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