UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549-1004
FORM
10-Q
Quarterly
Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
FOR
QUARTERLY PERIOD ENDED OCTOBER 24, 2009
COMMISSION
FILE NUMBER 1-9656
|
LA-Z-BOY
INCORPORATED
|
|
(Exact
name of registrant as specified in its
charter)
|
|
MICHIGAN
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38-0751137
|
|
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(State
or other jurisdiction of incorporation or organization)
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(I.R.S.
Employer Identification
No.)
|
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1284
North Telegraph Road, Monroe, Michigan
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48162-3390
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|
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(Address
of principal executive offices)
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(Zip
Code)
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Registrant's
telephone number, including area code (734) 242-1444
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None
|
|
(Former
name, former address and former fiscal year, if changed since last
report.)
|
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 (or for such shorter period that the Registrant was required
to file such reports) and (2) has been subject to such filing requirements for
the past 90 days.
Yes þ No
¨
Indicate
by check mark whether the Registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of
this chapter) during the preceding 12 months (or for such shorter period that
the Registrant was required to submit and post such files).
Yes ¨
No ¨
Indicate
by check mark whether the Registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company.
See the definitions of “large accelerated filer,” “accelerated filer,” and
“smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check
one):
Large
accelerated filer ¨
Accelerated filer þ
Non-accelerated filer ¨ Smaller
Reporting Company ¨
Indicate
by check mark whether the Registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes ¨
No þ
The
number of shares outstanding of each of the issuer’s classes of common stock, as
of the latest practicable date:
|
Class
|
Outstanding at November 10,
2009
|
|
|
Common
Shares, $1.00 par value
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51,546,055
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LA-Z-BOY
INCORPORATED
FORM 10-Q
SECOND QUARTER OF FISCAL 2010
TABLE OF
CONTENTS
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Page
Number(s)
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3-4
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5
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9-10
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10
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11-12
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12-13
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13-15
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15
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15-16
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17
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17-18
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18-19
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19-20
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20
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21
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21-22
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23-30
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30-33
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33-35
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35
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35
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35
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36
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36
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37
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37
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38
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39
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2
FINANCIAL
INFORMATION
LA-Z-BOY
INCORPORATED
|
Second Quarter Ended
|
||||||||
|
(Unaudited, amounts in thousands, except per share
data)
|
10/24/09
|
10/25/08
|
||||||
|
Sales
|
$ | 300,707 | $ | 331,948 | ||||
|
Cost
of sales
|
||||||||
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Cost
of goods sold
|
204,962 | 243,090 | ||||||
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Restructuring
|
663 | 2,236 | ||||||
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Total
cost of sales
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205,625 | 245,326 | ||||||
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Gross
profit
|
95,082 | 86,622 | ||||||
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Selling,
general and administrative
|
84,697 | 101,499 | ||||||
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Write-down
of goodwill
|
— | 408 | ||||||
|
Restructuring
|
520 | 687 | ||||||
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Operating
income (loss)
|
9,865 | (15,972 | ) | |||||
|
Interest
expense
|
831 | 1,651 | ||||||
|
Interest
income
|
199 | 630 | ||||||
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Other
income (expense), net
|
236 | (685 | ) | |||||
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Earnings
(loss) before income taxes
|
9,469 | (17,678 | ) | |||||
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Income
tax expense
|
3,762 | 36,032 | ||||||
|
Net
income (loss)
|
5,707 | (53,710 | ) | |||||
|
Net
(income) loss attributable to noncontrolling interests
|
200 | (34 | ) | |||||
|
Net
income (loss) attributable to La-Z-Boy Incorporated
|
$ | 5,907 | $ | (53,744 | ) | |||
|
Basic
average shares
|
51,527 | 51,458 | ||||||
|
Basic
net income (loss) attributable to La-Z-Boy Incorporated per
share
|
$ | 0.11 | $ | (1.05 | ) | |||
|
Diluted
average shares
|
51,755 | 51,458 | ||||||
|
Diluted
net income (loss) attributable to La-Z-Boy Incorporated per
share
|
$ | 0.11 | $ | (1.05 | ) | |||
|
Dividends
paid per share
|
$ | — | $ | 0.04 | ||||
The
accompanying Notes to Consolidated Financial Statements are an integral part of
these statements.
3
LA-Z-BOY
INCORPORATED
CONSOLIDATED
STATEMENT OF OPERATIONS
|
Six Months Ended
|
||||||||
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(Unaudited, amounts in thousands, except per share
data)
|
10/24/09
|
10/25/08
|
||||||
|
Sales
|
$ | 563,378 | $ | 653,600 | ||||
|
Cost
of sales
|
||||||||
|
Cost
of goods sold
|
386,511 | 478,685 | ||||||
|
Restructuring
|
1,399 | 8,032 | ||||||
|
Total
cost of sales
|
387,910 | 486,717 | ||||||
|
Gross
profit
|
175,468 | 166,883 | ||||||
|
Selling,
general and administrative
|
162,153 | 192,770 | ||||||
|
Write-down
of goodwill
|
— | 1,700 | ||||||
|
Restructuring
|
821 | 1,467 | ||||||
|
Operating
income (loss)
|
12,494 | (29,054 | ) | |||||
|
Interest
expense
|
1,810 | 3,146 | ||||||
|
Interest
income
|
475 | 1,562 | ||||||
|
Other
income (expense), net
|
945 | (541 | ) | |||||
|
Earnings
(loss) before income taxes
|
12,104 | (31,179 | ) | |||||
|
Income
tax expense
|
4,201 | 30,988 | ||||||
|
Net
income (loss)
|
7,903 | (62,167 | ) | |||||
|
Net
(income) attributable to noncontrolling interests
|
(13 | ) | (121 | ) | ||||
|
Net
income (loss) attributable to La-Z-Boy Incorporated
|
$ | 7,890 | $ | (62,288 | ) | |||
|
Basic
average shares
|
51,503 | 51,443 | ||||||
|
Basic
net income (loss) attributable to La-Z-Boy Incorporated per
share
|
$ | 0.15 | $ | (1.21 | ) | |||
|
Diluted
average shares
|
51,551 | 51,443 | ||||||
|
Diluted
net income (loss) attributable to La-Z-Boy Incorporated per
share
|
$ | 0.15 | $ | (1.21 | ) | |||
|
Dividends
paid per share
|
$ | — | $ | 0.08 | ||||
The
accompanying Notes to Consolidated Financial Statements are an integral part of
these statements.
4
LA-Z-BOY
INCORPORATED
|
(Unaudited, amounts in
thousands)
|
10/24/09
|
4/25/09
|
||||||
|
Current
assets
|
||||||||
|
Cash
and equivalents
|
$ | 59,037 | $ | 17,364 | ||||
|
Restricted
cash
|
500 | 18,713 | ||||||
|
Receivables,
net of allowance of $25,195 at 10/24/09 and $28,385 at
4/25/09
|
162,878 | 147,858 | ||||||
|
Inventories,
net
|
138,946 | 140,178 | ||||||
|
Deferred
income taxes—current
|
795 | 795 | ||||||
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Other
current assets
|
15,956 | 22,872 | ||||||
|
Total
current assets
|
378,112 | 347,780 | ||||||
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Property,
plant and equipment, net
|
142,704 | 150,234 | ||||||
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Trade
names
|
3,100 | 3,100 | ||||||
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Other
long-term assets
|
48,183 | 51,431 | ||||||
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Total
assets
|
$ | 572,099 | $ | 552,545 | ||||
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Current
liabilities
|
||||||||
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Current
portion of long-term debt
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$ | 2,067 | $ | 8,724 | ||||
|
Accounts
payable
|
46,318 | 41,571 | ||||||
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Accrued
expenses and other current liabilities
|
86,167 | 75,733 | ||||||
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Total
current liabilities
|
134,552 | 126,028 | ||||||
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Long-term
debt
|
46,911 | 52,148 | ||||||
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Deferred
income taxes
|
724 | 724 | ||||||
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Other
long-term liabilities
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67,950 | 63,875 | ||||||
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Contingencies
and commitments
|
— | — | ||||||
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Equity
|
||||||||
|
La-Z-Boy
Incorporated shareholders’ equity:
|
||||||||
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Common
shares, $1 par value
|
51,546 | 51,478 | ||||||
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Capital
in excess of par value
|
199,585 | 205,945 | ||||||
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Retained
earnings
|
87,342 | 70,769 | ||||||
|
Accumulated
other comprehensive loss
|
(20,955 | ) | (22,698 | ) | ||||
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Total
La-Z-Boy Incorporated shareholders' equity
|
317,518 | 305,494 | ||||||
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Noncontrolling
interests
|
4,444 | 4,276 | ||||||
|
Total
equity
|
321,962 | 309,770 | ||||||
|
Total
liabilities and equity
|
$ | 572,099 | $ | 552,545 | ||||
The
accompanying Notes to Consolidated Financial Statements are an integral part of
these statements.
5
LA-Z-BOY
INCORPORATED
|
Second Quarter Ended
|
Six Months Ended
|
|||||||||||||||
|
(Unaudited, amounts in thousands)
|
10/24/09
|
10/25/08
|
10/24/09
|
10/25/08
|
||||||||||||
|
Cash
flows from operating activities
|
||||||||||||||||
|
Net
income (loss)
|
$ | 5,707 | $ | (53,710 | ) | $ | 7,903 | $ | (62,167 | ) | ||||||
|
Adjustments
to reconcile net income (loss) to cash provided by (used for) operating
activities
|
||||||||||||||||
|
Gain
on sale of assets
|
(75 | ) | (604 | ) | (88 | ) | (2,670 | ) | ||||||||
|
Write-down
of long-lived assets
|
200 | — | 200 | — | ||||||||||||
|
Write-down
of goodwill
|
— | 408 | — | 1,700 | ||||||||||||
|
Restructuring
|
1,183 | 2,923 | 2,220 | 9,499 | ||||||||||||
|
Provision
for doubtful accounts
|
2,152 | 4,797 | 4,514 | 9,000 | ||||||||||||
|
Depreciation
and amortization
|
6,135 | 5,989 | 12,244 | 11,943 | ||||||||||||
|
Stock-based
compensation expense
|
1,621 | 986 | 2,628 | 1,855 | ||||||||||||
|
Change
in receivables
|
(26,484 | ) | (22,261 | ) | (17,586 | ) | (8,091 | ) | ||||||||
|
Change
in inventories
|
3,329 | (63 | ) | 1,231 | 10,843 | |||||||||||
|
Change
in other assets
|
11,106 | 2,272 | 6,439 | (529 | ) | |||||||||||
|
Change
in payables
|
7,073 | 8,375 | 4,747 | 1,927 | ||||||||||||
|
Change
in other liabilities
|
10,282 | (5,199 | ) | 11,553 | (26,117 | ) | ||||||||||
|
Change
in deferred taxes
|
(8 | ) | 41,677 | — | 42,838 | |||||||||||
|
Total
adjustments
|
16,514 | 39,300 | 28,102 | 52,198 | ||||||||||||
|
Net
cash provided by (used for) operating activities
|
22,221 | (14,410 | ) | 36,005 | (9,969 | ) | ||||||||||
|
Cash
flows from investing activities
|
||||||||||||||||
|
Proceeds
from disposals of assets
|
230 | 2,805 | 1,916 | 7,786 | ||||||||||||
|
Capital
expenditures
|
(1,340 | ) | (2,618 | ) | (2,779 | ) | (9,990 | ) | ||||||||
|
Purchases
of investments
|
(1,338 | ) | (3,516 | ) | (2,537 | ) | (8,965 | ) | ||||||||
|
Proceeds
from sales of investments
|
1,445 | 5,233 | 4,109 | 11,027 | ||||||||||||
|
Change
in restricted cash
|
— | (2,668 | ) | 17,007 | (2,956 | ) | ||||||||||
|
Change
in other long-term assets
|
29 | 158 | 14 | 229 | ||||||||||||
|
Net
cash provided by (used for) investing activities
|
(974 | ) | (606 | ) | 17,730 | (2,869 | ) | |||||||||
|
Cash
flows from financing activities
|
||||||||||||||||
|
Proceeds
from debt
|
10,213 | 24,831 | 20,673 | 39,466 | ||||||||||||
|
Payments
on debt
|
(10,408 | ) | (6,430 | ) | (32,567 | ) | (25,287 | ) | ||||||||
|
Dividends
paid
|
— | (2,074 | ) | — | (4,151 | ) | ||||||||||
|
Net
cash provided by (used for) financing activities
|
(195 | ) | 16,327 | (11,894 | ) | 10,028 | ||||||||||
|
Effect
of exchange rate changes on cash and equivalents
|
(348 | ) | (604 | ) | (168 | ) | (643 | ) | ||||||||
|
Change
in cash and equivalents
|
20,704 | 707 | 41,673 | (3,453 | ) | |||||||||||
|
Cash
and equivalents at beginning of period
|
38,333 | 10,317 | 17,364 | 14,477 | ||||||||||||
|
Cash
and equivalents at end of period
|
$ | 59,037 | $ | 11,024 | $ | 59,037 | $ | 11,024 | ||||||||
|
Cash
paid (net of refunds) during period – income taxes
|
$ | (13,348 | ) | $ | (719 | ) | $ | (13,082 | ) | $ | 204 | |||||
|
Cash
paid during period - interest
|
$ | 563 | $ | 1,287 | $ | 1,288 | $ | 2,413 | ||||||||
The
accompanying Notes to Consolidated Financial Statements are an integral part of
these statements.
6
LA-Z-BOY
INCORPORATED
|
(Unaudited, amounts in thousands)
|
Common
Shares
|
Capital in
Excess of Par
Value
|
Retained
Earnings
|
Accumulated
Other
Comprehensive
Loss
|
Non-
Controlling
Interests
|
Total
|
||||||||||||||||||
|
At
April 26, 2008
|
$ | 51,428 | $ | 209,388 | $ | 190,215 | $ | (227 | ) | $ | 2,582 | $ | 453,386 | |||||||||||
|
Comprehensive
loss
|
||||||||||||||||||||||||
|
Net
income (loss)
|
(121,347 | ) | 121 | |||||||||||||||||||||
|
Unrealized
loss on marketable securities arising during the period (net of tax of
$0.4 million)
|
(4,332 | ) | ||||||||||||||||||||||
|
Reclassification
adjustment for loss on marketable securities included in net
loss
|
5,180 | |||||||||||||||||||||||
|
Translation
adjustment
|
(622 | ) | 447 | |||||||||||||||||||||
|
Change
in fair value of cash flow hedge
|
(723 | ) | ||||||||||||||||||||||
|
Net
actuarial (loss)
|
(21,974 | ) | ||||||||||||||||||||||
|
Total
comprehensive loss
|
(143,250 | ) | ||||||||||||||||||||||
|
Stock
issued for stock and employee benefit plans, net of
cancellations
|
50 | (7,262 | ) | 7,078 | (134 | ) | ||||||||||||||||||
|
Stock
option, restricted stock and performance based stock
expense
|
3,819 | 3,819 | ||||||||||||||||||||||
|
Change
in noncontrolling interest upon consolidation of VIE and other changes in
noncontrolling interests
|
1,126 | 1,126 | ||||||||||||||||||||||
|
Dividends
paid
|
(5,177 | ) | (5,177 | ) | ||||||||||||||||||||
|
At
April 25, 2009
|
51,478 | 205,945 | 70,769 | (22,698 | ) | 4,276 | 309,770 | |||||||||||||||||
|
Comprehensive
income
|
||||||||||||||||||||||||
|
Net
income
|
7,890 | 13 | ||||||||||||||||||||||
|
Unrealized
gain on marketable securities arising during the period
|
1,626 | |||||||||||||||||||||||
|
Reclassification
adjustment for gain on marketable securities included in net
income
|
(88 | ) | ||||||||||||||||||||||
|
Translation
adjustment
|
(850 | ) | 155 | |||||||||||||||||||||
|
Net
pension amortization
|
1,054 | |||||||||||||||||||||||
|
Change
in fair value of cash flow hedge
|
1 | |||||||||||||||||||||||
|
Total
comprehensive income
|
9,801 | |||||||||||||||||||||||
|
Stock
issued for stock and employee benefit plans, net of
cancellations
|
68 | (8,976 | ) | 8,683 | (225 | ) | ||||||||||||||||||
|
Stock
option, restricted stock and performance based stock
expense
|
2,616 | 2,616 | ||||||||||||||||||||||
|
At
October 24, 2009
|
$ | 51,546 | $ | 199,585 | $ | 87,342 | $ | (20,955 | ) | $ | 4,444 | $ | 321,962 | |||||||||||
The
accompanying Notes to Consolidated Financial Statements are an integral part of
these statements.
7
The
accompanying financial statements include the consolidated accounts of La-Z-Boy
Incorporated, our wholly-owned subsidiaries, and the Variable Interest Entities
(“VIEs”) in which we are the primary beneficiary. The April 25, 2009
balance sheet was derived from audited financial statements, adjusted for the
amendment of accounting and reporting standards for a parent’s noncontrolling
interest in a subsidiary and the accounting for future ownership changes with
respect to the subsidiary. This standard defines a
noncontrolling interest, previously called a minority interest, as the portion
of equity in a subsidiary that is not attributable, directly or indirectly, to a
parent. This standard requires, among other things, that a
noncontrolling interest be clearly identified, labeled and presented in the
consolidated balance sheet as equity, but separate from the parent’s equity; and
that the amount of consolidated net income attributable to the parent and to the
noncontrolling interest be clearly identified and presented on the face of the
consolidated statement of operations.
Effective
April 26, 2009, we adopted this standard and applied it retrospectively which
affected only presentation and disclosure. As a result, we reclassified
noncontrolling interests in the amount of $4.3 million from other long-term
liabilities and accumulated other comprehensive loss to equity in the April 25,
2009 Consolidated Balance Sheet. Certain reclassifications to the
Consolidated Statement of Operations have been made to prior period amounts to
conform to the presentation of the current period under this standard.
Recorded amounts for prior periods previously presented as Net income (loss),
which are now presented as Net income (loss) attributable to La-Z-Boy
Incorporated, have not changed as a result of this adoption.
The
interim financial information is prepared in conformity with generally accepted
accounting principles and such principles are applied on a basis consistent with
those reflected in our fiscal 2009 Annual Report on Form 10-K, filed with the
Securities and Exchange Commission, but does not include all the disclosures
required by generally accepted accounting principles. In the opinion of
management, the interim financial information includes all adjustments and
accruals, consisting only of normal recurring adjustments (except as otherwise
disclosed), which are necessary for a fair presentation of results for the
respective interim period. During the first quarter of fiscal 2010,
we recorded income of approximately $0.6 million, primarily as a reduction of
cost of goods sold, related to a correction of amounts recorded in fiscal 2009
as a foreign currency translation adjustment in shareholders’
equity. We determined that the impact of this adjustment was not
material to fiscal 2009 or the projected fiscal 2010 year.
We
evaluated subsequent events through November 17, 2009, the date on which this
Quarterly Report on Form 10-Q was filed with the Securities and Exchange
Commission.
The
foregoing interim results are not necessarily indicative of the results of
operations which will occur for the full fiscal year ending April 24,
2010.
Certain
prior year information has been reclassified to be comparable with the current
year presentation.
8
At
October 24, 2009 and April 25, 2009, we had short-term restricted cash of $0.5
million and $18.7 million, respectively, related to our wholly-owned insurance
company. Prior to April 25, 2009, restricted cash was primarily used
to support our liability for workers’ compensation claims and
premiums. In the first quarter of fiscal 2010 La-Z-Boy Incorporated
assumed the obligations related to our workers’ compensation and obtained
regulatory approval to transfer substantially all of the assets from our
wholly-owned insurance company, to La-Z-Boy Incorporated. As a result
of these changes, restricted cash was reduced to $0.5 million, representing the
remaining invested capital in our wholly-owned insurance company.
|
A
summary of inventories is as
follows:
|
|
(Unaudited, amounts in
thousands)
|
10/24/09
|
4/25/09
|
||||||
|
Raw
materials
|
$ | 60,804 | $ | 53,498 | ||||
|
Work
in process
|
11,702 | 11,281 | ||||||
|
Finished
goods
|
92,188 | 101,147 | ||||||
|
FIFO
inventories
|
164,694 | 165,926 | ||||||
|
Excess
of FIFO over LIFO
|
(25,748 | ) | (25,748 | ) | ||||
|
Inventories,
net
|
$ | 138,946 | $ | 140,178 | ||||
Net
periodic pension costs were as follows:
|
Second Quarter Ended
|
Six Months Ended
|
|||||||||||||||
|
(Unaudited, amounts in thousands)
|
10/24/09
|
10/25/08
|
10/24/09
|
10/25/08
|
||||||||||||
|
Service
cost
|
$ | 261 | $ | 328 | $ | 522 | $ | 656 | ||||||||
|
Interest
cost
|
1,400 | 1,359 | 2,800 | 2,718 | ||||||||||||
|
Expected
return on plan assets
|
(1,206 | ) | (1,728 | ) | (2,412 | ) | (3,456 | ) | ||||||||
|
Net
amortization
|
527 | — | 1,054 | — | ||||||||||||
|
Net
periodic pension cost (benefit)
|
$ | 982 | $ | (41 | ) | $ | 1,964 | $ | (82 | ) | ||||||
We did
not make any contributions to the plans during the second quarter of fiscal
2010. We are not required to make any contributions to the defined benefit
plan in fiscal year 2010; however we have the discretion to make
contributions.
We have
provided financial guarantees relating to notes and leases in connection with
certain La-Z-Boy Furniture Galleries® stores which are not operated by the
company. The guarantees are generally for real estate leases and have
remaining terms of one to three years. These guarantees enhance the credit of
these dealers. The dealer is required to make periodic fee payments to
compensate us for our guarantees. We have recognized liabilities for the fair
values of these agreements that we have entered into, but they are not material
to our consolidated financial statements.
9
We would
be required to perform under these agreements only if the dealer were to default
on the lease or note. The maximum amount of potential future payments under
these guarantees was $2.3 million as of October 24, 2009.
We have,
from time to time, entered into agreements which resulted in indemnifying third
parties against certain liabilities, mainly environmental obligations. We
believe that judgments, if any, against us related to such agreements would not
have a material effect on our business or financial condition.
Our
accounting policy for product warranties is to accrue an estimated liability at
the time the revenue is recognized. This estimate is based on historical claims
and adjusted for currently known warranty issues. While our claims in
fiscal 2010 declined, our experience indicated that the time from when the
products shipped until a claim was settled has increased, so we did not see a
corresponding decrease in our outstanding liability.
A
reconciliation of the changes in our product warranty liability is as
follows:
|
Second Quarter Ended
|
Six Months Ended
|
|||||||||||||||
|
(Unaudited, amounts in thousands)
|
10/24/09
|
10/25/08
|
10/24/09
|
10/25/08
|
||||||||||||
|
Balance
as of the beginning of the period
|
$ | 14,297 | $ | 14,645 | $ | 14,394 | $ | 14,334 | ||||||||
|
Accruals
during the period
|
3,383 | 3,993 | 6,720 | 8,097 | ||||||||||||
|
Settlements
during the period
|
(3,387 | ) | (4,201 | ) | (6,821 | ) | (7,994 | ) | ||||||||
|
Balance
as of the end of the period
|
$ | 14,293 | $ | 14,437 | $ | 14,293 | $ | 14,437 | ||||||||
Total
compensation expense recognized in the Consolidated Statement of Operations for
all equity based compensation was $1.6 million and $2.6 million, for the second
quarter and first six months of fiscal 2010, respectively. For the
second quarter and first six months of fiscal 2009, we recorded compensation
expense for all equity based compensation of $1.0 million and $1.9 million,
respectively.
In the
second quarter of fiscal 2010 we granted 0.1 million deferred stock units to our
non-employee directors. We account for deferred stock units as
liability-based awards; the compensation expense is initially measured and
recognized based on the market price of our common stock at the grant
date. The liability is re-measured and adjusted based on our stock
price at the end of each reporting period until paid. Expense
relating to the deferred stock units recorded in Selling, General and
Administrative expense was $0.9 million and $1.3 million, for the second quarter
and first six months of fiscal 2010, respectively. For the second
quarter and first six months of fiscal 2009, expense relating to deferred stock
units was $0.4 million.
10
The
components of total comprehensive income (loss) are as follows:
|
Second Quarter Ended
|
||||||||||||||||||||||||
|
10/24/09
|
10/25/08
|
|||||||||||||||||||||||
|
(Unaudited, amounts in thousands)
|
Attributable
to La-Z-Boy
Incorporated
|
Non-
controlling
Interest
|
Total
|
Attributable
to La-Z-Boy
Incorporated
|
Non-
controlling
Interest
|
Total
|
||||||||||||||||||
|
Net
income (loss)
|
$ | 5,907 | $ | (200 | ) | $ | 5,707 | $ | (53,744 | ) | $ | 34 | $ | (53,710 | ) | |||||||||
|
Other
comprehensive income (loss):
|
||||||||||||||||||||||||
|
Translation
adjustment
|
(130 | ) | 41 | (89 | ) | (1,129 | ) | 1,370 | 241 | |||||||||||||||
|
Change
in fair value of cash flow hedge
|
15 | — | 15 | (502 | ) | — | (502 | ) | ||||||||||||||||
|
Net
pension amortization
|
527 | — | 527 | — | — | — | ||||||||||||||||||
|
Unrealized
gains/(losses) on marketable securities arising during the
period
|
692 | — | 692 | (4,034 | ) | — | (4,034 | ) | ||||||||||||||||
|
Total
comprehensive income (loss)
|
$ | 7,011 | $ | (159 | ) | $ | 6,852 | $ | (59,409 | ) | $ | 1,404 | $ | (58,005 | ) | |||||||||
11
|
Six Months Ended
|
||||||||||||||||||||||||
|
10/24/09
|
10/25/08
|
|||||||||||||||||||||||
|
(Unaudited, amounts in thousands)
|
Attributable
to La-Z-Boy
Incorporated
|
Non-
controlling
Interest
|
Total
|
Attributable
to La-Z-Boy
Incorporated
|
Non-
controlling
Interest
|
Total
|
||||||||||||||||||
|
Net
income (loss)
|
$ | 7,890 | $ | 13 | $ | 7,903 | $ | (62,288 | ) | $ | 121 | $ | (62,167 | ) | ||||||||||
|
Other
comprehensive income (loss):
|
||||||||||||||||||||||||
|
Translation
adjustment
|
(850 | ) | 155 | (695 | ) | (1,302 | ) | 1,211 | (91 | ) | ||||||||||||||
|
Change
in fair value of cash flow hedge
|
1 | — | 1 | (224 | ) | — | (224 | ) | ||||||||||||||||
|
Net
pension amortization
|
1,054 | — | 1,054 | — | — | — | ||||||||||||||||||
|
Unrealized
gains/(losses) on marketable securities arising during the
period
|
1,538 | — | 1,538 | (4,780 | ) | — | (4,780 | ) | ||||||||||||||||
|
Total
comprehensive income (loss)
|
$ | 9,633 | $ | 168 | $ | 9,801 | $ | (68,594 | ) | $ | 1,332 | $ | (67,262 | ) | ||||||||||
Our
reportable operating segments are the Upholstery Group, the Casegoods Group and
the Retail Group.
Upholstery Group. The
operating units in the Upholstery Group are La-Z-Boy, England, and Bauhaus. This
group primarily manufactures and sells upholstered furniture to furniture
retailers. Upholstered furniture includes recliners and motion furniture, sofas,
loveseats, chairs, ottomans and sleeper sofas.
Casegoods Group. The
operating units in the Casegoods Group are American Drew/Lea, Kincaid, and
Hammary. This group primarily sells manufactured or imported wood furniture to
furniture retailers. Casegoods product includes tables, chairs,
entertainment centers, headboards, dressers, accent pieces and some upholstered
furniture.
Retail Group. The Retail
Group consists of 68 company-owned La-Z-Boy Furniture Galleries® stores in eight
primary markets. The Retail Group sells upholstered furniture to end
consumers, as well as casegoods and other accessories.
12
|
Second Quarter Ended
|
Six Months Ended
|
|||||||||||||||
|
(Unaudited, amounts in thousands)
|
10/24/09
(13 weeks)
|
10/25/08
(13 weeks)
|
10/24/09
(26 weeks)
|
10/25/08
(26 weeks)
|
||||||||||||
|
Sales
|
||||||||||||||||
|
Upholstery
Group
|
$ | 232,780 | $ | 247,934 | $ | 429,472 | $ | 485,052 | ||||||||
|
Casegoods
Group
|
37,302 | 48,473 | 73,167 | 96,594 | ||||||||||||
|
Retail
Group
|
38,014 | 39,484 | 73,976 | 81,911 | ||||||||||||
|
VIEs
|
12,248 | 11,793 | 23,987 | 25,871 | ||||||||||||
|
Other/eliminations
|
(19,637 | ) | (15,736 | ) | (37,224 | ) | (35,828 | ) | ||||||||
|
Consolidated
|
$ | 300,707 | $ | 331,948 | $ | 563,378 | $ | 653,600 | ||||||||
|
Operating
income (loss)
|
||||||||||||||||
|
Upholstery
Group
|
$ | 25,359 | $ | 8,338 | $ | 41,649 | $ | 18,194 | ||||||||
|
Casegoods
Group
|
(184 | ) | 755 | (305 | ) | 2,132 | ||||||||||
|
Retail
Group
|
(5,301 | ) | (10,391 | ) | (10,969 | ) | (20,401 | ) | ||||||||
|
VIEs
|
(402 | ) | (2,621 | ) | (137 | ) | (3,709 | ) | ||||||||
|
Corporate
and Other
|
(8,424 | ) | (8,722 | ) | (15,524 | ) | (14,071 | ) | ||||||||
|
Goodwill
write-down
|
— | (408 | ) | — | (1,700 | ) | ||||||||||
|
Restructuring
|
(1,183 | ) | (2,923 | ) | (2,220 | ) | (9,499 | ) | ||||||||
| $ | 9,865 | $ | (15,972 | ) | $ | 12,494 | $ | (29,054 | ) | |||||||
During
the past several years, we have committed to various restructuring plans to
rationalize our manufacturing facilities, consolidate warehouse distribution
centers and close underperforming retail facilities. With these restructuring
plans, we have written-down various fixed assets. Additionally, we recorded
charges for severance and benefits, contract terminations and other transition
costs related to relocating and closing facilities.
In the
fourth quarter of fiscal 2009, we committed to a restructuring plan to
consolidate our casegoods manufacturing plants in North Carolina related to our
Kincaid and American Drew/Lea operations and to convert another facility into a
distribution center. The consolidation of these plants occurred in the first
quarter of fiscal 2010. The conversion of the distribution center is
expected to be completed by the end of the fourth quarter of fiscal 2010. In
connection with these activities, we have incurred $1.9 million in restructuring
charges since the inception of this plan for severance and benefits, write-down
of fixed assets and other restructuring charges. In the second
quarter and first six months of fiscal 2010, we recorded pre-tax restructuring
charges of $1.1 million and $1.7 million, respectively, covering severance and
benefits and other restructuring costs in connection with this plan. We expect
to incur approximately $0.7 million in additional charges in fiscal 2010 related
to severance and benefits and other restructuring costs under this plan. During
fiscal 2009, the plan resulted in restructuring charges of $0.2 million,
covering severance and benefits and the write-down of fixed
assets. These changes, once fully completed, are expected to result
in annual cost savings of approximately $5 to $6 million based on current
volume.
13
During
fiscal 2008, we committed to a restructuring plan to consolidate all of our
North American cutting and sewing operations in Mexico and transfer production
from our Tremonton, Utah plant, to our five remaining La-Z-Boy branded
upholstery manufacturing facilities. Our Utah facility ceased operations during
the first quarter of fiscal 2009 and production was shifted to our remaining
manufacturing facilities. At the end of the second quarter of fiscal 2010, we
had about 840 employees at our Mexican facility. Because our Mexican facility is
still in the beginning stages of production, only about 33% of our domestic
cutting and sewing operations have been transferred to our Mexican facility. By
the end of fiscal 2010 we expect 100% of our domestic fabric cutting and sewing
operations to be shifted to our Mexican facility. We plan to begin shifting the
domestic leather cutting and sewing operations in the second quarter of fiscal
2011. In connection with these activities, we have recorded $10.0 million in
restructuring charges, net of reversals since the inception of this plan for
severance and benefits, write-down of certain fixed assets, and other
restructuring costs. We expect to incur additional pre-tax restructuring charges
of $1.0 million to $1.5 million during the next twelve months. During the second
quarter and first six months of fiscal 2010, we had restructuring charges, net
of reversals of $(0.4) million and $(0.3) million, respectively, covering
severance and benefits under this plan. The reversal of restructuring
charges relate to a decrease in our estimated healthcare costs for this
plan. During fiscal 2009, the plan resulted in restructuring charges
of $7.7 million, covering severance and benefits ($3.1 million) and other
restructuring costs ($4.6 million). Other restructuring costs include
transportation, freight surcharges and other transition costs as we moved
production to other plants. These changes, once fully completed are expected to
result in annual cost savings of approximately $20 million.
During
fiscal 2007 and 2008, several of our warehouse distribution centers were
consolidated into larger facilities and several underperforming stores were
closed. In the second quarter and first six months of fiscal 2010, we had
restructuring charges of $0.5 million and $0.8 million, respectively, related to
contract terminations. We expect to incur approximately $0.5 million
of additional charges in the remainder of fiscal 2010. During fiscal
2009, we had restructuring charges of $1.6 million related to contract
terminations.
During
fiscal 2009, we committed to restructuring plans to close a plant in Sherman,
Mississippi related to our Bauhaus operations, to reduce our company-wide
employment to be more in line with our sales volume, and to close the operations
of our La-Z-Boy U.K. subsidiary. The closure of the plant in Sherman,
Mississippi was completed in the fourth quarter of fiscal 2009. The
closure of our La-Z-Boy U.K. subsidiary occurred in the second quarter of fiscal
2009. In connection with these plans, we recorded pre-tax
restructuring charges of $3.5 million in fiscal 2009, covering severance and
benefits ($1.2 million), the write-down of inventory ($1.2 million) and the
write-down of fixed assets and other restructuring charges ($1.1
million). We do not expect to incur any additional charges related to
these restructuring plans.
Additionally,
during fiscal 2009 we had reversals of $0.5 million relating to our
restructuring plans in fiscal 2007.
As of
October 24, 2009, we had a remaining restructuring liability of
$1.9 million which is expected to be settled as follows: $1.3 million
in the remainder of fiscal 2010 and $0.6 million thereafter.
For the current fiscal year to date,
restructuring liabilities along with charges to expense, cash payments or asset
write-downs for all of our restructuring actions were as
follows:
|
Fiscal 2010
|
||||||||||||||||
|
(Unaudited, amounts in thousands)
|
4/25/09
Balance
|
Charges to
Expense *
|
Cash
Payments
or Asset
Write-Offs
|
10/24/09
Balance
|
||||||||||||
|
Severance and benefit-related costs
|
$ | 2,022 | $ | (30 | ) | $ | (777 | ) | $ | 1,215 | ||||||
|
Contract
termination costs
|
530 | 821 | (669 | ) | 682 | |||||||||||
|
Other
|
— | 1,429 | (1,429 | ) | — | |||||||||||
|
Total
restructuring
|
$ | 2,552 | $ | 2,220 | $ | (2,875 | ) | $ | 1,897 | |||||||
|
*
|
Charges
to expense include $0.1 million of non-cash charges for contract
termination
costs.
|
14
|
Fiscal 2009
|
||||||||||||||||
|
(Unaudited, amounts in thousands)
|
4/26/08
Balance
|
Charges to
Expense **
|
Cash
Payments
or Asset
Write-Offs
|
4/25/09
Balance
|
||||||||||||
|
Severance
and benefit-related costs
|
$ | 2,842 | $ | 4,149 | $ | (4,969 | ) | $ | 2,022 | |||||||
|
Fixed
asset write-downs, net of gains
|
— | 512 | (512 | ) | — | |||||||||||
|
Contract
termination costs
|
939 | 1,528 | (1,937 | ) | 530 | |||||||||||
|
Other
|
— | 6,271 | (6,271 | ) | — | |||||||||||
|
Total
restructuring
|
$ | 3,781 | $ | 12,460 | $ | (13,689 | ) | $ | 2,552 | |||||||
|
**
|
Charges
to expense include $1.8 million of non-cash charges for contract
termination costs, fixed asset and inventory
write-downs. Inventory write-downs of $1.2 million are included
in “Other.”
|
Our
effective tax rates for the first six months of fiscal 2010 and fiscal 2009 were
34.7% and 99.0%, respectively. For fiscal 2010, a higher estimated
effective tax rate was offset by an additional federal tax
refund. The significantly higher rate for the first six months of
fiscal 2009 resulted primarily from the recording of a $38.2 million valuation
allowance against our deferred tax assets.
Financial
accounting standards require the “primary beneficiary” of a VIE to include the
VIE’s assets, liabilities and operating results in its consolidated financial
statements. In general, a VIE is a corporation, partnership,
limited-liability company, trust or any other legal structure used to conduct
activities or hold assets that either (a) has an insufficient amount of equity
to carry out its principal activities without additional subordinated financial
support, (b) has a group of equity owners that are unable to make significant
decisions about its activities, or (c) has a group of equity owners that do not
have the obligation to absorb losses or the right to receive returns generated
by its operations.
La-Z-Boy
Furniture Galleries® stores that are not operated by us are operated by
independent dealers. These stores sell La-Z-Boy manufactured products as well as
various accessories purchased from approved La-Z-Boy vendors. Most of
these independent dealers have sufficient equity to carry out their principal
operating activities without subordinated financial support. However,
there are certain independent dealers that we have determined may not have
sufficient equity. In some cases we have extended credit beyond normal
trade terms to the independent dealers, made direct loans, entered into leases
and/or guaranteed certain loans or leases.
We
evaluate our transactions and relationships with our La-Z-Boy Furniture
Galleries® dealers on a quarterly basis to determine if any of our independent
dealers qualify as a variable interest entity and additionally whether we are
the primary beneficiary for any of the dealers who do qualify as a variable
interest entity. We also evaluate our current VIEs on a quarterly basis to
determine if they no longer qualify as a variable interest
entity.
15
Based on
the criteria for consolidation of VIEs, we have consolidated dealers where we
were the primary beneficiary based on the fair value of our variable
interests. All of our consolidated VIEs were recorded at fair value
on the date we became the primary beneficiary. In fiscal 2010, all
earnings and losses attributed to these VIEs are recorded as Net income (loss)
attributable to noncontrolling interests. Prior to fiscal 2010, all
losses of the VIEs in excess of their equity were recorded as Net income (loss)
and all earnings of these VIEs to the extent of recouping the losses were
recorded as Net income (loss). Earnings in excess of losses were
attributed to equity owners of the dealers and were recorded as minority
interest.
We had
three consolidated VIEs during the second quarter and first six months of fiscal
2010 representing 31 stores and four consolidated VIEs during the second quarter
and first six months of fiscal 2009 representing 34 stores. The
decrease was the result of our Cleveland VIE no longer being consolidated during
fiscal 2010 which resulted in a decrease of 7 stores. This was offset
by an increase of 4 stores relating to the changes we made with our Toronto VIE
during the second half of fiscal 2009.
The table
below shows information concerning our consolidated VIEs during fiscal 2010 and
fiscal 2009:
|
As of
|
||||||||||||||||
|
(Unaudited, amounts in
thousands)
|
10/24/09
|
4/25/09
|
||||||||||||||
|
Current
assets
|
$ | 17,967 | $ | 16,220 | ||||||||||||
|
Other
long-term assets
|
13,427 | 13,132 | ||||||||||||||
|
Total
assets
|
$ | 31,394 | $ | 29,352 | ||||||||||||
|
Current
liabilities
|
$ | 7,898 | $ | 5,983 | ||||||||||||
|
Other
long-term liabilities
|
2,969 | 3,085 | ||||||||||||||
|
Total
liabilities
|
$ | 10,867 | $ | 9,068 | ||||||||||||
|
Second Quarter Ended
|
Six Months Ended
|
|||||||||||||||
|
(Unaudited, amounts in thousands
)
|
10/24/09
|
10/25/08
|
10/24/09
|
10/25/08
|
||||||||||||
|
Net
sales, net of inter-company eliminations
|
$ | 12,248 | $ | 11,793 | $ | 23,987 | $ | 25,871 | ||||||||
|
Net
loss
|
$ | (514 | ) | $ | (2,444 | ) | $ | (411 | ) | $ | (3,503 | ) | ||||
In
addition to our consolidated VIEs, we had significant interests in three
independent La-Z-Boy Furniture Galleries® dealers for which we were not the
primary beneficiary. Our total exposure to losses related to these
dealers was $2.2 million which consists of past due accounts receivable as well
as notes receivable, net of reserves and collateral on inventory and real
estate. We do not have any obligations or commitments to provide
additional financial support to these dealers for the remainder of fiscal
2010.
16
A
reconciliation of the numerators and denominators used in the computations of
basic and diluted earnings per share were as follows:
|
Second Quarter
Ended
|
Six Months
Ended
|
|||||||||||||||
|
(Unaudited, amounts in thousands)
|
10/24/09
|
10/25/08
|
10/24/09
|
10/25/08
|
||||||||||||
|
Numerator (basic and diluted):
|
||||||||||||||||
|
Net
income (loss) attributable to La-Z-Boy Incorporated
|
$ | 5,907 | $ | (53,744 | ) | $ | 7,890 | $ | (62,288 | ) | ||||||
|
Income
allocated to participating securities
|
(122 | ) | — | (141 | ) | — | ||||||||||
|
Dividends
on participating securities
|
— | (32 | ) | — | (53 | ) | ||||||||||
|
Net
income (loss) available to common shareholders
|
$ | 5,785 | $ | (53,776 | ) | $ | 7,749 | $ | (62,341 | ) | ||||||
|
Second Quarter
Ended
|
Six Months
Ended
|
|||||||||||||||
|
(Unaudited, amounts in thousands)
|
10/24/09
|
10/25/08
|
10/24/09
|
10/25/08
|
||||||||||||
|
Denominator:
|
||||||||||||||||
|
Basic
common shares (based upon weighted average)
|
51,527 | 51,458 | 51,503 | 51,443 | ||||||||||||
|
Add:
|
||||||||||||||||
|
Stock
option dilution
|
228 | — | 48 | — | ||||||||||||
|
Diluted
common shares
|
51,755 | 51,458 | 51,551 | 51,443 | ||||||||||||
Share-based
payment awards that entitle their holders to receive non-forfeitable dividends
prior to vesting are considered participating securities. We granted
restricted stock awards that contain non-forfeitable rights to dividends on
unvested shares; such stock awards are considered participating
securities. As participating securities, the unvested shares are
required to be included in the calculation of our basic earnings per common
share, using the “two-class method.” The two-class method of
computing earnings per common share is an allocation method that calculates
earnings per share for each class of common stock and participating security
according to dividends declared and participation rights in undistributed
earnings. Unvested restricted stock awards were previously included
in our diluted share calculation using the treasury stock method. For
the second quarter and first six months ended October 25, 2008, we did not
allocate any loss to the unvested stock awards (participating securities), due
to their anti-dilutive effect.
The
effect of options to purchase 1.9 million and 2.6 million shares for the
quarters ended October 24, 2009 and October 25, 2008 with a weighted average
exercise price of $14.97 and $15.44 respectively, were excluded from the diluted
share calculation because the exercise prices of these options were higher than
the weighted average share price for the quarters and would have been
anti-dilutive.
Accounting standards require the categorization of financial assets and liabilities, based on the inputs to the valuation technique, into a three-level fair value hierarchy. The various levels of the fair value hierarchy are described as follows:
|
|
·
|
Level 1 —
Financial assets and liabilities whose values are based on unadjusted
quoted market prices for identical assets and liabilities in an active
market that we have the ability to
access.
|
|
·
|
Level 2 —
Financial assets and liabilities whose values are based on quoted prices
in markets that are not active or model inputs that are observable for
substantially the full term of the asset or
liability.
|
17
|
|
·
|
Level 3 —
Financial assets and liabilities whose values are based on prices or
valuation techniques that require inputs that are both unobservable and
significant to the overall fair value
measurement.
|
Accounting
standards require the use of observable market data, when available, in making
fair value measurements. When inputs used to measure fair value fall within
different levels of the hierarchy, the level within which the fair value
measurement is categorized is based on the lowest level input that is
significant to the fair value measurement.
The
following table presents the fair value hierarchy for those assets measured at
fair value on a recurring basis as of October 24, 2009:
|
Fair Value Measurements
|
||||||||||||
|
(Unaudited, amounts in thousands)
|
Level 1
|
Level 2
|
Level 3
|
|||||||||
|
Assets
|
||||||||||||
|
Available-for-sale
securities
|
$ | 8,230 | $ | 2,266 | $ | — | ||||||
|
Liabilities
|
||||||||||||
|
Interest
rate swap
|
— | (721 | ) | — | ||||||||
|
Total
|
$ | 8,230 | $ | 1,545 | $ | — | ||||||
We hold
available-for-sale marketable securities to fund future obligations of one of
our non-qualified retirement plans. The fair value measurements for
our available-for-sale securities are based upon quoted prices in active
markets, as well as through broker quotes and independent valuation providers,
multiplied by the number of shares owned exclusive of any transaction costs and
without any adjustments to reflect discounts that may be applied to selling a
large block of the securities at one time.
We
entered into a three year interest rate swap agreement in order to fix a portion
of our floating rate debt. The fair value of the swap
agreement was measured as the present value of all expected future cash flows
based on the LIBOR-based swap yield curve as of the date of the valuation and
considered counterparty non-performance risk. These assumptions can be derived
from observable data or are supported by observable levels at which transactions
are executed in the marketplace.
During
the first quarter of fiscal 2009, we entered into an interest rate swap
agreement which we accounted for as a cash flow hedge. This swap
hedges the interest on $20 million of floating rate debt. Under the
swap, we are required to pay 3.33% through May 16, 2011 and we receive three
month LIBOR from the counterparty. This offsets the three month LIBOR component
of interest which we are required to pay under $20 million of floating rate
debt. Interest under this debt as of October 24, 2009 was three month
LIBOR plus 1.75%.
We
executed this interest rate cash flow hedge in order to mitigate our exposure to
variability in cash flows for the future interest payments on a designated
portion of borrowings. The gains and losses are reflected in
accumulated other comprehensive loss (with an offset to the hedged item in other
long-term liabilities) until the hedged transaction impacts our
earnings. Our interest rate swap agreement was tested for
ineffectiveness during the first quarter of fiscal 2009 and was determined to be
effective. Our agreement also qualified for the “short cut” method of
accounting. We believe that our agreement continues to be effective and
therefore no gains or losses have been recorded in our
earnings.
18
For the
second quarter and first six months of fiscal 2010, we deferred losses of
$0.7 million into accumulated other comprehensive loss. For the
second quarter and first six months of fiscal 2009, we deferred gains of less
than $0.1 million into accumulated other comprehensive loss. The fair
value of our interest rate swap at October 24, 2009 and at April 25, 2009 was
$0.7 million, which was included in other long-term liabilities.
In
December 2008, the Financial Accounting Standards Board (FASB) issued
authoritative guidance for employers’ disclosures about postretirement benefit
plan assets. This guidance expands the disclosures related to
postretirement benefit plan assets to include disclosures concerning a company’s
investment policies for benefit plan assets and categories of plan
assets. This guidance further expands the disclosure requirements to
include the fair value of plan assets, including the levels within the fair
value hierarchy and any concentrations of risk related to the plan
assets. This guidance will be effective for our fiscal 2010 year end
and will require expanded disclosures. The adoption of this guidance
will not have a material impact on our consolidated financial
statements.
In
June 2009, the FASB issued an amendment to the accounting and disclosure
requirements for transfers of financial assets. This amendment
requires greater transparency and additional disclosures for transfers of
financial assets and the entity's continuing involvement with them and changes
the requirements for derecognizing financial assets. In addition,
this amendment eliminates the concept of a qualifying special-purpose entity
(“QSPE”). This amendment is effective for our fiscal 2011 year end and interim
periods within that year. We are currently evaluating the impact this
amendment will have on our consolidated financial statements and
disclosures.
In
June 2009, the FASB issued an amendment to the consolidation guidance
applicable to variable interest entities (“VIEs”). The guidance affects all
entities currently within the scope of FASB ASC 810, Consolidation, as well as
qualifying special-purpose entities (“QSPEs”) that are currently excluded from
the scope of FASB ASC 810, Consolidation. Accordingly,
we will need to reconsider our previous FASB ASC 810, Consolidation, conclusions,
including (1) whether an entity is a VIE, (2) whether we are the VIE’s primary
beneficiary, and (3) what type of financial statement disclosures are
required. This amendment is effective for our fiscal 2011 year end
and interim periods within that year.
In July
2009, the FASB issued the Accounting Standards Codification (“Codification”),
which became the single source of authoritative generally accepted accounting
principles (GAAP) in the United States, other than rules and interpretive
releases issued by the Securities and Exchange Commission (SEC). The
Codification is a reorganization of current GAAP into a topical format that
eliminates the current GAAP hierarchy and instead establishes two levels of
guidance – authoritative and non-authoritative. All
non-grandfathered, non-SEC accounting literature that is not included in the
Codification will become non-authoritative. All references to
authoritative accounting literature in our financial statements beginning in the
second quarter of fiscal 2010 are referenced in accordance with the
Codification. There were no changes to the content of our financial
statements or disclosures as a result of implementing the
Codification.
In August
2009, the FASB issued amendments for the fair value measurement of
liabilities. This amendment provides clarification that in
circumstances in which a quoted price in an active market for the identical
liability is not available, an entity is required to measure fair value using
specified techniques. This amendment also clarifies that when
estimating the fair value of a liability, a reporting entity is not required to
include a separate input or adjustment to other inputs relating to the existence
of a restriction that prevents the transfer of the
liability. Additionally, this amendment clarifies that both a quoted
price in an active market for the identical liability at the measurement date
and the quoted price for the identical liability when traded as an asset in an
active market when no adjustments to the quoted price of the asset are required
are Level 1 fair value measurements. These amendments are effective
for our third quarter of fiscal 2010. These amendments will not have
a material impact on our consolidated financial statements and
disclosures.
19
In
October 2009, the FASB issued amendments to the criteria for separating
consideration in multiple-deliverable arrangements. These amendments
will establish a selling price hierarchy for determining the selling price of a
deliverable. The amendments will require that a vendor determine its
best estimate of selling price in a manner that is consistent with that used to
determine the price to sell the deliverable on a standalone
basis. These amendments will eliminate the residual method of
allocation and require that arrangement consideration be allocated at the
inception of the arrangement to all deliverables using the relative selling
price method. These amendments will expand disclosures related to
vendor’s multiple-deliverable revenue arrangements. These amendments
will be effective for our fiscal 2012 year end. We are currently
evaluating the impact these amendments will have on our consolidated financial
statements and disclosures.
On
November 6, 2009, the Work, Home Ownership and Business Assistance Act of 2009
(H.R. 3548) federal law was enacted. The law includes provisions
allowing businesses with federal net operating losses in tax years 2008 and 2009
to carry back those losses for a period of five years and receive refunds of
income taxes paid in those years. Previously, federal net operating
losses could only be carried back for a period of two years. This new
law is likely to impact our effective tax rate in the third quarter of fiscal
2010; however as of November 17, 2009, we are still in the process of evaluating
the effect of this new law on our income tax position.
20
Our
Management’s Discussion and Analysis is an integral part of understanding our
financial results. This
Management’s Discussion and
Analysis should be read in conjunction with the accompanying Consolidated
Financial Statements and related Notes to Consolidated Financial Statements. We
begin the Management’s Discussion and Analysis with an introduction to La-Z-Boy
Incorporated’s key businesses and strategies. We then provide a discussion of
our results of operations, liquidity and capital resources, quantitative and
qualitative disclosures about market risk, and critical accounting
policies.
We are
making forward-looking statements in this report. Generally, forward-looking
statements include information concerning possible or assumed future actions,
events or results of operations. More specifically, forward-looking statements
include the information in this document regarding:
|
future
income, margins and cash flows
|
future
economic performance
|
|
|
future
growth
|
industry
and importing trends
|
|
|
adequacy
and cost of financial resources
|
|
management
plans
|
Forward-looking
statements also include those preceded or followed by the words "anticipates,"
"believes," "estimates," "hopes," "plans," "intends" and "expects" or similar
expressions. With respect to all forward-looking statements, we claim the
protection of the safe harbor for forward-looking statements contained in the
Private Securities Litigation Reform Act of 1995.
Actual
results could differ materially from those anticipated or projected due to a
number of factors. These factors include, but are not limited to: (a) changes in
consumer confidence and demographics; (b) continued economic recession and
fluctuations in our stock price; (c) changes in the real estate and credit
markets and the potential impacts on our customers and suppliers; (d) the impact
of terrorism or war; (e) continued energy and other commodity price changes; (f)
the impact of logistics on imports; (g) the impact of interest rate and currency
exchange rate changes; (h) operating factors, such as supply, labor or
distribution disruptions including changes in operating conditions, product
recalls or costs; (i) effects of restructuring actions; (j) changes in the
domestic or international regulatory environment; (k) the impact of adopting new
accounting principles; (l) the impact from natural events such as hurricanes,
earthquakes and tornadoes; (m) the ability to procure fabric rolls and leather
hides or cut and sewn fabric and leather sets domestically or abroad; (n) those
matters discussed in Item 1A of our fiscal 2009 Annual Report and factors
relating to acquisitions and other factors identified from time-to-time in our
reports filed with the Securities and Exchange Commission. We undertake no
obligation to update or revise any forward-looking statements, either to reflect
new developments or for any other reason.
La-Z-Boy
Incorporated manufactures, markets, imports, distributes and retails upholstery
products and casegoods (wood) furniture products. Our La-Z-Boy brand is the most
recognized brand in the furniture industry, and we are the leading global
producer of reclining chairs. We own 68 La-Z-Boy Furniture Galleries® stores,
which are retail locations dedicated to marketing our La-Z-Boy branded product.
These 68 stores are part of the larger store network of La-Z-Boy Furniture
Galleries® stores which includes a total of 311 stores, the balance of which are
independently owned and operated. The network constitutes the industry’s largest
single-branded upholstered furniture retailer in North America. These stores
combine the style, comfort and quality of La-Z-Boy furniture with our in-home
design service to help consumers furnish their homes. In addition to
our La-Z-Boy Furniture Galleries® store network, the La-Z-Boy brand also has a
distribution model known as ComfortStudios®. ComfortStudios® are
defined spaces within a larger independent retailer that are dedicated to
displaying La-Z-Boy branded furniture with the average size of the space being
about 5,000 square feet. As of October 24, 2009, we had 487
ComfortStudios®. We expect to open approximately 10 new
ComfortStudios® during the remainder of fiscal 2010. Kincaid, England
and Lea also have in-store gallery programs.
21
We
consolidate certain of our independent dealers who do not have sufficient equity
to carry out their principal business activities without our financial support.
These dealers are referred to as Variable Interest Entities (“VIEs”). During the
second quarter and first six months of fiscal 2010 we had three VIEs, operating
31 stores, included in our Consolidated Statement of
Operations. During the second quarter and first six months of
fiscal 2009 we had four VIEs, operating 34 stores, included in our Consolidated
Statement of Operations.
Our
reportable operating segments are the Upholstery Group, the Casegoods Group and
the Retail Group.
Upholstery Group. In
terms of revenue, our largest segment is the Upholstery Group, which includes
La-Z-Boy, our largest operating unit. Also included in the Upholstery Group are
the operating units Bauhaus and England. This group primarily
manufactures and sells upholstered furniture to proprietary
stores. Upholstered furniture includes recliners and motion
furniture, sofas, loveseats, chairs, ottomans and sleeper sofas.
Casegoods Group. Our
Casegoods Group is primarily an importer, marketer and distributor of casegoods
(wood) furniture. During fiscal 2010, our remaining two casegoods
manufacturing facilities are being consolidated. The operating units
in the Casegoods Group are American Drew/Lea, Hammary and Kincaid.
Casegoods product includes tables, chairs, entertainment centers, headboards,
dressers, accent pieces and some coordinated upholstered
furniture.
Retail Group. The
Retail Group consists of 68 company-owned La-Z-Boy Furniture Galleries® stores
located in eight markets ranging from the Midwest to the East Coast of the
United States and also including Southeastern Florida. The Retail Group
sells upholstered furniture, as well as casegoods and other accessories to end
consumers through the retail network.
Challenging
economic conditions have continued to have a negative impact on consumers’
discretionary spending. As a result we have continued to experience a
decline in our sales volume during the second quarter and first six months of
fiscal 2010. During the second half of fiscal 2009, we made
significant changes to our business in order to offset the impact of these
challenging economic conditions and the anticipated corresponding decline in
sales volume. We reduced employment across all levels of the company,
closed a plant related to our Bauhaus operations, continued to transition our
cut and sew operations to our new facility in Mexico and removed costs by
suspending certain employee benefits and made changes to our overall operating
expenses to be more in line with our sales volume. During the first
half of fiscal 2010 we have continued to reduce costs by consolidating our
casegoods manufacturing facilities and continuing the transition of our cut and
sew operations to Mexico. As a result of the changes we made during
the second half of fiscal 2009 and the first half of fiscal 2010, we were able
to produce positive net income for three consecutive quarters on declining sales
volumes.
While we
believe that these cost savings measures will positively impact our earnings, we
remain cautious about future economic conditions, and as a result we will
continue to focus on controlling our costs and managing our operating expenses
based on current sales trends.
22
Analysis of Operations: Quarter Ended
October 24, 2009
(Second Quarter 2010 compared with
2009)
|
Quarter Ended
|
||||||||||||
|
(Unaudited, amounts in thousands, except per
share amounts and percentages)
|
10/24/09
|
10/25/08
|
Percent
change
|
|||||||||
|
Upholstery
sales
|
$ | 232,780 | $ | 247,934 | (6.1 | )% | ||||||
|
Casegoods
sales
|
37,302 | 48,473 | (23.0 | )% | ||||||||
|
Retail
sales
|
38,014 | 39,484 | (3.7 | )% | ||||||||
|
VIE
sales
|
12,248 | 11,793 | 3.9 | % | ||||||||
|
Other/eliminations
|
(19,637 | ) | (15,736 | ) | (24.8 | )% | ||||||
|
Consolidated
sales
|
$ | 300,707 | $ | 331,948 | (9.4 | )% | ||||||
|
Consolidated
gross profit
|
$ | 95,082 | $ | 86,622 | 9.8 | % | ||||||
|
Consolidated
gross margin
|
31.6 | % | 26.1 | % | ||||||||
|
Consolidated
S,G&A
|
$ | 84,697 | $ | 101,499 | (16.6 | )% | ||||||
|
S,G&A
as a percent of sales
|
28.2 | % | 30.6 | % | ||||||||
|
Upholstery
operating income
|
$ | 25,359 | $ | 8,338 | 204.1 | % | ||||||
|
Casegoods
operating income (loss)
|
(184 | ) | 755 | (124.4 | )% | |||||||
|
Retail
operating loss
|
(5,301 | ) | (10,391 | ) | 49.0 | % | ||||||
|
VIE
operating loss
|
(402 | ) | (2,621 | ) | 84.7 | % | ||||||
|
Corporate
and other
|
(8,424 | ) | (8,722 | ) | 3.4 | % | ||||||
|
Goodwill
write-down
|
— | (408 | ) | 100.0 | % | |||||||
|
Restructuring
|
(1,183 | ) | (2,923 | ) | 59.5 | % | ||||||
|
Consolidated
operating income (loss)
|
$ | 9,865 | $ | (15,972 | ) | 161.8 | % | |||||
|
Upholstery
operating margin
|
10.9 | % | 3.4 | % | ||||||||
|
Casegoods
operating margin
|
(0.5 | )% | 1.6 | % | ||||||||
|
Retail
operating margin
|
(13.9 | )% | (26.3 | )% | ||||||||
|
Consolidated
operating margin
|
3.3 | % | (4.8 | )% | ||||||||
|
Net
income (loss) attributable to La-Z-Boy Incorporated
|
$ | 5,907 | $ | (53,744 | ) | |||||||
|
Net
income (loss) per share attributable to La-Z-Boy
Incorporated
|
$ | 0.11 | $ | (1.05 | ) | |||||||
23
Sales
Consolidated sales were down
9.4% when compared with the second quarter of fiscal 2009 due to the continued
challenging economic climate which included a weak retail environment, low
consumer confidence, an uncertain housing market and a poor credit
environment. The challenging conditions coupled with our decision to
limit our exposure and credit support to certain independent dealers was
reflected in our overall decrease in sales.
Upholstery Group sales were
down 6.1% compared with the second quarter of fiscal 2009. Sales price increases
resulted in a 1.8% increase in sales; however this was offset by the overall
decrease in sales volume due to the continued challenging economic
conditions.
Casegoods Group sales
decreased 23.0% compared with the second quarter of fiscal 2009. The decrease in
sales volume occurred across all of our casegoods operating units due to weak
consumer demand. The challenging economic climate has had a negative
impact on consumers’ discretionary spending. Because casegoods product tends to
be a higher ticket purchase compared to upholstered furniture, we believe
consumers are postponing these purchases to a greater extent than they are
upholstery.
Retail Group sales decreased
3.7% when compared with the second quarter of fiscal 2009. We believe
the minimal decrease in sales was a result of our decision to maintain a strong
advertising presence in the marketplace during these challenging economic
conditions. Additionally, our Retail Group focused on various sales model
changes implemented in the second half of fiscal 2009 to drive
sales.
VIE sales increased 3.9% when
compared with the second quarter of fiscal 2009. The slight increase
in sales was result of changes we made to our Toronto
VIE. Additionally, sales for our California VIE were positively
impacted by the addition of one store in the second quarter of fiscal
2010. This was somewhat offset by a decrease in sales as a result of
our Cleveland VIE no longer being consolidated during the second quarter of
fiscal 2010.
Gross
Margin
Gross
margin increased 5.5 percentage points in the second quarter of fiscal 2010 in
comparison to the second quarter of fiscal 2009. Selling price
increases in early fiscal 2009, including changes in our discounts resulted in a
1.0 percentage point increase in our gross margin and raw material costs
decreases resulted in a 3.0 percentage point increase in our gross
margin. Additionally, our gross margin increased 2.3 percentage
points due to efficiencies realized in our domestic upholstery manufacturing
facilities as a result of the many changes we made in our conversion to cellular
manufacturing and more efficient capacity utilization due to the various
restructurings we completed in recent years. These restructurings
eliminated redundant costs by closing plants and reducing our workforce to
enable our operations to run more efficiently. Restructuring charges
included in gross profit decreased by $1.6 million or 0.5 percentage points in
the second quarter of fiscal 2010, when compared to the second quarter of fiscal
2009. Somewhat offsetting the positive trend mentioned above was a
2.4 percentage point decrease in our gross margin due to a change in the product
mix of our sales shifting to lower margin products.
24
Selling,
General and Administrative Expenses
Selling,
general and administrative expenses (S,G&A) decreased by $16.8
million when compared to the prior year’s second quarter, or 2.4 percentage
points. Advertising costs, bad debt expense and commissions expense
decreased $11.6 million or 35.5% in the second quarter of fiscal 2010, compared
to the second quarter of fiscal 2009. Advertising costs as a percent
of sales decreased 1.6 percentage points or $6.4 million in the second quarter
of fiscal 2010 compared to the second quarter of fiscal 2009. Our
decrease in advertising costs was mainly a result of a shift in the timing of
our advertising spend as a result of an increased focus on specific promotional
time periods. Additionally, the overall decline in the economic
climate has decreased the cost of purchasing advertising. We believe
these changes, along with some purchasing strategy shifts, have allowed us to
maintain a strong presence in the marketplace, while decreasing our
costs. The remainder of the decrease in selling, general and
administrative expenses was a result of our overall reduction in operating
expenses to be more in alignment with the current sales volumes.
Goodwill
Write-Down
The
goodwill write-down of $0.4 million in the second quarter of fiscal 2009 was the
result of our plan to reorganize the Toronto, Ontario retail market which we
consolidated as a VIE.
Restructuring
Restructuring
costs, net of reversals totaled $1.2 million for the second quarter of fiscal
2010 as compared with $2.9 million in the second quarter of fiscal 2009. The
restructuring costs, net of reversals in the second quarter of fiscal 2010
related to the consolidation of our casegoods manufacturing plants, in addition
to ongoing severance as we transition our domestic cut and sew operations to our
Mexico facility and the ongoing costs for our closed retail
facilities. The reversal of restructuring charges relate to a
decrease in our estimated healthcare costs for these plans. The
restructuring costs in the second quarter of fiscal 2009 related to the closure
of our Tremonton, Utah facility, the restructuring of our La-Z-Boy U.K. facility
and the ongoing costs for the closure of retail facilities. These
costs were comprised mainly of severance and benefits, fixed asset and inventory
impairments, transition costs for the Utah plant closure and the ongoing lease
cost for our closed retail facilities.
Operating
Margin
Our
consolidated operating margin increased 8.1 percentage points to 3.3% for the
second quarter of fiscal 2010 compared to the second quarter of fiscal
2009. Our second quarter of fiscal 2010 operating margin included 0.4
percentage points of restructuring charges. Operating margin for the
second quarter of fiscal 2009 was (4.8)% and included 0.9 percentage points of
restructuring charges and 0.1 percentage points for the write-down of
goodwill.
The Upholstery Group operating
margin increased 7.5 percentage points when compared with the second quarter of
fiscal 2009. Our Upholstery Group operating margin was positively
impacted by efficiencies we gained through our change to a cellular
manufacturing footprint, which enable us to be more productive with less
employees, and more efficient capacity utilization due to the various
restructurings we completed in recent years. Additionally, our
Upholstery Group’s operating margin was positively impacted by a decrease in raw
material costs and decreases in bad debt and advertising
expenses. Net advertising, after considering reimbursements for our
shared advertising program, decreased $4.0 million in the second quarter of
fiscal 2010 compared to the second quarter of fiscal 2009. Bad debt expense for
our Upholstery Group decreased $2.1 million in the second quarter of fiscal 2010
compared to the second quarter of fiscal 2009.
Our Casegoods Group operating
margin decreased by 2.1 percentage points in the second quarter of fiscal 2010
when compared with the second quarter of fiscal 2009. The decrease in
operating margin was a direct result of the overall decrease in sales volume of
our casegoods operating units. With a 23.0% decrease in sales volume,
we were unable to reduce our costs quickly enough to maintain our operating
margin.
25
Our Retail Group operating margin
improved significantly during the second quarter of fiscal 2010 in comparison to
the second quarter of fiscal 2009. The 12.4 percentage point
improvement was a direct result of our focus on reducing selling and
administrative costs throughout the second half of fiscal 2009. These
changes, along with only a slight decrease in our Retail Group’s sales volume,
had a favorable impact on our operating margin.
VIE operating loss decreased
$2.2 million in the second quarter of fiscal 2010 when compared to the second
quarter of fiscal 2009. The decrease in operating loss of our VIEs
was mainly the result of changes we made to our Toronto VIE, which included
terminating our relationship with one dealer in our Toronto market during the
third quarter of fiscal 2009 and allowing our other Toronto dealer to assume the
operations of these four stores, which added to the four that they were already
operating. These changes resulted in an increase in the number of
stores included by our VIE for the Toronto market and more efficient operations
for the market as a whole.
Corporate and Other operating
loss in the second quarter of fiscal 2010 decreased $0.3 million when compared
to the second quarter of fiscal 2009. During the second quarter of
fiscal 2010 we had a realized loss on property sales of $0.1 million, compared
to a realized gain on property sales of $0.6 million. This was offset
by our overall focus on cost reductions.
Interest
Expense
Interest
expense for the second quarter of fiscal 2010 was $0.8 million less than the
second quarter of fiscal 2009 due to a $65.5 million decrease in our average
debt. Our weighted average interest rate increased 0.2 percentage
points in the second quarter of fiscal 2010 compared to the second quarter of
fiscal 2009.
Other
Income/(Expense)
Other
income/(expense) was income of $0.2 million for the second quarter of fiscal
2010, compared to expense of $0.7 million for the second quarter of fiscal
2009. The change in the second quarter of fiscal 2010 was mainly the
result of currency exchange rate gains we experienced through our foreign
operations.
Income
Taxes
Our
effective tax rate for the second quarter of fiscal 2010 was 39.7% compared to
203.4% for the second quarter of fiscal 2009. The rates for both
fiscal 2010 and fiscal 2009 reflect an increase in the valuation allowance on
our deferred tax assets of $0.4 million and $38.2 million,
respectively.
26
Results
of Operations
Analysis of Operations: Six Months
Ended October 24, 2009
(First Six Months of 2010 compared
with 2009)
|
Six Months Ended
|
||||||||||||
|
(Amounts in thousands, except per share amounts
and percentages)
|
10/24/09
|
10/25/08
|
Percent
change
|
|||||||||
|
Upholstery
sales
|
$ | 429,472 | $ | 485,052 | (11.5 | )% | ||||||
|
Casegoods
sales
|
73,167 | 96,594 | (24.3 | )% | ||||||||
|
Retail
sales
|
73,976 | 81,911 | (9.7 | )% | ||||||||
|
VIE
sales
|
23,987 | 25,871 | (7.3 | )% | ||||||||
|
Other/eliminations
|
(37,224 | ) | (35,828 | ) | (3.9 | )% | ||||||
|
Consolidated
sales
|
$ | 563,378 | $ | 653,600 | (13.8 | )% | ||||||
|
Consolidated
gross profit
|
$ | 175,468 | $ | 166,883 | 5.1 | % | ||||||
|
Consolidated
gross margin
|
31.1 | % | 25.5 | % | ||||||||
|
Consolidated
S,G&A
|
$ | 162,153 | $ | 192,770 | (15.9 | )% | ||||||
|
S,G&A
as a percent of sales
|
28.8 | % | 29.5 | % | ||||||||
|
Upholstery
operating income
|
$ | 41,649 | $ | 18,194 | 128.9 | % | ||||||
|
Casegoods
operating income (loss)
|
(305 | ) | 2,132 | (114.3 | )% | |||||||
|
Retail
operating loss
|
(10,969 | ) | (20,401 | ) | 46.2 | % | ||||||
|
VIEs
operating loss
|
(137 | ) | (3,709 | ) | 96.3 | % | ||||||
|
Corporate
and other
|
(15,524 | ) | (14,071 | ) | (10.3 | )% | ||||||
|
Goodwill
write-down
|
— | (1,700 | ) | 100.0 | % | |||||||
|
Restructuring
|
(2,220 | ) | (9,499 | ) | 76.6 | % | ||||||
|
Consolidated
operating income (loss)
|
$ | 12,494 | $ | (29,054 | ) | 143.0 | % | |||||
|
Upholstery
operating margin
|
9.7 | % | 3.8 | % | ||||||||
|
Casegoods
operating margin
|
(0.4 | )% | 2.2 | % | ||||||||
|
Retail
operating margin
|
(14.8 | )% | (24.9 | )% | ||||||||
|
Consolidated
operating margin
|
2.2 | % | (4.4 | )% | ||||||||
|
Net
income (loss) attributable to La-Z-Boy Incorporated
|
$ | 7,890 | $ | (62,288 | ) | |||||||
|
Net
income (loss) per share attributable to La-Z-Boy
Incorporated
|
$ | 0.15 | $ | (1.21 | ) | |||||||
27
Sales
Consolidated sales were down 13.8% compared
with the first six months of fiscal 2009 due to the continued challenging
economic climate during the first half of our fiscal year. The
challenging conditions coupled with our decision to limit our exposure and
credit support to certain independent dealers was reflected in our overall
decrease in sales.
Upholstery Group sales were
down 11.5% compared with the first six months of fiscal 2009. Sales price
increases resulted in a 1.5% increase in sales; however this was offset by a
decrease in sales volume due to an overall weak consumer demand, which we
associate with the challenging economic conditions. Additionally, in
the first six months of fiscal 2009, our Upholstery Group sales were affected by
the change in contractual relationships with our third party carriers that
resulted in increased sales for that period as reported in our Form 10-K for the
fiscal year ended April 28, 2008. This change resulted in an increase
of $11.0 million of sales in the first six months of fiscal 2009.
Casegoods Group sales
decreased 24.3% compared with the first six months of fiscal 2009. The decrease
in sales volume occurred across all of our casegoods operating units and
directly related to the overall weakness at retail, which we attribute to the
challenging economic conditions. Additionally, with the casegoods
product typically priced higher than upholstered furniture, we believe consumers
are continuing to postpone or forego these purchases to a greater extent than
they are upholstery products.
Retail Group sales decreased
9.7% compared with the first six months of fiscal 2009. While our
Retail Group’s sales decreased only slightly in the second quarter of fiscal
2010 compared to the second quarter of fiscal 2009, sales for the first six
months overall decreased. We attribute the overall decrease in sales
to the challenging economic conditions, which continue to negatively affect the
home furnishings market.
VIE sales decreased 7.3%
compared with the first six months of fiscal 2009. The decrease was a
direct result of the challenging economic climate that continues to affect the
furniture industry, as well as our VIEs having three less stores during the
first six months of fiscal 2010 compared to the first six months of fiscal
2009.
Gross
Margin
Gross
margin increased 5.6 percentage points in the first six months of fiscal 2010 in
comparison to the first six months of fiscal 2009. Selling
price increases in early fiscal 2009, including changes in our discounts
resulted in a 0.8 percentage point increase in our gross margin and raw material
cost decreases resulted in a 2.2 percentage point increase in our gross
margin. Additionally, our gross margin increased 2.6 percentage
points due to efficiencies realized in our domestic upholstery manufacturing
facilities as a result of the many changes we made in our conversion to cellular
manufacturing and more efficient capacity utilization due to the various
restructurings we completed in recent years. These restructurings
eliminated redundant costs by closing plants and reducing our workforce to
enable our operations to run more efficiently. Restructuring charges
included in gross profit decreased by $6.6 million or 1.0 percentage points
during the first six months of fiscal 2010, compared to the first six months of
fiscal 2009. Somewhat offsetting the positive trend mentioned above
was a 1.6 percentage point decrease in our gross margin due to a change in the
product mix of our sales shifting to lower margin products.
28
Selling,
General and Administrative Expenses
Selling,
general and administrative expenses (S,G&A) decreased by $30.6
million when compared to the prior year’s first six
months, decreasing by 0.7 percentage points. Advertising
costs, bad debt expense and commissions expense decreased $19.0 million or 30.8%
in the first six months of fiscal 2010, compared to the first six months of
fiscal 2009. Advertising costs as a percent of sales decreased 0.7
percentage points or $8.1 million in the first six months of fiscal 2010
compared to the first six months of fiscal 2009. Our decrease in
advertising costs was a result of a shift in the timing of our advertising spend
as a result of an increased focus on specific promotional time
periods. Additionally, the overall decline in the economic climate
has decreased the cost of purchasing advertising. These changes,
along with some purchasing strategy shifts, have allowed us to maintain a strong
presence in the marketplace, while decreasing our costs. The
remainder of the decrease in selling, general and administrative expenses was a
result of our overall reduction in operating expenses to be more in alignment
with the current sales volumes.
Goodwill
Write-down
The
goodwill write-down of $1.7 million in the first six months of fiscal 2009 was
the result of our plan to reorganize the Toronto, Ontario retail market which we
consolidated as a VIE ($0.4 million) and the result of our plan to close the
operations of our La-Z-Boy U.K. subsidiary ($1.3 million).
Restructuring
Restructuring
costs, net of reversals totaled $2.2 million for the first six months of fiscal
2010, compared with $9.5 million in the first six months of fiscal
2009. The restructuring costs, net of reversals in fiscal 2010
related to the consolidation of our casegoods manufacturing plant, in addition
to ongoing severance and benefits as we transition our domestic cut and sew
operations to our Mexico facility and the ongoing costs for our closed retail
facilities. Restructuring reversals relate to a decrease in our
estimated healthcare costs for these plans. The restructuring costs
in fiscal 2009 related to the closure of our Tremonton, Utah facility, the
restructuring of our La-Z-Boy U.K. facility and the ongoing costs for the
closure of retail facilities. These costs were comprised mainly of
severance and benefits, fixed asset and inventory impairments, transition costs
for the Utah plant closure and the ongoing lease cost for our closed retail
facilities.
Operating
Margin
Our
consolidated operating margin increased 6.6 percentage points to 2.2% for the
first six months of fiscal 2010. Our consolidated operating margin for the first
six months of fiscal 2010 included 0.4 percentage points for restructuring
charges. Operating margin for the first six months of fiscal 2009 was
(4.4)% and included 0.3 percentage points for the goodwill write-down and 1.5
percentage points for restructuring charges.
The Upholstery Group operating
margin increased 5.9 percentage points when compared with the first six months
of fiscal 2009. Our Upholstery Group operating margin was positively
impacted by efficiencies we gained through our change to a cellular
manufacturing footprint, which enables us to be more productive with less
employees, and more efficient capacity utilization due to the various
restructurings we completed in recent years. Additionally, our
Upholstery Group’s operating margin was positively impacted by a decrease in raw
material costs and decreases in bad debt and advertising
expenses. Net advertising, after considering reimbursements for our
shared advertising program, decreased $3.9 million in the first six months of
fiscal 2010 compared to the first six months of fiscal 2009. Bad debt
expense for our Upholstery Group decreased $3.6 million in the first six months
of fiscal 2010 compared to the first six months of fiscal 2009.
Our Casegoods Group operating
margin decreased 2.6 percentage points when compared with the first six months
of fiscal 2009. The decrease in operating margin was a direct result
of the overall decrease in sales volume of our casegoods operating
units. With a 24.3% decrease in sales volume, we were unable to
reduce our costs quickly enough to maintain our operating
margin.
29
Our Retail Group operating margin
improved significantly in the first six months of fiscal 2010, compared to the
first six months of fiscal 2009. The 10.1 percentage point increase
was a direct result of our focus on reducing selling and administrative costs
throughout the second half of fiscal 2009. These changes had a
favorable impact on our operating margin even on the decrease in sales
volume.
VIE operating loss decreased
$3.6 million in the first six months of fiscal 2010, compared to the first six
months of fiscal 2009. The decrease in operating loss of our VIEs was
mainly the result of changes we made to our Toronto VIE, which included
terminating our relationship with one dealer in our Toronto market during the
third quarter of fiscal 2009 and allowing our other Toronto dealer to assume the
operations of these four stores which added to the four that they were already
operating. These changes resulted in an increase in the number of
stores included by our VIE for the Toronto market and more efficient operations
for the market as a whole.
Corporate and Other operating
loss increased $1.5 million during the first six months of fiscal 2010 when
compared with the first six months of fiscal 2009. During the first
six months of fiscal 2010 we had a $0.1 million loss on property sales, compared
to a realized gain on property sales of $2.7 million during the first six months
of fiscal 2009. This was offset by our overall reduction in
operating expenses.
Interest
Expense
Interest
expense for the first half of fiscal 2010 was $1.3 million less than the first
half of fiscal 2009 due to a $59.4 million decrease in our average debt and a
0.2 percentage point decrease in our weighted average interest
rate.
Other
Income/(Expense)
Other
income/(expense) was income of $0.9 million for the first six months of fiscal
2010, compared to expense of $0.5 million for the first six months of fiscal
2009. The change in the first half of fiscal 2010 was mainly the
result of currency exchange rate gains we experienced through our foreign
operations.
Income
Taxes
Our
effective tax rates for the first six months of fiscal 2010 and fiscal 2009 were
34.7% and 99.0%, respectively. For fiscal 2010, a higher estimated
effective tax rate was offset by an additional federal tax
refund. The significantly higher rate for the first six months of
fiscal 2009 resulted primarily from the recording of a $38.2 million valuation
allowance against our deferred tax assets.
Our
sources of cash liquidity include cash and equivalents, cash from operations and
amounts available under our credit facility. These sources have been adequate
for day-to-day operations and capital expenditures. We had cash and
equivalents of $59.0 million at October 24, 2009, compared to $17.4 million at
April 25, 2009. In the first six months of fiscal 2010, restricted
cash decreased by $18.2 million and became available to be used for operations
due to a change in our wholly-owned insurance company in the first quarter of
fiscal 2010. During the first six months of fiscal 2010 we received
$13.1 million, net, in income tax refunds. The majority of these
refunds were the result of carrying our fiscal 2009 loss back to prior fiscal
years in which we had taxable income in order to get a return of income tax paid
for those fiscal years.
30
Under our
credit agreement we have certain covenants and restrictions, including a 1.05 to
1.00 fixed charge coverage ratio requirement which would become effective if
excess availability fell below $30.0 million. Excess availability is
the difference between our eligible accounts receivable and inventory less the
total of our outstanding letters of credit, other reserves as denoted in our
credit agreement and our outstanding borrowings on our revolving credit
agreement. We do not expect to fall below the required excess
availability thresholds in the next twelve months. As of October 24,
2009, we had $30.0 million outstanding on our credit facility and $87.0 million
of excess availability, compared to $35.0 million outstanding on our credit
facility and $65.0 million of excess availability as of April 25,
2009. As of October 24, 2009, we would have been in compliance with
the fixed charge coverage ratio requirement had it been in effect.
Our
borrowing capacity is based on eligible trade accounts receivables and inventory
of the company. During the first six months, our inventory levels
decreased slightly, the amount outstanding on our credit facility decreased,
while our accounts receivable increased. As a result, the capacity to
borrow on our credit facility increased during the first six months of fiscal
2010. Periodically, our lenders have the option to change the advance
rates on inventory and accounts receivable and to adjust reserves, which could
have a negative impact on our availability.
A
deterioration of market conditions could reduce our sales volume further and
have a negative impact on our results of operations, cash flows and financial
position including, but not limited to, significant operating
losses. This could adversely affect the cost and availability of
funding, the credit worthiness of our customers and could have a negative impact
on our availability.
In the
fourth quarter of fiscal 2009 we suspended our quarterly dividend because of the
deteriorating economic conditions. We continue to believe it to be
more prudent to conserve cash and redirect those funds back into the
company. Under our credit agreement, dividend restrictions would
become effective if our excess availability fell below $30.0
million.
Capital
expenditures for the first six months of fiscal 2010 were $2.8 million compared
with $10.0 million during the first six months of fiscal 2009. There
are no material purchase commitments for capital expenditures, which are
expected to be in the range of $12 million to $14 million in fiscal
2010. We expect restructuring costs from our plan to transition our
domestic cutting and sewing operations to Mexico, our ongoing costs for our
closed retail facilities and our plan to consolidate our North Carolina
casegoods manufacturing plants to impact cash by $1.6 million during the
remainder of fiscal 2010 and $0.3 million in fiscal 2011.
We expect
to pay our contractual obligations due in the remainder of fiscal 2010 using our
cash flow from operations, our $59.0 million of cash on hand as of October 24,
2009 and the $87.0 million of availability under our credit
facility. We believe our present cash balance, cash flows from
operations and current availability under our credit agreement will be
sufficient to fund our business needs. We will continue to manage our
credit exposure to our independent dealers.
31
The
following table illustrates the main components of our cash flows:
|
Cash Flows Provided By (Used For)
|
Six Months Ended
|
|||||||
|
(Unaudited, amounts in
thousands)
|
10/24/09
|
10/25/08
|
||||||
|
Operating
activities
|
||||||||
|
Net
income (loss)
|
$ | 7,903 | $ | (62,167 | ) | |||
|
Non-cash
add backs and changes in deferred taxes
|
19,498 | 64,666 | ||||||
|
Restructuring
|
2,220 | 9,499 | ||||||
|
Working
capital
|
6,384 | (21,967 | ) | |||||
|
Cash
provided by (used for) operating activities
|
36,005 | (9,969 | ) | |||||
|
Investing
activities
|
17,730 | (2,869 | ) | |||||
|
Financing
activities
|
||||||||
|
Net
increase (decrease) in debt
|
(11,894 | ) | 14,179 | |||||
|
Other
financing activities, mainly dividends
|
— | (4,151 | ) | |||||
|
Cash
provided by (used for) financing activities
|
(11,894 | ) | 10,028 | |||||
|
Exchange
rate changes
|
(168 | ) | (643 | ) | ||||
|
Net
increase (decrease) in cash and equivalents
|
$ | 41,673 | $ | (3,453 | ) | |||
Operating
Activities
During
the first six months of fiscal 2010, net cash provided by operating activities
was $36.0 million, compared with $10.0 million used for operating activities in
the first six months of fiscal 2009. Our net income in the first six
months of fiscal 2010 versus our net loss in the first six months of fiscal
2009, as well as positive cash flow from working capital was the main reason for
the increase in cash flows from operating activities. The working
capital cash provided by operations in the first six months of fiscal 2010
was mainly attributable to a decrease in our prepaid income taxes and
an increase in our income tax payables and customer deposits during the
first six months of fiscal 2010. This was offset by an increase in
our accounts receivable during the first six months of fiscal
2010. The working capital cash used for operations in the first six
months of fiscal 2009 was a result of a decrease in our payroll and benefit
liabilities and a decrease in our customer deposits during the first six months
of fiscal 2009.
Investing
Activities
During
the first six months of fiscal 2010, net cash provided by investing activities
was $17.7 million, whereas $2.9 million was used for investing activities during
fiscal 2009. The increase in net cash provided by investing
activities resulted primarily from the change in restricted cash during the
first six months of fiscal 2010.
Financing
Activities
We used
$11.9 million of cash for financing activities in the first six months of fiscal
2010 compared with $10.0 million of cash provided by financing activities during
the first six months of fiscal 2009. Our financing activities in the
first six months of fiscal 2010 included a net pay down of debt of $11.9
million, compared to a $14.2 million net increase in debt in the first six
months of fiscal 2009. In addition to these financing activities, our
first six months of fiscal 2009 also included dividend payments of $4.2
million.
32
The
balance sheet at the end of the second quarter of fiscal 2010 reflected a $3.2
million liability for uncertain income tax positions. Of this amount
only a nominal amount will be settled within the next 12 months. The
remaining balance, to the extent it is ever paid, will be paid as tax audits are
completed or settled. There were no material changes to our
contractual obligations table during the first six months of fiscal
2010.
Our
debt-to-capitalization ratio was 13.2% at October 24, 2009 and 16.4% at April
25, 2009. Capital is defined as total debt plus total
equity.
Our Board
of Directors has authorized the repurchase of company stock. As of
October 24, 2009, 5.4 million additional shares could be purchased pursuant to
this authorization. We did not purchase any shares during the first half of
fiscal 2010.
We have
guaranteed various leases and notes of dealers with proprietary stores. The
total amount of these guarantees was $2.3 million at October 24, 2009. Of this,
$1.5 million will expire within one year and $0.8 million in one to three years.
In recent years, we have increased our imports of casegoods product and leather
and fabric for upholstery product. At the end of the second quarter of fiscal
2010, we had $32.8 million in open purchase orders with foreign casegoods,
leather and fabric sources. Our open purchase orders that have not begun
production are cancelable.
We are
not required to make any contributions to our defined benefit plans; however, we
may make discretionary contributions.
Continuing
compliance with existing federal, state and local statutes dealing with
protection of the environment is not expected to have a material effect upon our
capital expenditures, earnings, competitive position or liquidity.
In the
fourth quarter of fiscal 2009, we committed to a restructuring plan to
consolidate our casegoods manufacturing plants in North Carolina related to our
Kincaid and American Drew/Lea operations and to convert another facility into a
distribution center. The consolidation of these plants occurred in the first
quarter of fiscal 2010. The conversion of the distribution center is
expected to be completed by the end of the fourth quarter of fiscal 2010. In
connection with these activities, we have incurred $1.9 million in restructuring
charges since the inception of this plan for severance and benefits, write-down
of fixed assets and other restructuring charges. In the second
quarter and first six months of fiscal 2010, we recorded pre-tax restructuring
charges of $1.1 million and $1.7 million, respectively, covering severance and
benefits and other restructuring costs in connection with this plan. We expect
to incur approximately $0.7 million in additional charges in fiscal 2010 related
to severance and benefits and other restructuring costs under this plan. During
fiscal 2009, the plan resulted in restructuring charges of $0.2 million,
covering severance and benefits and the write-down of fixed
assets. These changes, once fully completed, are expected to result
in annual cost savings of approximately $5 to $6 million based on current
volume.
33
During
fiscal 2008, we committed to a restructuring plan to consolidate all of our
North American cutting and sewing operations in Mexico and transfer production
from our Tremonton, Utah plant, to our five remaining La-Z-Boy branded
upholstery manufacturing facilities. Our Utah facility ceased operations during
the first quarter of fiscal 2009 and production was shifted to our remaining
manufacturing facilities. At the end of the second quarter of fiscal 2010, we
had about 840 employees at our Mexican facility. Because our Mexican facility is
still in the beginning stages of production, only about 33% of our domestic
cutting and sewing operations have been transferred to our Mexican facility. By
the end of fiscal 2010 we expect 100% of our domestic fabric cutting and sewing
operations to be shifted to our Mexican facility. We plan to begin shifting the
domestic leather cutting and sewing operations in the second quarter of fiscal
2011. In connection with these activities, we have recorded $10.0 million in
restructuring charges, net of reversals since the inception of this plan for
severance and benefits, write-down of certain fixed assets, and other
restructuring costs. We expect to incur additional pre-tax restructuring charges
of $1.0 million to $1.5 million during the next twelve months. During the second
quarter and first six months of fiscal 2010, we had restructuring charges, net
of reversals of $(0.4) million and $(0.3) million, respectively, covering
severance and benefits under this plan. The reversal of restructuring
charges relate to a decrease in our estimated healthcare costs for this
plan. During fiscal 2009, the plan resulted in restructuring charges
of $7.7 million, covering severance and benefits ($3.1 million) and other
restructuring costs ($4.6 million). Other restructuring costs include
transportation, freight surcharges and other transition costs as we moved
production to other plants. These changes, once fully completed are expected to
result in annual cost savings of approximately $20 million.
During
fiscal 2007 and 2008, several of our warehouse distribution centers were
consolidated into larger facilities and several underperforming stores were
closed. In the second quarter and first six months of fiscal 2010, we had
restructuring charges of $0.5 million and $0.8 million, respectively, related to
contract terminations. We expect to incur approximately $0.5 million
of additional charges in the remainder of fiscal 2010. During fiscal
2009, we had restructuring charges of $1.6 million related to contract
terminations.
During
fiscal 2009, we committed to restructuring plans to close a plant in Sherman,
Mississippi related to our Bauhaus operations, to reduce our company-wide
employment to be more in line with sales volume, and to close the operations of
our La-Z-Boy U.K. subsidiary. The closure of the plant in Sherman, Mississippi
was completed in the fourth quarter of fiscal 2009. The closure of
our La-Z-Boy U.K. subsidiary occurred in the second quarter of fiscal
2009. In connection with these plans, we recorded pre-tax
restructuring charges of $3.5 million in fiscal 2009, covering severance and
benefits ($1.2 million), the write-down of inventory ($1.2 million) and the
write-down of fixed assets and other restructuring charges ($1.1
million). We do not expect to incur any additional charges related to
these restructuring plans.
Additionally,
during fiscal 2009 we had reversals of $0.5 million relating to our
restructuring plans in fiscal 2007.
As of
October 24, 2009, we had a remaining restructuring liability of
$1.9 million which is expected to be settled as follows: $1.3 million
in the remainder of fiscal 2010 and $0.6 million thereafter.
For the current fiscal year to date,
restructuring liabilities along with charges to expense, cash payments or asset
write-downs for all of our restructuring actions were as
follows:
|
Fiscal 2010
|
||||||||||||||||
|
(Unaudited, amounts in thousands)
|
4/25/09
Balance
|
Charges to
Expense *
|
Cash
Payments
or Asset
Write-Offs
|
10/24/09
Balance
|
||||||||||||
|
Severance
and benefit-related costs
|
$ | 2,022 | $ | (30 | ) | $ | (777 | ) | $ | 1,215 | ||||||
|
Contract
termination costs
|
530 | 821 | (669 | ) | 682 | |||||||||||
|
Other
|
— | 1,429 | (1,429 | ) | — | |||||||||||
|
Total
restructuring
|
$ | 2,552 | $ | 2,220 | $ | (2,875 | ) | $ | 1,897 | |||||||
* Charges
to expense include $0.1 million of non-cash charges for contract termination
costs.
34
|
Fiscal 2009
|
||||||||||||||||
|
(Unaudited, amounts in thousands)
|
4/26/08
Balance
|
Charges to
Expense **
|
Cash
Payments
or Asset
Write-Offs
|
4/25/09
Balance
|
||||||||||||
|
Severance
and benefit-related costs
|
$ | 2,842 | $ | 4,149 | $ | (4,969 | ) | $ | 2,022 | |||||||
|
Fixed
asset write-downs, net of gains
|
— | 512 | (512 | ) | — | |||||||||||
|
Contract
termination costs
|
939 | 1,528 | (1,937 | ) | 530 | |||||||||||
|
Other
|
— | 6,271 | (6,271 | ) | — | |||||||||||
|
Total
restructuring
|
$ | 3,781 | $ | 12,460 | $ | (13,689 | ) | $ | 2,552 | |||||||
**
Charges to expense include $1.8 million of non-cash charges for contract
termination costs, fixed asset and inventory write-downs. Inventory
write-downs of $1.2 million are included “Other.”
Our
critical accounting policies are disclosed in our Form 10-K for the year ended
April 25, 2009. There were no material changes to our critical
accounting policies during the first six months of fiscal 2010.
The
Continued Dumping and Subsidy Offset Act of 2000 (“CDSOA”) provides for
distribution of monies collected by U.S. Customs and Border Protection (“CBP”)
from anti-dumping cases to domestic producers that supported the anti-dumping
petition. The Dispute Settlement Body of the World Trade Organization (“WTO”)
ruled that such payments violate the United States’ WTO obligations. In response
to that ruling, on February 8, 2006, the President signed legislation passed by
Congress that repeals CDSOA distributions to eligible domestic producers for
duties collected on imports entered into the United States after September 30,
2007. The government is withholding a portion of the CDSOA funds as a
result of two lower court cases involving the CDSOA that were decided against
the government on constitutional grounds and that have been
appealed. Although the U.S. Court of Appeals for the Federal Circuit
has subsequently reversed one of those lower court cases, that decision still
may be subject to further judicial review. The resolution of these
legal appeals will have a significant impact on the amount of additional CDSOA
funds we receive.
In view
of the uncertainties associated with this program, we are unable to predict the
amounts, if any, we may receive in the future under CDSOA. However,
assuming CDSOA distributions continue, these distributions could be material
depending on the results of legal appeals and administrative reviews and our
actual percentage allocation. We received $8.1 million during fiscal
2009, $7.1 million during fiscal 2008 and $3.4 million during fiscal 2007 in
CDSOA payments and funds related to the anti-dumping order on wooden bedroom
furniture from China.
Refer to
Note 17 for updates on recent accounting pronouncements since the filing of our
Form 10-K for the year ended April 25, 2009.
35
Although
the magnitude of volume declines is not as great as we experienced over the last
several quarters, we remain concerned about the overall macroeconomic
environment and it is too early to predict a recovery for our
industry. We will continue to look for ways to drive sales and
operate our business in the most efficient manner possible while continuing to
make whatever changes are necessary to our business model. We will
also maintain a clear focus on our balance sheet to ensure our company has the
greatest operating flexibility in the challenging environment.
We are
exposed to market risk from changes in the value of foreign currencies.
Substantially all of our imports purchased outside of North America are
denominated in U.S. dollars. Our exposure to changes in the value of foreign
currencies results from the assets of our Mexico subsidiary, which totaled $2.0
million at October 24, 2009. Management estimates that a 10% change
in the value of the peso would not have a material impact on our results of
operations for fiscal 2010 based upon the current asset levels.
Disclosure
Controls and Procedures. As of the end of the period covered by this
report, we carried out an evaluation, under the supervision and with the
participation of our management, including our Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and operation of our
disclosure controls and procedures, as such term is defined in Rule 13a-15(e) of
the Exchange Act. Based upon that evaluation, our Chief Executive Officer
and Chief Financial Officer concluded that such disclosure controls and
procedures are effective to ensure that information required to be disclosed in
our periodic reports filed under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified by the Securities and
Exchange Commission's rules and forms and is accumulated and communicated to our
management, including our Chief Executive Officer and Chief Financial Officer,
as appropriate to allow timely decisions regarding required
disclosure.
Changes in
Internal Control over Financial Reporting. There were no
changes in our internal controls over financial reporting that occurred during
the fiscal quarter ended October 24, 2009 that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.
36
There
have been no material changes to our risk factors during the first six months of
fiscal 2010. Our risk factors are disclosed in our Form 10-K for the year
ended April 25, 2009.
The
Annual Meeting of Shareholders of La-Z-Boy Incorporated was held on August 19,
2009. The shareholders voted to elect three directors for three-year terms
expiring in 2012, to elect one director for a term expiring in 2010 and to
ratify the selection of the independent registered public accounting firm for
fiscal year 2010.
|
Proposal
Election of Directors for terms expiring
in 2012:
|
Shares
Voted
In Favor
|
Percent
Shares
In Favor
|
Shares
Withheld
|
|||||||||
|
John
H. Foss
|
43,251,478 | 97.4 | % | 1,141,859 | ||||||||
|
Janet
E. Kerr
|
43,316,124 | 97.6 | % | 1,077,213 | ||||||||
|
Nido
R. Qubein
|
42,858,074 | 96.6 | % | 1,535,263 | ||||||||
|
Proposal
Election of a Director for a term
expiring in 2010:
|
Shares
Voted
In Favor
|
Percent
Shares
In Favor
|
Shares
Withheld
|
|||||||||
|
Richard
M. Gabrys
|
39,894,714 | 89.9 | % | 4,498,623 | ||||||||
|
Directors whose term in office continued after the
annual meeting:
|
||||||||||||
|
Kurt
L. Darrow
|
||||||||||||
|
David
K. Hehl
|
||||||||||||
|
James
W. Johnston
|
||||||||||||
|
H.
George Levy, M.D.
|
||||||||||||
|
Rocque
E. Lipford
|
||||||||||||
|
W.
Alan McCollough
|
||||||||||||
|
Jack
L. Thompson
|
||||||||||||
|
Proposal
|
Shares
Voted
In Favor
|
Shares
Voted
Against
|
Shares
Abstained
|
Broker
Non-Votes
|
||||||||||||
|
Ratify
the selection of the independent registered public accounting firm for FYE
2010 (1)
|
43,807,956 | 405,799 | 179,582 | — | ||||||||||||
|
|
(1)
|
Approval
required affirmative votes of majority of shares voted on
proposal.
|
37
|
Exhibit
Number
|
Description
|
|
|
(10.1)*
|
2005
La-Z-Boy Incorporated Executive Deferred Compensation Plan as amended and
restated effective November 18, 2008
|
|
|
(31.1)
|
Certifications
of Chief Executive Officer pursuant to Rule 13a-14(a)
|
|
|
(31.2)
|
Certifications
of Chief Financial Officer pursuant to Rule 13a-14(a)
|
|
|
(32)
|
|
Certifications
of Executive Officers pursuant to 18 U.S.C. Section
1350(b)
|
|
*
|
Indicates
a management contract or compensatory plan or arrangement under which a
director or executive officer may receive
benefits.
|
38
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
|
LA-Z-BOY INCORPORATED
|
|
|
(Registrant)
|
Date:
November 17, 2009
|
BY: /s/ Margaret L.
Mueller
|
|
|
Margaret
L. Mueller
|
|
|
Corporate
Controller
|
|
|
On
behalf of the registrant and as
|
|
|
Chief
Accounting Officer
|
39
Exhibit
10.1
2005
Executive
Deferred Compensation Plan
Effective
January 1, 2005
Amended
and Restated effective November 18, 2008
Table
of Contents
|
1
|
||
|
1
|
||
|
6
|
||
|
7
|
||
|
10
|
||
|
12
|
||
|
13
|
||
|
16
|
||
|
17
|
||
|
20
|
||
|
|
20
|
2005
La-Z-Boy Incorporated
Executive
Deferred Compensation Plan
WHEREAS,
La-Z-Boy Incorporated (“Company”) previously established and maintained the
La-Z-Boy Incorporated Executive Deferred Compensation Plan, a nonqualified
deferred compensation plan, last amended and restated effective August 1, 2002
(and herein called the “Prior Plan”);
WHEREAS,
the Prior Plan was “frozen” effective December 31, 2004;
WHEREAS,
the Company desires to continue providing competitive total compensation to its
Eligible Employees so the Company can attract and retain the executive talent
necessary to drive the success of the Company;
WHEREAS,
the Company and its subsidiaries have established qualified retirement plans
which include nondiscrimination and coverage limitations as imposed under
§401(k), §401(m) and §410(b) of the Internal Revenue Code as well as maximum
benefit limitations imposed by §402(g), §415 and §401(a)(17) of the Internal
Revenue Code which may limit the maximum contributions and benefits which may be
made to the tax qualified plans on behalf of some Eligible Employees of the
Company; and
WHEREAS,
the Company desires to provide a tax-deferred capital accumulation opportunity
to a select group of management or highly compensated Employees through the
deferral of compensation in order to encourage the Employees to maintain a
long-term relationship with the Company and provide flexibility to the Employee
in his financial planning.
THEREFORE,
the Company hereby establishes the 2005 La-Z-Boy Incorporated Executive Deferred
Compensation Plan (“Plan”) effective January 1, 2005.
As used
in this Plan, the following terms shall have the meanings hereinafter set
forth. The masculine pronoun shall be deemed to include the feminine,
and the singular number shall be deemed to include the plural, and vice versa,
unless a different meaning is plainly required by the context.
|
1.1
|
"Account" means an
account established on the books of the Company for a Participant credited
with an allocation hereunder.
|
|
1.2
|
“Annual Election Period”
means the period specified by the Committee which ends no later than (a)
the last day of the calendar year prior to the Plan Year during which
Compensation to be deferred is expected to be earned and/or (b) six months
prior to the end of the performance period with respect to which Incentive
Compensation may be awarded.
|
|
Page
1
|
|
1.3
|
"Base Compensation" means
the Participant’s annual base salary, excluding bonus, commissions,
incentive and all other remunerations for services rendered to the Company
and prior to reduction for any salary contributions to a plan established
pursuant to §125 of the Code or qualified pursuant to §401(k) of the
Code.
|
|
1.4
|
"Beneficiary" means any
person(s) designated in writing (on the form approved by the Committee) by
a Participant to receive payment under this Plan in the event of the
Participant's death. In the event the Participant has
designated no beneficiary (or if the designated beneficiary has
predeceased the Participant), Beneficiary shall mean the Participant's
estate.
|
|
1.5
|
"Board" means the Board
of Directors of La-Z-Boy
Incorporated.
|
|
1.6
|
“Change in Control”
means a change in the ownership or effective control of the Company or in
the ownership of a substantial portion of the assets of the Company, as
more fully described in attached Exhibit A, which shall be interpreted in
accordance with Code §409A(a)(2)(A)(v) and regulations and other guidance
thereunder.
|
|
1.7
|
“Code" means the Internal
Revenue Code of 1986, as amended.
|
|
1.8
|
“Committee” means the
group charged with administration of the Plan and having the powers
provided in Section VIII and shall consist of the Compensation Committee
of the Board of Directors.
|
|
1.9
|
“Company” means La-Z-Boy
Incorporated, a Michigan Corporation, and its successors and
assigns.
|
|
1.10
|
“Company Contribution
Account” means the bookkeeping account maintained by the Company
for each Participant that is credited with an amount equal to the Company
Discretionary Contribution, the Company Matching Contribution and earnings
and losses on such amounts pursuant to Section
4.2.
|
|
1.11
|
“Company Discretionary
Contribution” means such discretionary amount, contributed by the
Company to a Participant’s Company Contribution Account for a Plan
Year. Such amount shall generally represent, but may not
necessarily be, the amount of profit sharing or discretionary
contribution, which cannot be contributed to a qualified retirement plan
and may differ from Participant to Participant both in amount, (including
no contribution) and as a percentage of
Compensation.
|
|
1.12
|
“Company Matching
Contribution” means any addition made by the Company to a
Participant’s Company Contribution Account for a Plan Year, attributable
to a compensation deferral election made by such Participant under the
Qualified 401(k) Plan.
|
|
1.13
|
“Compensation” means the
Participant’s remuneration as defined in the Qualified 401(k) Plan, but
without the Code §401(a)(17)
limitation.
|
|
Page
2
|
|
1.14
|
“Deferral Account” means
the bookkeeping account maintained by the Company for each Participant’s
Salary Deferrals, if any, and earnings and losses on such amounts pursuant
to Section 4.1.
|
|
1.15
|
“Disabled” means the date
when a Participant (i) is unable to engage in any substantial gainful
activity by reason of any medically determinable physical or mental
impairment which can be expected to result in death or can be expected to
last for a continuous period of not less than 12 months, or (ii) is by
reason of any medically determinable physical or mental impairment which
can be expected to result in death or can be expected to last for a
continuous period of not less than 12 months, receiving income replacement
benefits for a period of not less than 3 months under an accident and
health plan covering Employees of the Company, provided that this
definition shall be interpreted in accordance with Code §409A(a)(2)(A)(v)
and regulations and other guidance thereunder.
|
|
1.16
|
“Distributable Amount”
means the vested balance in the Participant’s Deferral Account and/or in
his Company Contribution Account.
|
|
1.17
|
“Distributable Event”
means the event that triggers a distribution under the Plan including a
Separation From Service, death, becoming Disabled or a Scheduled
Withdrawal Date.
|
|
1.18
|
“Effective Date” means
January 1, 2005
|
|
1.19
|
"Eligible Employee” means
any Employee who meets the eligibility requirements of Section II of the
Plan.
|
|
1.20
|
"Employee" means any
individual employed by the Company or any of its
subsidiaries.
|
|
1.21
|
"ERISA" means the
Employee Retirement Income Security Act of 1974, as
amended.
|
|
1.22
|
“Fund” or “Funds” means one or more
of the investment funds selected by the Committee pursuant to Sections
3.8(b) and 8.3(1).
|
|
1.23
|
“Incentive Compensation”
means that portion of an executive’s bonus compensation received under the
La-Z-Boy Incorporated Bonus Program that is based on Company performance
(and does not include any portion of such bonus that is based on
individual performance criteria and/or actual individual performance) and
provided further (and to the extent) such bonus compensation is
“performance-based” within the meaning of Section 409A(a)(4)(B)(iii) of
the Code. For purposes of this definition, “performance-based”
refers to compensation for which the amount of, or entitlement to, the
compensation is contingent on the satisfaction of preestablished Company
or business unit performance criteria relating to a period of at least 12
consecutive months and shall not include any amount that will be paid
regardless of performance, or based on a level of performance that is
substantially certain to be met at the time the criteria are
established. Performance criteria shall be established in
writing, and communicated to employees, no later than 90 days after the
commencement of the performance
period.
|
|
Page
3
|
|
1.24
|
“Initial Election Period”
means
|
|
|
a)
|
for
an Eligible Employee who is eligible on the Effective Date, a period
beginning December 1, 2004 and ending March 15, 2005;
or
|
|
|
b)
|
for
an Eligible Employee who becomes newly eligible after the Effective Date,
a 30-day period commencing on the first day he becomes an Eligible
Employee; provided that (i) only elective deferrals of Base Compensation
may be made, and only with respect to compensation earned subsequent to
the initial election; and (ii) such Initial Election Period shall not be
available to a former Participant unless such former Participant has
received all balances under the Plan and on and before the date of the
last payment was not eligible to continue participation in the Plan; and
(iii) such Initial Election Period shall also not be available to a former
Participant that ceased being eligible to participate in the Plan,
regardless of whether all balances under the Plan have been distributed,
unless he has not been eligible to participate in the Plan (other than the
accrual of earnings) at any time during the 24-month period ending on the
date he becomes eligible to participate in the Plan. For
purposes of this Section 1.24, the term Plan includes all other elective
account balance plans of the Company that must be aggregated for purposes
of Treasury Regulation Section
1.409A-1(c)(2).
|
|
1.25
|
“Interest Rate” means,
for each Fund, an amount equal to the net gain or loss on the assets of
such Fund.
|
|
1.26
|
"Participant" means any
individual who has elected to defer Compensation, has been allocated a
Company Contribution and/or who otherwise maintains a balance under the
Plan.
|
|
1.27
|
“Payment Date” means the
first March 31st
after a Distributable Event occurs, unless a Distributable Event occurs
between March 1st
and March 30th,
in which case the Payment Date is the second March 31st
after a Distributable Event occurs.
|
|
1.28
|
“Plan” means the 2005
La-Z-Boy Incorporated Executive Deferred Compensation
Plan.
|
|
1.29
|
"Plan Year" means the
twelve-month period coinciding with the calendar
year.
|
|
1.30
|
“Pre-2005 Participant”
means an Employee (including a Participant in this Plan) or former
Employee of the Company or one of its Subsidiaries who has a Company
Contribution Account balance in the Prior Plan which had not become vested
as of the Effective Date of this Plan and the balance is held in a Prior
Account.
|
|
Page
4
|
|
1.31
|
“Prior Account” means the
non-vested balance of the bookkeeping account maintained under the Prior
Plan for each Pre-2005 Participant as of the Effective Date of this
Plan.
|
|
1.32
|
“Prior Plan” means the
La-Z-Boy Incorporated Executive Deferred Compensation Plan, last amended
and restated effective August 1,
2002.
|
|
1.33
|
“Qualified 401(k) Plan”
means the La-Z-Boy Incorporated Retirement Savings Plan or the qualified
plan of the Company or Subsidiary having §401(k) and or §401(m) features
applicable to the Participant.
|
|
1.34
|
“Qualified Profit Sharing
Plan” means the La-Z-Boy Incorporated Retirement Contribution and
Profit Sharing Plan (formerly known as the “La-Z-Boy Incorporated
Employees’ Amended Profit Sharing Plan”) or the qualified plan of the
Company or Subsidiary having employer profit sharing allocations
applicable to the Participant.
|
|
1.35
|
“Rabbi Trust” or “Trust” means the 2005
La-Z-Boy Incorporated Executive Deferred Compensation Plan Trust, a
grantor trust established by the Company to hold funds equal to the
liability of the Plan, in accordance with Section
VII.
|
|
1.36
|
“Salary Deferral” means
the amount deferred by the Participant from his Base and/or Incentive
Compensation pursuant to Section
3.4.
|
|
1.37
|
“Scheduled Withdrawal
Date” means the distribution date selected by the Participant for a
withdrawal of amounts from a Participant’s Deferral Account, including
earnings and losses attributable thereto, pursuant to Section
3.6(b).
|
|
1.38
|
“Separation From
Service” means the date upon which a Participant is no longer an
Employee of the Company, determined under the rules and procedures
described in attached Exhibit B.
|
|
1.39
|
“Subsidiary” means a
corporation, domestic or foreign, the majority of whose voting stock is
owned directly or indirectly by the
Company.
|
|
1.40
|
“Trustee” means Wachovia
Bank, NA, and its successors and
assigns.
|
|
1.41
|
“Unforeseeable
Emergency” means a severe financial hardship to the Participant
resulting from an illness or accident of the Participant, the
Participant's spouse, or a dependent (as defined in Treasury Regulation
Section 1.409A-3(i)(3)(i)) of the Participant, loss of the Participant's
property due to casualty (including the need to rebuild a home following
damage to a home not otherwise covered by insurance, for example, not as a
result of a natural disaster), or other similar extraordinary and
unforeseeable circumstances arising as a result of events beyond the
control of the Participant. Some examples may include the
imminent foreclosure of or eviction from the Participant’s primary
residence, the need to pay for medical expenses, including nonrefundable
deductibles, as well as for the costs of prescription drug medication and
finally, the need to pay for the funeral expenses of a spouse, a
beneficiary or a dependent (as defined in Treasury Regulation Section
1.409A-3(i)(3)(i)). Except as otherwise provided in this
Section 1.41, the purchase of a home and the payment of college tuition
are not unforeseeable emergencies. The foregoing requirements
shall be met only if, as determined under regulations of the U.S.
Secretary of the Treasury, the amounts distributed with respect to such an
emergency do not exceed the amounts necessary to satisfy such emergency
plus amounts necessary to pay taxes reasonably anticipated as a result of
the distribution, after taking into account the extent to which such
emergency is or may be relieved through reimbursement or compensation by
insurance or otherwise or by liquidation of the Participant's assets (to
the extent the liquidation of such assets would not itself cause severe
financial hardship).
|
|
Page
5
|
|
1.42
|
"Vested" means the
nonforfeitable portion of a Participant’s
Account.
|
|
1.43
|
"Year of Service" means
the period that is measured on an elapsed time basis from a Participant’s
initial date of employment with the Company until the date his employment
with the Company terminates. A Participant will be credited
with a full Year of Service for each completed Year of
Service. No fractional Years of Service will be
credited. In the event of a break in service, a Participant’s
rehire date will be treated as an initial date of employment with the
Company.
|
|
2.1
|
Eligibility
|
An
Employee will first become eligible to participate in the Plan when he is
selected by the Committee from the Company's management while earning
annual total compensation sufficient to be classified as a
highly-compensated employee under Code Section 414(q). Once
an Employee becomes eligible to participate in the Plan, he will remain eligible
to make Salary Deferrals and to receive contributions from the Company as
described in Section III, until the earliest of: (i) Separation From Service;
(ii) becoming Disabled; (iii) death; or (iv) upon removal of the Participant
from participation by the Committee (e.g., because he no longer holds a
management position) and subject to completion of deferrals under previous
irrevocable elections; provided, however, that no such event shall impair the
Participant’s right to become vested in and to receive (upon a permitted
distribution event described in Section VI) benefits accrued under this Plan
prior to loss of eligibility (recognizing, however, that the
amount of such benefits may increase or decrease over time, depending on
investment results and other factors).
|
2.2
|
Participation
|
Once an
Employee is notified of his eligibility as determined in Section 2.1 above, an
Eligible Employee shall become a Participant and begin accruing benefits upon
completion of enrollment (including the completion of any required insurance
application) during the Initial Election Period or any Annual Election Period
thereafter. Beginning January 1, 2006, eligibility shall not become
effective, until the Corporate Benefits Department receives notice of the newly
Eligible Employee.
|
Page
6
|
|
3.1
|
In
General
|
The
Committee, in its sole discretion, shall determine upon each Participant’s
initial participation in the Plan (and prior to each Annual Election Period
thereafter with respect to allocations to the Company Contribution Account)
which Participant shall be eligible to defer Compensation (including Incentive
Compensation) pursuant to Section 3.4 and/or to receive allocations under
Sections 3.2 and 3.3.
|
3.2
|
Company Discretionary
Contribution
|
To the
extent allocations to a Participant under the Company Qualified Profit Sharing
Plan are precluded or limited, the Company may credit a corresponding amount to
such Participant’s Account under this Plan. The Company shall
determine the amount of any other Company Discretionary Contribution to be
credited to the Account of a Participant. Any such amounts may vary
by Participant and each allocation may be subject to a different vesting
schedule.
|
3.3
|
Company Matching
Contribution
|
A
Participant in this Plan who participates during a Plan Year in the Qualified
401(k) Plan and who elects to make sufficient 401(k) deferrals to be entitled to
the maximum employer matching contribution under the Qualified 401(k) Plan for
that Plan Year, may also be eligible to receive a Company Matching Contribution
under this Plan. If so eligible, the Company shall credit the Company
Contribution Account of the Participant with a matching contribution amount,
within 90 days after the end of the Plan Year. To receive a matching
contribution amount, a Participant must be employed on the date that accounts
are credited. The
matching contribution amount shall be equal to the excess, if any, of A over B,
where:
“A” is
the amount of matching contribution that would have been contributed to the
applicable Qualified 401(k) Plan for the Plan Year determined without the
limitations imposed by §401(k), §401(m), §401(a)(17), §412(g) or §415 of the
Code; and
“B” is
the actual matching contribution made on behalf of the Participant to the
Qualified §401(k) Plan.
|
3.4
|
Salary Deferrals and Incentive
Compensation
|
Each Plan
Year, an Employee may irrevocably elect pursuant to election procedures
established by the Committee, to have a percentage reduction of his Base
Compensation for the Plan Year and/or Incentive Compensation for the performance
measurement period, and in lieu thereof, have such elective deferral percentage
credited to a Deferral Account. Effective January 1, 2005, all of the
following conditions must be met for such compensation reduction to become
effective:
|
Page
7
|
|
|
a)
|
An
Employee must elect during the Annual Election Period (or an Initial
Election Period, if applicable) to have Base Compensation
deferred;
|
|
|
b)
|
An
Employee must elect during the Annual Election Period (and under no
circumstances during an Initial Election Period), provided such period
ends no later than six months prior to the end of a 12-month performance
measurement period, and in no event after such Incentive Compensation has
become both substantially certain to be paid and readily ascertainable in
amount, and shall only be valid if the Participant performs services
continuously from the date the performance criteria are established
through the date the election to defer Incentive Compensation is made
pursuant to Section 3.6; and
|
|
|
c)
|
A
deferral election must be expressed as a percentage which shall not exceed
100% of the Employee’s Base Compensation and/or Incentive Compensation (as
applicable), provided that the total amount deferred by a Participant
shall be limited in any calendar year, if necessary, to satisfy Social
Security Tax (including Medicare), income tax and employee benefit plan
withholding requirements. The minimum elective deferral which
may be made in any Plan Year by a Participant shall not be less than 5% of
such Participant’s Base Compensation, and/or 5% of such Participant’s
Incentive Compensation.
|
Each
Eligible Employee who had been participating in the Prior Plan on December 31,
2004 shall continue as a Participant in this Plan until his participation ceases
pursuant to Section 2.1. Continuing participation during 2005 shall
be contingent upon timely enrollment during the applicable Initial Election
Period.
|
3.5
|
Deferral Elections for Company
Contribution Accounts
|
Vested
balances in Company Contribution Accounts will be distributed in a single lump
sum payment upon Separation From Service in accordance with Section 6.1(a)
unless an alternative time and/or form of benefit is elected pursuant to
election procedures as established by the Committee. This one-time
election, which will apply to all future Company Contributions, if any, will be
made during the Initial Election Period or the Annual Election Period (but only
to the extent the Annual Election Period coincides with the Initial Election
Period), assuming a contribution is made at all. Elections will be
made according to one of the following three options:
|
|
a.
|
Substantially
equal annual installments over a period of time not to exceed fifteen (15)
years, commencing on the Participant's Payment
Date;
|
|
|
b.
|
Substantially
equal annual installments over a period of time not to exceed fifteen (15)
years, commencing on an anniversary of the Participant’s Payment Date, but
in no event shall be an anniversary date that is more than five (5) years
after the Participant’s Separation From Service;
OR
|
|
|
c.
|
A
lump sum payment on an anniversary of the Participant’s Payment Date, but
in no event an anniversary date that is more than five (5) years after the
Participant’s Separation From
Service.
|
|
Page
8
|
If a
Participant decides to make a change with regard to the distribution of his
Company Contribution Accounts, he may do so in accordance with the Plan’s rules
on Election Changes as described in Section 3.7.
For
purposes of this Plan, installment elections will be subject to Section
6.1(e). Further, all installments payments shall be treated as a
right to a series of separate payments.
The
Participant's remaining Account balance shall continue to be credited with
earnings pursuant to Section 4.2 of the Plan until all amounts credited to his
Account under the Plan have been distributed.
|
3.6
|
Deferral Elections for Deferral
Accounts
|
A
Participant may initially elect the time and form of payment for Base
Compensation, during the Initial Election Period or the applicable Annual
Election Period, whichever corresponds with the first deferral of Base
Compensation, and must elect the time and form of payment for Salary Deferrals
each year thereafter (i.e., including Incentive Compensation), during each
Annual Election Period, from among the following two methods:
|
|
a.
|
Upon Separation of
Service. A Participant may elect to have the applicable
annual deferrals in his Deferral Account paid upon Separation From Service
according to one of the three options listed in 3.5(a), (b) and (c)
above.
|
|
|
b.
|
Scheduled Withdrawal
Date Distributions. A Participant may elect to have the
applicable annual deferrals in his Deferral Account distributed
in:
|
|
|
i.
|
a
lump sum commencing on a Scheduled Withdrawal Date;
or
|
|
|
ii.
|
two
(2) to fifteen (15) substantially equal annual installments commencing on
a Scheduled Withdrawal Date, subject to Section
6.1(e).
|
|
3.7
|
Election
Changes
|
A
Participant may elect to change the time and form of a distribution from the
Plan, provided that all of the following conditions are met:
|
|
i.
|
an
election change will not take effect until at least 12 months after the
date on which the election is filed pursuant to procedures established by
the Committee (i.e., the election change will be void if a Participant
dies or has a Separation From Service within 12 months of the election
change);
|
|
|
ii.
|
the
payment (or first installment) with respect to which such election is made
must be postponed for a period of at least 5 years from the date such
payment (or first installment) would otherwise have been made, and, in the
case of installments, payment of each installment after the first
installment shall also be deferred for a period of at least 5 years
(except in the case of death or Unforeseeable Emergency);
and
|
|
Page
9
|
|
|
iii.
|
With
respect to payments upon a Scheduled Withdrawal Date, an election change
must be filed pursuant to procedures established by the Committee at least
12 months prior to the applicable Payment
Date.
|
Notwithstanding
(i) through (iii) above, the Committee may provide Participants with one or more
opportunities to make new payment elections in accordance with transition relief
available under IRS Notice 2006-79, as extended, with respect to both the time
and form of distribution, provided that no such election may apply to amounts
that would otherwise be payable in the year of the election nor cause an amount
to be paid in the year of election that would not otherwise be payable in that
year. The Committee may provide such additional conditions and limitations with
respect to any such new payment elections as the Committee in its discretion
shall determine.
|
3.8
|
Investment
Elections
|
|
|
a)
|
At
the time of initial participation in the Plan under Section II and upon
making annual deferral elections described in Sections 3.4 and 3.6, the
Participant shall designate, pursuant to procedures established by the
Committee, the types of investment funds in which the Participant’s
Account will be deemed to be invested for purposes of determining the
amount of earnings to be credited to that Account. In making
the designation pursuant to this Section 3.8(a), the Participant may
specify that all or any multiple of his Account be deemed to be invested,
in whole percentage increments, in one or more of the types of investment
funds provided under the Plan as communicated from time to time by the
Committee. Effective as of the end of any business day, a
Participant may change the designation made under this Section 3.8(a)
pursuant to procedures established by the Committee. If a
Participant fails to elect a type of fund under this Section 3.8(a), he
shall be deemed to have elected the Money Market type of investment
fund.
|
|
|
b)
|
Although
the Participant may designate the type of investments as described in
Section 3.8(a) above, the Committee shall not be bound by such
designation. The Committee shall select from time to time, in
its sole and absolute discretion, commercially available investments for
each of the types of Funds communicated by the Committee to the
Participant pursuant to Section 3.8(a) above to be the
Funds. The Interest Rate of each such commercially available
investment fund shall be used to determine the amount of earnings or
losses to be credited to the Participant’s Account under Section
IV.
|
|
4.1
|
Deferral
Accounts
|
The
Committee shall establish and maintain a Deferral Account for each Participant
under the Plan. Each Participant's Deferral Account shall be further
divided into separate sub accounts ("investment fund sub accounts"), each of
which corresponds to an investment fund elected by the Participant pursuant to
Section 3.8(a). A Participant's Deferral Account shall be credited as
follows:
|
Page
10
|
|
|
a)
|
On
the third business day after amounts are deferred, and withheld from a
Participant's Compensation, the Committee shall credit the investment fund
sub accounts of the Participant's Deferral Account with an amount equal to
Compensation deferred by the Participant in accordance with the
Participant's election under Section 3.8(a); that is, the portion of the
Participant's deferred Compensation that the Participant has elected to be
deemed to be invested in a certain type of investment fund shall be
credited to the investment fund sub account corresponding to that
investment fund. Effective May 1, 2008, amounts will be
credited in the manner described above, on the same day that amounts are
deferred and withheld from a Participant’s Compensation (as opposed to the
third business day).
|
|
|
b)
|
Each
business day, each investment fund sub account of a Participant's Deferral
Account shall be credited with earnings or losses in an amount equal to
that determined by multiplying the balance credited to such investment
fund sub account as of the prior day plus contributions credited that day
to the investment fund sub account by the Interest Rate for the
corresponding fund selected by the Company pursuant to Section
3.8(b).
|
|
|
c)
|
In
the event that a Participant elects for a given Plan Year's deferral of
Compensation to have a Scheduled Withdrawal Date pursuant to Section
3.6(b), all amounts attributed to the deferral of Compensation for such
Plan Year shall be accounted for in a manner which allows separate
accounting for the deferral of Compensation and investment gains and
losses associated with such Plan Year's deferral of
Compensation.
|
|
4.2
|
Company Contribution
Account
|
|
|
a)
|
The
Committee shall establish and maintain a Company Contribution Account for
each Participant under the Plan. Each Participant's Company
Contribution Account shall be further divided into separate investment
fund sub accounts corresponding to the investment fund(s) elected by the
Participant pursuant to Section 3.8(a). Effective the third
business day after a Company Discretionary Contribution amount and/or
Company Matching Contribution amount is calculated and approved, the
Committee shall credit the investment fund sub accounts of the
Participant's Company Contribution Account with an amount equal to the
Company Discretionary Contribution amount, if any, applicable to that
Participant, that is, the proportion of the Company Discretionary
Contribution amount, if any, and/or Company Matching Contribution amount,
if any, which the Participant elected to be deemed to be invested in a
certain type of investment fund shall be credited to the corresponding
investment fund sub account. Effective May 1, 2008, amounts
will be credited in the manner described above, on the same day that
amounts are calculated and approved (as opposed to the third business
day).
|
Participant's
Company Contribution Account shall be credited as follows:
|
Page
11
|
|
|
b)
|
Each
business day, each investment fund sub account of a Participant's Company
Contribution Account shall be credited with earnings or losses in an
amount equal to that determined by multiplying the balance credited to
such investment fund sub account as of the prior day plus contributions
credited that day to the investment fund sub account by the Interest Rate
for the corresponding Fund selected by the Company pursuant to Section
3.8(b).
|
|
4.3
|
Prior
Account
|
The
Committee shall maintain a Prior Account for each Pre-2005 Participant under the
Prior Plan. Each Pre-2005 Participant's Prior Account shall be
further divided into separate investment fund sub accounts corresponding to the
investment fund(s) elected by the Pre-2005 Participant pursuant to Section
3.8(a). Each business day, each investment fund sub account of a
Pre-2005 Participant's Prior Account shall be credited with earnings or losses
in an amount determined by multiplying the balance credited to such investment
fund sub account as of the prior day plus contributions credited that day to the
investment fund sub account by the Interest Rate for the corresponding Fund
selected by the Company pursuant to Section 3.8(b).
|
5.1
|
Vesting In
General
|
Subject
to Sections 5.2, 5.3 and 5.4 below, a Participant shall have a nonforfeitable
interest in benefits payable from his Account as follows:
|
|
a)
|
Deferral
Account - A Participant shall have a 100% nonforfeitable interest
in benefits payable from his Deferral
Account.
|
|
|
b)
|
Company Contribution
Account - A Participant shall have a nonforfeitable percentage
interest in his Company Matching Contribution and the profit sharing
portion of the Company Discretionary Contribution at a rate of 25% vesting
for each Year of Service. All of a Participant’s Years of
Service, including service accrued under the Prior Plan, shall be counted
toward vesting under this Plan. The Company shall determine the
vesting schedule of any other Company Discretionary Contributions (i.e.,
not profit sharing related) credited to the Participant’s Company
Contribution Account.
|
|
|
c)
|
Prior Account -
A Pre-2005 Participant shall vest at a rate of 25% per Year of Service in
benefits payable under the Plan from his Prior Account which are
attributable to prior contributions made by the Company and any interest
thereon. Service accrued under the Prior Plan shall be counted
toward vesting under this Plan.
|
|
5.2
|
Vesting upon Plan Termination
or Change in Control
|
Notwithstanding
anything contrary in the above, in the event the Plan is terminated by the
Board, or there is a Change in Control, all Participants who are actively
employed on the date the Plan is terminated or the Change in Control occurs
shall be immediately vested in their benefits under the Plan.
|
Page
12
|
|
5.3
|
Vesting upon Sale of
Company-Owned Retail Store
|
Notwithstanding
anything contrary in the above, in the event the Company sells one of its retail
stores, and as a result the employment of the manager of such retail store is
terminated by the Company, then such manager shall be immediately vested in his
benefit under the Plan, provided that a Separation From Service
occurs.
|
5.4
|
Vesting upon Death or
Disability of a Participant
|
Notwithstanding
anything contrary in the above, in the event a Participant dies or becomes
Disabled, his benefits shall be immediately vested under the Plan and
distributed in accordance with Section 6.1(f) or 6.1(h), as
applicable.
|
6.1
|
Distribution
Rules
|
|
|
a)
|
Company Contribution
Accounts. Subject to 6.1(d), (e) and (f) below, vested
balances in a Participant’s Company Contribution Account shall be paid to
him in a lump sum on the Participant's Payment Date following the
Participant’s Separation From Service; provided, however, that if a
Participant elected to receive payment at an alternative time or in
installments, pursuant to Section 3.5(a), (b) or (c), payment shall be
made in accordance with such
election.
|
|
|
b)
|
Deferral Account
Distributions Upon Separation From Service. Subject to
6.1(d), (e) and (f) below, all balances in a Participant’s Deferral
Account for which a Participant elected to receive upon Separation From
Service pursuant to Section 3.6(a) shall be paid to the Participant in
accordance with each such election he has on
file.
|
|
|
c)
|
Deferral Account
Distributions Upon Scheduled Withdrawal Date. All
balances in a Participant’s Deferral Account which a Participant elected
to receive upon a Scheduled Withdrawal Date pursuant to Section 3.6(b)
shall be paid to the Participant upon such Scheduled Withdrawal Dates,
notwithstanding whether the Participant Separates From Service, either
prior or subsequent to such dates.
|
|
|
d)
|
Distributions Upon
Separation From Service. Notwithstanding the foregoing
provisions of this Section 6.1, to the extent a distribution (or
commencement of annual installments) from any and all Accounts is to be
made upon Separation From Service, and the applicable Payment Date is less
than six months after the Separation from Service, then payment shall be
delayed until the first date of the seventh month following the date of
Separation From Service (or until death, if earlier). In the
case of installments, the second installment shall be paid on the next
Payment Date, and each subsequent installment shall be paid on each
Payment Date thereafter. Payments made pursuant to a Scheduled
Withdrawal Date as described in Section 6.1(c) are not subject to the
delay described herein.
|
|
Page
13
|
|
|
e)
|
Cash-out. Notwithstanding
previous installment elections under Sections 3.5 and/or 3.6, in the case
of a Participant who, at the time of his Separation From Service, has a
balance of $25,000 or less in any of his Accounts (i.e., his
Company Contribution Account or his Deferral Account, or both), the
Distributable Amount for such Account(s) shall be paid to the Participant
(or after his death to his Beneficiary) in a lump sum distribution on the
Participant's Payment Date, subject to any delay required by Section
6.1(d).
|
|
|
f)
|
Distribution upon
Separation From Service due to Death. In the event a
Participant dies while in the employ of the Company, any unvested portion
of the Participant’s Company Contribution Account shall become immediately
vested pursuant to Section 5.4, and the Company shall distribute the
Participant’s undistributed Account to the Participant’s Beneficiary in a
lump sum payment within 90 days of the Participant’s death, or by the end
of the calendar year, whichever is
later.
|
|
|
g)
|
Death Benefit after
Separation From Service. In the event a Participant dies
after his Separation From Service and still has a vested balance in his
Account, the vested balance of such Account shall be paid to the
Participant’s Beneficiary in a lump sum payment within 90 days of the
Participant’s death, or by the end of the calendar year, whichever is
later.
|
|
|
h)
|
Distribution upon
becoming Disabled. In the event a Participant becomes
Disabled while in the employ of the Company, any unvested portion of the
Participant’s Company Contribution Account shall become immediately vested
pursuant to Section 5.4, and distributions shall commence pursuant to
Sections 6.1(a), 6.1(b) and/or 6.1(c)
above.
|
|
6.2
|
Unforeseeable Emergency
Distribution
|
|
|
a)
|
General
Rule. A Participant may request a distribution from his
Deferral Account, prior to a scheduled Payment Date, in the event of an
Unforeseeable Emergency. The request to take a distribution
shall be made by completing a form provided by and filed with the
Committee. The Committee will first require that the
Participant cancel all outstanding elective deferrals, deferred pursuant
to Section 3.6. If the Committee determines that the requested
distribution is for the purpose of meeting an Unforeseeable Emergency in
accordance with Section 1.41 of the Plan, and that the requested
distribution is necessary to relieve the Unforeseeable Emergency even
after the cancellation of outstanding deferral election(s), then the
amount determined by the Committee, sufficient to meet the Unforeseeable
Emergency in accordance with Section 1.41 of the Plan, shall be paid in a
single cash lump sum as soon as
practicable.
|
|
Page
14
|
|
|
b)
|
New Deferral
Election. Once a Participant’s deferral election(s) is
cancelled pursuant to Section 6.2(a), notwithstanding that a distribution
might be granted, a Participant may not elect to again defer, pursuant to
Section 3.6 of the Plan for at least 12 months from the date that the
distribution under this Section is
requested.
|
|
6.3
|
Tax
Withholding
|
With
respect to any benefit payments under the Plan, the Company shall make and remit
all appropriate income tax withholdings; however, the Participant will be solely
liable for any and all income taxes applicable on such benefit
payments.
The
benefits, which accrue and vest under the Plan, are subject to FICA taxes (which
include the Old-Age, Survivors and Disability Insurance tax and/or Medicare tax
as the case may be) which may become due before the benefits are actually paid
as provided under Code §3121(v)(2) and related IRS regulations. To
ensure proper compliance with these regulations, the Company will calculate the
amount of FICA tax when it becomes due and notify the Participant of the amount
of his share of such tax. The Company will remit the entire tax to
the IRS and arrange for the collection of the Participant’s share of the tax
from the Participant. The Company may provide the Participant with
additional compensation to offset his share of such tax, however, the
Participant will be solely liable for his share of FICA taxes on benefits
accrued and vested under the Plan.
|
6.4
|
Other
|
Notwithstanding
any other provisions of the Plan, if any amounts held in trust are found, due to
the creation or operation of the Trust, in a final decision by a court of
competent jurisdiction, or under a “determination” by the Internal Revenue
Service in a closing agreement or a final refund disposition (within the meaning
of §1313(a) of Internal Revenue Code of 1986, as amended), to have been
includable in the gross income of a Participant or Beneficiary prior to payment
of such amounts from the Trust, the Trustee shall, as soon as practicable, pay
to such Participant or Beneficiary an amount equal to the amount determined to
have been includable in gross income in such determination, and shall
accordingly reduce the Participant’s or Beneficiary’s Account. The
Trustee shall not make any distribution to a Participant or Beneficiary pursuant
to this Section 6.4 unless it has received a copy of the written determination
described above together with any legal opinion which it may request as to the
applicability thereof.
|
6.5
|
Inability to Locate
Participant
|
In the
event that the Committee is unable to locate a Participant or Beneficiary within
two (2) years following the required Payment Date, the amount allocated to the
Participant's Account shall be forfeited. If, after such forfeiture,
the Participant or Beneficiary later claims such benefit, such benefit shall be
reinstated without interest or earnings.
|
Page
15
|
|
7.1
|
Unfunded
Plan
|
Benefits
under this Plan shall be paid from the general assets of the Company or
Subsidiary. The Plan shall be administered as an unfunded plan which
is maintained primarily for the purpose of providing supplemental retirement
compensation "for a select group of management or highly compensated employees"
as set forth in Sections 201(2), 301(3), and 401(a)(1) of ERISA, and is not
intended to meet the qualification requirements of §401 of the
Code. Any use of the words “contributions” or “contribute,” or any
similar phrase, shall not require actual contributions or funding of this Plan
and is only used for convenience when describing the deferral and supplemental
retirement benefit activities of this Plan.
|
7.2
|
Rabbi
Trust
|
The
Company shall establish a Rabbi Trust and, subject to the rules of this section
and consistent (in form and in operation) with the requirements of Code
§409A(b), may, but is not required to, make contributions to it for the purpose
of providing a source of funds to meet the liabilities of the
Plan. It is generally intended that contributions to the Rabbi Trust
will be made by the Company at least annually in an amount equal to the Salary
Deferral Contributions and any Company Matching Contributions or other Company
Discretionary Contributions related to the Plan for the year as calculated and
approved pursuant to Section III. However, no contribution shall be
expected if the fair value of the assets in the Rabbi Trust exceeds the value of
all benefits under the Plan.
In the
event of a Change in Control, to the extent consistent (in form and operation)
with the requirements of Code §409A(b), the Company shall be required to make
additional contributions to the Rabbi Trust within 30 days of the date of the
Change in Control and annually thereafter within 90 days after the end of each
Plan Year, such that the fair value of the assets in the Rabbi Trust are
sufficient to pay the value of all benefits of the Plan accrued at the date of
Change in Control and thereafter at the end of the Plan Year.
Any
assets set aside in the Rabbi Trust shall not be deemed to be the property of
the Participant and shall be subject to claims of the Company’s unsecured
general creditors. No Participant or Beneficiary shall have any claim
against, right to, or security or other interest in, any fund, account or asset
of the Company from which any payment under the Plan may be made.
Notwithstanding
the above provisions, no Rabbi Trust assets shall be located or transferred
outside of the United States and no property shall be transferred to the Rabbi
Trust in connection with an adverse change in the Company’s financial
health.
|
Page
16
|
|
8.1
|
General
Duty
|
The Plan
shall be administered by the Committee. Members of the Committee
shall serve in such capacity until resignation or removal by the
Board. It shall be the principal duty of the Committee to determine
that the provisions of the Plan are carried out in accordance with its terms,
for the exclusive benefit of persons entitled to participate in the
Plan.
|
8.2
|
Committee
Action
|
The
Committee shall act at meetings by affirmative vote of a majority of the members
of the Committee. Any action permitted to be taken at a meeting may
be taken without a meeting if, prior to such action, a written consent to the
action is signed by all members of the Committee and such written consent is
filed with the minutes of the proceedings of the Committee. A member
of the Committee shall not vote or act upon any matter which relates solely to
himself as a Participant. The Chair or any other member or members of
the Committee designated by the Chair may execute any certificate or other
written direction on behalf of the Committee.
|
8.3
|
General Powers, Rights and
Duties of the Committee
|
The
Committee shall have full power to administer the Plan in all of its details,
subject to the applicable requirements of the law, on behalf of the Participants
and their Beneficiaries, shall enforce the Plan in accordance with its terms,
shall be charged with the general administration of the Plan, and shall have all
powers necessary to accomplish its purposes, including, but not by way of
limitation, the following:
|
|
(1)
|
To
select the Funds in accordance with Section 3.8(b)
hereof;
|
|
|
(2)
|
To
construe and interpret the terms and provisions of this Plan, and make
findings of fact in connection
therewith;
|
|
|
(3)
|
To
compute and certify to the amount and kind of benefits payable to
Participants and their
Beneficiaries;
|
|
|
(4)
|
To
maintain all records that may be necessary for the administration of the
Plan;
|
|
|
(5)
|
To
provide for the disclosure of all information and the filing or provision
of all reports and statements to Participants, Beneficiaries or
governmental agencies as shall be required by
law;
|
|
Page
17
|
|
|
(6)
|
To
make and publish such rules for the regulation of the Plan and procedures
for the administration of the Plan as are not inconsistent with the terms
hereof;
|
|
|
(7)
|
To
appoint a Plan administrator or any other agent, and to delegate to them
such powers and duties in connection with the administration of the Plan
as the Committee may from time to time prescribe;
and
|
|
|
(8)
|
To
take all actions necessary for the administration of the Plan, including
determining whether to hold or discontinue its
policies.
|
|
8.4
|
Construction and
Interpretation
|
The
Committee shall have full discretion to construe and interpret the terms and
provisions of this Plan, and make findings of fact in connection therewith,
which interpretations, construction or findings, shall be final and binding on
all parties, including but not limited to the Company and any Participant or
Beneficiary. The Committee shall administer such terms and provisions
in a uniform and nondiscriminatory manner and in full accordance with any and
all laws applicable to the Plan. The Plan is intended to comply with
Code §409A, and will therefore be interpreted and administered to maintain
intended income tax deferral in accordance with Code §409A and regulations and
other guidance issued thereunder.
|
8.5
|
Information
|
To enable
the Committee to perform its functions, the Company shall supply full and timely
information to the Committee on all matters relating to the Compensation of all
Participants, their death or other events which cause termination of their
participation in this Plan, and such other pertinent facts as the Committee may
require.
|
8.6
|
Compensation, Expenses and
Indemnity
|
|
|
a)
|
The
members of the Committee shall serve without compensation for their
services hereunder.
|
|
|
b)
|
The
Committee is authorized at the expense of the Company to employ such legal
counsel as it may deem advisable to assist in the performance of its
duties hereunder. Expenses and fees in connection with the
administration of the Plan shall be paid by the
Company.
|
|
|
c)
|
To
the extent permitted by applicable state law, the Company shall indemnify
and hold harmless the Committee and each member thereof, the Board of
Directors and any delegate of the Committee who is an employee of the
Company against any and all expenses, liabilities and claims, including
legal fees to defend against such liabilities and claims arising out of
their discharge in good faith of responsibilities under or incident to the
Plan, other than expenses and liabilities arising out of willful
misconduct. This indemnity shall not preclude such further
indemnities as may be available under insurance purchased by the Company
or provided by the Company under any bylaw, agreement or otherwise, as
such indemnities are permitted under state
law.
|
|
Page
18
|
|
8.7
|
Claims and Review
Procedures
|
|
|
a)
|
Claim - A
person who believes that he is being denied a benefit to which he is
entitled under this Plan (hereinafter referred to as "Claimant") must file
a written request for such benefit with the Company, setting forth his
claim. The request must be addressed to the President of the
Company at its then principal place of
business.
|
|
|
b)
|
Claim Decision
- Upon receipt of a claim, the Company shall advise the Claimant that a
reply will be forthcoming within ninety (90) days, and shall, in fact,
deliver such reply within such period. The Company may,
however, extend the reply period for an additional ninety (90) days for
special circumstances.
|
If the
claim is denied in whole or in part, the Company shall inform the Claimant in
writing, using language calculated to be understood by the Claimant, setting
forth: (A) the specified reason or reasons for such denial; (B) the
specific reference to pertinent provisions of this Plan on which such denial is
based; (C) a description of any additional material or information necessary for
the Claimant to perfect his claim and an explanation of why such material or
such information is necessary; (D) appropriate information as to the steps to be
taken if the Claimant wishes to submit the claim for review; and (E) the time
limits for requesting a review under subsection (c).
|
|
c)
|
Request For
Review - Within sixty (60) days after the receipt by the Claimant
of the written opinion described above, the Claimant may request in
writing that the Committee review the determination of the
Company. Such request must be addressed to the President of the
Company, at its then principal place of business. The Claimant
or his duly authorized representative may, but need not, review the
pertinent documents and submit issues and comments in writing for
consideration by the Committee. If the Claimant does not
request a review within the applicable period, he shall be barred and
estopped from challenging the Company's
determination.
|
|
|
d)
|
Review of
Decision - Within sixty (60) days after the Committee's receipt of
a request for review, after considering all materials presented by the
Claimant, the Committee will inform the Participant in writing, in a
manner calculated to be understood by the Claimant, the decision setting
forth the specific reasons for the decision containing specific references
to the pertinent provisions of this Plan on which the decision
is based. If special circumstances require that the applicable
time period be extended, the Committee will so notify the Claimant and
will render the decision as soon as possible, but no later than one
hundred twenty (120) days after receipt of the request for
review.
|
|
Page
19
|
|
8.8
|
Furnishing Information or
Providing Other Reports
|
The
Committee shall provide Participant under procedures established by the
Committee (i) a statement with respect to such Participant’s Accounts on at
least a quarterly basis, (ii) a description of the Plan, and (iii) such other
information or notices as required by ERISA or other applicable
law. After payment by the Participant of a reasonable charge, which
charge may be waived by the Committee, the Committee shall provide the
Participant with a copy of the Plan upon written request by the
Participant. The Committee shall also file with government
authorities any reports or returns required.
|
9.1
|
In
General
|
The
Company hereby reserves the right and power, by action of the Board or the
Committee, to amend, suspend or terminate the Plan in whole or in part, at any
time. Included in the Company’s right to amend, suspend
or terminate is the Company’s right at any time to no longer permit any
additional participants under the Plan, to cease making benefit allocations, and
to distribute all Account balances upon Plan termination, to the extent
permitted under Code §409A. The Committee may promulgate rules and
procedures from time to time to carry out the provisions of this Section
IX. However, in no event shall the Company or Committee have the
right to eliminate or reduce any benefit which has been vested or become
nonforfeitable under the Plan pursuant to Section V. No adopting
company other than the Company shall have the right to amend or terminate the
Plan, but a company shall have the right to cease or suspend participation in
the Plan.
|
10.1
|
Unsecured General
Creditor
|
Participants
and their Beneficiaries, heirs, successors, and assigns shall have no legal or
equitable rights, claims, or interest in any specific property or assets of the
Company, any Subsidiary, and of the Rabbi Trust. No assets of the
Company shall be held in any way as collateral security for the fulfilling of
the obligations of the Company under this Plan. The Company’s or
Subsidiary's obligation under the Plan shall be merely that of an unfunded and
unsecured promise of the Company or Subsidiary to pay money in the future, and
the rights of the Participants and Beneficiaries shall be no greater than those
of unsecured general creditors. It is the intention of the Company
that this Plan be unfunded for purposes of the Code and for purposes of Title 1
of ERISA.
|
Page
20
|
|
10.2
|
Restriction Against
Assignment
|
The
Company shall pay all amounts payable hereunder only to the person or persons
designated by the Plan and not to any other person or corporation. No
part of a Participant's Accounts shall be liable for the debts, contracts, or
engagements of any Participant, his Beneficiary, or successors in interest, nor
shall a Participant's Accounts be subject to execution by levy, attachment, or
garnishment or by any other legal or equitable proceeding, nor shall any such
person have any right to alienate, anticipate, sell, transfer, commute, pledge,
encumber, or assign any benefits or payments hereunder in any manner
whatsoever. If any Participant, Beneficiary or successor in interest
is adjudicated bankrupt or purports to anticipate, alienate, sell, transfer,
commute, assign, pledge, encumber or charge any distribution or payment from the
Plan, voluntarily or involuntarily, the Committee, in its discretion, may cancel
such distribution or payment (or any part thereof) to or for the benefit of such
Participant, Beneficiary or successor in interest in such manner as the
Committee shall direct.
Notwithstanding
the preceding paragraph,
a. To
the extent required under final judgment, decree or order (including approval of
a property settlement agreement) made pursuant to a state domestic relations
law, any portion of a Participant’s Plan benefits may be paid or set aside for
payment to a spouse, former spouse, or child of the Participant. Any
benefit so set aside for a spouse, former spouse, or child shall be paid out as
and when benefits are paid to the Participant, unless the Committee agrees to a
different time and/or form of payment to such recipient(s). Any
payment made to a person other than the Participant pursuant to this Section
shall be reduced by tax withholding, if required by law; the fact that payment
is made to a person other than the Participant may not prevent such payment from
being includible in the gross income of the Participant for withholding and
income tax reporting purposes.
b. The
Company’s liability to pay benefits to a Participant shall be reduced to the
extent that amounts have been paid or set aside for payment to a spouse, former
spouse, or child pursuant to subparagraph (a) of this Section. No
such transfer shall be effectuated unless the Company or Committee has been
provided with satisfactory evidence that the Company and the Committee are
released from any further claim with respect to such amounts, in any case in
which (i) the Company or Committee has been served with legal process or
otherwise joined in a proceeding relating to such transfer, (ii) the Participant
has been notified of the pendency of such proceeding in the manner prescribed by
law of the jurisdiction in which the proceeding is pending for service of
process in such action or by mail from the Employer or Committee to the
Participant’s last known mailing address, and (iii) the Participant fails to
obtain an order of the court in the proceeding relieving the Company or
Committee from the obligation to comply with the judgment, decree, or
order.
c. The
Company and Committee shall not be obligated to defend against or set aside any
judgment, decree, or order described in subparagraph (a), or any legal order
relating to the garnishment of a Participant’s benefits, unless the full expense
of such legal action is borne by the Participant. In the event that
the Participant’s action (or inaction) nonetheless causes the Company or
Committee to incur such expense, the amount of the expense may be charged
against the Participant’s Plan benefits and thereby reduce the Company’s
obligation to pay benefits to the Participant. In the course of any
proceeding relating to divorce, separation, or child support, the Company and
Committee shall be authorized to disclose information relating to the
Participant’s benefits to the Participant’s spouse, former spouse, or child
(including the legal representatives of the spouse, former spouse, or child), or
to a court.
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Page
21
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10.3
|
Receipt or
Release
|
Any
payment to a Participant or the Participant's Beneficiary in accordance with the
provisions of the Plan shall, to the extent thereof, be in full satisfaction of
all claims against the Committee and the Company. The Committee may
require such Participant or Beneficiary, as a condition precedent to such
payment, to execute a receipt and release to such effect.
|
10.4
|
Payments on Behalf of Persons
Under Incapacity
|
In the
event that any amount becomes payable under the Plan to a person who, in the
sole judgment of the Committee, is considered by reason of physical or mental
condition to be unable to give a valid receipt therefore, the Committee may
direct that such payment be made to any person found by the Committee, in its
sole judgment, to have assumed the care of such person. Any payment
made pursuant to such determination shall constitute a full release and
discharge of the Committee and the Company.
|
10.5
|
Limitation of Rights and
Employment Relationship
|
Neither
the establishment of the Plan and/or Rabbi Trust nor any modification thereof,
nor the creating of any fund or account, nor the payment of any benefits shall
be construed as giving to any Participant, or Beneficiary or other person any
legal or equitable right against the Company or the trustee of the Rabbi Trust
except as provided in the Plan and Trust; and in no event shall the terms of
employment of any Employee or Participant be modified or in any way be affected
by the provisions of the Plan and/or Trust.
|
10.6
|
Governing
Law
|
This Plan
shall be construed, governed and administered in accordance with the laws of the
State of Michigan, except to the extent pre-empted by federal law. It
is the intention of the Company that the Plan meets all requirements of the Code
so that the benefits provided are non-taxable during the period of deferral and
until actual distribution is made. Accordingly, the Plan will at all
times, be interpreted and administered to maintain intended income tax deferral
in accordance with Code §409A and regulations and other guidance issued
thereunder.
|
10.7
|
Statutory
References
|
All
references to the Code and ERISA include reference to any comparable or
succeeding provisions of any legislation which amends, supplements or replaces
such section or subsection.
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Page
22
|
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10.8
|
Severability
|
In case
any provisions of the Plan shall be held illegal or invalid for any reason, such
illegality or invalidity shall not affect the remaining provisions of the Plan,
and the Plan shall be construed and enforced as if such illegal and invalid
provisions had never been set forth in the Plan.
|
10.9
|
Headings
|
Headings
and subheadings in this Plan are inserted for convenience of reference only and
are not to be considered in the construction of the provisions
hereof. In the event of a conflict between a heading and the content
of a section, the content of the section shall control.
|
10.10
|
Action by the
Company
|
Any
action to be performed by the Company under the Plan shall be by resolution of
its Board, by a duly authorized committee of its Board, or by a person or
persons authorized by resolution of its Board or by resolution of such
committee, or by the Committee.
Executed
this _______ day of____________, 2008.
|
LA-Z-BOY
INCORPORATED
|
|
|
By:
|
|
|
President
and Chief Executive
Officer
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|
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Page
23
|
Exhibit
A
Change
in Control
“Change
in Control” means any change required to be reported in Item 6(e) of Schedule
14A of Regulation 14A issued under the Securities Exchange Act of 1934 (the
“Exchange Act”) that qualifies as a change in control event pursuant to Code
§409A. A “change in control event” pursuant to Code §409A includes
the occurrence of a change in the ownership of the Company (as defined in Reg.
§1.409A-3 (i)(5)(v)), a change in effective control of the Company (as defined
in Reg. §1.409A-3(i)(5)(vi)), or a change in the ownership of a substantial
portion of the assets of the Company (as defined in Reg. §1.409A-3(i)(5)(vii),
and, in particular, any one or more of the following events:
|
a.
|
A
change in ownership of the Company in which any one person, or more than
one person acting as a group acquires beneficial ownership of stock of the
Company that, together with stock held by such person or group,
constitutes more than 50 percent of the total fair market value or total
voting power of the stock of the Company; provided, however, that for
purposes of this subsection (a), the following acquisitions shall not
constitute a Change in Control: (i) any acquisition by the Company, or
(ii) any acquisition by any employee benefit plan (or related trust)
sponsored or maintained by the Company or by any corporation controlled by
the Company.
|
|
b.
|
A
change in the effective control of the Company, pursuant to which
either:
|
|
|
(i)
|
Any
one person, or more than one person acting as a group acquires (or has
acquired during the 12-month period ending on the date of the most recent
acquisition by such person or persons) beneficial ownership of stock of
the Company possessing 30 percent or more of the total voting power of the
stock of the Company.
|
|
|
(ii)
|
A
majority of members of the Company’s board of directors is replaced during
any 12-month period by directors whose appointment or election is not
endorsed by a majority of the members of the Company’s board of directors
before the date of the appointment or
election.
|
|
c.
|
A
change in the ownership of a substantial portion of the Company’s assets
pursuant to which any one person, or more than one person acting as a
group acquires (or has acquired during the 12-month period ending on the
date of the most recent acquisition by such person or persons) assets from
the Company that have a total gross fair market value equal to or more
than 40 percent of the total gross fair market value of all of the assets
of the Company immediately before such acquisition or
acquisitions. As used herein, gross fair market value means the
value of the assets of the Company, or the value of the assets being
disposed of, determined without regard to any liabilities associated with
such assets. However, there is no change in control event under
this paragraph when there is a transfer to a related person as
described in Reg.
§1.409A-3(i)(5)(vii)(B)
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|
Page
24
|
However a
Change in Control shall not include a merger of the Company with another entity,
a consolidation involving the Company, or the sale of all or substantially all
of the assets or equity interests of the Company to another entity if, in any
such case, (a) the holders of equity securities of the Company immediately prior
to such event beneficially own immediately after such event equity securities of
the resulting entity entitled to more than fifty percent of the votes then
eligible to be cast in the election of directors (or comparable governing body)
of the resulting entity in substantially the same proportions that they owned
the equity securities of the Company immediately prior to such event or (b) the
persons who were members of the Board immediately prior to such event constitute
at least a majority of the board of directors of the resulting entity
immediately after such event.
For
purposes of this definition:
(A) “Beneficial
owner” (or “beneficial ownership”) includes ownership by attribution as provided
in Reg. §1.409A.
(B) Where
applicable, “person” means a person as defined in Section 3(a)(9) of Securities
Exchange Act of 1934, as amended (the “Exchange Act”);
(C) “Acting
as a group” means so acting within the meaning of Reg. §1.409A-3(i)(5)(B, D or
C), whichever pertains. Persons will be considered to be acting as a
group if they are owners of a corporation that enters into a merger,
consolidation, purchase or acquisition of stock, or similar business transaction
with the Company. If a person, including an entity, owns stock in
both corporations that enter into a merger, consolidation, purchase or
acquisition of stock, or similar transaction, such shareholder is considered to
be acting as a group with other shareholders only with respect to the ownership
in that corporation before the transaction giving rise to the change and not
with respect to the ownership interest in the other
corporation. Where applicable, “group” means a group as described in
Rule 13d-5 promulgated under the Exchange Act or any successor
regulation.
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Page
25
|
Exhibit
B
Separation
From Service
A
Separation From Service occurs on the date upon which a Participant is no longer
an Employee of the Company, as determined in accordance with Code Section 409A
and Treasury Regulation Section 1.409A-1(h).
For
purposes of this Plan, an Employee Separates From Service with the Company if
the Employee dies, retires or otherwise has a termination of employment with the
Company. However, the employment relationship is treated as
continuing intact while the Employee is on military leave, sick leave, or other
bona fide leave of absence if the period of such leave does not exceed six
months, or if longer, so long as the Employee’s right to reemployment with the
Company is provided either by statute or by contract. A leave of
absence constitutes a bona fide leave of absence only if there is a reasonable
expectation that the Employee will return to perform services for the
Company. In general, if the period of leave exceeds six months and
the Employee’s right to reemployment is not provided either by statute or by
contract, the employment relationship is deemed to terminate on the first date
immediately following such six-month period.
Whether a
termination of employment has occurred is determined based on whether the facts
and circumstances indicate that the Company and Employee reasonably anticipated
that no further services would be performed after a certain date. An
Employee is presumed to have Separated From Service where the level of bona fide
services performed decreases to a level equal to 20 percent or less of the
average level of services performed by the Employee during the immediately
preceding 36-month period (or the full period of services to the Company if the
Employee has been providing services to the Company less than 36
months). Facts and circumstances to be considered in making this
determination include, but are not limited to, whether the Employee continues to
be treated as an Employee for other purposes (such as continuation of salary and
participation in Employee benefit programs), whether similarly situated
Employees have been treated consistently, and whether the Employee is permitted,
and realistically available, to perform services for other Companies in the same
line of business. An Employee will be presumed not to have separated
from service where the level of bona fide services performed continues at a
level that is 50 percent or more of the average level of service performed by
the Employee during the immediately preceding 36-month period. No
presumption applies to a decrease in the level of bona fide services performed
to a level that is more than 20 percent and less than 50 percent of the average
level of bona fide services performed during the immediately preceding 36-month
period. The presumption is rebuttable by demonstrating that the
Company and the Employee reasonably anticipated that as of a certain date the
level of bona fide services would be reduced permanently to a level less than or
equal to 20 percent of the average level of bona fide services provided during
the immediately preceding 36-month period or full period of services provided to
the Company if the Employee has been providing services to the Company for a
period of less than 36 months (or that the level of bona fide services would not
be so reduced).
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Page
26
|
Exhibit
31.1
CERTIFICATIONS
OF CHIEF EXECUTIVE OFFICER
PURSUANT
TO RULE 13a-14(a)
I, Kurt
L. Darrow, certify that:
1.
I have reviewed this quarterly report on Form 10-Q of La-Z-Boy
Incorporated;
2.
Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and
for, the periods presented in this report;
4.
The registrant’s other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and
procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant’s internal control over
financial reporting that occurred during the registrant’s most recent fiscal
quarter (the registrant’s fourth fiscal quarter in the case of an annual report)
that has materially affected, or is reasonably likely to materially affect, the
registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of the registrant’s board of
directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation
of internal control over financial reporting which are reasonably likely to
adversely affect the registrant’s ability to record, process, summarize and
report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees
who have a significant role in the registrant’s internal control over financial
reporting.
|
Date:
November 17, 2009
|
/s/ Kurt L.
Darrow
|
|
|
Kurt
L. Darrow
|
||
|
Chief
Executive Officer
|
Exhibit
31.2
CERTIFICATIONS
OF CHIEF FINANCIAL OFFICER
PURSUANT
TO RULE 13a-14(a)
I, Louis
M. Riccio, Jr., certify that:
1.
I have reviewed this quarterly report on Form 10-Q of La-Z-Boy
Incorporated;
2.
Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and
for, the periods presented in this report;
4.
The registrant’s other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and
procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant’s internal control over
financial reporting that occurred during the registrant’s most recent fiscal
quarter (the registrant’s fourth fiscal quarter in the case of an annual report)
that has materially affected, or is reasonably likely to materially affect, the
registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of the registrant’s board of
directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation
of internal control over financial reporting which are reasonably likely to
adversely affect the registrant’s ability to record, process, summarize and
report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees
who have a significant role in the registrant’s internal control over financial
reporting.
|
Date:
November 17, 2009
|
/s/ Louis M. Riccio,
Jr.
|
|
|
Louis
M. Riccio, Jr.
|
||
|
Chief
Financial Officer
|
EXHIBIT
(32)
CERTIFICATION
OF EXECUTIVE OFFICERS*
Pursuant
to 18 U.S.C. section 1350, each of the undersigned officers of La-Z-Boy
Incorporated (the “Company”) hereby certifies, to such officer’s knowledge, that
the Company’s Quarterly Report on Form 10-Q for the period ended October 24,
2009 (the “Report”) fully complies with the requirements of section 13(a) or
15(d), as applicable, of the Securities Exchange Act of 1934 and the information
contained in the Report fairly presents, in all material respects, the financial
condition and results of operations of the Company.
|
/s/ Kurt L. Darrow
|
|
|
Kurt
L. Darrow
|
|
|
President
and Chief Executive Officer
|
|
|
November
17, 2009
|
|
|
/s/ Louis M. Riccio, Jr.
|
|
|
Louis
M. Riccio, Jr.
|
|
|
Senior
Vice President and Chief Financial Officer
|
|
|
November
17, 2009
|
*The
foregoing certification is being furnished solely pursuant to 18 U.S.C. section
1350 and is not being filed as part of the Report or as a separate disclosure
document.