SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) of
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended April 30, 1994 - Commission File No. 0-5091
LA-Z-BOY CHAIR COMPANY
(Exact name of registrant as specified in its charter)
MICHIGAN 38-0751137
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1284 N. Telegraph Road, Monroe, Michigan 48161
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number - Area Code (313) 242-1444
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
COMMON SHARES, $1.00 Par Value
(Title of Class)
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. X
-----
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months, and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
----- -----
State the aggregate market value of the voting stock held by
nonaffiliates of the registrant as of June 17, 1994.
Common Shares, $1.00 Par Value - $533,081,370
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding at June 17, 1994
Common Shares, $1.00 Par Value 18,303,223
Documents Incorporated By Reference:
Portions of the Annual Report to Shareholders for the year ended
April 30, 1994 are incorporated by reference into Parts I, II, and IV.
Portions of the Annual Proxy Statement filed with the Securities and
Exchange Commission on June 24, 1994 are incorporated by reference into
Parts I and III.
TABLE OF CONTENTS
FORM 10-K ANNUAL REPORT - 1994
LA-Z-BOY CHAIR COMPANY
PART I Page
Item 1. Business.............................................1
Item 2. Properties...........................................5
Item 3. Legal Proceedings....................................8
Item 4. Submission of Matters to a Vote of Security Holders..9
PART II Items 5 through 9....................................9
PART III Items 10 through 13..................................9
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K..................................9
PART I
Item 1. Business
The information required in Part I, Item 1, sections (a), (b) is
contained in the Registrant's Annual Report, as shown in Exhibit I pages 1
thru 7, and is incorporated herein by reference.
(c)(1)(i) Principal Products
The Registrant operates in the furniture industry and as such does
not have differing segments. "Residential" dealers are those who resell
to individuals for their home use. "Contract" seating and casegood
products are sold to commercial dealers. Additional information
regarding products and market share data is contained in the
Registrant's Annual Report, as shown in Exhibit I page 22, and is
incorporated herein by reference.
(c)(1)(ii) Status of New Products or Segments
There were not any major new products or segments during the 1994
fiscal year.
(c)(1)(iii) Raw Materials
The principal raw materials used by the Registrant in the
manufacture of its products are hardwoods for solid wood dining room
and bedroom furniture, casegoods, occasional tables and for the frame
components of seating units; plywood and chipwood for internal parts;
veneers for dining room furniture, wall units, and occasional tables;
water-based and liquid finishes (stains, sealants, lacquers) for
external wood; steel for the mechanisms; leather, cotton, wool,
synthetic and vinyl fabrics for covers; and polyester batting and
non-chlorofluorocarbonated polyurethane foam for cushioning. Steel and
wood products are generally purchased from a number of sources, usually
in the vicinity of the particular plant, and product-covering fabrics
and polyurethane are purchased from a substantial number of sources on
a centralized basis. The Registrant fabricates the majority of the
parts in its products, largely because quality parts made to its exact
specifications are not obtainable at reasonable cost from outside
sources.
Raw materials costs historically have been about 35 percent of net
sales in the upholstery operations and a somewhat higher percentage in
the casegoods operations. Purchased fabric (which includes leather) is
the largest single raw material cost representing about 40 percent of total
upholstery product material costs. Polyurethane (poly) foam for cushions
and padding and lumber are the next two largest types of upholstery raw
material costs. Both fabric and poly are highly sensitive to changes in
the price of oil. Price increases for raw materials excluding lumber have
kept pace with the inflation rate in recent years and are expected to
continue to do so. Lumber prices have increased during the past year by
about 10 to 20 percent, depending on the species of lumber.
- 1 -
Lumber, like most commodities, historically has had sharp changes in
prices over the short term and long term. The Registrant is usually not as
affected by these changes as much as other furniture manufacturers due to
the large percentage of upholstered goods manufactured that do not require
as much lumber as casegoods. Also, wood substitutes, (e.g. steel, plastic)
can be used to some degree in upholstered products.
(c)(1)(iv) Patents, Licenses and Franchises or Concessions
The Registrant has a number of patents on its reclining chair and
rocking chair mechanisms which it believes were important to the early
success of the Registrant and to its present competitive position. It
believes, however, that since it is so firmly established in the
industry, the loss of any single or small group of patents would not
now materially or adversely affect the Registrant's business. The
Registrant has no material licenses, franchises or concessions.
(c)(1)(v) Seasonal Business
The Registrant generally experiences its lowest level of sales
during the first quarter. When possible, the scheduling of production
is designed to maintain generally uniform manufacturing activity
throughout the year, except for mid summer plant shutdowns to coincide
with slower sales.
(c)(1)(vi) Practices Regarding Working Capital Items
The Registrant does not carry significant amounts of upholstered
finished goods inventory to meet rapid delivery requirements of
customers or to assure itself of a continuous allotment of goods from
suppliers. Normal customer terms provide for one payment due within 45
days with a 1 percent discount within 30 days (one installment, 1
percent discount 30 net 45).
Most casegoods finished goods inventories are built to provide for
quicker delivery requirements of customers without installment credit
terms therefore, resulting in higher levels of finished product on hand
at any period in time than the upholstered products. Kincaid and
Hammary divisions primarily sell casegood products. Casegoods are also
sold through the Contract Division.
(c)(1)(vii) Customers
The Registrant distributes to over 12,000 locations. The
Registrant does not have any customer whose sales amount to 10 percent
or more of the Registrant's consolidated sales. The Registrant's
approximate dealer mix consists of 39 percent proprietary, 15 percent
to major dealers (Montgomery Ward and other department stores) and
46 percent to general dealers.
Proprietary stores consist of stores dedicated to the sale of
La-Z-Boy products and in-store dedicated galleries. The dedicated stores
include La-Z-Boy Furniture Galleries stores and Showcase Shoppes. In-
store dedicated galleries have been established for each of the Company's
divisions.
- 2 -
(c)(1)(viii) Orders and Backlog
It has been determined that the majority of the Registrant's
Residential Division orders were for dealer stock, with approximately 35
percent of orders being requested directly by customers. Furthermore,
about 20 percent of units produced at all divisions were built for the
Registrant's inventory. The remainder were "built-to-order" for dealers.
As of July 2, 1994, backlogs were approximately $73 million compared
to approximately $77 million on June 26, 1993. This represents less than
six weeks of sales. On average, orders are shipped in approximately five
weeks. Any measure of backlog at a point in time may not be indicative of
future sales performance. The Registrant does not rely on backlogs to
predict future sales since the sales cycle is only five weeks and backlog
can change a lot from week to week.
The decrease in backlogs from 1993 to 1994 can be attributed largely
to the unusually high backlog of orders at the end of 1993. At that time
the furniture industry was emerging from a four year recession and the
Registrant had just introduced many new products, such as the American
Home Collection.
The cancellation policy for La-Z-Boy Chair Company, in general,
is that an order cannot be cancelled after it has been put into
production. Orders from prebuilt stock though, may be cancelled up to the
time of shipment.
(c)(1)(ix) Renegotiation Contracts
The Registrant does not have any material portion of business
which may be subject to renegotiation of profits or termination of
contracts or subcontracts at the election of the Government.
(c)(1)(x) Competitive Conditions
The Registrant believes that it ranks third in the U.S. in dollar
volume of sales within the Residential furniture industry, which
includes manufacturers of bedroom, dining room and living room
furniture. Based on the most accurate statistics available, the
Registrant believes that it is the largest manufacturer of upholstered
products and solid wood bedroom/dining room products in the United
States.
The Registrant competes primarily by emphasis on quality of its
products, dealer support and a lifetime warranty on the reclining and
legrest mechanisms.
The Registrant has approximately fifteen major competitors in the
reclining or motion chair field and a substantially larger number of
competitors in the upholstery business as a whole and in the Casegoods
and Contract businesses.
The Registrant's best U.S. market share information (in dollars,
not units) indicates that it has about 30 to 35 percent of the
recliner market, above 8 percent of the residential upholstery market,
and less than 2 percent of the residential casegoods market. These
market shares have been increasing slightly over the last three years
in most lines.
- 3 -
(c)(1)(xi) Research & Developement
The Registrant spent $6.4 million in fiscal 1994 for new product
development, existing product improvement, quality control,
improvement of current manufacturing operations and research into the
use of new materials in the construction of its products. The
Registrant spent $6.2 million in fiscal 1993 on such activities and
$5.5 million on such activities in fiscal 1992. The Registrant's
customers do not engage in research with respect to the Registrant's
products.
(c)(1)(xii) Compliance with Environmental Regulations
The Registrant believes that its capital expenditures, earnings
and competitive position will not be materially affected by ongoing "de
minimus level" potentially responsible party (PRP) activities at three
clean-up sites, and that they will not be affected as a result of
maintaining necessary compliance with federal, state or local
environmental regulations.
The Registrant has kept abreast of ongoing activities at the three
clean-up sites. Over the past year, the costs to the Registrant La-Z-Boy
have been in keeping with its established status as a de minimus party,
and have been minor. For the future, ongoing costs at two of the sites
(Caldwell Systems - North Carolina RCRA closure; Organic Chemical -
Michigan NPL site closure) are projected to remain the same.
Activities at the third site (Seaboard Chemical - North Carolina RCRA
closure), have now been completed for the first phase. It is
anticipated that a Remedial Investigation/Feasibility Study (RI/FS)
will be performed to define activities required for subsequent clean-up
phases. Until the RI/FS is completed, and a remedy selected, it is not
possible to estimate the costs for this activity. However, the volume
of material generated and sent to this site by all the Registrant's
facilities is less than one-quarter of one percent of the total volume of
hazardous wastes accounted for at this site. On this basis, we would
reasonably anticipate that future activities will not have a
significant effect on capital expenditures, earnings or competitive
position.
The Registrant's current environmental compliance concerns are focused
on new regulations for Storm Water Pollution Prevention and the 1990
Clean Air Act Amendments. The Registrant has participated in a group storm
water permit program sponsored by its trade association (American
Furniture Manufacturers Association - AFMA); has contracted with a
consulting firm to provide assistance to its plants with the
development of Storm Water Pollution Prevention Plans; and has
contracted with another firm to conduct detailed air emission
inventories and assist in the preparation of timely and complete
operating permits for Clean Air Act compliance. The Registrant feels that
compliance with these issues is important for maintaining its ongoing
operations and competitive position. The Registrant does not anticipate
that this compliance effort will have a significant effect on capital
expenditures, earnings or competitive position.
(c)(1)(xiii) Number of Employees
The Registrant and its subsidiaries employed 9,370 persons as of
April 30, 1994 and 8,724 persons as of April 24, 1993.
- 4 -
(d) Financial Information about Foreign and Domestic Operations and
Export Sales.
The Registrant does not make any material amount of sales of
upholstered furniture to foreign customers. The Registrant sells
upholstered furniture to Canadian customers through its Canadian
subsidiary, La-Z-Boy Canada Limited.
The Registrant also derives an insignificant amount of royalty
revenues from the sale and licensing of its trademarks, tradenames and
patents to certain foreign manufacturers.
Export sales are increasing, but no specific sales objectives have
been set at this time.
Item 2. Properties
In the United States, the Registrant operates twenty-three
manufacturing plants (most with warehousing space), has an automated
fabric processing center and divisional and corporate offices. The
Registrant has one manufacturing plant in Canada.
The location of these plants, the approximate floor space,
principal operations conducted and the approximate number of employees
at such locations as of April 30, 1994 are as follows:
Floor Space Number of
Location (square feet) Operations Conducted Details Employees
-------- ------------- --------------------- ------- ---------
Monroe, 233,900 Corporate offices (1) 476
Michigan
Newton, 628,175 Manufacture, assembly, (2) 1,136
Mississippi leather cutting and
warehousing of upholstery
Redlands, 189,125 Upholstering, assembly (3) 267
California and warehousing of
upholstery
Florence, 414,920 Manufacture, assembly (4) 449
South Carolina and warehousing of
upholstery
Florence, 48,400 Fabric processing (5) 17
South Carolina center
Neosho, 560,640 Manufacture, assembly (6) 1,105
Missouri and warehousing of
upholstery
Dayton, 909,320 Manufacture, assembly (7) 1,808
Tennessee and warehousing of
upholstery
- 5 -
Floor Space Number of
Location (square feet) Operations Conducted Details Employees
------------ ------------ ---------------------- --------- ---------
Siloam Springs, 200,910 Manufacture and (8) 296
Arkansas assembly of upholstery
Tremonton, 672,770 Manufacture, assembly (9) 839
Utah and warehousing of
upholstery
Leland, 311,990 Manufacture, assembly and (10) 413
Mississippi warehousing of Contract
casegoods and upholstery
Waterloo, 257,340 Manufacture, assembly, (11) 412
Ontario and warehousing of
upholstery
Lincolnton, 373,830 Manufacture and (12) 393
North Carolina assembly of upholstery
Grand Rapids, 440,000 Manufacture and assembly (13) 117
Michigan of Contract office
furniture/systems
Lenoir area 554,770 Manufacture, assembly and (14) 467
(Hammary), warehousing of primarily
North Carolina Casegoods and some
upholstered products
Hudson area 1,045,050 Manufacture, assembly, (15) 1,175
(Kincaid), and warehousing of
North Carolina Casegoods
--------- -----
6,841,140 9,370
(1) On December 1, 1974, the Registrant purchased from Floral City
Furniture Company a 15,700 square foot showroom adjacent to
the Registrant's Home Office and a plant on Telegraph Road in
Monroe, Michigan. This facility was constructed in 1935 and
expanded in 1970 to a total square footage of 215,200. It was
brought to its present size by an addition of 18,700 square
feet in 1990.
(2) Originally built in 1961 with 274,200 square feet of space and
includes: 190,000 square foot addition started during 1986,
4,000 square feet added in 1990, 19,100 square feet
constructed in 1991 and 13,510 square feet added in 1992. In
1992, an 82,500 square foot woodworking facility was
constructed. During 1993, the manufacturing and warehouse
buildings were expanded a total of 43,200 square feet. In
1994, a chiller building and a conveyor pit were constructed.
- 6 -
(3) The original building of 158,670 square feet was constructed
in 1967. A 21,200 square foot warehouse addition was completed
in 1987 and a 9,255 square foot warehouse addition was completed
in 1992.
(4) 244,085 and 67,680 square feet represent additions constructed
in 1969 and 1973. In 1994, a 7,020 square foot batting storage
building was completed. The balance represents a building
constructed prior to 1930 and purchased in 1966.
(5) The original building of 24,900 square feet was completed in
1975. The Registrant completed construction of a 23,500
square foot addition to the Fabric Processing Center in 1980.
(6) This facility includes a 130,000 square foot addition completed in
1979, two dry kilns constructed in 1985 at a total square
footage of 4,300, a 72,000 square foot manufacturing addition
completed in 1987 and an addition made in 1990 of 25,000
square feet. During 1993, a 37,500 square foot metal stamping
room was added. The balance of 291,840 represents the original
building which was constructed in 1969.
(7) The original building of 320,420 square feet was constructed
in 1973. Additions include: a 48,800 square foot warehouse
addition completed in 1982, 195,000 square feet started during
1986, 68,700 square feet added in 1990, a major upholstery
plant of 274,600 square feet added in 1991, and an 1,800
square foot storage building completed in 1992.
(8) Includes 24,595 square feet from an addition constructed in
1973, 74,000 square feet represents an addition constructed in
1985, 11,310 square feet were added in 1986 and the balance
represents a building constructed in 1943 and purchased in
1973.
(9) The original building of 220,400 square feet was constructed in
1979. Additions include a 60,000 square foot warehouse addition
completed in 1982, a 121,960 square foot addition completed in
1984, 62,500 square feet of expansion during 1989 and an
upholstery plant addition of 207,910 square feet in 1991.
(10) In 1985, the Registrant acquired the net assets of Dillingham
Manufacturing Company, Inc., which included a 153,500 square
foot manufacturing plant located in Leland, Mississippi. This
building was originally constructed in 1959 and 1970. There
was a 153,035 square foot expansion done during 1990. In 1992,
a 7,300 square foot office addition was completed on the site
of the previous office and in 1993, a 1,450 square foot
maintenance shop was added.
(11) As of February 28, 1979, the Registrant acquired the net
assets of Deluxe Upholstering Limited from the Molson
Companies Limited, which included a 124,300 square foot
manufacturing plant located in Waterloo, Ontario, Canada. In
1985, the Registrant relocated its manufacturing plant in
Waterloo, to an existing facility of 209,820 square feet
within the same city and expanded it to its present size in
1989.
- 7 -
(12) In 1986, the net assets of Burris Industries were acquired,
which included a 373,830 square foot manufacturing plant
located in Lincolnton, North Carolina. The building parts were
constructed in 1963, 1965, 1969 and 1974.
(13) In 1986, the net assets of RoseJohnson Incorporated were
acquired, which included a three building total of 440,000
square feet located in Grand Rapids, Michigan. Two of the
buildings were constructed in the early 1900's. Of the two
buildings, one building contains 185,000 total square feet, while
the other building contains 145,000 square feet. The third
building, consisting of 110,000 square feet, was completed in 1960.
(14) In 1986, the operating assets of Hammary Furniture Company
were acquired, which included three maufacturing facilities:
one built in 1946 consisting of 136,500 square feet located in
Lenoir, North Carolina; another constructed in 1968 with
341,580 square feet, including a warehouse of 141,000 built in
1990, located in Granite Falls, North Carolina; and a third
facility in Sawmills, North Carolina, built in 1963 consisting
of 75,000 square feet. During 1993, a 4,000 square foot dry
lumber storage building was built to replace a 2,310 square
foot building that was torn down.
(15) In 1988, the net assets of Kincaid Furniture Company were
acquired, which included 730,000 square feet in six
manufacturing locations within North Carolina. A 237,500
square foot warehouse addition was completed in 1991 and a
5,000 square foot boiler building was added in 1993. During
1994, the completion of the following additions expanded
Kincaid by 72,550 square feet: a cafeteria, a rough mill
building, a dry shed building, and a finishing room.
The Monroe, Michigan; Redlands, California; Dayton, Tennessee; Siloam
Springs, Arkansas; Waterloo, Ontario, Canada; Lincolnton, North
Carolina; Grand Rapids, Michigan; Lenoir, North Carolina; Hudson, North
Carolina and Newton, Mississippi woodworking facility plants are owned
in fee by the Registrant. The Florence, South Carolina; Neosho,
Missouri; Newton, Mississippi and Tremonton, Utah plants as well as the
automated Fabric Processing Center were financed by the issuance of
industrial revenue bonds and are occupied under long-term leases with
government authorities. The Leland, Mississippi plant is under a long
term lease between the Board of Supervisors of Washington County,
Mississippi (lessor) and La-Z-Boy Chair Company (lessee). These leases
are capitalized on the Registrant's books. The Registrant believes
that its plants are well maintained, in good operating condition and
will be adequate to meet its present and near future business
requirements. The average age of the Registrants' properties is 25
years.
Item 3. Legal Proceedings
Information relating to certain legal proceedings (Note 9 of the
Consolidated Financial Statements in the Registrant's Annual Report to
Shareholders for 1994, as shown in Exhibit I page 21) is incorporated
herein by reference.
- 8 -
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
PART II
The information required in Part II (Items 5 thru 8) is contained
in the La-Z-Boy Chair Company's Annual Report to Shareholders for 1994,
Exhibit I pages 8 thru 29, and is incorporated herein by reference.
In reference to Item 9 (changes in and disagreements with accountants
on accounting and financial disclosure), a Form 8-K has not been filed
within the twenty-four month period preceding April 30, 1994.
PART III
The information required in Part III (Items 10 thru 13) is
contained in the Registrant's proxy statement dated June 24, 1994, as shown
in Exhibit II on pages 1 thru 14, and is incorporated herein by reference.
PART IV
Item 14. Exhibits, Financial Statements, Schedules and Reports on Form 8-K
Listed below are the documents filed as part of this report:
(a) Financial Statements
Consolidated Financial Statements and Schedules and report of Price
Waterhouse, as set forth in the accompanying Index to Financial
Statements.
(b) Reports on Form 8-K
News Release and Financial Information Release filed on Form 8-K, dated
June 2, 1994 (Commission File No. 0-5091) is incorporated herein by
reference.
(c) Exhibits
I. 1994 Annual Report to Shareholders
II. 1994 Proxy Statement
III. Articles of Incorporation filed on Form 10-K dated July 20,
1993 (Commission File No. 0-5091) is incorporated herein by
reference.
IV. By-laws filed on Form 10-K dated July 20, 1993 (Commission File
No. 0-5091) is incorporated herein by reference.
- 9 -
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 CHAIR COMPANY
BY s\ C. T. Knabusch July 25, 1994
-----------------
C. T. Knabusch
Chairman of the Board, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.
s\ E. J. Shoemaker Executive Vice President of July 25, 1994
------------------- Engineering, Director and Vice
E. J. Shoemaker Chairman of the Board
s\ C. T. Knabusch Chairman of the Board, President July 25, 1994
------------------- and Chief Executive Officer
C. T. Knabusch
s\ G. M. Hardy Secretary and Treasurer, Principal July 25, 1994
------------------- Accounting Officer and Director
G. M. Hardy
s\ F. H. Jackson Vice President Finance, Principal July 25, 1994
------------------- Financial Officer and Director
F. H. Jackson
s\ P. H. Norton Senior Vice President Sales and July 25, 1994
------------------- Marketing and Director
P. H. Norton
s\ L. G. Stevens Director July 25, 1994
-------------------
L. G. Stevens
s\ J. F. Weaver Director July 25, 1994
-------------------
J. F. Weaver
s\ D. K. Hehl Director July 25, 1994
-------------------
D. K. Hehl
s\ R. E. Lipford Director July 25, 1994
-------------------
R. E. Lipford
s\ W. W. Gruber Director July 25, 1994
-------------------
W. W. Gruber
s\ J. W. Johnston Director, Mr. Johnston is the July 25, 1994
------------------- son-in-law of E. J. Shoemaker
J. W. Johnston
- 10 -
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Nos. 33-8996, 33-8997, 33-31502, and 33-50318) of
La-Z-Boy Chair Company of our report dated June 2, 1994 appearing in
the Annual Report to Shareholders, as shown in Exhibit I page 9, which is
incorporated in this Annual Report on Form 10-K. We also consent to the
incorporation by reference of our report on the Financial Statement
Schedules, which appears on page S-2 of this Form 10-K.
PRICE WATERHOUSE
Toledo, Ohio
July 22, 1994
- 11 -
ANNUAL REPORT ON FORM 10-K
ITEM 14(a) and ITEM 14(d)
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
YEARS ENDED APRIL 30, 1994, APRIL 24, 1993, AND APRIL 25, 1992
LA-Z-BOY CHAIR COMPANY
MONROE, MICHIGAN
- 12 -
INDEX TO FINANCIAL STATEMENTS
The financial statements, together with the report thereon of
Price Waterhouse dated June 2, 1994 appearing on pages 9 thru 29 of
Exhibit I, the 1994 Annual Report to Shareholders is incorporated by
reference in this Form 10-K Annual Report. With the exception of the
aforementioned information, and the information incorporated in Part II,
the 1994 Annual Report to Shareholders is not to be deemed filed as part of
this report. The following financial statement schedules should be read in
conjunction with the financial statements in such 1994 Annual Report to
Shareholders. Financial statement schedules not included in this Form 10-K
Annual Report have been omitted because they are not applicable or the
required information is shown in the financial statements or notes
thereto.
FINANCIAL STATEMENT SCHEDULES
1994, 1993, AND 1992
Page
---------
Report of Independent Accountants on
Financial Statement Schedules S-2
Schedule V Property, Plant and Equipment S-3
Schedule VI Accumulated Depreciation, Depletion and
Amortization of Property, Plant and Equipment S-4
Schedule VIII Valuation and Qualifying Accounts S-5
Schedule X Supplementary Income Statement Information S-6
S - 1
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REPORT OF INDEPENDENT ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULES
To the Board of Directors of
La-Z-Boy Chair Company
Our audits of the consolidated financial statements referred to in our
report dated June 2, 1994 appearing in Exhibit I on page 9, of the 1994
Annual Report to Shareholders of La-Z-Boy Chair Company (which report and
consolidated financial statements are incorporated by reference in
this Annual Report on Form 10-K) also included an audit of the
Financial Statement Schedules listed in Item 14(a) of this Form 10-K.
In our opinion, these Financial Statement Schedules present fairly, in
all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements.
PRICE WATERHOUSE
Toledo, Ohio
June 2, 1994
S - 2
- 14 -
LA-Z-BOY CHAIR COMPANY AND SUBSIDIARIES
SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT
(Dollars in thousands)
Foreign
Balance Currency Other
at Additions Trans- Adjust- Balance
Beginning & Reclass- Retire- lation ments at end of
Classification of Period ifications ments Adjustments (1) Period
- - -------------- --------- ---------- ------- ----------- ------ --------
Year ended April 30, 1994
Land and land
improvements $6,604 $543 $0 ($30) $0 $7,117
Buildings and
building
fixtures 88,669 4,551 (40) (460) 0 92,720
Machinery and
equipment 73,281 10,209 (237) (282) 0 82,971
Information
systems 10,523 1,736 (2,376) (24) 0 9,859
Other 12,092 446 (686) (63) 0 11,789
-------- ------- -------- ------ ------ --------
Total $191,169 $17,485 ($3,339) ($859) $0 $204,456
======== ======= ======== ====== ====== ========
Year ended April 24, 1993
Land and land
improvements $6,184 $562 ($120) ($22) $0 $6,604
Buildings and
building
fixtures 89,082 2,668 (2,749) (332) 0 88,669
Machinery and
equipment 67,519 7,149 (1,189) (198) 0 73,281
Information
systems 10,212 530 (202) (17) 0 10,523
Other 12,792 1,339 (1,992) (47) 0 12,092
-------- ------- -------- ------ ----- --------
Total $185,789 $12,248 ($6,252) ($616) $0 $191,169
======== ======= ======== ====== ===== ========
S - 3
- 15 -
LA-Z-BOY CHAIR COMPANY AND SUBSIDIARIES
SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT
(Dollars in thousands)
(continued)
Foreign
Balance Currency Other
at Additions Trans- Adjust- Balance
Beginning & Reclass- Retire- lation ments at end of
Classification of Period ifications ments Adjustments (1) Period
- - -------------- --------- ---------- ------- ----------- ------ --------
Year ended April 25, 1992
Land and land
improvements $5,724 $267 ($1) ($11) $205 $6,184
Buildings and
building
fixtures 84,318 2,760 (86) (163) 2,253 89,082
Machinery and
equipment 61,525 6,279 (1,073) (97) 885 67,519
Information
systems 10,393 1,202 (1,360) (23) 0 10,212
Other 11,928 1,679 (1,103) (8) 286 12,792
-------- ------- -------- ------ ------ --------
Total $173,888 $12,187 ($3,623) ($302) $3,629 $185,789
======== ======= ======== ====== ====== ========
NOTE: Land improvements, buildings and building fixtures, machinery and
equipment, information systems and other are depreciated using
primarily accelerated methods over the estimated useful lives of
the assets as follows:
Years
Land improvements 20
Buildings and building fixture 15 to 30
Machinery and equipment 10
Information systems 5
Other 3 to 10
(1): The other adjustments column reflects a non-cash write-up of
assets previously written down in fiscal year 1988. These assets
are physically still in use, therefore $3,639 in installed cost
and $3,361 in accumulated depreciation was added back. The net
book value write-up of $278 was recognized as a credit to
depreciation expense and a debit to accumulated depreciation in
fiscal year 1992 and is not shown in this 10-K but is included in
the cash flow statement.
S - 3
- 16 -
LA-Z-BOY CHAIR COMPANY AND SUBSIDIARIES
SCHEDULE VI - ACCUMULATED DEPRECIATION, DEPLETION, AND AMORTIZATION
OF PROPERTY, PLANT AND EQUIPMENT
(Dollars in thousands)
Foreign
Balance Currency Other
at Additions Trans- Adjust- Balance
Beginning & Reclass- Retire- lation ments at end of
Classification of Period ifications ments Adjustments (1) Period
- - -------------- --------- ---------- ------- ----------- ------ ---------
Year ended April 30, 1994
Land and
improvements $1,570 $209 $0 ($5) $0 $1,774
Buildings and
building
fixtures 35,919 3,903 (4) (146) 0 39,672
Machinery and
equipment 45,295 6,819 (180) (220) 0 51,714
Information
systems 8,986 1,034 (2,323) (22) 0 7,675
Other 8,992 1,065 (655) (58) 0 9,344
-------- ------- -------- ------ ----- --------
Total $100,762 $13,030 ($3,162) ($451) $0 $110,179
======== ======= ======== ====== ===== ========
Year ended April 24, 1993
Land and
improvements $1,495 $191 ($113) ($3) $0 $1,570
Buildings and
building
fixtures 32,917 3,950 (854) (94) 0 35,919
Machinery and
equipment 40,036 6,452 (1,046) (147) 0 45,295
Information
systems 8,065 1,134 (198) (15) 0 8,986
Other 9,836 1,134 (1,941) (37) 0 8,992
------- ------- -------- ------ ----- --------
Total $92,349 $12,861 ($4,152) ($296) $0 $100,762
======= ======= ======== ====== ===== ========
S - 4
- 17 -
LA-Z-BOY CHAIR COMPANY AND SUBSIDIARIES
SCHEDULE VI - ACCUMULATED DEPRECIATION, DEPLETION, AND AMORTIZATION
OF PROPERTY, PLANT AND EQUIPMENT
(Dollars in thousands)
(Continued)
Balance Foreign Other
at Additions Trans- Adjust- Balance
Beginning & Reclass- Retire- lation ments at end of
Classification of Period ifications ments Adjustments (1) Period
- - -------------- --------- ---------- ------- ----------- ------ -------
Year ended April 25, 1992
Land and land
improvements $1,251 $184 ($1) ($1) $62 $1,495
Buildings and
building
fixtures 26,959 3,918 (48) (40) 2,128 32,917
Machinery and
equipment 33,924 6,235 (935) (65) 877 40,036
Information
systems 7,170 1,971 (1,056) (20) 0 8,065
Other 9,076 1,543 (1,075) (2) 294 9,836
------- ------- -------- ------ ------ --------
Total $78,380 $13,851 ($3,115) ($128) $3,361 $92,349
======= ======= ======== ====== ====== ========
(1) The other adjustments column reflects a non-cash write-up of assets
previously written down in fiscal year 1988. These assets are
physically still in use, therefore $3,639 in installed cost and
$3,361 in accumulated depreciation was added back. The net book
value write-up of $278 was recognized as a credit to depreciation
expense and a debit to accumulated depreciation in fiscal year 1992
and is not shown in this 10-K but is included in the cash flow
statement.
S - 4
- 18 -
LA-Z-BOY CHAIR COMPANY AND SUBSIDIARIES
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
(Dollars in thousands)
Trade
accounts
Additions receivable
Balance at charged to "written off" Balance
beginning costs and net of at end of
Description of period expenses recoveries period
------------------- ---------- ---------- ------------- ---------
YEAR ENDED
APRIL 30, 1994:
Allowance for
doubtful accounts &
long-term notes $11,670 $7,578 $4,453 $14,795
Accrued Warranties $6,250 $400 $6,650
YEAR ENDED
APRIL 24, 1993:
Allowance for
doubtful accounts &
long-term notes $7,217 $7,891 $3,438 $11,670
Accrued Warranties $5,950 $300 $6,250
YEAR ENDED
APRIL 25, 1992:
Allowance for
doubtful accounts
receivable $11,351 $9,271 $13,397 $7,217
Accrued Warranties $5,650 $300 $5,950
S - 5
- 19 -
LA-Z-BOY CHAIR COMPANY AND SUBSIDIARIES
SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION
(Dollars in thousands)
Charged to Costs
and Expenses
----------------
Year ended April 30, 1994
Maintenance and repairs $18,990
Advertising costs $19,558
Year ended April 24, 1993
Maintenance and repairs $16,360
Advertising costs $19,558
Year ended April 25, 1992
Maintenance and repairs $13,203
Advertising costs $19,041
S - 6
- 20 -
ANNUAL REPORT
To La-Z-Boy Shareholders
Fiscal 1994 was an exceptional year for La-Z-Boy. Sales increased at a faster
rate than sales for the furniture industry as a whole, and rose 18 percent to
$805 million - a new record.
Operating profit, net income, and earnings per share all achieved new records.
In mid-year, the Board of Directors approved a 13 percent increase in the
quarterly cash dividend, raising dividends paid to a new high.
At year's end, our ratio of total debt to capital had been reduced to just 17.4
percent.
Operating profit as a percent of sales increased to 7.5 percent from 6.8 percent
last year. Our goal for 1995 is to improve again. An allied goal is to have
operating profit, interest income and other income reach at least 20 percent of
beginning capital. This year we reached 19.4 percent.
We are making strong progress by following a strategic plan that focuses on
actions to generate additional value to consumers, to our retailers, and to you
- - - our shareholders.
Contributing factors. Sales increases have met or exceeded our expectations for
six consecutive quarters. As the result of good planning, we've had the
production capacity to meet rising retail demand.
Modifications to the manufacturing flow at our plants are resulting in
increases in productivity.
To strengthen our contract business - furniture for offices, hotels and motels,
and healthcare - we consolidated the RoseJohnson Division and the La-Z-Boy
Contract Division into a single operating unit called the Contract Furniture
Group. This is expected to have a positive effect on operating costs.
The Residential Division's broad spectrum of upholstered furniture generates
about 70 percent of total La-Z-Boy sales. Performance this year was outstanding
in terms of sales, profits, and customer service. La-Z-Boy Canada, which also
produces residential upholstered products, also posted significant sales and
profit increases. Residential Division marketing programs reinforce a vital
asset: La-Z-Boy is the furniture industry's best-recognized and most-trusted
brand name.
The Hammary and Kincaid Divisions also recorded outstanding sales in fiscal
1994, as well as profit improvements. Hammary produces high-quality wall
systems and occasional furniture. Kincaid is a best-selling brand of better-
quality, solid-wood bedroom, dining room and occasional furniture. Acquired
several years ago, both divisions now are prospering. Their success validates
our original expectations.
The unique response of La-Z-Boy to America's consumers. What enabled La-Z-Boy
to grow and remain profitable during years of recession? How has La-Z-Boy
increased its share of a fiercely competitive marketplace? Why will you now
find our products in some of America's finest homes? And why do La-Z-Boy
proprietary dealers experience above-average dollar sales per square foot?
- 1 -
The fundamental answer is that La-Z-Boy is redefining the way the residential
furniture industry does business. It revolves around our response to the
motivations of America's consumers. This is the focal point of our discussion
in The Year In Review section of this report.
Noteworthy events. Marvin J. Baumann, Vice President, Product Planning and
Development, retired after serving La-Z-Boy for more than 30 years. Examine our
product engineering, observe the reliability and safety tests our products must
endure, or watch new designs flash to life on our computer screens, and you will
be witnessing some of Marv Baumann's many contributions to our Company.
He also trained a fine cadre of younger engineering managers. We have selected
one of them, David J. Westerndorf, to succeed Mr. Baumann.
Courtney A. Leckler, Vice President, La-Z-Boy West, also elected to retire this
year. His career with La-Z-Boy spanned 47 years, a length of distinguished
service second only to that of La-Z-Boy co-founder Edwin J. Shoemaker. Larry A.
Woolace, formerly Director of Manufacturing Services, was named General Manager,
La-Z-Boy West.
Former DuPont executive Rocco J. Losito joined La-Z-Boy as Corporate Director of
Quality Assurance. Mr. Losito is formalizing and strengthening our corporate-
wide quality management program. He reports directly to the Executive
Committee.
We have adopted a bonus plan covering most plant and non-management salaried
employees. It is based on several factors including the Company's
profitability, plant productivity, and customer satisfaction.
Employee participation in the Matched Retirement Savings Plan 401(k) was
inaugurated January 1, 1990 and has grown to well over 70 percent of eligible
employees this year. This plan is in addition to our Company's salaried and
hourly employee retirement programs.
Fortune magazine again listed La-Z-Boy as one of America's most-admired
corporations. We moved up 21 positions on the "Fortune 500" list of largest
industrial fims. In addition, La-Z-Boy was honored with the first ARROS (Annual
Retailer Reader Opinion Survey) Award for best overall product in the upholstery
category by Furniture Retailer, the magazine published by the National Home
Furnishings Association. The award recognizes product innovation, opportunity
for dealers to influence product development, and consistent product quality.
We became a "partner" in the Environmental Protection Agency's Green Lights
Program for voluntary pollution-prevention and energy conservation. As a Green
Lights partner, over the next several years, La-Z-Boy will install special,
energy-efficient lighting covering more than half of our square footage.
The year ahead. Assuming continued economic improvement, fiscal 1995 should be
another record sales year for La-Z-Boy. If so, it will mark 14 consecutive
years of sales growth.
We look forward to increases in sales and earnings. Realistically, however, we
should not expect percentage improvements to equal those in fiscal 1994 because
this year's percentage gains were well above the norm.
An expanded advertising schedule will see La-Z-Boy return to network television.
- 2 -
The Residential Division will open additional La-Z-Boy Furniture Galleries
stores and upgrade a number of La-Z-Boy Showcase Shoppes to the Furniture
Galleries level. The first La-Z-Boy Furniture Galleries store in Canada opens
in Calgary, Alberta. The Contract Furniture Group, Hammary, and Kincaid will
also open additional galleries of their own.
Capital expenditures are expected to exceed this year's level, and include the
costs of replacing one older upholstery plant with a new and larger one, and
constructing a new Data Center headquarters in Monroe, Michigan.
With the support of our employees, our retailers, and our shareholders, we will
keep strengthening our Company's position as the leading supplier of furniture
for families and for businesses that appreciate quality, value, comfort, style,
and service.
Charles T. Knabusch
Chairman and President
La-Z-Boy At A Glance
America's Favorite name in furniture. La-Z-Boy is the nation's leading
manufacturer of upholstered seating, and the third largest manufacturer of
residential furniture overall. La-Z-Boy perfected the upholstered recliner and
dominates the marketplace for this class of product. The Company has grown into
a complete furniture resource for family rooms, living rooms, bedrooms and
dining rooms.
Most La-Z-Boy furniture retails in a broad middle-price range. Certain
products target higher-income purchasers. At all price levels, La-Z-Boy
furniture represents exceptional value.
According to independent surveys, La-Z-Boy is the best-recognized and most-
trusted name in residential furniture. This well-earned reputation is helping
La-Z-Boy expand its presence in offices, hotels, and healthcare facilities.
La-Z-Boy employs 9,370 people. It operates 24 plants in the United States and
Canada. The Company's La-Z-Boy, Hammary and Kincaid brand-name furniture is
sold through over 10,000 retail locations. Additionally, La-Z-Boy products are
manufactured under license in Germany, Italy, Japan, New Zealand, Mexico, Great
Britain and South Africa.
The Company's shares are listed on the New York and the Pacific Stock Exchanges.
La-Z-Boy Divisions, Products and Markets:
La-Z-Boy Residential accounts for about 70 percent of total Company sales.
Principal products include stationary chairs, sofas and loveseats, recliners,
reclining sofas, sleep sofas, and modular seating groups. Residential Division
furniture is sold in a national network of La-Z-Boy proprietary stores, and in
better-quality department stores, furniture stores and regional furniture
chains.
La-Z-Boy Canada manufactures residential seating and markets La-Z-Boy
residential products in Canada. This division is initiating a Canadian network
of La-Z-Boy proprietary retail stores.
Hammary produces occasional tables, living room cabinets, wall entertainment
units, and upholstered furniture sold in quality furniture and department
stores. Hammary also produces CompaTables occasional tables which are featured
in La-Z-Boy proprietary stores.
- 3 -
Kincaid makes solid-wood bedroom, dining room and occasional furniture sold
through in-store Kincaid Galleries, select La-Z-Boy Furniture Galleries stores
and better-quality stores nationally.
La-Z-Boy Contract Furniture Group includes three sales entities:
La-Z-Boy Business Furniture - Executive office and general office seating,
desks, cabinets and conference tables, plus a complete line of modular office
components are sold by office furniture dealers. Full-office furniture systems
and office seating are marketed through contract furniture dealers, interior
designers, architects, and institutional buyers.
La-Z-Boy Healthcare Furniture - Products include hospital chairs, recliners, and
special mobile recliners for easy patient mobility in the hospital or home.
Healthcare furniture is marketed through contract dealers and medical sales
companies.
La-Z-Boy Hospitality Furniture - Specially engineered La-Z-Boy recliners are
sold directly to major hotel and motel chains and through hospitality sales
companies.
The Year In Review
A strategy for success in a changing industry. Many furniture manufacturers use
retailers as channels for "pushing" products to market. These manufacturers
often must resort to short-lived incentives that encourage retailers to sell
without regard for consumers' needs. This strategy reveals little knowledge of
today's homemakers and the kind of positive shopping experience they want.
La-Z-Boy markets to consumers. We address their interests. We provide them
with good reasons for purchasing. Consequently, consumers exert "pull" that
moves our products through our dealers' stores.
How well does the La-Z-Boy "pull" strategy work? Consumer-directed advertising
has helped make La-Z-Boy the best-known name in furniture. According to
independent research, our brand name has a better than 95 percent awareness
factor. In terms of advertising recall, we outperform our nearest competitor
4-to-1.
Equally important, independent research says consumers associate the La-Z-Boy
name with key preference factors such as product quality, and comfort and
durability, plus honest representation and fairness in selling.
Being consumer-directed has helped us attract more categories of consumers.
For higher-income, more-sophisticated consumers, we developed La-Z-Boy Classics
stationary chairs and recliners, and the American Home Collection by La-Z-Boy -
a beautiful selection of stationary furniture for living rooms. We added built-
in tables and storage to our La-Z-Time Motion Modulars seating groups to make
them more useful in smaller homes. We engineered basic chairs and sofas to fit
younger families' budgets.
Thanks to our consumer research, we launched La-Z-Boy into a soaring new market
for motion sofas, motion loveseats, and motion modular groupings. The
exclusive, patented recliner features used on many of these La-Z-Boy products
make them even more appealing.
- 4 -
"Who built all this beautiful, comfortable furniture?," asks an eight-page
advertisement in leading shelter magazines. Readers see an extraordinary range
of stylish furniture and accessories photographed in American homes. Surprise!
These are all La-Z-Boy products - proof that La-Z-Boy has become a complete
furniture resource.
This special advertisement offers a free La-Z-Boy product portfolio plus a
brochure of decorating tips and ideas. In less than two months, over 40,000
consumers called our 1-800-Then Relax number. Consumers appreciate ideas and
thoughtful assistance that only an industry leader like La-Z-Boy can provide.
The reasons why La-Z-Boy is the industry leader become clear when you visit a
La-Z-Boy Furniture Galleries store. The array of furniture, and the way
La-Z-Boy correlates form with function, and beauty with practicality, suprises
many people. Over 70 percent of today's consumer-directed La-Z-Boy product
line has been introduced within the past three years.
But it takes more than this to make our "pull" strategy successful. As part of
a fundamental business strategy, La-Z-Boy is redefining the way the furniture
industry does business.
A new kind of purchasing experience. Two decades ago, consumers began
discovering dedicated furniture stores called La-Z-Boy Showcase Shoppes.
Showcase Shoppes introduced legions of consumers to La-Z-Boy.
Today, a new generation of stores - La-Z-Boy Furniture Galleries - shows why
La-Z-Boy has become the American consumer's principal resource for family room
and living room furniture.
These large, inviting stores feature settings of upholstered furniture, wall
cabinets and entertainment systems, tables and occasional furniture - all made
by La-Z-Boy. Fascinating accessories from around the world complement the
presentation. First-time shoppers are astounded at this wealth of choice.
But what keeps them coming back? After all, research studies say consumers
don't enjoy shopping for furniture. They find it frustrating, even stressful.
Shopping in a La-Z-Boy Furniture Galleries store is a different experience -
eye-opening, pressure-free, reassuring, even enjoyable. The reason is that
La-Z-Boy and its retailers are partners in service to the consumer.
For example:
- Professional sales training programs and seminars help our stores serve
consumers' interests and, at the same time, increase their sales volumes and
operational efficiency.
- Authorized La-Z-Boy retailers have access to an arsenal of consumer
education, point-of-sale, advertising and other sales support materials.
- With the La-Z-Boy Screen Test Video Catalog System, shoppers can see
furniture being "electronically upholstered" in any authorized covering,
while salespeople receive up-to-the-minute information about pricing and
product availability.
- Electronic Data Interchange (EDI) technology lets La-Z-Boy retailers enter
customer orders and get answers without delay so they can spend more time
with customers, less time on paperwork. It also gives our retailers current
information for standardized financial reporting, business analyses, and
planning, to help them maximize their profitability.
- 5 -
- New bar coding software links each item in the manufacturing stream to the
retailer's original order. This helps La-Z-Boy retailers control their
inventories, make on-time deliveries, and improve cash flow.
La-Z-Boy is a leader in the furniture industry in combining research,
education and technology so that retailers can do a consistently better job
of serving consumers.
Defining the future of furniture retailing. Many La-Z-Boy Furniture Galleries
stores experience 50 to 100 percent higher sales revenues per square foot than
the average conventional furniture store. Our top-20 superstores have annual
sales of $3 million or more each.
Over the past 10 years, on average, La-Z-Boy sales have increased almost 12
percent annually, or more than double the average rate of increase for the
residential furniture industry.
At the same time, our market share has increased. We are attracting higher-
income families, plus a rapidly increasing share of mid-life consumers - the
biggest per capita purchasers of home furnishings.
The gallery concept, especially as it is expressed in La-Z-Boy Furniture
Galleries stores, is the foundation of a success strategy that defines the
future of La-Z-Boy and of our industry.
Highlights of Operations
The Residential Division continues to expand and upgrade its proprietary
distribution network. Soon, some 100 La-Z-Boy Furniture Galleries stores will
be serving major metropolitan areas. These stores are augmented by La-Z-Boy
Showcase Shoppes, most of which are scheduled for upgrading to Furniture
Galleries; and in smaller communities, by a La-Z-Boy Gallery within independent
furniture stores.
Newer products were best-sellers in fiscal 1994. Major sales gains were scored
by the American Home Collection of luxurious stationary living room furniture,
and by motion modulars seating groups featuring "home theater" arrangements,
hideaway storage, snack trays and reclining end units. Entry-level reclining
chairs, upscale La-Z-Boy Classics chairs, and our new reclining sofas also
proved highly popular. In these categories, sales increases ranged from 30
percent to well over 200 percent.
Hammary sales moved up sharply as the division restructured its product lines
for longer-term market appeal. Teams of workers focused on manufacturing
efficiencies and customer service.
Hammary modular home theater systems successfully address a fast-growing segment
of the home furnishings market. They feature large-screen television enclosures
flanked by matching pier cabinets for housing stereo receivers, allied
electronics and surround-sound speakers.
Kincaid repositioned its product lines to equal the styling and quality offered
by premium brand names, but at lower prices.
- 6 -
Among more than 100 new pieces introduced this year, the Kincaid top-seller was
the Cherry Mountain III Collection that replicates the Queen Anne period's
elegance and delicacy. Crafted in solid cherry, this collection includes an
extensive selection of bedroom and dining room furniture; plus wardrobes, home
entertainment centers, wall storage and display systems, and occasional tables.
Kincaid is adding 150 dealers to its base of better-quality furniture stores and
major regional retail chains. Many of these retailers operate in-store Kincaid
Galleries.
The Contract Furniture Group now manages all La-Z-Boy business, healthcare and
hospitality furniture, as well as custom office systems. Resulting efficiencies
are having positive effects on product development, sales and customer service.
The Group is experiencing demand at both ends of the price spectrum. Several
luxurious new chair styles are being introduced to complement the Group's
collections of executive desks, credenzas, conference tables and shelf units.
Growth in small businesses and home-based enterprises is spurring demand for the
Group's attractively priced, highly efficient modular office units.
The Contract Furniture Group is expanding its own gallery program. A typical
in-store La-Z-Boy Business Furniture Gallery provides a 1,200 square foot or
larger dedicated display area, and generates two to four times the sales revenue
of conventional selling space.
Engineering and Manufacturing activities have focused on quality assurance,
plant utilization and mechanical redesign.
Our Total Quality Management program is now being formalized with the
appointment of a corporate director of quality assurance. Our objective is to
integrate quality-related disciplines in all operations. This will range from
statistical process control and new measurement systems to supplier
relationships that emphasize continuous quality improvement.
Revisions to manufacturing operations, now largely complete, are improving our
product flow and helping us expedite deliveries. Construction was started in
March to build a 396,000 square foot major upholstery plant to replace a
smaller existing plant. Completion is expected this fall.
Product re-engineering efforts will help us employ alternative materials,
especially metal, for cost-efficiency and production flexibility. A more
powerful computer-aided design (CAD) system capable of 3-D solids modeling,
stress analysis and collaborative engineering will make our design operations
more productive.
Through advances in all areas - consumer-directed marketing, product
development, manufacturing and distribution - we have positioned La-Z-Boy for
continuing growth and higher profitability.
- 7 -
Report of Management Responsibilities
The management of La-Z-Boy Chair Company is responsible for the preparation of
the accompanying consolidated financial statements, related financial data,
and all other information included in the pages following. The financial
statements have been prepared in accordance with generally accepted accounting
principles and include amounts based on management's estimates and judgements
where appropriate.
Management is further responsible for maintaining the adequacy and effectiveness
of established internal controls. These controls provide reasonable assurance
that the assets of La-Z-Boy Chair Company are safeguarded and that transactions
are executed in accordance with management's authorization and are recorded
properly for the preparation of financial statements. The internal control
system is supported by written policies and procedures, the careful selection
and training of qualified personnel, and a program of internal auditing.
The accompanying report of the Company's independent accountants states their
opinion on the Company's financial statements, based on examinations conducted
in accordance with generally accepted auditing standards. The Board of
Directors, through its Audit Committee composed exclusively of outside
directors, is responsible for reviewing and monitoring the financial statements
and accounting practices. The Audit Committee meets periodically with the
internal auditors, management, and the independent accountants to ensure that
each is meeting its responsibilities. The Audit Committee and the independent
accountants have free access to each other with or without management being
present.
Charles T. Knabusch
Chief Executive Officer
Frederick H. Jackson
Chief Financial Officer
- 8 -
Report of Independent Accountants
Price Waterhouse
To the Board of Directors and Shareholders of La-Z-Boy Chair Company:
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income, of cash flows and of changes in shareholders'
equity, present fairly, in all material respects, the financial position of
La-Z-Boy Chair Company and its subsidiaries at April 30, 1994 and April 24,
1993, and the results of their operations and their cash flows for each of the
three years in the period ended April 30, 1994, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted
our audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
As discussed in Note 8 to the Consolidated Financial Statements, on April 25,
1993, the Company changed its method of accounting for income taxes.
Price Waterhouse
Toledo, Ohio
June 2, 1994
- 9 -
Consolidated Statement of Income
(Amounts in thousands, except per share data)
- - -----------------------------------------------------------------------------
Year Ended April 30, April 24, April 25,
1994 1993 1992
(53 weeks) (52 weeks) (52 weeks)
- - -----------------------------------------------------------------------------
Sales................................ $804,898 $684,122 $619,471
Cost of sales........................ 593,890 506,435 453,055
--------- --------- ---------
Gross profit....................... 211,008 177,687 166,416
Selling, general and administrative.. 150,700 130,855 122,888
--------- --------- ---------
Operating profit................... 60,308 46,832 43,528
Interest expense..................... 2,822 3,260 5,305
Interest income...................... 1,076 1,474 1,093
Acquisition amortization............. (1,056) (1,039) (1,039)
Other income......................... 649 1,292 1,628
--------- --------- ---------
Total other income................. 669 1,727 1,682
Income before income tax expense..... 58,155 45,299 39,905
Income tax expense
Federal - current.................. 19,719 16,726 17,595
- deferred................. (445) (1,965) (5,417)
State - current.................. 4,283 3,254 2,627
- deferred................. (119) - -
--------- --------- ---------
Total tax expense................ 23,438 18,015 14,805
--------- --------- ---------
Net income before accounting change.. 34,717 27,284 25,100
Accounting change.................... 3,352 - -
--------- --------- ---------
Net income....................... $38,069 $27,284 $25,100
========= ========= =========
Weighted average shares.............. 18,268 18,172 18,064
========= ========= =========
Net income per share before
accounting change.................. $1.90 $1.50 $1.39
Accounting change.................... .18 - -
--------- --------- ---------
Net income per share............. $2.08 $1.50 $1.39
========= ========= =========
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
- 10 -
Consolidated Balance Sheet
(Amounts in thousands, except par value)
- - ----------------------------------------------------------------------------
As of April 30, April 24,
1994 1993
- - ----------------------------------------------------------------------------
Assets
- - ------
Current Assets
Cash and equivalents.............................. $ 25,926 $ 28,808
Receivables, less allowances of $13,537 in 1994
and $10,500 in 1993............................. 183,115 169,950
Inventories
Raw materials................................... 31,867 27,555
Work-in-progress................................ 29,325 30,598
Finished goods.................................. 26,676 20,135
--------- ---------
FIFO inventories.............................. 87,868 78,288
Excess of FIFO over LIFO...................... (20,632) (17,801)
--------- ---------
Total inventories........................... 67,236 60,487
Deferred income taxes............................. 15,160 9,152
Other current assets.............................. 4,148 5,065
--------- ---------
Total Current Assets............................ 295,585 273,462
Property, plant and equipment, net.................. 94,277 90,407
Goodwill, less accumulated amortization of
$5,574 in 1994 and $4,668 in 1993................. 20,752 21,658
Other long-term assets, less allowances of
$1,257 in 1994 and $1,170 in 1993................. 19,639 15,537
--------- ---------
Total Assets.................................. $430,253 $401,064
========= =========
- 11 -
Consolidated Balance Sheet
(Amounts in thousands, except par value)
- - ----------------------------------------------------------------------------
As of April 30, April 24,
1994 1993
- - ----------------------------------------------------------------------------
Liabilities and Shareholders' Equity
- - ------------------------------------
Current Liabilities
Current portion of long-term debt................. $ 2,875 $ 542
Accounts payable.................................. 21,552 20,010
Payroll/benefits.................................. 29,453 28,411
Estimated income taxes............................ 3,882 9,011
Other current liabilities......................... 13,701 13,090
--------- ---------
Total Current Liabilities....................... 71,463 71,064
Long-term debt...................................... 52,495 55,370
Deferred income taxes............................... 6,949 4,857
Other long-term liabilities......................... 8,435 6,387
Shareholders' Equity
Preferred Shares - 5,000 authorized; 0 issued..... - -
Common shares, $1 par value - 40,000 authorized;
18,287 issued in 1994 and 18,195 in 1993........ 18,287 18,195
Capital in excess of par value.................... 10,147 8,494
Retained earnings................................. 263,348 236,842
Currency translation adjustments.................. (871) (145)
--------- ---------
Total Shareholders' Equity...................... 290,911 263,386
--------- ---------
Total Liabilities and Shareholders' Equity.... $430,253 $401,064
========= =========
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements. Certain April 24, 1993 balance sheet items have
been reclassed for comparability to April 30, 1994.
- 12 -
Consolidated Statement of Cash Flows
(Amounts in thousands) Increase (Decrease) in Cash and Equivalents
- - -----------------------------------------------------------------------------
Year Ended April 30, April 24, April 25,
1994* 1993 1992
(53 weeks) (52 weeks) (52 weeks)
- - -----------------------------------------------------------------------------
Cash Flows from Operating Activities:
Net income.............................. $ 38,069 $ 27,284 $ 25,100
Adjustments to reconcile net income to net
cash provided by operating activities:
Accounting change................... (3,352) - -
Depreciation and amortization....... 14,014 14,061 14,840
Change in receivables............... (13,165) (14,475) (7,039)
Change in inventories............... (6,749) (2,679) 2,599
Change in other assets and liab..... (168) 12,368 6,301
Change in deferred taxes............ (564) (1,965) (5,417)
--------- --------- ---------
Total adjustments................. (9,984) 7,310 11,284
--------- --------- ---------
Cash Provided by Operating
Activities...................... 28,085 34,594 36,384
Cash Flows from Investing Activities:
Proceeds from disposals of assets....... 177 2,100 508
Capital expenditures.................... (17,485) (12,248) (12,187)
Change in pref. stocks held as invest... - - 1,583
Change in other investments............. (2,981) (2,624) -
--------- --------- ---------
Cash Used for Investing Activities (20,289) (12,772) (10,096)
Cash Flows from Financing Activities:
Short-term debt......................... 727 1,767 4,444
Long-term debt.......................... - - 24,700
Change in unexpended IRB funds.......... - - 414
Retirements of debt..................... (1,269) (6,581) (39,285)
Sale of stock under stock option plans.. 1,850 1,372 1,973
Stock for 40l(k) employee plans......... 2,952 2,503 1,533
Purchase of La-Z-Boy stock.............. (2,928) (2,676) (388)
Payment of cash dividends............... (11,692) (10,902) (10,474)
--------- --------- ---------
Cash Used for Financing Activities (10,360) (14,517) (17,083)
Effect of exchange rate changes on cash... (318) (234) (428)
--------- -------- ---------
Net change in cash and equivalents........ (2,882) 7,071 8,777
Cash and equiv. at beginning of the year.. 28,808 21,737 12,960
--------- --------- ---------
Cash and equiv. at end of the year........ $25,926 $28,808 $21,737
========= ========= =========
Cash paid during the year - Income taxes.. $29,116 $16,789 $20,128
- Interest...... $2,675 $3,108 $5,105
For purposes of the Statement of Cash Flows, the Company considers all highly
liquid debt instruments purchased with a maturity of three months or less to
be cash equivalents.
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
*Certain April 24, 1993 balance sheet items have been reclassed for
comparability to April 30, 1994.
- 13 -
Statement of Changes in Shareholders' Equity
(Amounts in thousands)
- - ------------------------------------------------------------------------------
Capital Currency
in Trans-
Excess lation
Common of Par Retained Adjust-
Shares Value Earnings ments Total
- - ------------------------------------------------------------------------------
Balance at April 27, 1991.. $17,979 $ 6,293 $203,934 $1,011 $229,217
Purchase of La-Z-Boy stock... (16) (372) (388)
Currency translation......... (602) (602)
Exercise of stock options.... 107 427 1,439 1,973
Exercise of 40l(k) stock..... 65 585 883 1,533
Dividends paid............... (10,474) (10,474)
Net income................... 25,100 25,100
-------- ------- --------- ------- ---------
Balance at April 25, 1992.. 18,135 7,305 220,510 409 246,359
Purchase of La-Z-Boy stock... (117) (2,559) (2,676)
Currency translation......... (554) (554)
Exercise of stock options.... 74 245 1,053 1,372
Exercise of 40l(k) stock..... 103 944 1,456 2,503
Dividends paid............... (10,902) (10,902)
Net income................... 27,284 27,284
-------- ------- --------- ------- ---------
Balance at April 24, 1993.. 18,195 8,494 236,842 (145) 263,386
Purchase of La-Z-Boy stock... (91) (2,837) (2,928)
Currency translation......... (726) (726)
Exercise of stock options.... 90 307 1,453 1,850
Exercise of 40l(k) stock..... 93 1,346 1,513 2,952
Dividends paid............... (11,692) (11,692)
Net income................... 38,069 38,069
-------- ------- --------- ------- ---------
Balance at April 30, 1994.. $18,287 $10,147 $263,348 ($871) $290,911
======== ======= ========= ======= =========
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
- 14 -
Notes to Consolidated Financial Statements
Note 1: Accounting Policies
The Company operates in the furniture industry. The following is a summary of
significant accounting policies followed in the preparation of these financial
statements.
Principles of Consolidation
The consolidated financial statements include the accounts of La-Z-Boy Chair
Company and its wholly owned subsidiaries. All significant intercompany
transactions have been eliminated.
Inventories
Inventories are valued at the lower of cost or market. Cost is determined on
the last-in, first-out (LIFO) basis.
Property, Plant and Equipment
Items capitalized, including significant betterments to existing facilities,
are recorded at cost. Depreciation is computed using primarily accelerated
methods over the estimated useful lives of the assets.
Goodwill
The excess of the cost of operating companies acquired over the value of their
net assets is amortized on a straight-line basis over 30 years from the date
of acquisition.
Income Taxes
Income tax expense is provided on all revenue and expense items included in
the consolidated statement of income, regardless of the period such items are
recognized for income tax purposes. In fiscal 1994 the Company changed its
method of accounting for income taxes (see Note 8).
Note 2: Cash and Equivalents
(Amounts in thousands)
- - -----------------------------------------------------------------
April 30, April 24,
1994 1993
- - -----------------------------------------------------------------
Cash in bank........................... $ 5,926 $ 5,808
Certificates of deposit................ 20,000 15,000
Commercial paper....................... - 8,000
------- -------
Total cash and equivalents........... $25,926 $28,808
======= =======
The Company invests in certificates of deposit with a bank whose board of
directors includes three members of the Company's board of directors. At the
end of 1994 and 1993, $10 million and $15 million, respectively, was invested
in this bank's certificates.
- 15 -
Note 3: Property, Plant and Equipment
(Amounts in thousands)
- - ------------------------------------------------------------------
April 30, April 24,
1994 1993
- - ------------------------------------------------------------------
Land and land improvements............ $ 7,117 $ 6,604
Buildings and building fixtures....... 92,720 88,669
Machinery and equipment............... 82,971 73,281
Information systems................... 9,859 10,523
Other................................. 11,789 12,092
-------- --------
204,456 191,169
Less: accumulated depreciation....... 110,179 100,762
-------- --------
Property, plant and equipment, net.. $ 94,277 $ 90,407
======== ========
Note 4: Debt
(Dollar amounts in thousands)
- - -------------------------------------------------------------------------
Interest April 30, April 24,
rates Maturities 1994 1993
- - -------------------------------------------------------------------------
Credit lines.............. 4.1% 1995-98 $15,000 $15,000
Private placement......... 8.8% 1995-02 15,000 15,000
Industrial 2.7%-
revenue bonds........... 3.3% 1995-12 25,370 25,912
------- -------
Total debt................................... $55,370 $55,912
Less: current portion........................ 2,875 542
------- -------
Long-term debt............................... $52,495 $55,370
======= =======
Weighted average interest 4.8% 4.8%
Fair value of long-term debt $56,003 $56,597
In April 1991 the Company entered into a $50 million unsecured revolving
credit line (Credit Agreement) to extend through August 31, 1998, requiring
interest payments only through August 31, 1994 and periodic payments of
principal and interest through 1998. The Company is in the process of
renewing the Credit Agreement to require interest only payments through
August 1999 and to require principal payment in August 1999. The Credit
Agreement also includes covenants that, among other things, require the
Company to maintain certain financial statement ratios. The Company has
complied with all of the requirements.
Proceeds from industrial revenue bonds were used to finance the construction
of manufacturing facilities. These arrangements require the Company to insure
and maintain the facilities and make annual payments that include interest.
The bonds are secured by the facilities constructed from the bond proceeds.
Maturities on debt obligations for the five years subsequent to April 30,
1994 are $3 million, $2 million, $3 million, $2 million and $3 million,
respectively. As of April 30, 1994, the Company had remaining unused lines
of credit and commitments of $60 million under several credit arrangements.
- 16 -
Note 5: Stock Option Plans
The Company's shareholders adopted an employee stock option plan that provides
grants to certain employees to purchase common shares of the Company at not
less than their fair market value at the date of grant. Options are for five
years and become exercisable at 25% per year beginning one year from date of
grant. The Company is authorized to grant options for up to 1,600,000 common
shares.
- - --------------------------------------------------------------------
Number of Per share
shares option price
- - --------------------------------------------------------------------
Outstanding at April 25, 1992.... 415,942 $14.13 - $22.13
Granted........................ 133,750 $21.75
Exercised...................... (59,099) $14.13 - $22.13
Expired or cancelled........... (27,019)
- - --------------------------------------------------------------------
Outstanding at April 24, 1993.... 463,574 $14.13 - $22.13
Granted........................ 120,110 $29.63
Exercised...................... (78,584) $14.13 - $22.13
Expired or cancelled........... (15,126)
- - --------------------------------------------------------------------
Outstanding at April 30, 1994.... 489,974 $14.13 - $29.63
- - --------------------------------------------------------------------
Exercisable at April 30, 1994.... 193,915
Shares available for grants at
April 30, 1994................. 877,725
- - --------------------------------------------------------------------
The Company's shareholders have adopted Restricted Share Plans under which the
Compensation and Stock Option Committee of the Board of Directors was
authorized to offer for sale up to an aggregate of 650,000 common shares to
certain employees and non-employee directors at 25% of the fair market value
of the shares. The plans require that all shares be held in an escrow account
for a period of three years in the case of an employee, or until the
participant's service as a director ceases in the case of a director. In the
event of an employee's termination during the escrow period, the shares must
be sold back to the Company at the employee's cost.
Shares aggregating 11,800 and 14,450 were granted and issued during the fiscal
years 1994 and 1993, respectively, under the Restricted Share Plans. Shares
remaining for future grants under the above plans amounted to 442,075 at
April 30, 1994.
The Company's shareholders have also adopted a Performance-Based Restricted
Stock Plan. This plan authorizes the Compensation and Stock Option Committee
of the Board of Directors to award up to an aggregate of 400,000 shares to key
employees. Grants of shares are based entirely on achievement of goals over
a three-year performance period. Any award made under the plan will be at
the sole discretion of the Committee after judging all relevant factors. At
April 30, 1994, performance awards were outstanding pursuant to which up to
47,000 shares and 43,520 shares may be issued in fiscal years 1996 and 1997,
respectively, depending on the extent to which certain specified performance
objectives are met. The costs of performance awards are expensed over the
performance period.
- 17 -
Note 6: Retirement
The Company has contributory and non-contributory retirement plans covering
substantially all factory employees.
Eligible salaried employees are covered under a trusteed profit sharing
retirement plan. Cash contributions to a trust are made annually based on
profits.
The Company has established a non-qualified deferred compensation plan for
highly compensated employees called a SERP (Supplemental Executive Retirement
Plan).
The Company offers a voluntary 401(k) retirement plan to eligible employees
within all U.S. operating divisions. Currently over 70% of eligible employees
are participating in the plan. Employee contributions are matched with
La-Z-Boy stock at $0.50 on the dollar up to a maximum company contribution of
1% of pay.
The actuarially determined net periodic pension cost and retirement costs are
computed as follows (for the years ended):
(Amounts in thousands)
- - ------------------------------------------------------------------------------
April 30, April 24, April 25,
1994 1993 1992
(53 weeks) (52 weeks) (52 weeks)
- - ------------------------------------------------------------------------------
Service cost........................... $1,526 $1,426 $ 839
Interest cost.......................... 1,683 1,455 1,303
Actual return on plan assets........... (719) (2,197) (2,428)
Net amortization and deferral.......... (1,575) (234) 233
------- ------- -------
Net periodic pension cost............ 915 450 (53)
Profit sharing......................... 4,659 4,341 3,557
SERP................................... 795 691 559
40l(k)................................. 1,145 1,002 835
Other.................................. 442 478 726
------- ------- -------
Total retirement costs............... $7,956 $6,962 $5,624
======= ======= =======
The funded status of the pension plans was as follows:
(Amounts in thousands)
- - ------------------------------------------------------------------------------
April 30, April 24,
1994 1993
- - ------------------------------------------------------------------------------
Actuarial present value of accumulated benefit
obligation........................................ ($23,887) ($19,608)
Plan assets at fair value........................... 28,531 27,134
--------- ---------
Excess of plan assets over projected benefit
obligation...................................... 4,644 7,526
Prior year service cost not yet recognized in net
periodic pension cost............................. 1,117 1,215
Unrecognized net loss............................... 5,274 1,895
Unrecognized initial asset.......................... (3,995) (4,326)
--------- ---------
Prepaid pension asset............................. $7,040 $6,310
========= =========
- 18 -
The expected long-term rate of return on plan assets was 8.5% for 1994 and 9.0%
for 1993 and 1992. The discount rate used in determining the actuarial present
value of accumulated benefit obligations was 7.5% for 1994, 8.0% for 1993 and
8.5% for 1992. Vested benefits included in the accumulated benefit obligation
were $21 million and $17 million at April 30, 1994 and April 24, 1993,
respectively. Plan assets are invested in a diversified portfolio that
consists primarily of debt and equity securities.
The Company's pension plan funding policy has been to contribute annually the
maximum amount that can be deducted for federal income tax purposes.
Note 7: Health Care
The Company offers eligible employees an opportunity to participate in group
health plans. Participating employees make required premium payments through
pretax payroll deductions.
Health-care expenses were as follows (for the years ended):
(Amounts in thousands)
- - ----------------------------------------------------------------------------
April 30, April 24, April 25,
1994 1993 1992
(53 weeks) (52 weeks) (52 weeks)
- - ----------------------------------------------------------------------------
Gross health care................. $29,061 $23,962 $22,298
Participant payments.............. (4,442) (2,356) (1,323)
-------- -------- --------
Net health care................. $24,619 $21,606 $20,975
======== ======== ========
The 1994 gross health-care expenses increased 21% over 1993 which was a much
higher rate of increase than 1993's 7% increase over 1992, even after
adjusting for employment increases.
Participant payments increased markedly due to premium payments for most
employees becoming effective January 1993 making 1994 the first full payment
year. Participant payments covered 15% of health-care expenses in 1994.
Net health-care costs in 1994 increased 14% over 1993 compared to a 3% increase
in 1993 over 1992 even though much higher participant payments occurred.
The Company makes annual provisions for any current and future retirement
health-care costs which may not be covered by retirees' collected premiums.
Note 8: Income Taxes
Effective April 25, 1993, the Company adopted Statement of Financial Accounting
Standards No. 109 (SFAS 109), "Accounting for Income Taxes," which applies a
balance sheet approach to income tax accounting. In accordance with the new
standard, the balance sheet reflects the anticipated tax impact of future
taxable income or deductions implicit in the balance sheet in the form of
temporary differences. These temporary differences reflect the difference
between the basis in assets and liabilities as measured in the financial
statements and as measured by tax laws using enacted tax rates. On April 25,
1993, the Company recorded a tax credit of $3 million or $0.18 per share,
which represents the net increase in the net deferred tax asset as of that
date. Such amount has been reflected in the consolidated statement of
income as an accounting change. Prior years' financial statements have not
been restated.
- 19 -
The primary components of the Company's deferred tax assets and liabilities as
of April 30, 1994 and April 25, 1993 (date of adoption) are as follows:
(Amounts in thousands)
- - ---------------------------------------------------------------------------
April 30, April 25,
1994 1993
- - ---------------------------------------------------------------------------
Current
Deferred income tax assets (liabilities):
Bad debt................................... $ 5,993 $ 4,628
Warranty................................... 2,703 2,496
Workers' compensation...................... 1,211 1,118
Inventory.................................. 916 1,186
State income tax........................... (40) 1,569
Other...................................... 4,881 2,794
-------- --------
Net current deferred tax assets.......... 15,664 13,791
Noncurrent
Deferred income tax assets (liabilities):
Property, plant and equipment.............. (4,372) (4,108)
Pension.................................... (2,899) (2,638)
Other...................................... 322 408
------- -------
Net noncurrent deferred tax liabilities.. (6,949) (6,338)
Valuation allowance.......................... (504) (342)
------- -------
Net deferred tax asset..................... $8,211 $7,111
======= =======
The differences between the provision for income taxes and income taxes
computed using the U.S. federal statutory rate are as follows (for the years
ended):
(% of pretax income)
- - ------------------------------------------------------------------------------
April 30, April 24, April 25,
1994 1993 1992
- - ------------------------------------------------------------------------------
Statutory tax rate......................... 35.0 34.0 34.0
Increase (reduction) in taxes resulting in:
State income taxes net of federal benefit.. 4.8 4.7 4.3
Tax credits................................ (0.2) (0.3) (1.0)
Acquisition amortization................... 0.7 0.9 0.9
Merger of previously acquired operation.... - - (0.7)
Miscellaneous items........................ 0.0 0.5 (0.4)
----- ----- -----
Effective tax rate......................... 40.3 39.8 37.1
===== ===== =====
- 20 -
Note 9: Contingencies
The Company has been named as defendant in various lawsuits arising in the
normal course of business. It is not possible at the present time to estimate
the ultimate outcome of these actions; however, management and the Company's
legal counsel believe that the resultant liability, if any, will not be
material.
The Company is also subject to contingencies pursuant to environmental laws
and regulations. The Company accrues for certain environmental remediation
activities related to past operations, including Superfund clean-up and Resource
Conservation and Recovery Act compliance activities, for which commitments
have been made and reasonable cost estimates are possible. Currently, the
Company has been determined to be a "de-minimus" level potentially responsible
party (PRP) at three clean-up sites and has provided for any known costs
relating to these sites. The Company is also conducting voluntary compliance
audits at Company owned facilities. Although there probably will be future
expenditures in this area, the effect on future financial results is not
subject to reasonable estimation. However, management does not anticipate
that they will have a material adverse effect.
- 21 -
Management Discussion
The Management Discussion and Analysis, as required by the Securities and
Exchange Commission, should be read in conjunction with the Report of
Management Responsibilities, the Report of Independent Accountants, the
Financial Statements and related Notes, and all other pages that follow them
in the annual report.
Background
- - -------------------------------------------------------------------------
Sales by Type 1994 1993 1992
- - -------------------------------------------------------------------------
Residential (Home)
Upholstery............................... 76% 74% 75%
Wood & Other............................. 18% 19% 17%
---- ---- ----
94% 93% 92%
Contract (Office).......................... 6% 7% 8%
---- ---- ----
100% 100% 100%
==== ==== ====
- - -------------------------------------------------------------------------
Sales by Country 1994 1993 1992
- - -------------------------------------------------------------------------
United States.............................. 94% 95% 95%
Canada and Foreign......................... 6% 5% 5%
---- ---- ----
100% 100% 100%
==== ==== ====
La-Z-Boy is organized into five operating divisions. Residential (67 years in
business) accounts for the majority of the upholstery category. Kincaid (48
years) is part of the wood category. La-Z-Boy Contract Furniture Group (22
years) is all of the Contract line. Hammary (50 years) is primarily in the
wood category. La-Z-Boy Canada (65 years) is part of the upholstery category.
La-Z-Boy's market share of all U.S. upholstery furniture products is above 8%.
On the basis of available market share data (in dollars), La-Z-Boy has 30-35%
of the U.S. single-seat recliner market and is the world's largest recliner
manufacturer. (The next largest U.S. competitor holds roughly 20% of the
U.S. market.) La-Z-Boy's sleep sofa current market share, approximately
12%, has been growing over the last three years.
Market share data by individual product lines other than recliners and sleepers
(e.g., sofas, reclining sofas, wood bedroom and dining room, wood occasional,
etc.) indicate that, although La-Z-Boy does not have a market share above 10%
in any one line, the Company's market share has been growing over the last
three years in most lines.
- 22 -
Analysis of Operations
Year Ended April 30, 1994
(1994 compared with 1993)
U.S. furniture industry sales increased roughly 6-8% in La-Z-Boy's fiscal 1994
over 1993. La-Z-Boy's sales increase of 18% over 1993 continued to exceed the
increase experienced by the industry as a whole. Approximately 2% of this
increase was due to 1994 including 53 weeks while 1993 contained 52 weeks.
The sales volume increase was largely due to improvements in the economy.
Selling price increases were generally in the 2-4% range. Major product lines
that experienced rates of unit growth above the Company average were the
modulars, lower end recliners, sofas, reclining sofas, high end recliners and
bedroom (wood).
No divisions or companies were acquired or disposed of during the last six
years. Therefore, all sales growth has been internally generated.
During 1994, the La-Z-Boy Contract Furniture Group was formed through the
merger of the former La-Z-Boy Contract and RoseJohnson divisions.
The number of independently owned La-Z-Boy Furniture Galleries stores continued
to grow in 1994. Most of these stores were major upgrades or new locations
for earlier generation La-Z-Boy Showcase Shoppes. These stores are part of
the reason La-Z-Boy sales growth has exceeded the industry average. In
addition, the number of smaller in-store galleries continued to grow for all
divisions.
The gross margin (gross profit dollars as a percent of sales) of 26.2% in 1994
was up from the 26.0% gross margin in 1993. Reasons for the improvement
include: the 18% sales increase covering fixed costs; the lack of some one-
time costs that affected last year relating to start-up and training for new
styles and changes to manufacturing techniques; real selling price increases
and better plant efficiencies. These reasons for improvement more than offset
the effects of increased sales of product lines with lower-than-average gross
margins and increased lumber and health-care costs.
Other income declined in 1994 due to a reduction in interest income, changes
in pension-related assumptions and Canadian currency exchange losses.
Income tax expense as a percent of pretax income increased to 40.3% in 1994
from 39.8% in 1993. The effect of the 1% increase in the federal tax rate to
35% was partially offset by changes in profitability among divisions.
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes", which changed the method of accounting for income taxes, was adopted
by the Company effective April 25, 1993. This change in accounting principle
increased net income and the net deferred tax asset by $3.4 million or $.18
per share.
- 23 -
Analysis of Operations
Year Ended April 24, 1993
(1993 compared with 1992)
La-Z-Boy's 1993 sales increase of 10% over 1992 once again exceeded the growth
in the U.S. residential furniture industry as a whole. The 1993 sales increase
together with forecasted growth in the industry indicates that the furniture
industry recession which adversely affected results for the previous four years
has ended. Selling price increases during 1993 were generally in the 1-3%
range. Major product lines that experienced rates of unit sales growth above
the Company average were the reclining sofa, high end recliner, lower end
recliners, bedroom (wood) and occasional (wood) product lines.
During 1993, 18 independently owned La-Z-Boy Furniture Galleries stores opened,
bringing the total number of stores to 63. The rate of new store openings and
their sales volumes are meeting management's expectations. Most of these
openings were major upgrades or new locations for earlier generation La-Z-Boy
Showcase Shoppes.
Gross margin of 26.0% in 1993 was down from the 26.9% gross margin in 1992
even though unit volume increased. This decline in gross margin was primarily
in the Residential division which generates roughly 70% of consolidated sales.
The Residential division gross margin declined for two main reasons. The
primary reason was that unexpectedly high labor and overhead costs were
incurred at most plants. These costs were primarily caused by the introduction
of new styles and efforts to improve plant methods while at the same time,
reduce inventories, improve the flexibility to handle a greater number of
different styles, and ship dealer orders more complete and quicker than in the
past. In addition, an anticipated unfavorable product line mix effect occurred
from selling more product lines with lower-than-average gross margins.
S,G & A expense for 1993 of 19.2% of sales was lower than last year's percentage
of 19.9% primarily due to the relatively large sales increase and a decline in
bad debt expense.
Interest expense declined $2.0 million in 1993 from 1992 due to a combination
of lower debt principal amounts and lower interest rates.
The increase in other income was primarily due to increased interest income
realized from higher cash balances throughout the year more than offsetting
lower interest rates.
Income tax expense as a percent of pretax income increased to 39.8% in 1993
from 37.1% in 1992. In 1992, there was a one-time tax benefit from the merger
of a previously acquired division.
- 24 -
Liquidity and Financial Condition
Cash flows from operations amounted to $28 million in 1994, $35 million in
1993 and $36 million in 1992 and have usually been adequate for day-to-day
expenditures, dividends to shareholders and capital expenditures.
The 1994 cash flow from operations declined $6.5 million from 1993. Other
assets and liabilities changed from a source of cash in 1993 to a use of cash
in 1994 primarily due to the payment of income taxes. Also, inventories
increased $6.7 million.
Capital expenditures were $17.5 million in 1994 compared to $12.2 million for
both 1993 and 1992. Some capacity expansions occurred in 1994 while the prior
two years did not require expansions. Capacity utilization of about 70% at
the end of 1994 was up from about 65% at the end of 1993.
Cash flows relating to debt caused both inflows and outflows of cash. No new
debt was raised in the last three years. During 1992, a $15.0 million bridge
loan was refinanced through a private placement and two industrial revenue
bonds totaling $9.7 million were refinanced at a lower interest rate.
Retirements of debt totaled between $1 million and $15 million for each of the
last three years and are primarily related to paying down the $53 million debt
incurred in 1987 to acquire an operating division. While the cash flow
statement shows that $39.3 million of debt was retired in 1992, $24.7 million
relates to refinancing as described above.
In October 1987, the La-Z-Boy Board of Directors authorized a one-million
share stock repurchase program. In February 1993, the Board authorized the
repurchase of another one million shares. As of April 30, 1994 and April 24,
1993, the Company had acquired about 1,010,000 and 930,000 shares, respectively,
of its own stock. The Company plans to be in the market for its shares as
changes in its stock price and other financial opportunities arise.
The financial strength of the Company is reflected in two commonly used ratios
- - -the current ratio (current assets divided by current liabilities) and the
debt-to-capital ratio (total debt divided by beginning of the year shareholders'
equity plus total debt). The current ratio at the end of 1994 and 1993 was
4.1:1 and 3.8:1, respectively. The debt to capital ratio was 17.4% at the end
of 1994 and 18.5% at the end of 1993.
La-Z-Boy provides for all current and future potential liabilities as required
including those relating to postretirement benefits.
The Company is subject to contingencies pursuant to environmental laws and
regulations. The Company accrues for certain environmental remediation
activities related to past operations, including Superfund clean-up and
Resource Conservation and Recovery Act compliance activities, for which
commitments have been made and reasonable cost estimates are possible.
Currently, the Company has been determined to be a "de-minimus" level
potentially responsible party (PRP) at three clean-up sites and has provided
for any known costs relating to these sites. The Company is also conducting
voluntary compliance audits at Company owned facilities.
- 25 -
Outlook
La-Z-Boy's 1995 fiscal year to end April 29, 1995 will include 52 weeks
compared to fiscal year 1994, which included 53 weeks. This is approximately
a 2% reduction in the length of the year which will affect sales and other
financial comparisons from year to year.
The Company expects the economic recovery to continue through calendar year
1994. Sales in fiscal year 1995 are expected to exceed the 1994 results but
due to the stronger than expected year in 1994, the double digit sales
increase experienced in 1994 is not expected to repeat.
One of La-Z-Boy's financial objectives is to achieve sales increases of 10%
per year or increases at least greater than that of the furniture industry.
Some furniture industry forecasts for calendar year 1994 over 1993 are in the
5-7% range. For 1994, La-Z-Boy sales increased 18% over 1993.
The Company's major residential efforts and opportunities for sales growth
greater than industry averages are focused outside the recliner market segment,
e.g., stationary upholstery (single and multi-seat), reclining sofas and
modulars, wood occasional and wall units and wood bedroom and dining room.
The newly formed La-Z-Boy Contract Furniture Group sales growth rate in the
next few years is expected to exceed the average of the other divisions.
Today, this division is not generating a profit and profits are not expected
to improve in 1995 due to large research and development expenditures,
reorganization costs and start-up costs associated with the recent merger of
the two formerly separate contract divisions. Eventually, profit margins
comparable to the Company's average rates are believed to be able to be
achieved. Profitability at this level would help the Company reach the
financial goals described below even though this division is not large enough
to dramatically affect the results.
A second financial goal is to improve operating profit as a percent of sales
in 1995 compared to 1994. For 1994, the operating profit margin was 7.5% of
sales.
A third goal is to achieve operating profit, interest income and other income
(return) as a percent of beginning of the year capital of 20%. For 1994,
return on capital was 19.4%.
La-Z-Boy has an opportunity to improve its margins through increases in
efficiency, improvements in the utilization of equipment and facilities and
increases in sales volumes, even though product line growth may be in lines
with lower gross margins.
Capital expenditures are forecast to be approximately $19 to $24 million in
1995 compared to $17.5 million in 1994. The 1995 forecast includes the
construction of a new upholstery factory in Arkansas. The 396,000 square foot
plant is being constructed to replace an existing older 200,000 square foot
plant. Long-term financing of the expected $7 million cost is planned to be
through the use of industrial revenue bonds.
The effect of environmental costs on future financial results is not subject
to reasonable estimation. However, management does not anticipate that they
will have a material adverse effect.
- 26 -
Consolidated Six-Year Summary of Selected Financial Data
(Dollar amounts in thousands, except per share data)
- - -------------------------------------------------------------------------------
Year Ended in April 1994 1993 1992 1991 1990 1989
(53 wks) (52 wks) (52 wks) (52 wks) (52 wks) (52 wks)
- - -------------------------------------------------------------------------------
Sales.............. $804,898 $684,122 $619,471 $608,032 $592,273 $553,187
Cost of sales...... 593,890 506,435 453,055 449,502 430,383 397,776
--------- --------- --------- --------- --------- ---------
Gross profit..... 211,008 177,687 166,416 158,530 161,890 155,411
Sell, gen & admin.. 150,700 130,855 122,888 115,239 111,613 106,937
--------- --------- --------- --------- --------- ---------
Oper profit...... 60,308 46,832 43,528 43,291 50,277 48,474
Interest expense... 2,822 3,260 5,305 6,374 7,239 7,567
Interest income.... 1,076 1,474 1,093 1,215 1,597 1,864
Acquisition amort.. (1,056) (1,039) (1,039) (1,039) (1,039) (1,041)
Other income....... 649 1,292 1,628 1,277 1,939 2,244
--------- --------- --------- --------- --------- ---------
Total other inc.. 669 1,727 1,682 1,453 2,497 3,067
--------- --------- --------- --------- --------- ---------
Income before tax.. 58,155 45,299 39,905 38,370 45,535 43,974
Income tax expense. 23,438 18,015 14,805 15,009 17,282 16,508
--------- --------- --------- --------- --------- ---------
Net income....... $34,717* $27,284 $25,100 $23,361 $28,253 $27,466
========= ========= ========= ========= ========= =========
Weighted avg shares
outstg ('000s)... 18,268 18,172 18,064 17,941 17,868 17,886
Per com shr outstg
Net income....... $1.90* $1.50 $1.39 $1.30 $1.58 $1.54
Cash div paid.... $0.64 $0.60 $0.58 $0.56 $0.54 $0.46
BV on YE shr outst. $15.91 $14.48 $13.58 $12.75 $11.98 $10.91
Rtn avg shrhdr eqt. 12.5%* 10.7% 10.6% 10.5% 13.8% 14.7%
Gr prft % of sales. 26.2% 26.0% 26.9% 26.1% 27.3% 28.1%
Op prft % of sales. 7.5% 6.8% 7.0% 7.1% 8.5% 8.8%
Op prft, int inc &
oth inc as % of
BOY capital...... 19.4% 16.2% 15.4% 15.6% 19.6% 19.3%
Net inc % of sales. 4.3%* 4.0% 4.1% 3.8% 4.8% 5.0%
Income tax expense
% pretax income.. 40.3% 39.8% 37.1% 39.1% 38.0% 37.5%
- - -------------------------------------------------------------------------------
Deprec & amortiz... $14,014 $14,061 $14,840 $14,039 $13,735 $13,607
Capital expendtrs.. $17,485 $12,248 $12,187 $21,428 $22,418 $9,334
Prty,plt,eqpt,net.. $94,277 $90,407 $93,440 $95,508 $89,141 $79,845
- - -------------------------------------------------------------------------------
Working capital.... $224,122 $202,398 $184,431 $172,989 $170,292 $158,947
Current ratio...... 4.1 to 1 3.8 to 1 3.7 to 1 3.7 to 1 3.4 to 1 3.1 to 1
Total assets....... $430,253 $401,064 $376,722 $363,085 $361,856 $349,007
- - -------------------------------------------------------------------------------
Long-term debt..... $52,495 $55,370 $55,912 $62,187 $69,066 $70,641
Debt............... $55,370 $55,912 $60,726 $70,867 $78,036 $80,244
Shareholders' eqty. $290,911 $263,386 $246,359 $229,217 $214,585 $194,293
Ending capital..... $346,281 $319,298 $307,085 $300,084 $292,621 $274,537
Ratio debt to eqty. 19.0% 21.2% 24.6% 30.9% 36.4% 4l.3%
Ratio debt to capl. 17.4% 18.5% 20.9% 24.8% 28.7% 31.0%
- - -------------------------------------------------------------------------------
Shareholders....... 12,615 9,032 8,081 7,208 6,827 4,843
Employees.......... 9,370 8,724 8,153 7,828 8,046 7,743
- - -------------------------------------------------------------------------------
*Excludes the income effect of adopting SFAS 109 in May 1993 of $3,352 or
$.18 per share.
- 27 -
Dividend and Market Information
----------------------------------------------------
1994 Divi- Market Price
Quarter dends -------------------------------
Ended Paid High Low Close
----------------------------------------------------
July 24 $0.15 $31 7/8 $25 1/2 $29 3/4
Oct. 23 0.15 31 7/8 29 1/4 31 3/8
Jan. 22 0.17 39 3/4 31 1/2 39 3/4
Apr. 30 $0.17 $40 $30 1/2 $33 1/2
-----
$0.64
=====
----------------------------------------------------
1993 Divi- Market Price
Quarter dends -------------------------------
Ended Paid High Low Close
-----------------------------------------------------
July 25 $0.15 $24 5/8 $21 $23 3/8
Oct. 24 0.15 24 3/8 18 20 3/8
Jan. 23 0.15 27 1/8 20 5/8 26 3/8
Apr. 24 $0.15 $29 3/4 $26 3/8 $28
-----
$0.60
=====
- - -------------------------------------------------------------------------------
Dividend Market Price P/E Ratio
Dividends Dividend Payout ----------------------- ---------
Year Paid Yield Ratio High Low Close Earnings High Low
- - -------------------------------------------------------------------------------
1994 $0.64 1.9% 33.7%* $40 25 1/2 33 1/2 $1.90* 21* 13*
1993 0.60 2.1% 40.0% 29 3/4 18 28 l.50 20 12
1992 0.58 2.5% 41.7% 28 3/4 19 1/2 23 1/2 1.39 21 14
1991 0.56 2.6% 43.1% 21 1/2 12 1/4 21 1/4 1.30 17 9
1990 0.54 2.8% 34.2% 23 16 3/4 19 5/8 1.58 15 11
1989 0.46 2.4% 29.9% 19 7/8 14 19 1/8 1.54 13 9
La-Z-Boy Chair Company common shares are traded on the NYSE and the PSE
(symbol LZB).
- 28 -
Unaudited Quarterly Financial Information
(Amounts in thousands, except per share data)
- - -------------------------------------------------------------------------------
Quarter Ended July 24 October 23 January 22 April 30 Year 1994
(13 weeks) (13 weeks) (13 weeks) (14 weeks) (53 weeks)
- - -------------------------------------------------------------------------------
Sales............ $162,096 $209,044 $192,648 $241,110 $804,898
Cost of sales.... 123,047 152,160 141,771 176,912 593,890
-------- -------- -------- --------- ---------
Gross profit... 39,049 56,884 50,877 64,198 211,008
Selling, general
& admin........ 32,249 39,204 36,877 42,370 150,700
-------- -------- -------- --------- ---------
Opertg profit.. 6,800 17,680 14,000 21,828 60,308
Interest expense. 720 776 682 644 2,822
Total other inc.. 457 411 153 (352) 669
-------- -------- -------- --------- ---------
Inc before tax. 6,537 17,315 13,471 20,832 58,155
Income tax exp... 2,563 6,900 5,483 8,492 23,438
-------- -------- -------- --------- ---------
Net income... $3,974* $10,415 $7,988 $12,340 $34,717*
======== ======== ======== ========= =========
Net income
per share.. $0.22* $0.57 $0.44 $0.67 $1.90*
======== ======== ======== ========= =========
- - -------------------------------------------------------------------------------
Quarter Ended July 25 October 24 January 23 April 24 Year 1993
(13 weeks) (13 weeks) (13 weeks) (13 weeks) (52 weeks)
- - -------------------------------------------------------------------------------
Sales............ $140,003 $175,877 $169,810 $198,432 $684,122
Cost of sales.... 106,543 130,924 125,677 143,291 506,435
-------- -------- -------- -------- --------
Gross profit... 33,460 44,953 44,133 55,141 177,687
Selling, general
& admin........ 28,478 33,869 33,210 35,298 130,855
-------- -------- -------- -------- --------
Opertg profit.. 4,982 11,084 10,923 19,843 46,832
Interest expense. 867 841 765 787 3,260
Total other inc.. 518 431 346 432 1,727
-------- -------- -------- -------- --------
Inc before tax. 4,633 10,674 10,504 19,488 45,299
Income tax exp... 1,850 4,167 4,113 7,885 18,015
-------- -------- -------- -------- --------
Net income... $2,783 $6,507 $6,391 $11,603 $27,284
======== ======== ======== ======== ========
Net income
per share.. $0.15 $0.36 $0.35 $0.64 $1.50
======== ======== ======== ======== ========
*Excludes the income effect of adopting SFAS 109 in May 1993 of $3,352 or
$.18 per share.
- 29 -
LA-Z-BOY CHAIR COMPANY
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To the Shareholders of June 24, 1994
La-Z-Boy Chair Company:
Notice is hereby given that the annual meeting of shareholders of
La-Z-Boy Chair Company will be held at the La-Z-Boy Chair Company
Auditorium, 1314 North Telegraph Road, Monroe, Michigan, on Monday, July
25, 1994 at 11:00 o'clock A.M. Eastern Daylight Time for the following
purposes:
(1) To elect three (3) directors of the Company to three year
terms expiring in 1997.
(2) To transact such other business as may properly come
before the meeting or any adjournments thereof.
A copy of the Annual Report, containing the financial statements of
the Company for the year ended April 30, 1994, is enclosed herewith.
Only shareholders of record at the close of business on June 17,
1994 will be entitled to notice of, and to vote at, the meeting.
Shareholders, whether planning to attend in person or not, are urged
to date, sign and return the enclosed proxy in the accompanying envelope,
to which no postage need be affixed if mailed in the United States. Even
though you sign and return the proxy, you may vote your shares in person
by revoking the proxy at the meeting.
By Order of the Board of Directors
Gene M. Hardy, Secretary
Monroe, Michigan
June 24, 1994
PROXY STATEMENT
The following statement is furnished in connection with the
solicitation of proxies by the Board of Directors of La-Z-Boy Chair
Company to be used at the annual meeting of shareholders to be held on
Monday, July 25, 1994 and at any adjournments thereof. The meeting will be
held at the La-Z-Boy Chair Company Auditorium, 1314 North Telegraph Road,
Monroe, Michigan. The Board of Directors knows of no business which will
be presented to the meeting other than the matters referred to in the
accompanying Notice of Annual Meeting. However, if any other matters are
properly presented to the meeting, it is intended that the persons named
in the proxy will vote upon the same and act in accordance with their
judgment. Shares represented by properly executed proxies in the form
accompanying this proxy statement will be voted at the meeting in the
manner specified therein. If no instructions are specified in the proxy,
the shares represented thereby will be voted FOR the election of the
director nominees referred to under Proposal 1 on page 4. A proxy may be
revoked at any time insofar as it has not been exercised by executing and
returning a later proxy or by giving notice to the Company in writing or
in the open meeting. The Company's principal executive office is located
at 1284 North Telegraph Road, Monroe, Michigan 48161.
As of June 17, 1994, there were 18,303,223 shares of the Common
Stock, $1.00 par value, of the Company ("common shares") issued and
outstanding. Each common share is entitled to one vote on each matter to
be presented at the meeting. Only shareholders of record at the close of
business on June 17, 1994 will be entitled to vote at the meeting. There
were no shares of preferred stock issued and outstanding at the close of
business on June 17, 1994.
- 1 -
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Under rules adopted by the Securities and Exchange Commission, a
person is deemed to be the beneficial owner of the Company's common shares
if he or she has or shares the right to vote the shares or if he has or
shares the investment power over such shares. There may be, therefore,
more than one beneficial owner with respect to any share or group of
shares. A person may also be deemed to be the beneficial owner if he is
the settlor of a trust with a right to revoke the trust and regain the
shares or has the power to acquire shares by means of outstanding options
or rights to convert other securities into common shares.
The following information is furnished in compliance with these
rules with respect to security ownership of each person known to the
Company to beneficially own more than 5% of the Company's common shares as
of June 17, 1994, based in each case on data provided by such person.
T A B L E I
Name and Address Amount and Nature of Percent
of Beneficial Owner Beneficial Ownership of Class
------------------- -------------------- --------
Edwin J. Shoemaker
8 Sylvan Drive
Monroe, Michigan 48161.............. 1,023,178(1) 5.590%
Monroe Bank & Trust
Monroe, Michigan 48161.............. 5,420,634(2) 29.616%
FMR Corp.
Boston, Mass. 02109................. 986,700(3) 5.391%
(1) Mr. Shoemaker beneficially owns and is the donor of a revocable trust
which holds 1,023,178 shares.
(2) Monroe Bank & Trust is the trustee of a number of revocable and
irrevocable trusts under which it, under certain conditions, has sole or
shared voting power over the above-mentioned shares. It may in certain
instances have sole or shared investment power with respect to such
shares. The shares referred to above include the shares identified in
footnote (1) above as being beneficially owned by Mr. Shoemaker, since
Monroe Bank & Trust is the trustee of his trust.
(3) Based on information contained in the named shareholders' Schedule 13G
dated February 11, 1994, filed pursuant to the Securities and Exchange Act
of 1934 and based on information delivered to the Company by the named
shareholder in February 1994. The Schedule states that the shares were
acquired for investment.
- 2 -
STOCK OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information as to the common shares
beneficially owned as of June 17, 1994 by each director and each executive
officer of the Company, based in each case on data provided by such person.
T A B L E I I
Amount and Nature of Percent
Name Beneficial Ownership of Class
---- -------------------- --------
Edwin J. Shoemaker.................... 1,023,178 (1) 5.590%
Charles T. Knabusch................... 763,554 (2) 4.172%
Lorne G. Stevens...................... 29,002 (3) .158%
Frederick H. Jackson.................. 239,188 (4) 1.307%
Gene M. Hardy......................... 174,178 (5) .952%
Patrick H. Norton..................... 53,100 (6) .290%
Warren W. Gruber...................... 3,000 (7) .016%
David K. Hehl......................... 7,430 (8) .041%
John F. Weaver........................ 158,500 (9) .866%
Rocque E. Lipford..................... 3,300 (10) .018%
James W. Johnston..................... 320,800 (11) 1.753%
Charles W. Nocella.................... 21,454 (12) .117%
All Directors and Executive Officers
As A Group (12)..................... 2,376,684 12.985%
(1) See footnote 1 to Table I.
(2) Mr. Knabusch owns 202,455 shares of record and beneficially. He has
options to purchase 67,579 shares which are exercisable within 60 days of
June 17, 1994. His wife owns 74,720 shares individually and as a trustee
for their children. He is also one of the members of the advisory
committee of an irrevocable trust holding 278,800 shares and as such has
shared voting and investment powers with respect to such shares. In
addition, he has shared investment power as a member of the Investment
Committee under the Company's Employees' Profit Sharing Plan which holds
140,000 shares. He may be deemed to own all of such shares beneficially.
(3) Mr. Stevens owns 12,500 shares of record and beneficially and his wife
owns 16,502 shares of record and beneficially.
(4) Mr. Jackson owns 89,113 shares of record and beneficially and his wife
owns 800 shares of record and beneficially. He has options to purchase
9,275 shares which are exercisable within 60 days of June 17, 1994. In
addition, he has shared investment power as a member of the Investment
Committee under the Company's Employees' Profit Sharing Plan which holds
140,000 shares. He is deemed to own all of such shares beneficially.
(5) Mr. Hardy owns 32,454 shares of record and beneficially and he has
options to purchase 1,724 shares which are exercisable within 60 days of
June 17, 1994. In addition, he has shared investment power as a member of
the Investment Committee under the Company's Employees' Profit Sharing
Plan which holds 140,000 shares. He is deemed to own all of such shares
beneficially.
(6) Mr. Norton owns 41,525 shares of record and beneficially and his wife
owns 2,300 shares. He has options to purchase 9,275 shares which are
exercisable within 60 days of June 17, 1994.
- 3 -
(7) Mr. Gruber owns 2,900 shares of record and beneficially. His wife owns
100 shares of record and beneficially.
(8) Mr. Hehl owns 4,901 shares of record and beneficially. His wife owns
652 shares individually and their three sons own 1,877 shares of record
and beneficially.
(9) Mr. Weaver owns 2,900 shares of record and beneficially and his wife
owns 15,600 shares. In addition, he has shared investment power as a
member of the Investment Committee under the Company's Employees' Profit
Sharing Plan which holds 140,000 shares. He is deemed to own all of such
shares beneficially.
(10) Mr. Lipford owns 2,500 shares of record and beneficially. His wife
owns 800 shares of record and beneficially.
(11) Mr. Johnston owns 268,140 shares of record and beneficially and his
wife owns 52,660 shares of record and beneficially.
(12) Mr. Nocella owns 7,394 shares of record and beneficially and his wife
owns 12,085 shares. He has options to purchase 1,975 shares which are
exercisable within 60 days of June 17, 1994.
COMPLIANCE WITH SECTION 16(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Exchange Act requires the Company's executive
officers and directors, and persons who own more than 10% of the Company's
Common Stock, to file reports of ownership and changes in ownership with
the Securities and Exchange Commission ("SEC") and the New York Stock
Exchange. Executive officers, directors and greater than ten percent
stockholders are required by SEC regulations to furnish the Company with
all copies of Section 16(a) forms they file.
Based solely on its review of the copies of such forms received by
it, or written representations from certain reporting persons that no
Forms 5 were required for those persons, the Company believes that during
the fiscal year ended April 30, 1994, all filing requirements were
complied with in a timely fashion.
PROPOSAL 1: ELECTION OF DIRECTORS
The Company's Board of Directors is divided into three classes, one
consisting of three directors and two consisting of four directors.
Directors serve for three-year, staggered terms, such that the terms of
office of directors comprising one of the classes expires each year. This
year, three directors are to be elected, to serve until the Company's
annual meeting of shareholders in 1997 or until their successors are
elected and qualified.
Pursuant to applicable Michigan corporate law, assuming the presence
of a quorum, directors will be elected at the meeting from among those
persons duly nominated for such positions by a plurality of votes cast by
holders of the Common Stock who are present in person, or represented by
proxy, and entitled to vote at the meeting. Thus, for this year, those
nominees who receive the highest through third-highest numbers of votes
for their election as directors will be elected, regardless of the number
of votes which for any reason, including abstention, withholding of
authority, or broker non-vote, are not cast for the election of such
nominees.
- 4 -
The Board's nominees for election as directors are the three current
directors whose terms expire with the 1994 annual meeting. In the absence
of other instruction, the persons named in the accompanying form of proxy
intend to vote in favor of these three nominees (or, if any such nominee
should become unable or unwilling to serve, which is not presently
anticipated, for such substitute nominee as is designated by the Board).
The tables which follow provide background information concerning each of
the Board's nominees and each other director of the Company whose term of
office will continue beyond the 1994 annual meeting.
Nominees for Director for Three Year Term Expiring July, 1997
Director Business Experience
Name Age Since and Other Directorships
---- --- -------- -----------------------
Frederick H. Jackson........ 66 1971 Mr. Jackson has been Vice
President Finance for more than
five years.
Lorne G. Stevens............ 66 1972 On April 30, 1988, Mr. Stevens
retired from the Company as Vice
President of Manufacturing, a
position he held for more than
five years.
Patrick H. Norton........... 72 1981 Mr. Norton has been Senior Vice
President, Sales and Marketing
for more than five years.
Members of Board of Directors Continuing in Office
Director Business Experience
Name Age Since and Other Directorships
---- --- -------- -----------------------
Edwin J. Shoemaker.......... 87 1941 Mr. Shoemaker has been Vice
Chairman of the Board and Executive
Vice President of Engineering for
more than five years.
Charles T. Knabusch......... 54 1970 Mr. Knabusch has been Chairman of
the Board and President of the
Company for more than five years.
John F. Weaver.............. 77 1971 Mr. Weaver has been Executive
Vice President and a Director of
the Monroe Bank & Trust for more
than five years.
David K. Hehl............... 47 1977 Mr. Hehl has been a partner in the
public accounting firm of Cooley,
Hehl, Wohlgamuth & Carlton for
more than five years.
Rocque E. Lipford........... 55 1979 Mr. Lipford has been a principal in
the law firm of Miller, Canfield,
Paddock and Stone, P.L.C., since
January 1994 and previously was a
partner of Miller, Canfield,
Paddock and Stone for more than
five years.
Warren W. Gruber............ 73 1981 Mr. Gruber has been President and
Chief Operating Officer and a
Director of Gruber Valu-World for
more than five years.
- 5 -
Gene M. Hardy............... 57 1982 Mr. Hardy has been Secretary and
Treasurer of the Company for more
than five years.
James W. Johnston........... 55 1991 Mr. Johnston has been a self-
employed financial and business
consultant for more than five
years. He was appointed a
Director in January 1991.
BOARD OF DIRECTORS AND COMMITTEES
Edwin J. Shoemaker and Charles T. Knabusch may be deemed to be
persons who are in control of the Company.
During the Company's fiscal year ending April 30, 1994, the Board of
Directors held ten meetings. Each director attended at least 90% of the
total number of meetings of the Board and of all committees on which he
served. All directors are in regular touch with the Company's affairs.
Employee directors receive a fee of $250 for each meeting of the Board of
Directors attended. Non-employee directors receive an annual retainer of
$12,000 and a fee of $400 for each Board meeting and for each committee
meeting attended.
In addition, each non-employee director receives an initial grant of
30-day options on 1,500 common shares of Restricted Stock upon election to
the Board and a subsequent annual grant at the beginning of each fiscal
year of 30-day options on 200 common shares of Restricted Stock. Such
grants are made pursuant to the La-Z-Boy Chair Company Restricted Stock
Plan for Non-Employee Directors approved by the shareholders effective
September 1, 1989. The Plan contemplates a present sale of the optioned
shares at 25% of market value, but provides restrictions on the transfer
or other disposition of the shares by the non-employee director during the
restricted time, which expires upon the earliest to occur of the following
events: death or disability, retirement from the Board, change of control,
or termination of the participant's service as a director with the consent
of a majority of the Company's employee members of the Board, all as
defined in the Plan.
The Board of Directors has an Audit Committee and a Compensation
Committee.
The Audit Committee, which held two meetings during the fiscal year,
consists of Mr. Hehl, Chairman, and Messrs. Weaver, Gruber, Stevens and
Lipford, all of whom are non-employee Directors. The functions of the
Audit Committee are to recommend to the Board of Directors the firm of
independent accountants to serve the Company each fiscal year, to review
the scope, fees and results of the audit by independent accountants and to
review the adequacy of the Company's system of internal accounting
controls and the scope and results of internal auditing procedures.
The Compensation Committee, which held three meetings during the
fiscal year, consists of Mr. Weaver, Chairman, and Messrs. Hehl, Gruber
and Lipford, all non-employee directors. The functions of the Compensation
Committee include recommending to the Board of Directors remuneration of
the officers of the Company, recommending to the Board of Directors
remuneration of the members of the Board and of the Board Committees, and
the administration of the Company's executive incentive compensation and
stock option plans.
The Board of Directors has no nominating committee. Nominations for
Director are considered by the entire Board.
- 6 -
EXECUTIVE COMPENSATION
The following table summarizes the compensation paid to or earned by
the Chief Executive Officer and each of the Company's four other most
highly compensated executive officers (the "named executives") during the
last three fiscal years.
SUMMARY COMPENSATION TABLE
Annual Compensation Compensation Awards
- - ------------------------------------------------------------------- --------------------------------
Awards Payouts
--------------------- ---------
Incentive Long-
Restricted Stock Term
Other Annual Stock Option Incentive All Other
Name and Principal Salary(1) Bonus(2) Compensation Awards(3) Grants Plan Compensation(4)
Position Year $ $ $ $ # Payouts $
------------------ ---- --------- -------- ------------ ---------- --------- --------- ---------------
Charles T. Knabusch 1994 386,625 264,046 0 0 22,500 0 70,913
Chairman of the Board 1993 377,550 198,056 0 0 24,400 0 67,206
President and Chief 1992 353,200 133,765 0 0 36,410 0 56,961
Executive Officer.........
Edwin J. Shoemaker 1994 127,345 62,373 0 0 0 0 17,347
Vice Chairman and 1993 124,350 45,030 0 0 0 0 16,229
Executive Vice President 1992 118,850 31,012 0 0 0 0 18,892
of Engineering............
Frederick H. Jackson 1994 238,250 132,503 0 0 9,600 0 44,147
Vice President Finance 1993 232,550 97,180 0 0 10,500 0 41,055
and Chief Financial 1992 217,800 65,661 0 117,000 4,300 0 36,744
Officer...................
Patrick H. Norton 1994 238,250 132,503 0 0 9,600 0 44,504
Senior Vice President 1993 232,550 97,180 0 0 10,500 0 41,921
Sales & Marketing......... 1992 217,800 65,661 0 117,000 4,300 0 37,465
Charles W. Nocella 1994 149,650 84,111 0 0 4,600 0 28,566
Vice President of 1993 146,050 61,688 0 0 5,000 0 26,645
Manufacturing............. 1992 135,050 41,229 0 21,750 2,900 0 23,198
(1) Includes, where applicable, amounts electively deferred by a named
executive under the Company's Matched Retirement Savings Plan, which is a
so-called "401(k)" plan, and directors' fees paid to the named executives,
where applicable, for attendance at La-Z-Boy Chair Company Board of
Directors' meetings.
(2) Allocated to named executives for the applicable fiscal year under the
Company's Executive Incentive Compensation Plan.
- 7 -
(3) At the close of the Company's 1994 fiscal year, the named executives
held the following numbers of shares of restricted stock, which had the
following aggregate values on such date (based on the closing market price
for unrestricted shares of the Company's Common Stock): Mr. Knabusch, -0-
shares worth $-0-; Mr. Shoemaker, $-0- shares worth $-0-; Mr. Jackson,
7,800 shares worth $261,300; Mr. Norton, 7,800 shares worth $261,300; and
Mr. Nocella, 1,450 shares worth $48,575.
The value of restricted stock listed in the Summary Compensation Table
represents the fair market value of the Company's stock at the grant date
less the 25% required payment for the stock by the executive. While all
shares of restricted stock require three years of post-grant service to
vest in the ordinary course, such shares may vest in less than three years
in certain circumstances, such as upon a change of control of the Company
or the holder's death, permanent mental or physical disability or normal
retirement. Normal dividends are paid on the restricted stock and are not
subject to forfeiture.
(4) The amounts in this column include amounts allocated for the named
executives to the Supplemental Executive Retirement Plan (SERP), earnings
credited under the SERP, and Company matching contributions in the form of
Company stock to the Matched Retirement Savings Plan. Set forth below is a
breakdown of the totals contained in the Table for fiscal 1994:
Amounts allocated to the Supplemental Executive Retirement Plan of the
Company were as follows:
1994
----
Charles T. Knabusch................. $57,656
Edwin J. Shoemaker.................. 13,733
Frederick H. Jackson................ 35,362
Patrick H. Norton................... 35,362
Charles W. Nocella.................. 22,447
Earnings credited on supplemental retirement balances under the Company's
Supplemental Executive Retirement Plan were as follows:
1994
----
Charles T. Knabusch................. $11,941
Edwin J. Shoemaker.................. 3,614
Frederick H. Jackson................ 7,387
Patrick H. Norton................... 7,325
Charles W. Nocella.................. 4,609
Contributions under the Company's Matched Retirement Savings Plan were as
follows:
1994
----
Charles T. Knabusch................. $1,316
Edwin J. Shoemaker.................. -0-
Frederick H. Jackson................ 1,398
Patrick H. Norton................... 1,817
Charles W. Nocella.................. 1,510
- 8 -
The following table shows all stock options granted to each of the
named executive officers of the Company during fiscal year 1994 and the
potential realizable value of the grants assuming stock price appreciation
rates of 5% and 10% over the five-year term of the options.
OPTION GRANTS IN LAST FISCAL YEAR
Potential Realizable Value at
Assumed Annual Rates of Stock Price
Individual Grants (1) Appreciation for Option Terms ($)(2)
-------------------------------------------- ------------------------------------------
5% Per Year 10% Per Year
% of Total -------------------- --------------------
Options
Granted To
Options Employees Exercise or Price Aggregate Price Aggregate
Granted In Fiscal Base Price Expiration Per Share Value Per Share Value
Name (#) Year ($/SH) Date ($/SH) ($) ($/SH) ($)
---- ------- ---------- ----------- ---------- --------- --------- --------- ---------
Charles T. Knabusch..... 22,500 18.27 32.5875 09/01/98 41.5908 935,793 52.4825 1,180,856
Edwin J. Shoemaker...... -0- -0- -0- N/A -0- -0- -0- -0-
Frederick H. Jackson.... 9,600 7.80 29.6250 09/01/98 37.8098 362,974 47.7114 458,029
Patrick H. Norton....... 9,600 7.80 29.6250 09/01/98 37.8098 362,974 47.7114 458,029
Charles W. Nocella...... 4,600 3.74 29.6250 09/01/98 37.8098 173,925 47.7114 219,472
All Optionees........... 123,130 100.00 30.1664 09/01/98 38.5000 4,740,505 48.5833 5,982,062
(1) All of the above options were granted September 2, 1993 pursuant to
the terms of the Company's 1986 Incentive Stock Option Plan as approved by
the shareholders of the Company in 1986 and in effect as of the date of
the grant. One-fourth of the shares purchasable under each option normally
becomes exercisable beginning in the second, third, fourth and fifth years
after the date of the grant. However, under the terms of the agreements
described under "Certain Agreements" below, then-outstanding options would
be accelerated upon the occurrence of a change in control. Options once
exercisable generally remain exercisable until the expiration of the fifth
year after the date of grant. In the event of the optionee's death or
retirement, the right to exercise the option will exist for a period of
one year following the date of such event for the full amount of shares
remaining unexercised. The optionee's right to exercise an option
immediately terminates in the event the optionee's employment terminates
for any reason other than death or retirement. The per share exercise
price at which the options were granted was 100% of the fair market value
of the Company's Common Stock on the date the options were granted, except
that in the case of options granted to Mr. Knabusch, such price was 110%
of fair market value on the grant date.
(2) The 5% and 10% rates of appreciation are required to be disclosed by
the Securities and Exchange Commission ("SEC") and are not intended to
forecast possible future actual appreciation, if any, in the Company's
stock prices. It is important to note that options have potential value
for the named executive only if the Company's stock price advances beyond
the exercise price shown in the table during the effective five-year
option period.
- 9 -
The following table provides information as to stock options
exercised by each of the named executive officers in fiscal year 1994 and
the value of the remaining options held by each such executive officer at
the Company's year-end, April 30, 1994:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
Value of Unexercised
Number of Unexercised In-The-Money Options
Options at Fiscal Year-End At Fiscal Year-End(2)
-------------------------- --------------------------
Shares
Acquired Value
On Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
Name # $(1) # # $ $
---- ----------- -------- ----------- ------------- ----------- -------------
Charles T. Knabusch..... 10,100 117,786 67,579 65,431 833,881 520,532
Edwin J. Shoemaker...... -0- -0- -0- -0- -0- -0-
Frederick H. Jackson.... 4,500 65,250 13,700 21,100 196,791 187,334
Patrick H. Norton....... -0- -0- 13,700 21,100 196,791 187,334
Charles W. Nocella...... 2,700 45,975 1,975 10,700 24,475 98,900
(1) Based on the closing market price of the Company's Common Stock on the
date of exercise, minus the exercise price. An individual, upon exercise
of an option, does not receive cash equal to the amount contained in the
Value Realized column of this table. No cash is realized until the shares
received upon exercise of an option are sold.
(2) Based on the closing market price of the Company's Common Stock on
April 30, 1994 ($33.50), minus the exercise price.
- 10 -
LONG-TERM INCENTIVE COMPENSATION UNDER THE
LA-Z-BOY CHAIR COMPANY 1993 PERFORMANCE-BASED STOCK PLAN
At the 1993 Annual Meeting, shareholders approved a long-term
incentive compensation plan designated as the La-Z-Boy Chair Company 1993
Performance-Based Stock Plan ("Performance Plan"). The purpose of the
Performance Plan is to provide the Company and its subsidiaries with an
additional means to (a) attract and retain competent new personnel and
other key employees, (b) insure retention of the services of existing
executive personnel and key employees, and (c) provide incentive to all
such personnel to devote their utmost effort and skills to the long-term
advancement and betterment of the Company and its shareholders. The
Performance Plan seeks to accomplish that purpose through the grant to
selected employees of contingent awards ("Target Awards") the potential
pay-outs on which ("Performance Awards") are linked to achievement by the
end of a cycle of three Company fiscal years (a "Performance Cycle") of
Company performance goals specified toward the beginning of the
Performance Cycle, and by structuring all Performance Awards which may be
earned as options to purchase or outright grants of Company Common Stock.
After the 1993 Annual Meeting, the Compensation Committee granted
Target Awards to certain employees for the Performance Cycle ending at the
close of the Company's 1996 fiscal year. In addition, shortly before the
end of fiscal 1994, the Compensation Committee granted additional Target
Awards for the Performance Cycle ending at the close of fiscal 1997. In
each case, the Committee determined to establish four uniform financial
goals for these Target Awards, each relating to operating performance of
the Company and its consolidated subsidiaries for the pertinent
Performance Cycle: (1) sales growth at a rate greater than that of the
industry, (2) an increase in earnings before income tax at a rate equal to
or greater than sales growth, (3) operating profit margin growth at a rate
equal to or greater than sales growth, and (4) return on total capital at
a specified rate.
- 11 -
The table which follows provides information concerning the Target
Awards granted during fiscal 1994 to executive officers named in the
Summary Compensation Table:
Long Term Incentive Plan -- Awards in Last Fiscal Year
Estimated Future Payouts
-----------------------------------
Number of Performance
Performance Period Until
Shares(1) Maturation Threshold(2) Target(3) Maximum(4)
Name # Or Payout # # #
---- ----------- ------------ ------------ --------- ----------
Charles T. Knabusch... 3,122 (5) 3,122 6,245 12,490
2,810 (6) 2,810 5,620 11,240
Edwin J. Shoemaker.... -0- (5) -0- -0- -0-
-0- (6) -0- -0- -0-
Frederick H. Jackson.. 1,335 (5) 1,335 2,670 5,340
1,200 (6) 1,200 2,400 4,800
Patrick H. Norton..... 1,335 (5) 1,335 2,670 5,340
1,200 (6) 1,200 2,400 4,800
Charles W. Nocella.... 637 (5) 637 1,275 2,550
575 (6) 575 1,150 2,300
(1) Numbers reported are the base numbers of shares subject to Target
Awards granted.
(2) Numbers reported are the numbers of shares which would become subject
to 30-day option if only one performance goal is achieved. The per share
exercise price for any such option would be 50% of the "Fair Market Value"
(as defined in the Performance Plan) of a common share at date of grant of
the Target Awards.
(3) Numbers reported are the numbers of shares which would become subject
to 30-day option if two performance goals are achieved. The per share
exercise price for each such option would be 25% of Fair Market Value of a
common share on date of grant of the Target Awards. For achievement of
three performance goals, an outright grant of the same number of shares
would be made. Under the terms of the Performance Plan, if a Target Award
grantee's employment terminates due to death, or if termination is due to
disability (as therein defined) or retirement with the consent of the
Company and the terminated employee subsequently dies before the end of
the Performance Cycle, his or her estate administrator may elect to
receive a Performance Award prior to the end of the cycle. If the election
is made, the estate would receive either a 30-day option on the number of
shares shown in this column, as if two Performance Goals had been met, or
an outright grant of that number of shares, depending upon whether
employment termination occurred during the first or second half of the
Performance Cycle. Termination of the grantee's employment due to death,
disability, or consensual retirement otherwise has no effect on any
outstanding Target Awards of the grantee, but termination for any other
reason automatically cancels such awards.
- 12 -
(4) Numbers reported are the numbers of shares which would be awarded, in
the form of an outright grant, if all performance goals are achieved.
Under the terms of the Performance Plan, the holder of a Target Award also
will be deemed automatically to have earned and been granted the same
Performance Award if a person or group becomes an Acquiring Person (as
defined in the Performance Plan) or certain changes in the composition of
the Board of Directors occurs while the Target Award is outstanding. The
same effect upon then-outstanding Target Awards also will result if, while
there is an Acquiring Person, any of certain other significant
transactions involving the Company should occur, unless the transaction
has been approved by a majority of Directors who were Board members before
the Acquiring Person became such.
(5) The performance period (Performance Cycle) until maturation or payout
is three fiscal years ending April 28, 1996.
(6) The performance period is three fiscal years ending April 27, 1997.
CERTAIN AGREEMENTS
The Company recognizes that establishing and maintaining a strong
management team are essential to protecting and enhancing the interests of
the Company and its shareholders. In order to assure management stability
and the continuity of key management personnel, the Company entered into
change in control agreements with certain key employees including, among
others, all current executive officers. The employees eligible for change
in control agreements are those selected by the Compensation Committee.
These agreements, which were unanimously approved by the Board of
Directors, provide that if any of such persons is terminated, other than
for cause, disability, death or retirement, within three years after a
change in control of the Company, that person shall be entitled to receive
a lump sum severance payment equal to three times the sum of (i) his
annualized salary and (ii) an amount equal to the average bonus paid to
the employee in the previous three years, as well as certain other
payments and benefits, including continuation of employee welfare benefit
payments, and reimbursement of certain legal fees and expenses incurred by
such employee in connection with enforcing such agreement following a
change in control. In consideration of the foregoing, each of such persons
agrees to remain in the employ of the Company during the pendency of any
proposal for a change in control of the Company. The agreements expire
December 31, 1994 and are automatically renewed for additional one-year
periods unless either party gives 90 days' notice that it does not wish to
extend the agreement. In the event of a change in control, the agreements
are automatically extended for 36 months.
All of these agreements originally were entered into prior to 1993,
but it is possible none of them would be eligible for "grandfathering" for
purposes of $1,000,000 compensation deductibility limit imposed last
August by enactment of sect.162(m) of the Internal Revenue Code (further
discussed under "Report of the Compensation Committee on Executive
Compensation"), due to the renewal feature of the agreements. Therefore,
if a payment obligation under an agreement is triggered by termination
after a change in control, it also is possible that a substantial portion
of the amount payable will not be deductible by the Company.
- 13 -
PERFORMANCE COMPARISON
The following table provides an indicator of the return for the
Company's last five fiscal years that would have been realized (assuming
reinvestment of dividends) by an investor who invested $100 on April 28,
1989 in each of (i) the New York Stock Exchange Index, (ii) a Peer Group
of publicly traded furniture industry companies, and (iii) the Company's
Common Stock.
La-Z-Boy Chair Company
Comparison of Total Return to Shareholders
April 28, 1989 through April 29, 1994
1989 1990 1991 1992 1993 1994
------ ------ ------ ------ ------ ------
LA-Z-BOY CHAIR COMPANY 100.00 105.62 118.27 134.16 163.98 200.15
PEER GROUP INDEX 100.00 95.13 95.14 122.55 146.72 147.88
NYSE MARKET INDEX 100.00 108.42 126.98 143.05 158.40 169.90
PEER GROUP INDEX
The Peer Group consists of seven public companies operating
primarily in the residential segment of the furniture industry and two
other larger public companies which operate in that business segment as
well as in other business segments. The returns of each company have been
weighted according to their respective stock market capitalization for
purposes of arriving at a peer group average: RESIDENTIAL -- Bassett
Furniture, Bush Industries, DMI Furniture, Flexsteel Industries, LADD
Furniture, Pulaski Furniture, and Rowe Furniture; OTHERS -- MASCO
Corporation and Leggett & Platt.
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
The compensation of the Chief Executive Officer and other four
highest paid executive officers, as well as the corporation's other senior
executives at La-Z-Boy and all subsidiaries, is determined by the
Compensation Committee of the Board of Directors. The Committee is a
standing committee of the Board of Directors which is comprised entirely
of non-employee directors. The Committee has access to an independent
compensation consultant to enable it to carry out its responsibilities.
The Compensation Committee met three times in fiscal 1994. No member of
the Committee is eligible to participate in any of the employee
compensation plans or programs it administers. The Committee presents the
following report on compensation for the Company's executive officers for
fiscal 1994. Actual awards for fiscal year 1994 for the named executives
are shown in the Summary Compensation Table preceding this report.
- 14 -
COMPENSATION PHILOSOPHY
The Company's executive compensation programs are premised on the
belief that the interests of executives should be closely aligned with
those of the Company's stockholders. Based on this philosophy, the
Committee believes that a substantial portion of the aggregate potential
compensation of executive officers should be directly and materially
linked to the Company's operating performance. Consequently, a significant
portion of each executive's total compensation is placed at risk and
linked to the accomplishment of specific results which will benefit the
Company's stockholders in both the short and long-term. Since the
achievement of performance objectives over time is a primary determinant
of share price, executive compensation is weighted heavily on the basis of
performance and achievement of these goals. Under this performance
orientation:
* Executives are motivated to improve the overall performance and profitability
of the Company by rewarding them when specific, measurable results have been
achieved.
* Accountability is further encouraged by incentive awards on the basis of
executives' performance and contribution against defined long-term goals.
* In years when corporate performance has been superior, executives will
be well compensated, which will permit the Company to attract and retain the
talent needed to lead and grow its business; conversely, in years of below
average performance, compensation declines below competitive benchmarks.
* The compensation strategy will support business goals and direction and
specifically link executive and shareholder interests through
equity-based plans linked to the Company's common stock.
* The Company's compensation policy will maximize growth-driven financial
performance, balancing appropriately the short and long-term goals of
the Company.
COMPENSATION PLAN GENERALLY
In carrying out its duties, the Committee regularly reviews the
executive compensation programs of the Peer Group identified under
"Performance Comparison" and of various manufacturing companies of similar
size whose executives have similar responsibilities and operations. In
fiscal 1994, this review included an analysis by an independent
compensation consultant retained by the Company to permit the Committee to
assure itself that the Company's total compensation program is properly
integrated with both the Company's annual and longer term objectives and
is competitive with compensation programs of other companies with which
the Company must directly compete for executive talent. The chief
components of the Company's executive compensation program consist of
three elements: (1) base salary, (2) annual short-term incentive award,
and (3) long-term incentives utilizing stock-based awards.
BASE SALARY
The base salary of the Chief Executive Officer and each of the other
senior executives is initially determined by evaluating the
responsibilities of the position against the competitive marketplace. By
utilizing an independent compensation consulting firm and various salary
surveys, each position is assigned a salary range which consists of
minimum, mid-point and maximum salaries. Generally, base salary for senior
- 15 -
executives is targeted at the mid-point of salary ranges for comparable
positions. In fiscal 1994, all base salaries, including that of Mr.
Knabusch, were approximately 90% of the mid-point salaries.
An annual salary adjustment within each applicable salary range is
determined by evaluating the performance of the individual, in the context
of the financial results of the Company. Mr. Knabusch's salary for the
1994 fiscal year, set forth in the Summary Compensation Table below,
reflects the Committee's consideration of these factors.
SHORT-TERM INCENTIVE AWARD
Annually, the Compensation Committee establishes short-term
performance criteria for the management incentive plan. Performance
criteria include such areas as growth in revenue and improved earnings.
The specific focus and weighting of the criteria is based on the
Committee's assessment of the key short-term priorities of the
corporation. The performance criteria are established at the start of the
fiscal year or as shortly thereafter as possible. The target and maximum
award opportunity for each executive is based on competitive data provided
by the independent compensation consultant. The award paid is based on
actual results compared to the established performance targets. For fiscal
1994, the performance criteria were improvement in sales revenue and net
earnings. One-third of the award was based on sales revenue and two-thirds
was based on earnings. This weighting is the result of the Board's
continuing emphasis on improving earnings. For fiscal 1994, the Company's
consolidated sales revenue increased 18% over fiscal 1993, and the
Company's net earnings for fiscal 1994 increased 27% over fiscal 1993.
Based on the sliding scale of performance goals established prior to the
start of the fiscal year, the Company's financial performance resulted in
the bonus payments as set forth in the Summary Compensation Table. The
annual incentive awards paid to the CEO and the other executives named in
the table were based exclusively on the overall corporate performance
using the system described above.
LONG-TERM INCENTIVES
The Company and the Compensation Committee have long recognized the
importance of linking executive compensation and value created for
shareholders. Consequently, stock-based awards are an important component
of executive compensation and one which particularly links executive
compensation to the maximization of shareholder values. For fiscal 1994,
stock-based awards were potentially available to executive officers and
management personnel under the Performance Plan approved by the
shareholders last year, as well as under the Company's previously
established and approved employee stock option and restricted stock plans.
However, in light of the new availability of awards under the Performance
Plan, the Committee determined for fiscal 1994 not to make any grants of
restricted stock to any executive officers or other employees eligible to
receive Target Awards under the Performance Plan. The Committee's present
intention is to follow that same practice for the current year and future
fiscal years. Awards under the programs are based both on a combination of
an individual's contribution to the Company's performance and on the
executive's individual performance. The Committee relies heavily on
competitive data and the recommendations of an independent compensation
consultant who utilizes comparative practices followed by a number of
Fortune 500 companies.
- 16 -
In determining the number of incentive stock option shares to be
awarded to the CEO and other senior executives in fiscal 1994, the
committee considered grants made by comparable companies and the
cumulative grants to the CEO in the past. Based upon that review, the CEO
was granted options to acquire 22,500 shares at an exercise price equal to
110% of the market value on the date of grant, all as reported in the
Summary Compensation Table preceding this report. No restricted stock
awards have ever been made to the CEO in the past and none were granted to
the CEO or the four senior officers in fiscal 1994.
To continue the alignment of stock compensation with shareholder
interests the Committee has granted Performance-Based Shares in 1994. This
plan focuses on the achievement of predetermined target levels of
performance of both financial and non-financial objectives which are
consistent with the Committee's strategic business goals for the award
period.
In the opinion of the Committee, the Company's performance-based
cash compensation system, together with the various equity-based plans,
provides all of the management employees, including its executive officers
and CEO, with an incentive to advance objective targets designed to
increase shareholder value.
CHIEF EXECUTIVE OFFICER COMPENSATION
The salary, short-term incentive bonus, and long-term incentive
awards of the CEO are determined by the Committee substantially in
accordance with the policies described above for all other executives of
the Company. The Committee evaluates the CEO's contribution to the
Company's achievement of both its short-term and long-term financial and
non-financial objectives on an ongoing basis. In addition, the Committee
evaluates performance of the CEO at least annually based upon a variety of
factors, including the extent to which strategic and business plan goals,
including such factors as earnings per share, return on equity, growth in
sales and similar ratios are achieved.
In summary, based on the strong performance of the Company versus
peer companies, and the Committee's determination of the CEO's
contribution to this performance and to the positioning of the Company for
future long-term growth, the Committee has determined that the
compensation paid to the CEO, as described in the Summary Compensation
Table preceding this report, is in the best interests of the Company and
its shareholders.
- 17 -
RECENT TAX LAW DEVELOPMENTS
In August 1993, the Internal Revenue Code was amended to add a new
sect.162(m), which, in general, limits the deductibility of certain
compensation in excess of $1,000,000 per year paid on or after January 1,
1994 by a publicly-held corporation to individuals named in the
corporation's Summary Compensation Table for the year. Proposed
regulations concerning sect.162(m) were issued by the Internal Revenue
Service last December. Final regulations have not yet been issued.
Some types of compensation are excluded from sect.162(m)'s
million-dollar deductibility limit, including certain compensation payable
under "grandfathered" agreements entered into before enactment of
sect.162(m) and certain "performance-based" compensation. Compensation
associated with stock options or their exercise can qualify for a
performance-based exclusion, as can other forms of compensation based on
objective performance criteria, provided certain requirements are
satisfied.
While there is necessarily some uncertainty in this area in light of
the absence of final regulations, the Committee believes sect.162(m) does
not affect deductibility by the Company of any fiscal 1994 compensation
and does not expect it to affect deductibility of compensation paid or
payable for the current year. The Committee also believes that the
deductibility of any compensation that might arise in connection with
exercises of currently outstanding employee stock options will not be
affected by sect.162(m) and expects in due course to take or propose such
additional actions as may be necessary or appropriate to preserve such
deductibility with respect to options granted in the future.
However, as noted under "Certain Agreements," compensation payable
in the future under the change of control agreements there discussed may
not be fully deductible under sect.162(m). In addition, despite the use of
objective performance criteria in the Performance Plan, at least some of
the compensation associated with Performance Awards earned in the future
with respect to Target Awards previously or hereafter granted may be
non-deductible.
The maximum utilization of legally available tax deductions is
beneficial to the Company and its shareholders, and this factor, like
other relevant factors, is taken into account by the Compensation
Committee as it reviews existing compensation programs and considers
whether changes should be implemented or new programs developed. However,
there are circumstances in which, on balance, the interests of
shareholders are best served by the implementation of policies that may
not maximize the tax deductible expenses of the Company. This is at least
as true in the area of executive compensation as it is in other areas.
While the Committee has considered and expects to continue to consider the
impact of sect.162(m) in the course of its deliberations, decisions and
recommendations will continue to be made with the goal of maximizing the
creation of long-term shareholder value within the framework of the
general compensation philosophy described above, rather than by rigid
adherence to compensation deductibility standards.
The Compensation Committee
John F. Weaver, Chairman
Rocque E. Lipford
David K. Hehl
Warren Gruber
- 18 -
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The above named non-employee directors constitute the Compensation
Committee of the Company's Board of Directors and served in that capacity
for the entire 1994 fiscal year. No other persons served on the
Compensation Committee during that fiscal year.
John F. Weaver is an Executive Vice President of Monroe Bank and
Trust. Charles T. Knabusch, Chairman of the Board, President and CEO of
the Company is a member of the Board of Directors of Monroe Bank and Trust
and serves as a member of the Personnel Committee of the Bank.
The law firm of Miller, Canfield, Paddock and Stone, P.L.C., of which
Rocque E. Lipford is a principal, provides legal services to the Company,
and as Miller, Canfield, Paddock and Stone, has done for the past 14 years.
RELATIONSHIP WITH INDEPENDENT ACCOUNTANTS
The Board of Directors, at the recommendation of its Audit
Committee, has reappointed the firm of Price Waterhouse as its independent
accountants. Price Waterhouse has served as independent accountants for
the Company continuously since 1968. It is expected that a representative
of Price Waterhouse will be present at the annual shareholders' meeting
with the opportunity to make a statement if he or she desires and to
answer appropriate questions which may be raised by shareholders at the
meeting.
SHAREHOLDER PROPOSALS
Shareholders who intend to present a proposal at the annual meeting
to be held in 1995 must furnish such information to the Company by
February 24, 1995 for the proposal to be included in the Company's proxy
statement for that meeting. The Company may omit a proposal and any
statement in support thereof from its proxy statement and form of proxy in
accordance with rules issued by the Securities and Exchange Commission.
OTHER MATTERS
The Management is not aware of any other matters which may come
before the meeting. However, if any other matters properly come before the
meeting, it is the intention of the persons named in the accompanying form
of proxy to vote the proxy in accordance with their judgment on such matters.
The total expense of sending out notices, proxies and the proxy
statement will be paid by the Company. This expense is limited to the cost
of preparing and mailing this proxy statement and accompanying documents.
Please execute and return the accompanying proxy, so that your
shares may be voted at the meeting.
By Order of the Board of Directors
Gene M. Hardy, Secretary
Monroe, Michigan
June 24, 1994
A copy of the Company's Annual Report to the Securities and Exchange
Commission (Form 10-K) may be obtained by writing the Secretary's office.
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LA-Z-BOY CHAIR COMPANY PROXY
The undersigned hereby appoints C. T. Knabusch, and E. J. Shoemaker, and
both of them Proxies with power of substitution to attend the Annual Meeting
of Shareholders of La-Z-Boy Chair Company to be held at the La-Z-Boy Chair
Company Auditorium, 1314 North Telegraph Road, Monroe, Michigan, July 25 1994
at 11:00 o'clock A.M., Eastern Daylight Time and any adjournment thereof, and
thereat to vote all shares now or hereafter standing in the name of the
undersigned.
(Continued and TO BE SIGNED on other side)
[X] Please mark your
votes as in this
example.
WITHHOLD Authority
to vote for all
FOR all nominees nominees listed
listed to right to right Nominees:
1. Election of [ ] [ ] Frederick H. Jackson
Directors Lorne G. Stevens
Patrick H. Norton
(INSTRUCTIONS: To withhold authority to vote for any individual nominees,
write that nominee's name on the line below.)
_____________________________________________________
2. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
This proxy, when properly executed, will be voted in the manner directed by the
undersigned stockholder. If no direction is made, this proxy will be voted for
Proposals 1 "and 2".
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
Please mark, sign, date and return the proxy card using the enclosed envelope.
SIGNATURE ______________________________________ DATE ______________________
Signature should agree with name(s) on stock certificate(s).
SIGNATURE ______________________________________ DATE ______________________
Signature if held jointly
NOTE: When shares are held by joint tenants, both should sign. When signing as
attorney, as executor, administrator, trustee or guardian, please give
full title as such. If a corporation, please sign in full corporate
name by president or other authorized officer. If a partnership, please
sign in partnership name by authorized person.
