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.
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:
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.
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.
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.
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.
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
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)