. 24-37
Exhibit (13) Portions of the 2000 Annual Report to
Shareholders.................................................. 38-57
Report of Management Responsibilities............... 38
Report of Independent Accountants................... 38
Consolidated Balance Sheet.......................... 39-40
Consolidated Statement of Income.................... 41
Consolidated Statement of Cash Flows................ 42
Consolidated Statement of Changes in Shareholders'
Equity............................................ 43
Notes to Consolidated Financial Statements.......... 44-50
Management's Discussion and Analysis................ 50-54
Consolidated Six-Year Summary of Selected
Financial Data.................................... 55
Unaudited Quarterly Financial Information........... 56
Dividend and Market Information..................... 57
Exhibit (21) List of Subsidiaries.............................. 58
Exhibit (23) Consent of Independent Accountants................ 59
3
Cautionary Statement Concerning Forward-Looking Statements
We are making forward-looking statements in Parts I and II of this document and
in the portions of Exhibit (13) incorporated by reference into those Parts that
are subject to risks and uncertainties. Generally, forward-looking statements
include information concerning possible or assumed future actions, events or
results of operations. More specifically, forward-looking statements include the
information in this document regarding:
future income and margins future economic performance
future growth industry trends
adequacy and cost of financial resources management plans
Forward-looking statements also include those preceded or followed by the words
"anticipates," "believes," "estimates," "hopes," "plans," " intends" and
"expects" or similar expressions. With respect to all forward-looking
statements, we claim the protection of the safe harbor for forward-looking
statements contained in the Private Securities Litigation Reform Act of 1995.
Many important factors, including future economic and industry conditions (for
example, changes in interest rates, changes in currency exchange rates, changes
in demographics and consumer preferences, e-commerce developments, oil price
changes and changes in the availability and cost of capital); competitive
factors (such as the competitiveness of foreign-made products, new manufacturing
technologies, or other actions taken by current or new competitors); operating
factors (for example, supply, labor, or distribution disruptions, changes in
operating conditions or costs, and changes in regulatory environment), and
factors relating to recent or future acquisitions, could affect our future
results and could cause those results or other outcomes to differ materially
from what may be expressed or implied in forward-looking statements. We
undertake no obligation to update or revise any forward-looking statements for
new developments or otherwise.
PART I
Item 1. BUSINESS.
The successor to a business founded over 70 years ago, La-Z-Boy Incorporated is
one of the three largest residential furniture manufacturers in the United
States. During our fiscal year ended April 29, 2000 (fiscal 2000), we acquired
three furniture manufacturers; Bauhaus USA, Inc., Alexvale Furniture, Inc. and
LADD Furniture, Inc. These acquisitions, all of which were accounted for as
purchases, increased our sales and number of employees by about 50 % on an
annualized basis by the time the last and largest of them closed in the third
quarter of fiscal 2000. You can find more information about these acquisitions
in Note 3 to our consolidated financial statements (page 45) and the
"Management's Discussion and Analysis" section (pages 50 through 54), both of
which are included in Exhibit (13) to this report and are incorporated in this
item by reference.
4
Principal Products and Industry Segments
Our largest segment in terms of sales is the Residential Upholstery segment,
which includes sofas, sleepers, recliners, mattresses, occasional chairs and
modular units. The operating divisions in the Residential Upholstery segment in
order of good/better/best product price ranges are England, Bauhaus,
HickoryMark, La-Z-Boy, Centurion, Alexvale, Sam Moore and Clayton Marcus. Our
second largest segment is Residential Casegoods, which includes hardwood or
veneer products such as dining room and living room tables, bedroom, youth
furniture and occasional furniture. The operating divisions in this segment in
order of good/better/best product price ranges are Pilliod, Lea, Hammary,
Kincaid, American Drew and Pennsylvania House. Our Contract segment manufactures
and sells furniture primarily to hospitality, business, government, healthcare
and assisted living facilities. American of Martinsville and La-Z-Boy Contract
are our two operating divisions in the Contract segment. You can find additional
detailed information regarding our products and segments in Note 14 to our
consolidated financial statements (pages 49 and 50) and our "Management's
Discussion and Analysis" section (pages 50 through 54), both of which are
included in Exhibit (13) and are incorporated in this item by reference.
Raw Materials & Parts
The principal raw materials we use in the manufacture of our products are:
- leather, cotton, wool, synthetic and vinyl fabrics for covers
- hardwoods for solid wood dining room and bedroom furniture,
occasional tables, business furniture and the frame components of
seating units
- plywood and chipwood for internal parts
- veneers for wall units, occasional tables and casegoods
- water and petroleum based and liquid finishes (stains, sealant,
lacquers) for external wood
- steel for motion mechanisms
- polyester batting and non-chlorofluorocarbonated polyurethane foam
for cushioning and padding.
We generally purchase hardwoods, steel and padding parts from a number of
sources, usually in the vicinity of the particular plant. We purchase
product-covering fabrics, plywood and polyurethane from a lesser number of
sources on mostly a centralized basis.
Raw material costs historically have been about 39 % of sales in the Residential
Upholstery segment, a somewhat higher percentage in Residential Casegoods and
about 41 % in our Contract segment. Price increases for raw materials have been
slightly lower than the inflation rate in recent years and we expect them to
continue at this rate or remain flat.
Purchased cover is our largest single upholstery raw material cost, representing
about 42 % of total Residential Upholstery raw material costs. Most of this
cover is purchased in a raw state (a roll or a hide) then cut and sewn into
parts in our plants. A trend that has been growing, especially for leather, is
the purchase of fully cut and sewn parts from Mexico, Argentina and other areas
outside of North America. We expect this trend to continue given the strong U.S
dollar and other existing economic conditions.
5
Polyurethane is Residential Upholstery's next largest type of raw material cost
and is sensitive to changes in the price of oil.
Hardwood lumber is Residential Casegoods' largest raw material cost,
representing over 25 % of the segment's total raw material costs. Hardwood
lumber historically has had measurable changes in prices over the short term.
Hardwood lumber costs have been declining recently. Purchased hardwood parts are
a growing source of components for Residential Casegoods and Residential
Upholstery. These are mostly imported from the Far East, typically have a
relatively high labor content and are external (exposed wood) parts as opposed
to frame or structural parts.
Contract raw materials are similar to Residential Casegoods and Residential
Upholstery materials but typically include additional types of purchased parts
such as bases and swivels. These parts are available from a number of suppliers.
Finished Goods Imports
Imported finished goods represented about 6% of our fiscal 2001 sales, almost
all of which were Residential Casegoods sales. Most of these products came from
the Far East. We are improving our purchasing, logistics and warehousing of
these imports across our different divisions as this part of our business
continues to grow.
Seasonal Business
We generally experience our lowest level of sales during our first quarter. When
possible, we schedule production to maintain uniform manufacturing activity
throughout the year, except for mid-summer plant shutdowns, to coincide with
slower sales.
Because of recent larger than normal reductions in consumer furniture demand,
fiscal year 2002's first quarter sales are weaker than normal and are lower than
last year's first quarter.
Economic Cycle and Purchasing Cycle
Although housing activity is a leading indicator for furniture sales, increased
or decreased demand for furniture has historically been less extreme than that
for housing. For example, in 1991, when housing activity declined 17%, furniture
industry sales only dipped 2%. We believe that the purchasing cycle for
furniture is shorter than for automobiles and many other major consumer
durables. That is, a consumer will typically replace some of their furniture
more often than they replace an automobile or a dishwasher. Typically,
residential upholstery products have a shorter purchasing life cycle than
residential casegoods products.
Practices Regarding Working Capital Items
We do not carry significant amounts of upholstered finished goods in inventory.
We build casegoods to inventory in order to provide for quicker delivery
requirements of customers, which results in higher levels of finished casegoods
product than upholstery products on hand at any period. Also, as our volume of
casegoods imported finished products grows, there is more inventory in-transit
because of long lead times from the Far East but we have less raw materials and
6
work in process inventory. Dealer terms for stock orders range between 45 - 100
days. Terms are 30 - 45 days for sales to dealers that have received an order
from a consumer. Extended dating is often offered as part of sales promotion
programs.
Customers
We distribute to over 25,000 locations. We did not have any customer whose sales
amounted to 5 % or more of our fiscal year 2001 consolidated sales. Over 90% of
the sales in our Residential Upholstery segment are to dealers or retailers (our
customers) at "wholesale" pricing. The remaining Residential Upholstery segment
sales are directly to end users (our consumers) through our retail stores. Sales
in our Residential Casegoods segment are almost entirely to dealers. Contract
segment sales are to a mix of dealers and consumers, where consumers typically
are organizations in the hospitality, healthcare, government or assisted living
sectors. As a percentage of total sales, our 2001 customer mix was about 37 %
"proprietary," 20 % major dealers (for example, Federated, The May Company,
Nebraska Furniture Mart) and 43 % general dealers. "Proprietary" stores or
galleries are those that have agreements to sell products from one of La-Z-Boy's
divisions and accessory products that we approve. La-Z-Boy companies in each of
our business segments have proprietary distribution, which means square feet of
selling space totally dedicated to our products. The percentage of proprietary
dealers of 37% in 2001 declined from 48% in 2000 because of a full year of sales
in 2001 compared to a partial sales year in 2000 of LADD and Alexvale, which
have a lower mix of proprietary dealers. Without the effect of these
acquisitions, our proprietary percentage increased on a comparable company basis
in 2001. It is a key part of our marketing strategy to continue to expand
proprietary distribution.
Sales Representatives
Similar to most of the U.S. furniture industry, sales representatives sell our
products to our customers. Typically these representatives carry one division's
products, but they also may carry another line of products from another one of
our divisions or from another furniture company. Our sales representatives are
usually compensated based on a percentage of their actual sales for their
territory although other performance criteria generally also are used. In
general, we sign one-year employment contracts with our sales representatives.
Orders and Backlog
Residential Upholstery orders are primarily built to a specific dealer order
(stock order) or a dealer order with a down payment from a consumer. These
orders are typically shipped within two to six weeks following receipt of the
order. Orders in the Contract segment are consumer or customer orders but
shipments may be scheduled for longer time periods. Residential Casegoods
primarily are produced to our internal order (not a customer or consumer order),
which results in higher finished goods inventory on hand but quicker
availability to ship to customers and greater batch size manufacturing
efficiencies.
As of June 30, 2001 and July 1, 2000, backlogs were approximately $186 million
and $226 million, respectively. Most of the decline was in the Residential
Casegoods and Contract segments and was due to weak industry demand. The measure
of backlog at a point in time may not be indicative of future sales performance.
We do not rely entirely on backlogs to predict future sales.
7
For most operating divisions, an order cannot be canceled after it has been
selected for production. Orders from pre-built stock, though, may be canceled up
to the time of shipment.
Competitive Conditions
We rank among the top three manufacturers of residential (bedroom, dining room
and living room) furniture in the United States, measured by annual sales
volume. Our larger competitors in the upholstery and casegoods (wood furniture)
segments of the residential furniture industry include Bassett Furniture, Ethan
Allen, Furniture Brands International, Hooker Furniture, Klaussner, Lifestyle
Furnishings International, Natuzzi and Stanley Furniture.
We also are a leading manufacturer and supplier of contract furniture to the
hospitality, assisted-living and office furniture market segments in the U.S.,
where major competitors include such companies as Fleetwood, Herman Miller and
Kimball International.
In addition to these large companies, a substantial number of small and
medium-sized firms operate in all three of our business segments, and these
segments are all highly competitive.
We compete primarily by emphasizing our brand names and the quality and styling
of our products, in addition to offering good value, strong dealer support and
above average customer service and delivery.
In the past twelve months, our industry has witnessed the bankruptcies of
Montgomery Ward, HomeLife and Heilig-Meyers, three of the top ten U.S. furniture
retailers. The current, difficult economic environment has put severe financial
pressure on many of the remaining retailers, and there continues to be a signif-
icant risk of further retail fallout. Aside from credit risk, this also causes a
fair amount of "product liquidation " in the market place for furniture, as
manufacturers seek to dispose of excess inventories. This has been particularly
true in the Residential Casegoods sector.
Research and Development Activities
We spent $19 million in fiscal 2001 for new product development, existing
product improvement, quality control, improvement of current manufacturing
operations and research into the use of new materials in the construction of
products. We spent $11 million on those activities in fiscal 2000 and $8 million
in fiscal 1999. The large increase in 2001 over 2000 was primarily due to a full
year of expenses in 2001 due to acquisitions compared to a partial year in 2000.
Our customers generally do not engage in research with respect to the products
we manufacture. Most of our operating divisions develop and manage their own
product lines. New product groups or styles are typically introduced at industry
trade shows (markets), and based upon their acceptance at the markets, the
products are either placed into production or withdrawn from the markets.
Patents, Licenses and Franchises
We hold several patents but we believe that the loss of any single patent or
group of patents would not materially affect our business. We have no material
licenses or franchises. Our agreements with our "proprietary" dealers are a key
part of our marketing strategies. We provide more information about those
dealers above, under "Customers."
8
Compliance with Environmental Regulations
We have been named as a potentially responsible party at six environmental
clean-up sites. Based on a review of all currently known facts, we do not expect
continuing environmental compliance with existing federal, state and local
statutes dealing with protection of the environment to have a material effect on
our capital expenditures, earnings, competitive position or liquidity. We are
continuing a program of conducting voluntary compliance audits at our facilities
and also have taken steps to assure compliance with provisions of Titles III and
V of the 1990 Clean Air Act Amendments.
Employees
We had approximately 19,700 persons as of June 30, 2001. Residential Upholstery
segment employed approximately 13,000 of them, Residential Casegoods employed
approximately 4,000 of them, Contract employed approximately 1,900 of them, and
we employed approximately 800 non-segment personnel. Substantially all of our
employees are employed on a full-time basis. Less than 10 % of our employees are
unionized.
At the end of June last year we had 21,600 employees. The reduction in employees
since then has been due to restructuring and rationalization of our workforce to
respond to falling demand and to a large and growing percentage of our parts and
finished goods being purchased from outside suppliers.
Financial Information about Foreign and Domestic Operations and Export Sales
Less than five percent of our total sales are exports. We sell upholstered
furniture to Canadian customers through a Canadian subsidiary and to European
customers through a United Kingdom subsidiary. We have a small amount of sales
in Mexico through a Mexican subsidiary and we have a joint venture in Thailand,
which sells furniture in Australia and the Far East.
We also derive a small amount of royalty revenues from the sale and licensing of
trademarks, trade names and patents to foreign manufacturers.
Item 2. PROPERTIES.
We owned or leased approximately 17 million square feet of manufacturing,
warehousing, office, showroom and retail facilities at the end of fiscal 2001,
compared to 19 million square feet at the end of fiscal 2000. This reduction in
floor space was due to rationalizing production capacity through restructuring
and other efforts, as well as to importing more parts and finished goods. At the
end of last fiscal year, our Residential Upholstery segment occupied
approximately 9 million square feet of space, Residential Casegoods occupied
approximately 6 million square feet of space, and Contract occupied
approximately 2 million square feet.
Our facilities are located in Alabama, Arkansas, California, Michigan,
Mississippi, Missouri, North Carolina, Ohio, Pennsylvania, South Carolina,
Tennessee, Utah, Virginia, Washington D.C. and the countries of Canada, the
United Kingdom, Mexico and Thailand. Most of them are less than 40 years old,
and all of them are well maintained and insured. We do not expect any major land
9
or building additions will be needed to increase capacity in the foreseeable
future. We own most of our plants and least most of the others under long term
industrial revenue bonds. For information on terms of operating leases for our
properties, see Note 5 to our consolidated financial statements (page 46), which
is included in Exhibit (13) to this report and incorporated in this item by
reference.
Item 3. LEGAL PROCEEDINGS.
We have been named as a defendant in various lawsuits arising in the ordinary
course of business. While we cannot predict or estimate the ultimate outcome of
any of these actions, based on our previous experience with lawsuits of these
types, management believes that the resultant liability, if any, will not be
material to us.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY.
Nothing was submitted for a vote by our shareholders during the fourth quarter
of fiscal 2001.
10
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.
Patrick H. Norton, age 79
o Chairman of the Board since October 1997
o Formerly Senior Vice President Sales and Marketing
Gerald L. Kiser, age 54
o President and Chief Executive Officer since July 2001
o Formerly President and Chief Operating Officer (October 1997 - July 2001),
Executive Vice President and Chief Operating Officer (April - October
1997), Vice President-Operations (May 1996 - April 1997), and Vice
President of Engineering and Development (May 1995 - April 1997)
David M. Risley, age 56
o Senior Vice President and Chief Financial Officer since April 2001
o Formerly Vice President & Chief Financial Officer of Aeroquip-Vickers, a
global auto parts manufacturing company
John J. Case, age 50
o President Upholstery Group, since July 2001
o President Residential, since September 1999
o Formerly Vice President of Marketing, since April 1993
Donald L. Mitchell, age 57
o President Casegoods Group, since July 2001
o Formerly President LADD Furniture Inc., Casegoods Group, since January
1996
PART II
ITEM 5. MARKET PRICE FOR REGISTRANT'S COMMON EQUITY and RELATED
STOCKHOLDER MATTERS.
We had about 23,600 shareholders of record as of June 22, 2001.
All other information required to be reported under this item is contained in
Exhibit (13) to this report (page 38) and is incorporated in this item by
reference.
11
ITEM 6. SELECTED FINANCIAL DATA.
All information required to be reported under this item is included in Exhibit
(13) to this report (page 38) and is incorporated in this item by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION.
Our "Management's Discussion and Analysis" section included in Exhibit (13) of
this report (pages 50 through 54) is incorporated by reference in response to
this item.
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 floating rate $300 million revolving credit
facility under which we had $130 million borrowed at April 28, 2001. We have
entered into several interest rate swap agreements with counter-parties that are
participants in the revolving credit facility to reduce the impact of changes in
interest rates on a portion of this floating rate debt. We believe that
potential credit loss from counter-party non-performance is minimal. The purpose
of these swaps is to fix interest rates on a notional amount of $70 million for
a three year period at 6.095% plus our applicable borrowing spread under the
revolving credit facility, which can range from .475% to .800%. Management
estimates that a 1% change in interest rates would not have a material impact
on the results of operations for fiscal 2002 based upon the year end levels of
exposed liabilities.
We are exposed to market risk from changes in the value of foreign currencies.
Our exposure to changes in the value of foreign currencies is reduced through
our use of foreign currency forward contracts. Substantially all of our imported
purchased parts are denominated in U.S. dollars. Thus, we believe that gains or
loses resulting from changes in the value of foreign currencies will not be
material to our results from operations in fiscal year 2002.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Our consolidated financial statements and all other information required by this
item are included in Exhibit (13) of this report (pages 39 through 43 and page
55), and all of that information is incorporated in this item by reference.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
12
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
For information concerning executive officers, see Part I, under "Executive
Officers of the Registrant." All other information required to be reported under
this item is included in our proxy statement for our annual meeting of
shareholders to be held on July 30, 2001 (filed with the SEC on June 29, 2001),
and all of that information is incorporated in this item by reference.
ITEM 11. EXECUTIVE COMPENSATION.
All information required to be reported under this item is included in our proxy
statement for our 2001 annual meeting, and all of that information is
incorporated in this item by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
All information required to be reported under this item is included in our proxy
statement for our 2001 annual meeting, and all of that information is
incorporated in this item by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
All information required to be reported under this item is included in our proxy
statement for our 2001 annual meeting, and all of that information is
incorporated in this item by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K.
(a) The following documents are filed as part of this report:
1. Financial Statements:
Report of Management Responsibilities
Report of Independent Accountants
Consolidated Balance Sheet
Consolidated Statement of Income
Consolidated Statement of Cash Flows
Consolidated Statement of Changes in Shareholders' Equity
Notes to Consolidated Financial Statements
13
The financial statements above are all included in Exhibit
(13) of this report and incorporated in this item by
reference.
2. Financial Statement Schedules:
Report of Independent Accountants on Financial Statement Schedule
Schedule II Valuation and Qualifying Accounts
Both immediately follow this item.
3. Exhibits
The following exhibits are filed as part of this report:
Exhibit Number Description of Exhibit (Note 1)
- -------------- -------------------------------
(1) Not applicable
(2) Not applicable
(3.1) La-Z-Boy Incorporated Restated Articles of Incorporation
(Note 2)
(3.2) Amendment to Restated Articles of Incorporation (Note 3)
(3.3) Current La-Z-Boy Incorporated Bylaws
(4) $300 million dollar Credit Agreement dated as of May 12,
2000 among La-Z-Boy Incorporated, the banks listed therein,
Comerica Bank, as Syndication Agent, Suntrust Bank, as
Documentation Agent, and Wachovia Bank, N.A., as Administra-
tive Agent (Note 4)
(5) Not applicable
(8) Not applicable
(9) Not applicable
(10.1)* La-Z-Boy Incorporated Amended and Restated 1993 Performance
Based Stock Plan (Note 5)
(10.2)* La-Z-Boy Incorporated Restricted Stock Plan for Non-Employee
Directors (Note 6)
(10.3)* La-Z-Boy Incorporated Executive Incentive Compensation Plan
Description (Note 7)
(10.4)* La-Z-Boy Incorporated Supplemental Executive Retirement Plan
(as revised in 1995) (Note 8)
(10.5)* La-Z-Boy Incorporated Amended and Restated 1997 Restricted
Share Plan (Note 9)
(10.6)* La-Z-Boy Incorporated 1997 Incentive Stock Option Plan (Note 9)
(10.7)* Form of Change in Control Agreement (Note 10). Only
directors or executive officers currently covered: Patrick
H. Norton and Gerald L. Kiser
(10.8)* Form of Indemnification Agreement (covering all directors,
including employee-directors) (Note 11)
(10.9)* Summary Plan Description and Partial Plan Document for the
La-Z-Boy Incorporated Personal Executive Life Insurance
Program (Note 12). Only director or executive officer
currently covered: Gerald L. Kiser
(10.10) $150 million dollar Credit Agreement dated as of January 28,
2000, among La-Z-Boy Incorporated, the Banks listed therein
and Wachovia Bank, N.A., as Administrative Agent (Note 13)
(10.11) Agreement and Plan of Merger, dated as of September 28, 1999,
among La-Z-Boy Incorporated, LZB Acquisition Corp., and LADD
Furniture, Inc. (Note 14)
14
(10.12) Amendment No. 1, dated as of December 13, 1999, to Agree-
ment and Plan of Merger among La-Z-Boy Incorporated, LZB
Acquisition Corp., and LADD Furniture, Inc. (Note 15)
(11) Statement regarding computation of per share earnings (See Note
11 to the Consolidated Financial Statements included in Exhibit
(13).)
(12) Not applicable
(13) Portions of the 2000 Annual Report to Shareholders (Note 16)
(15) Not applicable
(16) Not applicable
(17) Not applicable
(18) Not applicable
(19) Not applicable
(20) Not applicable
(21) List of subsidiaries of La-Z-Boy Incorporated
(22) Not applicable
(23) Consent of PricewaterhouseCoopers LLP
(24) Not applicable
(25) Not applicable
(26) Not applicable
(27) Not applicable
Notes to Exhibits
- -----------------
* Indicates a contract or benefit plan under which one or more
executive officers or directors may receive benefits.
Note 1. For all documents incorporated by reference, the SEC file
number is 1-9656 unless otherwise indicated below. All exhibit
description references to previous filings are references to
filings by La-Z-Boy. Unless otherwise indicated, the described
exhibit is being filed with this Report.
Note 2. Incorporated by reference to an exhibit to Form 10-Q for the
quarter ended October 26, 1996.
Note 3. Incorporated by reference to an exhibit to Form 10-K/A filed
September 27, 1999.
Note 4. Incorporated by reference to an exhibit to Form 8-K dated May 31,
2000.
Note 5. Incorporated by reference to an exhibit to definitive proxy
statement dated June 27, 1996.
Note 6. Incorporated by reference to an exhibit to definitive proxy
statement dated July 6, 1989.
Note 7. Incorporated by reference to an exhibit to Form 10-K for the
fiscal year ended April 26, 1997.
Note 8. Incorporated by reference to an exhibit to Form 8-K dated
February 6, 1995.
Note 9. Incorporated by reference to an exhibit to definitive proxy
statement dated June 27, 1997.
Note 10. Incorporated by reference to an exhibit to Form 8-K dated
February 6, 1995.
Note 11. Incorporated by reference to an exhibit to Form 8, Amendment No.
1, dated November 3, 1989.
Note 12. Incorporated by reference to an exhibit to Form 10-K for the
fiscal year ended April 26, 1997.
Note 13. Incorporated by reference to an exhibit to Form 10-Q for the
quarter ended January 22, 2000.
15
Note 14. Incorporated by reference to an exhibit to Form 8-K dated
September 28, 1999, and filed with the SEC on September 30,
1999.
Note 15. Incorporated by reference to an exhibit to Form S-4 Registra-
tion Statement filed December 15, 1999; registration no.
333-92763.
Note 16. With the exception of the information incorporated in Parts I
and II, this document is not deemed to be filed as part of this
Report.
(b) Reports on Form 8-K
On March 29, 2001, we filed with the SEC a Report on Form 8-K, which
reported the appointment of our new Chief Financial Officer, David
Risley.
On April 19, 2001, we filed with the SEC a Report on Form 8-K, which
gave an update on our outlook for the fourth quarter of fiscal 2001.
16
Report of Independent Accountants on Financial Statement Schedule
To the Board of Directors of La-Z-Boy Incorporated:
Our audits of the consolidated financial statements referred to in our report
dated May 30, 2001 appearing in the 2001 Annual Report to Shareholders of
La-Z-Boy Incorporated (which report and consolidated financial statements are
incorporated by reference in this Annual Report on Form 10-K) also included an
audit of the financial statement schedule listed in Item 14(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
PricewaterhouseCoopers LLP
Toledo, Ohio
May 30, 2001
17
LA-Z-BOY INCORPORATED AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(Dollars in thousands)
Allowance for Doubtful Accounts and Long-Term Notes
Trade
accounts
Additions receivable
Balance at Additions charged to "written off" Balance
beginning from new costs and net of at end of
Year ended of year acquisitions expenses recoveries year
- -------------- ---------- ------------ ---------- ------------- ----------
April 28, 2001: $32,221 $17,253 ($12,524) $36,950
April 29, 2000: $25,628 $2,866 $5,551 ($1,824) $32,221
April 24, 1999: $20,639 $7,361 ($2,372) $25,628
ACCRUED WARRANTIES
Balance at Additions Balance
beginning from new Warranty at end of
Year ended of year acquisitions Additions costs year
- -------------- ----------- ------------- --------- ---------- ---------
April 28, 2001: $21,785 $15,569 ($15,910) $21,444
April 29, 2000: $14,575 $3,595 $16,941 ($13,326) $21,785
April 24, 1999: $12,025 $13,579 ($11,029) $14,575
18
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Form 10-K to be signed on its
behalf by the undersigned, thereunto duly authorized.
DATE: July 27, 2001 LA-Z-BOY INCORPORATED
BY /s/Patrick H. Norton
------------------------
P.H. Norton
Chairman of the Board
19
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below, as of July 27, 2001, by the following persons on behalf
of the Registrant and in the capacities indicated.
/s/P.H. Norton /s/D.K. Hehl
- ----------------------------------- --------------------------------
P.H. Norton D.K. Hehl
Chairman of the Board Director
/s/G.L. Kiser /s/J.W. Johnston
- ----------------------------------- --------------------------------
G.L. Kiser J.W. Johnston
President and Chief Executive Director
Officer, Director
/s/D.M. Risley /s/H.G. Levy
- ----------------------------------- --------------------------------
D.M. Risley H.G. Levy
Senior Vice President and Director
Chief Financial Officer
/s/R.E. Lipford
- ----------------------------------- --------------------------------
J.J. Korsnack R.E. Lipford
Chief Accounting Officer and Director
Corporate Controller
/s/J.H. Foss /s/H.O. Petrauskas
- ----------------------------------- --------------------------------
J.H. Foss H.O. Petrauskas
Director Director
/s/G.M. Hardy /s/J.F. Weaver
- ----------------------------------- --------------------------------
G.M. Hardy J.F. Weaver
Director Director
20
EXHIBIT INDEX
Page in
Exhibit Sequentially
Number Description of Exhibit Numbered Copy
- -------- ---------------------- --------------
(1) Not applicable
(2) Not applicable
(3.1) La-Z-Boy Incorporated Restated Articles of Incorporation
(Note 2)
(3.2) Amendment to Restated Articles of Incorporation (Note 3)
(3.3) Current La-Z-Boy Incorporated Bylaws 24
(4) $300 million dollar Credit Agreement dated as of May 12,
2000 among La-Z-Boy Incorporated, the banks listed therein,
Comerica Bank, as Syndication Agent, Suntrust Bank, as
Documentation Agent, and Wachovia Bank, N.A., as Administra-
tive Agent (Note 4)
(5) Not applicable
(8) Not applicable
(9) Not applicable
(10.1)* La-Z-Boy Incorporated Amended and Restated 1993 Perform-
ance Based Stock Plan (Note 5)
(10.2)* La-Z-Boy Incorporated Restricted Stock Plan for Non-Employee
Directors (Note 6)
(10.3)* La-Z-Boy Incorporated Executive Incentive Compensation Plan
Description (Note 7)
(10.4)* La-Z-Boy Incorporated Supplemental Executive Retirement Plan
(as revised in 1995)(Note 8)
(10.5)* La-Z-Boy Incorporated Amended and Restated 1997 Restricted
Share Plan (Note 9)
(10.6)* La-Z-Boy Incorporated 1997 Incentive Stock Option Plan
(Note 9)
(10.7)* Form of Change in Control Agreement (Note 10). Only directors
or executive officers currently covered: Patrick H. Norton and
Gerald L. Kiser
(10.8)* Form of Indemnification Agreement (covering all directors,
including employee-directors) (Note 11)
(10.9)* Summary Plan Description and Partial Plan Document for the
La-Z-Boy Incorporated Personal Executive Life Insurance Pro-
gram (the "Summary") (Note 12). Only director or executive
officer covered: Gerald L. Kiser.
(10.10) $150 million dollar Credit Agreement dated as of January 28,
2000, among La-Z-Boy Incorporated, the Banks listed therein
and Wachovia Bank, N.A., as Administrative Agent (Note 13)
(10.11) Agreement and Plan of Merger, dated as of September 28, 1999,
among La-Z-Boy Incorporated, LZB Acquisition Corp., and LADD
Furniture, Inc. (Note 14)
21
(10.12) Amendment No. 1, dated as of December 13, 1999, to Agreement
and Plan of Merger among La-Z-Boy Incorporated, LZB Acquisi-
tion Corp., and LADD Furniture, Inc. (Note 15)
(11) Statement regarding computation of per share earnings (See
Note 11 to the Consolidated Financial Statements included in
Exhibit (13).)
(12) Not applicable
(13) Portions of the 2000 Annual Report to Shareholders (Note 16) 38
(15) Not applicable
(16) Not applicable
(17) Not applicable
(18) Not applicable
(19) Not applicable
(20) Not applicable
(21) List of subsidiaries of La-Z-Boy Incorporated 58
(22) Not applicable
(23) Consent of PricewaterhouseCoopers LLP 59
(24) Not applicable
(25) Not applicable
(26) Not applicable
(27) Not applicable
Notes to Exhibits
- -----------------
* Indicates a contract or benefit plan under which one or more
executive officers or directors may receive benefits.
Note 1. For all documents incorporated by reference, the SEC file
number is 1-9656 unless otherwise indicated below. All exhibit
description references to previous filings are references to
filings by La-Z-Boy. Unless otherwise indicated, the described
exhibit is being filed with this Report.
Note 2. Incorporated by reference to an exhibit to Form 10-Q for the
quarter ended October 26, 1996.
Note 3. Incorporated by reference to an exhibit to Form 10-K/A filed
September 27, 1999.
Note 4. Incorporated by reference to an exhibit to Form 8-K dated
May 31, 2000.
Note 5. Incorporated by reference to an exhibit to definitive proxy
statement dated June 27, 1996.
Note 6. Incorporated by reference to an exhibit to definitive proxy
statement dated July 6, 1989.
Note 7. Incorporated by reference to an exhibit to Form 10-K for the
fiscal year ended April 26, 1997.
Note 8. Incorporated by reference to an exhibit to Form 8-K dated
February 6, 1995.
Note 9. Incorporated by reference to an exhibit to definitive proxy
statement dated June 27, 1997.
Note 10. Incorporated by reference to an exhibit to Form 8-K dated
February 6, 1995.
Note 11. Incorporated by reference to an exhibit to Form 8, Amendment
No. 1, dated November 3, 1989.
Note 12. Incorporated by reference to an exhibit to Form 10-K for the
fiscal year ended April 26, 1997.
Note 13. Incorporated by reference to an exhibit to Form 10-Q for the
quarter ended January 22, 2000.
22
Note 14. Incorporated by reference to an exhibit to Form 8-K dated
September 28, 1999, and filed with the SEC on September 30,
1999.
Note 15. Incorporated by reference to an exhibit to Form S-4
Registration Statement filed December 15, 1999;
registration no. 333-92763.
Note 16. With the exception of the information incorporated in Parts I
and II, this document is not deemed to be filed as part of
this Report.
23
Exhibit (3.3)
AMENDED AND RESTATED BYLAWS
OF
LA-Z-BOY INCORPORATED
(as of July 6, 2001)
ARTICLE I
Name and Office
Section 1. Name. The name of this corporation is La-Z-Boy Incorporated.
Section 2. Registered Office. The principal and registered office of the
corporation shall be located at 1284 North Telegraph Road, Monroe, Michigan.
Section 3. Other Offices. The corporation may also have other offices for the
transaction of business located at such places, both within and without the
State of Michigan, as the Board of Directors may from time to time determine.
ARTICLE II
Capital Stock and Transfers
Section 1. Share Certificates.
(A) Required Signatures. The shares of the corporation shall be
represented by certificates signed by the Chairman of the Board or the President
or an Executive Vice President and the Secretary or an Assistant Secretary or
the Treasurer or an Assistant Treasurer of the corporation, and may be sealed
with the seal of the corporation or a facsimile thereof. The signatures of the
officers of the corporation upon a certificate may be facsimiles if the
certificate is countersigned by a transfer agent, or is registered by a
registrar, other than the corporation itself or an employee of the corporation.
In case any officer, transfer agent or registrar who has signed or whose
facsimile signature has been placed upon such certificate shall have ceased to
be such officer, transfer agent or registrar before such certificate is issued,
it may be issued by the corporation with the same effect as if the signer were
still such officer, transfer agent or registrar at the date of the certificate's
issue.
(B) Required Information. A certificate representing shares of the
corporation shall state upon its face all of the following:
(a) That the corporation is formed under the laws of this state.
(b) The name of the person to whom issued.
(c) The number and class of shares, and the designation of the series,
if any, which the certificate represents.
24
Section 2. Lien. The corporation shall have a first lien on all the shares of
its capital stock, and upon all dividends declared upon the same for any
indebtedness of the respective holders thereof to the corporation.
Section 3. Transfers. Upon surrender to the corporation or the transfer
agent of the corporation of a certificate representing shares fully endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer, a new certificate shall be issued to the person entitled thereto, and
the old certificate canceled and the transaction recorded upon the books of the
corporation.
Section 4. Replacement of Lost, Stolen or Destroyed Share Certificates. The
Board of Directors may direct a new certificate to be issued in place of any
certificate theretofore issued by the corporation alleged to have been lost,
stolen or destroyed. When authorizing such issue of a new certificate, the Board
of Directors, in its discretion and as a condition precedent to the issuance
thereof, may prescribe such terms and conditions as it deems expedient, and may
require such indemnities as it deems adequate, to protect the corporation from
any claim that may be made against it with respect to any such certificate
alleged to have been lost, stolen or destroyed.
Section 5. Transfer Agent and Registration. The Board of Directors may appoint
a transfer agent and a registrar in the registration of transfers of its
securities.
Section 6. Rules of Issue and Transfer. The Board of Directors shall have power
and authority to make all such rules and regulations as the board shall deem
expedient regulating the issue, transfer and registration of certificates for
shares in the corporation.
Section 7. Registered Shareholders. The corporation shall have the right to
treat the registered holder of any share as the absolute owner thereof, and
shall not be bound to recognize any equitable or other claim to, or interest in,
such share on the part of any other person, whether or not the corporation shall
have express or other notice thereof, save as may be otherwise provided by the
statutes of Michigan.
ARTICLE III
Shareholders and Meetings
Section 1. Annual Meeting of Shareholders. The 1991 Annual Meeting of
Shareholders was held August 5, 1991 and all subsequent Annual Meetings of
Shareholders shall be held on the last Monday in July of each year, or at such
other date as shall be designated by the Board of Directors and stated in the
notice of the meeting. At said meeting the shareholders shall elect by a
plurality vote the Directors to be elected at such meeting, and shall transact
such other business as may properly be brought before the meeting.
Section 2. Special Meetings of Shareholders. A special meeting of the
shareholders for any purpose or purposes other than election of Directors may be
called at any time and place by the Chairman of the Board, and in his absence,
by the President; or by the Directors. It shall be the duty of the Directors,
the Chairman of the Board, or the President to call such meeting whenever so
requested in writing by shareholders owning, in the aggregate, at least
seventy-five percent (75%) of the entire capital stock of the corporation
entitled to vote at such special meeting. Such request shall state the purpose
or purposes of the proposed meeting.
25
Section 3. Notice of Meetings of Shareholders. Notice of the time, date and
place of all annual and special meetings shall be mailed by the Secretary to
each shareholder entitled to vote at such meeting not less than ten (10) days
nor more than sixty (60) days before the date thereof. The business transacted
at any special meeting of shareholders shall be limited to the purpose(s) stated
in the notice.
Section 4. Presiding Officer. The Chairman of the Board, or in his absence, the
President, or in his absence such Vice President as the Board of Directors may
designate, shall preside at any meeting of shareholders.
Section 5. Vote of Shareholders; Proxies. At every such meeting each shareholder
entitled to vote thereat may cast such vote or votes either in person, or by
proxy, but no proxy shall be voted after three (3) years from its date, unless
the proxy provides for a longer period. A shareholder may authorize one or more
persons to act for him by proxy. All proxies shall be in writing by the
shareholder or by his duly authorized agent or representative and shall be filed
with the Secretary.
Section 6. Quorum of Shareholders. The holders of a majority of the shares of
stock issued and outstanding and entitled to vote thereat, represented in person
or by proxy, shall constitute a quorum at all meetings of the shareholders for
the transaction of business except as otherwise provided by statute or by the
Articles of Incorporation. If, however, such quorum shall not be present or
represented at any meeting of the shareholders, the shareholders present in
person or represented by proxy shall have power to adjourn the meeting from time
to time, without notice other than announcement at the meeting, until a quorum
shall be present or represented. At such adjourned meeting at which a quorum
shall be present or represented any business may be transacted which might have
been transacted at the meeting as originally notified.
Section 7. Required Vote. If a quorum is present, the affirmative vote of the
holders of a majority of the shares of stock represented at the meeting shall be
the act of the shareholders unless the vote of a greater number of shares of
stock is required by law or the Articles of Incorporation.
Section 8. Removal. The shareholders shall have power by a majority vote at
any such meeting, to remove any Director from office.
Section 9. List of Shareholders Entitled to Vote. The officer or agent having
charge of the stock transfer books for shares of the corporation shall make and
certify a complete list of the shareholders entitled to vote at a shareholders'
meeting or any adjournment thereof. The list shall:
(a) Be arranged alphabetically within each class and series, with the
address of, and the number of shares held by, each shareholder.
(b) Be produced at the time and place of the meeting.
(c) Be subject to inspection by any shareholder during the whole time
of the meeting.
(d) Be prima facie evidence as to who are the shareholders entitled
to examine the list or to vote at the meeting.
26
Section 10. Record Date for Determination of Shareholders. For the purpose of
determining shareholders entitled to notice of and to vote at a meeting of
shareholders or an adjournment of a meeting, the Board of Directors may fix a
record date, which shall not precede the date on which the resolution fixing the
record date is adopted by the Board. The date shall not be more than sixty (60)
nor less than ten (10) days before the date of the meeting. If a record date is
not fixed, the record date for determination of shareholders entitled to notice
of or to vote at a meeting of shareholders shall be the close of business on the
day next preceding the day on which notice is given, or if no notice is given,
the day next preceding the day on which the meeting is held. When a
determination of shareholders of record entitled to notice of or to vote at a
meeting of shareholders has been made as provided in this Section, the
determination applies to any adjournment of the meeting, unless the Board of
Directors fixes a new record date under this Section for the adjourned meeting.
For the purpose of determining shareholders entitled to receive payment of a
share dividend or distribution, or allotment of a right, or for the purpose of
any other action, the Board of Directors may fix a record date, which shall not
precede the date on which the resolution fixing the record date is adopted by
the Board. The date shall not be more than sixty (60) days before the payment of
the share dividend or distribution or allotment of a right or other action. If a
record date is not fixed, the record date shall be the close of business on the
day on which the resolution of the Board of Directors relating to the corporate
action is adopted.
Section 11. Inspectors of Election. The Board of Directors may appoint one or
more inspectors of election to act at the meeting or any adjournment thereof. If
inspectors are not so appointed, the person presiding at a shareholders' meeting
may, and on request of a shareholder entitled to vote thereat shall, appoint one
or more inspectors. The inspectors shall determine the number of shares
outstanding and the voting power of each, the shares represented at the meeting,
the existence of a quorum, the validity and effect of proxies, and shall receive
votes, ballots or consents, hear and determine challenges and questions arising
in connection with the right to vote, count and tabulate votes, ballots or
consents, determine the result, and do such acts as are proper to conduct the
election or vote with fairness to all shareholders. On request of the person
presiding at the meeting or a shareholder entitled to vote thereat, the
inspectors shall make and execute a written report to the person presiding at
the meeting of any of the facts found by them and matters determined by them.
The report is prima facie evidence of the facts stated and of the vote as
certified by the inspectors.
ARTICLE IV
Directors
Section 1. Number and Powers of Directors. The business and affairs of the
corporation shall be managed by a Board of Directors consisting of 10 Directors
who shall be elected by the shareholders. The Directors shall be elected at the
annual meeting of the shareholders, as detailed hereinafter, and each Director
shall serve until his successor shall have been elected and qualified. When
acting as such, the Board of Directors may exercise all powers and do all such
lawful acts and things (including, without limitation, the making of such
adjustments in the number of Directors in any Director class or classes that may
be determined by the Board to be necessary or appropriate in light of an
increase or decrease in the total number of Directors specified in these bylaws)
as are not by statute or by the Articles of Incorporation or these bylaws
directed or required to be exercised or done by the shareholders.
Section 2. Classification and Term of Office. The Directors shall be severally
classified with the respect to the time for which they shall hold office by
dividing them into three classifications, with the number of Directors in each
class being as nearly equal as possible to the number of directors in each other
class.
27
Section 3. Regular Meetings of Board. Regular meetings of the Directors shall be
held immediately after the adjournment of each annual shareholders' meeting and
may be held at such time and at such place as shall from time to time be
determined by the Board.
Section 4. Special Meetings of Board. Special meetings of the Board of Directors
may be called by the Chairman, and, in his absence, by the President or any four
members of the Board of Directors. By unanimous consent of the Directors,
special meetings of the Board may be held without notice, at any time and place.
The presence of a Director at a meeting shall constitute a Waiver of Notice
except where the Director attends solely to protest the legality of the meeting.
Section 5. Notice. Notice of all regular and special meetings, except those
specified in the second sentence of Section 4 or in Section 7 of this article,
shall be delivered in person, mailed, e-mailed, faxed, or sent by telegram to
each Director, by the Secretary, at least one day previous to the time fixed for
the meetings. All notices of special meetings shall state the purposes thereof.
Section 6. Quorum and Required Vote. A majority of the Directors shall
constitute a quorum for the transaction of business unless a greater number is
required by law or by the Articles of Incorporation. The act of a majority of
the Directors present at any meeting at which a quorum is present shall be the
act of the Board of Directors, unless the act of a greater number is required by
statute, these bylaws, or by the Articles of Incorporation. If a quorum shall
not be present at any meeting of Directors, the Directors present thereat may
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum shall be present.
Section 7. Annual Meeting; Election of Officers. The Directors shall elect
officers of the corporation, and fix their salaries; such elections to be held
at the Directors' meeting following each annual shareholders' meeting. No notice
of such meeting shall be necessary to any newly elected Director in order to
legally constitute the meeting, provided a quorum shall be present. The Board of
Directors also may elect other officers, and fix the salaries of such officers,
at other times and from time to time as the Board may deem necessary or
appropriate for transaction of the business of the corporation. Any officer may
be removed at any time by a two-thirds vote of the full Board of Directors.
Section 8. Vacancies. All vacancies occurring in the Board of Directors, whether
caused by resignation, death or otherwise, may be filled by the affirmative vote
of two-thirds of the remaining Directors though less than a quorum of the Board
of Directors. A Director elected to fill a vacancy shall be elected for the
unexpired portion of the term of his predecessor in office.
28
Section 9. Directors' Report. At each annual shareholders' meeting the Directors
shall submit a statement of the business done during the preceding year,
together with a report of the general financial condition of the corporation,
and of the condition of its tangible property.
Section 10. Committees of Directors. The Board of Directors may, by resolution
passed by a majority of the whole Board, designate one or more committees, each
committee to consist of one or more of the Directors of the corporation. Any
such committee, to the extent provided in the resolution of the Board of
Directors, or in these bylaws, shall have and may exercise all of the power and
authority of the Board of Directors in the management of the business and
affairs of the corporation, but no such committee shall have the power or
authority in reference to amending the Articles of Incorporation, adopting an
agreement of merger or consolidation, recommending to shareholders the sale,
lease, or exchange of all or substantially all of the corporation's property and
assets, recommending to the shareholders the dissolution of the corporation or
revocation of a dissolution, amending the bylaws of the corporation, or filling
vacancies in the Board, and unless a resolution of the Board of Directors, the
Articles of Incorporation or the bylaws expressly so provides, no such committee
shall have the power or authority to declare a distribution, dividend, or to
authorize the issuance of stock.
Section 11. Compensation of Directors. The Board of Directors, by the
affirmative vote of a majority of the Directors then in office, and irrespective
of any personal interest of any of them, shall have authority to fix the
compensation of all Directors for services to the corporation as directors,
officers, or otherwise.
Section 12. Action by Written Consent. Unless otherwise restricted by the
Articles of Incorporation or these Bylaws, any action required or permitted to
be taken at any meeting of the Board of Directors or of any Committee thereof
may be taken without a meeting, if all members of the Board or Committee, as the
case may be, consent thereto in writing, and the writing or writings are filed
with the minutes or proceedings of the Board or Committee.
Section 13. Participation in Meeting by Telephone. By oral or written permission
of a majority of the Board of Directors, a member of the Board of Directors or
of a Committee designated by the Board may participate in a meeting by means of
conference telephone or similar communications equipment through which all
persons participating in the meeting can communicate with the other
participants. Participation in a meeting pursuant to this Section constitutes
presence in person at the meeting.
29
Section 14. Nomination of Director Candidates. Nomination of candidates for
election as Directors of the Corporation at any meeting of shareholders called
for election of Directors (an "Election Meeting") may be made by the Board of
Directors or by any shareholder entitled to vote at such Election Meeting but
only in accordance with the procedure outlined herein.
(a) Procedure for Nominations by the Board of Directors. Nominations
made by the Board of Directors shall be made at a meeting of the
Board of Directors, or by written consent of Directors in lieu of a
meeting, not less than 30 days prior to the date of the Election
Meeting, and such nominations shall be reflected in the minute
books of the corporation as of the date made. At the request of the
Secretary of the corporation each proposed nominee shall provide
the corporation with such information concerning himself or herself
as is required, under the rules of the Securities and Exchange
Commission, to be included in the corporation's proxy statement
soliciting proxies for his or her election as a director.
(b) Procedure for Nominations by Shareholders. Not less than 90 days
prior to the first anniversary of the preceding year's annual
meeting any shareholder who intends to make a nomination at the
Election Meeting shall deliver a notice to the Secretary of the
Corporation setting forth (i) the name, age, business address and
residence of each nominee proposed in each such notice, (ii) the
principal occupation or employment of each such nominee, (iii) the
number of shares of capital stock of the Corporation which are
beneficially owned by each such nominee and (iv) such other
information concerning each such nominee as would be required,
under the rules of the Securities and Exchange Commission, in a
proxy statement soliciting proxies for the election of such
nominee.
(c) Determination of Compliance with Procedures. If the Chairman of
the Election Meeting determines that a nomination was not in
accordance with the foregoing procedures, such nomination shall be
void.
ARTICLE V
Officers
Section 1. In General. The officers of this corporation shall include a Chairman
of the Board, a President, a Secretary and a Treasurer, and may include a Vice
Chairman of the Board, one or more Vice Presidents, Senior Vice Presidents or
Executive Vice Presidents and such Assistant Secretaries and Treasurers or other
officers as shall seem necessary or appropriate to the Board of Directors from
time to time. None of said officers, except the Chairman of the Board, the
President, and the Vice Chairman of the Board, need be a Director. Any of the
aforementioned offices, except those of Chairman of the Board and President, of
Chairman of the Board and Vice-Chairman of the Board, of President and
Vice-President or Executive Vice President, of Treasurer and Assistant
Treasurer, or of Secretary and Assistant Secretary, may be held by the same
person, but no officer shall execute, acknowledge, or verify any instrument or
document in more than one capacity. As and whenever it determines the same to be
appropriate, the Board of Directors may designate the President, an Executive
Vice President, a Vice President, or the Treasurer as the Chief Financial
Officer of the corporation, and any such officer so designated (while he
continues to hold the office held at the time of such designation and until such
designation is revoked or a different officer is so designated by the Board of
Directors) may identify himself and execute instruments and other documents
using the title of Chief Financial Officer.
30
Section 2. Chairman of the Board. The Chairman of the Board shall be selected
by, and from among the membership of, the Board of Directors. Except as
otherwise indicated in these bylaws, the Chairman of the Board shall preside at
all meetings of the shareholders and of the Board of Directors and of any Board
committee at which he is in attendance. He shall serve as principal adviser with
respect to all sales and marketing activities of the corporation and its
subsidiaries, shall sign stock certificates as provided in Section 1 of Article
II of these bylaws and shall perform such other duties and functions as shall be
assigned to him from time to time by the Board of Directors. Except where by law
the signature of the President of the corporation is required, the Chairman of
the Board shall possess the same power and authority as the President to sign
all certificates, contracts, instruments, papers, and documents of every
conceivable kind and character whatsoever, in the name of and on behalf of the
corporation, as may be authorized by the Board of Directors. During the absence
or disability of the President, the Chairman of the Board shall exercise all of
the powers and discharge all of the duties of the President. In case of the
absence or the disability of the Chairman of the Board, his duties shall be
performed by the President, and in case of the President's absence, by the Vice
Chairman of the Board or, with respect to a shareholder meeting, by such Vice
President or Executive Vice President as the Board of Directors may designate.
Section 3. Vice Chairman of the Board. If the Board of Directors elects a Vice
Chairman of the Board, he shall be selected from the membership of the Board of
Directors. During the absence or disability of both the Chairman of the Board
and the President, or while both such offices are vacant, he shall preside at
all meetings of the Board of Directors and of any Board committee at which he is
in attendance. During the absence or disability of both the President and the
Chairman of the Board, or while both such offices are vacant for any reason, the
Vice Chairman of the Board shall have and may exercise any and all of the powers
and duties of the President and of the Chairman of the Board. At all other times
the Vice Chairman of the Board shall be responsible to the Chairman of the Board
and through him (or during the absence or disability of the Chairman of the
Board or while that office is vacant for any reason, directly) to the Board of
Directors for the exercise, performance, and discharge of such powers, duties,
and responsibilities as the Chairman of the Board or the Board of Directors
shall see fit to vest in or delegate to him or which are vested in or imposed
upon him by the bylaws.
Section 4. President and Chief Executive Officer. The President shall be
selected by, and from among the membership of, the Board of Directors. The
President shall be (and may identify himself and execute instruments and other
documents using the title of) the Chief Executive Officer of the corporation and
shall, in general, supervise and manage the business affairs of the corporation,
including, but not limited to, by discharging any and all duties normally and
customarily incident to the office of President and Chief Executive Officer of a
corporation and such other duties and functions as shall be assigned to him from
time to time by the Board of Directors. During the absence or disability of the
Chairman of the Board, or while such office is vacant, the President shall
perform all duties and functions, and while so acting shall have all of the
powers and authority, of the Chairman of the Board.
Section 5. Vice Presidents. The Board of Directors may elect or appoint one or
more Vice Presidents and may designate one or more Vice Presidents as Executive
Vice Presidents. Unless the Board of Directors shall otherwise provide by
resolution duly adopted by it, or as otherwise provided in these bylaws, such of
the Vice Presidents as shall have been designated Executive Vice Presidents and
who are members of the Board of Directors in the order specified by the Board of
Directors shall perform the duties and exercise the powers of the President
during the absence or disability of the President if the office of the Chairman
of the Board is vacant. The Vice Presidents shall perform such other duties as
may be delegated to them by the Board of Directors, the Chairman of the Board or
the President.
Section 6. Secretary and Assistant Secretaries. The Secretary shall issue
notices of all Directors' and shareholders' meeting, and shall attend and keep
the minutes of the same; shall have charge of all corporation books, records and
papers; shall be custodian of the corporate seal, all stock certificates and
written contracts of the corporation; and shall perform all such other duties as
are incident to his office. The Secretary shall also perform such duties as are
assigned to him from time to time by the Board of Directors. The Assistant
Secretary or Assistant Secretaries, in the absence or disability of the
Secretary, shall perform the duties and exercise the powers of the Secretary.
31
Section 7. Treasurer and Assistant Treasurers. The Treasurer shall have custody
of all corporate funds and securities and shall keep in books belonging to the
corporation full and accurate accounts of all receipts and disbursements; he
shall deposit all moneys, securities and other valuable effects in the name of
the corporation in such depositories as may be designated for that purpose by
the Board of Directors. He shall disburse the funds of the corporation as may be
ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the Chairman of the Board, the President, and
the Board of Directors whenever requested by them an account of all his
transactions as Treasurer. If required by the Board of Directors, he shall keep
in force a bond, in form, amount and with a surety or sureties satisfactory to
the Board of Directors, conditioned for faithful performance of the duties of
his office, and for restoration to the corporation in case of his death,
resignation, retirement or removal from office, of all books, papers, vouchers,
money and property of whatever kind in his possession or under his control
belonging to the corporation. He shall perform such other duties as may be
delegated to him by the Board of Directors or the President. The Assistant
Treasurer or Assistant Treasurers, in the absence or disability of the
Treasurer, shall perform the duties and exercise the powers of the Treasurer. If
required by the Board of Directors, any Assistant Treasurer also shall keep in
force a bond as provided in this Section.
Section 8. Indemnification of Directors, Officers and Others. Pursuant to the
provisions of Article XI of the Articles of Incorporation of the corporation,
the corporation shall indemnify any of its Directors and officers and may
indemnify any of its employees and agents (in each case including such person's
heirs, executors, administrators and legal representatives) in accordance with
the following provisions of this bylaw:
A.Indemnification of Directors and Officers: Claims by Third Parties. The
corporation shall, to the fullest extent authorized or permitted by the
Michigan Business Corporation Act, as amended (the "Act") or other
applicable law, as the same presently exist or may hereafter be amended,
but, in the case of any such amendment, only to the extent such amendment
permits the corporation to provide broader indemnification rights than
before such amendment, indemnify a Director or officer (an "Indemnitee")
who was or is a party or is threatened to be made a party to a
threatened, pending, or completed action, suit, or proceeding, whether
civil, criminal, administrative, or investigative and whether formal or
informal, other than an action by or in the right of the corporation, by
reason of the fact that he or she is or was a Director, officer, employee
or agent of the corporation, or is or was serving at the request of the
corporation as a Director, officer, partner, trustee, employee, or agent
of another foreign or domestic corporation, partnership, joint venture,
trust, or other enterprise, whether for profit or not, against expenses,
including attorneys' fees, judgments, penalties, fines, and amounts paid
in settlement actually and reasonably incurred by him or her in
connection with the action, suit, or proceeding, if the Indemnitee acted
in good faith and in a manner he or she reasonably believed to be in or
not opposed to the best interests of the corporation or its shareholders,
and with respect to a criminal action or proceeding, if the Indemnitee
had no reasonable cause to believe his or her conduct was unlawful. The
termination of an action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its
equivalent, does not, of itself, create a presumption that the Indemnitee
did not act in good faith and in a manner which he or she reasonably
believed to be in or not opposed to the best interests of the corporation
or its shareholders, and, with respect to a criminal action or
proceeding, had reasonable cause to believe that his or her conduct was
unlawful.
32
B.Indemnification of Directors and Officers: Claims Brought by or in the
Right of the Corporation. The corporation shall, to the fullest extent
authorized or permitted by the Act or other applicable law, as the same
presently exist or may hereafter be amended, but, in the case of any such
amendment, only to the extent such amendment permits the corporation to
provide broader indemnification rights than before such amendment,
indemnify an Indemnitee who was or is a party or is threatened to be made
a party to a threatened, pending, or completed action or suit by or in
the right of the corporation to procure a judgment in its favor by reason
of the fact that he or she is or was a Director, officer, employee or
agent of the corporation, or is or was serving at the request of the
corporation as a Director, officer, partner, trustee, employee, or agent
of another foreign or domestic corporation, partnership, joint venture,
trust, or other enterprise, whether for profit or not, against expenses,
including attorneys' fees, and amounts paid in settlement actually and
reasonably incurred by the Indemnitee in connection with the action or
suit, if the Indemnitee acted in good faith and in a manner the
Indemnitee reasonably believed to be in or not opposed to the best
interests of the corporation or its shareholders. However,
indemnification shall not be made under this Section B for a claim,
issue, or matter in which the Indemnitee has been found liable to the
corporation unless and only to the extent that the Court in which the
action or suit was brought has determined upon application that, despite
the adjudication of liability but in view of all circumstances of the
case, the Indemnitee is fairly and reasonably entitled to indemnification
for the expenses which the Court considers proper.
C.Actions Brought by the Indemnitee. Notwithstanding the provisions of
Subsections A and B of this Section 8, the corporation shall not be
required to indemnify an Indemnitee in connection with an action, suit,
proceeding or claim (or part thereof) brought or made by such Indemnitee,
unless such action, suit, proceeding or claim (or part thereof): (i) was
authorized by the Board of Directors of the corporation; or (ii) was
brought or made to enforce this Section 8 and the Indemnitee has been
successful in such action, suit, proceeding or claim (or part thereof).
D.Approval of Indemnification. An indemnification under Subsections A or B
of this Section 8, unless ordered by the court, shall be made by the
corporation only as authorized in the specific case upon a determination
that indemnification of the Indemnitee is proper in the circumstances
because such Indemnitee has met the applicable standard of conduct set
forth in Subsections A or B of this Section 8, as the case may be, and
upon an evaluation of the reasonableness of expenses and amounts paid in
settlement. This determination and evaluation shall be made in any of the
following ways:
(a) By a majority vote of a quorum of the Board of Directors consisting
of Directors who are not parties or threatened to be made parties to
the action, suit, or proceeding.
(b) If a quorum cannot be obtained in subsection (a), then by majority
vote of a committee of Directors who are not parties to the action.
The committees shall consist of not less than three (3)
disinterested Directors.
(c) By independent legal counsel in a written opinion.
(d) By the shareholders.
E.Advancement of Expenses. The corporation may pay or reimburse the
reasonable expenses incurred by an Indemnitee who is a party or
threatened to be made a party to an action, suit, or proceeding in
advance of final disposition of the proceeding if all of the following
apply:
(a) The Indemnitee furnishes the corporation a written affirmation of
his or her good faith belief that he or she has met the applicable
standard of conduct set forth in Subsections A and B above.
(b) The Indemnitee furnishes the corporation a written undertaking,
executed personally or on his or her behalf, to repay the advance if
it is ultimately determined that he or she did not meet the standard
of conduct.
(c) A determination is made that the facts then known to those making
the determination would not preclude indemnification under the Act.
33
The undertaking required by subsection (b) must be an unlimited general
obligation of the Indemnitee but need not be secured. Determinations of
payments under this Section shall be made in the manner specified in
Subsection D above.
F.Partial Indemnification. If an Indemnitee is entitled to indemnification
under Subsections A or B of this Section 8 for a portion of expenses,
including reasonable attorneys' fees, judgments, penalties, fines, and
amounts paid in settlement, but not for the total amount, the corporation
shall indemnify the Indemnitee for the portion of the expenses,
judgments, penalties, fines, or amounts paid in settlement for which the
Indemnitee is entitled to be indemnified.
G.Indemnification of Employees and Agents. Any person who is not covered
by the foregoing provisions of this Section 8 and who is or was an
employee or agent of the corporation, or is or was serving at the request
of the corporation as a Director, officer, partner, trustee, employee or
agent of another foreign or domestic corporation, partnership, joint
venture, trust or other enterprise, whether for profit or not, may be
indemnified to the fullest extent authorized or permitted by the Act or
other applicable law, as the same exists or may hereafter be amended,
but, in the case of any such amendment, only to the extent such amendment
permits the corporation to provide broader indemnification rights than
before such amendment, but in any event only to the extent authorized at
any time or from time to time by the Board of Directors.
H.Other Rights of Indemnification. The indemnification or advancement of
expenses provided under Subsections A through G of this Section 8 is not
exclusive of other rights to which a person seeking indemnification or
advancement of expenses may be entitled under the articles of
incorporation, bylaws, or a contractual agreement. The total amount of
expenses advanced or indemnified from all sources combined shall not
exceed the amount of actual expenses incurred by the person seeking
indemnification or advancement of expenses. The indemnification provided
for in Subsections A through G of this Section 8 continues as to a person
who ceases to be a Director, officer, employee, or agent and shall inure
to the benefit of the heirs, executors, and administrators of the person.
I.Definitions. "Other enterprises" shall include employee benefit plans;
"fines" shall include any excise taxes assessed on a person with respect
to an employee benefit plan; and "serving at the request of the corpor-
ation" shall include any service as a Director, officer, employee, or
agent of the corporation which imposes duties on, or involves services
by, the Director, officer, employee or agent with respect to an employee
benefit plan, its participants or its beneficiaries; and a person who
acted in good faith and in a manner he or she reasonably believed to be
in the interest of the participants and beneficiaries of an employee
benefit plan shall be considered to have acted in a manner "not opposed
to the best interests of the corporation or its shareholders" as
referred to in Subsections A and B of this Section 8.
34
J.Liability Insurance. The corporation shall have the power to purchase
and maintain insurance on behalf of any person who is or was a Director,
officer, employee or agent of the corporation or is or was serving at the
request of the corporation as a Director, officer, partner, trustee,
employee or agent of another corporation, partnership, joint venture,
trust, or other enterprise, whether for profit or not, against any
liability asserted against him or her and incurred by him or her in any
such capacity or arising out of his or her status as such, whether or not
the corporation would have power to indemnify him or her against
liability under the pertinent provisions of the Act.
K.Enforcement. If a claim under this Section 8 is not paid in full by the
corporation within thirty (30) days after a written claim has been
received by the corporation, the claimant may at any time thereafter
bring suit against the corporation to recover the unpaid amount of the
claim, and, if successful in whole or in part, the claimant shall be
entitled to be paid also the expense of prosecuting such claim. It shall
be a defense to any such action (other than an action brought to enforce
a claim for expenses incurred in defending any proceeding in advance of
its final disposition where the required undertaking, if any is required,
has been tendered to the corporation) that the claimant has not met the
standards of conduct which make it permissible under the Act for the
corporation to indemnify the claimant for the amount claimed, but the
burden of proving such defense shall be on the corporation. Neither the
failure of the corporation (including its Board of Directors, a committee
thereof, independent legal counsel, or its shareholders) to have made a
determination prior to the commencement of such action that
indemnification of the claimant is proper in the circumstances because
such claimant has met the applicable standard of conduct set forth in the
Act nor an actual determination by the corporation (including its Board
of Directors, a committee thereof, independent legal counsel or its
shareholders) that the claimant has not met such applicable standard of
conduct, shall be a defense to the action or create a presumption that
the claimant has not met the applicable standard of conduct.
L.Contract With the Corporation. The right to indemnification conferred in
this Section 8 shall be deemed to be a contract right between the
corporation and each Director or officer who serves in any such capacity
at any time while this Section 8 is in effect, and any repeal or
modification of this Section 8 shall not affect any rights or obligations
then existing with respect to any state of facts then or theretofore
existing or any action, suit or proceeding theretofore or thereafter
brought or threatened based in whole or in part upon any such state of
facts.
M.Application to a Resulting or Surviving Corporation or Constituent
Corporation. The definition for "corporation" found in Section 569 of
the Act, as the same exists or may hereafter be amended is, and shall
be, specifically excluded from application to this Section 8. The
indemnification and other obligations set forth in this Section 8 of the
corporation shall be binding upon any resulting or surviving corporation
after any merger or consolidation with the corporation. Notwithstanding
anything to the contrary contained herein or in Section 569 of the Act,
no person shall be entitled to the indemnification and other rights set
forth in this Section 8 for acting as a Director or officer of another
corporation prior to such other corporation entering into a merger or
consolidation with the corporation.
N.Severability. Each and every paragraph, sentence, term and provision of
this Section 8 shall be considered severable in that, in the event a
court finds any paragraph, sentence, term or provision to be invalid or
unenforceable, the validity and enforceability, operation, or effect of
the remaining paragraphs, sentences, terms, or provisions shall not be
affected, and this Section 8 shall be construed in all respects as if
the invalid or unenforceable matter had been omitted.
35
ARTICLE VI
Dividends and Finance
Section 1. Dividends. Dividends, to be paid out of the surplus earnings of the
corporation, or as otherwise permitted in accordance with the provisions of the
governing statute, may be declared from time to time by resolution of the Board
of Directors; but no dividend shall be paid that will impair the capital of the
corporation. Dividends may be paid in cash, in property or in shares of the
capital stock, subject to any provisions of the governing statute or the
Articles of Incorporation.
Section 2. Deposits. The funds of the corporation shall be deposited in such
banks or trust companies as the Directors shall designate and shall be withdrawn
only upon checks issued and signed in accordance with regulations adopted by the
Board of Directors.
Section 3. Checks. All checks, drafts and orders for the payment of money shall
be signed in the name of the corporation in such manner and by such officer or
officers or such other person or persons as the Board of Directors shall from
time to time designate for that purpose.
ARTICLE VII
Fiscal Year
Section 1. The fiscal year of this corporation shall end on the last Saturday of
April each year. The fiscal year may be changed by the Board of Directors by
resolution of the Board of Directors.
ARTICLE VIII
Amendments
These bylaws may be altered, amended or repealed in whole or in part and new
bylaws may be adopted either:
(a) By the affirmative vote of the holders of record of not less than 67%
of the outstanding stock of the Corporation entitled to vote in
elections of Directors; or
(b) By the affirmative vote of a majority of the Board of Directors at any
meeting of the Board, or by written consent signed by all members of
the Board of Directors; provided, however, no such alteration,
amendment or repeal of Article VIII (a) of these bylaws shall be made
by the Board of Directors or be effective unless such alteration,
amendment or repeal shall be first approved by the affirmative vote of
the holders of record of not less than 67% of the outstanding stock of
the corporation entitled to vote in elections of Directors.
ARTICLE IX
General Provisions
Section 1. Distributions in Cash or Property. The Board of Directors may
authorize and the corporation may make distributions to its shareholders subject
to restriction by the Articles of Incorporation and/or unless otherwise limited
by the Articles of Incorporation, these bylaws or the Act.
Section 2. Reserves. The Board of Directors shall have power and authority to
set apart such reserve or reserves, for any proper purpose, as the Board in its
discretion shall approve, and the Board shall have the power and authority to
abolish any reserve created by the Board.
36
Section 3. Voting Securities. Unless otherwise directed by the Board of
Directors, the President or in the case of his absence or inability to act, the
Chairman of the Board or the Vice Chairman of the Board, or in the case of their
absence or inability to act, the Vice Presidents, including Executive Vice
Presidents, in order of their seniority, shall have full power and authority on
behalf of the corporation to attend and to act and to vote, or to execute in the
name or on behalf of the corporation a consent in writing in lieu of a meeting
of shareholders or a proxy authorizing an agent or attorney-in-fact for the
corporation to attend and vote at any meetings of security holders of
corporations in which the corporation may hold securities, and at such meetings
he or his duly authorized agent or attorney-in-fact shall possess and may
exercise on behalf of the corporation any and all rights and powers incident to
the ownership of such securities and which, as the owner thereof, the
corporation might have possessed and exercised if present. The Board of
Directors by resolution from time to time may confer like power upon any other
person or persons.
Section 4. Contracts, Conveyances, Etc. When the execution of any contract,
conveyance or other instrument has been authorized without specification of the
executing officers, the Chairman of the Board, the Vice Chairman of the Board,
the President or any Vice President, and the Secretary or any Assistant
Secretary, may execute the same in the name and on behalf of this corporation
and may affix the corporate seal thereto. The Board of Directors shall have
power to designate the officers and agents who shall have authority to execute
any instrument in behalf of the corporation.
Section 5. Corporate Books and Records. The corporation shall keep books and
records of account and minutes of the proceedings of its shareholders, Board of
Directors and executive committees, if any. The corporation shall keep at its
registered office, or at the office of its transfer agent in or outside the
State of Michigan, records containing the names and addresses of all
shareholders, the number, class and series of shares held by each and the dates
when they respectively became holders of record. Any of the books, records or
minutes may be in written form or in any other form capable of being converted
into written form within a reasonable time. The corporation shall convert into
written form without charge any record not in written form, unless otherwise
requested by a person entitled to inspect the records.
Section 6. Seal. The seal of the corporation shall have inscribed thereon the
name of the corporation and the words "Corporate Seal" and "Michigan." The seal
may be used by causing it or a facsimile to be affixed, impressed or reproduced
in any other manner.
37
EXHIBIT 13
Financial Report
Report of Management Responsibilities
La-Z-Boy Incorporated
The management of La-Z-Boy Incorporated is responsible for the preparation
of the accompanying consolidated financial statements, related financial data
and all other information included in the following pages. These financial
statements have been prepared in accordance with accounting principles generally
accepted in the United States of America and include amounts based on
management's estimates and judgements where appropriate.
Management is further responsible for maintaining the adequacy and
effectiveness of established internal controls. These controls provide
reasonable assurance that the assets of La-Z-Boy Incorporated are safeguarded
and that transactions are executed in accordance with management's authorization
and are recorded properly for the preparation of financial statements. The
internal control system is supported by written policies and procedures, the
careful selection and training of qualified personnel and a program of internal
auditing.
The accompanying report of the Company's independent accountants states
their opinion on the Company's consolidated financial statements, based on
audits conducted in accordance with auditing standards generally accepted in the
United States of America. The Board of Directors, through its Audit Committee
composed exclusively of outside directors, is responsible for reviewing and
monitoring the financial statements and accounting practices. The Audit
Committee meets periodically with the internal auditors, management and the
independent accountants to ensure that each is meeting its responsibilities. The
Audit Committee and the independent accountants have free access to each other
with or without management being present.
Gerald L. Kiser
President and Chief Operating Officer
David M. Risley
Chief Financial Officer
Report of Independent Accountants
To the Board of Directors and Shareholders of La-Z-Boy Incorporated:
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income, of cash flows and of changes in shareholders'
equity, including pages 39-50,present fairly, in all material respects, the
financial position of La-Z-Boy Incorporated and its subsidiaries at April 28,
2001 and April 29, 2000, and the results of their operations and their cash
flows for each of the three fiscal years in the period ended April 28, 2001, in
conformity with accounting principles generally accepted in the United States of
America. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with auditing standards generally accepted in the United States of
America, which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
Toledo, Ohio
May 30, 2001
38
Consolidated Balance Sheet
(Amounts in thousands) As of 4/28/01 4/29/00
- -------------------------------------------------------------------------------
Assets
- ------
Current assets
Cash and equivalents........................... $23,565 $14,353
Receivables, less allowance of $30,546 in
2001 and $25,474 in 2000.................... 380,867 394,453
Inventories
Raw materials............................... 90,381 91,018
Work-in-progress............................ 62,465 63,635
Finished goods.............................. 115,425 98,623
----------- -----------
FIFO inventories.......................... 268,271 253,276
Excess of FIFO over LIFO.................. (10,384) (7,473)
----------- -----------
Total inventories...................... 257,887 245,803
Deferred income taxes.......................... 26,168 22,374
Other current assets........................... 20,289 15,386
----------- -----------
Total current assets.................. 708,776 692,369
Property, plant and equipment
Buildings and building fixtures................ 199,473 189,588
Machinery and equipment........................ 177,851 162,485
Information systems............................ 31,308 27,836
Land and land improvements..................... 25,490 25,173
Transportation equipment....................... 17,909 17,454
Network and production tracking systems........ 6,053 6,080
Other.......................................... 24,284 22,755
----------- -----------
482,368 451,371
Less: accumulated depreciation............. 252,027 223,488
----------- -----------
Property, plant and equipment, net...... 230,341 227,883
Goodwill, less accumulated amortization
of $21,810 in 2001 and $17,360 in 2000......... 112,755 116,668
Trade names, less accumulated amortization of
$5,792 in 2001 and $1,052 in 2000.............. 134,667 135,340
Other long-term assets, less allowance of
$6,404 in 2001 and $6,747 in 2000.............. 35,964 46,037
----------- -----------
Total assets............................ $1,222,503 $1,218,297
=========== ===========
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
39
Consolidated Balance Sheet
(Amounts in thousands, except par value) As of 4/28/01 4/29/00
- -------------------------------------------------------------------------------
Liabilities and shareholders' equity
- ------------------------------------
Current liabilities
Lines of credit..................................... $10,380 $8,000
Current portion of long-term debt................... 5,304 5,119
Current portion of capital leases................... 541 457
Accounts payable.................................... 92,830 90,392
Payroll and other compensation...................... 78,550 74,724
Income taxes........................................ 11,490 5,002
Other current liabilities........................... 50,820 53,312
----------- ----------
Total current liabilities........................ 249,915 237,006
Long-term debt......................................... 196,923 233,938
Capital leases......................................... 2,496 2,156
Deferred income taxes.................................. 45,709 50,280
Other long-term liabilities............................ 32,314 31,825
Contingencies and commitments (Note 12)................
Shareholders' equity
Preferred shares-5,000 authorized; none issued...... -- --
Common shares, $1 par value-150,000 authorized;
60,501 outstanding in 2001 and 61,328
outstanding in 2000.............................. 60,501 61,328
Capital in excess of par value...................... 210,924 211,450
Retained earnings................................... 427,616 392,458
Accumulated other comprehensive loss................ (3,895) (2,144)
----------- ----------
Total shareholders' equity.................... 695,146 663,092
----------- ----------
Total liabilities and shareholders' equity.. $1,222,503 $1,218,297
=========== ===========
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
40
Consolidated Statement of Income
(Amounts in thousands, 4/28/01 4/29/00 4/24/99
except per share data) Fiscal year ended (52 weeks) (53 weeks) (52 weeks)
- --------------------------------------------------------------------------------
Sales..................................... $2,256,197 $1,782,916 $1,339,962
Cost of sales............................. 1,753,000 1,350,561 997,975
---------- ----------- -----------
Gross profit........................... 503,197 432,355 341,987
Selling, general and administrative....... 382,403 289,507 235,228
---------- ----------- -----------
Operating profit....................... 120,794 142,848 106,759
Interest expense.......................... 17,960 9,655 4,440
Interest income........................... 1,779 1,976 2,181
Other income, net......................... 7,431 5,144 2,738
---------- ----------- -----------
Pretax income.......................... 112,044 140,313 107,238
Income tax expense (benefit)
Federal -current..................... 44,866 49,491 41,286
-deferred.................... (6,930) (3,288) (4,727)
State -current..................... 6,576 7,048 5,114
-deferred.................... (804) (552) (577)
---------- ----------- -----------
Total income tax expense.................. 43,708 52,699 41,096
---------- ----------- -----------
Net income............................. $68,336 $87,614 $66,142
========== ========= ==========
Basic average common shares............ 60,550 54,488 52,890
Basic net income per common share...... $1.13 $1.61 $1.25
Diluted weighted average common shares. 60,692 54,860 53,148
Diluted net income per common share.... $1.13 $1.60 $1.24
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
41
Consolidated Statement of Cash Flows
4/28/01 4/29/00 4/24/99
(Amounts in thousands) Fiscal year ended (52 weeks) (53 weeks) (52 weeks)
- -------------------------------------------------------------------------------------------------------
Cash flows from operating activities
Net income.................................................. $68,336 $87,614 $66,142
Adjustments to reconcile net income to
net cash provided by operating activities
Depreciation and amortization......................... 45,697 30,342 22,081
Change in receivables................................. 13,488 (42,595) (26,875)
Change in inventories................................. (3,159) (4,703) (4,607)
Change in payables.................................... 2,438 (4,356) 8,716
Change in other assets and liabilities................ (7,542) (2,075) 19,571
Change in deferred taxes.............................. (8,365) (5,797) (3,130)
Proceeds from insurance recovery...................... 5,116 -- --
--------- --------- --------
Total adjustments................................. 47,673 (29,184) 15,756
--------- --------- --------
Net cash provided by operating activities................. 116,009 58,430 81,898
Cash flows from investing activities
Proceeds from disposals of assets........................... 2,302 1,202 401
Capital expenditures........................................ (37,416) (37,968) (25,316)
Acquisition of operating divisions, net of cash acquired.... -- (57,952) --
Change in other long-term assets............................ (2,476) (9,681) (4,895)
--------- --------- --------
Net cash used for investing activities................ (37,590) (104,399) (29,810)
Cash flows from financing activities
Proceeds from debt.......................................... 87,380 175,622 --
Payment of debt............................................. (121,830) (110,319) (6,786)
Capital leases.............................................. 424 801 (1,199)
Stock issued for stock option & 401(k) plans................ 10,564 9,235 8,333
Repurchase of common stock.................................. (23,906) (31,046) (30,460)
Dividends paid.............................................. (21,189) (17,447) (16,417)
--------- --------- --------
Net cash provided by (used for) financing activities.. (68,557) 26,846 (46,529)
Effect of exchange rate changes on cash and equivalents........ (650) (74) (709)
--------- --------- --------
Net increase (decrease) in cash and equivalents................ 9,212 (19,197) 4,850
Cash and equivalents at beginning of the year.................. 14,353 33,550 28,700
--------- --------- --------
Cash and equivalents at end of the year........................ $23,565 $14,353 $33,550
========= ========= =========
Cash paid during the year
-Income taxes............................................... $57,383 $52,210 $44,842
-Interest................................................... $17,480 $7,128 $4,340
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
42
Consolidated Statement of Changes in Shareholders' Equity
Accumu-
Capital in lated other
Common excess of Retained Comprehen-
(Amounts in thousands) shares par value earnings sive loss Total
- --------------------------------------------------------------------------------------------------------------
At April 25, 1998............... $17,850 $29,262 $342,146 ($1,049) $388,209
Three-for-one stock split................. 35,700 (35,700) --
Repurchases of common stock............... (1,700) (28,760) (30,460)
Stock options/401(k)...................... 490 2,320 5,523 8,333
Dividends paid............................ (16,417) (16,417)
Comprehensive income
Net income............................. 66,142
Translation adjustment................. (892)
Total comprehensive income............. 65,250
-------- --------- --------- -------- ---------
At April 24, 1999............... 52,340 31,582 332,934 (1,941) 414,915
Repurchases of common stock................ (1,749) (29,297) (31,046)
Stock options/401(k)...................... 609 1,139 7,487 9,235
Stock issued for acquisition ............. 10,128 178,729 11,167 200,024
Dividends paid............................ (17,447) (17,447)
Comprehensive income
Net income............................. 87,614
Translation adjustment................. (203)
Total comprehensive income............. 87,411
-------- --------- --------- -------- ---------
At April 29, 2000............... 61,328 211,450 392,458 (2,144) 663,092
Repurchases of common stock............... (1,618) (22,288) (23,906)
Stock options/401(k)...................... 791 (526) 10,299 10,564
Dividends paid............................ (21,189) (21,189)
Comprehensive income
Net income............................. 68,336
Unrealized loss on marketable
securities, net of taxes............... (768)
Translation adjustment................. (983)
Total comprehensive income............. 66,585
-------- --------- --------- -------- ---------
At April 28, 2001............... $60,501 $210,924 $427,616 ($3,895) $695,146
======== ========= ========= ========= =========
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
43
Notes to Consolidated Financial Statements
Note 1: Accounting Policies
The following is a summary of significant accounting policies followed in
the preparation of these financial statements. Fiscal years 2001 and 1999
included 52 weeks, whereas fiscal year 2000 included 53 weeks.
Principles of Consolidation
The consolidated financial statements include the accounts of La-Z-Boy
Incorporated and its wholly owned subsidiaries, termed "the Company". All
significant intercompany transactions have been eliminated. Certain non-U.S.
subsidiaries are consolidated on a one-month lag.
Risks and Uncertainties
The consolidated financial statements are prepared in conformity with
accounting principles generally accepted in the U.S., which require management
to make estimates and assumptions that affect the reported amounts of assets,
liabilities, sales and expenses for the reporting periods. Actual results could
differ from those estimates.
Cash and Equivalents
For purposes of the consolidated statement of cash flows, the Company
considers all highly liquid debt instruments purchased with a maturity of three
months or less to be cash equivalents.
Inventories
Inventories are valued at the lower of cost or market. Cost is determined
on the last-in, first-out (LIFO) basis. Excess of first in, first out basis
(FIFO) over the LIFO basis at April 28, 2001 and April 29, 2000 includes $15
million and $17 million, respectively, for inventory written-up to fair value
for 2000 acquisitions. This purchase accounting adjustment reduces earnings in
periods that the related inventory is sold.
Property, Plant and Equipment
Items capitalized, including significant betterments to existing
facilities, are recorded at cost. Depreciation is computed using accelerated and
straight-line methods over the estimated useful lives of the assets.
Buildings, land improvements and building fixtures are depreciated over
periods of 15-30 years. Machinery and equipment are depreciated over a period of
10 years. Information systems are depreciated over periods of 2-5 years.
Transportation equipment is depreciated over 5 years. Network and production
tracking systems are depreciated over periods of 5-10 years.
Goodwill
The excess of the cost of operating companies acquired over the fair value
of their net assets is amortized on a straight-line basis over 30 years from the
date of acquisition. Goodwill is evaluated periodically for impairment.
Trade Names
Trade names are amortized on a straight-line basis over 30 years. Trade
names are evaluated periodically for impairment.
Revenue Recognition
Revenue is recognized upon shipment of product. 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. In accordance with
Emerging Issues Task Force consensus 00-10, related to accounting for freight
revenues, which became applicable in the fourth quarter of fiscal year 2001,
shipping and handling revenues are included in sales and associated expenses are
included in cost of goods sold. Prior period information has been reclassified
to reflect this change.
Income Taxes
Income taxes are provided on all applicable revenue and expense items
included in the consolidated statement of income, regardless of the period such
items are recognized for income tax purposes.
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
The Company uses interest rate swap agreements to manage interest rate
volatility. As interest rates change the differential to be paid or received
under the swap agreements is recognized in interest expense for the period. The
Company will adopt SFAS No. 133 "Accounting for Derivative Instruments and
Hedging Activities" in fiscal year 2002. This statement requires that all
derivatives be recognized on the balance sheet at fair value.
Reclassification
Certain prior year information has been reclassified to be comparable to
the current year presentation.
Note 2: Restructuring
In the fourth quarter of fiscal year 2001, the Company recorded a
restructuring charge of $11.2 million ($6.9 million after tax) as a result of
strategic decisions to rationalize production capacity to achieve more efficient
production utilization and exit certain unprofitable product lines. The $11.2
million charge, which is included in cost of sales, included fixed asset
writedowns of $4.0 million, severance and benefit related costs of $1.2 million,
44
inventory writedowns of $3.3 million and other restructuring related costs of
$2.7 million. Approximately 310 jobs in manufacturing and management will be
eliminated as these actions are phased in over the next fiscal year. At fiscal
year end, a liability of approximately $3.9 million remained on the consolidated
balance sheet to account for restructuring activities. This amount consists of
severance and benefit related costs of $1.2 million and other restructuring
related costs of $2.7 million.
Note 3: Acquisitions
On January 29, 2000, the Company acquired LADD Furniture, Inc., then a
publicly traded furniture manufacturer, in a stock-for-stock merger, at which
time LADD became a wholly owned subsidiary of the Company. The holders of LADD
stock received approximately 9.2 million shares of La-Z-Boy common stock in
consideration for their LADD shares. In addition, LADD employee stock options
then outstanding were replaced by about 1 million La-Z-Boy common stock options.
Total consideration, including acquisition costs, was $190 million. On December
28, 1999, the Company acquired all of the outstanding stock of Alexvale
Furniture, Inc., a manufacturer of medium-priced upholstered furniture, for a
combination of cash and La-Z-Boy common stock totaling $17 million. On June 1,
1999, the Company acquired Bauhaus USA, Inc., a manufacturer of upholstered
furniture primarily marketed to department stores, for $59 million, in a cash
transaction.
The above acquisitions have been accounted for as purchases. The acquired
companies are included in the Company's financial results immediately following
the acquisition dates. The excess of the aggregate purchase prices over the fair
value of the net identifiable assets acquired of $74 million has been recorded
as goodwill.
The following unaudited proforma financial information presents combined
results of operations of the above companies with the Company as if the
acquisitions had occurred as of the beginning of fiscal 1999. The proforma
financial information gives effect to certain adjustments resulting from the
acquisitions and related financing. The proforma financial information does not
necessarily reflect the results of operations that would have occurred had the
separate operations of each company constituted a single entity during such
periods.
Unaudited, year ended
---------------------
(Amounts in thousands, 4/28/01 4/29/00 4/24/99
except per share data) (52 weeks) (53 weeks) (52 weeks)
- -------------------------------------------------------------------
Sales.................... $2,256,197 $2,301,910 $2,107,938
Net income............... $68,336 $97,850 $80,221
Earnings per share....... $1.13 $1.60 $1.28
Note 4: Debt
Interest
(Amounts in thousands) Rates Maturity 4/28/01 4/29/00
- -------------------------------------------------------------------
Revolving credit
facility.................. 5.6% 2005 $130,000 $60,419
Industrial
revenue bonds............. 4.5% 2002-26 37,227 37,495
Private placement notes...... 6.5% 2008 35,000 35,000
Bridge loan facility......... 6.9% 2001 -- 105,703
Other debt................... -- 440
--------- ---------
Total debt........................... 202,227 239,057
Less: current portion ............ 5,304 5,119
--------- ---------
Long-term debt ........... $196,923 $233,938
========= =========
Weighted avg. interest rate ............ 5.5% 6.4%
========= =========
Fair value of debt.............. $202,850 $245,795
========= =========
On May 12, 2000, the Company entered into a $300 million unsecured
revolving credit facility with a group of banks and used the proceeds to retire
an unsecured $150 million bridge loan facility, which had been put into place to
finance the acquisition of LADD, and to retire a $75 million unsecured revolving
line of credit. The $300 million credit facility uses a performance based
interest rate grid with pricing ranging from LIBOR plus .475% to LIBOR plus
.800% based on the Company's consolidated debt to capital ratio and also
requires that certain covenants be met. The revolving credit facility expires on
May 12, 2005.
Industrial revenue bonds were used to finance the construction of
manufacturing facilities. The facilities constructed from the bond proceeds are
pledged as collateral for the bonds.
The Company has entered into several interest rate swap agreements with
counter-parties that are participants in the revolving credit facility to reduce
the impact of changes in interest rates on the floating rate debt. The Company
believes that potential credit loss from counter-party non-performance is
minimal. The purpose of these swaps is to fix interest rates on a notional
amount of $70 million for a three year period at 6.095% plus the applicable
borrowing spread under the revolving credit facility. The fair market value of
the swaps would require payment of $2 million at April 28, 2001 if the Company
were to terminate the agreement.
Maturities of long term debt, other than the revolving credit facility,
subsequent to April 28, 2001 are; $5 million in 2002, $0 million in 2003, $0
million in 2004, $4 million in 2005 and $0 million in 2006 and $63 million
thereafter. As of April 28, 2001, unused lines of credit and commitments
remained of $275 million under several credit arrangements.
45
Note 5: Leases
The Company has operating leases for manufacturing facilities, executive
and sales offices, warehousing and showrooms, as well as for equipment for
manufacturing, transportation and data processing. The operating leases expire
at various dates through 2026. Certain transportation leases contain a provision
for the payment of contingent rentals based on mileage in excess of stipulated
amounts. The Company leases additional transportation and other equipment under
capital leases expiring at various dates through 2009. The majority of these
capital leases include bargain purchase options.
Minimum lease payments under capital and operating leases for the five
years subsequent to April 28, 2001 are $12 million, $11 million, $10 million, $7
million and $4 million, respectively.
Note 6: Financial Guarantees
The Company has provided unsecured financial guarantees relating to loans
and leases in connection with certain La-Z-Boy Furniture Gallaries(R). The
amounts of the guarantees are shown in the following table. Because almost all
guarantees are expected to retire without being funded, the contract amounts are
not estimates of future cash flows.
(Contract amounts in thousands) 4/28/01 4/29/00
- ---------------------------------------------------------------
Loan Guarantees................... $20,034 $17,446
Lease Guarantees.................. $10,651 $11,213
The guarantees require the dealers to make periodic payments to the Company
in exchange for the guarantees. Terms of current guarantees generally range from
one to five years.
The guarantees have off-balance-sheet credit risk because only the periodic
payments and any accrual for probable loss are recognized until a guarantee
expires. Credit risk represents the accounting loss that would be recognized at
the reporting date if counter-parties failed to perform completely as
contracted. The credit risk amounts are equal to the contractual amounts,
assuming that the amounts are fully advanced and that no amounts could be
recovered from other parties.
Note 7: Stock Option Plans
Shareholders approved an employee Incentive Stock Option Plan that provides
grants to certain employees to purchase common shares of the Company at not less
than their fair market value at the date of grant. Outstanding options are for
five years and ten years and become exercisable at 25% per year beginning one
year from the date of grant. The plan originally authorized grants of options up
to 7,500,000 common shares for this plan.
Number Weighted avg.
of shares exercise price
-----------------------------------------------------------------
Outstanding at April 25, 1998..... 1,340,559 $10.87
Granted........................... 422,220 17.58
Exercised......................... (314,814) 9.86
Expired or cancelled.............. (43,779) 13.82
----------
Outstanding at April 24, 1999..... 1,404,186 $13.02
Granted........................... 1,423,822 17.33
Exercised......................... (351,919) 10.64
Expired or cancelled.............. (75,185) 17.87
----------
Outstanding at April 29, 2000..... 2,400,904 $15.65
Granted........................... 716,930 15.50
Exercised......................... (449,852) 10.84
Expired or cancelled.............. (139,697) 18.11
----------
Outstanding at April 28, 2001..... 2,528,285
==========
Exercisable at April 28, 2001..... 1,291,386 $15.10
Shares available for grants at
April 28, 2001................. 4,885,817
Weighted
Weighted remaining
Range of ex- Number of avg. exercise contractual
ercise prices shares price life
----------------------------------------------------------------
$9.12-$13.23 667,730 $10.14-$13.23 2.07
13.25-17.58 1,307,575 14.19-17.58 3.94
17.85-18.44 85,462 17.93 5.35
$23.75-$34.33 467,518 23.75-26.22 3.18
----------------------------------------------------------------
2,528,285 $16.33 3.35
Range of Stock options Weighted avg. ex-
exercise prices exercisable ercise price
----------------------------------------------------------------
$9.12-$13.23 594,025 $11.28
13.25-17.58 444,567 15.96
17.85-18.14 75,727 17.94
$23.75-$34.33 177,067 24.57
----------------------------------------------------------------
1,291,386 $15.10
The shareholders have also approved Restricted Share Plans. Under one plan,
a committee of the board of directors is authorized to offer for sale up to an
aggregate of 750,000 common shares to certain employees. Under a second plan, up
to an aggregate of 150,000 common shares are authorized for sale to non-employee
directors. Under the restricted share plans, shares are offered at 25% of the
fair market value at the date of grant. The plans require that all shares be
held in an escrow account for a period of three years in the case of an
46
employee, or until the participant's service as a director ceases in the case of
a director. In the event of an employee's or director's termination during the
escrow period, the shares must be sold back to the Company at the employee's
cost.
Common shares aggregating 8,700 were granted and issued during fiscal year
2001 and 3,600 were granted and issued during fiscal year 2000, under the
directors' plan. Common shares remaining for future grants under the directors'
plan amounted to 83,700 at April 28, 2001.
Common shares aggregating 68,750 and 47,625 were granted and issued during
fiscal years 2001 and 2000, respectively, under the employee Restricted Share
Plan. Common shares remaining for future grants under this plan amounted to
497,095 at April 28, 2001.
Shareholders have also approved a Performance-Based Restricted Stock Plan.
This plan authorized awards up to an aggregate of 1,200,000 common shares to key
employees. Grants of shares or short-term options to purchase shares are based
on achievement of goals over a three-year performance period. At April 28, 2001,
target awards were outstanding for which up to approximately 520,000 common
shares may be issued in fiscal years 2002 through 2004 based on three
outstanding target awards, depending on the extent to which certain performance
objectives are met. The cost of awards is expensed over the performance period.
In 2001, 98,460 common shares were issued for the three year period that ended
in 2000.
As permitted by Statement of Financial Accounting Standards (SFAS) No. 123,
"Accounting for Stock-Based Compensation," the Company has chosen to continue to
account for stock-based compensation using the intrinsic value method prescribed
in Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock
Issued to Employees," and related interpretations.
Had the Company elected to recognize compensation cost for stock options
based on the fair value method of accounting prescribed by SFAS No. 123, the
additional after tax expense relating to the stock options would have been $2.6
million in 2001, $1.8 million in 2000 and $0.7 million in 1999. Actual expense
relating to the stock options was $0.8 million in 2001, $1.5 million in 2000 and
$2.7 million in 1999.
Proforma net income and earnings per share would have been as follows (for
the fiscal years ended):
(Amounts in thousands, 4/28/01 4/29/00 4/24/99
except per share data) (52 weeks) (53 weeks) (52 weeks)
---------------------------------------------------------------
Net income................ $65,718 $85,832 $65,424
Basic net income per
share................. $1.09 $1.58 $1.24
Diluted net income per
share................. $1.08 $1.56 $1.23
The fair value of each option grant was estimated on the date of grant
using the Black-Scholes model with the following assumptions:
4/28/01 4/29/00 4/24/99
(52 weeks) (53 weeks) (52 weeks)
----------------------------------------------------------------
Risk free interest rate... 4.95% 6.6% 5.15%
Dividend rate............. 1.9% 2.0% 1.6%
Expected life in years.... 5.0 5.0 4.4
Stock price volatility.... 45% 41% 39%
Note 8: Retirement/Welfare
The Company has contributory and non-contributory retirement plans for
substantially all factory employees.
Eligible salaried employees are covered under a trusteed profit sharing
retirement plan. Discretionary cash contributions to a trust are made annually
based on profits.
The Company maintains certain Non-Qualified Deferred Compensation (NQDC)
plans for eligible highly compensated employees including those discussed below.
The Company has provided executive life insurance to certain highly
compensated employees. Such employees are not eligible for current contributions
to the profit sharing plan or the non-qualified deferred compensation plan.
A division of the Company maintains a non-qualified defined benefit
retirement plan for certain existing and former salaried employees. Included in
other long-term liabilities were plan obligations of $11.7 million in 2001 and
$10.6 million in 2000. Included in other long-term assets were $7.6 million in
2001 and $3.9 million in 2000 of available for sale marketable securities to
fund future obligations of this plan. This information is not included in the
obligation charts.
Also, voluntary 401(k) retirement plans are offered to eligible employees
within certain U.S. operating divisions. Currently over 70% of eligible
employees are participating in the plans. For most divisions, the Company makes
matching contributions based on specific formulas and this match is made in
La-Z-Boy common shares. The Company maintains defined benefit pension plans for
eligible factory hourly employees at some divisions. The net periodic pension
cost and retirement costs are as follows (for the fiscal years ended):
47
(Amounts in 4/28/01 4/29/00 4/24/99
thousands) (52 weeks) (53 weeks) (52 weeks)
-------------------------------------------------------------
Service cost............. $2,676 $2,791 $2,785
Interest cost............ 4,013 3,644 3,739
Actual return on plan
assets................ (1,903) 999 (5,458)
Net amortization and
deferral.............. (2,648) (5,793) (278)
------- ------- --------
Net periodic pension
cost.................. 2,138 1,641 788
Profit sharing
/NQDC................. 10,579 7,522 6,851
401(k)................... 3,744 2,954 2,174
Other.................... 906 637 652
------- ------- --------
Total retirement costs... $17,367 $12,754 $10,465
======= ======= =======
The funded status of the pension plans was as follows:
(Amounts in thousands) 4/28/01 4/29/00
------------------------------------------------------------------
Change in benefit obligation
Benefit obligation at beginning of year.. $56,168 $50,310
Service cost............................ 2,676 2,791
Interest cost........................... 4,013 3,644
Amendments and new plans................ (5,142) 1,879
Actuarial gain (loss)................... 472 (82)
Benefits paid........................... (2,644) (2,374)
------- -------
Benefit obligation at end of year...... 55,543 56,168
Change in plan assets
Fair value of plan assets at
beginning of year....................... 56,565 58,166
Actual return on plan assets............. 1,573 (999)
Employer contribution.................... 923 1,772
Benefits paid............................ (2,644) (2,374)
------- -------
Fair value of plan assets at year end... 56,417 56,565
------- -------
Funded status 874 397
Unrecognized actuarial gain.............. 2,430 4,642
Unamortized prior service cost........... 934 597
-------- --------
Prepaid benefit cost.................... $4,238 $5,636
======== ========
The expected long-term rate of return on defined benefit plan assets was
8.0% for fiscal years 2001, 2000 and 1999. The weighted-average discount rate
used in determining the actuarial present value of projected benefit obligations
was 7.7% in fiscal year 2001 and 6.8% for fiscal years 2000 and 1999. Vested
benefits included in the projected benefit obligation were $56 million and $50
million at April 28, 2001 and April 29, 2000, respectively. Plan assets are
invested in a diversified portfolio that consists primarily of debt and equity
securities.
While the plans presented in the tables are over funded in total there are
two plans included with aggregate pension benefit obligations of $8.5 million
and $7.1 million as well as aggregate pension plan assets of $6.7 million and
$6.3 million as of April 28, 2001 and April 29, 2000 respectively.
Note 9: Health Care
Eligible employees have an opportunity to participate in group health
plans. Most participating employees pay their portion of health care through
pretax payroll deductions. Health-care expenses were as follows (for the fiscal
years ended):
4/28/01 4/29/00 4/24/99
(Amounts in thousands) (52 weeks) (53 weeks) (52 weeks)
----------------------------------------------------------------
Gross health care.......... $76,989 $50,895 $37,698
Participant payments....... (19,132) (13,277) (9,406)
-------- -------- -------
Net health care......... $57,857 $37,618 $28,292
======== ======== ========
The Company makes annual provisions for any current and future retirement
health-care costs which may not be covered by retirees' collected premiums.
Note 10: Income Taxes
The primary components of the Company's deferred tax assets and
(liabilities) were as follows:
(Amounts in thousands) 4/28/01 4/29/00
----------------------------------------------------------------
Current
Bad debt.............................. $16,302 $13,897
Warranty.............................. 8,660 8,701
Workers' compensation................. 2,933 2,639
NQDC/other............................ 2,313 1,711
Inventory............................. (9,332) (8,516)
State income tax...................... 995 1,024
Stock options......................... 1,155 1,683
Receivables - mark to market.......... (2,634) (5,269)
Restructuring......................... 1,501 --
Other................................. 4,275 6,504
------- -------
Total current deferred tax asset..... 26,168 22,374
Noncurrent
Trade names........................... (44,703) (46,252)
Pension............................... (2,254) (3,672)
Net operating losses.................. -- 1,414
Other................................. 1,248 (356)
Valuation allowance................... -- (1,414)
------- -------
Total noncurrent deferred tax
liabilities......................... (45,709) (50,280)
-------- --------
Net deferred tax (liability)........ ($19,541) ($27,906)
======== ========
During fiscal year 2000 a valuation allowance of $1.4 million was
established for the deferred tax asset related to a Net Operating Loss (NOL)
carry forward for an acquired subsidiary of LADD. Due to a favorable change in
48
IRS regulations this NOL was utilized to reduce taxable income on LADD's 1999
federal tax return that was filed in 2001. The benefit of this NOL utilization
has been recorded as a reduction to goodwill.
(% of pretax income) 4/28/01 4/29/00 4/24/99
------------------------------------------------------------------
Statutory tax rate.............. 35.0% 35.0% 35.0%
Increase (reduction) in income
taxes resulting from:
State income taxes net of
federal benefit............ 3.4 3.0 2.7
Tax credits.................. (0.3) (0.1) (0.1)
Goodwill..................... 1.4 0.9 0.7
Tax loss carry forwards...... -- (1.1) 0.1
Miscellaneous items.......... (0.5) (0.1) (0.1)
---- ---- ----
Effective tax rate........... 39.0% 37.6% 38.3%
==== ==== ====
Note 11: Earnings Per Share
Basic net income per share is computed using the weighted-average number of
shares outstanding during the period. Diluted net income per share uses the
weighted average number of shares outstanding during the period plus the
additional common shares that would have been outstanding if the dilutive
potential common shares had been issued. The Company's dilutive potential common
shares are for employee stock related plans described in Note 7.
Fiscal year ended
-----------------------------
(Amounts in thousands) 4/28/01 4/29/00 4/24/99
----------------------------------------------------------------
Weighted average common shares
outstanding (basic)........... 60,550 54,488 52,890
Effect of options................ 142 372 258
------ ------ -------
Weighted average common shares
outstanding (diluted)......... 60,692 54,860 53,148
====== ====== ======
Note 12: Contingencies
The Company has been named as a defendant in various lawsuits arising in
the ordinary course of business. It is not possible at the present time to
estimate the ultimate outcome of these actions; however, management believes
that the resultant liability, if any, will not be material based on the
Company's previous experience with lawsuits of these types.
The Company has been named as a potentially responsible party (PRP) at six
environmental clean-up sites. Based on a review of all currently known facts and
the Company's experience with previous environmental clean-up sites, management
does not anticipate that future expenditures for environmental clean-up sites
will have a material adverse effect on the Company.
Note 13: Related Parties
The Company invests in cash and equivalents with a bank whose board of
directors includes two members of the board of directors. At the end of fiscal
year 2001 and 2000, $22 million and $5 million, respectively, was invested in
cash and equivalents with this bank. Trade and notes receivables include $8.5
million due from a dealer who is a relative of a member of the board of
directors in 2001.
Note 14: Segments
The Company has three reportable segments: Residential Upholstery,
Residential Casegoods and Contract.
The Residential Upholstery segment is comprised of operating divisions that
primarily manufacture and sell upholstered furniture to dealers. Upholstered
furniture includes recliners, sofas, occasional chairs and reclining sofas that
are mostly or fully covered with fabric, leather, or vinyl. The operating
divisions included in the Residential Upholstery segment are Bauhaus, Centurion,
Clayton Marcus, Distincion Muebles, England, HickoryMark, La-Z-Boy, Pennsylvania
House Upholstery, and Sam Moore.
The Residential Casegoods segment is comprised of operating divisions that
primarily manufacture or sell hardwood or hardwood veneer furniture to dealers.
Casegoods furniture includes dining room tables and chairs, bed frames and bed
boards, dressers, coffee tables and end tables. The operating divisions included
in the Residential Casegoods segment are American Drew, Hammary, Kincaid, Lea,
Pennsylvania House Casegoods and Pilliod.
The Contract segment is comprised of operating divisions that primarily
manufacture and sell to hospitality, business, government, healthcare and
assisted living facilities. The operating divisions included in the Contract
segment are American of Martinsville and La-Z-Boy Contract Furniture Group.
The Company's unallocated assets include trade names, goodwill and various
other assets. The Company's largest customer is less than 5% of consolidated
sales.
The accounting policies of the operating segments are the same as those
described in Note 1. Segment operating profit is based on profit or loss from
operations before interest income and expense, other income and income taxes.
Certain corporate costs are allocated to the segments based on revenues and
identifiable assets. Identifiable assets are cash and cash equivalents, notes
and accounts receivable, FIFO inventories and net property, plant, and
equipment. Information used to evaluate segments is as follows (for the fiscal
years ended):
49
(Amounts in 4/28/01 4/29/00 4/24/99
thousands) (52 weeks) (53 weeks) (52 weeks)
----------------------------------------------------------------
Sales
Residential upholstery. $1,516,075 $1,345,553 $1,061,926
Residential casegoods.. 537,241 320,989 200,322
Contract............... 202,881 116,374 77,714
----------- ---------- ----------
Consolidated.......... 2,256,197 1,782,916 1,339,962
=========== ========== ==========
Operating profit
Residential upholstery. 126,033 122,671 99,462
Residential casegoods.. 11,810 23,165 11,787
Contract............... 3,431 4,592 (609)
Unallocated corporate
costs and other....... (20,480) (7,580) (3,881)
----------- ---------- ----------
Consolidated.......... 120,794 142,848 106,759
=========== ========== ==========
Depreciation and amortization
Residential upholstery. 20,994 17,367 13,995
Residential casegoods.. 9,643 5,039 3,806
Contract............... 4,314 2,025 1,376
Corporate eliminations
and other............. 10,746 5,911 2,904
----------- ---------- ----------
Consolidated.......... 45,697 30,342 22,081
=========== ========== ==========
Capital expenditures
Residential upholstery. 20,710 28,376 19,388
Residential casegoods.. 11,232 4,989 4,248
Contract............... 3,255 2,393 1,412
Corporate eliminations
and other............. 2,219 2,210 268
----------- ---------- ----------
Consolidated.......... 37,416 37,968 25,316
=========== ========== ==========
Assets
Residential upholstery. 555,538 530,321 399,803
Residential casegoods.. 244,916 262,449 97,804
Contract............... 101,668 102,564 30,800
Corporate eliminations
and other............. 923 (5,370) 15,848
Unallocated assets..... 319,458 328,333 85,537
----------- ---------- ----------
Consolidated.......... $1,222,503 $1,218,297 $629,792
=========== ========== ==========
Sales by country
United States 96% 94% 93%
Canada and other 4% 6% 7%
---- ---- ----
100% 100% 100%
==== ==== ====
Management's Discussion and Analysis
(unaudited)
This Management's Discussion and Analysis should be read in conjunction
with the accompanying Report of Management Responsibilities, Report of
Independent Accountants, Consolidated Financial Statements and related Notes.
La-Z-Boy Incorporated is the largest furniture manufacturer in the U.S.,
the largest reclining-chair manufacturer in the world and North America's
largest manufacturer of upholstered furniture.
Fiscal year 2001 (FY01) contained 52 weeks compared to 53 weeks in fiscal
year 2000 (FY00).
Selected prior year information has been reclassified to reflect freight
revenue in Sales and the associated expense in Cost of sales in order to be
comparable to current year information.
Analysis of Operations
Year Ended April 28, 2001
(2001 compared with 2000)
FY01
over Fiscal year ended
(under) ------------------
FY00 4/28/01 4/29/00
- -----------------------------------------------------------------
Sales............................ 27% 100.0% 100.0%
Cost of sales.................... 30% 77.7% 75.8%
--- ----- ------
Gross profit................... 16% 22.3% 24.2%
Selling, general and
administrative................. 32% 16.9% 16.2%
--- ----- ------
Operating profit............... (15%) 5.4% 8.0%
Interest expense.................. 86% 0.8% 0.5%
Interest income................... (10%) 0.1% 0.1%
Other income...................... 44% 0.3% 0.3%
--- ----- ------
Pretax income.................. (20%) 5.0% 7.9%
Income tax expense*............... (17%) 39.0% 37.6%
--- ----- ------
Net income..................... (22%) 3.0% 4.9%
=== ===== ======
Diluted earnings per share..... (29%)
Dividends per share............ 9%
*As a percent of pretax income.
Segment Analysis
----------------
Sales Operating Profit
-------------- ----------------------
FY01 Over Percent of
(Under)FY00 Sales
-------------- FY01 Over -------------
Pro- (Under)
Actual forma FY00 FY01 FY00
- -----------------------------------------------------------------
Residential upholstery... 13% 2% 3% 8.3% 9.1%
Residential casegoods.... 67% (4%) (49%) 2.2% 7.2%
Contract................. 74% (11%) (25%) 1.7% 3.9%
Unallocated corp.
costs & eliminations.... N/A N/A 170% N/A N/A
---- ---- ---- ---- ----
Consolidated......... 27% (1%) (15%) 5.4% 8.0%
==== ==== ==== ==== ====
50
Year 2001 sales of $2.3 billion were 27% greater than 2000 because of
acquisitions. On a proforma basis adjusting for acquisitions and the extra week
in 2000, sales declined by 1%.
Residential Upholstery proforma sales increased 2%. This small growth in
sales was due primarily to weakened furniture demand. Selling price increases
were nominal given the competitive environment and frail economy, while the
sales growth rate was stronger than in the two other segments. This relative
sales strength was due to a higher percentage of sales coming from proprietary
dealers, growth in proprietary dealer locations, growth in proprietary sales per
square foot, and strong brand names. Historically, the growth in sales in the
Residential Upholstery segment, which contains the Company's largest division,
La-Z-Boy, has been stronger than other segments and the rest of the furniture
industry in slow times. 2001 was no exception.
Residential Casegoods proforma sales declined 4%. The loss of sales due to
the financial difficulties of large national or regional retailers was the
primary reason for the decline. Competition from imports, primarily from the Far
East, is another reason for the decline in sales. Also, the casegoods segment
has a greater percentage of its sales in middle and lower price points than
Residential Upholstery. Middle and lower price points historically have been
harder hit by unfavorable demand declines than upper price points when the
economy slows, in part because consumers typically defer casegoods purchases
longer than upholstered product purchases.
Contract proforma sales declined 11%. The assisted-living sector is the
primary area of decline. Seven of the top ten skilled nursing providers filed
for some level of bankruptcy protection in the last few years. The
assisted-living sector of the economy continued to suffer from high labor costs,
patient liability claims and reduced federal funding for extended care
facilities. Another cause of the 11% proforma sales decline was an early fiscal
year 2000 major business interruption at a supplier, which prevented bidding on
future sales contracts in the hospitality (hotel/motel) market. This is related
to the insurance recovery discussed in other income. In 2001, $5 million was
received as an insurance recovery for this business interruption but its
indirect unfavorable effects to sales were large in 2001. The hospitality sector
was also impacted by declining travel related to higher fuel costs, a reduced
commitment to refurbishing and increased competition from smaller regional
competitors; especially those based in Canada that were able to leverage
currency advantages. Declines in sales were also experienced in the office
market in line with what the rest of this sector is experiencing due to the weak
economy.
Gross profit as a percent of sales for 2001 decreased to 22.3% from 24.2%
in 2000. The primary causes of this decrease included the sales slowdown,
production declines, restructuring expenses to better adjust capacity to demand
(Note 2) and acquisitions with below average gross margin compared to those
businesses that made up the company during the majority of last year.
Selling, general and administrative expense (S,G&A expense) increased to
16.9% of sales in 2001 from 16.2% in 2000. Bad debt expense increased to $17.3
million from $5.6 million and was the primary reason for the increase in S,G&A
as a percent of sales. Several major retailers either declared bankruptcy or are
experiencing significant financial difficulties. This financially weak retailer
environment was present throughout the furniture industry for most of 2001.
Higher research and development expenditures were another reason for the
increase in S,G&A expense as a percent of sales. These R&D expenses were planned
and represent targeted efforts to improve both existing products and develop new
products. Various other expenses such as sales and administrative expenses also
increased as a percent of sales due to the unfavorable effects of acquisitions
that had higher than average S,G&A expenses as a percent of sales. Bonus and
warranty expenses declined as a percent of sales.
Consolidated operating profit margin decreased to 5.4% in 2001 from 8.0% in
2000 due primarily to the items discussed above. Unfavorable company mix also
affected operating profit margin. That is, acquired divisions had lower than
average margins compared with existing divisions.
Residential Upholstery operating margin declined to 8.3% of sales from 9.1%
primarily due to declines in profitability in some lower price point product
lines. To maintain sales volume to adequately cover fixed costs, aggressive
pricing, advertising and other promotional efforts contributed to lower margins.
Residential Casegoods operating margin declined to 2.2% of sales from 7.2%.
This is the segment that was most affected by declining sales and the higher bad
debt expense caused by major retailers in bankruptcy or financial difficulty.
Additionally, the majority of the restructuring costs (Note 2) were in this
segment. This segment also had the most unfavorable company mix effects on
operating margin of any segment. Similar to the Residential Upholstery segment,
part of the decline in margin was also due to aggressive merchandising and other
51
efforts relating to some lower price point product lines to maintain production
volume to adequately cover fixed costs.
Contract operating profit margin declined to 1.7% from 3.9%. The primary
reasons for this decline were the factors mentioned in the Contract sales
paragraph relating to declines in volume, competitive pressure on pricing, and
some restructuring expense (Note 2). This expense was related to inventory and
fixed asset writedowns, as well as severance and benefit-related costs.
Interest expense increased 86% over last year primarily from increased debt
associated with 2000 acquisitions.
Income tax expense as a percent of pretax income of 39.0% in 2001 is up
from 37.6% in 2000 primarily due to the utilization of tax loss carryforwards
which benefited the prior year as well as the larger impact in 2001 of non-
deductible goodwill amortization on lower pretax income.
Other income increased $2.3 million or 44% over the prior year. An increase
of about $4.9 million occurred as a result of a one-time business interruption
insurance recovery offset in part by $2.4 million of miscellaneous non-operating
expenses.
Analysis of Operations
Year Ended April 29, 2000
(2000 compared with 1999)
Year 2000 sales of $1.8 billion were 33% greater than 1999. Most of the
sales dollar growth was due to acquisitions. Internal growth of existing
operations was 9% and a small part of the sales increase was due to an extra
week in 2000 compared to 1999. Selling price increases per unit were small, and
there were no significant sales mix shifts to higher or lower priced products.
No major new product lines were introduced in 2000 although new styles and new
collections of styles did occur across all divisions throughout the year. New
fabrics were added to replace slower moving fabrics throughout the year, but the
total number of fabrics was not significantly increased or decreased. No major
new dealers were added in 2000, and no significant dealers were dropped.
Although current year acquisitions impacted the sales growth of all three
industry segments, the Residential Casegoods and Contract segments realized the
biggest increase over the prior year due to the mix of acquired companies. Both
Bauhaus and Alexvale are included in the Residential Upholstery segment, while
LADD (the largest of the three acquisitions) is primarily included in the
Residential Casegoods and Contract segments.
Gross profit margin (gross profit dollars as a percent of sales dollars)
decreased to 24.2% in 2000 from 25.5% in 1999. The primary cause of the gross
margin decline was a below average gross margin realized by businesses acquired
during the year. Also contributing to the gross margin decline were higher labor
and overhead costs. These costs were associated with improving plant floor
layouts, employee training costs incurred in acquiring additional employees to
support the 9% internal growth rate and retaining labor in a low unemployment
environment. Labor wage rates rose moderately and material costs were somewhat
higher than expected as increased costs for plywood, cardboard packaging and
steel were only partially offset by decreased costs for leather.
S,G&A expense decreased to 16.2% of sales in 2000 from 17.6% in 1999. Bonus
related expense was significantly lower in fiscal 2000 as compared to fiscal
1999 as were bad debts and information technology expenses.
There was no change to Consolidated operating profit margin with 8.0% in
both 2000 and 1999. Operating profit margin remained relatively unchanged in the
Residential Upholstery segment at 9.1% in 2000 compared to 9.4% in 1999.
Operating profit as a percent of sales in the Residential Casegoods segment
improved to 7.2% in 2000 from 5.9% in 1999. Operating profit as a percent of
sales in the Contract segment improved to 3.9% in 2000 from (0.8%) in 1999.
Interest expense as a percent of sales increased 117% over 1999 due to
financing obtained in the first quarter for the acquisition of Bauhaus and in
the fourth quarter to the refinancing of LADD's long term debt obligations.
Income tax expense as a percent of pretax income of 37.6% in 2000 is down
from 38.3% in 1999 primarily due to improved performance of a non-U.S. operation
which allowed for the utilization of tax loss carryforwards. This was partially
offset by an increase in goodwill amortization.
Liquidity and Financial Condition
Cash flows from operations amounted to $116 million in 2001, $58 million in
2000 and $82 million in 1999 and have been adequate for day-to-day expenditures,
dividends to shareholders and capital expenditures. A major reason for the
increase in cash flow from operations in 2001 was a $56 million difference
between the change in receivables in 2001 compared to 2000. This difference was
primarily due to the change to a proforma 2% declining sales environment in 2001
from a 9% sales growth environment in 2000. This additional $56 million in cash
flows from operations due to receivables was the primary reason for the $37
million reduction in total debt. Capital expenditures, dividends and stock
repurchases totaled approximately $82.5 million in 2001, $86.5 million in 2000
and $72.2 million in 1999.
As of April 28, 2001 there were unused lines of credit and commitments of
$275 million under several credit arrangements. To finance the acquisition of
52
Bauhaus on June 1, 1999, the Company borrowed $57 million, which was replaced on
December 29, 1999 by a borrowing under the Company's $75 million unsecured
revolving credit line. The Alexvale acquisition required approximately $2.2
million for the cash portion of the transaction, which was paid with cash flow
from operations. On January 31, 2000, an unsecured $150 million bridge loan was
obtained to pay off LADD's debt.
On May 12, 2000, the $75 million unsecured revolving credit facility and
the bridge loan were replaced with an unsecured five-year $300 million credit
agreement, maturing in 2005. The borrowing rate under the new credit agreement
can range from LIBOR plus 0.475% to LIBOR plus 0.800% based on the consolidated
debt to capital ratio.
The Company's Board of Directors has authorized the repurchase of Company
stock. Shares acquired in 2001, 2000 and 1999 totaled 1,555,000, 1,706,000 and
1,643,000, respectively. As of April 28, 2001, 1,265,000 shares could be
purchased pursuant to this authorization.
Financial strength is reflected in three commonly used ratios, the current
ratio (current assets divided by current liabilities), the
debt-to-capitalization percentage (total debt divided by shareholders' equity
plus total debt plus net deferred taxes) and the interest coverage ratio
(rolling twelve months net income plus income tax expense plus interest expense
divided by interest expense). The current ratio at the end of 2001 and 2000 was
2.8:1 and 2.9:1, respectively. The debt to capital ratio was 23.2% at the end of
2001 and 26.5% at the end of 2000. The interest coverage ratio at the end of
2001 was 6.2 times and 11.9 times at the end of 2000.
Continuing environmental compliance with existing federal, state and local
statutes dealing with protection of the environment is not expected to have a
material effect upon the Company's capital expenditures, earnings, competitive
position or liquidity. The Company will continue a program of conducting
voluntary compliance audits at its facilities. The Company has also taken steps
to assure compliance with provisions of Titles III and V of the 1990 Clean Air
Act Amendments.
Outlook
Statements in this Outlook section are forward looking within the meaning
of the Private Securities Litigation Reform Act of 1995. As conditions change in
the future, actual results may not match these expectations. In particular,
sales and profits can be materially impacted in any quarter by changes in
interest rates, changes in consumer demand, increased competition outside the
U.S. or changes to the furniture retailer environment.
Short-term outlook
Last year at this time industry growth was expected to slow from the prior
year. An actual slowdown did occur but its intensity was much greater than
expected and its suddenness was much quicker than expected. A recent industry
publication has confirmed that industry sales declined in recent quarters from
prior year's similar quarters. The Company's order backlogs are at a very low
level even after adjusting for the normal seasonal decline in the Spring. The
Company took a significant number of plant downtime days or partial days due to
slackening sales volume in the last couple months. Further plant downtime days
and extended plant vacations around the July 4th holiday period are planned.
Consumer demand for furniture remains weak currently, with no sign as yet of
imminent recovery. The Company expects its first quarter ending July 28, 2001 to
be quite challenging. Operations are being very actively managed within this
extremely demanding business environment. Aggressive Federal Reserve Board
interest rate cuts since the start of calendar 2001 should bode well for
consumer sentiment moving into the Fall, which typically is the strongest
seasonal period of the year.
Longer-term outlook
The Company's long-term outlook is linked in large part to its financial
goals and incentive plans that formally incorporate these financial goals. In
particular, the first incentive plan that incorporates these goals is the
Company's three-year performance based stock plan that covers executives. The
second plan is the one-year cash management bonus plan that covers all
management employees and a large part of all remaining employees. For more than
15 years, in one form or another, the sales and operating profit goals described
below have been part of La-Z-Boy Incorporated's formal incentive plans.
The first of La-Z-Boy Incorporated's financial goals is to increase sales
of existing operations at a rate faster than that of the overall North American
furniture industry (the "industry"). This sales goal has been achieved 90% or
more of the time over the last fifteen years.
Continued growth in the number of proprietary stores is a reason why sales
growth rates can continue to exceed industry rates. "Proprietary" stores are
retail stores or galleries that have a formal agreement to sell products from
one or more of La-Z-Boy Incorporated's operating divisions. Proprietary retail
distribution exists in each of the Company's business segments.
Continued growth in the sales per square foot of proprietary stores is
another reason why sales are expected to exceed industry growth rates. Dedicated
53
marketing focus associated with proprietary distribution in specific
metropolitan areas typically results in actions that improve sales per square
foot of retail space over time.
At both the retail and manufacturing levels the furniture industry has been
consolidating and is expected to continue to consolidate. Smaller retailers and
financially weaker retailers are finding it more and more difficult to stay in
business. Progress in manufacturing, information and other technologies,
business processes and financial and general management methods, combined with
economies of scale, continually puts additional competitive pressures on smaller
manufacturers. The furniture industry is expected to have fewer furniture
suppliers and manufacturers.
The Company's continued ability to leverage positive dealer relationships
across its large number of distinct operating divisions is another reason sales
growth is expected to exceed the industry. The La-Z-Boy Incorporated family of
companies includes some of the strongest brand names in the industry and many of
the divisions that do not have recognizable consumer brand names have excellent
reputations among furniture retailers.
The Company's imports of finished or mostly finished products continue to
increase. These imports are either resold or additional manufacturing value is
added before resale. Sales of these finished goods imports are under 5% of sales
but are growing at a faster rate than most other categories and they are
expected to continue to grow faster in the future. Most of these imports are
from the Far East. Some larger retailers import many of these finished products
themselves resulting in added competition. In many cases retailers buy these
products from La-Z-Boy companies because of the desire to minimize inventory on
hand, obtain quicker delivery, have a larger assortment of products to choose
from, reduce freight costs by adding these units to other products being ordered
and other reasons.
A second La-Z-Boy Incorporated financial goal is to continually improve
operating margin, with a goal in the future of 10.0%. Operating margin
(operating profit divided by sales) improved over the prior year in both 1999
and 2000. It reached 8.0% in 2000 then declined to 5.4% in 2001. The Company's
2002 forecasts and budgets have been set in a very tight manner to minimize
costs (especially overhead costs) across all divisions in anticipation of
relatively flat sales volume. Restructuring and other actions taken in 2001
should lay the groundwork for improved margins in 2002 although 2002 is expected
to be below 8.0%.
Continued investment in capital expenditures is expected to improve
material yields, labor productivity, quality and profitability. In fact, over
two-thirds are related to these as opposed to capacity expansion. Capital
expenditures for 2002 are planned at $45 million compared to $37 million in
2001.
The restructurings in the Residential Casegoods and Contract segments are
planned to help improve profitability next year at lower sales volumes by
adjusting capacity and other types of overhead costs. By exiting unprofitable
product lines, the Company's Contract segment in particular is expected to see a
larger percentage improvement in profitability.
Corporate overhead costs such as accounting, audit, investor relations,
tax, treasury and other areas improved as a percent of sales with a full year of
integration of newly acquired divisions' similar functions. More improvement is
expected in 2002 in these areas and other corporate cost areas.
Increased outsourcing of components to lower cost suppliers outside of
North America is also expected to help improve profitability. Increased
importing of components is an industry trend over the last three to five years.
Changes in foreign exchange rates are not expected to affect this outsourcing
trend in the next year.
A third financial goal is to continually improve return on capital, with a
goal in the future of 25%. Return is defined as operating profit + interest
income + other income. Capital is defined as beginning-of-year shareholders'
equity + debt + capital leases + net deferred taxes. Return on capital reached
32.2% in 2000 then declined to 13.8% in 2001. Other income in 2002 is expected
to be less than in 2001 due to the absence of a $5 million one-time insurance
recovery. It is expected that it will take more than one year before return on
capital exceeds the 25% goal. La-Z-Boy Incorporated enhances shareholder value
and reduces capital employed through stock repurchases, dividends and debt
reductions. Cash needs for capital expenditures, stock repurchases and dividends
are expected to be met in 2002 from cash generated by operations and borrowings
under available lines of credit. Additional purchases of shares of the Company's
stock may occur as price changes and other financial opportunities arise.
New accounting pronouncements. The Financial Accounting Standards Board's
ongoing deliberations relating to "Business Combinations and Intangible Assets -
Accounting for Goodwill" are expected to favorably impact future periods by
eliminating goodwill amortization. The FASB's implementation plan and resulting
impact on the Company have not yet been determined. See Note 1 for
implementation comments on FAS 133 "Accounting for Derivative Instruments and
Hedging Activities", which is effective beginning in the first quarter ending
July 28, 2001.
54
Consolidated Six Year Summary of Selected Financial Data
(Dollar amounts in thousands except 2001 2000 1999 1998 1997 1996
per share data) Fiscal year ended (52 weeks) (53 weeks) (52 weeks) (52 weeks) (52 weeks) (52 weeks)
- ----------------------------------------------------------------------------------------------------------------------------------
Sales................................................ $2,256,197 $1,782,916 $1,339,962 $1,152,992 $1,051,097 $977,227
Cost of sales........................................ 1,753,000 1,350,561 997,975 869,093 788,746 735,066
----------- ---------- ---------- ---------- ---------- --------
Gross profit...................................... 503,197 432,355 341,987 283,899 262,351 242,161
Selling, general and administrative.................. 382,403 289,507 235,228 206,696 188,418 174,653
----------- ---------- ---------- ---------- ---------- --------
Operating profit.................................. 120,794 142,848 106,759 77,203 73,933 67,508
Interest expense..................................... 17,960 9,655 4,440 4,157 4,376 5,306
Interest income...................................... 1,779 1,976 2,181 2,021 1,770 1,975
Other income......................................... 7,431 5,144 2,738 4,207 2,508 2,023
----------- ---------- ---------- ---------- ---------- --------
Pretax income..................................... 112,044 140,313 107,238 79,274 73,835 66,200
Income tax expense................................... 43,708 52,699 41,096 29,354 28,538 26,947
----------- ---------- ---------- ---------- ---------- --------
Net income...................................... $68,336 $87,614 $66,142 $49,920 $45,297 $39,253
=========== ========== ========== ========== ========== ========
Diluted weighted average shares
outstanding (`000s) *........................... 60,692 54,860 53,148 53,821 54,575 55,596
Diluted net income per share*........................ $1.13 $1.60 $1.24 $0.93 $0.83 $0.71
Dividends declared per share......................... $0.35 $0.32 $0.31 $0.28 $0.26 $0.25
Book value on year end shares outstanding*........... $11.49 $10.81 $7.93 $7.25 $6.69 $6.23
Return on average shareholders' equity............... 10.1% 16.3% 16.5% 13.4% 12.9% 11.8%
Gross profit as a percent of sales................... 22.3% 24.2% 25.5% 24.6% 25.0% 24.8%
Operating profit as a percent of sales............... 5.4% 8.0% 8.0% 6.7% 7.0% 6.9%
Earnings before interest, taxes, depreciation
and amortization as a percent of sales.......... 7.7% 10.0% 9.8% 8.9% 9.2% 9.2%
Operating profit, interest income and other income
as a percent of beginning-of-year capital....... 13.8% 32.2% 24.8% 20.5% 19.6% 18.1%
Income tax expense as a percent of
pretax income................................... 39.0% 37.6% 38.3% 37.0% 38.7% 40.7%
Net income as a percent of sales..................... 3.0% 4.9% 4.9% 4.3% 4.3% 4.0%
- ----------------------------------------------------------------------------------------------------------------------------------
Depreciation and amortization........................ $45,697 $30,342 $22,081 $21,021 $20,382 $20,147
Capital expenditures................................. $37,416 $37,968 $25,316 $22,016 $17,778 $18,168
Property, plant and equipment (net).................. $230,341 $227,883 $125,989 $121,762 $114,658 $116,199
- ----------------------------------------------------------------------------------------------------------------------------------
Working capital...................................... $458,861 $455,363 $293,160 $274,739 $245,106 $240,583
Current ratio........................................ 2.8 to 1 2.9 to 1 3.2 to 1 3.5 to 1 3.5 to 1 3.5 to 1
Total assets......................................... $1,222,503 $1,218,297 $629,792 $580,351 $528,407 $517,546
- ----------------------------------------------------------------------------------------------------------------------------------
Debt & capital leases................................ $215,644 $249,670 $65,473 $73,458 $61,279 $69,033
Shareholders' equity................................. $695,146 $663,092 $414,915 $388,209 $359,338 $343,376
Ending capital....................................... $930,331 $940,668 $466,057 $450,466 $405,996 $399,801
Ratio of total debt to equity........................ 31.0% 37.7% 15.8% 18.9% 17.1% 20.1%
Ratio of total debt to capital....................... 23.2% 26.5% 14.0% 16.3% 15.1% 17.3%
- ----------------------------------------------------------------------------------------------------------------------------------
Shareholders......................................... 23,600 22,300 16,300 13,600 12,700 12,300
Employees............................................ 20,400 21,600 12,800 12,200 11,200 10,700
*Years 1996 through 1998 have been restated to reflect the September, 1998
three-for-one stock split, in the form of a 200% stock dividend.
Some prior year information has been reclassified to reflect freight revenue in
Sales and the associated expense in Cost of sales in order to be comparable to
current year information.
55
Unaudited Quarterly Financial Information
(Dollar amounts in thousands except per share data)
Fiscal year
7/29/00 10/28/00 1/27/01 4/28/01 2001
Quarter ended (13 weeks) (13 weeks) (13 weeks) (13 weeks) (52 weeks)
- -------------------------------------------------------------------------------------------------------------------------
Sales............................................. $516,707 $592,700 $552,019 $594,771 $2,256,197
Cost of sales..................................... 400,366 450,569 428,945 473,120 1,753,000
-------- -------- -------- -------- ----------
Gross profit................................... 116,341 142,131 123,074 121,651 503,197
Selling, general and administrative............... 91,761 97,295 95,855 97,492 382,403
-------- -------- -------- -------- ----------
Operating profit............................... 24,580 44,836 27,219 24,159 120,794
Interest expense.................................. 4,352 4,497 4,821 4,290 17,960
Interest income................................... 453 329 502 495 1,779
Other income...................................... 616 5,860 2,623 (1,668) 7,431
-------- -------- -------- -------- ----------
Pretax income.................................. 21,297 46,528 25,523 18,696 112,044
Income tax expense................................ 8,294 17,612 9,406 8,396 43,708
-------- -------- -------- -------- ----------
Net income..................................... $13,003 $28,916 $16,117 $10,300 $68,336
======== ======== ======== ======== ==========
Diluted average shares outstanding................ 61,280 60,684 60,399 60,571 60,692
======== ======== ======== ======== ==========
Diluted EPS....................................... $0.21 $0.48 $0.27 $0.17 $1.13
======== ======== ======== ======== ==========
(Dollar amounts in thousands except per share data) Fiscal year
7/24/99 10/23/99 1/22/00 4/29/00 2000
Quarter ended (13 weeks) (13 weeks) (13 weeks) (14 weeks) (53 weeks)
- -------------------------------------------------------------------------------------------------------------------------
Sales............................................. $334,892 $402,436 $391,091 $654,497 $1,782,916
Cost of sales..................................... 254,472 301,620 296,382 498,087 1,350,561
-------- -------- -------- -------- ----------
Gross profit................................... 80,420 100,816 94,709 156,410 432,355
Selling, general and administrative............... 58,971 63,118 62,073 105,345 289,507
-------- -------- -------- -------- ----------
Operating profit............................... 21,449 37,698 32,636 51,065 142,848
Interest expense.................................. 1,439 1,866 2,128 4,222 9,655
Interest income................................... 596 610 320 450 1,976
Other income...................................... 989 1,525 1,969 661 5,144
-------- -------- -------- -------- ----------
Pretax income.................................. 21,595 37,967 32,797 47,954 140,313
Income tax expense................................ 8,302 14,697 11,460 18,240 52,699
-------- -------- -------- -------- ----------
Net income..................................... $13,293 $23,270 $21,337 $29,714 $87,614
======== ======== ======== ======== ==========
Diluted average shares outstanding................ 52,627 52,625 52,274 61,058 54,860
======== ======== ======== ======== ==========
Diluted EPS....................................... $0.25 $0.44 $0.41 $0.49 $1.60
======== ======== ======== ======== ==========
Some quarterly information has been reclassified to reflect freight revenue in
Sales and the associated expense in Cost of sales in order to be comparable to
fourth quarter information.
56
Dividend and Market Information
Fiscal Fiscal
2001 Market Price 2000 Market Price
quarter Dividends ---------------------------------- quarter Dividends -------------------------------
ended paid High Low Close ended paid High Low Close
- -----------------------------------------------------------------------------------------------------------------
July 29 $0.08 $16.31 $14.00 $15.25 July 24 $0.08 $24.44 $19.38 $23.81
Oct. 28 0.09 17.50 13.44 14.75 Oct. 23 0.08 24.44 17.94 17.94
Jan. 27 0.09 16.94 14.06 16.94 Jan. 22 0.08 20.38 15.00 15.00
April 28 0.09 $18.50 $15.77 $18.02 April 29 0.08 $17.81 $13.69 $15.69
----- ------
$0.35 $0.32
====== ======
Dividend Market Price P/E ratio
Fiscal Dividends Dividend payout ---------------------------------- (Market Value) ---------------------
year paid yield ratio High Low Close (in millions) High Low
- -------------------------------------------------------------------------------------------------------------------
2001 $0.35 1.9% 31.0% $18.50 $13.44 $18.02 $1,090 16 12
2000 0.32 2.0% 19.9% 24.44 13.69 15.69 962 15 10
1999 0.31 1.6% 24.8% 22.50 15.25 19.00 994 18 12
1998 0.28 1.6% 30.1% 17.83 10.58 17.83 955 19 11
1997 0.26 2.4% 31.2% 12.29 9.29 10.75 578 15 11
1996 $0.25 2.5% 34.9% $11.25 $8.54 $10.04 $554 16 12
La-Z-Boy Incorporated common shares are traded on the NYSE and PCX (symbol LZB).
Various data has been restated to reflect the September 1998 three-for-one stock
split.
Investor Information
Corporate Headquarters Stock Exchange
La-Z-Boy Incorporated La-Z-Boy Incorporated common shares
1284 North Telegraph Road are traded on the New York Stock
Monroe, MI 48162-3390 Exchange and the Pacific Stock Exchange
(734) 242-1444 under the symbol LZB.
Dividend Reinvestment Plan Shareholder Services
A brochure is available on the La-Z-Boy Inquiries regarding the Dividend Reinvestment Plan,
Dividend Reinvestment Plan. It explains dividend payments, stock transfer requirements,
how shareholders may increase their address changes and account consolidations
investment in the stock of the Company should be addressed to the Company's stock transfer
without the cost of fees or service charges. agent and registrar:
Write to Investor Relations.
Investor Relations and Financial Reports American Stock Transfer & Trust Company
We will provide the form 10-K to any 59 Maiden Lane
shareholder that requests it. New York, NY 10007
Security analysts, shareholders and investors (212) 936-5100
may request information (quarterly or annual (800) 937-9449
reports, etc.) from:
Investor Relations Internet
La-Z-Boy Incorporated Visit La-Z-Boy Incorporated on the internet at
1284 North Telegraph Road www.la-z-boy.com
Monroe, MI 48162-3390
(734) 241-4414
investorrelations@la-z-boy.com
57
Exhibit (21)
LA-Z-BOY INCORPORATED
LIST OF SUBSIDIARIES
Subsidiary Jurisdiction of Incorporation
- ---------- -----------------------------
La-Z-Boy Canada, Ltd. Ontario, Canada
Kincaid Furniture Company, Incorporated Delaware
La-Z-Boy Export, Ltd. Barbados
LZB Finance, Inc. Michigan
England, Inc. Michigan
LZB Properties, Inc. Michigan
LZB Florida Realty, Inc. Michigan
Centurion Furniture, plc United Kingdom
Distincion Muebles, Sa de C.V. Mexico
Sam Moore Furniture Industries, Inc. Virginia
La-Z-Boy Logistics, Inc. Michigan
Bauhaus U.S.A., Inc. Mississippi
Alexvale Furniture, Inc. North Carolina
LADD Furniture, Inc. North Carolina
American Furniture Company, Incorporated Virginia
Clayton-Marcus Company, Inc. North Carolina
LADD Contract Sales Corporation North Carolina
Pennsylvania House, Inc. North Carolina
Pilliod Furniture, Inc. North Carolina
LADD Transportation, Inc. North Carolina
LFI Capital Management, Inc. Delaware
Redd Level, Ltd. Delaware
LADD International Sales Corporation Barbados
LZB Thailand, Ltd. Thailand
All other subsidiaries, when considered in the aggregate as a single
subsidiary, would not constitute a significant subsidiary and therefore have
been omitted from this exhibit.
58
Exhibit (23)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Nos. 33-8996, 33-8997, 333-34155, 333-34157, 333-03097,
033-54743, and 333-95651) of La-Z-Boy Incorporated of our report dated May 30,
2001 relating to the financial statements, which appears in the Annual Report to
Shareholders, which is incorporated in this Annual Report on Form 10-K. We also
consent to the incorporation by reference of our report dated May 30, 2001
relating to the financial statement schedule, which appears in this Form 10-K.
/s/PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Toledo, Ohio
July 27, 2001
59