UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
FOR THE FISCAL YEAR ENDED APRIL 25, 1998
Commission File No. 1-9656
LA-Z-BOY INCORPORATED
1284 N. Telegraph Road, Monroe, MI 48162
(734) 242-1444
Incorporated in Michigan I.R.S. Employer Identification Number 38-0751137
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Title of Each Class Exchange on Which Registered
Common Stock, $1.00 Par Value New York Stock Exchange
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No __
Indicate by check mark if the disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of the Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. X
Based on the closing price of June 19, 1998, the aggregate market value of
common stock held by nonaffiliates of the Registrant was $983.7 million.
The number of common shares outstanding of the registrant was 17,804,571 as of
June 19, 1998.
DOCUMENTS INCORPORATED BY REFERENCE:
(1) Portions of the 1998 Annual Report to Shareholders for the year ended April
25, 1998 are incorporated by reference in Part I, II and IV.
(2) Portions of the Annual Proxy Statement filed with the Securities and
Exchange Commission on June 26, 1998 are incorporated by reference into Part
III.
TABLE OF CONTENTS
FORM 10-K ANNUAL REPORT - 1998
LA-Z-BOY INCORPORATED
PART I Page
Item 1. Business....................................... 1
Item 2. Properties..................................... 4
Item 3. Legal Proceedings.............................. 6
Item 4. Submission of Matters to a
Vote of Security Holders.......................... 6
PART II
Items 5. through 8....................................... 6
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosures........... 7
PART III
Items 10. through 13..................................... 7
PART IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K............................... 7
PART I
ITEM 1. BUSINESS.
During fiscal year 1998, the Registrant acquired all the outstanding stock of
Sam Moore Furniture Industries, Inc. Also, the Registrant acquired the remaining
25% of Centurion Furniture plc. Additional information required in Part I, Item
1, section (a) is contained in the Registrant's 1998 Annual Report to
Shareholders in Note 2 on page 22 of the Registrant's consolidated financial
statements and is incorporated herein by reference.
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. "Business Furniture" dealers are those who resell seating
and casegood products to commercial dealers. Additional information regarding
products and market share data is contained in the Registrant's 1998 Annual
Report on page 27 in the Background section of the Management Discussion and
Analysis and is incorporated herein by reference.
Status of New Products or Segments
During fiscal year 1998, the Registrant did not add any major products or
segments.
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, sealant,
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 and padding. 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 mostly
centralized basis. The Registrant fabricates many 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 material costs historically have been about 38 percent of 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 39 percent of total upholstery product material
costs. Polyurethane (poly) foam and lumber are the next two largest types of
upholstery raw material costs. Poly is highly sensitive to changes in the price
of oil. Price increases for raw materials have been slightly lower than the
inflation rate in recent years and are expected to continue at this rate.
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 many 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.
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 materially affect the Registrant's business. In
addition to the patent on the mechanisms, the Registrant has obtained patents
on some of its furniture designs and has approximately 12-15 designs either
patented or applied for. The Registrant has no material licenses, franchises or
concessions.
Seasonal Business
The Registrant generally experiences its lowest level of sales during its 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.
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). Extended dating is often offered on
sales promotions.
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 Business Furniture Group.
Customers
The Registrant distributes to over 17,000 locations. The Registrant does not
have any customer whose sales amount to 10 percent or more of its consolidated
sales for fiscal year 1998. The Registrant's approximate dealer mix consisted of
40 percent proprietary, 16 percent to major dealers (Montgomery Ward and other
department stores) and 44 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 many of the Registrant's divisions.
Orders and Backlog
It has been determined that the majority of the Registrant's Residential
Division orders are for dealer stock, with approximately 37 percent of orders
being requested directly by customers. Furthermore, about 12 percent of units
produced at all divisions are built for the Registrant's inventory.
The remainder are "built-to-order" for dealers.
As of May 31, 1998 and May 31, 1997 backlogs were approximately $93 million and
$81 million, respectively. These amounts represent less than five weeks of
sales. On average, orders are shipped in approximately five weeks. The measure
of backlog at a point in time may not be indicative of future sales performance.
The Registrant does not rely entirely on backlogs to predict future sales since
the sales cycle is only five weeks and backlog can change from week to week.
The cancellation policy for La-Z-Boy Incorporated, in general, is that an order
cannot be canceled after it has been selected for production. Orders from
prebuilt stock, though, may be canceled up to the time of shipment.
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.
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.
The Registrant competes primarily by emphasis on quality of its products, dealer
support and a lifetime warranty on the reclining and leg rest mechanisms.
The Registrant has approximately fifteen major competitors in the U.S. reclining
or motion chair field and a substantially larger number of competitors in the
upholstery business as a whole, as well as in the casegoods and Business
Furniture businesses.
Research and Development Activities
The Registrant spent $9.5 million in fiscal 1998 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 $8.3 million in fiscal 1997
on such activities and $8.0 million on such activities in fiscal 1996. The
Registrant's customers generally do not engage in research with respect to the
Registrant's products.
Compliance with Environmental Regulations
Information relating to Compliance with Environmental Regulations (Note 11 of
the Consolidated Financial Statements appearing on page 26 and the environmental
discussion contained within the Management Discussion and Analysis appearing on
pages 28 and 29 of La-Z-Boy Incorporated Annual Report to Shareholders for 1998)
is incorporated herein by reference.
Number of Employees
The Registrant and its subsidiaries employed 12,155 persons as of April 25, 1998
and 11,236 persons as of April 26, 1997.
Financial Information about Foreign and Domestic Operations and Export Sales
The Registrant does not make any material amount of sales of upholstered
furniture from export sales. The Registrant sells upholstered furniture to
Canadian customers through its Canadian subsidiary, La-Z-Boy Canada Limited.
Sales in Europe also occur through the Registrant's subsidiary Centurion
Furniture plc, which is located in the United Kingdom.
The Registrant also derives a small amount of royalty revenues from the sale and
licensing of its trademarks, tradenames, and patents to certain foreign
manufacturers.
Export sales are increasing, and are about 2% of sales.
ITEM 2. PROPERTIES.
In the United States, the Registrant operates thirty-one manufacturing plants
(most with warehousing space), has an automated fabric-processing center and has
divisional and corporate offices. The Registrant has one manufacturing plant in
Canada, one in the United Kingdom and one in Mexico. Some locations listed on
the following page have more than one plant.
The location of these plants, the approximate floor space, principal
operations conducted, the average age and the approximate number of
employees at such locations as of April 25, 1998 are as follows:
Facility's
Location Floor Space Average Number of
(square feet) Operations Conducted Age Employees
- -------- ------------- --------------------- ----------- ---------
Bedford, 282,431 Manufacturing and assembly 39 319
Virginia of upholstery
(Sam Moore)
Clearfield, 48,000 Upholstering and assembly 2 48
Utah of upholstery
Dayton, 910,880 Manufacturing, assembly and 15 2,018
Tennessee warehousing of upholstery
Florence, 416,249 Manufacturing, assembly and 28 441
South Carolina warehousing of upholstery
Florence, 48,400 Fabric processing center 21 17
South Carolina
Hudson area, 1,072,745 Manufacturing, assembly and 31 1,250
North Carolina warehousing of casegoods
(Kincaid) and division office
Irapuato, Mexico 30,000 Manufacturing of upholstery 20 92
(Distincion
Muebles)
Leland, 311,990 Manufacturing, assembly and 22 305
Mississippi warehousing of Business
Furniture casegoods and
upholstery
Lenoir area, 654,688 Manufacturing, assembly and 30 452
North Carolina warehousing of primarily
(Hammary) casegoods and some
upholstered products and
division office
Leyland England, 200,000 Manufacturing and 32 172
County of warehousing of furniture
Lancashire and company offices
(Centurion)
Lincolnton, 375,823 Manufacturing, warehousing 30 348
North Carolina and assembly of upholstery
Monroe, 242,235 Corporate office, 47 531
Michigan Residential and Business
Furniture Group offices and
R & D
Neosho, 560,640 Manufacturing, assembly and 22 1,260
Missouri warehousing of upholstery
New Tazewell, 696,484 Manufacturing, assembly and 8 1,385
Tennessee warehousing of primarily
(England/Corsair upholstery and division
) office
Newton, 640,707 Manufacturing, assembly and 21 1,318
Mississippi leather cutting, plywood
cutting and warehousing of
upholstery
Redlands, 189,125 Upholstering, assembly and 28 383
California warehousing of upholstery
Siloam Springs, 399,616 Upholstering, warehousing 3 437
Arkansas and assembly of upholstery
Tremonton, Utah 672,770 Manufacturing, assembly and 13 969
warehousing of upholstery
Waterloo, 257,340 Assembly and warehousing of 27 410
Ontario upholstery and division
(La-Z-Boy office
Canada) --------- -- ------
8,010,123 22 12,155
========= == ======
The Monroe, Michigan; Redlands, California; Dayton, Tennessee; Waterloo,
Ontario, Canada; Lincolnton, North Carolina; Lenoir, North Carolina; Hudson,
North Carolina; New Tazewell, Tennessee; Bedford, Virginia; Leyland England, and
the Newton, Mississippi woodworking plants are owned by the Registrant. The
Florence, South Carolina; Neosho, Missouri; Newton, Mississippi; Siloam Springs,
Arkansas 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 Incorporated (lessee).
These leases are capitalized on the Registrant's books. The Clearfield, Utah
plant and Irapuato, Mexico buildings are under long-term lease.
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.
ITEM 3. LEGAL PROCEEDINGS.
Information relating to certain legal proceedings (Note 11 of the Consolidated
Financial Statements appearing on page 26 of the La-Z-Boy Incorporated Annual
Report to Shareholders for 1998) is incorporated herein by reference.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY.
No matters were voted upon during the fourth quarter of 1998.
PART II
The information required in Part II (Items 5 through 8) is contained in the
La-Z-Boy Incorporated Annual Report to Shareholders for 1998, in the Financial
Report pages 17 through 31, and is incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
The information required in Part III (Items 10 through 13) is contained in the
Registrant's proxy statement dated June 26, 1998 on pages 1 through 13, and 19,
and is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES, AND REPORTS ON FORM 8-K.
INDEX TO EXHIBITS (Note 1)
(3.1) La-Z-Boy Incorporated Restated Articles of Incorporation (Note 4)
(3.2) La-Z-Boy Incorporated By-laws as amended and restated (Note 14)
(4) Instruments defining the rights of holders of long-term debt are not filed
herewith, pursuant to paragraph (4)(iii) of Regulation S-K Item 601. The
Registrant will furnish all such documents to the Securities and Exchange
Commission upon its request
(10) Material Contracts
* (10.1) La-Z-Boy Incorporated 1993 Performance-Based Stock Plan (Note 7)
* (10.2) La-Z-Boy Incorporated Amended and Restated 1996 Performance Based
Stock Plan (Note 5)
* (10.3) La-Z-Boy Incorporated Restricted Stock Plan for Non-Employee
Directors (Note 9)
* (10.4) La-Z-Boy Incorporated Executive Incentive Compensation Plan
Description (Note 3)
* (10.5) La-Z-Boy Incorporated Supplemental Executive Retirement Plan
dated May 1, 1991 (Revised in 1995) (Note 6)
* (10.6) La-Z-Boy Incorporated Amended and Restated 1997 Restricted Share Plan
(Note 2)
* (10.7) La-Z-Boy Incorporated 1997 Incentive Stock Option Plan (Note 2)
* (10.8) Form of Change in Control Agreement (Note 6)
(10.9) Employees who are parties to the Change in Control Agreement (Note 14)
* (10.10) Form of Indemnification Agreement (Note 8)
* (10.11) Summary Plan Description and Partial Plan Document for the La-Z-Boy
Incorporated Personal Executive Life Insurance Program (the "Summary")
(Note 3). (In the case of one executive officer, Gene M. Hardy, the
Personal Executive Life Insurance Program operates differently from
the manner described in the Summary, in that: (a) Mr. Hardy does not
benefit from Unscheduled Premium payments, so information therein
relating to such payments does not apply to him, and (b) "gross up"
payments to him are not repayable to the Company out of policy death
benefits or otherwise.)
* (10.12) Description of loan to Mr. C. T. Knabusch (Note 3)
* (10.13) The La-Z-Boy Incorporated 1986 Incentive Stock Option Plan (Note 10)
* (10.14) The La-Z-Boy Incorporated 1989 Restricted Share Plan (Note 9)
(13) Portions of the 1998 Annual Report to Shareholders (Note 11)
(21) List of subsidiaries of La-Z-Boy Incorporated (Note 14)
(23) Consent of PricewaterhouseCoopers LLP (Note 12)
(27) Financial Data Schedule (Note 13)
* Indicates a contract or benefit plan under which one or more executive
officers or directors may receive benefits
NOTES TO EXHIBITS
1. Copies of exhibits will be supplied upon request. All necessary annual and
quarterly reports are electronically filed with the SEC. Copies of the
exhibits are available through the SEC site on the Internet.
(http://www.sec.gov/cgi-bin/srch-edgar).
2. Incorporated by reference to exhibits included in the La-Z-Boy Incorporated
Proxy statement dated July 27, 1997.
3. Incorporated by reference to exhibits included in the La-Z-Boy Incorporated
Form 10-K for the year ended April 26, 1997.
4. Incorporated by reference to exhibits included in the La-Z-Boy Incorporated
Form 10-Q for the quarter ended October 26, 1996.
5. Incorporated by reference to exhibits included in the La-Z-Boy Incorporated
Proxy Statement dated June 28, 1996.
6. Incorporated by reference to exhibits included in the La-Z-Boy Incorporated
Form 8-K for the quarter ended January 28, 1995.
7. Incorporated by reference to exhibits included in the La-Z-Boy Incorporated
Proxy Statement dated June 25, 1993.
8. Incorporated by reference to exhibits included in the La-Z-Boy Incorporated
Form 8, Amendment No. 1 dated November 3, 1989.
9. Incorporated by reference to exhibits included in the La-Z-Boy Incorporated
Proxy Statement dated July 6, 1989.
10. Incorporated by reference to exhibits in the La-Z-Boy Incorporated Proxy
Statement dated June 26, 1986.
11. With the exception of the information incorporated in Parts I and II, this
document is not deemed to be filed as part of the report on Form 10-K.
12. Incorporated by reference to 'Consent of Independent Public Accountants' in
this Form 10-K.
13. This is included in the Edgar version only.
14. This document is filed herewith.
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 INCORPORATED
BY /s/Patrick H. Norton July 21, 1998
---------------------
P.H. Norton
Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below, as of July 21, 1998, by the following persons on behalf
of the Registrant and in the capacities indicated.
/s/Patrick H. Norton /s/J.F. Weaver
--------------------- ---------------------
P.H. Norton J.F. Weaver
Chairman of the Board Director
/s/G.L. Kiser /s/D.K. Hehl
--------------------- ---------------------
G.L. Kiser D.K. Hehl
President and Chief Operating Director
Officer
/s/G.M. Hardy /s/R.E. Lipford
--------------------- ---------------------
G.M. Hardy R.E. Lipford
Secretary and Treasurer, Director
Principal Accounting Officer
and Director
/s/F.H. Jackson /s/H.G. Levy
--------------------- ---------------------
F.H. Jackson H.G. Levy
Executive VP of Finance, Director
Chief Financial Officer and
Director
--------------------- ---------------------
L.G. Stevens J.W. Johnston
Director Director
ANNUAL REPORT ON FORM 10-K
ITEM 14(a) and ITEM 14(d)
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
YEARS ENDED APRIL 25, 1998, APRIL 26, 1997 AND APRIL 27, 1996
LA-Z-BOY INCORPORATED
MONROE, MICHIGAN
INDEX TO FINANCIAL STATEMENTS
The financial statements, together with the report thereon of Price Waterhouse
LLP dated May 21, 1998 appearing on pages 17 through 31 of the accompanying 1998
Annual Report to Shareholders are 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 1998 Annual Report to Shareholders is
not to be deemed filed as part of this report. The following financial statement
schedule should be read in conjunction with the financial statements in such
1998 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 SCHEDULE
1998, 1997, AND 1996
Page
Report of Independent Accountants on Financial
Statement Schedule S-2
Schedule II Valuation and Qualifying Accounts S-3
REPORT OF INDEPENDENT ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE
May 21, 1998
To the Board of Directors of
La-Z-Boy Incorporated
Our audits of the consolidated financial statements referred to in our report
dated May 21, 1998 appearing on page 17 of the 1998 Annual Report to
Shareholders of La-Z-Boy Incorporated (which report and consolidated financial
statements are incorporated by reference in this Annual Report on Form 10-K)
also included an audit of the Financial Statement Schedule listed in Item 14(a)
of this Form 10-K. In our opinion, this Financial Statement Schedule presents
fairly, in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements.
/s/PricewaterhouseCoopers LLP
PRICEWATERHOUSECOOPERS LLP
LA-Z-BOY INCORPORATED AND SUBSIDIARIES SCHEDULE II 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 25, 1998:
Allowance for doubtful
accounts and
long-term notes $18,931 $7,333 $5,625 $20,639
Accrued Warranties $10,775 $1,250 $12,025
Year ended April 26, 1997:
Allowance for doubtful
accounts and
long-term notes $18,033 $5,688 $4,790 $18,931
Accrued Warranties $9,577 $1,198 $10,775
Year ended April 27, 1996:
Allowance for doubtful
accounts and
long-term notes $17,829 $5,530 $5,326 $18,033
Accrued Warranties $8,450 $1,127 $9,577
Exhibit (3.2)
BY-LAWS
OF
LA-Z-BOY INCORPORATED
ARTICLE I
Name and Office
Section 1. Name. The name of this corporation shall be La-Z-Boy Incorporated.
Section 2. Registered Office. The principal and registered office of the
corporation shall be located at 1284 North Telegraph Road, Monroe, Michigan.
Section 3. Other Offices. The corporation may also have other offices for the
transaction of business located at such places, both within and without the
State of Michigan, as the Board of Directors may from time to time determine.
ARTICLE II
Capital Stock and Transfers
Section 1. (A). Share Certificates: Required Signatures. The shares of the
corporation shall be represented by certificates signed by the Chairman of the
Board or the President or the Executive Vice President and the Secretary or an
Assistant Secretary or the Treasurer or an Assistant Treasurer of the
corporation, and may be sealed with the seal of the corporation or a facsimile
thereof. The signatures of the officers of the corporation upon a certificate
may be facsimiles if the certificate is countersigned by a transfer agent, or is
registered by a registrar, other than the corporation itself or an employee of
the corporation. In case any officer, transfer agent or registrar who has signed
or whose facsimile signature has been placed upon such certificate shall have
ceased to be such officer, transfer agent or registrar before such certificate
is issued, it may be issued by the corporation with the same effect as if he
were such officer, transfer agent or registrar at the date of its issue.
Section 1. (B). Share Certificates: Required Information. A certificate
representing shares of the corporation shall state upon its face all of the
following:
(a) That the corporation is formed under the laws of this state.
(b) The name of the person to whom issued.
(c) The number and class of shares, and the designation of the
series, if any, which the certificate represents.
Section 2. Lien. The corporation shall have a first lien on all the shares of
its capital stock, and upon all dividends declared upon the same for any
indebtedness of the respective holders thereof to the corporation.
Section 3. Transfers. Upon surrender to the corporation or the transfer agent of
the corporation of a certificate representing shares fully endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer, a new certificate shall be issued to the person entitled thereto, and
the old certificate canceled and the transaction recorded upon the books of the
corporation.
Section 4. Replacement of Lost, Stolen or Destroyed Share Certificates. The
Board of Directors may direct a new certificate to be issued in place of any
certificate theretofore issued by the corporation alleged to have been lost,
stolen or destroyed. When authorizing such issue of a new certificate, the Board
of Directors, in its discretion and as a condition precedent to the issuance
thereof, may prescribe such terms and conditions as it deems expedient, and may
require such indemnities as it deems adequate, to protect the corporation from
any claim that may be made against it with respect to any such certificate
alleged to have been lost, stolen or destroyed.
Section 5. Transfer Agent and Registration. The Board of Directors may appoint
a transfer agent and a registrar in the registration of transfers of its
securities.
Section 6. Rules of Issue and Transfer. The Board of Directors shall have power
and authority to make all such rules and regulations as the board shall deem
expedient regulating the issue, transfer and registration of certificates for
shares in this corporation.
Section 7. Registered Shareholders. The corporation shall have the right to
treat the registered holder of any share as the absolute owner thereof, and
shall not be bound to recognize any equitable or other claim to, or interest in,
such share on the part of any other person, whether or not the corporation shall
have express or other notice thereof, save as may be otherwise provided by the
statutes of Michigan.
ARTICLE III
Shareholders and Meetings
Section 1. Annual Meeting of Shareholders. The 1991 Annual Meeting of
Shareholders shall be held August 5, 1991 and all subsequent Annual Meetings of
Shareholders shall be held on the last Monday in July of each year, or at such
other date as shall be designated by the Board of Directors and stated in the
notice of the meeting. At said meeting the shareholders shall elect by a
plurality vote the Directors to be elected at such meeting, and shall transact
such other business as may properly be brought before the meeting.
Section 2. Special Meetings of Shareholders. A special meeting of the
shareholders for any purpose or purposes other than election of Directors may be
called at any time and place by the President, and in his absence by the
Chairman of the Board; or by the Directors. It shall be the duty of the
Directors, the Chairman of the Board, or President to call such meeting whenever
so requested in writing by shareholders owning, in the aggregate, at least
seventy-five percent (75%) of the entire capital stock of the corporation
entitled to vote at such special meeting. Such request shall state the purpose
or purposes of the proposed meeting.
Section 3. Notice of Meetings of Shareholders. Notice of the time, date and
place of all annual and special meetings shall be mailed by the Secretary to
each shareholder entitled to vote at such meeting not less than ten (10) days
nor more than sixty (60) days before the date thereof. The business transacted
at any special meeting of shareholders shall be limited to the purpose stated in
the notice.
Section 4. Presiding Officer. The Chairman of the Board, or, in his absence, the
Vice Chairman, or in his absence, the President, or in his absence, such other
Vice President as the Board of Directors may designate, shall preside at all
meetings.
Section 5. Vote of Shareholders; Proxies. At every such meeting each shareholder
shall be entitled to cast one vote for each share of stock held in his name;
which vote may be cast by him either in person, or by proxy, but no proxy shall
be voted after three (3) years from its date, unless the proxy provides for a
longer period. A shareholder may authorize one or more persons to act for him by
proxy. All proxies shall be in writing by the shareholder or by his duly
authorized agent or representative and shall be filed with the Secretary.
Section 6. Quorum of Shareholders. The holders of a majority of the shares of
stock issued and outstanding and entitled to vote thereat, represented in person
or by proxy, shall constitute a quorum at all meetings of the shareholders for
the transaction of business except as otherwise provided by statute or by the
Articles of Incorporation. If, however, such quorum shall not be present or
represented at any meeting of the shareholders, the shareholders present in
person or represented by proxy shall have power to adjourn the meeting from time
to time, without notice other than announcement at the meeting, until a quorum
shall be present or represented. At such adjourned meeting at which a quorum
shall be present or represented any business may be transacted which might have
been transacted at the meeting as originally notified.
Section 7. Required Vote. If a quorum is present, the affirmative vote of the
holders of a majority of the shares of stock represented at the meeting shall be
the act of the shareholders unless the vote of a greater number of shares of
stock is required by law or the Articles of Incorporation.
Section 8. Removal. The shareholders shall have power by a majority vote at
any such meeting, to remove any Director from office.
Section 9. List of Shareholders Entitled to Vote. The officer or agent having
charge of the stock transfer books for shares of the corporation shall make and
certify a complete list of the shareholders entitled to vote at a shareholders'
meeting or any adjournment thereof. The list shall:
(a) Be arranged alphabetically within each class and series, with the
address of, and the number of shares held by, each shareholder.
(b) Be produced at the time and place of the meeting.
(c) Be subject to inspection by any shareholder during the whole time
of the meeting.
(d) Be prima facie evidence as to who are the shareholders entitled to
examine the list or to vote at the meeting.
Section 10. Record Date for Determination of Shareholders. For the purpose of
determining shareholders entitled to notice of and to vote at a meeting of
shareholders or an adjournment of a meeting, the Board of Directors may fix a
record date, which shall not precede the date on which the resolution fixing the
record date is adopted by the board. The date shall not be more than sixty (60)
nor less than ten (10) days before the date of the meeting. If a record date is
not fixed, the record date for determination of shareholders entitled to notice
of or to vote at a meeting of shareholders shall be the close of business on the
day next preceding the day on which notice is given, or if no notice is given,
the day next preceding the day on which the meeting is held. When a
determination of shareholders of record entitled to notice of or to vote at a
meeting of shareholders has been made as provided in this Section, the
determination applies to any adjournment of the meeting, unless the Board of
Directors fixes a new record date under this Section for the adjourned meeting.
For the purpose of determining shareholders entitled to receive payment of a
share dividend or distribution, or allotment of a right, or for the purpose of
any other action, the Board of Directors may fix a record date, which shall not
precede the date on which the resolution fixing the record date is adopted by
the board. The date shall not be more than sixty (60) days before the payment of
the share dividend or distribution or allotment of a right or other action. If a
record date is not fixed, the record date shall be the close of business on the
day on which the resolution of the Board of Directors relating to the corporate
action is adopted.
Section 11. Inspectors of Election. The Board of Directors may appoint one (1)
or more inspectors of election to act at the meeting or any adjournment thereof.
If inspectors are not so appointed, the person presiding at a shareholders'
meeting may, and on request of a shareholder entitled to vote thereat shall,
appoint one (1) or more inspectors. The inspectors shall determine the number of
shares outstanding and the voting power of each, the shares represented at the
meeting, the existence of a quorum, the validity and effect of proxies, and
shall receive votes, ballots or consents, hear and determine challenges and
questions arising in connection with the right to vote, count and tabulate
votes, ballots or consents, determine the result, and do such acts as are proper
to conduct the election or vote with fairness to all shareholders. On request of
the person presiding at the meeting or a shareholder entitled to vote thereat,
the inspectors shall make and execute a written report to the person presiding
at the meeting of any of the facts found by them and matters determined by them.
The report is prima facie evidence of the facts stated and of the vote as
certified by the inspectors.
ARTICLE IV
Directors
Section 1. Number and Powers of Directors. The business and affairs of the
corporation shall be managed by a Board of Directors consisting of 10 Directors
who shall be elected by the shareholders. The Directors shall be elected at the
annual meeting of the shareholders, as detailed hereinafter, and each Director
shall serve until his successor shall have been elected and qualified. When
acting as such, the Board of Directors may exercise all powers and do all such
lawful acts and things (including, without limitation, the making of such
adjustments in the number of Directors in any Director class or classes that may
be determined by the Board to be necessary or appropriate in light of an
increase or decrease in the total number of Directors specified in these
by-laws) as are not by statute or by the Articles of Incorporation or these
by-laws directed or required to be exercised or done by the shareholders.
Section 2. Classification and Term of Office. The Directors shall be severally
classified with the respect to the time for which they shall hold office by
dividing them into three classifications, with the number of Directors in each
class being as nearly equal as possible to the number of directors in each other
class.
Section 3. Regular Meetings of Board. Regular meetings of the Directors shall be
held immediately after the adjournment of each annual shareholders' meeting and
may be held at such time and at such place as shall from time to time be
determined by the Board.
Section 4. Special Meetings of Board. Special meetings of the Board of Directors
may be called by the President and in his absence, by the Chairman of the Board
or any four members of the Board of Directors. By unanimous consent of the
Directors, special meetings of the board may be held without notice, at any time
and place. The presence of a Director at a meeting shall constitute a Waiver of
Notice except where the Director attends solely to protest the legality of the
meeting.
Section 5. Notice. Notice of all regular and special meetings, except those
specified in the second sentence of Section 4 of this article, shall be
delivered in person, mailed or telegrammed to each Director, by the Secretary,
at least one day previous to the time fixed for the meetings. All notices of
special meetings shall state the purposes thereof.
Section 6. Quorum and Required Vote. A majority of the Directors shall
constitute a quorum for the transaction of business unless a greater number is
required by law or by the Articles of Incorporation. The act of a majority of
the Directors present at any meeting at which a quorum is present shall be the
act of the Board of Directors, unless the act of a greater number is required by
statute, these By-Laws, or by the Articles of Incorporation. If a quorum shall
not be present at any meeting of Directors, the Directors present thereat may
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum shall be present.
Section 7. Annual Meeting. The Directors shall elect the officers of the
corporation, and fix their salaries; such elections to be held at the Directors'
meeting following each annual shareholders' meeting. No notice of such meeting
shall be necessary to any newly elected Director in order to legally constitute
the meeting, provided a quorum shall be present. An officer may be removed at
any time by a two-thirds vote of the full Board of Directors.
Section 8. Vacancies. All vacancies occurring in the Board of Directors, whether
caused by resignation, death or otherwise, may be filled by the affirmative vote
of two-thirds of the remaining Directors though less than a quorum of the Board
of Directors. A Director elected to fill a vacancy shall be elected for the
unexpired portion of the term of his predecessor in office.
Section 9. Directors' Report. At each annual shareholders' meeting the Directors
shall submit a statement of the business done during the preceding year,
together with a report of the general financial condition of the corporation,
and of the condition of its tangible property.
Section 10. Committees of Directors. The Board of Directors may, by resolution
passed by a majority of the whole Board, designate one or more committees, each
committee to consist of one or more of the Directors of the corporation. Any
such committee, to the extent provided in the resolution of the Board of
Directors, or in these By-laws, shall have and may exercise all of the power and
authority of the Board of Directors in the management of the business and
affairs of the corporation; but no such committee shall have the power or
authority in reference to amending the Articles of Incorporation, adopting an
agreement of merger or consolidation, recommending to shareholders the sale,
lease, or exchange of all or substantially all of the corporation's property and
assets, recommend to the shareholders the dissolution of the corporation or
revocation of a dissolution, amend the By-laws of the corporation, fill
vacancies in the Board; and unless a resolution of the Board of Directors, the
Articles of Incorporation or the By-laws expressly so provide, no such committee
shall have the power or authority to declare a distribution, dividend, or to
authorize the issuance of stock.
Section 11. Compensation of Directors. The Board of Directors, by the
affirmative vote of a majority of the Directors then in office, and irrespective
of any personal interest of any of them, shall have authority to fix the
compensation of all Directors for services to the corporation as directors,
officers, or otherwise.
Section 12. Action by Written Consent. Unless otherwise restricted by the
Articles of Incorporation or these Bylaws, any action required or permitted to
be taken at any meeting of the Board of Directors or of any Committee thereof
may be taken without a meeting, if all members of the Board or Committee, as the
case may be, consent thereto in writing, and the writing or writings are filed
with the minutes or proceedings of the Board or Committee.
Section 13. Participation in Meeting by Telephone. By oral or written permission
of a majority of the Board of Directors, a member of the Board of Directors or
of a Committee designated by the Board may participate in a meeting by means of
conference telephone or similar communications equipment through which all
persons participating in the meeting can communicate with the other
participants. Participation in a meeting pursuant to this Section constitutes
presence in person at the meeting.
Section 14. Nomination of Director Candidates. Nomination of candidates for
election as Directors of the Corporation at any meeting of shareholders called
for election of Directors (an "Election Meeting") may be made by the Board of
Directors or by any shareholder entitled to vote at such Election Meeting but
only in accordance with the procedure outlined herein.
(a) Procedure for Nominations by the Board of Directors. Nominations made
by the Board of Directors shall be made at a meeting of the Board of Directors,
or by written consent of Directors in lieu of a meeting, not less than 30 days
prior to the date of the Election Meeting, and such nominations shall be
reflected in the minute books of the Corporation as of the date made. At the
request of the Secretary of the Corporation each proposed nominee shall provide
the Corporation with such information concerning himself or herself as is
required, under the rules of the Securities and Exchange Commission, to be
included in the Corporation's proxy statement soliciting proxies for his or her
election as a director.
(b) Procedure for Nominations by Shareholders.
Not less than 30 days prior to the date of the Election Meeting any
shareholder who intends to make a nomination at the Election Meeting shall
deliver a notice to the Secretary of the Corporation setting forth (i) the name,
age, business address and residence of each nominee proposed in each such
notice, (ii) the principal occupation or employment of each such nominee, (iii)
the number of shares of capital stock of the Corporation which are beneficially
owned by each such nominee and (iv) such other information concerning each such
nominee as would be required, under the rules of the Securities and Exchange
Commission, in a proxy statement soliciting proxies for the election of such
nominee.
(c) Determination of Compliance with Procedures. If the Chairman of the
Election Meeting determines that a nomination was not in accordance with the
foregoing procedures, such nomination shall be void.
ARTICLE V
Officers
Section 1. Selection and Number. The officers of this corporation shall be a
Chairman of the Board, Vice Chairman of the Board, President, one or more Vice
Presidents or Executive Vice Presidents, a Secretary and a Treasurer, and such
Assistant Secretaries and Treasurers as shall seem necessary to the Board of
Directors from time to time, who shall be elected for the term of one year and
shall hold office until their successors are duly elected and qualified. The
office of Secretary and Treasurer, or Assistant Secretary and Assistant
Treasurer, may be held by one person.
Section 2. Chairman of the Board. The Chairman of the Board shall preside at all
Directors' and shareholders' meetings; shall have general supervision over and
responsibility for all sales and marketing activities of the corporation and its
subsidiaries; shall sign all stock certificates; and such further duties as may
be assigned to him from time to time by the Board of Directors. In case of the
absence or the disability of the Chairman of the Board, his duties shall be
performed by the President, and in case of the President's absence, by the Vice
Chairman of the Board or by an Executive Vice President.
Section 3. Vice Chairman of the Board. The Vice Chairman of the Board may sign
any documents required by law to be filed on behalf of the corporation in the
office of the Secretary of State; may sign all stock certificates of the
corporation; and shall perform all such other duties as are incident to his
office, or such further duties as may be assigned to him from time to time by
the Board of Directors.
Section 4. President. The President shall have general supervision and
management of the day-to-day operations of the corporation and its subsidiaries
and over all other officers of the corporation; shall be the chief operating
officer of the corporation; shall sign all written contracts of the corporation;
and shall perform all such other duties as are incident to his office and such
other duties as may be assigned to him from time to time by the Board of
Directors. In the absence or disability of the Chairman of the Board and the
Vice Chairman of the Board, or while such offices are vacant, the President also
shall preside over all meetings of the Board of Directors or of the shareholders
and shall perform all of the duties or functions, and when so acting shall have
all powers and authority, of the Chairman of the Board. In case of the absence
or the disability of the President, his duties shall be performed by such other
officer or officers of the corporation as may be specified by resolution of the
Board of Directors.
Section 5. Vice Presidents. The Board of Directors may elect or appoint one or
more Vice Presidents. The Board of Directors may designate one or more Vice
Presidents as Executive Vice Presidents. Unless the Board of Directors shall
otherwise provide by resolution duly adopted by it, or as otherwise provided in
these By-Laws, such of the Vice Presidents as shall have been designated
Executive Vice Presidents and who are members of the Board of Directors in the
order specified by the Board of Directors shall perform the duties and exercise
the powers of the President during the absence or disability of the President if
the office of the Chairman of the Board is vacant. The Vice Presidents shall
perform such other duties as may be delegated to them by the Board of Directors,
the Chairman of the Board or the President.
Section 6. Secretary. The Secretary shall issue notices of all Directors' and
shareholders' meeting, and shall attend and keep the minutes of the same; shall
have charge of all corporation books, records and papers; shall be custodian of
the corporate seal, all stock certificates and written contracts of the
corporation; and shall perform all such other duties as are incident to his
office. The Secretary shall also perform such duties as are assigned to him from
time to time by the Board of Directors.
Section 7. Treasurer. The Treasurer shall have custody of all money and
securities of the corporation and shall give bond, in such sum and with such
securities as the Directors may require, conditioned upon the faithful
performance of the duties of his office. He shall sign all checks of the
corporation, shall keep regular books of account and shall submit them, together
with all his vouchers, receipts, records, and other papers, to the Directors for
their examination and approval as often as they may require; and shall perform
all such other duties as are incident to his office. The Treasurer shall also
perform such duties as may be assigned to him by the Board of Directors from
time to time.
Section 8. Indemnification of Directors, Officers and Others. Pursuant to the
provisions of Article XI of the Articles of Incorporation of the corporation,
the corporation shall indemnify any of its Directors and officers and may
indemnify any of its employees and agents (in each case including such person's
heirs, executors, administrators and legal representatives) in accordance with
the following provisions of this ByLaw:
A. Indemnification of Directors and Officers: Claims by Third Parties. The
corporation shall, to the fullest extent authorized or permitted by the Michigan
Business Corporation Act, as amended (the "Act") or other applicable law, as the
same presently exist or may hereafter be amended, but, in the case of any such
amendment, only to the extent such amendment permits the corporation to provide
broader indemnification rights than before such amendment, indemnify a Director
or officer (an "Indemnitee") who was or is a party or is threatened to be made a
party to a threatened, pending, or completed action, suit, or proceeding,
whether civil, criminal, administrative, or investigative and whether formal or
informal, other than an action by or in the right of the corporation, by reason
of the fact that he or she is or was a Director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
Director, officer, partner, trustee, employee, or agent of another foreign or
domestic corporation, partnership, joint venture, trust, or other enterprise,
whether for profit or not, against expenses, including attorneys' fees,
judgments, penalties, fines, and amounts paid in settlement actually and
reasonably incurred by him or her in connection with the action, suit, or
proceeding, if the Indemnitee acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the best interests of the
corporation or its shareholders, and with respect to a criminal action or
proceeding, if the Indemnitee had no reasonable cause to believe his or her
conduct was unlawful. The termination of an action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent, does not, of itself, create a presumption that the Indemnitee
did not act in good faith and in a manner which he or she reasonably believed to
be in or not opposed to the best interests of the corporation or its
shareholders, and, with respect to a criminal action or proceeding, had
reasonable cause to believe that his or her conduct was unlawful.
B. Indemnification of Directors and Officers: Claims Brought by or in the
Right of the Corporation. The corporation shall, to the fullest extent
authorized or permitted by the Act or other applicable law, as the same
presently exist or may hereafter be amended, but, in the case of any such
amendment, only to the extent such amendment permits the corporation to provide
broader indemnification rights than before such amendment, indemnify an
Indemnitee who was or is a party or is threatened to be made a party to a
threatened, pending, or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that he or
she is or was a Director, officer, employee or agent of the corporation, or is
or was serving at the request of the corporation as a Director, officer,
partner, trustee, employee, or agent of another foreign or domestic corporation,
partnership, joint venture, trust, or other enterprise, whether for profit or
not, against expenses, including attorneys' fees, and amounts paid in settlement
actually and reasonably incurred by the Indemnitee in connection with the action
or suit, if the Indemnitee acted in good faith and in a manner the Indemnitee
reasonably believed to be in or not opposed to the best interests of the
corporation or its shareholders. However, indemnification shall not be made
under this Section B for a claim, issue, or matter in which the Indemnitee has
been found liable to the corporation unless and only to the extent that the
Court in which the action or suit was brought has determined upon application
that, despite the adjudication of liability but in view of all circumstances of
the case, the Indemnitee is fairly and reasonably entitled to indemnification
for the expenses which the Court considers proper.
C. Actions Brought by the Indemnitee. Notwithstanding the provisions of
Subsections A and B of this Section 8, the corporation shall not be required to
indemnify an Indemnitee in connection with an action, suit, proceeding or claim
(or part thereof) brought or made by such Indemnitee, unless such action, suit,
proceeding or claim (or part thereof): (i) was authorized by the board of
Directors of the corporation; or (ii) was brought or made to enforce this
Section 8 and the Indemnitee has been successful in such action, suit,
proceeding or claim (or part thereof).
D. Approval of Indemnification. An indemnification under Subsections A or B
of this Section 8, unless ordered by the court, shall be made by the corporation
only as authorized in the specific case upon a determination that
indemnification of the Indemnitee is proper in the circumstances because such
Indemnitee has met the applicable standard of conduct set forth in Subsections A
or B of this Section 8, as the case may be, and upon an evaluation of the
reasonableness of expenses and amounts paid in settlement. This determination
and evaluation shall be made in any of the following ways:
(a) By a majority vote of a quorum of the Board of Directors
consisting of Directors who are not parties or threatened to be made parties to
the action, suit, or proceeding.
(b) If a quorum cannot be obtained in subsection (a), then by majority
vote of a committee of Directors who are not parties to the action. The
committees shall consist of not less than three (3) disinterested Directors.
(c) By independent legal counsel in a written opinion.
(d) By the shareholders.
E. Advancement of Expenses. The corporation may pay or reimburse the reasonable
expenses incurred by an Indemnitee who is a party or threatened to be made a
party to an action, suit, or proceeding in advance of final disposition of the
proceeding if all of the following apply:
(a) The Indemnitee furnishes the corporation a written affirmation of
his or her good faith belief that he or she has met the applicable standard of
conduct set forth in Subsections A and B above.
(b) The Indemnitee furnishes the corporation a written undertaking,
executed personally or on his or her behalf, to repay the advance if it is
ultimately determined that he or she did not meet the standard of conduct.
(c) A determination is made that the facts then known to those making
the determination would not preclude indemnification under the Act.
The undertaking required by subsection (b) must be an unlimited
general obligation of the Indemnitee but need not be secured. Determinations of
payments under this Section shall be made in the manner specified in Subsection
D above.
F. Partial Indemnification. If an Indemnitee is entitled to indemnification
under Subsections A or B of this Section 8 for a portion of expenses, including
reasonable attorneys' fees, judgments, penalties, fines, and amounts paid in
settlement, but not for the total amount, the corporation shall indemnify the
Indemnitee for the portion of the expenses, judgments, penalties, fines, or
amounts paid in settlement for which the Indemnitee is entitled to be
indemnified.
G. Indemnification of Employees and Agents. Any person who is not covered
by the foregoing provisions of this Section 8 and who is or was an employee or
agent of the corporation, or is or was serving at the request of the corporation
as a Director, officer, partner, trustee, employee or agent of another foreign
or domestic corporation, partnership, joint venture, trust or other enterprise,
whether for profit or not, may be indemnified to the fullest extent authorized
or permitted by the Act or other applicable law, as the same exists or may
hereafter be amended, but, in the case of any such amendment, only to the extent
such amendment permits the corporation to provide broader indemnification rights
than before such amendment, but in any event only to the extent authorized at
any time or from time to time by the Board of Directors.
H. Other Rights of Indemnification. The indemnification or advancement of
expenses provided under Subsections A through G of this Section 8 is not
exclusive of other rights to which a person seeking indemnification or
advancement of expenses may be entitled under the articles of incorporation,
bylaws, or a contractual agreement. The total amount of expenses advanced or
indemnified from all sources combined shall not exceed the amount of actual
expenses incurred by the person seeking indemnification or advancement of
expenses. The indemnification provided for in Subsections A through G of this
Section 8 continues as to a person who ceases to be a Director, officer,
employee, or agent and shall inure to the benefit of the heirs, executors, and
administrators of the person.
I. Definitions. "Other enterprises" shall include employee benefit plans;
"fines" shall include any excise taxes assessed on a person with respect to an
employee benefit plan; and "serving at the request of the corporation" shall
include any service as a Director, officer, employee, or agent of the
corporation which imposes duties on, or involves services by, the Director,
officer, employee or agent with respect to an employee benefit plan, its
participants or its beneficiaries; and a person who acted in good faith and in a
manner he or she reasonably believed to be in the interest of the participants
and beneficiaries of an employee benefit plan shall be considered to have acted
in a manner "not opposed to the best interests of the corporation or its
shareholders" as referred to in Subsections A and B of this Section 8.
J. Liability Insurance. The corporation shall have the power to purchase
and maintain insurance on behalf of any person who is or was a Director,
officer, employee or agent of the corporation or is or was serving at the
request of the corporation as a Director, officer, partner, trustee, employee or
agent of another corporation, partnership, joint venture, trust, or other
enterprise, whether for profit or not, against any liability asserted against
him or her and incurred by him or her in any such capacity or arising out of his
or her status as such, whether or not the corporation would have power to
indemnify him or her against liability under the pertinent provisions of the
Act.
K. Enforcement. If a claim under this Section 8 is not paid in full by the
corporation within thirty (30) days after a written claim has been received by
the corporation, the claimant may at any time thereafter bring suit against the
corporation to recover the unpaid amount of the claim, and, if successful in
whole or in part, the claimant shall be entitled to be paid also the expense of
prosecuting such claim. It shall be a defense to any such action (other than an
action brought to enforce a claim for expenses incurred in defending any
proceeding in advance of its final disposition where the required undertaking,
if any is required, has been tendered to the corporation) that the claimant has
not met the standards of conduct which make it permissible under the Act for the
corporation to indemnify the claimant for the amount claimed, but the burden of
proving such defense shall be on the corporation. Neither the failure of the
corporation (including its Board of Directors, a committee thereof, independent
legal counsel, or its shareholders) to have made a determination prior to the
commencement of such action that indemnification of the claimant is proper in
the circumstances because such claimant has met the applicable standard of
conduct set forth in the Act nor an actual determination by the corporation
(including its Board of Directors, a committee thereof, independent legal
counsel or its shareholders) that the claimant has not met such applicable
standard of conduct, shall be a defense to the action or create a presumption
that the claimant has not met the applicable standard of conduct.
L. Contract With the Corporation. The right to indemnification conferred in
this Section 8 shall be deemed to be a contract right between the corporation
and each Director or officer who serves in any such capacity at any time while
this Section 8 is in effect, and any repeal or modification of this Section 8
shall not affect any rights or obligations then existing with respect to any
state of facts then or theretofore existing or any action, suit or proceeding
theretofore or thereafter brought or threatened based in whole or in part upon
any such state of facts.
M. Application to a Resulting or Surviving Corporation or Constituent
Corporation. The definition for "corporation" found in Section 569 of the Act,
as the same exists or may hereafter be amended is, and shall be, specifically
excluded from application to this Section 8. The indemnification and other
obligations set forth in this Section 8 of the corporation shall be binding upon
any resulting or surviving corporation after any merger or consolidation with
the corporation. Notwithstanding anything to the contrary contained herein or in
Section 569 of the Act, no person shall be entitled to the indemnification and
other rights set forth in this Section 8 for acting as a Director or officer of
another corporation prior to such other corporation entering into a merger or
consolidation with the corporation.
N. Severability. Each and every paragraph, sentence, term and provision of
this Section 8 shall be considered severable in that, in the event a court finds
any paragraph, sentence, term or provision to be invalid or unenforceable, the
validity and enforceability, operation, or effect of the remaining paragraphs,
sentences, terms, or provisions shall not be affected, and this Section 8 shall
be construed in all respects as if the invalid or unenforceable matter had been
omitted.
ARTICLE VI
Dividends and Finance
Section 1. Dividends. Dividends, to be paid out of the surplus earnings of the
corporation, or as otherwise permitted in accordance with the provisions of the
governing statute, may be declared from time to time by resolution of the Board
of Directors; but no dividend shall be paid that will impair the capital of the
corporation. Dividends may be paid in cash, in property or in shares of the
capital stock, subject to any provisions of the governing statute or the
Articles of Incorporation.
Section 2. Deposits. The funds of the corporation shall be deposited in such
banks or trust companies as the Directors shall designate and shall be withdrawn
only upon checks issued and signed in accordance with regulations adopted by the
Board of Directors.
Section 3. Checks. All checks, drafts and orders for the payment of money shall
be signed in the name of the corporation in such manner and by such officer or
officers or such other person or persons as the Board of Directors shall from
time to time designate for that purpose.
ARTICLE VII
Fiscal Year
Section 1. The fiscal year of this corporation shall end on the last Saturday of
April each year. The fiscal year may be changed by the Board of Directors by
resolution of the Board of Directors.
ARTICLE VIII
Amendments
These By-Laws may be altered, amended or repealed in whole or in part and new
By-Laws may be adopted either:
(a) By the affirmative vote of the holders of record of not less than 67%
of the outstanding stock of the Corporation entitled to vote in elections of
Directors; or
(b) By the affirmative vote of a majority of the Board of Directors at any
meeting of the Board, or by written consent signed by all members of the Board
of Directors; provided, however, no such alteration, amendment or repeal of
Article VIII (a) of these By-Laws shall be made by the Board of Directors or be
effective unless such alteration, amendment or repeal shall be first approved by
the affirmative vote of the holders of record of not less than 67% of the
outstanding stock of the Corporation entitled to vote in elections of Directors.
ARTICLE IX
General Provisions
Section 1. Distributions in Cash or Property. The Board of Directors may
authorize and the corporation may make distributions to its shareholders subject
to restriction by the Articles of Incorporation and/or unless otherwise limited
by the Articles of Incorporation, these By-Laws or the Act.
Section 2. Reserves. The Board of Directors shall have power and authority to
set apart such reserve or reserves, for any proper purpose, as the Board in its
discretion shall approve, and the Board shall have the power and authority to
abolish any reserve created by the Board.
Section 3. Voting Securities. Unless otherwise directed by the Board of
Directors, the President or in the case of his absence or inability to act, the
Chairman of the Board or the Vice Chairman of the Board, or in the case of their
absence or inability to act, the Vice Presidents, including Executive Vice
Presidents, in order of their seniority, shall have full power and authority on
behalf of the corporation to attend and to act and to vote, or to execute in the
name or on behalf of the corporation a consent in writing in lieu of a meeting
of shareholders or a proxy authorizing an agent or attorney-in-fact for the
corporation to attend and vote at any meetings of security holders of
corporations in which the corporation may hold securities, and at such meetings
he or his duly authorized agent or attorney-in-fact shall possess and may
exercise on behalf of the corporation any and all rights and powers incident to
the ownership of such securities and which, as the owner thereof, the
corporation might have possessed and exercised if present. The Board of
Directors by resolution from time to time may confer like power upon any other
person or persons.
Section 4. Contracts, Conveyances, Etc. When the execution of any contract,
conveyance or other instrument has been authorized without specification of the
executing officers, the Chairman of the Board, the Vice Chairman of the Board,
President or any Vice President, and the Secretary or Assistant Secretary, may
execute the same in the name and on behalf of this corporation and may affix the
corporate seal thereto. The Board of Directors shall have power to designate the
officers and agents who shall have authority to execute any instrument in behalf
of this corporation.
Section 5. Corporate Books and Records. The corporation shall keep books and
records of account and minutes of the proceedings of its shareholders, Board of
Directors and executive committees, if any. The corporation shall keep at its
registered office, or at the office of its transfer agent in or outside the
State of Michigan, records containing the names and addresses of all
shareholders, the number, class and series of shares held by each and the dates
when they respectively became holders of record. Any of the books, records or
minutes may be in written form or in any other form capable of being converted
into written form within a reasonable time. The corporation shall convert into
written form without charge any record not in written form, unless otherwise
requested by a person entitled to inspect the records.
Section 6. Seal. The seal of the corporation shall have inscribed thereon the
name of the corporation and the words "Corporate Seal" and "Michigan." The seal
may be used by causing it or a facsimile to be affixed, impressed or reproduced
in any other manner.
Exhibit (10.9)
EMPLOYEES WHO ARE PARTIES TO THE
CHANGE IN CONTROL AGREEMENT
G. M. Hardy, Secretary and Treasurer, Principal Accounting Officer
and Director
G. L. Kiser, President and Chief Operating Officer
F. H. Jackson, Executive VP of Finance, Chief Financial Officer
and Director
P. H. Norton, Chairman of the Board
Financial Report
Report of Management Responsibilities
La-Z-Boy Incorporated
The management of La-Z-Boy Incorporated is responsible for the preparation of
the accompanying consolidated financial statements, related financial data, and
all other information included in the following pages. The financial
statements have been prepared in accordance with generally accepted accounting
principles and include amounts based on management's estimates and judgments
where appropriate.
Management is further responsible for maintaining the adequacy and effectiveness
of established internal controls. These controls provide reasonable assurance
that the assets of La-Z-Boy Incorporated are safeguarded and that transactions
are executed in accordance with management's authorization and are recorded
properly for the preparation of financial statements. The internal control
system is supported by written policies and procedures, the careful selection
and training of qualified personnel, and a program of internal auditing.
The accompanying report of the Company's independent accountants states their
opinion on the Company's 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.
Gerald L. Kiser
President and Chief
Operating Officer
Frederick H. Jackson
Chief Financial Officer
Report of Independent Accountants
Price Waterhouse LLP
To the Board of Directors and Shareholders of La-Z-Boy Incorporated:
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income, of changes in shareholders' equity, and of
cash flows, present fairly, in all material respects, the financial position of
La-Z-Boy Incorporated and its subsidiaries at April 25, 1998 and April 26, 1997,
and the results of their operations and their cash flows for each of the three
fiscal years in the period ended April 25, 1998, 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.
Price Waterhouse LLP
Toledo, Ohio
May 21, 1998
Consolidated Balance Sheet
(Amounts in thousands, except par value)
- ----------------------------------------------------------------------------
As of April 25, April 26,
1998 1997
- ----------------------------------------------------------------------------
Assets
- ------
Current assets
Cash and equivalents.............................. $28,700 $25,382
Receivables, less allowances of $16,605 in 1998
and $16,442 in 1997............................. 238,260 215,032
Inventories
Raw materials................................... 43,883 36,959
Work-in-process................................. 40,640 34,854
Finished goods.................................. 30,193 28,177
--------- ---------
FIFO inventories.............................. 114,716 99,990
Excess of FIFO over LIFO...................... (22,812) (21,219)
--------- ---------
Total inventories........................... 91,904 78,771
Deferred income taxes............................. 16,679 20,950
Income taxes...................................... 936 --
Other current assets.............................. 6,549 2,640
--------- ---------
Total current assets............................ 383,028 342,775
Property, plant and equipment, net.................. 121,762 114,658
Goodwill, less accumulated amortization of
$11,523 in 1998 and $9,744 in 1997................. 49,413 38,702
Other long-term assets, less allowances of
$4,034 in 1998 and $2,489 in 1997................. 26,148 32,272
--------- ---------
Total assets.................................... $580,351 $528,407
========= =========
Liabilities and shareholders' equity
- ------------------------------------
Current liabilities
Current portion of long-term debt................. $4,822 $4,611
Current portion of capital leases................. 1,383 2,017
Accounts payable.................................. 36,703 28,589
Payroll/other compensation........................ 39,617 37,934
Income taxes............................ -- 5,412
Other current liabilities......................... 25,764 19,106
--------- ---------
Total current liabilities....................... 108,289 97,669
Long-term debt...................................... 66,434 52,449
Capital leases...................................... 819 2,202
Deferred income taxes............................... 5,478 6,329
Other long-term liabilities......................... 11,122 10,420
Commitments and contingencies -- --
Shareholders' equity
Preferred shares - 5,000 authorized; 0 issued..... -- --
Common shares, $1 par value - 40,000 authorized;
17,850 issued in 1998 and 17,908 in 1997......... 17,850 17,908
Capital in excess of par value.................... 29,262 27,697
Retained earnings................................. 342,146 314,731
Currency translation adjustments.................. (1,049) (998)
--------- ---------
Total shareholders' equity...................... 388,209 359,338
--------- ---------
Total liabilities and shareholders' equity.... $580,351 $528,407
========= =========
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
Consolidated Statement of Income
(Amounts in thousands, except per share data)
- -----------------------------------------------------------------------------
Fiscal Year Ended 4/25/98 4/26/97 4/27/96
- -----------------------------------------------------------------------------
Sales...............................$1,108,038 $1,005,825 $947,263
Cost of sales........................ 825,312 744,662 705,379
--------- --------- ---------
Gross profit....................... 282,726 261,163 241,884
Selling, general and administrative.. 205,523 187,230 174,376
--------- --------- ---------
Operating profit................... 77,203 73,933 67,508
Interest expense..................... 4,157 4,376 5,306
Interest income...................... 2,021 1,770 1,975
Other income......................... 4,207 2,508 2,023
--------- --------- ---------
Pretax income...................... 79,274 73,835 66,200
Income tax expense
Federal - current.................. 28,467 26,247 23,383
- deferred................. (2,046) (1,699) (818)
State - current.................. 3,287 4,304 4,540
- deferred................. (354) (314) (158)
--------- --------- ---------
Total tax expense................ 29,354 28,538 26,947
--------- --------- ---------
Net income....................... $49,920 $45,297 $39,253
========= ========= =========
Weighted average shares.......... 17,885 18,108 18,498
========= ========= =========
Basic net income per share....... $2.79 $2.50 $2.12
========= ========= =========
Diluted net income per share..... $2.78 $2.49 $2.12
========== ========= ==========
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
Consolidated Statement of Cash Flows
(Amounts in thousands)
- -----------------------------------------------------------------------------
Year Ended 4/25/98 4/26/97 4/27/96
- -----------------------------------------------------------------------------
Cash flows from operating activities:
Net income.............................. $49,920 $45,297 $39,253
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization....... 21,021 20,382 20,147
Change in receivables............... (14,090) (8,178) (13,492)
Change in inventories............... (6,918) 421 1,899
Change in other assets and liab..... 2,374 4,254 5,184
Change in deferred taxes............ 3,177 (2,014) (975)
--------- --------- ---------
Total adjustments................. 5,564 14,865 12,763
--------- --------- ---------
Cash provided by operating
activities...................... 55,484 60,162 52,016
Cash flows from investing activities:
Proceeds from disposals of assets....... 1,585 1,527 1,063
Capital expenditures.................... (22,016) (17,778) (18,168)
Change in other investments............. (16,066) (8,596) 1,229
--------- --------- ---------
Cash used for investing activities (36,497) (24,847) (18,334)
Cash flows from financing activities:
Short-term debt......................... -- -- --
Long-term debt.......................... 35,000 -- --
Retirements of debt..................... (24,653) (5,640) (13,125)
Capital leases.......................... -- -- 1,161
Capital lease principal payments (2,017) (2,114) (2,204)
Stock for stock option plans............ 5,748 4,213 2,876
Stock for 40l(k) employee plans......... 1,704 1,568 1,378
Purchases of La-Z-Boy stock............. (16,391) (20,751) (10,035)
Payments of cash dividends.............. (15,029) (14,142) (13,706)
--------- --------- ---------
Cash used for financing activities (15,638) (36,866) (33,655)
Effect of exchange rate changes on cash... (31) (127) (15)
--------- --------- ---------
Net change in cash and equivalents........ 3,318 (1,678) 12
Cash and equiv. at beginning of the year.. 25,382 27,060 27,048
--------- --------- ---------
Cash and equiv. at end of the year........ $28,700 $25,382 $27,060
========= ========= =========
Cash paid during the year - Income taxes.. $29,025 $28,670 $27,024
- Interest...... $4,235 $4,437 $5,408
For purposes of the Consolidated Statement of Cash Flows, the Company
considers all highly liquid debt instruments purchased with a maturity of
three months or less to be cash equivalents.
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
Consolidated Statement of Shareholders' Equity
(Amounts in thousands)
- ------------------------------------------------------------------------------
Capital Currency
in Trans-
Excess lation
Common of Par Retained Adjust-
Shares Value Earnings ments Total
- ------------------------------------------------------------------------------
At April 29, 1995.. $18,562 $28,085 $277,738 ($745) $323,640
Purchases of La-Z-Boy stock.. (372) (9,663) (10,035)
Currency translation......... (30) (30)
Stock options/401(k)......... 195 (69) 4,128 4,254
Dividends paid............... (13,706) (13,706)
Net income................... 39,253 39,253
-------- ------- --------- ------- ---------
At April 27, 1996.. 18,385 28,016 297,750 (775) 343,376
Purchases of La-Z-Boy stock.. (693) (20,058) (20,751)
Currency translation......... (223) (223)
Stock options/401(k)......... 216 (319) 5,884 5,781
Dividends paid............... (14,142) (14,142)
Net income................... 45,297 45,297
-------- ------- --------- ------- ---------
At April 26, 1997.. 17,908 27,697 314,731 (998) 359,338
Purchases of La-Z-Boy stock.. (484) (15,907) (16,391)
Currency translation......... (51) (51)
Stock options/401(k)......... 333 1,110 6,008 7,451
Acquisition related`.......... 93 455 2,423 2,971
Dividends paid............... (15,029) (15,029)
Net income................... 49,920 49,920
------- ------- -------- ------- --------
At April 25, 1998.. $17,850 $29,262 $342,146 ($1,049) $388,209
======= ======= ======== ======= ========
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
Notes to Consolidated Financial Statements
Note 1: Accounting Policies
The Company operates primarily in the U.S. 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
Incorporated and its subsidiaries. All significant intercompany transactions
have been eliminated. Certain non-U.S. subsidiaries are consolidated on a
one-month lag.
Risks And Uncertainties
The consolidated financial statements are prepared in conformity with
generally accepted accounting principles, which require management to make
estimates and assumptions that affect the reported amounts of assets,
liabilities, sales and expenses for the reporting periods. Actual results
could differ from those estimates.
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 tangible assets is amortized on a straight-line basis over 30 years from
the date of acquisition.
Goodwill is evaluated periodically as events or circumstances indicate a
possible inability to recover its carrying amount. Such evaluation is based
on profitability projections and cash flow analysis. If future expected
undiscounted cash flows are insufficient to recover the carrying amount of the
asset, then the asset is written down to fair value.
Revenue Recognition
Revenue is recognized upon shipment of product.
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.
Earnings per Share
The Company adopted Statement of Financial Accounting Standards (SFAS) No. 128,
"Earnings per Share" in 1998. The Statement requires both basic and diluted
net income per share to be presented. Basic net income per share is computed
using the weighted-average number of shares outstanding during the period.
Diluted net income per share uses the weighted-average number of shares
outstanding during the period plus the additional common shares that would be
outstanding if the dilutive potential common shares were issued. This includes
employee stock options. Prior period earnings per share information has been
restated to be in compliance with SFAS No. 128.
(Amounts in thousands)
- -------------------------------------------------------------------
4/25/98 4/26/97 4/27/96
- -------------------------------------------------------------------
Weighted average common shares
outstanding (Basic)............ 17,885 18,108 18,498
Effect of options.............. 55 84 34
Weighted average common
shares outstanding (Diluted).. 17,940 18,192 18,532
Note 2: Acquisitions
On April 1, 1998, the Company acquired all of the capital stock of Sam Moore
Furniture Industries, Incorporated, a manufacturer of upholstered furniture.
For the year ended December 31, 1997, Sam Moore Furniture Industries
sales were $33 million.
During the fiscal year 1998, La-Z-Boy acquired the remaining 25% of the
ordinary share capital of Centurion Furniture plc, a furniture manufacturer
located in England. Sales for their year ended March 31, 1997 were $12 million.
The consolidated April 1998 financial statements include the operations of
Distincion Muebles, a furniture manufacturer located in Mexico. Annual sales
for the year ended March 30, 1998 were $1.9 million.
Note 3: Cash and Equivalents
(Amounts in thousands)
- -----------------------------------------------------------------
4/25/98 4/26/97
- -----------------------------------------------------------------
Certificates of deposit................ $13,000 $19,600
Cash in bank........................... 10,714 5,782
Commercial paper....................... 3,963 --
Marketable Securities.................. 1,023 --
------- -------
Total cash and equivalents........... $28,700 $25,382
======= =======
The Company invests in certificates of deposit with a bank whose board of
directors includes two members of the Company's board of directors. At the end
of fiscal years 1998 and 1997, $13 million and $16 million, respectively, was
invested in this bank's certificates.
Note 4: Property, Plant and Equipment
(Amounts in thousands)
- -------------------------------------------------------------------------
Life in Depreciation
years method 4/25/98 4/26/97
- -------------------------------------------------------------------------
Land and land improvements...... 0-20 150% DB $ 12,937 $ 11,296
Buildings and building fixtures. 15-30 150% DB 116,145 110,875
Machinery and equipment......... 10 200% DB 114,502 107,316
Network and production
tracking systems.............. 5-10 SL 2,407 1,873
Transportation equipment........ 5 SL 15,606 14,974
Information systems............. 3-5 150-200% DB 20,738 16,295
Other........................... 3-10 Various 18,048 14,186
-------- --------
300,383 276,815
Less: accumulated depreciation....... 178,621 162,157
-------- --------
Property, plant and equipment, net.. $121,762 $114,658
======== ========
DB = Declining Balance SL = Straight Line
Note 5: Debt and Capital Lease Obligations
(Amounts in thousands)
- -------------------------------------------------------------------------
Interest
rates Maturities 4/25/98 4/26/97
- -------------------------------------------------------------------------
Private placement......... 6.5-8.8% 1999-08 $38,750 $5,625
Industrial revenue bonds.. 4.0%-4.6% 1999-14 28,500 30,870
La-Z-Boy notes............ 8.0% 1999 2,492 4,984
Credit lines.............. 5.9%-6.1% - - 15,000
Other debt................ 5.0%-7.0% 1999-04 1,514 581
------- -------
Total debt................................... $71,256 $57,060
Less: current portion........................ 4,822 4,611
------- -------
Long-term debt............................... $66,434 $52,449
======= =======
Weighted average interest rate 5.8% 5.4%
Fair value of long-term debt $71,352 $57,200
The Company has a $75 million unsecured revolving credit line through
August 2002, requiring interest only payments through August 2002 and
requiring principal payment in August 2002. The credit agreement also includes
covenants that, among other things, require the Company to maintain certain
financial statement ratios.
On April 22, 1998, the Company obtained $35 million through the sale of
unsecured senior notes in a private placement. The principal on the notes
payable at the end of 10 years and has an interest rate of 6.47%. The agreement
also includes convenants that, among other things, require the Company to
maintain certain financial statement ratios.
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.
The Company leases equipment (primarily trucks used as transportation equipment)
under capital leases expiring at various dates through fiscal year 2001. The
majority of the leases include bargain purchase options.
Maturities of debt and lease obligations for the five years subsequent to
April 25, 1998 are $6 million, $3 million, $2 million, $5 million and $0,
respectively. As of April 25,1998, the Company had remaining unused lines of
credit and commitments of $106 million under several credit arrangements.
Note 6: Financial Guarantees
La-Z-Boy has provided financial guarantees relating to loans and leases in
connection with some proprietary stores. The amounts of the unsecured
guarantees are shown in the following table. Because almost all guarantees
are expected to retire without being funded in whole, the contract amounts are
not estimates of future cash flows.
(Amounts in thousands)
- ------------------------------------------------------------------------------
4/25/98 4/26/97
Contract Amount Contract Amount
- ------------------------------------------------------------------------------
Lease Guarantees......................... $5,122 $4,458
Loan Guarantees.......................... $23,567 $20,049
Most guarantees require periodic payments to La-Z-Boy in exchange for the
guarantee. Terms of current guarantees generally range from one to five years.
The guarantees have off-balance-sheet credit risk because only the periodic
payments and accruals for possible losses are recognized until the guarantee
expires. Credit risk represents the accounting loss that would be recognized at
the reporting date if counter-parties failed to perform completely as
contracted. The credit risk amounts are equal to the contractual amounts,
assuming that the amounts are fully advanced and that no amounts could be
recovered from other parties.
Note 7: Stock Option Plans
The Company's shareholders adopted an employee Incentive Stock Option Plan
that provides grants to certain employees to purchase common shares of the
Company at not less than their fair market value at the date of grant. Options
are for five years and become exercisable at 25% per year beginning one year
from the date of grant. The Company is authorized to grant options for up to
2,500,000 common shares.
- --------------------------------------------------------------------
Number of Weighted average
shares exercise price
- --------------------------------------------------------------------
Outstanding at April 29, 1995.... 484,700 $24.03
Granted........................ 140,245 $30.98
Exercised...................... (87,917) $16.80
Expired or cancelled........... ( 4,478) $26.15
--------
Outstanding at April 27, 1996.... 532,550 $27.05
Granted........................ -- --
Exercised...................... (120,714) $22.82
Expired or cancelled........... (3,659) $27.11
--------
Outstanding at April 26, 1997.... 408,177 $28.30
Granted........................ 286,955 $34.80
Exercised...................... (225,772) $28.07
Expired or cancelled........... (22,507) $31.26
--------
Outstanding at April 25, 1998.... 446,853 $32.61
========
Exercisable at April 25, 1998.... 169,148 $29.49
Shares available for grants at
April 25, 1998................. 2,198
The options outstanding at April 25, 1998 have exercise prices between $27.00
and $39.69 and a weighted-average remaining contractual life of 2.8 years.
The Company's shareholders have adopted Restricted Share Plans. Under one
plan, the Compensation Committee of the Board of Directors is authorized to
offer for sale up to an aggregate of 250,000 common shares to certain
employees. Under a second plan, up to an aggregate of 50,000 common shares are
authorized for sale to non-employee directors. Under the Restricted Share
Plans, shares are offered at 25% of the fair market value at the date of the
grant. 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 1,000 and 2,500 were granted and issued during the fiscal
years 1998 and 1997, respectively, under the directors' plan. Shares
remaining for future grants under the directors' plan amounted to 33,000 at
April 25, 1998.
Shares aggregating 23,060 and 0 were granted and issued during the fiscal years
1998 and 1997, respectively, under the employee Restricted Share Plan. Shares
remaining for future grants under the above plan amounted to 226,940 at
April 25, 1998.
The Company's shareholders have also adopted a Performance-Based Restricted
Stock Plan. This plan authorizes the Compensation Committee of the Board of
Directors to award up to an aggregate of 400,000 shares to key employees.
Grants of shares are based 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 25, 1998, performance awards were outstanding pursuant to which up to
approximately 110,000 shares may be issued in fiscal years 1999 through 2001 for
the three outstanding plans, depending on the extent to which certain specified
performance objectives are met. The costs of performance awards are expensed
over the performance period. In 1998, 42,965 shares were issued.
As permitted by SFAS No. 123, "Accounting for Stock-Based Compensation," the
Company has chosen to continue to account for stock-based compensation using
the intrinsic value method prescribed in Accounting Principles Board (APB)
Opinion No. 25, "Accounting for Stock Issued to Employees," and related
interpretations.
Had the Company elected to recognize compensation cost for incentive stock
options based on the fair value method of accounting prescribed by SFAS No.
123, the expense relating to the stock options would have been $0.6 million
in 1998, $0.2 million in 1997, and $0.2 million in 1996. Pro forma net income
and earnings per share would have been as follows:
(Amounts of thousands, except per share data)
- -------------------------------------------------------------------
4/25/98 4/26/97 4/27/96
- -------------------------------------------------------------------
Net income...................... $49,349 $45,118 $39,074
Basic net income per share...... $2.76 $2.49 $2.11
Diluted net income per share.... $2.75 $2.48 $2.11
The pro forma effect on net income is not representative of the pro forma
effect on net income that will be disclosed in future years because it does
not take into consideration pro forma compensation expense relating to grants
prior to 1996 as required by SFAS No. 123.
The fair value of each option grant was estimated on the date of grant using
the Black-Scholes model with the following assumptions:
4/25/98 4/26/97 4/27/96
- --------------------------------------------------------------------
Risk free interest rate........... 5.6% 6.4% 5.6%
Dividend rate..................... 1.6% 2.4% 2.5%
Expected life..................... 4.6 yrs 4.6 yrs 4.8 yrs
Stock price volatility............ 23% 25% 25%
Note 8: Retirement/Welfare
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
eligible highly compensated employees called a SERP (Supplemental Executive
Retirement Plan).
The Company provides executive life insurance to certain highly compensated
employees. Such employees are not eligible for current contributions to
profit sharing or SERP.
The Company offers voluntary 401(k) retirement plans to eligible employees
within U.S. operating divisions. Currently over 60% of eligible employees
are participating in the plans. The Company makes matching contributions
based on specific formulas. For most divisions, this match is made in La-Z-
Boy stock.
The Company maintains defined benefit pension plans for all eligible factory
hourly employees.
The actuarially determined net periodic pension cost and
retirement costs are computed as follows:
(Amounts in thousands)
- ------------------------------------------------------------------------------
4/25/98 4/26/97 4/27/96
- ------------------------------------------------------------------------------
Service cost........................... $1,903 $1,767 $1,802
Interest cost.......................... 2,508 2,270 2,051
Actual return on plan assets........... (9,439) (5,475) (5,468)
Net amortization and deferral.......... 5,843 2,381 3,031
------- ------- -------
Net periodic pension cost............ 815 943 1,416
Profit sharing/SERP.................... 6,035 5,999 5,681
40l(k)................................. 1,661 1,625 1,429
Other.................................. 968 882 497
------- ------- --------
Total retirement costs............... $9,479 $9,449 $9,023
======= ======= ========
The funded status of the pension plans was as follows (for the fiscal years
ended):
(Amounts in thousands)
- ----------------------------------------------------------------
4/25/98 4/26/97
- ----------------------------------------------------------------
Change in benefit obligation
Benefit obligation at beginning of
year................................ $32,011 $29,035
Service cost...................... 1,903 1,767
Interest cost..................... 2,508 2,270
Amendments........................ 474 349
Benefits paid..................... (1,663) (1,410)
Acquisition of Sam Moore.......... 4,715 --
-------- --------
Benefits obligation at end of year 39,948 32,011
Change in plan assets
Fair value plan assets at beginning
of year............................. 41,568 37,503
Actual return on plan assets...... 9,439 5,475
Benefits paid..................... (1,663) (1,410)
Acquisition of Sam Moore.......... 4,201 --
-------- --------
Fair value of plan assets at end
of year 53,545 41,568
Funded status......................... 14,111 9,557
Unrecognized actuarial loss/gain.... (9,218) (3,948)
Unamortized prior service cost..... 724 823
-------- --------
Net amount recognized........... $5,617 $6,432
======== ========
The expected long-term rate of return on plan assets was 8.0% for fiscal years
1998, 1997 and 1996. The discount rate used in determining the actuarial
present value of projected benefit obligations was 7.5% for fiscal years
1998, 1997, and 1996. Vested benefits included in the projected benefit
obligation were $32 million and $29 million at April 25, 1998 and April 26,
1997, respectively. Plan assets are invested in a diversified portfolio that
consists primarily of debt and equity securities.
The Company's pension plan funding policy is to contribute annually at least
the amount necessary so that the plan assets exceed the projected benefit
obligation.
The Company acquired Sam Moore on April 1, 1998,increasing the pension benefit
obligation by $4.7 million and the pension plan assets by $4.2 million.
Note 9: 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)
- ----------------------------------------------------------------------------
4/25/98 4/26/97 4/27/96
- ----------------------------------------------------------------------------
Gross health care................. $32,020 $30,831 $30,122
Participant payments.............. (7,531) (6,393) (6,005)
-------- -------- --------
Net health care................. $24,489 $24,438 $24,117
======== ======== ========
The Company makes annual provisions for any current and future retirement
health-care costs which may not be covered by retirees' collected premiums.
Note 10: Income Taxes
The primary components of the Company's deferred tax assets and liabilities
as of April 25, 1998 and April 26, 1997 are as follows:
(Amounts in thousands)
- ---------------------------------------------------------------------------
4/25/98 4/26/97
- ---------------------------------------------------------------------------
Current
Deferred income tax assets/(liabilities)
Bad debt................................... $9,393 $7,649
Warranty................................... 4,938 4,448
Workers' compensation...................... 1,838 1,594
Inventory.................................. 1,795 1,026
SERP/PEP................................... 1,794 1,680
State income taxes......................... 926 1,161
Performance based restricted stock plan.... 793 693
Valuation adjustment- receivables.......... (8,700) --
Other...................................... 4,089 2,847
Valuation allowance........................ (187) (148)
-------- --------
Total current deferred tax assets...... 16,679 20,950
-------- --------
Noncurrent
Deferred income tax assets/(liabilities)
Property, plant and equipment.............. (3,110) (3,717)
Pension.................................... (2,506) (2,783)
Net operating losses....................... 842 1,533
Other...................................... 246 207
Valuation allowance........................ (950) (1,569)
-------- --------
Total noncurrent deferred tax liabilities (5,478) (6,329)
-------- --------
Net deferred tax asset............... $11,201 $14,621
======== ========
The differences between the provision for income taxes and income taxes
computed using the U.S. federal statutory rate are as follows (for the fiscal
years ended):
(% of pretax income)
- ------------------------------------------------------------------------------
4/25/98 4/26/97 4/27/96
- ------------------------------------------------------------------------------
Statutory tax rate......................... 35.0% 35.0% 35.0%
Increase (reduction) in taxes resulting from:
State income taxes net of federal benefit. 2.4 3.5 4.3
Tax credits............................... (0.2) (0.4) (1.1)
Acquisition amortization.................. 0.8 0.9 1.5
Unutilized loss carryforwards........... (0.5) 0.1 0.9
Miscellaneous items....................... (0.5) (0.4) 0.1
----- ----- -----
Effective tax rate......................... 37.0% 38.7% 40.7%
===== ===== =====
Note 11: Contingencies
The Company has been named as a defendant in various lawsuits arising in the
ordinary course of business. It is not possible at the present time to
estimate the ultimate outcome of these actions; however, management believes
that the resultant liability, if any, will not be material based on the
Company's previous experience with lawsuits of these types.
The Company has been named as a potentially responsible party (PRP) at five
environmental clean-up sites. The Seaboard Chemical Company site is a Resource
Conservation and Recovery Act (RCRA) site, managed under the direction of the
State of North Carolina. A "De Micromis" settlement with the State was
accepted by three Company facilities. Management anticipates the remaining
facility will be eligible for a "De Minimus" level settlement.
The Organic Chemicals Incorporated site is a "Superfund Site," managed under
the direction of the U.S. Environmental Protection Agency (EPA). A De Minimus
settlement offer is currently under review by the EPA.
The Caldwell Systems site is a voluntary RCRA closure, with its activities
being coordinated by the EPA. The Company entered into a Consent Decree
that included all of the relevant Company's facilities at both De Maximus and
De Minimus levels.
The American Chemical Services site is a "Superfund Site," managed under the
direction of the EPA. The Company accepted an "Amended Administrative Order"
from the EPA that allows for a De Minimus settlement. As a result, the Company
expects that it will be dismissed from a related PRP lawsuit seeking
contribution from the Company.
The Butterworth Landfill site is a "Superfund Site," managed under the
direction of the EPA. Investigations by both the PRP group and the
Company indicate that the Company did not send any hazardous waste to this
site. The Company intends to cooperate with the PRP group and the EPA
during this initial investigation phase.
Based on a review of all currently known facts, management does not anticipate
that future expenditure for environmental clean-up sites will have a material
adverse effect on the Company.
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
Consolidated Financial Statements and related Notes, and all other pages
that follow them in the annual report.
Background:
Consolidated sales by type 1998 1997 1996
- -------------------------- ---- ---- ----
Residential (home)
Upholstery 77% 78% 78%
Wood & other 17 16 16
---- ---- ----
94 94 94
Contract (office) 6 6 6
--- --- ---
100% 100% 100%
=== === ===
Consolidated sales by country 1998 1997 1996
- ----------------------------- ---- ---- ----
United States 93% 94% 94%
Canada and other 7 6 6
---- ---- ----
100% 100% 100%
=== === ===
La-Z-Boy has eight major furniture operating divisions. Residential accounts
for the majority of the upholstery category and about 60% of consolidated
sales.
Residential division
sales by dealer type 1998 1997 1996
- -------------------- ---- ---- ----
Galleries/proprietary 51% 51% 47%
General dealers 35 36 40
Dept. stores/chains 14 13 13
---- ---- ----
100% 100% 100%
=== === ===
Kincaid is part of the wood category. England/Corsair is part of the upholstery
category. La-Z-Boy Contract Furniture Group is all of the Contract line.
Hammary is primarily in the wood category. La-Z-Boy Canada is in the
upholstery category. Centurion is in the upholstery category. Sam Moore is
primarily in the upholstery category.
La-Z-Boy is the third largest furniture maker in the U.S., the largest
reclining-chair manufacturer in the world and America's largest manufacturer
of upholstered furniture.
Analysis of Operations
Year Ended April 25, 1998
(1998 compared with 1997)
The 1998 sales of $1.1 billion were 10% greater than 1997. About 85% of the
increase was due to internal growth of existing divisions and the remainder was
due to acquisitions. Internal division growth rates ranged from a low of 6% to
a high of 19%. In addition, strength in sales occurred in almost all product
lines within each division. La-Z-Boy believes that its 1998 internal growth
rate of about 8.5% slightly exceeded the U.S. industry average for comparable
time periods. Selling price increases per unit were small and there were no
significant shifts to higher or lower priced products. No major new product
lines were introduced in 1998 although new styles and new collections of styles
occurred across all divisions throughout the year. In addition, new fabrics were
added (replacing slower moving fabrics) throughout the year. No major new
dealers were added in 1998 and no significant dealers were dropped. No one
dealer accounted for 5% or more of sales in 1998.
La-Z-Boy's gross profit margin (gross profit dollars as a percent of sales
dollars) declined to 25.5% in 1998 from 26.0% in 1997. Hardwood and plywood
parts production and delivery problems and related assembly site production
disruptions adversely affected gross margins. The elimination of three
manufacturing assembly sites also adversely affected gross margins.
Additionally, cost problems were encountered at multiple sites trying to gear
up quickly to meet unexpectedly high product demand primarily in the second half
of the year. The above items mostly affected plant overhead costs and
unfavorable plant labor variances. 1998 labor wage rates rose a moderate 2%.
Purchased materials prices were about flat compared to 1997. Increased sales
volumes, increased selling prices and lower frame parts costs favorably impacted
gross margins.
S, G & A expense decreased to 18.5% of sales in 1998 from 18.6% in 1997.
A decline in bonus expense and to some selling expenses more than offset
increases (greater than the rate of sales) in professional related expenses,
bad debts and Information Technology expenses which include Year 2000 costs.
Income tax expense as a percent of pretax income declined to 37.0% in 1998
from 38.7% in 1997 reflecting a favorable shift of earnings to entities with
lower effective tax rates and the settlement of an IRS audit. The Company
expects slightly lower effective tax rates to continue for the immediate future.
Analysis of Operations
Year Ended April 26, 1997
(1997 compared with 1996)
La-Z-Boy's sales increased 6% in fiscal 1997 over 1996 and exceeded $1 billion
for the first time. This growth rate is believed to be slightly better than
the industry growth. The sales growth was spread among all the Company's
divisions with wood and contract sales somewhat above the average. The Ducks
Unlimited Collection, introduced in April 1996, contributed significantly to
the wood division sales increases. Selling price increases were small.
The gross margin (gross profit dollars as a percent of sales) improved to
26.0% in 1997 from 25.5% in 1996. The increase in sales volume, along with
the effect of cost cutting initiatives, contributed to the margin improvement.
The effect of these favorable items was only partially offset by increased
material and labor costs and the mix change toward products with lower than
average gross margins.
In 1997, the number of plants producing wood frame parts was reduced in an
effort to improve quality and reduce costs. The reductions had little
financial impact on 1997 as the timing was spread over the year and some
conversion costs were incurred offsetting some of the lower production costs.
Benefits are expected in 1998.
In April 1997, the Company announced plans to close the Contract plants in
Grand Rapids, Michigan and to begin producing these products at an existing
plant in Lincolnton, North Carolina. The move is planned for the first quarter
of 1998. Two of the plants have been sold and the third will be sold.
S, G & A expense increased to 18.6% of sales in 1997 from 18.4% of sales in
1996 primarily due to increased costs for employee bonuses and incentives.
Interest expense declined 18% primarily due to lower debt and capital lease
obligations.
Income tax expense as a percent of pretax income declined to
38.7% in 1997 from 40.7% in 1996. The Canadian division's results were
favorable compared to the prior year, reducing the unfavorable impact on the
effective tax rate. Also, the benefits of some efforts to reduce tax expense
were recognized during the year.
During 1997, La-Z-Boy acquired approximately 75% of the ordinary share capital
of Centurion Furniture plc, a furniture manufacturer located in England. The
remainder of the ordinary share capital is expected to be acquired in the first
quarter of 1998. Sales for their year ended March 1997 were $12 million.
Liquidity and Financial Condition:
Below is summarized cash flow information. Free cash flow represents the
cash remaining from operations after reinvesting in business opportunities.
This cash flow allows the Company to pay dividends and repurchase stock
generally without incurring additional debt.
(Amounts in thousands)
- -----------------------------------------------------------------------
Year ended 4/25/98 4/26/97 4/27/96
- -----------------------------------------------------------------------
Cash flows provided by (used for):
Net income $49,920 $45,297 $39,253
Other operating activities 5,564 14,865 12,763
Investing activities (36,497) (24,847) (18,334)
Free cash flow 18,987 35,315 33,682
Cash flows provided by (used for):
Financing activities (15,638) (36,866) (33,655)
Exchange (31) (127) (15)
Increase (decrease) in cash $3,318 ($1,678) $12
Cash flows from operations amounted to $55 million in 1998, $60 million in 1997
and $52 million in 1996 and have been adequate for day-to-day expenditures,
dividends to shareholders and capital expenditures.
Capital expenditures were $22.0 million in 1998, $17.8 million in 1997 and
$18.2 million in 1996. Capacity utilization was approximately 60% at the end
of 1998.
FIFO inventories have increased compared to last year in large part due to the
acquisition of companies throughout the year. On a comparable basis, that is
for those divisions with full 1998-year sales and balances at both the
beginning and end of the year, FIFO inventory increased 7% in total. Year-end
raw materials increased 6%, work-in-process increased 11% and finished goods
increased 3%; all on a comparable basis. In addition, work-in-process
inventories have increased to support newly introduced products requiring
special electrical and other purchased components, to support an increased
volume of units being produced in leather, and to alleviate shortages in
hardwood and plywood parts experienced earlier.
In 1998, La-Z-Boy obtained $35 million through the sale of 6.47% unsecured
senior notes in a private placement. The proceeds were used in part for the
acquisition of Sam Moore and to pay down other forms of debt. Retirements of
debt totaled between $6 million and $25 million for each of the last three
years.
The Company had unused lines of credit and commitments of $106 million under
several credit arrangements as of April 25, 1998. The primary credit
arrangement is a $75 million unsecured revolving credit line through
August 2002, requiring interest only payments through August 2002 and
a payment of principal in August 2002. The credit agreement includes
covenants that, among other things, require the Company to maintain certain
financial statement ratios. The Company has complied with all of the
requirements.
The La-Z-Boy Board of Directors has authorized the repurchase of Company stock.
Shares acquired in 1998, 1997 and 1996 totaled 484,000, 694,000 and 372,000,
respectively. As of April 25, 1998, 1,057,000 shares were available for
repurchase. 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 shareholders' equity plus total
debt). The current ratio at the end of 1998 and 1997 was 3.5:1. The debt to
capital ratio was 15.9% at the end of 1998 and 14.6% at the end of 1997.
Continuing compliance with existing federal, state and local provisions
dealing with protection of the environment is not expected to have a material
effect upon the Company's capital expenditures, earnings, competitive position
or liquidity. The Company will continue its program of conducting voluntary
compliance audits at its facilities. The Company has also taken steps to
assure compliance with the provisions of Titles III and V of the 1990 Clean
Air Act Amendments.
The Company has accrued for certain environmental remediation activities
relating to past operations, including those under the Comprehensive
Environmental Response, Compensation and Liability Act (CERCLA, often
referred to as Superfund) and the Resource Conservation and Recovery Act
(RCRA). The Company is participating in the closure of five such sites.
There will be future expenditures in this area, but based on a review of all
currently known facts, management does not anticipate that they will have a
material adverse effect. For further discussion of environmental matters,
refer to Note 11: Contingencies, in the Notes to Consolidated Financial
Statements.
Outlook:
Statements in this Outlook section are forward looking and based on information
available at this time. As conditions change in the future actual results may
not match these expectations. In particular, sales and profits can be
materially impacted in any quarter by changes in interest rates or changes in
consumer confidence/demand.
One of La-Z-Boy's financial goals is for sales to grow faster than the
furniture industry with a benchmark of 10% per year. For 1998, La-Z-Boy
sales increased 10% from 1997 which the Company believes was slightly better
than the industry average. Some furniture industry forecasts for calendar
year 1998 over 1997 are in the 6-8% range.
At the end of April 1998, the backlog of orders was much higher than at the
end of April 1997. La-Z-Boy primarily builds "to order" and does not carry
large amounts of finished warehouse goods. The stronger sales orders as well
as improvements in scheduling production in the beginning of 1999 fiscal year
are expected to result in first quarter sales to be measurably over the prior
year's first quarter. Expectations are for a slowdown in sales growth rates
in the second half of 1999 based on industry economic projections and the high
rate of actual sales achieved in that period in 1998 which will make 1999
comparisons more difficult.
The Company's major residential efforts and opportunities for U.S. 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
furniture.
The number of dealer owned and operated proprietary stores is expected to
continue increasing. These stores are a major contributor to La-Z-Boy's
ability to achieve its sales goal.
La-Z-Boy's second financial goal is for earnings (operating profit and net
income per share) to grow at a rate greater than the rate of sales growth.
For 1998 sales were up 10%, operating profit was up 4% and net income per
share was up 12%. (See 1998 analysis of operations for details.) For 1999
it is expected that various management initiatives, economic events and other
items will occur such that the net effect of these items will result in the
second financial goal being achieved. Some of the major expected favorable
items are: Two companies recently acquired and only partly reported in 1998
will have a full year effect in 1999. Problems associated with plywood and
hardwood parts are expected to be substantially less in 1999. Various new
manufacturing machines and methods are expected to improve efficiencies.
No new major factory consolidations are planned in 1999. Raw material costs
are expected to be flat for most of next year and labor rate increases should
be moderate. "Fixed" costs should allow measurable portions of expected
increases to sales to fall to the bottom line. And bad debts expense is
expected to be less (1998 had a one time $3.1 million pretax expense as a
result of Montgomery Ward filing for bankruptcy protection.) On the
unfavorable side, increases to expenses for Information Technology (I.T.)
items are expected to well exceed sales rate increases. I.T. expense increases
will mostly be in the Year 2000 area, training and improving networks. Bonus
expense is expected to increase from a low amount in 1998. Amortization
of goodwill and interest expense will increase due to the recent
Sam Moore acquisition.
A third financial goal is to improve return on capital with a benchmark of
20.0%. La-Z-Boy defines return on capital as operating profit + interest
income + other income as a percent of beginning-of-year capital. For 1998,
return on capital was 19.8% compared to 19.0% in 1997. La-Z-Boy enhances
shareholder value and reduces capital employed through stock repurchases,
dividends and debt reductions. Capital expenditures are expected to be
$25 - $30 million in 1999 compared to $22 million in 1998. Most capital
expenditures are for replacing machines with new and better machines
and for other productivity enhancements.
The Company has established and staffed a Year 2000 Program Office to oversee
and coordinate its Year 2000 conversion. The "Year 2000 issue" arises because
many computer hardware and software systems use only two digits to represent
the year. As a result, these systems and programs may not correctly calculate
or interpret dates up to and beyond 2000, which may cause errors in information
or systems failures. The Company has initiated corporate-wide involvement of
personnel to investigate and address any internal hardware and software
compliance issues. In addition, the Company is communicating with customers,
manufacturers, suppliers, financial institutions and others with whom it does
business to coordinate Year 2000 compliance. All critical applications are
expected to be compliant and compatible by the end of calendar year 1999.
In June, 1997, the Financial Accounting Standards Board (FASB) issued SFAS
No. 130, "Reporting Comprehensive Income," which establishes standards for
reporting of comprehensive income and its components in the full set of
financial statements. In addition, the FASB issued SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information" in that same month.
These statements are effective for the Company in fiscal 1999. The Company is
in the process of evaluating the impact of these statements.
Consolidated Six-Year Summary of Selected Financial Data
(Dollar amounts in thousands, except per share data)
- ------------------------------------------------------------------------------
Fiscal Year ended 1998 1997 1996 1995 1994 1993
(52 wks) (52 wks) (52 wks) (52 wks) (53 wks) (52 wks)
- -----------------------------------------------------------------------------
Sales........... $1,108,038 $1,005,825 $947,263 $850,271 $804,898 $684,122
Cost of sales.... 825,312 744,662 705,379 629,222 593,890 506,435
--------- --------- --------- --------- --------- -------
Gross profit... 282,726 261,163 241,884 221,049 211,008 177,687
Sell, gen & admin 205,523 187,230 174,376 158,551 151,756 131,894
--------- --------- --------- --------- --------- -------
Oper profit.... 77,203 73,933 67,508 62,498 59,252 45,793
Interest expense. 4,157 4,376 5,306 3,334 2,822 3,260
Interest income.. 2,021 1,770 1,975 1,628 1,076 1,474
Other income..... 4,207 2,508 2,023 1,229 649 1,292
--------- --------- --------- --------- --------- -------
Pretax income.. 79,274 73,835 66,200 62,021 58,155 45,299
Income tax expense 29,354 28,538 26,947 25,719 23,438 18,015
--------- --------- --------- --------- --------- -------
Net income....$49,920 45,297 $39,253 $36,302 $34,717**$27,284
========= ========= ========= ========= ======== ======
Weighted avg shares
outstg ('000s)... 17,885 18,108 18,498 18,044 18,268 18,172
Per com shr outstg
Net income.... $2.79 $2.50 $2.12 $2.01 $1.90** $1.50
Diluted net income $2.78 $2.49 $2.12 $2.01 $1.89 $1.50
Cash div paid.... $0.84 $0.78 $0.74 $0.68 $0.64 $0.60
BV on YE shr outst. $21.75 $20.07 $18.68 $17.44 $15.91 $14.48
Rtn avg shrhdr eqt. 13.4% 12.9% 11.8% 12.2%* 12.5%** 10.7%
Gr prft % of sales. 25.5% 26.0% 25.5% 26.0% 26.2% 26.0%
Op prft % of sales. 7.0% 7.4% 7.1% 7.4% 7.4% 6.7%
Op prft, int inc &
oth inc as % of
BOY capital...... 19.8% 19.0% 17.6% 18.9% 19.1% 15.8%
Net inc % of sales. 4.5% 4.5% 4.1% 4.3%* 4.3%** 4.0%
Income tax expense
% pretax income.. 37.0% 38.7% 40.7% 41.5% 40.3% 39.8%
- ------------------------------------------------------------------------------
Deprec & amortiz... $21,021 $20,382 $20,147 $15,156 $14,014 $14,061
Capital expendtrs.. $22,016 $17,778 $18,168 $18,980 $17,485 $12,248
Prty,plt,eqpt,net..$121,762 $114,658 $116,199 $117,175 $94,277 $90,407
- ------------------------------------------------------------------------------
Working capital....$274,739 $245,106 $240,583 $237,280 $224,122 $202,398
Current ratio......3.5 to 1 3.5 to 1 3.5 to 1 3.7 to 1 4.1 to 1 3.8 to 1
Total assets.......$580,351 $528,407 $517,546 $503,818 $430,253 $401,064
- ------------------------------------------------------------------------------
Debt & Cap. leases. $73,458 $61,279 $69,033 $83,201 $55,370 $55,912
Shareholders' eqty.$388,209 $359,338 $343,376 $323,640 $290,911 $263,386
Ending capital.... $461,667 $420,617 $412,409 $406,841 $346,281 $319,298
Ratio debt to eqty. 18.9% 17.1% 20.1% 25.7% 19.0% 21.2%
Ratio debt to capl. 15.9% 14.6% 16.7% 20.5% 16.0% 17.5%
- ------------------------------------------------------------------------------
Shareholders....... 13,592 12,729 12,293 12,665 12,615 9032
Employees.......... 12,155 11,236 10,733 11,149 9,370 8,724
- ------------------------------------------------------------------------------
* April 1995 shareholders' equity used in this calculation excludes $18,004
relating to stock issued on the last day of the fiscal year for the
acquisition of an operating division.
** Excludes the income effect of adopting SFAS No.109 in May 1993 of $3,352 or
$0.18 per share.
Dividend and Market Information
----------------------------------------------------
Fiscal
1998 Divi- Market Price
Quarter dends -------------------------------
Ended Paid High Low Close
----------------------------------------------------
July 26 $0.21 37 15/16 $31 3/4 $37 5/8
Oct. 25 0.21 38 15/16 34 1/4 37 7/8
Jan. 24 0.21 44 13/16 37 3/16 43 7/8
Apr. 25 0.21 53 1/2 42 15/16 53 1/2
-----
$0.84
=====
----------------------------------------------------
Fiscal
1997 Divi- Market Price
Quarter dends -----------------------------
Ended Paid High Low Close
-----------------------------------------------------
July 27 $0.19 $32 5/8 $28 1/4 $29 1/8
Oct. 26 0.19 31 3/8 28 1/4 30 3/8
Jan. 25 0.19 31 3/8 29 1/4 31 3/8
Apr. 26 0.21 36 7/8 30 3/4 32 1/4
-----
$0.78
=====
- ---------------------------------------------------------------------------
Dividend Market Price Net P/E Ratio
Dividends Dividend Payout ----------------------- Income ---------
Year Paid Yield Ratio High Low Close per share High Low
- -----------------------------------------------------------------------------
1998 0.84 1.6% 30.1% 53 1/2 31 3/4 53 1/2 $2.79 19 11
1997 0.78 2.4% 31.2% 36 7/8 28 1/4 32 1/4 2.50 15 11
1996 0.74 2.5% 34.9% 33 3/4 25 5/8 30 1/8 2.12 16 12
1995 0.68 2.5% 33.8% 33 3/4 25 3/8 27 2.01 17 13
1994 0.64 1.9% 33.7%* 40 25 1/2 33 1/2 l.90* 21* 13*
1993 0.60 2.1% 40.0% 29 3/4 18 28 1.50 20 12
La-Z-Boy Incorporated common shares are traded on the NYSE and the PCX
(symbol LZB).
Unaudited Quarterly Financial Information
(Amounts in thousands, except per share data)
- ------------------------------------------------------------------------------
Fiscal year
Quarter Ended 7/26/97 10/25/97 1/24/98 4/25/98 1998
- ------------------------------------------------------------------------------
Sales............ $212,326 $293,208 $280,520 $321,984 $1,108,038
Cost of sales.... 164,184 215,370 211,688 234,070 825,312
-------- -------- -------- --------- --------
Gross profit... 48,142 77,838 68,832 87,914 282,726
Selling, general
& admin........ 45,357 50,400 50,189 59,577 205,523
-------- -------- -------- --------- --------
Opertg profit.. 2,785 27,438 18,643 28,337 77,203
Interest expense. 1,024 1,027 1,048 1,058 4,157
Interest income.. 482 512 568 459 2,021
Other Income..... 750 527 240 2,690 4,207
-------- -------- -------- --------- --------
Pretax income.. 2,993 27,450 18,403 30,428 79,274
Income tax exp... 1,267 10,628 6,944 10,515 29,354
-------- -------- -------- --------- --------
Net income... $1,726 $16,822 $11,459 $19,913 $49,920
======== ======== ======== ========= ========
Net income
per share.. $0.10 $0.94 $0.64 $1.11 $2.79
======== ======== ======== ========= ========
- ------------------------------------------------------------------------------
Fiscal year
Quarter Ended 7/27/96 10/26/96 1/25/97 4/26/97 1997
- ------------------------------------------------------------------------------
Sales............ $202,227 $271,554 $244,581 $287,463 $1,005,825
Cost of sales.... 154,917 197,017 180,979 211,749 744,662
-------- -------- -------- --------- --------
Gross profit... 47,310 74,537 63,602 75,714 261,163
Selling, general
& admin........ 39,354 49,006 47,765 51,105 187,230
-------- -------- -------- --------- --------
Opertg profit.. 7,956 25,531 15,837 24,609 73,933
Interest expense. 1,107 1,097 1,096 1,076 4,376
Interest income.. 463 367 430 510 1,770
Other Income..... 785 521 639 563 2,508
-------- -------- -------- --------- --------
Pretax income.. 8,097 25,322 15,810 24,606 73,835
Income tax exp... 3,499 10,070 6,009 8,960 28,538
-------- -------- -------- --------- --------
Net income... $4,598 $15,252 $9,801 $15,646 $45,297
======== ======== ======== ========= ========
Net income
per share.. $0.25 $0.84 $0.54 $0.87 $2.50
======== ======== ======== ========= ========
* Excludes the income effect of adopting SFAS No.109 in May 1993 of $3,352 or
$0.18 per share.
Exhibit (21)
LA-Z-BOY INCORPORATED
LIST OF SUBSIDIARIES
Subsidiary
Jurisdiction of Incorporation
La-Z-Boy Canada, Ltd.
Ontario, Canada
La-Z-Boy Ad Co.
Michigan
Kincaid Furniture Company, Incorporated
Delaware
La-Z-Boy Export Ltd.
Barbados
LZB Finance, Inc.
Michigan
England/Corsair, Inc.
Michigan
LZB Properties, Inc.
Michigan
LZB Florida Realty, Inc.
Michigan
Centurion Furniture PLC
United Kingdom
Distincion Muebles, Sa de C.V.
Mexico
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (Nos. 333-34155, 333-34157, 33-8997, 333-03097 and
33-54743) of La-Z-Boy Incorporated of our report dated May 21, 1998 appearing on
page 17 of the Annual Report to Shareholders which is incorporated in this
Annual Report on Form 10-K. We also consent to the incorporation by reference of
our report on the Financial Statement Schedule, which appears on page S-2 of
this Form 10-K.
/s/PricewaterhouseCoopers LLP
PRICEWATERHOUSECOOPERS LLP
Toledo, Ohio
July 21, 1998
5
1,000
APR-25-1998
APR-25-1998
12-MOS
28,700
0
238,260
0
91,904
383,028
300,383
178,621
580,351
108,289
0
17,850
0
0
370,359
580,351
1,108,038
1,108,038
825,312
825,312
205,523
0
4,157
79,274
29,354
49,920
0
0
0
49,920
2.79
2.78
Receivables are reported net of allowances for doubtful accounts on
the Statement of Financial Position.
