2 0 1 6 A N N U A L R E P O R T
Five-Year Performance
37%
Sales increase
426%
Operating income
increase
422%
Income from continuing
operations increase
Earnings per
share increase
Share price
increase
Cash returned
to shareholders
278%
120%
$191
million
$441
million
Consolidated Five-Year
Sales and Operating Margin
(In $ millions)
Sales
Operating Margin
8.0%
7.2%
6.6%
5.3%
4.2%
$1,600
$1,500
$1,400
$1,300
$1,200
$1,100
9%
8%
7%
6%
5%
4%
3%
2%
1%
Total cash from
operating activities
$1,167
$1,274
$1,357
$1,425
$1,525
FY
2012
2013
2014
2015
2016*
*Fiscal 2016 includes 53 weeks. All other years presented
include 52 weeks.
Left to right: Jazz,
Stiletto, Thorne, Avenue, Aria
and Nolita by La-Z-Boy
La-Z-Boy Incorporated | investors.la-z-boy.com
To Our Shareholders
The people of La-Z-Boy delivered exceptional performance in
fiscal 2016, marking the fifth consecutive year of increased sales
and operating income for the company.
Our multifaceted growth strategy, combined with effective execution, is producing
consistent positive results for our shareholders. At the same time, we are delivering
on our corporate vision – “to enrich people’s lives by turning houses into homes” – by
providing consumers with great product, services, comfort and quality. The ability to
satisfy both our shareholders and customers simultaneously, while also creating an
inspiring place to work for our employees, gives us tremendous satisfaction.
Driven by an innovative spirit found deep within our company’s history and culture,
today our philosophy and business model are as modern as ever. The combination
of our strong foundation, built over almost 90 years, with a forward-thinking team
of professionals across our company, positions us well for ongoing success.
1
Shareholders’ Meeting
Wednesday, August 24, 2016, at 9:30 AM (Eastern)
Westin Detroit Metropolitan Airport
Wright Room, 2501 Worldgateway Place
Romulus, Michigan USA
Annual Report 2016
Uptown Premier sofa
and ottoman with chaise
cushion by La-Z-Boy
Rachel Premier sofa
by La-Z-Boy
La-Z-Boy Incorporated | investors.la-z-boy.com
Fiscal 2016 Financial Highlights
Sales increased 7.0% to $1.53 billion,
operating income increased by 18.6% to
Cash Generated
by Operating Activities
$122.4 million, diluted earnings per share
(In $ millions)
increased 21.1% to $1.55, $112.4 million in
cash was generated from operating activities,
$120
our quarterly dividend was increased 25.0%,
and $44.1 million in stock was purchased,
$100
returning a combined total of $62.2 million
$112
$91
$87
to shareholders.
In addition to operating cash flow exceeding
$100 million this year, our balance sheet
remains very strong with $112.4 million of
cash on hand, access to additional lines of
credit and virtually no debt, giving us the
financial flexibility to execute our growth
initiatives, reinvest in the business and move
into the future with a solid foundation.
$80
$83
$68
$60
$40
$20
$0
FY
2012
2013
2014
2015
2016*
3
*Fiscal 2016 includes 53 weeks. All other years presented
include 52 weeks.
Segment Sales Percentages
71%
Upholstery
23%
Retail
6%
Casegoods
Annual Report 2016
Greyson Reclina-Rocker®
recliner by La-Z-Boy
La-Z-Boy Incorporated | investors.la-z-boy.com
An Iconic Brand
Within the $100 billion U.S. furniture industry,
Five years in, the campaign communicates
La-Z-Boy enjoys its status as the most
our brand pillars, resonates with our target
recognized brand, with core equities of
audiences, increases consideration of the
comfort, high quality and customization.
La-Z-Boy brand and drives traffic to our
Additionally, we are the second-largest
stores. While we continue to grow our core
manufacturer/distributor of residential furniture
recliner offering, for which we are known
in the U.S., the La-Z-Boy Furniture Galleries®
best, we do, in fact, sell more of all the other
store network ranks third in the U.S. as a
types of furniture in our portfolio than the
single-source home furnishings retailer, and
iconic recliner.
we are the largest reclining chair manufacturer
worldwide. The Live Life Comfortably®
advertising campaign, featuring Brooke
Shields as our brand ambassador, remains
a core element for reaching consumers.
5
Annual Report 2016
Strong Execution Against
Four Strategic Growth Initiatives
Expand North American Retail Footprint to
on our way to building a $1.6 billion La-Z-Boy
Fully Realize the Potential of the La-Z-Boy
Furniture Galleries® retail network. We, along with
Furniture Galleries® Network Just halfway
our independent dealers, are opening new stores
through our largest growth initiative, “4-4-5,” we
and remodeling others to maximize consumer
achieved the second “4” in the 4-4-5 moniker:
access to our proven New Concept Design
$4 million in average sales per store. With our
format. We ended fiscal 2016 with 89 New
strong network build-out strategy, on-trend
Concept Design stores and expect to have about
merchandising and retail marketing, we are well
120 stores in the format by fiscal year end 2017.
4-4-5 Growth Strategy
Potential for $1.6+ Billion Retail Store Network
400 Stores
$4 Million
Sales Per Store
(Average)
5-Year
Time Period*
New Concept Store
Maple Grove, Minnesota
La-Z-Boy Incorporated | investors.la-z-boy.com
*Fiscal 2017 is year four of the five-year growth plan; anticipate projects will extend into fiscal 2019. Multi-Channel Distribution With more than
from independent dealers. In fiscal 2016,
$700 million in wholesale sales beyond the
the segment’s operating income more than
La-Z-Boy Furniture Galleries® store system,
doubled. During the year, the company
consumers have a variety of channels and retail
acquired 11 La-Z-Boy Furniture Galleries® stores
concepts through which to shop for our various
from retiring independent dealers. The stores
companies’ products. This hybrid-distribution
were integrated quickly into our portfolio and
strategy, between our branded channel and
immediately accretive to the business. We expect
other outlets, provides us and our portfolio
there will be additional opportunities to acquire
companies with numerous options to grow.
stores throughout fis al 2017.
And with increasing brand strength and presence
worldwide, we have significant opportunity and
potential to both grow in many international
markets and capture a greater share of the value
created through global La-Z-Boy sales, from
China to the United Kingdom and elsewhere.
Leverage Powerhouse Brand Beyond
the Iconic Recliner We continue to focus
on expanding our brand beyond our iconic
recliners and to grow our share in the
stationary portion of the upholstery market
through our brand platform, new products and
Vertical Integration We continue to increase
strong leverage of our extensive distribution
our retail scale by owning a larger percentage
network. To support this initiative, this year
of the La-Z-Boy Furniture Galleries® network.
we will increase our advertising spend to
7
This provides us with better influence of
continue to spread the word. Further, through
the end-to-end customer experience while
our Global Trading Company located in Hong
allowing us to benefit from the combined
Kong, we are evaluating more efficient and
wholesale/retail margin associated with our
competitive means to source tables, lamps
integrated retail model. Our company-owned
and accessories. These efforts will allow us
retail segment is growing profitably, both
to leverage our powerful brand equities and
organically and through stores acquired
increase our share of wallet.
La-Z-Boy Furniture Galleries® Store Network Performance
(In $ millions)
Total Retail Sales Volume
Per Calendar Year
Average Sales
Per Store
$1,400
$1,300
$1,200
$1,100
$1,000
$900
$800
$3.5
$3.1
$2.8
$3.9
$3.9
$4.0
$4.0
$3.8
$3.6
$3.4
$3.2
$3.0
$2.8
$865
$963
$1,085
$1,205
$1,244
$1,297
CY
2010
2011
2012
2013
2014
2015
Annual Report 2016
Delighting the Consumer
Anticipating the needs of the consumer and
make their house a home. In fact, benchmarking
making her excited to engage with our brand
conducted by a third-party market research
is a constant and intense focus for us. From
firm found that our Net Promoter Score (NPS),
product development and marketing to the
a measure of consumer satisfaction and
store and digital experience, we strive to be a
engagement, ranks significantly higher than
great source for shoppers as they endeavor to
the rest of the furniture industry.
Competitive Differentiation
La-Z-Boy consumers, whether shopping in a
which keep us competitive in the marketplace.
La-Z-Boy Furniture Galleries® store or in another
We are also proud to have been a pioneer in
outlet, have the opportunity to select from over
offering complimentary design help, and our
150 different frames with more than 900 fabrics
free In-Home Design service not only delights
and leathers. We are proud to have turned
consumers by providing them with a beautiful
our manufacturing footprint into a tremendous
room, but also significantly increases our average
competitive advantage and today are delivering
ticket and gross margin. Most importantly, in the
custom furniture in about four weeks’ time. Our
end, we have a more satisfied consumer.
customization-and-speed proposition is driven
by North American production and through the
lean principles employed throughout our facilities,
Phoebe Premier sofa
by La-Z-Boy
La-Z-Boy Incorporated | investors.la-z-boy.com
Exciting New Products
For those interested in our traditional motion furniture,
we remain focused on innovating in the category and
continue to update our offering with a variety of styles
with improved functionality at different price points. In our
stationary line, we are expanding our selection to keep up
with today’s trends while providing consumers with the
legendary comfort that is the hallmark of our brand. This
past April we introduced iClean™, an exciting new fabric
program which uses innovative technology to surround
each fabric fiber to repel spills – perfect for “everyday life.”
Vibrant Digital Platforms
9
Meeting the consumer where she wants is of
of each La-Z-Boy consumer. This knowledge
paramount importance. During fis al 2016,
enables us to engage prospective and current
we launched a new desktop, mobile and
consumers on a one-to-one basis across our
e-commerce technology platform to provide
website, social channels and through our digital
prospective buyers with a more dynamic,
advertising efforts. Personalizing digital content
inspiring and intuitive digital experience. We
allows us to maximize investment effectiveness
are also implementing a marketing “cloud”
by ensuring our communications are timely,
technology platform that consolidates online,
relevant and compelling.
offline and third-party data to offer a holistic view
Annual Report 2016
With over 60 stain-resistant options, new iClean™ fabrics from La-Z-Boy help you worry less about life’s little mishaps. Capturing spills before they turn into stains, it’s perfect for homes with active kids, messy pets or an unpredictable daily life. Plus, it feels great, too. Seriously, this is relaxation on a whole new level.©2016 La-Z-Boy IncorporatedWe all know spills happen...but with iClean™ fabrics by La-Z-Boy stains don’t have to.Learn more at La-Z-Boy.com/iClean Efficiencies Driving Improved Profitability
Our company has been on a focused lean
associated with our existing plant footprint.
journey for more than a decade. Through
Our Supply Chain Operational Excellence
countless continuous improvement projects
initiative, launched two years ago, is
and the implementation of our Enterprise
delivering results, with in-stock positions for
Resource Planning system throughout our
manufacturing supplies, raw materials and
La-Z-Boy branded facilities, our manufacturing
finished goods improving substantially, allowing
plants and regional distribution centers
us to improve our delivery speed to customers.
achieved exceptional productivity and record
Our Global Trading Company – established late
safety levels during fiscal 2016. As sales
in fiscal 2015 in Hong Kong with a mandate to
increase through the 4-4-5 store build-
streamline overseas sourcing of finished goods,
out strategy and the expansion of other
component parts and raw materials – has
distribution, we will leverage the fixed costs
already provided great value, as well.
Portfolio Companies
Centre Point collection by Hammary
Wildfire collection, Northgate panel bed by Kincaid
River West series by England
La-Z-Boy Incorporated | investors.la-z-boy.com
Performance of Our Portfolio Companies
Beyond our flagship La-Z-Boy brand, our
Our casegoods business profi ability has also
other companies are producing results.
improved since transitioning to a pure-import
Our upholstery company, England, Inc., has
model. We continue to refresh our product
significantly expanded its customer base
lines at Kincaid and American Drew to reflect
and, when coupled with great quality and an
more up-to-date lifestyle looks that appeal
industry-leading delivery system, this division
to today’s consumers as their tastes and
has a distinct competitive advantage that
homes become less formal. We are optimistic
has resulted in strong growth and consistent
about the growth potential for the casegoods
financial performance over the past few years.
business and are confident the performance of
the segment will show ongoing improvement.
11
Annual Report 2016
Edwards bunching chest
by American Drew
Our People, Culture and Commitment
to the Community
We remain focused on enhancing the
Recently, we were awarded LEED Silver
capabilities of all our employees so they may
Certification by the U.S. Green Building
grow and play a pivotal role in our ongoing
Council for our new World Headquarters.
success. Integral to our business philosophy, we
Additionally, four of our five La-Z-Boy branded
are committed to responsible stewardship of the
U.S. facilities are “zero waste to the landfill”
environment and operate using environmentally
and, while we have not reached our ultimate
sound and sustainable business practices.
destination, we strive every day to be greener
than we were the day before.
La-Z-Boy Incorporated | investors.la-z-boy.com
We are also proud that our manufacturing
As its official furniture provider, we have
plants and regional distribution centers
donated thousands of pieces to homes,
achieved record performances for safety this
bringing comfort to many families. This,
past year, establishing new records for the U.S.
combined with the tremendous support
furniture industry. Further, we understand that
of our employees and our La-Z-Boy
being a great employer also means being a
Furniture Galleries® stores, including those of
good corporate citizen. As such, La-Z-Boy and
independent dealers, has enabled us to make
the La-Z-Boy Foundation contributed almost
a profound difference in the lives of families,
$3 million in financial and product donations to
providing a home away from home while their
non-profit organizations this past year. For the
children receive much needed medical care.
past eight years, our signature partnership
has been with the Ronald McDonald House
Charities® (RMHC®).
13
Annual Report 2016
Looking Ahead
As we execute a multi-pronged growth strategy today, our team remains nimble and is
at work developing the next set of initiatives to drive growth well into the future. While
it is premature to expand further upon the potential of these initiatives, I am invigorated
by the creativity, thought processes and analytics our team is applying to the ongoing
development of strategic growth initiatives. Importantly, we challenge ourselves every
day to ensure we are fluid in our decision making as the competitive landscape changes.
Though there have been many twists and turns through the decades, our company
is positioned as well as it has ever been. I am proud of our team who operates the
business with the same innovative spirit and vigor our founders had and I am confident
the path ahead will be exciting. On behalf of La-Z-Boy’s 8,700 associates worldwide
and our Board of Directors, I thank you for your vote of confidence and look
forward to updating you on our progress as we move ahead.
Kurt L. Darrow
Chairman, President and Chief Executive Officer
Richard Gabrys
10 Years of Service
Thank You to Our Board of Directors
With our Board of Directors composed of diverse backgrounds and areas of expertise,
we have the benefit of their experience when evaluating and launching different strategies.
This year, two of our directors, Richard (“Dick”) Gabrys and David Hehl, are retiring. Dick has
served on our board since 2006, as lead director from 2011 through 2015, and also served
on the Audit and Compensation Committees. His diligent leadership and insight played a key
role in ushering the company through challenges and transitions over his 10 years with La-Z-Boy,
setting us on a strong path for ongoing success. David has served our board for almost four
decades and, throughout his tenure, he participated in every committee and played an
integral role in positioning our company for the future. Most recently, he was a member
of the Audit Committee as well as the Nominating and Governance Committee. We thank
both of these gentlemen for their dedication and commitment to La-Z-Boy Incorporated
and wish them all the best in their well-deserved retirements.
La-Z-Boy Incorporated | investors.la-z-boy.com
David Hehl
39 Years of Service
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 30, 2016
COMMISSION FILE NUMBER 1-9656
LA-Z-BOY INCORPORATED
(Exact name of registrant as specified in its charter)
MICHIGAN
(State or other jurisdiction of
incorporation or organization)
One La-Z-Boy Drive, Monroe, Michigan
(Address of principal executive offices)
38-0751137
(I.R.S. Employer
Identification No.)
48162-5138
(Zip Code)
Securities registered pursuant to Section 12(b) of the Act:
Registrant’s telephone number, including area code (734) 242-1444
Title of each class
Name of each exchange on which registered
Common Shares, $1.00 Par Value
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in rule 405 of the Securities
Act. Yes (cid:1) No (cid:2)
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange
Act. Yes (cid:2) No (cid:1)
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes (cid:1) No (cid:2)
Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the
preceding 12 months (or for such shorter period that the Registrant was required to submit and post such
files). Yes (cid:1) No (cid:2)
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of 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. (cid:1)
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a
smaller reporting company. See the definitions of ‘‘large accelerated filer,’’ ‘‘accelerated filer,’’ and ‘‘smaller reporting
company’’ in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer (cid:1)
Accelerated filer (cid:2)
Non-accelerated filer(cid:2)
(Do not check if a
smaller reporting company)
Smaller reporting company (cid:2)
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes (cid:2) No (cid:1)
Based on the closing price on the New York Stock Exchange on October 24, 2015, the aggregate market value of
Registrant’s common shares held by non-affiliates of the Registrant on that date was $1,433.2 million.
The number of common shares outstanding of the Registrant was 48,921,157 as of June 14, 2016.
(1) Portions of the Registrant’s Proxy Statement to be filed with the Securities and Exchange Commission pursuant to
Regulation 14A for its 2016 Annual Meeting of Shareholders are incorporated by reference into Part III.
DOCUMENTS INCORPORATED BY REFERENCE:
LA-Z-BOY INCORPORATED
FORM 10-K ANNUAL REPORT FISCAL 2016
TABLE OF CONTENTS
Page
Number(s)
Cautionary Statement Concerning Forward-Looking Statements . . . . . . . . . . . . . . . . . . . . .
PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Executive Officers of the Registrant
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and
PART II
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Issuer Purchases of Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Management’s Discussion and Analysis of Financial Condition and Results of
Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . .
Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . .
Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Controls and Procedures
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART III
Directors, Executive Officers, and Corporate Governance . . . . . . . . . . . . . . . .
Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Certain Relationships and Related Transactions, and Director Independence . .
Principal Accounting Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 15.
Exhibits, Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART IV
2
3
10
14
14
14
14
15
16
19
24
41
42
86
86
86
87
87
87
87
87
88
Note: The responses to Items 10 through 14 will be included in the Company’s definitive proxy
statement to be filed pursuant to Regulation 14A for the 2016 Annual Meeting of Shareholders. The
required information is incorporated into this Form 10-K by reference to that document and is not
repeated herein.
1
Cautionary Statement Concerning Forward-Looking Statements
La-Z-Boy Incorporated and its subsidiaries (individually and collectively, ‘‘we,’’ ‘‘our’’ or the
‘‘Company’’) make forward-looking statements in this report, and its representatives may make oral
forward-looking statements from time to time. Generally, forward-looking statements include
information concerning possible or assumed future actions, events or results of operations. More
specifically, forward-looking statements may include information regarding:
— future income, margins and cash flows
— future growth
— adequacy and cost of financial resources
— future economic performance
— industry and importing trends
— management plans
Forward-looking statements also include those preceded or followed by the words ‘‘anticipates,’’
‘‘believes,’’ ‘‘estimates,’’ ‘‘hopes,’’ ‘‘plans,’’ ‘‘could,’’ ‘‘intends’’ and ‘‘expects’’ or similar expressions. With
respect to all forward-looking statements, we claim the protection of the safe harbor for forward-
looking statements contained in the Private Securities Litigation Reform Act of 1995.
Actual results could differ materially from those we anticipate or project due to a number of factors,
including: (a) changes in consumer confidence and demographics; (b) the possibility of a recession;
(c) changes in the real estate and credit markets and their effects on our customers, consumers and
suppliers; (d) international political unrest, terrorism or war; (e) volatility in energy and other
commodities prices; (f) the impact of logistics on imports and exports; (g) interest rate and currency
exchange rate changes; (h) operating factors, such as supply, labor or distribution disruptions (e.g., port
strikes); (i) changes in the domestic or international regulatory environment; (j) adoption of new
accounting principles; (k) severe weather or other natural events such as hurricanes, earthquakes,
flooding, tornadoes and tsunamis; (l) our ability to procure fabric rolls and leather hides or
cut-and-sewn fabric and leather sets domestically or abroad; (m) information technology conversions or
system failures and our ability to recover from a system failure; (n) effects of our brand awareness and
marketing programs; (o) the discovery of defects in our products resulting in delays in manufacturing,
recall campaigns, reputational damage, or increased warranty costs; (p) litigation arising out of alleged
defects in our products; (q) unusual or significant litigation; (r) our ability to locate new La-Z-Boy
Furniture Galleries(cid:3) stores (or store owners) and negotiate favorable lease terms for new or existing
locations; (s) the results of our restructuring actions; (t) the impact of potential goodwill or intangible
asset impairments; and (u) those matters discussed in Item 1A of this Annual Report and other factors
identified from time-to-time in our reports filed with the Securities and Exchange Commission. We
undertake no obligation to update or revise any forward-looking statements, whether to reflect new
information or new developments or for any other reason.
2
PART I
ITEM 1. BUSINESS.
Edward M. Knabusch and Edwin J. Shoemaker started Floral City Furniture in 1927, and in 1928 the
newly formed company introduced its first recliner. In 1941, we were incorporated in the state of
Michigan as La-Z-Boy Chair Company, and in 1996 we changed our name to La-Z-Boy Incorporated.
Today, our La-Z-Boy brand is the most recognized brand in the furniture industry.
We manufacture, market, import, export, distribute and retail upholstery furniture products. In
addition, we import, distribute and retail accessories and casegoods (wood) furniture products. We are
the leading global producer of reclining chairs and the second largest manufacturer/distributor of
residential furniture in the United States. The La-Z-Boy Furniture Galleries(cid:3) stores retail network is
the third largest retailer of single-branded furniture in the United States. We have seven major North
American manufacturing locations and six regional retail distribution centers in the United States to
support our speed-to-market and customization strategy.
We sell our products, primarily in the United States and Canada but also internationally, to furniture
retailers and directly to consumers through stores that we own and operate. The centerpiece of our
retail distribution strategy is our network of 338 La-Z-Boy Furniture Galleries(cid:3) stores and 559 Comfort
Studio(cid:3) locations, each dedicated to marketing our La-Z-Boy branded products. We consider this
dedicated space to be ‘‘branded outlets’’ or ‘‘proprietary.’’ In addition to the almost 900 branded outlets
dedicated to selling La-Z-Boy product (La-Z-Boy Furniture Galleries(cid:3) stores and Comfort Studio(cid:3)
locations), approximately 1,900 other dealers also sell La-Z-Boy, including some of the best known
names in the industry, such as Art Van, Nebraska Furniture Mart, Slumberland and Raymour &
Flanigan Furniture. We own 124 of the La-Z-Boy Furniture Galleries(cid:3) stores. The remainder of the
La-Z-Boy Furniture Galleries(cid:3) stores, as well as all 559 Comfort Studio(cid:3) locations, are independently
owned and operated. La-Z-Boy Furniture Galleries(cid:3) stores help consumers furnish their homes by
combining the style, comfort and quality of La-Z-Boy furniture with our available In-Home Design
service. La-Z-Boy Comfort Studio(cid:3) locations are defined spaces within larger independent retailers that
are dedicated to displaying and selling La-Z-Boy branded products. Our other brands—England,
Kincaid, American Drew, and Hammary—enjoy distribution through a combined 1,500 dealers. Kincaid
and England have their own dedicated proprietary in-store programs with 500 outlets and over
1.5 million square feet of proprietary floor space. In total, our proprietary floor space includes
approximately 9.3 million square feet.
Principal Products and Industry Segments
Our reportable operating segments are the Upholstery segment, the Casegoods segment and the Retail
segment.
Upholstery Segment. Our Upholstery segment is our largest business and consists primarily of two
operating units: La-Z-Boy, our largest operating unit, and our England subsidiary. Our Upholstery
segment manufactures and imports upholstered furniture such as recliners and motion furniture, sofas,
loveseats, chairs, sectionals, modulars, ottomans and sleeper sofas. The Upholstery segment sells
directly to La-Z-Boy Furniture Galleries(cid:3) stores, operators of Comfort Studio(cid:3) locations and England
Custom Comfort Center locations, major dealers and a wide cross-section of other independent
retailers.
Casegoods Segment. Our Casegoods segment is an importer, marketer and distributor of casegoods
(wood) furniture such as bedroom sets, dining room sets, entertainment centers and occasional pieces,
and also manufactures some coordinated upholstered furniture. The Casegoods segment consists of
three brands: American Drew, Hammary, and Kincaid. The Casegoods segment sells directly to major
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dealers, as well as La-Z-Boy Furniture Galleries(cid:3) stores, and a wide cross-section of other independent
retailers.
Retail Segment. Our Retail segment consists of 124 company-owned La-Z-Boy Furniture Galleries(cid:3)
stores. The Retail segment primarily sells upholstered furniture, in addition to some casegoods and
other accessories, to the end consumer through our retail network.
We have provided additional detailed information regarding our segments and their products in
Note 17 to our consolidated financial statements and our ‘‘Management’s Discussion and Analysis’’
section, both of which are included in this report.
Raw Materials and Parts
The principal raw materials and parts that we use in our Upholstery segment are purchased cover
(primarily fabrics and leather), polyester batting and non-chlorofluorocarbonated polyurethane foam for
cushioning and padding, lumber and plywood for frames, steel for motion mechanisms, and electrical
components for power styles. We purchase about 55% of our polyurethane foam from one supplier,
which has several facilities across the United States that deliver to our plants. We purchase cover from
a variety of sources, but we rely on a limited number of major suppliers. We purchase approximately
40% of our cover in a raw state (fabric rolls or leather hides) and cut and sew it into cover, and 60%
in covers that have already been cut and sewn by third-party offshore suppliers to our specifications.
We buy cut-and-sewn leather and fabric products from four primary suppliers. Of the products that we
import, two Chinese suppliers manufacture almost 90% of the leather cut-and-sewn sets, and two other
Chinese suppliers manufacture over 95% of the fabric products. We primarily use these suppliers for
their product design capabilities, to leverage our buying power, and to control quality and product flow,
in addition to their ability to handle the volume of product we require to operate our business. If any
of these suppliers experienced financial or other difficulties, we could experience temporary disruptions
in our manufacturing process until we obtained alternate suppliers.
During fiscal 2016, the prices of materials we used in our upholstery manufacturing process were
essentially flat compared with fiscal 2015. Late in fiscal 2015, we established a global trading company
in Hong Kong to assist us with procuring raw materials and parts from Asian suppliers by identifying
efficiencies, savings opportunities, and managing relationships with these suppliers. We expect that our
supply chain operational excellence initiatives, which include leveraging the global trading company
operations, will generate savings in fiscal 2017 to offset the expected rise in material costs during the
year, allowing us to keep our raw material costs flat as a percent of sales in fiscal 2017 compared with
fiscal 2016, as well as increase our reliability by maintaining a more consistent supply of inventory on
hand at our plants.
Our Casegoods segment is primarily an importer, marketer, and distributor of wood furniture, with
some manufacturing operations for coordinated upholstered furniture. Raw materials, primarily related
to our coordinated upholstery furniture, represented only about 5% of the value of our inventory in
this segment and less than 2% of our total raw material at the end of fiscal 2016, and mainly consisted
of the same materials used in our Upholstery segment.
Finished Goods Imports
During fiscal 2015, we completed our transition to an all-import model for wood furniture sold by our
Casegoods segment. As a result, we now import 100% of the casegoods products that we offer for sale
compared with 79% in fiscal 2015 as we moved to the all-import model. In fiscal 2016, we purchased
approximately 50% of this imported product from four suppliers. We primarily use these suppliers to
leverage our buying power, to control quality and product flow, and because their capabilities align with
our product design needs. In addition, these suppliers have the ability to handle the volume of product
we require to operate our business. If any of these suppliers experienced financial or other difficulties,
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we could experience temporary disruptions in our product flow until we obtained alternate suppliers,
and these disruptions could be lengthy due to the longer lead time required for sourced wood furniture
from Asian manufacturers.
We transitioned to an all-import model for our wood furniture primarily to remain competitive for
these products. The prices we paid for these imported products in fiscal 2016 have decreased slightly
from fiscal 2015. We currently expect these prices and associated transportation costs to remain
unchanged in fiscal 2017 compared with fiscal 2016. Looking across our wholesale segments, imported
finished goods represented 7% and 8% of our consolidated sales in fiscal 2016 and fiscal 2015,
respectively.
Seasonal Business
We believe that the demand for furniture generally reflects sensitivity to overall economic conditions,
including consumer confidence, housing market conditions and unemployment rates. The table below
shows our segments’ highest and lowest sales quarters for fiscal 2016 and is consistent with our
historical experience:
Segment
Highest sales
quarter
Lowest sales
quarter
Upholstery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Casegoods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retail . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4th
2nd or 4th
3rd
1st
1st
1st
We schedule production to maintain consistent manufacturing activity throughout the year whenever
possible. We shut down our domestic plants for one week in July to perform routine maintenance on
our equipment.
Economic Cycle and Purchasing Cycle
We believe there is a strong correlation between housing starts and sales of our products. In addition,
consumer confidence, employment rates, and other factors could affect demand. Upholstered furniture
has a shorter life cycle than casegoods furniture because upholstered furniture is typically more fashion
and design-oriented, and is often purchased one or two pieces at a time. Casegoods products, in
contrast, are longer-lived and frequently purchased in groupings or ‘‘suites,’’ resulting in a much larger
cost to the consumer. As a result, casegoods sales are more sensitive to economic conditions, and
upholstered furniture normally exhibits a less volatile sales pattern over an economic cycle.
Practices Regarding Working Capital Items
The following describes our significant practices regarding working capital items.
Inventory: For our upholstery segment, we maintain raw materials and work-in-process inventory at
our manufacturing locations, and finished goods inventory at our six regional retail distribution centers.
Our regional retail distribution centers allow us to streamline the warehousing and distribution
processes for our La-Z-Boy Furniture Galleries(cid:3) store network, including both company-owned stores
and independently-owned stores. Our regional retail distribution centers also allow us to reduce the
number of individual warehouses needed to supply our retail outlets and help us reduce our inventory
levels at our manufacturing and retail locations. We also maintain some finished goods inventory at our
manufacturing locations, which primarily supports efficient shipping of sold orders.
For our Casegoods segment, we import wood furniture from Asian vendors, resulting in long lead times
on these products. To meet our customers’ delivery requirements with these lead times, we maintain
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higher levels of finished goods inventory, as a percentage of sales, of our casegoods products than our
upholstery products, which is consistent with others in the casegoods industry.
Our company-owned La-Z-Boy Furniture Galleries(cid:3) stores maintain finished goods inventory at the
stores for display purposes.
Our inventory increased $18.8 million, or 0.5 percentage point as a percent of sales, during fiscal 2016
compared with fiscal 2015. The majority of this increase was driven by raw materials in our Upholstery
segment as we improved our in-stock position on certain items to better service our customers.
Additionally, our inventory increased in our Retail segment due to new and acquired stores. We will
continue to manage our inventory levels to ensure they are appropriate relative to our sales, while
maintaining our focus on service to our customers.
Accounts Receivable: During fiscal 2016, our accounts receivable decreased $12.0 million compared
with fiscal 2015, which reflected a 1.5 percentage point reduction as a percent of sales. This decrease
was attributable to the continued improvement in the financial condition of our customer base,
including our independent La-Z-Boy Furniture Galleries(cid:3) dealers, and a reduction in days sales
outstanding. We monitor our customers’ accounts and limit our credit exposure to certain independent
dealers, and we strive to decrease our days sales outstanding where possible. Our days sales outstanding
is a measure of the time needed to collect outstanding accounts receivable once we have completed a
sale. Our days sales outstanding decreased by approximately three days during fiscal 2016 due to
continued improvement in the financial condition of our customer base and our various retail
acquisitions.
Accounts Payable: During fiscal 2016, our accounts payable decreased $1.5 million compared with
fiscal 2015, which reflected a 0.3 percentage point reduction as a percent of sales.
Customers
Our wholesale customers are furniture retailers located primarily throughout the United States and
Canada. Sales in our Upholstery and Casegoods segments are almost entirely to furniture retailers, but
we also sell directly to end consumers through our company-owned La-Z-Boy Furniture Galleries(cid:3)
stores that make up our Retail segment.
We have formal agreements with many furniture retailers for them to display and merchandise products
from one or more of our operating units and sell them to consumers in dedicated retail space, either in
stand-alone stores or dedicated proprietary galleries or studios within their stores. We consider this
dedicated space to be ‘‘proprietary.’’ For our Upholstery and Casegoods segments, our fiscal 2016
customer mix based on sales was 61% proprietary, 8% major dealers such as Art Van Furniture,
Nebraska Furniture Mart, Slumberland Furniture, and Raymour & Flanigan Furniture, and 31% other
independent retailers.
The success of our product distribution model relies heavily on having retail floor space that is
dedicated to displaying and marketing our products. Our 338-store La-Z-Boy Furniture Galleries(cid:3)
network is central to this approach. In addition, we sell product through proprietary space within other
retail furniture stores, primarily La-Z-Boy Comfort Studio(cid:3) locations, England Custom Comfort Center
locations, and Kincaid Shoppes.
Maintaining, updating, and when appropriate expanding our proprietary distribution network is a key
part of our overall sales and marketing strategy. Our 4-4-5 initiative, through which we expect to
expand the La-Z-Boy Furniture Galleries(cid:3) stores network to 400 stores averaging $4 million in sales
per store over the five year period that began with fiscal 2014, is a key growth strategy for us. This
strategy has already delivered results, as the network achieved our average sales per store target of
$4 million during calendar 2015, more than two years ahead of schedule. Although we now expect the
store build out to extend beyond five years, we believe as the average revenue per store increases, the
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same economic value could be delivered by the network in that time frame. As we continue to maintain
and update our current stores to improve the quality of the network, the La-Z-Boy Furniture
Galleries(cid:3) store network plans to open, relocate or remodel 25 to 30 stores during fiscal 2017. All of
these stores will feature the new concept store design we developed and introduced in fiscal 2012.
We select independent dealers for our proprietary La-Z-Boy Furniture Galleries(cid:3) store network based
on factors such as their management and financial qualifications and the potential for distribution in
specific geographical areas. This proprietary distribution benefits La-Z-Boy, our dealers and our
consumers. It enables La-Z-Boy to concentrate our marketing with sales personnel dedicated to our
entire product line, and only that line and approved accessories. It allows dealers who join this
proprietary group to take advantage of practices with which other proprietary dealers have succeeded,
and we facilitate forums for these dealers to share best practices. These La-Z-Boy Furniture Galleries(cid:3)
stores provide our consumers a full-service shopping experience with a large variety of product and
knowledgeable sales associates and In-Home Design consultants.
Orders and Backlog
We typically build upholstery units based on specific dealer orders, either for dealer stock or to fill a
consumer’s custom order. We import casegoods product primarily to fill our internal orders, rather than
customer or consumer orders, resulting in higher finished goods inventory on hand as a percentage of
sales. Because the size of our backlog at a given time may not be indicative of our future sales, we do
not rely entirely on backlogs to predict future sales.
Our Upholstery segment backlogs as of April 30, 2016, and April 25, 2015, were approximately
$50.8 million and $71.5 million, respectively, and our Casegoods segment backlogs were approximately
$7.6 million and $11.2 million, respectively. Our backlogs were lower than in the prior year due to
being in a better inventory service position at April 30, 2016.
Competitive Conditions
We are the second largest manufacturer/distributor of residential (living and family room, bedroom, and
dining room) furniture in the United States, as measured by annual sales volume.
In the Upholstery segment, our largest competitors are Ashley, Bassett, Bernhardt, Best Chair, Ethan
Allen, Flexsteel, Heritage Home Group, Klaussner, Man Wah, and Natuzzi.
In the Casegoods segment, our main competitors are Bassett, Bernhardt, Ethan Allen, Heritage Home
Group, Hooker Furniture, Lacquer Craft, and Stanley Furniture. The Casegoods segment faces
additional market pressures from foreign manufacturers entering the United States market and
increased direct purchases from foreign suppliers by large United States retailers.
The La-Z-Boy Furniture Galleries(cid:3) stores operate in the retail furniture industry throughout North
America, and different stores have different competitors based on their geographic locations.
Competitors include: Arhaus, Ashley, Bassett Furniture Direct, Crate and Barrel, Ethan Allen,
Restoration Hardware, Thomasville Home Furnishings Stores, Williams-Sonoma, several other regional
competitors (for example Art Van Furniture, Raymour & Flanigan Furniture, and Slumberland
Furniture), and family-owned independent furniture stores.
In addition to the larger competitors listed above, a substantial number of small and medium-sized
companies operate within our business segments, all of which are highly competitive.
Over the past decade alternative distribution channels have increasingly affected our retail markets.
Companies such as Costco, Home Depot, IKEA, Sam’s Club, Target, Wal-Mart, and others offer
products that compete with some of our product lines. The increased ability of consumers to purchase
furniture through various furniture manufacturers’ and retailers’ internet websites has also increased
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competition, including companies such as QVC and Wayfair which operate with lower overhead costs
than a brick-and mortar-retailer.
Players in the home furnishings industry compete primarily on the basis of product styling and quality,
customer service (product availability and delivery), price, and location. We compete primarily by
emphasizing our brand and the value, comfort, quality, and styling of our products. In addition, we
remain committed to innovation while striving to provide outstanding customer service, exceptional
dealer support, and efficient on-time delivery. Maintaining, updating and expanding our proprietary
distribution system, including identifying desirable retail locations, is a key strategic initiative for us in
striving to remain competitive. We compete in the mid-to-upper-mid price point, and a shift in
consumer taste and trends to lower priced products could negatively affect our competitive position.
Research and Development Activities
We provide information regarding our research and development activities in Note 1 to our
consolidated financial statements, which are included in Item 8 of this report.
Trademarks, Licenses and Patents
We own several trademarks, including the La-Z-Boy trademark, which is essential to the Upholstery
and Retail segments of our business. To protect our trademarks, we have registered them in the United
States and various other countries where our products are sold. These trademarks have a perpetual life,
subject to renewal. We license the use of the La-Z-Boy trademark to our major international partners
and dealers outside of North America. We also license the use of the La-Z-Boy trademark on contract
office furniture, outdoor furniture, and non-furniture products, and these arrangements enhance our
brand awareness, broaden the perceptions of La-Z-Boy, and create visibility of the La-Z-Boy brand in
channels outside of the residential furniture industry. In addition, we license to our branded dealers the
right to use our La-Z-Boy trademark in connection with the sale of our products and related services,
on their signs and in other ways, which we consider to be a key part of our marketing strategies. We
provide more information about those dealers, under ‘‘Customers.’’
We hold a number of patents that we actively enforce, but we believe that the loss of any single patent
or group of patents would not significantly affect our business.
Compliance with Environmental Regulations
Our manufacturing operations involve the use and disposal of certain substances regulated under
environmental protection laws, and we are involved in a small number of remediation actions and site
investigations concerning such substances. Based on a review of all currently known facts and our
experience with previous environmental matters, we believe we have adequate reserves in respect of
probable and reasonably estimable losses arising from environmental matters, and we currently do not
believe it is probable that we will have any additional loss for environmental matters that would be
material to our consolidated financial statements.
Employees
We employed approximately 8,700 full-time equivalent employees as of April 30, 2016, compared with
8,270 employees at the end of fiscal 2015. We employed approximately 7,300 in our Upholstery
segment, 200 in our Casegoods segment, 1,000 in our Retail segment, and the remaining employees as
corporate personnel. Our employment growth during fiscal 2016 was attributable to the sales volume
increase in our Upholstery segment and new and acquired La-Z-Boy Furniture Galleries(cid:3) stores in our
Retail segment. We employ the majority of our employees on a full-time basis except in our Retail
segment, where many of our employees are part-time.
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Financial Information about Foreign and Domestic Operations and Export Sales
In fiscal 2016, our direct export sales, including sales in Canada, were approximately 11% of our total
sales. We are part of a manufacturing joint venture in Thailand, which distributes furniture in Australia,
New Zealand, Thailand and other countries in Asia. We participate in a sales and marketing joint
venture in Asia, which sells and distributes furniture in Korea, Taiwan, Japan, India, Malaysia, and
other Asian countries. In addition, we have established a global trading company in Hong Kong that
will enhance our ability to source products and materials from our Asian suppliers, as well as provide
quality assurance and logistics expertise.
We operate a facility in Mexico which produces cut-and-sewn fabric sets for our domestic upholstery
manufacturing facilities. We provide information on sales in the United States, Canada, and other
countries in Note 17 to our consolidated financial statements, which are included in Item 8 of this
report. Our net property, plant, and equipment value in the United States was $164.2 million and
$165.7 million at the end of fiscal 2016 and fiscal 2015, respectively. Our net property, plant, and
equipment value in foreign countries was $7.4 million and $8.3 million in fiscal 2016 and fiscal 2015,
respectively.
See Item 1A of this report for information about the risks related to our foreign operations.
Internet Availability
Our Forms 10-K, 10-Q, 8-K, and proxy statements on Schedule 14A and amendments to those reports
are available free of charge through links on our internet website, www.la-z-boy.com, as soon as
reasonably practicable after they are electronically filed with, or furnished to, the Securities and
Exchange Commission (SEC). Copies of any materials we file with the SEC can also be obtained free
of charge through the SEC’s website at www.sec.gov. The information on our website is not part of this
report.
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ITEM 1A. RISK FACTORS.
Our business is subject to a variety of risks. Interest rates, consumer confidence, housing starts and the
overall housing market, increased unemployment, tightening of the financial and consumer credit
markets, downturns in the economy and other general economic factors that affect many other
businesses are particularly significant to us because our principal products are consumer goods.
The risks and uncertainties described below are those that we currently believe may significantly affect
our business. Additional risks and uncertainties that we are unaware of or that we do not currently
deem significant may also become important factors that affect us at a later date. You should carefully
consider the risks and uncertainties described below, together with the other information provided in
this document and our subsequent filings with the Securities and Exchange Commission. Any of the
following risks could significantly and adversely affect our business, results of operations, and financial
condition.
Fluctuations in the price, availability and quality of raw materials could cause delays that could result in our
inability to provide goods to our customers or could increase our costs, either of which could decrease our
earnings.
In manufacturing furniture, we use various types of wood, fabrics, leathers, upholstered filling material,
steel, and other raw materials. Because we are dependent on outside suppliers for our raw materials,
fluctuations in their price, availability and quality could have a negative effect on our cost of sales and
our ability to meet our customers’ demands. Competitive and marketing pressures may prevent us from
passing along price increases to our customers, and the inability to meet our customers’ demands could
cause us to lose sales. We have a higher concentration (over 65%) in upholstery sales, including motion
furniture, than many of our competitors, and the effects of steel, polyurethane foam, wood, electrical
components for power styles, leather and fabric price increases or quantity shortages could be
significant for our business.
About 55% of our polyurethane foam comes from one supplier. This supplier has several facilities
across the United States, but severe weather or natural disasters could result in delays in shipments of
polyurethane foam to our plants.
A change in the financial condition of some of our domestic and foreign fabric suppliers could impede
their ability to provide their products to us in a timely manner. Upholstered furniture is fashion
oriented, and if we were unable to acquire sufficient fabric variety, or to predict or respond to changes
in fashion trends, we might lose sales and have to sell excess inventory at reduced prices. Doing so
would have a negative effect on our sales and earnings.
Availability of foreign sourcing and economic uncertainty in countries outside of the United States in which
we operate or from which we purchase product could adversely affect our business and results of operations.
We have operations in countries outside the United States, some of which are located in emerging
markets. Long-term economic and political uncertainty in some of the countries in which we operate,
such as Mexico and Thailand, could result in the disruption of markets and negatively affect our
business. Our Casegoods segment imports products manufactured by foreign sources, mainly in China,
Vietnam and Indonesia, and our Upholstery segment purchases cut-and-sewn fabric and leather sets,
electronic component parts and some finished goods from Chinese and other foreign vendors. Our
cut-and-sewn leather kits are primarily purchased from two suppliers in China, and the majority of our
fabric products are purchased from two other Chinese suppliers. Our sourcing partners may not be able
to produce goods in a timely fashion or the quality of their product may lead us to reject it, causing
disruptions in our domestic operations and delays in our shipments to our customers.
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There are other risks that are inherent in our non-U.S. operations, including the potential for changes
in socio-economic conditions, changes in laws and regulations, including import, export, labor and
environmental laws, port strikes, tariffs and trade barriers, monetary and fiscal policies, investments,
taxation, and exchange controls. Additionally, unsettled political conditions, possible terrorist attacks,
organized crime, and public health concerns present a risk to our non-U.S. operations. All of these
items could make servicing our customers more difficult or cause disruptions in our plants that could
reduce our sales, earnings, or both in the future.
Inability to maintain and enhance our brand and respond to changes in our current and potential consumers’
tastes and trends in a timely manner could adversely affect our business and operating results.
The success of our business depends on our ability to maintain and enhance our brands to increase our
business by retaining consumers and attracting new ones. Furniture product is fashion oriented so
changes in consumers’ tastes and trends and the resultant change in our product mix, as well as failure
to offer our consumers multiple avenues for purchasing our products, could adversely affect our
business and operating results. We attempt to minimize these risks by maintaining strong advertising
and marketing campaigns promoting our brands and our current product designs, styles, quality, prices,
and options to purchase our products in-store or online. If these efforts were unsuccessful or required
us to incur substantial costs, our business, operating results and financial or competitive condition could
be adversely affected.
Loss of market share and other financial or operational difficulties due to competition would likely result in a
decrease in our sales, earnings, and liquidity.
The residential furniture industry is highly competitive and fragmented. We compete with many other
manufacturers and retailers, including online retailers, some of which offer widely advertised products,
and others of which are large retail furniture dealers offering their own store-branded products.
Competition in the residential furniture industry is based on quality, style of products, perceived value,
price, service to the customer, promotional activities, and advertising. The highly competitive nature of
the industry means we are constantly subject to the risk of losing market share, which would likely
decrease our future sales, earnings and liquidity. In addition, due to the large number of competitors
and their wide range of product offerings, we may not be able to differentiate our products (through
styling, finish, and other construction techniques) from those of our competitors. These and other
competitive pressures could result in a decrease in our sales, earnings, and liquidity.
Our current retail markets and other markets that we enter in the future may not achieve the growth and
profitability we anticipate. We could incur charges for the impairment of long-lived assets if we fail to meet
our earnings expectations for these markets.
From time to time we acquire retail locations and related assets, remodel and relocate existing stores,
experiment with new store formats, and close underperforming stores. Our assets include goodwill and
other indefinite-lived intangible assets in connection with acquisitions. Profitability of acquired,
remodeled, relocated, and new format stores will depend on lease rates (for stores we lease) and retail
sales and profitability justifying the costs of acquisition, remodeling, and relocation. If we do not meet
our sales or earnings expectations for these stores, we may incur charges for the impairment of
long-lived assets, the impairment of goodwill, or the impairment of other indefinite-lived intangible
assets.
Changes in regulation of our international operations could adversely affect our business and results of
operations.
Because we have operations outside of the United States and sell product in various countries, we are
subject to many laws governing international relations, including the Foreign Corrupt Practices Act and
11
the U.S. Export Administration Act. These laws include prohibitions on improper payments to
government officials and restrictions on where we can do business, what products we can supply to
certain countries, and what information we can provide to certain governments. Violations of these
laws, which are complex, may result in criminal penalties or sanctions that could have a significant
adverse effect on our business and results of operations. Although we have implemented policies and
procedures designed to ensure compliance with these laws, there can be no assurance that our
employees, contractors, or agents will not violate our policies.
We rely extensively on computer systems to process transactions, summarize results and manage our business
and that of certain independent dealers. Disruptions in both our primary and back-up systems could adversely
affect our business and operating results.
Our primary and back-up computer systems are subject to damage or interruption from power outages,
computer and telecommunications failures, computer viruses, phishing attempts, security breaches,
natural disasters and errors by employees. Though losses arising from some of these issues would be
covered by insurance, interruptions of our critical business computer systems or failure of our back-up
systems could reduce our sales or result in longer production times. If our critical business computer
systems or back-up systems were damaged or ceased to function properly, we might have to make a
significant investment to repair or replace them.
We have been implementing an enterprise resource planning (ERP) system in our largest operating
unit over the last several years. We expect to complete the final implementation by the end of fiscal
2017. ERP implementations are complex and time-consuming projects that involve substantial
expenditures on system software and implementation activities. ERP implementations also require
transformation of business and financial processes in order to reap the benefits of the ERP system; any
such transformation involves risks inherent in the conversion to a new computer system, including loss
of information and potential disruption to our normal operations. Our business and results of
operations may be adversely affected if we experience operating problems or cost overruns during the
ERP implementation process, or if the ERP system and the associated process changes do not give rise
to the benefits that we expect. Additionally, if we do not effectively implement the ERP system as
planned or the system does not operate as intended, the effectiveness of our internal control over
financial reporting could be adversely affected or our ability to assess those controls adequately could
be delayed. Significant delays in documenting, reviewing and testing our internal control could cause us
to fail to comply with our SEC reporting obligations related to our management’s assessment of our
internal control over financial reporting.
We may be subject to product liability claims or undertake to recall one or more products, with a negative
impact on our financial results and reputation.
Millions of our products, sold over many years, are currently used by consumers. We may be named as
a defendant in lawsuits instituted by persons allegedly injured while using one of our products. We have
insurance that we believe is adequate to cover such claims, but we are self-insured for the first
$1.5 million in liability and for all defense costs. Furthermore, such claims could damage our brands
and reputation and negatively affect our operating results. We have voluntarily recalled products in the
past, and while none of those recalls has resulted in a material expense or other significant adverse
effect, it is possible that recalls could result in future additional expense, penalties, and injury to our
brands and reputation, and negatively impact our operating results.
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Our business and our reputation could be adversely affected by the failure to protect sensitive employee,
customer and consumer data or to comply with evolving regulations relating to our obligation to protect such
data.
Cyber attacks designed to gain access to sensitive information by breaching security systems of large
organizations leading to unauthorized release of confidential information have occurred recently at a
number of major U.S. companies despite widespread recognition of the cyber attack threat and
improved data protection methods. During fiscal 2016, we have been subject, and will likely continue to
be subject, to attempts to breach the security of our networks and IT infrastructure through cyber
attack, malware, computer viruses and other means of unauthorized access. To the best of our
knowledge, attempts to breach our systems have not been successful to date. A breach of our systems
that resulted in the unauthorized release of sensitive data could adversely affect our reputation and
lead to financial losses from remedial actions or potential liability, possibly including punitive damages.
An electronic security breach resulting in the unauthorized release of sensitive data from our
information systems could also materially increase the costs we already incur to protect against such
risks. We continue to balance the additional risk with the cost to protect us against a breach.
13
ITEM 1B. UNRESOLVED STAFF COMMENTS.
None.
ITEM 2. PROPERTIES.
We owned or leased approximately 10.5 million square feet of manufacturing, warehousing and
distribution centers, office, showroom, and retail facilities, and had approximately 0.4 million square
feet of idle facilities, at the end of fiscal 2016. Of the 10.5 million square feet occupied at the end of
fiscal 2016, our Upholstery segment occupied approximately 6.6 million square feet, our Casegoods
segment occupied approximately 1.4 million square feet, our Retail segment occupied approximately
2.3 million square feet and our Corporate and other operations occupied the balance.
Our active facilities and retail locations are located in Arkansas, California, Colorado, Connecticut,
Delaware, Florida, Illinois, Indiana, Kansas, Kentucky, Maryland, Massachusetts, Michigan, Minnesota,
Mississippi, Missouri, Nevada, New Hampshire, New Jersey, New York, North Carolina, Ohio,
Pennsylvania, Rhode Island, South Carolina, Tennessee, Virginia, Washington D.C., Wisconsin, Coahuila
(Mexico), Bangkok (Thailand), Dongguan (China) and Hong Kong. All of our plants and stores are
well maintained and insured. We do not expect any major land or building additions will be needed to
increase capacity in the foreseeable future for our manufacturing operations. We own all of our
domestic plants, and our joint venture owns our Thailand plant. We lease the majority of our retail
stores and regional retail distribution centers, as well as our manufacturing facility in Mexico and our
office spaces in China and Hong Kong. For information on terms of operating leases for our
properties, see Note 11 to our consolidated financial statements, which are included in Item 8 of this
report.
ITEM 3. LEGAL PROCEEDINGS.
We are involved in various legal proceedings arising in the ordinary course of our business. Based on a
review of all currently known facts and our experience with previous legal matters, we have recorded
expense in respect of probable and reasonably estimable losses arising from legal matters and we
currently do not believe it is probable that we will have any additional loss that would be material to
our consolidated financial statements.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
14
EXECUTIVE OFFICERS OF THE REGISTRANT
Listed below are the names, ages and current positions of our executive officers and, if they have not
held those positions for at least five years, their former positions during that period. All executive
officers serve at the pleasure of the board of directors.
Kurt L. Darrow, age 61
(cid:127) Chairman, President and Chief Executive Officer since August 2011
(cid:127) President and Chief Executive Officer from September 2003 through August 2011
Louis M. Riccio Jr., age 53
(cid:127) Senior Vice President and Chief Financial Officer since July 2006
Mark S. Bacon, Sr., age 53
(cid:127) Senior Vice President and President, La-Z-Boy Branded Business since July 2011
(cid:127) Senior Vice President and Chief Retail Officer from October 2008 through July 2011
J. Douglas Collier, age 49
(cid:127) Senior Vice President, Chief Marketing Officer, and President, International since August 2014
(cid:127) Chief Marketing Officer and President, International from August 2011 through August 2014
(cid:127) Chief Marketing Officer from September 2008 through August 2011
Darrell D. Edwards, age 52
(cid:127) Senior Vice President and Chief Supply Chain Officer since August 2014
(cid:127) Senior Vice President of Operations, Residential Division from May 2012 through August 2014
(cid:127) Vice President, Manufacturing from July 2011 through May 2012
(cid:127) Vice President and General Manager—Dayton, Tennessee Plant from May 2007 through July 2011
Otis S. Sawyer, age 58
(cid:127) Senior Vice President and President, England, Inc. since February 2008
(cid:127) President of La-Z-Boy Casegoods since November 2015
(cid:127) President of Non-Branded Upholstery from February 2008 through August 2014
15
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
Dividend and Market Information
The New York Stock Exchange is the principal market on which our common stock is traded. The
tables below show the high and low sale prices of our common stock on the New York Stock Exchange
during each quarter of our last two fiscal years.
Fiscal 2016 Quarter Ended
July 25 . . . . . . . . . . . . . . . . .
October 24 . . . . . . . . . . . . . .
January 23 . . . . . . . . . . . . . . .
April 30 . . . . . . . . . . . . . . . .
Fiscal 2015 Quarter Ended
July 26 . . . . . . . . . . . . . . . . .
October 25 . . . . . . . . . . . . . .
January 24 . . . . . . . . . . . . . . .
April 25 . . . . . . . . . . . . . . . .
Dividends
Paid
Per Share
Market Price
High
Low
Close
$
$
$
$
$
$
$
$
$
$
0.08
0.08
0.10
0.10
0.36
Dividends
Paid
Per Share
0.06
0.06
0.08
0.08
0.28
$
$
$
$
$
$
$
$
27.68
29.34
29.23
27.32
$
$
$
$
24.96
24.16
20.30
19.56
Market Price
High
Low
26.66
23.42
27.75
28.38
$
$
$
$
20.93
19.03
21.50
24.71
$
$
$
$
$
$
$
$
24.98
28.50
21.35
25.87
Close
21.63
21.83
27.36
27.49
Our credit agreement allows us to pay dividends or purchase shares as long as we are not in default
and our excess availability, as defined in the agreement, is above 17.5% of the revolving credit
commitment. If excess availability falls between 12.5% and 17.5%, then to continue paying dividends or
purchasing shares, we must maintain a fixed charge coverage ratio of at least 1.10 to 1.00 on a
pro-forma basis and not be in default. Currently we are not prohibited from paying dividends or
purchasing shares. Refer to Note 10 of the consolidated financial statements in Item 8 for further
discussion of our credit agreement. The payment of future cash dividends is within the discretion of our
board of directors and will depend on our earnings, capital requirements and operating and financial
condition, as well as excess availability under the credit agreement, among other factors.
Shareholders
We had approximately 18,300 shareholders of record at June 14, 2016.
Equity Plans
The table below provides information concerning our compensation plans under which common shares
may be issued.
16
Equity Compensation Plan Information as of April 30, 2016
Number of
securities to be
issued upon
exercise of
outstanding
options
(i)
Weighted-
average exercise
price of
outstanding
options
(ii)
Number of
securities
remaining
available for
future issuance
under equity
compensation
plans (excluding
securities
reflected in
column (i))
(iii)
Plan category
Equity compensation plans approved by Shareholders
1,410,873(1) $
19.39
3,983,231(2)
Note 1: These options were issued under our 2010 Omnibus Incentive Plan.
Note 2: This amount is the aggregate number of shares available for future issuance under our 2010
Omnibus Incentive Plan. The omnibus incentive plan provides for awards of stock options,
restricted stock, and performance awards (awards of our common stock based on achievement
of pre-set goals over a performance period) to selected key employees and non-employee
directors. We have performance awards outstanding under the plan that would reduce the
number of shares remaining available for future issuance under the plan by 942,344 shares,
assuming the maximum performance targets were achieved.
Performance Graph
The graph below shows the cumulative total return for our last five fiscal years that would have been
realized (assuming reinvestment of dividends) by an investor who invested $100 on April 30, 2011, in
our common shares, in the S&P 500 Composite Index and in the Dow Jones U.S. Furnishings Index.
Comparison of 5 Year Cumulative Total Return
Assumes Initial Investment of $100
April 2016
300.00
250.00
200.00
150.00
100.00
50.00
0.00
4/30/2011
4/28/2012
4/27/2013
4/26/2014
4/25/2015
4/30/2016
LA-Z-BOY Inc.
S&P 500 Index - Total Returns
Dow Jones US Furnishings Index
17JUN201620064832
Company/Index/Market
2011
2012
2013
2014
2015
2016
La-Z-Boy Incorporated . . . . . . . . . . .
S&P 500 Composite Index . . . . . . . . .
Dow Jones U.S. Furnishings Index . . .
$
$
$
100
100
100
$130.44
$105.16
$ 95.75
$ 151.18
$ 121.27
$ 88.03
$ 211.56
$ 145.85
$ 97.19
$ 239.61
$ 169.15
$ 128.75
$ 228.60
$ 168.63
$ 136.23
17
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
Our board of directors has authorized the purchase of company stock. As of April 30, 2016, 4.0 million
shares remained available for purchase pursuant to this authorization. We spent $44.1 million in fiscal
2016 to purchase 1.7 million shares. During the fourth quarter of fiscal 2016, pursuant to the existing
board authorization, we adopted a plan to purchase company stock pursuant to Rule 10b5-1 of the
Securities Exchange Act of 1934. The plan was effective March 28, 2016. Under this plan, our broker
has the authority to purchase company shares on our behalf, subject to SEC regulations and the price,
market volume and timing constraints specified in the plan. The plan expires at the close of business on
August 18, 2016. With the cash flows we anticipate generating in fiscal 2017, we expect to continue
being opportunistic in purchasing company stock.
The following table summarizes our purchases of company stock during the fourth quarter of fiscal
2016:
(Shares in thousands)
Total
number of
shares
purchased(1)
Average
price paid
per share
Total number
of shares
purchased
as part of
publicly
announced
plan(2)
Maximum
number
of shares
that may yet
be purchased
under the
plan
Fiscal February (January 24 - February 27, 2016) . .
Fiscal March (February 28 - March 26, 2016) . . . . .
. . . . . . . .
Fiscal April (March 27 - April 30, 2016)
Fiscal Fourth Quarter of 2016 . . . . . . . . . . . . . . . .
31 $
237 $
314 $
582 $
24.76
25.33
26.18
25.76
30
237
314
581
4,594
4,356
4,043
4,043
(1) In addition to the 581,049 shares purchased during the quarter as part of our publicly announced
director authorization described above, this column includes 1,098 shares purchased from
employees to satisfy their withholding tax obligations upon vesting of restricted shares and
performance based shares.
(2) On October 28, 1987, our board of directors announced the authorization of the plan to
repurchase company stock. The plan originally authorized 1.0 million shares, and between October
1987 and January 24, 2015, 27.0 million shares were added to the plan for repurchase. The
authorization has no expiration date.
Recent Sales of Unregistered Securities
There were no sales of unregistered securities during fiscal year 2016.
18
ITEM 6. SELECTED FINANCIAL DATA.
The following table presents our selected financial data. The table should be read in conjunction with
Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, and
Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K. This
information is derived from our audited financial statements and should be read in conjunction with
those statements, including the related notes.
Consolidated Five-Year Summary of Financial Data
(Amounts in thousands)
Fiscal Year Ended
(53 weeks)
4/30/2016
(52 weeks)
4/25/2015
(52 weeks)
4/26/2014
(52 weeks)
4/27/2013
(52 weeks)
4/28/2012
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,525,398 $ 1,425,395 $ 1,357,318 $ 1,273,877 $ 1,166,705
Cost of sales
Cost of goods sold . . . . . . . . . . . . . . . .
Restructuring . . . . . . . . . . . . . . . . . . .
Total cost of sales . . . . . . . . . . . . . . . . . .
Gross profit
. . . . . . . . . . . . . . . . . . . .
Selling, general and administrative
expense . . . . . . . . . . . . . . . . . . . . . . .
Restructuring . . . . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . .
Interest income . . . . . . . . . . . . . . . . . . .
Income from Continued Dumping and
Subsidy Offset Act, net . . . . . . . . . . . .
Other income (expense), net . . . . . . . . . .
Income from continuing operations
before income taxes . . . . . . . . . . . . .
Income tax expense (benefit) . . . . . . . . . .
Income from continuing operations . .
Income (loss) from discontinued
operations, net of tax . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . .
Net income attributable to noncontrolling
interests . . . . . . . . . . . . . . . . . . . . . . .
Net income attributable to La-Z-Boy
943,290
72
943,362
582,036
459,140
507
122,389
486
827
102
2,211
125,043
44,080
80,963
—
80,963
921,142
(239)
920,903
504,492
401,459
(132)
103,165
523
1,030
1,212
744
105,628
36,954
68,674
3,297
71,971
888,025
4,839
892,864
464,454
375,158
—
89,296
548
761
—
2,050
91,559
31,383
60,176
(3,796)
56,380
854,542
2,480
857,022
416,855
349,101
151
67,603
746
620
795,957
13
795,970
370,735
321,770
268
48,697
1,384
609
—
3,208
11,066
(38)
70,685
23,520
47,165
17
47,182
58,950
(25,052)
84,002
4,906
88,908
(1,711)
(1,198)
(1,324)
(793)
(942)
Incorporated . . . . . . . . . . . . . . . . $
79,252 $
70,773 $
55,056 $
46,389 $
87,966
Net income attributable to La-Z-Boy
Incorporated:
Income from continuing operations
attributable to La-Z-Boy
Incorporated . . . . . . . . . . . . . . . . $
Income (loss) from discontinued
79,252 $
67,476 $
58,852 $
46,372 $
83,060
operations . . . . . . . . . . . . . . . . .
—
3,297
(3,796)
17
4,906
Net income attributable to La-Z-Boy
Incorporated . . . . . . . . . . . . . . . . . . $
79,252 $
70,773 $
55,056 $
46,389 $
87,966
19
1.57
0.09
1.55
0.09
1.64
—
8.46
Consolidated Five-Year Summary of Financial Data (Continued)
(Amounts in thousands, except per share data)
Fiscal Year Ended
(53 weeks)
4/30/2016
(52 weeks)
4/25/2015
(52 weeks)
4/26/2014
(52 weeks)
4/27/2013
(52 weeks)
4/28/2012
50,194
51,767
52,386
52,351
51,944
Basic weighted average shares . . . . . . . . .
Basic net income attributable to La-Z-Boy
Incorporated per share:
Income from continuing operations
attributable to La-Z-Boy
Incorporated . . . . . . . . . . . . . . . . . . $
Income (loss) from discontinued
1.57 $
1.30 $
1.11 $
0.87 $
operations . . . . . . . . . . . . . . . . . .
—
0.06
(0.07)
—
Basic net income attributable to
La-Z-Boy Incorporated per share . . . $
1.57 $
1.36 $
1.04 $
0.87 $
1.66
50,765
52,346
53,829
53,685
52,478
Diluted weighted average shares . . . . . . .
Diluted net income attributable to
La-Z-Boy Incorporated per share:
Income from continuing operations
attributable to La-Z-Boy
Incorporated . . . . . . . . . . . . . . . . . . $
Income (loss) from discontinued
1.55 $
1.28 $
1.09 $
0.85 $
operations . . . . . . . . . . . . . . . . . .
—
0.06
(0.07)
—
Diluted net income attributable to
La-Z-Boy Incorporated per share . . . $
Dividends declared per share . . . . . . . . . . $
Book value of year-end shares
1.55 $
0.36 $
1.34 $
0.28 $
1.02 $
0.20 $
0.85 $
0.08 $
outstanding(1) . . . . . . . . . . . . . . . . . . . $
11.09 $
10.33 $
10.04 $
9.25 $
20
Consolidated Five-Year Summary of Financial Data (Continued)
(Dollar amounts in thousands)
Fiscal Year Ended
(53 weeks)
4/30/2016
(52 weeks)
4/25/2015
(52 weeks)
4/26/2014
(52 weeks)
4/27/2013
(52 weeks)
4/28/2012
Return on average total equity(2) . . .
Gross profit as a percent of sales . . .
Operating income as a percent of
sales . . . . . . . . . . . . . . . . . . . . . .
Effective tax rate(3) . . . . . . . . . . . . .
Return on sales(3) . . . . . . . . . . . . . .
Depreciation and amortization . . . . .
$
Capital expenditures . . . . . . . . . . . . . $
$
Property, plant and equipment, net . .
Working capital . . . . . . . . . . . . . . . .
$
Current ratio(4) . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . .
Long-term debt, excluding current
$
14.9%
38.2%
8.0%
35.3%
5.3%
26,517
24,684
171,590
324,545
3.1 to 1
800,029
portion . . . . . . . . . . . . . . . . . . . . .
Total debt . . . . . . . . . . . . . . . . . . . .
Total equity . . . . . . . . . . . . . . . . . . .
Debt to equity ratio(5) . . . . . . . . . . .
Debt to capitalization ratio(6) . . . . . .
$
$
$
513
803
557,212
12.9%
35.4%
7.2%
35.0%
4.8%
11.8%
34.2%
6.6%
34.3%
4.4%
10.0%
32.7%
5.3%
33.3%
3.7%
20.7%
31.8%
4.2%
(42.5)%
7.2%
$
$
$
$
$
$
$
$
22,283
70,319
174,036
321,560
3.1 to 1
774,604
433
830
533,100
$
$
$
$
$
$
$
$
23,182
33,730
127,535
355,291
3.1 to 1
771,295
277
7,774
529,718
$
$
$
$
$
$
$
$
23,140
25,912
118,060
350,717
3.3 to 1
720,371
7,576
8,089
491,968
$
$
$
$
$
$
$
$
23,486
15,663
114,366
350,241
3.3 to 1
685,739
7,931
9,760
447,815
0.1%
0.1%
0.2%
0.2%
1.5%
1.4%
1.6%
1.6%
2.2%
2.1%
Shareholders . . . . . . . . . . . . . . . . . .
Employees . . . . . . . . . . . . . . . . . . . .
18,300
8,700
15,500
8,270
13,900
8,300
12,400
8,185
13,900
8,160
(1) Equal to total La-Z-Boy Incorporated shareholders’ equity divided by the number of outstanding
shares on the last day of the fiscal year
(2) Equal to income from continuing operations divided by average two year equity
(3) Based on income from continuing operations
(4) Equal to total current assets divided by total current liabilities
(5) Equal to total debt divided by total equity
(6) Equal to total debt divided by total debt plus total equity
21
Unaudited Quarterly Financial Information Fiscal 2016
(Amounts in thousands, except per share data)
Fiscal Quarter Ended
(13 weeks)
7/25/2015
(13 weeks)
10/24/2015
(13 weeks)
1/23/2016
(14 weeks)
4/30/2016
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of sales
Cost of goods sold . . . . . . . . . . . . . . . . . . . . .
Restructuring . . . . . . . . . . . . . . . . . . . . . . . .
Total cost of sales . . . . . . . . . . . . . . . . . . . . . . .
Gross profit
. . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative expense . . . .
Restructuring . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . .
Interest income . . . . . . . . . . . . . . . . . . . . . . . .
Income from Continued Dumping and Subsidy
Offset Act, net . . . . . . . . . . . . . . . . . . . . . . .
Other income (expense), net . . . . . . . . . . . . . . .
Income before income taxes . . . . . . . . . . . . . .
Income tax expense . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income attributable to noncontrolling
$
341,423
$
382,891
$
384,014
$
417,070
217,191
—
217,191
124,232
104,100
166
19,966
112
205
—
1,968
22,027
7,904
14,123
237,007
78
237,085
145,806
112,304
108
33,394
133
164
—
512
33,937
12,278
21,659
236,030
(6)
236,024
147,990
113,122
84
34,784
120
204
102
(93)
34,877
12,643
22,234
253,062
—
253,062
164,008
129,614
149
34,245
121
254
—
(176)
34,202
11,255
22,947
interests . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(447)
(707)
(328)
(229)
Net income attributable to La-Z-Boy
Incorporated . . . . . . . . . . . . . . . . . . . . . . .
$
13,676
$
20,952
$
21,906
$
22,718
Diluted weighted average common shares . . . . .
51,043
51,039
50,539
50,262
Diluted net income attributable to La-Z-Boy
Incorporated per share . . . . . . . . . . . . . . . . .
Dividends declared per share . . . . . . . . . . . . . . .
$
$
0.27
0.08
$
$
0.41
0.08
$
$
0.43
0.10
$
$
0.45
0.10
22
Unaudited Quarterly Financial Information Fiscal 2015
(Amounts in thousands, except per share data)
Fiscal Quarter Ended
(13 weeks)
7/26/2014
(13 weeks)
10/25/2014
(13 weeks)
1/24/2015
(13 weeks)
4/25/2015
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Cost of sales
326,980 $
365,601 $
357,876 $
374,938
Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . .
Restructuring . . . . . . . . . . . . . . . . . . . . . . . . . .
215,831
(357)
235,716
(10)
Total cost of sales . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit
. . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative expense . . . . . .
Restructuring . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from Continued Dumping and Subsidy
Offset Act, net . . . . . . . . . . . . . . . . . . . . . . . ..
Other income (expense), net . . . . . . . . . . . . . . . . .
Income from continuing operations before
income taxes . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax expense . . . . . . . . . . . . . . . . . . . . . . .
Income from continuing operations . . . . . . . . . .
Income from discontinued operations, net of tax . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net (income) loss attributable to noncontrolling
215,474
111,506
95,015
—
16,491
132
202
—
(258)
16,303
5,755
10,548
2,497
13,045
235,706
129,895
99,683
20
30,192
145
233
—
152
30,432
10,743
19,689
285
19,974
228,326
(9)
228,317
129,559
103,393
(762)
26,928
131
232
—
805
27,834
9,477
18,357
115
18,472
241,269
137
241,406
133,532
103,368
610
29,554
115
363
1,212
45
31,059
10,979
20,080
400
20,480
interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
36
(445)
(524)
(265)
Net income attributable to La-Z-Boy
Incorporated . . . . . . . . . . . . . . . . . . . . . . . . . $
13,081 $
19,529 $
17,948 $
20,215
Net income attributable to La-Z-Boy Incorporated:
Income from continuing operations attributable
to La-Z-Boy Incorporated . . . . . . . . . . . . . . . $
Income from discontinued operations . . . . . . .
10,584 $
2,497
19,244 $
285
17,833 $
115
19,815
400
Net income attributable to La-Z-Boy
Incorporated . . . . . . . . . . . . . . . . . . . . . . . . . $
13,081 $
19,529 $
17,948 $
20,215
Diluted weighted average common shares . . . . . . .
Diluted net income attributable to La-Z-Boy
Incorporated per share:
Income from continuing operations attributable
52,627
52,723
52,139
51,616
to La-Z-Boy Incorporated . . . . . . . . . . . . . . . $
Income from discontinued operations . . . . . . .
0.20 $
0.05
0.36 $
0.01
0.34 $
—
Diluted net income attributable to La-Z-Boy
Incorporated per share . . . . . . . . . . . . . . . . . . $
Dividends declared per share . . . . . . . . . . . . . . . . . $
0.25 $
0.06 $
0.37 $
0.06 $
0.34 $
0.08 $
0.38
0.01
0.39
0.08
23
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
We have prepared this Management’s Discussion and Analysis as an aid to understanding our financial
results. It should be read in conjunction with the accompanying Consolidated Financial Statements and
related Notes to Consolidated Financial Statements. We begin with an introduction to our key
businesses and then provide discussions of our results of operations, liquidity and capital resources, and
critical accounting policies. It is important to note that our fiscal year 2016 included 53 weeks, whereas
fiscal years 2015 and 2014 included 52 weeks. The additional week in fiscal 2016 was included in our
fourth quarter.
This Management’s Discussion and Analysis reflects results for only our continuing operations, unless
otherwise noted. During fiscal 2014, we sold substantially all of the assets of our Bauhaus U.S.A.
business unit, and we marketed for sale our youth furniture business, Lea Industries, a division of
La-Z-Boy Casegoods, Inc. (formerly known as La-Z-Boy Greensboro, Inc.). We were unable to find a
buyer for the Lea Industries business, and instead we ceased operations and liquidated all the assets,
consisting mostly of inventory, during fiscal 2015. In the accompanying financial statements, we
reported the operating results of Bauhaus and Lea Industries as discontinued operations for all periods
presented. For the fiscal years ended April 25, 2015, and April 26, 2014, we recorded pre-tax income of
$0.9 million ($0.6 million after tax) and a pre-tax loss of $6.0 million ($3.8 million after tax),
respectively, in discontinued operations related to these businesses. We previously reported results of
Bauhaus as a component of our Upholstery segment, and Lea Industries as a component of our
Casegoods segment.
In fiscal 2015, we also recorded $4.2 million of pre-tax income ($2.7 million after tax) in discontinued
operations related to the Continued Dumping and Subsidy Offset Act of 2000 (‘‘CDSOA’’). Before the
Act was revised in 2007, it provided that duties collected on wooden bedroom furniture imported from
China were to be distributed to domestic producers that supported the antidumping petition that
resulted in the duties. Of the $4.2 million pre-tax income we received, $3.8 million related to our
previously owned subsidiary, American Furniture Company, Incorporated. We sold this subsidiary in
fiscal 2007 and reported it as discontinued operations at that time. When we sold the assets of
American Furniture Company, Incorporated our contract provided that we would receive a portion of
any such duties to which that entity was entitled. The remainder of the CDSOA pre-tax income
reported in discontinued operations related to Lea Industries.
Introduction
Our Business
We manufacture, market, import, export, distribute and retail upholstery furniture products. In
addition, we import, distribute and retail accessories and casegoods (wood) furniture products. We are
the leading global producer of reclining chairs and the second largest manufacturer/distributor of
residential furniture in the United States. The La-Z-Boy Furniture Galleries(cid:3) stores retail network is
the third largest retailer of single-branded furniture in the United States. We have seven major North
American manufacturing locations and six regional retail distribution centers in the United States to
support our speed-to-market and customization strategy.
We sell our products, primarily in the United States and Canada but also internationally, to furniture
retailers and directly to consumers through stores that we own and operate. The centerpiece of our
retail distribution strategy is our network of 338 La-Z-Boy Furniture Galleries(cid:3) stores and 559 Comfort
Studio(cid:3) locations, each dedicated to marketing our La-Z-Boy branded products. We consider this
dedicated space to be ‘‘branded outlets’’ or ‘‘proprietary.’’ We own 124 of the La-Z-Boy Furniture
Galleries(cid:3) stores. The remainder of the La-Z-Boy Furniture Galleries(cid:3) stores, as well as all 559
Comfort Studio(cid:3) locations, are independently owned and operated. La-Z-Boy Furniture Galleries(cid:3)
24
stores help consumers furnish their homes by combining the style, comfort and quality of La-Z-Boy
furniture with our available In-Home Design service. La-Z-Boy Comfort Studio(cid:3) locations are defined
spaces within larger independent retailers that are dedicated to displaying and selling La-Z-Boy
branded products. In addition to the La-Z-Boy Comfort Studio(cid:3) locations, our Kincaid and England
operating units have their own dedicated proprietary in-store programs with 500 outlets and over
1.5 million square feet of proprietary floor space. In total, our proprietary floor space includes
approximately 9.3 million square feet.
Our goal is to deliver value to our shareholders with improved sales and earnings over the long term
through the execution of our strategic initiatives. The foundation of our strategic initiatives is driving
sales growth in all areas of our business, but most importantly in our flagship La-Z-Boy brand. We are
driving this growth in four ways:
(cid:127) We are expanding our branded distribution channels by executing our 4-4-5 store growth initiative,
through which we plan to expand the La-Z-Boy Furniture Galleries(cid:3) stores network to 400 stores
averaging $4 million in sales per store over the five-year period that began with fiscal 2014. We just
completed year three of this initiative, which has been delivering results for us, as noted by the
network’s achievement of our average sales per store target of $4 million per store during calendar
2015, more than two years ahead of schedule. Although we now expect the store build out to extend
beyond five years, we believe as the average revenue per store increases, the same economic value
could be delivered by the network in that time frame. Through this initiative, we intend not only to
increase the number of stores but also to improve their quality, including upgrading old format stores
to our new design concept through remodels and relocations. In addition, we are increasing our
La-Z-Boy Comfort Studio(cid:3) locations, our store-within-a-store format, as another avenue to expand
our branded distribution channels. We expect these initiatives to generate growth in our Retail
segment through an increased company-owned store count, and to generate growth in our wholesale
Upholstery segment as our proprietary distribution network expands, in both cases with higher
average sales per store.
(cid:127) We are growing the size of our company-owned retail business by acquiring La-Z-Boy Furniture
Galleries(cid:3) stores that are owned by our independent dealers, primarily in markets where we see
opportunity for growth or where we believe there are opportunities for further market penetration.
(cid:127) We are increasing our market share with the growth of sales through our multi-channel distribution
network. In addition to the almost 900 branded outlets dedicated to selling La-Z-Boy product
(La-Z-Boy Furniture Galleries(cid:3) stores and La-Z-Boy Comfort Studio(cid:3) locations), approximately
1,900 other dealers sell La-Z-Boy products. These outlets include some of the best known names in
the industry, such as Art Van, Nebraska Furniture Mart, and Slumberland. Additionally, our other
brands—England, American Drew, Hammary, and Kincaid—enjoy distribution through a combined
1,500 dealers. We believe there is significant growth potential for our brands through these retail
channels.
(cid:127) We are also increasing our market share in stationary upholstered furniture through a combination of
our Live Life Comfortably(cid:3) marketing campaign, featuring Brooke Shields as our brand ambassador,
and our innovative and on-trend product. We continue to invest in this campaign, aimed at changing
the image of our brand and widening La-Z-Boy’s appeal among a broader consumer demographic.
While we are known for our iconic recliners, we sell more of all the other types of furniture in our
portfolio than recliners. Also, integral to the Live Life Comfortably(cid:3) campaign is our Urban
Attitudes(cid:3) collection of smaller-scale stationary furniture targeted at a more style-conscious
demographic, younger consumers, and people who live in smaller spaces in urban locations.
Stationary upholstery furniture is a significant share of the industry’s total upholstery furniture sales,
and we believe that over time we can capture a larger share of demand for these products.
25
Additionally, we are focused on improving profitability through operational excellence in our supply
chain, which includes our procurement and manufacturing operations. We implemented a corporate
center of excellence for supply chain management, through which we are transitioning our supply chain
efforts from being run by our individual operating companies to being managed on a corporation-wide
basis, in order to leverage efficiencies, savings opportunities, and relationships with vendors. One key
aspect of this strategy was our establishment of a global trading company in Hong Kong. During fiscal
2016, our wholesale segments benefited from the efficiencies that this strategy generated throughout
our supply chain.
During fiscal 2016, the number of stores in the La-Z-Boy Furniture Galleries(cid:3) store network increased
by 13 stores to 338, while the number of company-owned retail stores increased by 14 stores to 124.
The 14 additional company-owned retail stores included 11 that we acquired from independent dealers
and five new stores, partly offset by two store closures during the fiscal year. We improved sales
through volume increases in our Upholstery and Retail segments, while also delivering a higher
operating margin in both segments. We achieved the improvement in our Upholstery segment
profitability mainly through improved efficiencies in our supply chain, and increased our Retail
segment’s operating margin mainly through higher sales volume in stores that had been open for at
least 12 months and a higher percentage of custom orders. While our Casegoods sales volume
decreased compared with last year, our restructuring of that business to an all-import model is working
as we intended, and we believe the business will now deliver more consistent performance going
forward.
Our reportable operating segments are the Upholstery segment, the Casegoods segment, and the Retail
segment.
(cid:127) Upholstery Segment. Our Upholstery segment is our largest business and consists primarily of two
operating units: La-Z-Boy, our largest operating unit, and our England subsidiary. Our Upholstery
segment manufactures and imports upholstered furniture such as recliners and motion furniture,
sofas, loveseats, chairs, sectionals, modulars, ottomans and sleeper sofas. The Upholstery segment
sells directly to La-Z-Boy Furniture Galleries(cid:3) stores, operators of La-Z-Boy Comfort Studio(cid:3)
locations and England Custom Comfort Center locations, major dealers, and a wide cross-section of
other independent retailers.
(cid:127) Casegoods Segment. Our Casegoods segment is an importer, marketer and distributor of casegoods
(wood) furniture such as bedroom sets, dining room sets, entertainment centers and occasional
pieces, and also manufactures some coordinated upholstered furniture. The Casegoods segment
consists of three brands: American Drew, Hammary, and Kincaid. The Casegoods segment sells
directly to major dealers, as well as La-Z-Boy Furniture Galleries(cid:3) stores, and a wide cross-section of
other independent retailers.
(cid:127) Retail Segment. Our Retail segment consists of 124 company-owned La-Z-Boy Furniture Galleries(cid:3)
stores. The Retail segment primarily sells upholstered furniture, in addition to some casegoods and
other accessories, to the end consumer through our retail network.
Results of Operations
Fiscal Year 2016, Fiscal Year 2015, and Fiscal Year 2014
La-Z-Boy Incorporated
(Amounts in thousands, except percentages)
(53 weeks)
4/30/2016
(52 weeks)
4/25/2015
(FY16 vs FY15)
% Change
(52 weeks)
4/27/2014
(FY15 vs FY14)
% Change
Sales . . . . . . . . . . . . . . . . . . . . . . . . $1,525,398 $1,425,395
103,165
Operating income . . . . . . . . . . . . . . .
Operating margin . . . . . . . . . . . . . . .
122,389
8.0%
7.2%
7.0% $1,357,318
89,296
18.6%
5.0%
15.5%
6.6%
26
Sales
Our consolidated sales increased $100.0 million in fiscal 2016 over fiscal 2015, following an increase of
$68.1 million in fiscal 2015 over fiscal 2014. As a reminder, fiscal 2016 contained 53 weeks, while fiscal
2015 and 2014 had 52 weeks.
(cid:127) The increases in sales in both fiscal 2016 and fiscal 2015 compared with the prior years were due to
higher sales in our Retail and Upholstery segments. Our Retail segment sales continued to benefit
from volume increases in our stores that had been open for a minimum of 12 months, in addition to
sales from new and acquired stores. Our Upholstery segment sales increase over the last two years
was driven by stronger unit volume. Our Casegoods segment has been working through a
restructuring of its business, and sales in fiscal 2016 were lower than the prior year due mainly to the
elimination of our hospitality product line and higher sales in fiscal 2015 that were the result of
increased promotional activity of our older product lines.
(cid:127) The additional week in fiscal 2016 compared with fiscal 2015 accounted for approximately 2% of
fiscal 2016’s total sales.
Operating Margin
Our operating margin increased 0.8 percentage point in fiscal 2016 compared with the prior year,
following an increase of 0.6 percentage point in fiscal 2015 compared with the prior year.
(cid:127) Our gross margin increased 2.8 percentage points during fiscal 2016 compared with fiscal 2015,
following a 1.2 percentage point increase in fiscal 2015 compared with fiscal 2014.
(cid:127) Our Upholstery segment gross margin improved in both fiscal 2016 and fiscal 2015 compared
with the prior years. Fiscal 2016 gross margin improved primarily due to supply chain
efficiencies, as well as favorable changes in our product mix, which reversed the performance in
fiscal 2015, when inefficiencies in our supply chain and unfavorable changes in our product mix
lowered our gross margin when compared with fiscal 2014. The inefficiencies in fiscal 2015 were
a result of implementing our ERP system in all our branded upholstery plants. In fiscal 2016,
through improved inventory procurement, product flow, and leveraging the benefits of our ERP
system in our branded upholstery plants, we were able to operate more efficiently than in the
prior fiscal year. Both fiscal 2016 and fiscal 2015 included the benefit of favorable legal
settlements, which provided a 0.3 percentage point and 0.4 percentage point benefit, respectively.
(cid:127) Our Retail segment gross margin improved in both fiscal 2016 and fiscal 2015 compared with the
prior years due to increased custom orders and In-Home Design orders, which generate a higher
gross margin than sales of stock units.
(cid:127) Our Casegoods segment gross margin improved in both fiscal 2016 and fiscal 2015 compared
with the prior years due to our transition to an all-import model for our wood furniture and our
consolidation of our casegoods operations. Additionally, the segment’s fiscal 2015 gross margin
included the benefit of a reduction in our LIFO reserves during that time period.
(cid:127) Our gross margin improved 0.9 percentage point and 0.5 percentage point in fiscal 2016 and
fiscal 2015, respectively, due to changes in our consolidated sales mix. Our consolidated sales
mix changed due to the growth of our Retail segment, which has a higher gross margin than our
wholesale segments.
(cid:127) Our selling, general, and administrative (‘‘SG&A’’) expense as a percentage of sales increased
2.0 percentage points during fiscal 2016 compared with fiscal 2015, following a 0.6 percentage point
increase in fiscal 2015 as compared with fiscal 2014.
27
(cid:127) Professional fees and legal costs were 0.5 percentage point higher and 0.3 percentage point
higher during fiscal 2016 and fiscal 2015, respectively, primarily due to legal fees and a
$5.5 million accrual for a pending legal matter associated with a lawsuit over a contract dispute,
as well as spending for our continued ERP implementation and our new e-commerce web site.
The pending legal matter, which was previously announced, is currently under review by the
court and the court could overturn the verdict which could result in the entire accrual being
reversed. Additionally, if the verdict is overturned, that decision could be appealed, which could
result in additional expense in future periods in defense of that appeal.
(cid:127) Higher costs associated with our new world headquarters, primarily depreciation, resulted in a
0.4 percentage point increase in SG&A expense as a percentage of sales during fiscal 2016
compared with fiscal 2015. Distribution costs, primarily from expanding our regional retail
distribution centers network, resulted in a 0.3 percentage point increase during fiscal 2015.
(cid:127) Incentive compensation costs resulted in a 0.3 percentage point increase in SG&A expense as
percentage of sales during fiscal 2016 compared to fiscal 2015, following a 0.5 percentage point
decrease in fiscal 2015 compared to fiscal 2014. These costs were higher in fiscal 2016 primarily
due to an improvement in our current year consolidated financial performance against our
incentive-based targets compared with our financial performance in the prior year against the
prior year targets. Our financial performance in fiscal 2015 was lower against that year’s
incentive-based targets when compared with fiscal 2014.
(cid:127) Warranty expense was 0.2 percentage point higher as a percent of sales during fiscal 2016 and
fiscal 2015, compared with the respective prior year. Our warranty expense was higher primarily
due to higher replacement part costs and labor costs from our more complex product lines.
Additionally, our warranty expense was higher during fiscal 2016 due to favorable accrual
adjustments during fiscal 2015 which reflected a change in the prior estimates of our product
warranty liability during that time period.
(cid:127) Our SG&A expense increased as a percent of sales by 1.2 percentage points and 0.8 percentage
point in fiscal 2016 and fiscal 2015, respectively, due to the growth of our Retail segment, which
has a higher level of SG&A expense as a percent of sales than our wholesale segments.
These items are further explained in the discussion of each segment’s results later in this Management’s
Discussion and Analysis.
Upholstery Segment
(Amounts in thousands, except percentages)
(53 weeks)
4/30/2016
(52 weeks)
4/25/2015
(FY16 vs FY15)
% Change
(52 weeks)
4/26/2014
(FY15 vs FY14)
% Change
Sales . . . . . . . . . . . . . . . . . . . . . . . . $1,215,805 $1,151,802
Operating income . . . . . . . . . . . . . . .
121,403
Operating margin . . . . . . . . . . . . . . .
134,193
11.0%
10.5%
5.6% $1,099,050
10.5% 117,688
10.7%
4.8%
3.2%
Sales
Our Upholstery segment’s sales increased $64.0 million in fiscal 2016 over fiscal 2015, following an
increase of $52.8 million in fiscal 2015 over fiscal 2014.
(cid:127) Increased unit volume in both fiscal 2016 and fiscal 2015 drove a 4.3% and 4.2% sales increase,
respectively, compared with the prior year. We believe the increased unit volume over the two-year
period was a result of our Live Life Comfortably(cid:3) marketing campaign, the strength of our stationary
product introductions, and our improved product value and styling. Included in the increased volume
is the additional week in fiscal 2016, which accounted for approximately 2% of the total fiscal 2016
sales volume.
28
(cid:127) Favorable changes in our product mix in fiscal 2016 resulted in a 1.1% increase in sales compared
with fiscal 2015. Our product mix included a shift to more powered motion units and an increase in
motion sofas as compared with the prior year. Powered motion units have a higher average selling
price than motion units without power, as do motion sofas as compared with stationary products.
(cid:127) Unfavorable changes in our product mix in fiscal 2015 resulted in a 0.6% decrease in sales compared
with fiscal 2014. Our product mix in fiscal 2015 included a shift to more recliners and stationary
units, including a shift from motion sofas to stationary sofas and occasional chairs, as well as a shift
to more fabric units and fewer leather units. Motion sofas and leather units have a higher average
selling price compared to stationary units and fabric units.
(cid:127) Higher selling prices in fiscal 2015 resulted in 1.0% of the sales increase compared to fiscal 2014.
Operating Margin
Our Upholstery segment’s operating margin increased 0.5 percentage point in fiscal 2016 compared
with the prior year, following a decrease of 0.2 percentage point in fiscal 2015 compared with fiscal
2014.
(cid:127) The segment’s gross margin increased 1.9 percentage points during fiscal 2016 compared with fiscal
2015, following a 0.3 percentage point increase during fiscal 2015 compared with fiscal 2014.
(cid:127) The main driver of changes in our gross margin was the performance of our supply chain, which
includes our procurement and manufacturing operations. During fiscal 2016, improved
efficiencies in our supply chain resulted in a 1.9 percentage point improvement in the segment’s
gross margin, which reversed the performance in fiscal 2015, when inefficiencies in our supply
chain lowered our gross margin by 0.6 percentage point, when compared with fiscal 2014. The
inefficiencies in fiscal 2015 were a result of implementing our ERP system in all our branded
upholstery plants. In fiscal 2016, through improved inventory procurement, product flow, and
leveraging the benefits of our ERP system in our branded upholstery plants, we were able to
operate more efficiently than in the prior fiscal year.
(cid:127) Additionally, the segment’s gross margin was impacted by favorable legal settlements, which
provided a benefit of 0.3 percentage point and 0.5 percentage point, respectively, in fiscal 2016
and fiscal 2015.
(cid:127) The segment’s SG&A expense as a percentage of sales increased 1.4 percentage points during fiscal
2016 compared with fiscal 2015, following an increase of 0.5 percentage point during fiscal 2015
compared with fiscal 2014.
(cid:127) Professional fees and legal costs were 1.0 percentage point higher as a percent of sales during
fiscal 2016, primarily due to legal fees and a $5.5 million accrual for a pending legal matter
associated with a lawsuit over a contract dispute, as well as spending for our continued ERP
implementation. The pending legal matter, which was previously announced, is currently under
review by the court and the court could overturn the verdict which could result in the entire
accrual being reversed. Additionally, if the verdict is overturned, that decision could be appealed,
which could result in additional expense in future periods in defense of that appeal.
(cid:127) Warranty expense was 0.3 percentage point higher as a percent of sales during fiscal 2016. Our
warranty expense was higher primarily due to higher replacement part costs and labor costs from
our more complex product lines. Additionally, our warranty expense was higher during fiscal
2016 due to favorable accrual adjustments during fiscal 2015 which reflected a change in the
prior estimates of our product warranty liability during that time period.
(cid:127) Professional fees were 0.4 percentage point higher as a percent of sales during fiscal 2015,
primarily due to spending for investment in our business. The investments included higher costs
for technology improvements, including our ERP system and our website and e-commerce
platform.
29
Casegoods Segment
(Amounts in thousands, except percentages)
(53 weeks)
4/30/2016
(52 weeks)
4/25/2015
(FY16 vs FY15)
% Change
(52 weeks)
4/26/2014
(FY15 vs FY14)
% Change
Sales . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . .
Operating margin . . . . . . . . . . . . . . .
$102,540
7,734
$109,713
6,408
7.5%
5.8%
(6.5)% $106,752
3,397
20.7%
3.2%
2.8%
88.6%
Sales
Our Casegoods segment’s sales decreased $7.2 million in fiscal 2016 over fiscal 2015, following an
increase of $3.0 million in fiscal 2015 over fiscal 2014.
(cid:127) When we ceased domestic manufacturing of our wood furniture, we eliminated our hospitality
product line, which resulted in $3.7 million lower sales in fiscal 2016 compared with fiscal 2015. In
addition, as we have shifted our product line to more transitional and casual styles over the last few
years, we have been selling through older product lines. Higher promotional activity related to these
product lines during fiscal 2015 resulted in higher sales during that period. These items were both
somewhat offset by the additional week in fiscal 2016, which resulted in approximately 2% of
additional sales.
(cid:127) In fiscal 2015, increased unit volume drove a 2.8% increase in sales compared with fiscal 2014. We
believe the increased unit volume was a result of new collections we introduced as part of shifting
our product styling to more transitional and casual styles, as well as strength in our occasional
business, partly offset by higher promotional activity as we sold through older, more traditional
product. In addition, we had $1.9 million lower sales of hospitality product in fiscal 2015 compared
with fiscal 2014.
Operating Margin
Our Casegoods segment’s operating margin increased 1.7 percentage points in fiscal 2016 compared
with the prior year, following an increase of 2.6 percentage points in fiscal 2015 compared with the
prior year.
(cid:127) The segment’s gross margin increased 0.9 percentage point during fiscal 2016 compared with fiscal
2015, following an increase of 2.5 percentage points during fiscal 2015 compared with fiscal 2014.
(cid:127) During fiscal 2016, the transition to an all-import model for our wood furniture and the
consolidation of our casegoods operations, as well as less discounting due to lower promotional
activity in fiscal 2016, drove the improved gross margin for the segment.
(cid:127) During fiscal 2015, the segment’s gross margin was positively impacted by a $2.1 million
reduction in our LIFO reserve associated with a portion of our domestically manufactured
inventory which was liquidated in fiscal 2015. We ceased manufacturing product domestically
during fiscal 2015, and we reduced our LIFO reserve since the stream of domestically
manufactured inventory will not be replaced. This reduction resulted in a 2.4 percentage point
improvement in gross margin for the segment.
(cid:127) The segment’s SG&A expense as a percentage of sales decreased 0.8 percentage point during fiscal
2016 compared with fiscal 2015, following a 0.1 percentage point decrease during fiscal 2015
compared with fiscal 2014.
(cid:127) During fiscal 2016, the decreased SG&A expense was mainly due to lower incentive
compensation resulting from lower financial performance of the segment against the incentive-
based targets compared with our financial performance in the prior year against the prior year
30
targets. Also, we decreased our SG&A expense through the consolidation of our casegoods
operations into one corporate office and the elimination of redundant expenses.
(cid:127) During fiscal 2015, the decreased SG&A expense was mainly due to improved leverage of fixed
SG&A costs resulting from the higher sales volume. This decrease was somewhat offset by
higher incentive compensation costs due to the segment’s improved financial performance in
fiscal 2015 compared with fiscal 2014.
Retail Segment
(Amounts in thousands, except percentages)
(53 weeks)
4/30/2016
(52 weeks)
4/25/2015
(FY16 vs FY15)
% Change
(52 weeks)
4/26/2014
(FY15 vs FY14)
% Change
Sales . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . .
Operating margin . . . . . . . . . . . . . . . .
$402,479
25,567
$333,978
11,466
6.4%
3.4%
20.5% $298,642
123.0% 11,128
3.7%
11.8%
3.0%
Sales
Our Retail segment’s sales increased $68.5 million in fiscal 2016 over fiscal 2015, following an increase
of $35.3 million in fiscal 2015 over fiscal 2014.
(cid:127) In fiscal 2016, the segment’s sales increase was due in part to higher sales volume for stores that had
been open for a minimum of 12 months, which increased 7.5% or $14.0 million, compared with fiscal
2015. The increased volume was primarily a result of higher average ticket sales, driven by a higher
percentage of custom orders, increased In-Home Design orders, and a shift to more powered units.
Our acquired stores added $22.4 million in sales for the segment in fiscal 2016, and the remainder of
the sales increase came from our new and closed stores. The additional week in fiscal 2016
accounted for approximately 2% of total fiscal 2016 sales.
(cid:127) In fiscal 2015, we were able to convert lower traffic into an increase in ticket count and units per
ticket, which resulted in a 3.0% sales increase for our stores that had been open for a minimum of
12 months. In addition, sales were higher in fiscal 2015 compared with the prior year due to the sales
volume of our new and acquired stores, our Live Life Comfortably(cid:3) marketing campaign, the strength
of our stationary product introductions and our improved product value and styling.
Operating Margin
Our Retail segment’s operating margin increased 3.0 percentage points in fiscal 2016 compared with
the prior year, following a 0.3 percentage point decrease in fiscal 2015 compared with the prior year.
(cid:127) The segment’s gross margin increased 1.3 percentage points during fiscal 2016 compared with fiscal
2015, following a 0.9 percentage point decrease in fiscal 2015 as compared with fiscal 2014.
(cid:127) During fiscal 2016, a higher percentage of custom orders, increased In-Home Design orders, and
a shift to more powered units drove the increase in gross margin compared with fiscal 2015.
(cid:127) During fiscal 2015, higher promotional activity, which drove our ability to convert lower traffic
into an increase in ticket count and units per ticket, negatively impacted our gross margin
compared with fiscal 2014.
(cid:127) The segment’s SG&A expense as a percentage of sales decreased 1.7 percentage points during fiscal
2016 compared with fiscal 2015, following a 0.6 percentage point decrease in fiscal 2015 compared
with fiscal 2014.
31
(cid:127) Our sales volume increases in both fiscal 2016 and fiscal 2015 from stores that had been open
for a minimum of 12 months allowed us to leverage our fixed SG&A expenses (primarily
occupancy and administrative costs) as a percentage of sales in both fiscal years.
(cid:127) Somewhat offsetting the leverage of fixed SG&A expenses was spending for investment in our
business. In fiscal 2016, we increased advertising spending by 0.4 percentage point as a percent
of sales on our Live Life Comfortably(cid:3) marketing campaign and on promotional marketing to
support our retail stores and enhance our share of voice in selected markets. In fiscal 2015, as
the pace of our 4-4-5 growth strategy accelerated, we incurred higher costs related to new store
openings compared with the prior year. These investments reduced operating income by
approximately $2.4 million in fiscal 2015.
Corporate and Other
(Amounts in thousands, except percentages)
(53 weeks)
4/30/2016
(52 weeks)
4/25/2015
(FY16 vs FY15)
% Change
(52 weeks)
4/26/2014
(FY15 vs FY14)
% Change
Sales:
Corporate and Other . . . . . . . . .
Eliminations . . . . . . . . . . . . . . . .
$
6,423
(201,849)
$
2,294
(172,392)
2,463
180.0% $
(17.1)% (149,589)
Operating loss:
Corporate and Other . . . . . . . . .
Restructuring . . . . . . . . . . . . . . .
(44,526)
(579)
(36,483)
371
(22.0)% (38,078)
(256.1)% (4,839)
(6.9)%
(15.2)%
4.2%
N/M
N/M—Not Meaningful
Sales
Corporate and Other sales increased in fiscal 2016 compared with fiscal 2015, primarily due to
intercompany commission revenue charged to our reportable segments by our global trading company
in Hong Kong (which began operations at the beginning of fiscal 2016).
Eliminations increased in both fiscal 2016 and fiscal 2015 primarily due to higher sales from our
Upholstery segment to our Retail segment.
Operating Margin
Our Corporate and Other operating loss was $8.0 million higher in fiscal 2016 compared with fiscal
2015, primarily due to higher incentive compensation costs of $2.2 million, as well as higher costs
associated with our global trading company in Hong Kong and increased depreciation expense for our
new world headquarters.
Our Corporate and Other operating loss was $1.6 million lower in fiscal 2015 compared with fiscal
2014, mainly due to lower incentive compensation costs of $3.3 million, partly offset by higher costs
associated with the construction of our new world headquarters in fiscal 2015.
The $0.6 million restructuring expense in fiscal 2016 related mainly to rent expense for an idled
showroom, rent expense for an idled office building, and accelerated depreciation expense for an idled
asset. The $0.4 million restructuring income in fiscal 2015 related mainly to the gain on the sale of an
idled warehouse and inventory recoveries, somewhat offset by severance and benefit-related costs and
rent expense for an idled showroom. The $4.8 million restructuring expense in fiscal 2014 related
mainly to fixed asset and inventory write-downs. All of these restructuring activities related to our
Casegoods segment and the decision to cease domestic manufacturing and transition to an all-import
model for our wood furniture, which we began in fiscal 2014. We expect the costs related to our
restructuring efforts to be completed by the end of fiscal 2017.
32
Other Income
Other income was $1.5 million higher in fiscal 2016 compared with fiscal 2015, primarily due to higher
foreign currency exchange rate gains realized during fiscal 2016 than in fiscal 2015.
Other income was $1.3 million lower in fiscal 2015 compared with fiscal 2014, primarily due to lower
foreign currency exchange rate gains realized during fiscal 2015 than in fiscal 2014.
Income from Continued Dumping and Subsidy Offset Act
The Continued Dumping and Subsidy Offset Act of 2000 provided for distribution of duties collected
by U.S. Customs and Border Protection from antidumping cases to domestic producers that supported
the antidumping petition related to wooden bedroom furniture imported from China. We received
pre-tax distributions of $0.1 million during fiscal 2016. We received pre-tax distributions of $1.2 million
related to continuing operations and $4.2 million related to discontinued operations during fiscal 2015.
We did not receive any distributions during fiscal 2014.
Income Taxes
Our effective tax rate for continuing operations was 35.3% for fiscal 2016, 35.0% for fiscal 2015, and
34.3% for fiscal 2014.
Impacting our effective tax rate for fiscal 2016 was a tax benefit of $0.3 million for the release of
valuation allowances relating to certain U.S. state deferred tax assets. Absent discrete adjustments, the
effective tax rate for continuing operations in fiscal 2016 would have been 35.6%.
Impacting our effective tax rate for fiscal 2015 was a tax benefit of $0.4 million for the release of
valuation allowances relating to certain U.S. state deferred tax assets. Absent discrete adjustments, the
effective tax rate for continuing operations in fiscal 2015 would have been 35.4%.
Items impacting our effective tax rate for fiscal 2014 included a tax benefit of $1.2 million for the
release of valuation allowances relating to certain U.S. state deferred tax assets and a net tax benefit of
$0.5 million from other adjustments. Absent discrete adjustments, the effective tax rate for continuing
operations in fiscal 2014 would have been 36.1%.
Liquidity and Capital Resources
Our sources of liquidity include cash and equivalents, short-term and long-term investments, cash from
operations and amounts available under our credit facility. We believe these sources remain adequate
to meet our short-term and long-term liquidity requirements, finance our long-term growth plans, meet
debt service, and fulfill other cash requirements for day-to-day operations, dividends to shareholders
and capital expenditures. We had cash and equivalents of $112.4 million at April 30, 2016, compared
with $98.3 million at April 25, 2015. In addition, we had investments to enhance our returns on cash of
$33.6 million at April 30, 2016, compared with $45.5 million at April 25, 2015. We reduced our
investments during fiscal 2016, and used net income generated during the period and cash collections
of accounts receivable, in order to fund acquisitions of retail stores, acquire assets through capital
expenditures, fund increases in inventories, purchase shares of our stock and pay dividends to our
shareholders.
We maintain a revolving credit facility secured primarily by all of our accounts receivable, inventory,
and cash deposit and securities accounts. Availability under the agreement fluctuates according to a
borrowing base calculated on eligible accounts receivable and inventory. The credit agreement includes
affirmative and negative covenants that apply under certain circumstances, including a fixed-charge
coverage ratio requirement that applies when excess availability under the line is less than certain
thresholds. At April 30, 2016, we were not subject to the fixed-charge coverage ratio requirement, had
33
no borrowings outstanding under the agreement, and had excess availability of $146.9 million of the
$150.0 million credit commitment.
Capital expenditures for fiscal 2016 were $24.7 million compared with $70.3 million for fiscal 2015. Our
capital expenditures were lower in fiscal 2016 compared with fiscal 2015 because the prior fiscal year
included the construction of our new world headquarters. We have no material contractual
commitments outstanding for future capital expenditures. We expect total capital expenditures to be in
the range of $35 million to $40 million for all of fiscal 2017.
Our board of directors has sole authority to determine if and when future dividends will be declared
and on what terms. We expect the board to continue declaring regular quarterly cash dividends for the
foreseeable future, but it may discontinue doing so at any time.
We believe our cash flows from operations, present cash and equivalents balance of $112.4 million,
short and long-term investments to enhance returns on cash of $33.6 million, and current excess
availability under our credit facility of $146.9 million, will be sufficient to fund our business needs,
including our fiscal 2017 contractual obligations of $132.7 million as presented in our contractual
obligations table. Included in our cash and cash equivalents at April 30, 2016, is $24.3 million held by
foreign subsidiaries for which we have determined the amounts to be permanently reinvested.
The following table illustrates the main components of our cash flows:
Year Ended
(Amounts in thousands)
4/30/2016
4/25/2015
4/26/2014
Cash Flows Provided By (Used For)
Net cash provided by operating activities . . .
Net cash used for investing activities . . . . . .
Net cash used for financing activities . . . . . .
Exchange rate changes . . . . . . . . . . . . . . . .
$
$
112,361
(36,570)
(61,047)
(688)
$
86,751
(66,673)
(71,156)
(281)
90,832
(45,016)
(26,690)
(550)
Change in cash and equivalents . . . . . . . .
$
14,056
$
(51,359) $
18,576
Operating Activities
During fiscal 2016, net cash provided by operating activities was $112.4 million. Our cash provided by
operating activities was primarily attributable to net income generated during fiscal 2016 and cash
collections of accounts receivable of $10.7 million, driven by the continued improvement in the
financial health of our customer base, especially our independent La-Z-Boy Furniture Galleries(cid:3)
dealers. Somewhat offsetting these items were cash used to fund increases in inventories of
$14.6 million and a contribution to our pension plan of $7.0 million. Our inventories were higher in
fiscal 2016 primarily due to higher raw materials inventory, mainly leather and fabric sets, to improve
our service levels to our customers.
During fiscal 2015, net cash provided by operating activities was $86.8 million. Our cash provided by
operating activities was primarily attributable to net income generated during fiscal 2015. Partly
offsetting net income was cash used to fund increases in inventories and to settle incentive
compensation awards. The $7.6 million increase in inventories in fiscal 2015 was primarily due to higher
raw materials inventory in our Upholstery segment as we positioned our inventory levels to meet our
customer demands at that time.
During fiscal 2014, net cash provided by operating activities was $90.8 million. Our cash provided by
operating activities was mainly the result of net income generated during the fiscal year and was
partially offset by cash used to fund increases in inventories of $9.4 million. The increase in inventories
was due partially to our increase in company-owned La-Z-Boy Furniture Galleries(cid:3) stores during the
34
year, as well as higher finished goods inventories in our regional retail distribution centers, in order to
service a larger number of La-Z-Boy Furniture Galleries(cid:3) network stores.
Investing Activities
During fiscal 2016, net cash used for investing activities was $36.6 million, which included $23.3 million
to fund the acquisition of retail stores, $24.7 million for capital expenditures and $21.0 million for
purchases of investments, offset by proceeds of $28.7 million from the sale of investments. Capital
expenditures during the period primarily related to spending on manufacturing machinery and
equipment, our continued ERP system implementation, our new e-commerce web site, and the
relocation of one of our regional retail distribution centers. Additionally, the above uses of cash were
partially offset by proceeds from the sale of assets, including assets previously held for sale, as well as a
reduction in restricted cash which secures our outstanding letters of credit, of $3.7 million.
During fiscal 2015, net cash used for investing activities was $66.7 million, which included $70.3 million
for capital expenditures. Capital expenditures during the period primarily related to spending on our
new world headquarters, as well as spending on new stores and manufacturing machinery and
equipment. In addition, we invested $6.6 million of cash in fiscal 2015, primarily to purchase life
insurance contracts related to our executive deferred compensation plan and our performance
compensation retirement plan. Partly offsetting these items were proceeds from the sale of assets,
including assets previously held for sale, as well as a reduction in restricted cash which secures our
outstanding letters of credit, of $12.0 million.
During fiscal 2014, net cash used for investing activities was $45.0 million, which consisted primarily of
$33.7 million in capital expenditures and a net $19.7 million in investment purchases. These
expenditures and investments were partially offset by $6.8 million in proceeds from the sale of our
Bauhaus business unit.
Financing Activities
During fiscal 2016, net cash used for financing activities was $61.0 million, including $44.1 million for
purchasing our common stock and $18.1 million in dividend payments to our shareholders.
During fiscal 2015, net cash used for financing activities was $71.2 million, including $51.9 million for
purchasing our common stock and $14.5 million in dividend payments to our shareholders.
Additionally, we used $7.6 million of cash to pay down debt.
During fiscal 2014, net cash used for financing activities was $26.7 million. We used $32.1 million of
cash to purchase common stock and $10.5 million to fund dividend payments to our shareholders.
Our board of directors has authorized the purchase of company stock. As of April 30, 2016, 4.0 million
shares remained available for purchase pursuant to this authorization. The authorization has no
expiration date. We purchased 1.7 million shares during fiscal 2016 for a total of $44.1 million. With
the cash flows we anticipate generating in fiscal 2017, we expect to continue being opportunistic in
purchasing company stock.
35
Other
The following table summarizes our contractual obligations of the types specified:
Payments Due by Period
(Amounts in thousands)
Capital lease obligations . . . . . . . .
Operating lease obligations . . . . . .
Purchase obligations* . . . . . . . . . .
$
Total
803
376,378
69,176
Less than
1 Year
$
$
290
63,256
69,176
1 - 3
Years
384
115,391
—
4 - 5
Years
More than
5 Years
$
129
92,270
—
$
—
105,461
—
Total contractual obligations . . . .
$
446,357
$
132,722
$
115,775
$
92,399
$
105,461
*We have purchase order commitments of $69.2 million related to open purchase orders, primarily with
foreign and domestic casegoods, leather and fabric suppliers, which are generally cancellable if
production has not begun.
Our consolidated balance sheet at the end of fiscal 2016 reflected a $0.8 million net liability for
uncertain income tax positions. We do not expect that the net liability for uncertain income tax
positions will significantly change within the next 12 months. We will either pay or release the liability
for uncertain income tax positions as tax audits are completed or settled, statutes of limitation expire or
other new information becomes available.
Continuing compliance with existing federal, state and local statutes addressing protection of the
environment is not expected to have a significant effect upon our capital expenditures, earnings,
competitive position or liquidity.
Business Outlook
We remain optimistic about our business. We have a wide selection of product, the ability to offer
consumers mass customization with speed of delivery, and a vast distribution network that presents us
with numerous opportunities. Our brand remains the strongest in the industry, and our effective
marketing platform and related initiatives are providing us with solid positioning in the marketplace.
Moving forward, we believe our growth initiatives will drive continued increases in sales and earnings
while we invest in the business to provide long-term sustainable growth and earnings momentum.
Critical Accounting Policies
We prepare our consolidated financial statements in conformity with U.S. generally accepted accounting
principles. In some cases, these principles require management to make difficult and subjective
judgments regarding uncertainties and, as a result, such estimates and assumptions may significantly
impact our financial results and disclosures. We base our estimates on currently known facts and
circumstances, prior experience and other assumptions we believe to be reasonable. We use our best
judgment in valuing these estimates and may, as warranted, use external advice. Actual results could
differ from these estimates, assumptions, and judgments and these differences could be significant. We
make frequent comparisons throughout the year of actual experience to our assumptions to reduce the
likelihood of significant adjustments. We record adjustments when we know such differences. The
following critical accounting policies affect our consolidated financial statements.
Revenue Recognition and Related Allowances
Substantially all of our shipping agreements with third-party carriers transfer the risk of loss to our
customers upon shipment. Accordingly, our shipments using third-party carriers are generally
recognized as revenue when product is shipped. For product shipped on our company-owned trucks, we
recognize revenue when the product is delivered. This revenue includes amounts we billed to customers
36
for shipping. At the time we recognize revenue, we make provisions for estimated product returns and
warranties, as well as other incentives that we may offer to customers. We also recognize revenue for
amounts we receive from our customers in connection with our shared advertising cost arrangement.
We import certain products from foreign ports, some of which are shipped directly to our domestic
customers. In those cases, we do not recognize revenue until title passes to our customer, which
normally occurs after the goods pass through U.S. Customs.
Incentives that we offer to our customers include cash discounts and other sales incentive programs.
We record estimated cash discounts and other sales incentives as reductions of revenues when we
recognize the revenue.
Trade accounts receivable arise from our sale of products on trade credit terms. Our management team
reviews all significant accounts quarterly as to their past due balances and the collectability of the
outstanding trade accounts receivable for possible write off. It is our policy to write off the accounts
receivable against the allowance account when we deem the receivable to be uncollectible. Additionally,
we review orders from dealers that are significantly past due, and we ship product only when our ability
to collect payment for the new sales is reasonably assured.
Our allowance for credit losses reflects our best estimate of probable incurred losses inherent in the
accounts receivable balance. We determine the allowance based on known troubled accounts, historical
experience and other currently available evidence.
Long-Lived Assets
We review long-lived assets for impairment whenever events or changes in circumstances indicate that
we may not be able to recover the carrying amount of an asset or asset group. Using either quoted
market prices or an analysis of undiscounted projected future cash flows by asset groups, we determine
whether there is any indicator of impairment requiring us to further assess the fair value of our
long-lived assets. Our asset groups consist of our operating units in our Upholstery segment (La-Z-Boy
and England), our Casegoods segment and each of our retail stores.
Indefinite-Lived Intangible Assets and Goodwill
We test indefinite-lived intangibles and goodwill for impairment on an annual basis in the fourth
quarter of each fiscal year, and more frequently if events or changes in circumstances indicate that an
asset might be impaired. Indefinite-lived intangible assets include our American Drew trade name and
the reacquired right to own and operate La-Z-Boy Furniture Galleries(cid:3) stores in markets we have
acquired. We establish the fair value of our trade name and reacquired rights based upon the relief
from royalty method. Our goodwill relates to the acquisition of La-Z-Boy Furniture Galleries(cid:3) stores in
various geographic markets. The reporting units for our goodwill are the geographic markets the
acquired stores become part of upon acquisition, because the operations of the acquired stores benefit
these geographic markets. We establish the fair value for the reporting unit based on the discounted
cash flows to determine if the fair value of our goodwill exceeds its carrying value.
Other Loss Reserves
We have various other loss exposures arising from the ordinary course of business, including inventory
obsolescence, health insurance, litigation, environmental claims, insured and self-insured workers’
compensation, restructuring charges, and product liabilities. Establishing loss reserves requires us to use
estimates and management’s judgment with respect to risk and ultimate liability. We use legal counsel
or other experts, including actuaries as appropriate, to assist us in developing estimates. Due to the
uncertainties and potential changes in facts and circumstances, additional charges related to these
reserves could be required in the future.
37
We have various excess loss coverages for auto, product liability and workers’ compensation liabilities.
Our deductibles generally do not exceed $1.5 million.
Income Taxes
We use the asset and liability method to account for income taxes. We recognize deferred tax assets
and liabilities based on the estimated future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and their respective tax bases and
operating loss and tax credit carry-forwards. We measure deferred tax assets and liabilities using
enacted tax rates in effect for the year in which we expect to recover or settle those temporary
differences. When we record deferred tax assets, we are required to estimate, based on forecasts of
taxable earnings in the relevant tax jurisdiction, whether we are more likely than not to recover on
them. In making judgments about realizing the value of our deferred tax assets, we consider historic
and projected future operating results, the eligible carry-forward period, tax law changes and other
relevant considerations.
We elected the early adoption of accounting guidance issued in November 2015 requiring all deferred
income tax assets and liabilities to be presented as noncurrent on our consolidated balance sheet. We
are applying this change prospectively beginning with our fiscal 2016 consolidated balance sheet.
Pensions
We maintain a defined benefit pension plan for eligible factory hourly employees at our La-Z-Boy
operating unit. The plan does not allow new participants, but active participants continue to earn
service credits. Annual net periodic expense and benefit liabilities under the plan are determined on an
actuarial basis using various assumptions and estimates including discount rates, long-term rates of
return, estimated remaining years of service and estimated life expectancy. Each year, we compare the
more significant assumptions used to our actual experience, and we adjust the assumptions if
warranted.
We evaluate our pension plan discount rate assumption annually. The discount rate is based on a single
rate developed after matching a pool of high quality bond payments to the plan’s expected future
benefit payments. We used a discount rate of 4.1% at April 30, 2016, compared with a rate of 4.2% at
April 25, 2015, and 4.4% at April 26, 2014. We used the same methodology for determining the
discount rate in fiscal 2016, fiscal 2015, and fiscal 2014.
We fund pension benefits through deposits with trustees and satisfy, at a minimum, the applicable
funding regulations.
In addition to evaluating the discount rate we use to determine our pension obligation, each year we
evaluate our assumption as to our expected return on plan assets, taking into account the trust’s asset
allocation, investment strategy, and returns expected to be earned over the life of the plan. The rate of
return assumption as of April 30, 2016, was 4.5%, compared with 4.3% at April 25, 2015. The expected
rate of return assumption as of April 30, 2016, will be used to determine pension expense for fiscal
2017.
In fiscal 2014, we moved to liability-driven investing to more closely match the profile of our assets to
the pension plan liabilities. At the end of fiscal 2016, approximately 90% of the plan’s assets were
invested in fixed-rate investments with durations approximating the duration of its liabilities.
We are planning to make a discretionary contribution of approximately $2 million to our defined
benefit pension plan in fiscal 2017, although no contribution is required. After considering all relevant
assumptions, we expect that the plan’s fiscal 2017 pension expense will be approximately $4.0 million,
compared with $4.3 million in fiscal 2016. A 25 basis point change in our discount rate or expected
return on plan assets would not have a material impact on our results of operations.
38
Product Warranties
We account for product warranties by accruing an estimated liability when we recognize revenue on the
sale of warranted product. We estimate future warranty claims based on claim experience and any
additional anticipated future costs on previously sold product. We incorporate repair costs in our
liability estimates, including materials, labor and overhead amounts necessary to perform repairs, and
any costs associated with delivering repaired product to our customers and consumers. We use
considerable judgment in making our estimates. We record differences between our estimated and
actual costs when the differences are known.
Stock-Based Compensation
We measure stock-based compensation cost for equity-based awards on the grant date based on the
awards’ fair value and recognize expense over the vesting period. We measure stock-based
compensation cost for liability-based awards on the grant date based on the awards’ fair value and
recognize expense over the vesting period. We remeasure the liability for these awards and adjust their
fair value at the end of each reporting period until paid. We recognize compensation cost for stock-
based awards that vest based on performance conditions ratably over the vesting periods when the
vesting of such awards becomes probable. Determining the probability of award vesting requires
judgment, including assumptions about future operating performance. While the assumptions we use to
calculate and account for stock-based compensation awards represent management’s best estimates,
these estimates involve inherent uncertainties and the application of our management’s best judgment.
As a result, if we revise our assumptions and estimates, our stock-based compensation expense could be
materially different in the future.
We estimate the fair value of each option grant using a Black-Scholes option-pricing model. We
estimate expected volatility based on the historic volatility of our common shares. We estimate the
average expected life using the contractual term of the stock option and expected employee exercise
and post-vesting employment termination trends. We base the risk-free rate on U.S. Treasury issues
with a term equal to the expected life assumed at the date of grant. We estimate forfeitures at the date
of grant based on historic experience.
We estimate the fair value of each performance award grant that vests based on a market condition
using a Monte Carlo valuation model. The Monte Carlo model incorporates more complex variables
than closed-form models such as the Black-Scholes option valuation model used for option grants. The
Monte Carlo valuation model simulates a distribution of stock prices to yield an expected distribution
of stock prices over the remaining performance period. The stock-paths are simulated using volatilities
calculated with historical information using data from a look-back period that is equal to the vesting
period. The model assumes a zero-coupon, risk-free interest rate with a term equal to the vesting
period. The simulations are repeated many times (100,000 in this Monte Carlo valuation) and the mean
of the discounted values is calculated as the grant date fair value for the award. The final payout of the
award as calculated by the model is then discounted back to the grant date using the risk-free interest
rate.
Both the Monte Carlo and Black-Scholes methodologies are based, in part, on inputs for which there
are little or no observable market data, requiring us to develop our own assumptions. Inherent in both
of these models are assumptions related to expected stock-price volatility, expected life, risk-free
interest rate and dividend yield.
Recent Accounting Pronouncements
The following is a discussion of the recent accounting pronouncements issued by the Financial
Accounting Standards Board (‘‘FASB’’) that we are currently assessing and which we believe could have
a significant impact on our financial statements or related disclosures.
39
In May 2014, the FASB issued a new accounting standard that requires an entity to recognize the
amount of revenue to which it expects to be entitled for the transfer of promised goods or services to
customers. The new standard supersedes virtually all existing authoritative accounting guidance on
revenue recognition and requires additional disclosures and greater use of estimates and judgments.
During July 2015, the FASB deferred the effective date of the revenue recognition guidance by one
year, thus making the new accounting standard effective for our fiscal year 2019. We are assessing the
potential impact to our consolidated financial statements and financial statement disclosures.
In September 2015, the FASB released a new accounting standard for business combinations that
requires the acquirer to recognize adjustments to provisional amounts identified during the
measurement period in the reporting period in which the adjustments are determined. The standard is
to be applied prospectively beginning with our fiscal year 2017. We are assessing the impact that this
guidance will have on our consolidated financial statements.
In February 2016, the FASB issued a new accounting standard requiring all operating leases that a
lessee enters into to be recorded on their balance sheet. The lessee will record an asset for the right to
use the underlying asset for the lease term and a liability for the contractual lease payments. This
guidance is effective for our fiscal year 2020. We are assessing the impact that this guidance will have
on our consolidated financial statements and related disclosures.
In March 2016, the FASB issued a new accounting standard focused on simplifying the accounting for
share-based payments. The guidance includes changes to the accounting for income taxes related to
share-based payments as well as changes to the presentation of these tax impacts on the statement of
cash flows. This guidance will be applicable for our fiscal year 2018. We are assessing the impact that
this guidance will have on our consolidated financial statements.
40
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
While we had no variable rate borrowings at April 30, 2016, we could be exposed to market risk from
changes in interest rates if we incur variable rate debt in the future. Based on our current and expected
levels of exposed liabilities, management estimates that a one percentage point change in interest rates
would not have a material impact on our results of operations for fiscal 2017.
We are exposed to market risk from changes in the value of foreign currencies primarily related to our
plant in Mexico, as we pay wages and other local expenses in Mexican pesos. Nonetheless, gains and
losses resulting from market changes in the value of foreign currencies have not had and are not
expected to have a significant effect on our consolidated results of operations. A decrease in the value
of foreign currencies in relation to the U.S. dollar could impact the profitability of some of our vendors
and translate into higher prices for our supplies, but we believe that, in that event, our competitors
would experience a similar impact.
We are exposed to market risk with respect to commodity and fuel price fluctuations, principally
related to commodities we use in producing our products, including steel, wood and polyurethane foam.
As commodity prices increase, we determine whether a price increase to our customers to offset these
increases is warranted. We do not believe that an increase in these commodity costs would have a
material impact on our results of operations.
41
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Management’s Report to Our Shareholders
Management’s Responsibility for Financial Information
Management is responsible for the consistency, integrity and preparation of the information contained
in this Annual Report on Form 10-K. The consolidated financial statements and other information
contained in this Annual Report on Form 10-K have been prepared in accordance with accounting
principles generally accepted in the United States of America and include necessary judgments and
estimates by management.
To fulfill our responsibility, we maintain comprehensive systems of internal control designed to provide
reasonable assurance that assets are safeguarded and transactions are executed in accordance with
established procedures. The concept of reasonable assurance is based upon recognition that the cost of
the controls should not exceed the benefit derived. We believe our systems of internal control provide
this reasonable assurance.
The board of directors exercised its oversight role with respect to our systems of internal control
primarily through its audit committee, which is comprised of independent directors. The committee
oversees our systems of internal control, accounting practices, financial reporting and audits to assess
whether their quality, integrity, and objectivity are sufficient to protect shareholders’ investments.
In addition, our consolidated financial statements have been audited by PricewaterhouseCoopers, LLP,
an independent registered public accounting firm, whose report also appears in this Annual Report on
Form 10-K.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over
financial reporting, as that term is defined in Rule 13a-15(f) of the Exchange Act. Under the
supervision and with the participation of our management, including our Chief Executive Officer and
Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal controls over
financial reporting based upon the framework in ‘‘Internal Control—Integrated Framework’’ set forth
by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. Based on that
evaluation, our management concluded that our internal control over financial reporting was effective
as of April 30, 2016. PricewaterhouseCoopers LLP, an independent registered public accounting firm,
audited the effectiveness of the Company’s internal control over financial reporting as of April 30,
2016, as stated in its report which appears herein.
/s/ Kurt L. Darrow
Kurt L. Darrow
Chairman, President and Chief Executive Officer
June 21, 2016
/s/ Louis M. Riccio Jr.
Louis M. Riccio Jr.
Senior Vice President and Chief Financial Officer
June 21, 2016
42
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of La-Z-Boy Incorporated:
In our opinion, the accompanying consolidated balance sheets and the related consolidated statements
of income, of comprehensive income, of changes in equity and of cash flows present fairly, in all
material respects, the financial position of La-Z-Boy Incorporated and its subsidiaries at April 30, 2016
and April 25, 2015, and the results of their operations and their cash flows for each of the three fiscal
years in the period ended April 30, 2016 in conformity with accounting principles generally accepted in
the United States of America. Also in our opinion, the Company maintained, in all material respects,
effective internal control over financial reporting as of April 30, 2016, based on criteria established in
Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations
of the Treadway Commission (COSO). The Company’s management is responsible for these financial
statements, for maintaining effective internal control over financial reporting and for its assessment of
the effectiveness of internal control over financial reporting, included in Management’s Report on
Internal Control over Financial Reporting on the preceding page. Our responsibility is to express
opinions on these financial statements and on the Company’s internal control over financial reporting
based on our integrated audits. We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial statements are free of
material misstatement and whether effective internal control over financial reporting was maintained in
all material respects. Our audits of the financial statements included 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. Our audit of internal control over financial reporting included obtaining an
understanding of internal control over financial reporting, assessing the risk that a material weakness
exists, and testing and evaluating the design and operating effectiveness of internal control based on
the assessed risk. Our audits also included performing such other procedures as we considered
necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
As discussed in Note 1 to the consolidated financial statements, the Company changed the manner in
which it accounts for the classification of deferred income tax balances in fiscal year 2016.
A company’s internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles. A company’s internal
control over financial reporting includes those policies and procedures that (i) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the company are being made only
in accordance with authorizations of management and directors of the company; and (iii) provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the
risk that controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Detroit, Michigan
June 21, 2016
43
LA-Z-BOY INCORPORATED
CONSOLIDATED STATEMENT OF INCOME
(Amounts in thousands)
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of sales
Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative expense . . . . . . . . . . . . . .
Restructuring . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from Continued Dumping and Subsidy Offset
Act, net
Other income, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from continuing operations before income taxes . . .
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from continuing operations . . . . . . . . . . . . . . . . . .
Income (loss) from discontinued operations, net of tax . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income attributable to noncontrolling interests . . . . . . . . .
Fiscal Year Ended
(53 weeks)
4/30/2016
(52 weeks)
4/25/2015
(52 weeks)
4/26/2014
$ 1,525,398
$ 1,425,395
$ 1,357,318
943,290
72
943,362
582,036
459,140
507
122,389
486
827
102
2,211
125,043
44,080
80,963
—
80,963
(1,711)
921,142
(239)
920,903
504,492
401,459
(132)
103,165
523
1,030
1,212
744
105,628
36,954
68,674
3,297
71,971
(1,198)
888,025
4,839
892,864
464,454
375,158
—
89,296
548
761
—
2,050
91,559
31,383
60,176
(3,796)
56,380
(1,324)
Net income attributable to La-Z-Boy Incorporated . . . . . .
$
79,252
$
70,773
$
55,056
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
44
LA-Z-BOY INCORPORATED
CONSOLIDATED STATEMENT OF INCOME (Continued)
(Amounts in thousands, except per share data)
Net income attributable to La-Z-Boy Incorporated:
Income from continuing operations attributable to La-Z-Boy
Incorporated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income (loss) from discontinued operations . . . . . . . . . . .
Net income attributable to La-Z-Boy Incorporated . . . . . . .
Basic weighted average common shares . . . . . . . . . . . . . . . . .
Basic net income attributable to La-Z-Boy Incorporated per
share:
Income from continuing operations attributable to La-Z-Boy
Incorporated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income (loss) from discontinued operations, net of tax . . .
Basic net income attributable to La-Z-Boy Incorporated per
share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted weighted average common shares . . . . . . . . . . . . . . .
Diluted net income attributable to La-Z-Boy Incorporated per
share:
Income from continuing operations attributable to La-Z-Boy
Incorporated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income (loss) from discontinued operations, net of tax . . .
Diluted net income attributable to La-Z-Boy Incorporated
per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends declared per share . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
$
$
$
$
$
Fiscal Year Ended
(53 weeks)
4/30/2016
(52 weeks)
4/25/2015
(52 weeks)
4/26/2014
79,252
—
79,252
50,194
1.57
—
$
$
$
67,476
3,297
70,773
51,767
1.30
0.06
$
$
$
58,852
(3,796)
55,056
52,386
1.11
(0.07)
1.57
$
1.36
$
1.04
50,765
52,346
53,829
1.55
—
1.55
0.36
$
$
$
1.28
0.06
1.34
0.28
$
$
$
1.09
(0.07)
1.02
0.20
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
45
LA-Z-BOY INCORPORATED
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(Amounts in thousands)
Fiscal Year Ended
(53 weeks)
4/30/2016
(52 weeks)
4/25/2015
(52 weeks)
4/26/2014
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Other comprehensive income (loss)
Currency translation adjustment . . . . . . . . . . . . . . . . . . . . . . . . .
Change in fair value of cash flow hedges, net of tax . . . . . . . . . . .
Net unrealized gains (losses) on marketable securities, net of tax . .
Net pension amortization and actuarial gain, net of tax . . . . . . . . .
Total other comprehensive income (loss) . . . . . . . . . . . . . . . . . . . . .
Total comprehensive income before noncontrolling interests . . . . .
Comprehensive income attributable to noncontrolling interests . . . . .
80,963 $
71,971 $
56,380
(2,557)
274
(547)
374
(2,456)
78,507
(1,116)
(1,014)
(507)
507
179
(835)
71,136
(1,122)
(3,054)
(284)
624
6,100
3,386
59,766
(594)
Comprehensive income attributable to La-Z-Boy Incorporated . . . . $
77,391 $
70,014 $
59,172
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
46
LA-Z-BOY INCORPORATED
CONSOLIDATED BALANCE SHEET
(Amounts in thousands, except par value)
Current assets
As of
4/30/2016
4/25/2015
Cash and equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Receivables, net of allowance of $3,145 at 4/30/16 and $4,622 at 4/25/15 . . .
Inventories, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes—current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
112,358 $
8,977
146,545
175,589
—
38,503
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property, plant and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes—long-term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other long-term assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
481,972
171,590
37,193
8,558
41,683
59,033
98,302
9,636
158,548
156,789
11,255
41,921
476,451
174,036
15,164
5,458
35,072
68,423
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
800,029 $
774,604
Current liabilities
Current portion of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses and other current liabilities . . . . . . . . . . . . . . . . . . . . . .
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Contingencies and commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shareholders’ equity
Preferred shares—5,000 authorized; none issued . . . . . . . . . . . . . . . . . . . .
Common shares, $1 par value—150,000 authorized; 49,331 outstanding at
4/30/16 and 50,747 outstanding at 4/25/15 . . . . . . . . . . . . . . . . . . . . . . .
Capital in excess of par value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total La-Z-Boy Incorporated shareholders’ equity . . . . . . . . . . . . . . . . .
Noncontrolling interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
290 $
44,661
112,476
157,427
513
84,877
—
397
46,168
108,326
154,891
433
86,180
—
—
—
49,331
279,339
252,472
(34,000)
547,142
10,070
557,212
50,747
270,032
235,506
(32,139)
524,146
8,954
533,100
Total liabilities and equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
800,029 $
774,604
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
47
LA-Z-BOY INCORPORATED
CONSOLIDATED STATEMENT OF CASH FLOWS
(Amounts in thousands)
Cash flows from operating activities
Fiscal Year Ended
(53 weeks)
4/30/2016
(52 weeks)
4/25/2015
(52 weeks)
4/26/2014
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile net income to cash provided by
$
80,963
$
71,971
$
56,380
operating activities
(Gain) loss on disposal of assets . . . . . . . . . . . . . . . . . . . . .
Gain on sale of investments . . . . . . . . . . . . . . . . . . . . . . . .
Write-down of long-lived assets . . . . . . . . . . . . . . . . . . . . .
Deferred income tax expense (benefit) . . . . . . . . . . . . . . . .
Restructuring . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for doubtful accounts . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation expense . . . . . . . . . . . . . . . . . . .
Pension plan contributions . . . . . . . . . . . . . . . . . . . . . . . . .
Change in receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in accounts payable . . . . . . . . . . . . . . . . . . . . . . . .
Change in other liabilities . . . . . . . . . . . . . . . . . . . . . . . . .
384
(436)
—
4,581
579
(660)
26,517
8,292
(7,000)
10,730
(14,621)
4,148
(1,007)
(109)
Net cash provided by operating activities . . . . . . . . . . . . .
112,361
Cash flows from investing activities
Proceeds from disposals of assets . . . . . . . . . . . . . . . . . . . .
Proceeds from sale of business . . . . . . . . . . . . . . . . . . . . . .
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchases of investments . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sales of investments . . . . . . . . . . . . . . . . . . .
Acquisitions, net of cash acquired . . . . . . . . . . . . . . . . . . . .
Change in restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash used for investing activities . . . . . . . . . . . . . . . .
Cash flows from financing activities
Payments on debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments for debt issuance costs . . . . . . . . . . . . . . . . . . . .
Stock issued for stock and employee benefit plans . . . . . . . .
Excess tax benefit on stock option exercises . . . . . . . . . . . .
Purchases of common stock . . . . . . . . . . . . . . . . . . . . . . . .
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash used for financing activities . . . . . . . . . . . . . . . .
Effect of exchange rate changes on cash and equivalents . . . . .
Change in cash and equivalents . . . . . . . . . . . . . . . . . . . . . . .
Cash and equivalents at beginning of period . . . . . . . . . . . . . .
Cash and equivalents at end of period . . . . . . . . . . . . . . . . . .
Supplemental disclosure of non-cash investing activities
Capital expenditures included in accounts payable . . . . . . . .
$
$
3,054
—
(24,684)
(21,009)
28,721
(23,311)
659
(36,570)
(508)
—
420
1,264
(44,082)
(18,141)
(61,047)
(688)
14,056
98,302
(499)
(214)
—
1,030
(360)
(2,290)
22,283
6,780
—
(2,595)
(7,644)
4,154
(5,206)
(659)
86,751
9,061
—
(70,319)
(40,327)
33,750
(1,774)
2,936
(66,673)
(7,571)
(208)
1,397
1,592
(51,853)
(14,513)
(71,156)
(281)
(51,359)
149,661
616
(300)
1,149
(216)
8,071
(2,651)
23,182
8,739
—
3,337
(9,444)
(2,958)
1,704
3,223
90,832
2,233
6,844
(33,730)
(54,233)
34,557
(801)
114
(45,016)
(579)
—
3,565
12,935
(32,097)
(10,514)
(26,690)
(550)
18,576
131,085
149,661
5,303
112,358
$
98,302
— $
500
$
$
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
48
LA-Z-BOY INCORPORATED
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
(Amounts in thousands)
Common
Shares
Capital in
Excess of
Par Value
Accumulated
Other
Non-
Retained
Earnings
Comprehensive Controlling
Income (Loss)
Interests
Total
At April 27, 2013 . . . . . . . . $
52,392 $
241,888 $
226,044 $
55,056
(35,496) $
7,140 $
1,324
491,968
56,380
4,116
(730)
3,386
Net income . . . . . . . . . . . . . .
Other comprehensive income
(loss)
. . . . . . . . . . . . . . . .
Stock issued for stock and
employee benefit plans, net
of cancellations and
withholding tax . . . . . . . . . .
Purchases of common stock . . .
Stock option and restricted
stock expense . . . . . . . . . . .
Tax benefit from exercise of
options . . . . . . . . . . . . . . .
Dividends paid . . . . . . . . . . .
Change in noncontrolling
interests . . . . . . . . . . . . . . .
At April 26, 2014 . . . . . . . .
Net income . . . . . . . . . . . . . .
Other comprehensive loss . . . .
Stock issued for stock and
employee benefit plans, net
of cancellations and
withholding tax . . . . . . . . . .
Purchases of common stock . . .
Stock option and restricted
stock expense . . . . . . . . . . .
Tax benefit from exercise of
options . . . . . . . . . . . . . . .
Dividends paid . . . . . . . . . . .
At April 25, 2015 . . . . . . . .
Net income . . . . . . . . . . . . . .
Other comprehensive loss . . . .
Stock issued for stock and
employee benefit plans, net
of cancellations and
withholding tax . . . . . . . . . .
Purchases of common stock . . .
Stock option and restricted
stock expense . . . . . . . . . . .
Tax benefit from exercise of
options . . . . . . . . . . . . . . .
Dividends paid . . . . . . . . . . .
937
(1,348)
2,395
(3,056)
(4,509)
(27,693)
8,739
12,935
51,981
262,901
(10,514)
238,384
70,773
(31,380)
(759)
98
7,832
1,198
(76)
898
(2,132)
26
(1,267)
(10,684)
(48,454)
6,780
1,592
50,747
270,032
243
(1,659)
97
(346)
8,292
1,264
(14,513)
235,506
79,252
(2,068)
(42,077)
(18,141)
(32,139)
(1,861)
8,954
1,711
(595)
(1,177)
(32,097)
8,739
12,935
(10,514)
98
529,718
71,971
(835)
(9,760)
(51,853)
6,780
1,592
(14,513)
533,100
80,963
(2,456)
(1,728)
(44,082)
8,292
1,264
(18,141)
At April 30, 2016 . . . . . . . . $
49,331 $
279,339 $
252,472 $
(34,000) $
10,070 $
557,212
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
49
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1: Accounting Policies
The following is a summary of significant accounting policies followed in the preparation of La-Z-Boy
Incorporated and its subsidiaries’ (individually and collectively, ‘‘we,’’ ‘‘our’’ or the ‘‘Company’’)
consolidated financial statements. Our fiscal year ends on the last Saturday of April. Our 2016 fiscal
year included 53 weeks, whereas fiscal years 2015 and 2014 included 52 weeks. The additional week in
fiscal 2016 was included in our fourth quarter.
Principles of Consolidation
The accompanying consolidated financial statements include the consolidated accounts of La-Z-Boy
Incorporated and our majority-owned subsidiaries. The portion of less than wholly-owned subsidiaries is
included as non-controlling interest. All intercompany transactions have been eliminated, including any
related profit on intercompany sales.
Use of Estimates
The consolidated financial statements are prepared in conformity with accounting principles generally
accepted in the United States of America. These principles require management to make estimates and
assumptions that affect the reported amounts or disclosures of assets, liabilities (including contingent
assets and liabilities), sales and expenses at the date of the financial statements. Actual results could
differ from those estimates.
Cash and Equivalents
For purposes of the consolidated balance sheet and statement of cash flows, we consider all highly
liquid debt instruments purchased with initial maturities of three months or less to be cash equivalents.
Restricted Cash
We have cash on deposit with a bank as collateral for certain letters of credit.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined using the last-in, first-out
(‘‘LIFO’’) basis for approximately 70% and 66% of our inventories at April 30, 2016, and April 25,
2015, respectively. Cost is determined for all other inventories on a first-in, first-out (‘‘FIFO’’) basis.
The FIFO method of accounting is mainly used for our Retail segment’s inventory as well as our
England operating unit and our majority owned foreign subsidiaries.
Property, Plant and Equipment
Items capitalized, including significant betterments to existing facilities, are recorded at cost.
Capitalized computer software costs include internal and external costs incurred during the software’s
development stage. Internal costs relate primarily to employee activities related to coding and testing
the software under development. Computer software costs are depreciated over three to ten years. All
maintenance and repair costs are expensed when incurred. Depreciation is computed principally using
straight-line methods over the estimated useful lives of the assets.
50
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 1: Accounting Policies (Continued)
Disposal and Impairment of Long-Lived Assets
Retirement or dispositions of long-lived assets are recorded based on carrying value and proceeds
received. Any resulting gains or losses are recorded as a component of selling, general and
administrative expenses.
We review the carrying value of our long-lived assets for impairment annually or whenever events or
changes in circumstances indicate that their carrying amounts may not be recoverable. Our assessment
of recoverability is based on our best estimates using either quoted market prices or an analysis of the
undiscounted projected future cash flows by asset groups in order to determine if there is any indicator
of impairment requiring us to further assess the fair value of our long-lived assets. Our asset groups
consist of our operating units in our Upholstery segment (La-Z-Boy and England), our Casegoods
segment and each of our retail stores.
Indefinite-Lived Intangible Assets and Goodwill
We test indefinite-lived intangibles and goodwill for impairment on an annual basis in the fourth
quarter of our fiscal year, or more frequently if events or changes in circumstances indicate that the
asset might be impaired. Indefinite-lived intangible assets include our American Drew trade name and
the reacquired right to own and operate La-Z-Boy Furniture Galleries(cid:3) stores in markets we have
acquired. We establish the fair value of our trade name and reacquired rights based upon the relief
from royalty method. Our goodwill relates to the acquisition of La-Z-Boy Furniture Galleries(cid:3) stores in
various geographic markets. The reporting units for our goodwill are the geographic markets the
acquired stores become part of upon acquisition, because the operations of the acquired stores benefit
these geographic markets. The estimated fair value for the reporting unit is determined based upon
discounted cash flows. In situations where the fair value is less than the carrying value, indicating a
potential impairment, a second comparison is performed using a calculation of implied fair value of
goodwill to measure any such impairment.
Investments
Available-for-sale securities are recorded at fair value with the net unrealized gains and losses (that are
deemed to be temporary) reported as a component of other comprehensive income/(loss). Realized
gains and losses and charges for other-than-temporary impairments are included in determining net
income, with related purchase costs based on the first-in, first-out method. We periodically evaluate our
available for sale investments for possible other-than-temporary impairments by reviewing factors such
as the extent to which, and length of time, an investment’s fair value has been below our cost basis, the
issuer’s financial condition, and our ability and intent to hold the investment for sufficient time for its
market value to recover. For impairments that are other-than-temporary, an impairment loss is
recognized in earnings equal to the difference between the investment’s cost and its fair value at the
balance sheet date of the reporting period for which the assessment is made. The fair value of the
investment then becomes the new amortized cost basis of the investment and it is not adjusted for
subsequent recoveries in fair value.
Life Insurance
Life insurance policies are recorded at the amount that could be realized under the insurance contract
as of the date of our consolidated balance sheet. These assets are classified as other long-term assets
51
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 1: Accounting Policies (Continued)
on our consolidated balance sheet. The change in cash surrender or contract value is recorded as
income or expense during each period.
Revenue Recognition and Related Allowances for Credit Losses
Substantially all of our shipping agreements with third-party carriers transfer the risk of loss to our
customers upon shipment. Accordingly, our shipments using third-party carriers are generally
recognized as revenue when product is shipped. In all cases, for product shipped on our company-
owned trucks, we recognize revenue when the product is delivered. This revenue includes amounts we
billed to customers for shipping. At the time we recognize revenue, we make provisions for estimated
product returns and warranties, as well as other incentives that we may offer to customers. We also
recognize revenue for amounts we receive from our customers in connection with our shared
advertising cost arrangement. We import certain products from foreign ports, some of which are
shipped directly to our domestic customers. In this case, revenue is not recognized until title is assumed
by our customer, which is normally after the goods pass through U.S. Customs.
Incentives offered to customers include cash discounts and other sales incentive programs. Estimated
cash discounts and other sales incentives are recorded as a reduction of revenues when the revenue is
recognized.
Trade accounts receivable arise from the sale of products on trade credit terms. On a quarterly basis,
our management team reviews all significant accounts as to their past due balances, as well as
collectability of the outstanding trade accounts receivable for possible write off. It is our policy to write
off the accounts receivable against the allowance account when we deem the receivable to be
uncollectible. Additionally, we review orders from dealers that are significantly past due, and we ship
product only when our ability to collect payment for the new sales is reasonably assured.
Our allowances for credit losses reflect our best estimate of probable losses inherent in the trade
accounts receivable balance. We determine the allowance based on known troubled accounts, historic
experience and other currently available evidence. At April 30, 2016, we had no gross notes receivable
amounts outstanding. At April 25, 2015, we had gross notes receivable of $1.9 million recorded in
receivables on our consolidated balance sheet. We had no allowance for credit losses at April 30, 2016
or at April 25, 2015.
Cost of Sales
Our cost of sales consists primarily of the cost to manufacture or purchase our merchandise, inspection
costs, internal transfer costs, in-bound freight costs, outbound shipping costs, as well as warehousing
costs, occupancy costs and depreciation expense related to our manufacturing facilities and equipment.
During fiscal 2016 and fiscal 2015, we recorded a benefit related to legal settlements as part of cost of
sales. Gross margin benefited 0.3 percentage point and 0.4 percentage point for fiscal 2016 and fiscal
2015, respectively, as a result of legal settlements.
Selling, General and Administrative Expenses
SG&A expenses include the costs of selling our products and other general and administrative costs.
Selling expenses are primarily composed of commissions, advertising, warranty, bad debt expense and
compensation and benefits of employees performing various sales functions. Additionally, the
occupancy costs of our retail facilities and the warehousing costs of our regional retail distribution
52
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 1: Accounting Policies (Continued)
centers are included as a component of SG&A. Other general and administrative expenses included in
SG&A are composed primarily of compensation and benefit costs for administration employees and
other administrative costs.
Other Income, Net
Other income, net, primarily includes foreign currency exchange net gain/loss, as well as all pension
costs except for the service cost, which is included in selling, general, and administrative expenses on
our consolidated statement of income.
Research and Development Costs
Research and development costs are charged to expense in the periods incurred. Expenditures for
research and development costs were $8.4 million, $8.0 million and $7.9 million for the fiscal years
ended April 30, 2016, April 25, 2015, and April 26, 2014, respectively, and are included as a component
of SG&A.
Advertising Expenses
Production costs of commercials, programming and costs of other advertising, promotion and marketing
programs are charged to expense in the period in which the commercial or ad is first aired or released.
Gross advertising expenses were $70.8 million, $63.3 million and $59.6 million for the fiscal years ended
April 30, 2016, April 25, 2015, and April 26, 2014, respectively.
A portion of our advertising program is a national advertising campaign. This campaign is a shared
advertising program with our La-Z-Boy Furniture Galleries(cid:3) stores, which are reimbursing us for about
32% of the cost of the program (excluding company-owned stores). Because of this shared cost
arrangement, the advertising expense is reported as a component of SG&A, while the dealers’
reimbursement portion is reported as a component of sales.
Operating Leases
We record rent expense related to operating leases on a straight-line basis for minimum lease payments
starting with the beginning of the lease term based on the date that we have the right to control the
leased property. Our minimum lease payments may incorporate step rent provisions or rent escalations.
We also record rental income from subleases on a straight-line basis for minimum lease payments.
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities
are recognized for the estimated future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and their respective tax bases and
operating loss and tax credit carry-forwards. Deferred tax assets and liabilities are measured using
enacted tax rates in effect for the year in which those temporary differences are expected to be
recovered or settled.
We elected the early adoption of accounting guidance issued in November 2015 requiring all deferred
income tax assets and liabilities to be presented as noncurrent on our consolidated balance sheet. We
are applying this change prospectively beginning with our fiscal 2016 consolidated balance sheet.
53
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 1: Accounting Policies (Continued)
In periods when deferred tax assets are recorded, we are required to estimate whether recoverability is
more likely than not, based on, among other things, forecasts of taxable earnings in the related tax
jurisdiction. We consider historical and projected future operating results, the eligible carry-forward
period, tax law changes, tax planning opportunities and other relevant considerations when making
judgments about realizing the value of our deferred tax assets.
We recognize in our consolidated financial statements the benefit of a position taken or expected to be
taken in a tax return when it is more likely than not (i.e. a likelihood of more than 50%) that the
position would be sustained upon examination by tax authorities. A recognized tax position is then
measured at the largest amount of benefit that is more likely than not to be realized upon settlement.
Changes in judgment that result in subsequent recognition, derecognition or change in a measurement
date of a tax position taken in a prior annual period (including any related interest and penalties) are
recognized as a discrete item in the interim period in which the change occurs.
Foreign Currency Translation
The functional currency of our Canadian and Mexico subsidiaries is the U.S. dollar. Transaction gains
and losses associated with translating our Canadian and Mexico subsidiaries’ assets and liabilities, which
are non-U.S. dollar denominated, are recorded in other income, net in our consolidated statement of
income. The functional currency of each of our other foreign subsidiaries is its respective local
currency. Assets and liabilities of those subsidiaries whose functional currency is their local currency are
translated at the year-end exchange rates, and revenues and expenses are translated at average
exchange rates for the period, with the corresponding translation effect included as a component of
other comprehensive income. In connection with our Mexico subsidiary we have entered into foreign
currency forward contracts, designated as cash flow hedges, to hedge certain forecasted expenses.
Accounting for Stock-Based Compensation
We estimate the fair value of equity-based awards, including option awards and stock-based awards that
vest based on market conditions, on the date of grant using option-pricing models. The value of the
portion of the equity-based awards that are ultimately expected to vest is recognized as expense over
the requisite service periods in our consolidated statement of income using a straight-line single-option
method. We measure stock-based compensation cost for liability-based awards based on the fair value
of the award on the grant date and recognize it as expense over the vesting period. The liability for
these awards is remeasured and adjusted to its fair value at the end of each reporting period until paid.
We record compensation cost for stock-based awards that vest based on performance conditions ratably
over the vesting periods when the vesting of such awards become probable.
Commitments and Contingencies
We establish an accrued liability for legal matters when those matters present loss contingencies that
are both probable and estimable. As a litigation matter develops, we, in conjunction with any outside
counsel handling the matter, evaluate on an ongoing basis whether such matter presents a loss
contingency that is probable and estimable. When a loss contingency is not both probable and
estimable, we do not establish an accrued liability. If, at the time of evaluation, the loss contingency
related to a litigation matter is not both probable and estimable, the matter will continue to be
monitored for further developments that would make such loss contingency both probable and
estimable. Once the loss contingency related to a litigation matter is deemed to be both probable and
54
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 1: Accounting Policies (Continued)
estimable, we will establish an accrued liability with respect to such loss contingency and record a
corresponding amount of litigation-related expense. We continue to monitor the matter for further
developments that could affect the amount of the accrued liability that has been previously established.
Discontinued Operations
During fiscal 2014, we sold substantially all of the assets of our Bauhaus U.S.A. business unit and
classified Lea Industries as held for sale. The assets and liabilities of Lea Industries were reported in
business held for sale in our fiscal 2014 consolidated balance sheet. We were unable to find a buyer for
our Lea Industries business, and therefore we liquidated all the assets, consisting mostly of inventory,
and ceased operations of Lea Industries during the third quarter of fiscal 2015. The operating results of
both Bauhaus and Lea Industries are reported as discontinued operations in our consolidated statement
of income for fiscal 2015 and fiscal 2014.
Insurance/Self-Insurance
We use a combination of insurance and self-insurance for a number of risks, including workers’
compensation, general liability, vehicle liability and the company-funded portion of employee-related
health care benefits. Liabilities associated with these risks are estimated in part by considering historic
claims experience, demographic factors, severity factors and other assumptions. Our workers’
compensation reserve is an undiscounted liability. We have various excess loss coverages for auto,
product liability and workers’ compensation liabilities. Our deductibles generally do not exceed
$1.5 million.
Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (‘‘FASB’’) issued a new accounting standard
that requires an entity to recognize the amount of revenue to which it expects to be entitled for the
transfer of promised goods or services to customers. The new standard supersedes virtually all existing
authoritative accounting guidance on revenue recognition and requires additional disclosures and
greater use of estimates and judgments. During July 2015, the FASB deferred the effective date of the
revenue recognition guidance by one year, thus making the new accounting standard effective for our
fiscal year 2019. We are assessing the impact that this guidance will have on our consolidated financial
statements and financial statement disclosures.
In May 2015, the FASB issued a new accounting standard that requires entities to remove investments
valued at net asset value per share under the practical expedient from the fair value hierarchy.
Disclosure information on those assets will be required to help users understand the nature and risks of
those investments. The standard is effective for our fiscal year 2017 and will be applied retrospectively.
This standard will have no effect on our consolidated financial statements, but we are currently
assessing the impact that this guidance will have on our fair value footnote disclosures.
In September 2015, the FASB released a new accounting standard for business combinations that
requires the acquirer to recognize adjustments to provisional amounts identified during the
measurement period in the reporting period in which the adjustments are determined. The standard is
to be applied prospectively beginning with our fiscal year 2017. We are assessing the impact that this
guidance will have on our consolidated financial statements.
55
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 1: Accounting Policies (Continued)
In January 2016, the FASB issued a new accounting standard that requires equity investments to be
measured at fair value with the fair value changes to be recognized through net income. This standard
does not apply to investments that are accounted for under the equity method of accounting or that
result in consolidation of the invested entity. We currently hold equity investments that are measured at
fair value at the end of each reporting period and we recognize the fair value changes through other
comprehensive income (loss) as unrealized gains (losses). Based on the fair value of our unrealized loss
as of April 30, 2016, adoption of this standard would be immaterial to our consolidated financial
statements. Adoption of this standard will be required for our fiscal year 2019 financial statements.
In February 2016, the FASB issued a new accounting standard requiring all operating leases that a
lessee enters into to be recorded on their balance sheet. The lessee will record an asset for the right to
use the underlying asset for the lease term and a liability for the contractual lease payments. This
guidance is effective for our fiscal year 2020. We are assessing the impact that this guidance will have
on our consolidated financial statements and related disclosures.
In March 2016, the FASB issued a new accounting standard focused on simplifying the accounting for
share-based payments. The guidance includes changes to the accounting for income taxes related to
share-based payments as well as changes to the presentation of these tax impacts on the statement of
cash flows. This guidance will be applicable for our fiscal year 2018. We are assessing the impact that
this guidance will have on our consolidated financial statements.
Note 2: Acquisitions
During fiscal 2016, we acquired the assets of four independent operators of 11 La-Z-Boy Furniture
Galleries(cid:3) stores in Colorado, Wisconsin, North and South Carolina, and Ohio for $26.3 million,
composed of $23.3 million of cash and $3.0 million of forgiveness of certain of these dealers’ accounts
receivable and prepaid expenses. We began including the 11 stores in our Retail segment results upon
acquisition.
Prior to the acquisitions, we licensed the exclusive right to own and operate La-Z-Boy Furniture
Galleries(cid:3) stores (and to use the associated trademarks and trade name) in those markets to the
dealers whose assets we acquired, and we reacquired these rights when we purchased the dealers’ other
assets. The effective settlement of these arrangements resulted in no settlement gain or loss as the
contractual terms were at market. We recorded an indefinite-lived intangible asset of $3.1 million
related to these reacquired rights. We also recognized $22.0 million of goodwill, which primarily relates
to the expected synergies resulting from the integration of the acquired stores and the anticipated
future benefits of these synergies.
56
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 2: Acquisitions (Continued)
We based the purchase price allocations on fair values at the dates of acquisition and summarized them
in the following table:
(Amounts in thousands)
Fiscal 2016
Acquisitions
Current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill and other intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . .
Property, plant, and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
Total assets acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,146
25,129
202
29,477
(3,217)
Net assets acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
26,260
During fiscal 2015, we acquired the assets of two independent La-Z-Boy Furniture Galleries(cid:3) dealers in
exchange for $1.8 million in cash and forgiveness of these dealers’ net accounts and notes receivable of
$1.0 million. We reacquired the right to own and operate La-Z-Boy Furniture Galleries(cid:3) stores in those
markets as a result of the acquisitions. In our Retail segment, we recorded an indefinite-lived intangible
asset of $1.0 million related to these reacquired rights and $1.2 million of goodwill.
During fiscal 2014, we acquired the assets of two independent La-Z-Boy Furniture Galleries(cid:3) dealers in
exchange for $0.8 million in cash and forgiveness of net accounts and notes receivable of $3.0 million.
We reacquired the right to own and operate La-Z-Boy Furniture Galleries(cid:3) stores in those markets as
a result of the acquisitions. We recorded an indefinite-lived intangible asset of $1.1 million in our
Retail segment related to these reacquired rights and goodwill of $1.1 million.
All of these indefinite-lived intangible assets and goodwill assets will be amortized and deducted for
federal income tax purposes over 15 years. All acquired stores were included in our Retail segment
results upon acquisition.
Purchase price allocations are not presented for the fiscal 2015 and fiscal 2014 acquisitions as they were
not material to our consolidated balance sheet. All of the above acquisitions were not material to our
financial position or our results of operations, and therefore, pro-forma financial information is not
presented. The net notes and accounts receivable acquired are considered non-cash investing activities
as they relate to our consolidated statement of cash flows.
Note 3: Restructuring
During fiscal 2014, we committed to a restructuring of our casegoods business to transition to an
all-import model for our wood furniture. We ceased casegoods manufacturing operations at our
Hudson, North Carolina facility during the second quarter of fiscal 2015. As a result of this
restructuring, we transitioned our remaining Kincaid and American Drew bedroom product lines to
imported product. We exited the hospitality business as we had manufactured those products in our
Hudson facility. We transitioned our warehouse and repair functions from two North Wilkesboro,
North Carolina facilities to our Hudson plant. In addition, during fiscal 2015, we sold both of the
North Wilkesboro facilities and most of the wood-working equipment from our Hudson plant and
completed the consolidation of our casegoods showroom.
We have recorded pre-tax restructuring charges of $8.3 million ($5.4 million after tax) since the
inception of this restructuring plan, with $5.1 million pre-tax ($3.3 million after tax) related to
57
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 3: Restructuring (Continued)
continuing operations and $3.2 million pre-tax ($2.1 million after tax) related to discontinued
operations. These charges relate to severance and benefit-related costs, rent for an idled showroom,
rent for an idled office building, and various asset write-downs, including fixed assets, inventory and
trade names. The pre-tax restructuring income recorded in fiscal 2015 mainly related to gains on the
sale of the North Wilkesboro warehouse, as well as inventory recoveries. These items were partly offset
by severance and benefit related costs and rent expense related to an idled showroom.
The table below details the total pre-tax restructuring (income)/expense recorded by type for the fiscal
years ended April 30, 2016, April 25, 2015, and April 26, 2014:
(Amounts in thousands)
4/30/2016
4/25/2015
4/26/2014
Fixed asset (recoveries) write-downs . . . . . .
Inventory (recoveries) write-downs . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
Total restructuring—continuing operations
$
132
(43)
490
579
(987) $
(578)
1,194
(371)
Inventory write-downs . . . . . . . . . . . . . . . .
Trade name write-down . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total restructuring—discontinued
operations . . . . . . . . . . . . . . . . . . . . . .
—
—
—
—
—
—
11
11
Total restructuring expense (income) . .
$
579
$
(360) $
2,272
2,216
351
4,839
1,804
1,265
163
3,232
8,071
We had $0.1 million of restructuring liability remaining as of April 30, 2016, related to severance and
warranty. We expect the severance liability to be settled by the end of the second quarter of fiscal 2017.
The warranty liability will remain until it is either used by warranty claims or the warranty period
expires, whichever occurs first.
Note 4: Discontinued Operations
During the fourth quarter of fiscal 2014, we sold substantially all of the assets of our Bauhaus U.S.A.
business unit to a group of investors and classified Lea Industries, a division of La-Z-Boy
Casegoods, Inc., (formerly La-Z-Boy Greensboro, Inc.), as held for sale while we marketed that
business for sale. We were unable to find a buyer for our Lea Industries business, and instead we
liquidated all the assets, consisting mostly of inventory, and ceased operations of Lea Industries during
the third quarter of fiscal 2015 (see Note 3 for additional information).
As a result of the sale of Bauhaus in fiscal 2014, we recorded an impairment to the value of the assets
to be sold of $1.1 million, because the consideration paid was less than the recorded amount of the net
assets to be sold. The operating results of our Bauhaus business unit are reported as discontinued
operations for all periods presented. The transaction closed in the fourth quarter of fiscal 2014, and
continuing cash flows from the end of the third quarter of fiscal 2014 through the closing date of the
sale were not significant.
The operating results of Bauhaus and Lea Industries are reported as discontinued operations for fiscal
2015 and fiscal 2014. We had historically reported the results of our Bauhaus business unit as a
component of our Upholstery segment and Lea Industries as a component of our Casegoods segment.
58
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 4: Discontinued Operations (Continued)
In fiscal 2015, we recorded $3.8 million of income in discontinued operations related to our previously
owned subsidiary, American Furniture Company, Incorporated. We sold this subsidiary in fiscal 2007,
and reported it as discontinued operations at that time. The income related to the Continued Dumping
and Subsidy Offset Act of 2000 (‘‘CDSOA’’), which provided for distribution of duties, collected by U.S.
Customs and Border Protection from antidumping cases, to domestic producers that supported the
antidumping petition related to wooden bedroom furniture imported from China. When we sold
American Furniture Company, Incorporated our contract provided that we would receive a portion of
any such duties to which that entity was entitled. The remainder of the CDSOA income reported in
discontinued operations in fiscal 2015 related to Lea Industries.
The results of our discontinued operations for the fiscal years ended April 25, 2015, and April 26, 2014,
were as follows:
(Amounts in thousands)
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income (loss) from discontinued operations . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from Continued Dumping and Subsidy Offset
Act, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax benefit (expense) . . . . . . . . . . . . . . . . . . . . .
4/25/2015
4/26/2014
$
$
$
$
7,850
869
8
50,587
(6,032)
—
4,211
(1,775)
—
2,236
Income (loss) from discontinued operations, net of tax . . .
$
3,297
$
(3,796)
Operating income from discontinued operations in fiscal 2014 included a $3.3 million restructuring
charge (see Note 3 for additional information).
In the consolidated statement of cash flows, the activity of these operating units was included along
with our activity from continuing operations for fiscal 2015 and fiscal 2014.
Note 5: Inventories
(Amounts in thousands)
Raw materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Work in process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Finished goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
FIFO inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Excess of FIFO over LIFO . . . . . . . . . . . . . . . . . . . . .
As of
4/30/2016
4/25/2015
$
87,905
11,591
97,861
197,357
(21,768)
75,024
14,310
92,295
181,629
(24,840)
Total inventories . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
175,589
$
156,789
59
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 6: Property, Plant and Equipment
(Amounts in thousands)
Buildings and building fixtures . . . . . . . . .
. . . . . . . . . . . .
Machinery and equipment
Information systems and software . . . . . . .
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Land improvements . . . . . . . . . . . . . . . . .
Transportation equipment . . . . . . . . . . . . .
Furniture and fixtures . . . . . . . . . . . . . . . .
Construction in progress . . . . . . . . . . . . . .
Accumulated depreciation . . . . . . . . . . .
Estimated
Useful Lives
3 - 40 years $
3 - 15 years
3 - 10 years
—
3 - 30 years
3 - 10 years
3 - 15 years
As of
4/30/2016
4/25/2015
192,211 $
143,561
72,275
14,346
15,007
15,728
19,397
10,465
482,990
(311,400)
202,482
142,949
72,200
15,409
14,747
17,051
20,996
14,195
500,029
(325,993)
Net property, plant and equipment . . .
$
171,590 $
174,036
Depreciation expense from continuing operations for the fiscal years ended April 30, 2016, April 25,
2015, and April 26, 2014, was $23.3 million, $19.3 million, and $19.3 million, respectively.
Note 7: Goodwill and Other Intangible Assets
Our goodwill and reacquired right assets on our consolidated balance sheet relates to acquisitions of
La-Z-Boy Furniture Galleries(cid:3) stores over the past several fiscal years. Details about these acquisitions
can be found in Note 2. Our other intangible assets also include a trade name for American Drew.
We test goodwill annually for impairment, using a qualitative approach for some items of goodwill and
a quantitative two-step approach for the rest. The key assumptions used in the two-step assessment of
our goodwill at April 30, 2016 were a discount rate of 8.4% and a terminal growth rate of 2.0%. For
our goodwill that was tested using a qualitative approach, we began by comparing the fair value of our
reporting units to the carrying value in the prior year. We then reviewed the reporting unit for
significant deterioration of the economic environment in which it operates or for an increased
competitive environment, as well as general economic conditions associated with the reporting unit.
Additionally, we reviewed the overall financial performance of the reporting unit and the expected
future performance of the reporting unit, as well as whether or not there was a change in the overall
composition of the reporting unit. The relative fair value of our reporting units significantly exceeds the
carrying value of our goodwill as of April 30, 2016. All of our goodwill relates to our Retail segment.
We did not have any goodwill impairment in fiscal 2014, fiscal 2015, or fiscal 2016.
The following is a roll-forward of goodwill for the fiscal years ended April 30, 2016, and April 25, 2015:
(Amounts in thousands)
Balance at April 26, 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
Balance at April 25, 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill
13,923
1,241
15,164
22,029
Balance at April 30, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
37,193
60
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 7: Goodwill and Other Intangible Assets (Continued)
The following is a roll-forward of other indefinite-lived intangible assets for the fiscal years ended
April 30, 2016, and April 25, 2015:
(Amounts in thousands)
Trade
Names
Reacquired
Rights
Total Other
Intangible
Assets
Balance at April 26, 2014 . . . . . . . . . . . . . .
Acquisitions . . . . . . . . . . . . . . . . . . . . . .
Impairment charges . . . . . . . . . . . . . . . .
$
Balance at April 25, 2015 . . . . . . . . . . . . . .
Acquisitions . . . . . . . . . . . . . . . . . . . . . .
$
1,306
—
(111)
1,195
—
$
3,238
1,025
—
4,263
3,100
Balance at April 30, 2016 . . . . . . . . . . . . . .
$
1,195
$
7,363
$
4,544
1,025
(111)
5,458
3,100
8,558
The impairment charge recorded in fiscal 2015 related to our American Drew trade name, as a result
of our annual impairment assessment.
Note 8: Investments
We have current and long-term investments intended to enhance returns on our cash as well as to fund
future obligations of our non-qualified defined benefit retirement plan, our executive deferred
compensation plan, and our performance compensation retirement plan. Our short-term investments
are included in other current assets and our long-term investments are included in other long-term
assets on our consolidated balance sheet. The following summarizes our investments at April 30, 2016,
and April 25, 2015:
(Amounts in thousands)
4/30/2016
4/25/2015
Short-term investments:
Available-for-sale investments . . . . . . . . . . . . . . . . . . . . .
Trading securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Held-to-maturity investments . . . . . . . . . . . . . . . . . . . . .
Total short-term investments . . . . . . . . . . . . . . . . . .
Long-term investments:
Available-for-sale investments . . . . . . . . . . . . . . . . . . .
Total available-for-sale and trading investments . . . . . . . .
Investments to enhance returns on cash . . . . . . . . . . . . . .
Investments to fund compensation/retirement plans . . . . .
$
$
$
$
13,491
—
1,826
15,317
31,659
46,976
33,583
13,393
$
$
$
$
16,763
1,127
—
17,890
43,305
61,195
45,490
15,705
61
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 8: Investments (Continued)
The following is a summary of the unrealized gain, unrealized losses, and fair value by investment type
at April 30, 2016, and April 25, 2015:
Fiscal 2016
(Amounts in thousands)
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
. . . . . . . . . . . . . . . . . . . .
Equity securities
Fixed income . . . . . . . . . . . . . . . . . . . . . . .
Mutual funds . . . . . . . . . . . . . . . . . . . . . ..
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
1,231
176
—
1
(135) $
(9)
—
(21)
8,150
36,527
—
2,299
Total securities . . . . . . . . . . . . . . . . . . . .
$
1,408
$
(165) $
46,976
Fiscal 2015
(Amounts in thousands)
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
Equity securities
. . . . . . . . . . . . . . . . . . . .
Fixed income . . . . . . . . . . . . . . . . . . . . . . .
Mutual funds . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
2,014
224
—
1
(78) $
(14)
—
(22)
9,251
50,358
1,127
459
Total securities . . . . . . . . . . . . . . . . . . . .
$
2,239
$
(114) $
61,195
The following table summarizes sales of available-for-sale securities (for the fiscal years ended):
(Amounts in thousands)
4/30/2016
4/25/2015
4/26/2014
Proceeds from sales . . . . . . . . . . . . . . . . . .
Gross realized gains . . . . . . . . . . . . . . . . . .
Gross realized losses . . . . . . . . . . . . . . . . .
$
$
28,721
997
(561)
$
33,750
285
(74)
34,557
857
(559)
The fair value of fixed income available-for-sale securities by contractual maturity was $13.6 million
within one year, $21.2 million within two to five years, $1.5 million within six to ten years and
$0.2 million thereafter.
Note 9: Accrued Expenses and Other Current Liabilities
(Amounts in thousands)
As of
4/30/2016
4/25/2015
Payroll and other compensation . . . . . . . . . . . . . . . . . . .
Accrued product warranty, current portion . . . . . . . . . . .
Customer deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . .
$
45,611
12,381
20,961
33,523
$
40,711
10,182
23,722
33,711
Accrued expenses and other current liabilities . . . . . . .
$
112,476
$
108,326
62
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 9: Accrued Expenses and Other Current Liabilities (Continued)
Included in other current liabilities at April 25, 2015, was a book overdraft of $7.3 million for
outstanding checks.
Note 10: Debt
(Amounts in thousands)
Capital leases
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: current portion . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . .
As of
4/30/2016
4/25/2015
$
$
803
(290)
513
$
$
830
(397)
433
We maintain a revolving credit facility secured primarily by all of our accounts receivable, inventory,
and cash deposit and securities accounts. We amended this agreement on December 30, 2014,
extending its maturity date to December 30, 2019. Availability under the agreement fluctuates
according to a borrowing base calculated on eligible accounts receivable and inventory. The credit
agreement includes affirmative and negative covenants that apply under certain circumstances, including
a fixed charge coverage ratio requirement that applies when excess availability under the line is less
than certain thresholds. At April 30, 2016, and at April 25, 2015, we were not subject to the fixed
charge coverage ratio requirement, had no borrowings outstanding under the agreement, and had
excess availability of $146.9 million of the $150.0 million credit commitment.
In the first quarter of fiscal 2015, we paid our remaining industrial revenue bond that was used to
finance the construction of some of our manufacturing facilities.
Capital leases consist primarily of long-term commitments for the purchase of information technology
equipment and have maturities ranging from fiscal 2017 to fiscal 2021. Interest rates range from 2.7%
to 7.6%.
Maturities of long-term capital leases, subsequent to April 30, 2016, are $0.2 million in fiscal 2018,
$0.2 million in fiscal 2019, $0.1 million in fiscal 2020, and less than $0.1 million in fiscal 2021.
Cash paid for interest during fiscal years 2016, 2015 and 2014 was $0.5 million in each fiscal year.
Note 11: Operating Leases
We have operating leases for one manufacturing facility, executive and sales offices, warehouses,
showrooms and retail facilities, as well as for transportation equipment, information technology and
other equipment. The operating leases expire at various dates through fiscal 2032. We have certain
retail facilities which we sublease to outside parties. The total rent liability included in other long-term
liabilities as of April 30, 2016, and April 25, 2015, was $14.8 million and $13.5 million, respectively.
63
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 11: Operating Leases (Continued)
The future minimum rentals for all non-cancelable operating leases and future rental income from
subleases are as follows (for the fiscal years):
(Amounts in thousands)
Future
Minimum
Rentals
Future
Minimum
Income
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 and beyond . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
63,256
60,817
54,574
48,032
44,238
105,461
$
3,969
3,906
3,906
3,934
3,309
4,969
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
376,378
$
23,993
Rental expense and rental income from continuing operations for operating leases were as follows (for
the fiscal years ended):
(Amounts in thousands)
4/30/2016
4/25/2015
4/26/2014
Rental expense . . . . . . . . . . . . . . . . . . . . .
Rental income . . . . . . . . . . . . . . . . . . . . . .
$
62,953
4,650
$
55,808
4,966
$
51,132
5,138
Both our rental expense and rental income are included in selling, general, and administrative expense
in our consolidated statement of income.
Note 12: Retirement and Welfare Plans
Voluntary 401(k) retirement plans are offered to eligible employees within certain U.S. operating units.
For most operating units, we make matching contributions based on specific formulas. We also make
supplemental contributions to this plan for eligible employees based on achievement of operating
performance targets.
A performance compensation retirement plan (‘‘PCRP’’) is maintained for eligible highly compensated
employees. The company contributions to this plan are based on achievement of performance targets.
As of April 30, 2016, and April 25, 2015, we had $6.9 million and $3.9 million, respectively, of
obligations for this plan included in other long-term liabilities.
We also maintain an executive deferred compensation plan for eligible highly compensated employees.
An element of this plan allows contributions for eligible highly compensated employees. As of April 30,
2016, and April 25, 2015, we had $16.3 million and $15.6 million, respectively, of obligations for this
plan included in other long-term liabilities. We had life insurance contracts related to this plan and the
PCRP at April 30, 2016, and at April 25, 2015, with cash surrender values of $21.0 million and
$17.4 million, respectively, which are included in other long-term assets. Mutual funds related to this
plan are considered trading securities and are included in other current assets. At April 30, 2016, this
plan had no mutual funds and at April 25, 2015, the market value of these mutual funds was
$1.1 million.
We maintain a non-qualified defined benefit retirement plan for certain former salaried employees.
Included in other long-term liabilities were plan obligations of $17.4 million and $17.5 million at
April 30, 2016, and April 25, 2015, respectively, which represented the unfunded projected benefit
64
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 12: Retirement and Welfare Plans (Continued)
obligation of this plan. During fiscal 2016, the total cost recognized for this plan was $0.9 million,
which primarily related to interest cost. The actuarial loss recognized in accumulated other
comprehensive loss was $0.4 million and the benefit payments during the year were $1.1 million.
Benefit payments are scheduled to be approximately $1.1 million annually for the next ten years. The
discount rate used to determine the obligations under this plan was 3.7% as of the end of fiscal 2016.
During fiscal 2015, the total cost recognized for this plan was $0.8 million, which primarily related to
interest cost. The actuarial loss recognized in accumulated other comprehensive loss was $1.7 million
and the benefit payments during the year were $1.1 million. The discount rate used to determine the
obligations under this plan was 3.9% as of the end of fiscal 2015. This plan is not funded and is
excluded from the obligation charts and disclosures that follow. We hold available-for-sale marketable
securities to fund future obligations of this plan in a Rabbi trust (see Notes 8 and 20). We are not
required to fund the non-qualified defined benefit retirement plan in fiscal year 2017; however, we have
the discretion to make contributions to the Rabbi trust.
We also maintain a defined benefit pension plan for eligible factory hourly employees at our La-Z-Boy
operating unit. This plan is closed to new participants, but active participants continue to earn service
credit. The measurement dates for the pension plan assets and benefit obligations were April 30, 2016,
and April 25, 2015, in fiscal 2016 and fiscal 2015, respectively.
The changes in plan assets and benefit obligations were recognized in accumulated other
comprehensive loss as follows (pre-tax) (for the fiscal years ended):
(Amounts in thousands)
4/30/2016
4/25/2015
Beginning of year net actuarial loss . . . . . . . . . . . . . . . . .
Net current year actuarial loss . . . . . . . . . . . . . . . . . . . .
Amortization of actuarial loss . . . . . . . . . . . . . . . . . . . . .
$
$
37,602
2,249
(3,001)
39,425
836
(2,659)
End of year net actuarial loss . . . . . . . . . . . . . . . . . . .
$
36,850
$
37,602
In fiscal 2017, we expect to amortize $3.1 million of unrecognized actuarial losses as a component of
pension expense.
The combined net periodic pension cost and retirement costs for retirement plans related to continuing
operations were as follows (for the fiscal years ended):
(Amounts in thousands)
4/30/2016
4/25/2015
4/26/2014
Service cost . . . . . . . . . . . . . . . . . . . . . . . .
Interest cost
. . . . . . . . . . . . . . . . . . . . . . .
Expected return on plan assets . . . . . . . . . .
Net amortization and deferral . . . . . . . . . . .
$
Net periodic pension cost (hourly plan) . .
401(k)* . . . . . . . . . . . . . . . . . . . . . . . . . . .
PCRP* . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other* . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total retirement costs (excluding
non-qualified defined benefit retirement
plan) . . . . . . . . . . . . . . . . . . . . . . . . .
* Not determined by an actuary
65
$
1,358
4,938
(4,997)
3,001
4,300
6,657
3,088
318
$
1,114
5,070
(5,077)
2,658
3,765
6,270
1,377
124
1,241
4,822
(6,800)
3,388
2,651
5,802
2,513
223
$
14,363
$
11,536
$
11,189
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 12: Retirement and Welfare Plans (Continued)
The funded status of the defined benefit pension plan for eligible factory hourly employees was as
follows:
(Amounts in thousands)
4/30/2016
4/25/2015
Change in benefit obligation
Benefit obligation at beginning of year . . . . . . . . . . . . . .
Service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest cost
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Actuarial loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . .
$
Benefit obligation at end of year . . . . . . . . . . . . . . . . .
Change in plan assets
Fair value of plan assets at beginning of year . . . . . . . . . .
Actual return on plan assets . . . . . . . . . . . . . . . . . . . . . .
Employer contributions . . . . . . . . . . . . . . . . . . . . . . . . .
Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . .
Fair value of plan assets at end of year . . . . . . . . . . . .
$
121,080
1,358
4,938
221
(10,808)
(418)
116,371
113,742
2,968
7,000
(10,808)
(418)
112,484
116,870
1,114
5,070
3,664
(5,638)
—
121,080
111,474
7,906
—
(5,638)
—
113,742
Funded status . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
(3,887) $
(7,338)
Amounts included on the consolidated balance sheet related to the defined benefit pension plan for
eligible factory hourly employees consist of:
(Amounts in thousands)
4/30/2016
4/25/2015
Other long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . .
$
(3,887) $
(7,338)
The actuarial assumptions for the defined benefit pension plan for eligible factory hourly employees
were as follows (for the fiscal years ended):
4/30/2016
4/25/2015
4/26/2014
Discount rate used to determine benefit
obligations . . . . . . . . . . . . . . . . . . . . . . .
Discount rate used to determine net benefit
cost . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term rate of return . . . . . . . . . . . . . .
4.1%
4.2%
4.3%
4.2%
4.4%
4.7%
4.4%
4.0%
4.7%
Consistent with prior years, the discount rate is calculated by matching a pool of high quality bond
payments to the plan’s expected future benefit payments as determined by our actuary. The long-term
rate of return was determined based on the average rate of earnings expected on the funds invested or
to be invested to provide the benefits of these plans. This included considering the trust’s asset
allocation, investment strategy, and the expected returns likely to be earned over the life of the plans.
This is based on our goal of earning the highest rate of return while maintaining acceptable levels of
risk. We strive to have assets within the plan that are diversified so that unexpected or adverse results
from one asset class will not have a significant negative impact on the entire portfolio.
66
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 12: Retirement and Welfare Plans (Continued)
Our investment objective is to minimize the volatility of the value of our pension assets relative to
pension liabilities and to ensure assets are sufficient to pay plan benefits by matching the characteristics
of our assets relative to our liabilities. At the end of fiscal 2016, approximately 90% of the plan’s assets
were invested in fixed rate investments with a duration that approximates the duration of its liabilities,
and the remainder of the assets was invested in equity investments.
The investment strategy and policy for the pension plan reflects a balance of risk-reducing and return-
seeking considerations. The objective of minimizing the volatility of assets relative to liabilities is
addressed primarily through asset-liability matching and asset diversification. The fixed income target
asset allocation matches the bond-like and long-dated nature of the pension liabilities. Assets are
broadly diversified within all asset classes to achieve adequate risk-adjusted returns while reducing the
sensitivity of the pension plan funding status to market interest rates and equity return volatility, and
maintaining liquidity sufficient to meet our defined benefit pension plan obligations.
Investments are reviewed at least quarterly and rebalanced as needed. The overall expected long-term
rate of return is determined by using long-term historical returns for equity and debt securities in
proportion to their weight in the investment portfolio.
The following table presents the fair value of the assets in our defined benefit pension plan for eligible
factory hourly employees at April 30, 2016, and April 25, 2015. The various levels of the fair value
hierarchy are described in Note 20.
Fiscal 2016
(Amounts in thousands)
Level 1(a)
Level 2(a)
Level 3
Cash and equivalents . . . . . . . . . . . . . . . . .
Equity funds . . . . . . . . . . . . . . . . . . . . . . .
Debt funds . . . . . . . . . . . . . . . . . . . . . . . .
$
$
3,239
19,505
—
$
15,440
42
74,258
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . .
$
22,744
$
89,740
$
(a) There were no transfers between Level 1 and Level 2 during fiscal 2016.
Fiscal 2015
(Amounts in thousands)
Level 1(b)
Level 2(b)
Level 3
Cash and equivalents . . . . . . . . . . . . . . . . .
Equity funds . . . . . . . . . . . . . . . . . . . . . . .
Debt funds . . . . . . . . . . . . . . . . . . . . . . . .
$
149
23,120
—
$
$
3,685
7,702
79,086
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . .
$
23,269
$
90,473
$
(b) There were no transfers between Level 1 and Level 2 during fiscal 2015.
—
—
—
—
—
—
—
—
Level 1 retirement plan assets include U.S. currency held by a designated trustee and equity funds of
common and preferred securities issued by U.S. and non-U.S. corporations. These equity funds are
traded actively on exchanges and price quotes for these shares are readily available.
67
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 12: Retirement and Welfare Plans (Continued)
Cash and equivalents of commingled funds generally valued using observable market data are
categorized as Level 2 assets. Equity funds categorized as Level 2 include common trust funds which
are composed of shares or units in open ended funds with active issuances and redemptions. The value
of these funds is determined based on the net asset value of the funds, the underlying assets of which
are publicly traded on exchanges. Price quotes for the assets held by these funds are readily available.
Debt funds categorized as Level 2 consist of corporate fixed income securities issued by U.S. and
non-U.S. corporations and fixed income securities issued directly by the U.S. Treasury or by
government-sponsored enterprises which are valued using a bid evaluation process with bid data
provided by independent pricing sources using observable market data.
Our funding policy is to contribute to our defined benefit pension plan amounts sufficient to meet the
minimum funding requirement as defined by employee benefit and tax laws, plus additional amounts
which we determine to be appropriate. During fiscal 2016, we voluntarily contributed $7 million to our
defined benefit pension plan, and we currently expect to voluntarily contribute approximately $2 million
to our defined benefit pension plan during fiscal 2017.
The expected benefit payments by our defined benefit pension plan for eligible factory hourly
employees for each of the next five fiscal years and for periods thereafter are presented in the
following table:
(Amounts in thousands)
Benefit
Payments
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 to 2026 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
6,311
6,451
6,608
6,752
6,874
35,659
$
68,655
Note 13: Product Warranties
We accrue an estimated liability for product warranties when we recognize revenue on the sale of
warranted products. We estimate future warranty claims based on our claims experience and any
additional anticipated future costs on previously sold products. We incorporate repair costs into our
liability estimates, including materials, labor and overhead amounts necessary to perform repairs and
any costs associated with delivering repaired product to our customers. Approximately 95% of our
warranty liability relates to our Upholstery segment as we generally warrant our products against
defects for one year on fabric and leather, from one to ten years on cushions and padding, and provide
a limited lifetime warranty on certain mechanisms and frames. Our warranties cover labor costs relating
to our parts for one year. Our warranty period begins when the consumer receives our product. We use
considerable judgment in making our estimates, and we record differences between our actual and
estimated costs when the differences are known.
68
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 13: Product Warranties (Continued)
A reconciliation of the changes in our product warranty liability is as follows:
(Amounts in thousands)
4/30/2016
4/25/2015
Balance as of the beginning of the year . . . . . . . . . . . . . .
Accruals during the year . . . . . . . . . . . . . . . . . . . . . . . . .
Accrual adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Settlements during the year . . . . . . . . . . . . . . . . . . . . . .
$
$
16,870
23,592
—
(19,951)
16,013
19,017
(953)
(17,207)
Balance as of the end of the year . . . . . . . . . . . . . . . .
$
20,511
$
16,870
As of April 30, 2016, and April 25, 2015, we included $12.4 million and $10.2 million, respectively, of
our product warranty liability in accrued expenses and other current liabilities on our consolidated
balance sheet, and included the remainder in other long-term liabilities. We recorded accruals during
the periods presented primarily to reflect charges that relate to warranties issued during the respective
periods. Our accrual adjustments reflect a change in the prior estimates of our product warranty
liability.
Note 14: Contingencies and Commitments
We have been named as a defendant in various lawsuits arising in the ordinary course of business and
as a potentially responsible party at certain environmental clean-up sites, the effect of which are not
considered significant. Based on a review of all currently known facts and our experience with previous
legal and environmental matters, we have recorded expense in respect of probable and reasonably
estimable losses arising from legal and environmental matters, and we currently do not believe it is
probable that we will have any additional loss for legal or environmental matters that would be
material to our consolidated financial statements.
In view of the inherent difficulty of predicting the outcome of litigation, particularly where the
claimants seek very large or indeterminate damages or where the matters present novel legal theories,
we generally cannot predict the eventual outcome, timing, or related loss, if any, of pending matters.
We recognized expense of $5.5 million in fiscal 2016, excluding internal and external legal fees,
following the verdict in a civil lawsuit, which was previously announced. The verdict in the civil lawsuit
has not been affirmed by the court. We had not accrued for this liability prior to the verdict because we
did not believe we were liable. The $5.5 million is recorded as a component of accrued expenses and
other current liabilities on our consolidated balance sheet.
Note 15: Stock-Based Compensation
The La-Z-Boy Incorporated 2010 Omnibus Incentive Plan provides for the grant of stock options, stock
appreciation rights, restricted stock, stock units (including deferred stock units), unrestricted stock,
dividend equivalent rights, and short-term cash incentive awards. Under this plan, as amended, the
aggregate number of common shares that may be issued through awards of any form is 8.7 million
shares. No grants may be issued under our previous plans.
69
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 15: Stock-Based Compensation (Continued)
The table below summarizes the total stock-based compensation expense recognized for all outstanding
grants in our consolidated statement of income (for the fiscal years ended):
(Amounts in thousands)
Equity-based awards expense . . . . . . . . . . . . . . . . . . . . . . . . .
Liability-based awards expense . . . . . . . . . . . . . . . . . . . . . . .
Total stock-based compensation expense . . . . . . . . . . . . . . .
4/30/2016
4/25/2015
4/26/2014
$
$
8,292
1,355
9,647
$
$
6,780
4,597
11,377
$
$
8,739
5,736
14,475
Stock Options. The La-Z-Boy Incorporated 2010 Omnibus Incentive Plan authorizes grants to certain
employees and directors to purchase common shares at a specified price, which may not be less than
100% of the current market price of the stock at the date of grant. We granted 426,539 stock options
to employees during the first quarter of fiscal 2016, and we also have stock options outstanding from
previous grants. We recognize compensation expense for stock options over the vesting period equal to
the fair value on the date our compensation committee approved the awards. The vesting period for
our stock options ranges from one to four years, with accelerated vesting upon retirement. We expense
options granted to retirement-eligible employees immediately. Granted options outstanding under the
former long-term equity award plan remain in effect and have a term of five or ten years.
Stock option expense recognized in selling, general and administrative expense for fiscal 2016, fiscal
2015, and fiscal 2014 was $3.2 million, $3.0 million, and $2.1 million, respectively. We received
$0.4 million, $1.4 million, and $3.6 million in cash during fiscal 2016, fiscal 2015, and fiscal 2014,
respectively, for exercises of stock options.
Plan activity for stock options under the above plans was as follows:
Number of
Shares
(In Thousands)
Weighted
Average
Exercise
Price
Outstanding at April 25, 2015 . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . .
Canceled . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . .
Outstanding at April 30, 2016 . . . . . . . . .
Exercisable at April 30, 2016 . . . . . . . . .
1,039
427
(16)
(39)
1,411
597
$
$
$
16.15
26.69
25.71
10.75
19.39
13.26
Weighted
Average
Remaining
Contractual
Term (Years)
Aggregate
Intrinsic
Value
(In Thousands)
7.6
$
11,773
7.4
6.0
$
$
622
9,489
7,529
The aggregate intrinsic value of options exercised was $2.0 million and $8.3 million in fiscal 2015 and
fiscal 2014, respectively. As of April 30, 2016, our total unrecognized compensation cost related to
non-vested stock option awards was $2.6 million, which we expect to recognize over a weighted-average
remaining vesting term of all unvested awards of 1.8 years. During the year ended April 30, 2016,
0.3 million shares vested.
We estimate the fair value of the employee stock options at the date of grant using the Black-Scholes
option-pricing model, which requires management to make certain assumptions. We estimate expected
volatility based on the historical volatility of our common shares. We base the average expected life on
the contractual term of the stock option and expected employee exercise trends. We base the risk-free
rate on U.S. Treasury issues with a term equal to the expected life assumed at the date of the grant.
70
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 15: Stock-Based Compensation (Continued)
The fair value of stock options granted during fiscal 2016, fiscal 2015, and fiscal 2014 were calculated
using the following assumptions:
Fiscal 2016
Grant
Fiscal 2015
Grant
Fiscal 2014
Grant
Risk-free interest rate . . . . . . . . . . . . . . . .
Dividend rate . . . . . . . . . . . . . . . . . . . . . .
Expected life in years . . . . . . . . . . . . . . . . .
Stock price volatility . . . . . . . . . . . . . . . . . .
Fair value per share . . . . . . . . . . . . . . . . . .
$
1.54%
1.20%
5.0
44.37%
9.69
$
1.59%
1.00%
5.0
54.40%
10.45
$
0.84%
0.84%
5.0
81.27%
11.63
Stock Appreciation Rights. Under the La-Z-Boy Incorporated 2010 Omnibus Incentive Plan, the
Compensation Committee of the board of directors is authorized to award stock appreciation rights to
certain employees. We did not grant any SARs to employees during fiscal 2016, but we have SARs
outstanding from previous grants. SARs will be paid in cash upon exercise and, accordingly, we account
for SARs as liability-based awards that we re-measure to reflect the fair value at the end of each
reporting period. These awards vest at 25% per year, beginning one year from the grant date for a
term of four years, with accelerated vesting upon retirement. We expense SARs granted to retirement-
eligible employees immediately. We estimate the fair value of SARs at the end of each reporting period
using the Black-Scholes option-pricing model, which requires management to make certain assumptions.
We base the average expected life on the contractual term of the SARs and expected employee exercise
trends (which is consistent with the expected life of our option awards). We base the risk-free rate on
U.S. Treasury issues with a term equal to the expected life assumed at the end of the reporting period.
We recognized compensation expense of $0.1 million, $0.7 million, and $1.1 million related to SARs in
selling, general and administrative expense for the years ended April 30, 2016, April 25, 2015, and
April 26, 2014, respectively. Our unrecognized compensation cost at April 30, 2016, related to SARs
was $0.2 million based on the fair value on that date, and is expected to be recognized over a
weighted-average remaining contractual term of all unvested awards of 0.9 years.
In fiscal 2014 and fiscal 2013, we granted SARs as described in our Annual Reports on Form 10-K for
the fiscal years ended April 26, 2014, and April 27, 2013, respectively. At April 30, 2016, we measured
the fair value of the SARs granted during these fiscal years using the following assumptions:
Risk-free interest rate . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividend rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected life in years . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock price volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fair value per share . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
0.88%
1.55%
2.1
30.77%
7.82
$
0.66%
1.55%
1.2
30.56%
13.54
Fiscal 2014
Grant
Fiscal 2013
Grant
Restricted Stock. Under the La-Z-Boy Incorporated 2010 Omnibus Incentive Plan, the Compensation
Committee of the board of directors is authorized to award restricted common shares to certain
employees. We awarded 102,063 shares of restricted stock to employees during fiscal 2016. We issue
restricted stock at no cost to the employees, and the shares are held in an escrow account until the
vesting period ends. If a recipient’s employment ends during the escrow period (other than through
death or disability), the shares are returned at no cost to the company. We account for restricted stock
awards as equity-based awards because upon vesting, they will be settled in common shares. The fair
71
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 15: Stock-Based Compensation (Continued)
value of the restricted stock that was awarded in the first quarter of fiscal 2016 was $26.69 per share,
the market value of our common shares on the date of grant. We recognize compensation expense for
restricted stock over the vesting period equal to the fair value on the date our compensation committee
approved the awards. Restricted stock awards vest at 25% per year, beginning one year from the grant
date for a term of four years. We recorded expense related to the restricted stock in selling, general
and administrative expense of $1.1 million, $0.8 million, and $0.5 million during fiscal 2016, fiscal 2015,
and fiscal 2014, respectively. Our unrecognized compensation cost at April 30, 2016, related to
restricted shares was $3.3 million and is expected to be recognized over a weighted-average remaining
contractual term of all unvested awards of 2.9 years.
The following table summarizes information about non-vested share awards as of and for the year
ended April 30, 2016:
Shares
(In Thousands)
Weighted
Average
Grant Date
Fair Value
Non-vested shares at April 25, 2015 . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Canceled . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
142
102
(57)
(18)
Non-vested shares at April 30, 2016 . . . . . . . . . . . . . .
169
$
20.50
26.46
16.07
24.07
25.22
Restricted Stock Units. Under the La-Z-Boy Incorporated 2010 Omnibus Incentive Plan, the
Compensation Committee of the board of directors is authorized to award restricted stock units to
certain employees and our non-employee directors.
We did not grant any restricted stock units to employees during fiscal 2016, but we have restricted
stock units outstanding from previous grants. We account for these units as liability-based awards
because upon vesting, these awards will be paid in cash. We measure and recognize initial
compensation expense based on the market value (intrinsic value) of our common stock on the grant
date and amortize the expense over the vesting period. We re-measure and adjust the liability based on
the market value (intrinsic value) of our common shares on the last day of the reporting period until
paid with a corresponding adjustment to reflect the cumulative amount of compensation expense. The
fair value of each outstanding restricted stock unit at April 30, 2016, was $25.87, the market value of
our common shares on the last day of the reporting period. Each restricted stock unit is the equivalent
of one common share. Restricted stock units vest at 25% per year, beginning one year from the grant
date for a term of four years. We recognized compensation expense related to restricted stock units
granted to employees of $1.4 million, $1.5 million, and $1.6 million in selling, general and
administrative expense for the years ended April 30, 2016, April 25, 2015, and April 26, 2014,
respectively. Our unrecognized compensation cost at April 30, 2016, related to employee restricted
stock units was $0.9 million based on the market value (intrinsic value) on that date, and is expected to
be recognized over a weighted-average remaining contractual term of all unvested awards of 1.0 year.
72
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 15: Stock-Based Compensation (Continued)
The following table summarizes information about non-vested stock units as of and for the year ended
April 30, 2016:
Units
(In Thousands)
Weighted
Average
Grant Date
Fair Value
Non-vested units at April 25, 2015 . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Canceled . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-vested units at April 30, 2016 . . . . . . . . . . . . . . .
$
146
(58)
(11)
77
$
16.12
15.40
16.55
16.61
Restricted stock units granted to directors are offered at no cost to the directors and vest when a
director leaves the board. During fiscal 2016, fiscal 2015, and fiscal 2014 we granted less than
0.1 million restricted stock units each year to our non-employee directors. We account for these
restricted stock units as equity-based awards as they will be settled in shares of our common stock upon
vesting. We measure and recognize compensation expense for these awards based on the market price
of our common shares on the date of grant, which was $27.74, $21.81, and $21.20 for the awards
granted in fiscal 2016, fiscal 2015, and fiscal 2014, respectively. Our expense relating to the
non-employee directors restricted stock units which we recorded in selling, general and administrative
expense was $0.6 million in fiscal 2016 and $0.7 million in fiscal 2015 and fiscal 2014.
Performance Awards. Under the La-Z-Boy Incorporated 2010 Omnibus Incentive Plan, the
Compensation Committee of the board of directors is authorized to award common shares and stock
units to certain employees based on the attainment of certain financial goals over a given performance
period. The awards are offered at no cost to the employees. In the event of an employee’s termination
during the vesting period, the potential right to earn shares/units under this program is generally
forfeited.
Payout of these grants depends on our financial performance (80%) and a market-based condition
based on the total return our shareholders receive on their investment in our stock relative to returns
earned through investments in other public companies (20%). The performance award opportunity
ranges from 50% of the employee’s target award if minimum performance requirements are met to a
maximum of 200% of the target award based on the attainment of certain financial and shareholder-
return goals over a specific performance period, which is generally three fiscal years. The number of
performance-based units/shares granted were as follows:
Performance-based awards granted (Shares/units in thousands)
Units
Shares
Fiscal 2014 grant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2015 grant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2016 grant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
35
—
—
191
192
182
73
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 15: Stock-Based Compensation (Continued)
Based on our financial results for fiscal 2016, certain performance conditions were met for some of our
outstanding performance-based awards. The number of awards earned based on performance
conditions were as follows:
Performance-based awards earned (Shares/units in thousands)
Shares/Units
Fiscal 2014 performance-based shares . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2014 performance-based units . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2015 performance-based shares . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2016 performance-based shares . . . . . . . . . . . . . . . . . . . . . . . . .
159
24
64
80
The fiscal 2014, fiscal 2015, and fiscal 2016 shares will be settled in shares and the fiscal 2014 units will
be settled in cash if service conditions are met, requiring employees to remain employed with the
company through the end of the three-year-performance periods.
We account for performance-based shares as equity-based awards because upon vesting, they will be
settled in common shares. For shares that vest based on our results relative to the performance goals,
we expense as compensation cost the fair value of the shares as of the day we granted the awards
recognized over the performance period, taking into account the probability that we will satisfy the
performance goals. The fair value of each share of the awards we granted in fiscal 2016, fiscal 2015,
and fiscal 2014 that vest based on attaining performance goals was $25.73, $22.91, and $18.58,
respectively, the market value of our common shares on the date we granted the awards less the
dividends we expect to pay before the shares vest. For shares that vest based on market conditions, we
use a Monte Carlo valuation model to estimate each share’s fair value as of the date of grant, and,
similar to the way in which we expense awards of stock options, we expense compensation cost over the
vesting period regardless of the value that award recipients ultimately receive. Based on the Monte
Carlo model, the fair value as of the grant date of the fiscal 2016, fiscal 2015, and fiscal 2014 grants of
shares that vest based on market conditions was $34.40, $29.64, and $26.08, respectively. Our
unrecognized compensation cost at April 30, 2016, related to performance-based shares was
$4.6 million based on the current estimates of the number of awards that will vest, and is expected to
be recognized over a weighted-average remaining contractual term of all unvested awards of 1.4 years.
Equity-based compensation expenses related to performance-based shares recognized in our
consolidated statement of income were as follows (for the fiscal years ended):
(Amounts in thousands)
4/30/2016
4/25/2015
4/26/2014
Fiscal 2012 grant . . . . . . . . . . . . . . . . . . . .
Fiscal 2013 grant . . . . . . . . . . . . . . . . . . . .
Fiscal 2014 grant . . . . . . . . . . . . . . . . . . . .
Fiscal 2015 grant . . . . . . . . . . . . . . . . . . . .
Fiscal 2016 grant . . . . . . . . . . . . . . . . . . . .
$
— $
—
926
840
1,610
— $
568
769
908
—
Total expense . . . . . . . . . . . . . . . . . . . . .
$
3,376
$
2,245
$
3,603
849
1,006
—
—
5,458
We account for performance-based units as liability-based awards because upon vesting, they will be
paid in cash. For units that vest based on our results relative to performance goals, we expense as
compensation cost over the performance period the fair value of each unit, taking into account the
probability that the performance goals will be attained. The fair value of each unit we granted in fiscal
2014 that vest based on attaining performance goals was $25.77, the market value of our common
74
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 15: Stock-Based Compensation (Continued)
shares on the last day of the reporting period less the dividends we expect to pay before the awards
vest. For performance-based units that vest based on market conditions, we use a Monte Carlo
valuation model to estimate each unit’s fair value as of the last day of the reporting period. We
re-measure and adjust the liability for these units based on the Monte Carlo valuation at the end of
each reporting period until the units are settled. Based on the Monte Carlo model, the fair value at
April 30, 2016, of the fiscal 2014 grant of units that vest based on market conditions was $46.64.
During fiscal 2016, we recognized no expense related to performance-based units due to the cost of the
units being offset by declines in their fair value during the year. In fiscal 2015 and fiscal 2014, we
recognized $2.0 million and $2.2 million, respectively, of expense related to performance-based units.
Previously Granted Deferred Stock Units. We account for awards under our deferred stock unit plan for
non-employee directors as liability-based awards because upon exercise these awards will be paid in
cash. We measure and recognize compensation expense based on the market price of our common
stock on the grant date. We remeasure and adjust the liability based on the market value (intrinsic
value) of our common shares on the last day of the reporting period until paid with a corresponding
adjustment to reflect the cumulative amount of compensation expense. For purposes of dividends and
for measuring the liability, each deferred stock unit is the equivalent of one common share. As of
April 30, 2016, we had 0.1 million deferred stock units outstanding. We recorded (income)/expense
relating to deferred stock units in selling, general and administrative of $(0.2) million, $0.4 million, and
$0.8 million during fiscal 2016, fiscal 2015, and fiscal 2014, respectively. Our liability related to these
awards was $2.6 million and $3.4 million at April 30, 2016, and April 25, 2015, respectively, and is
included as a component of other long-term liabilities on our consolidated balance sheet.
75
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 16: Accumulated Other Comprehensive Loss
The activity in accumulated other comprehensive loss for the fiscal years ended April 30, 2016,
April 25, 2015, and April 26, 2014, were as follows:
(Amounts in thousands)
Translation
Adjustment
Change in
Fair Value
of Cash
Flow Hedge
Unrealized
Gain on
Marketable
Securities
Net Pension
Amortization
and Net
Actuarial
Loss
Accumulated
Other
Comprehensive
Loss
Balance at April 27, 2013 . . . . . . . . . . . $
Changes before reclassifications . . . . .
Amounts reclassified to net income . .
Tax effect . . . . . . . . . . . . . . . . . . . . .
4,779 $
(2,324)
—
—
231 $
(780)
321
175
474 $
1,308
(300)
(384)
(40,980) $
6,286
3,566
(3,752)
(35,496)
4,490
3,587
(3,961)
Other comprehensive income (loss)
attributable to La-Z-Boy
Incorporated . . . . . . . . . . . . . . .
Balance at April 26, 2014 . . . . . . . . . . .
Changes before reclassifications . . . . .
Amounts reclassified to net income . .
Tax effect . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income (loss)
attributable to La-Z-Boy
Incorporated . . . . . . . . . . . . . . .
Balance at April 25, 2015 . . . . . . . . . . .
Changes before reclassifications . . . . .
Amounts reclassified to net income . .
Tax effect . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income (loss)
attributable to La-Z-Boy
Incorporated . . . . . . . . . . . . . . .
(2,324)
2,455
(938)
—
—
(938)
1,517
(1,962)
—
—
(284)
(53)
(1,857)
1,038
312
(507)
(560)
(1,711)
2,154
(169)
624
1,098
1,033
(214)
(312)
507
1,605
(447)
(436)
336
6,100
(34,880)
(2,517)
2,806
(110)
179
(34,701)
(2,612)
3,216
(230)
4,116
(31,380)
(4,279)
3,630
(110)
(759)
(32,139)
(6,732)
4,934
(63)
(1,962)
274
(547)
374
(1,861)
Balance at April 30, 2016 . . . . . . . . . . . $
(445) $
(286) $
1,058 $
(34,327) $
(34,000)
We reclassified the unrealized gain on marketable securities from accumulated other comprehensive
loss to net income through other income in our consolidated statement of income, reclassified the
change in fair value of cash flow hedges to net income through cost of sales, and reclassified the net
pension amortization to net income through selling, general and administrative expense.
The components of non-controlling interest at April 30, 2016, April 25, 2015, and April 26, 2014 were
as follows:
(Amounts in thousands)
4/30/2016
4/25/2015
4/26/2014
Balance as of the beginning of the year . . . .
Net income . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income . . . . . . . . .
Change in non-controlling interest . . . . ..
$
$
8,954
1,711
(595)
—
$
7,832
1,198
(76)
—
Balance as of the end of the year . . . . . . . .
$
10,070
$
8,954
$
7,140
1,324
(730)
98
7,832
76
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 17: Segment Information
Our reportable operating segments are the Upholstery segment, the Casegoods segment and the Retail
segment.
Upholstery Segment. The Upholstery segment consists primarily of two operating units: La-Z-Boy and
England. This segment manufactures and imports upholstered furniture. Upholstered furniture includes
recliners and motion furniture, sofas, loveseats, chairs, sectionals, modulars, ottomans and sleeper sofas.
The Upholstery segment sells directly to La-Z-Boy Furniture Galleries(cid:3) stores, operators of La-Z-Boy
Comfort Studio(cid:3) locations and England Custom Comfort Center locations, major dealers, and a wide
cross-section of other independent retailers.
Casegoods Segment. The Casegoods segment consists of three brands: American Drew, Hammary, and
Kincaid. This segment sells imported wood furniture to furniture retailers. Casegoods product includes
bedroom, dining room, entertainment centers, occasional pieces and some manufactured coordinated
upholstered furniture. The Casegoods segment sells directly to major dealers, as well as La-Z-Boy
Furniture Galleries(cid:3) stores, and a wide cross-section of other independent retailers.
Retail Segment. The Retail segment consists of 124 company-owned La-Z-Boy Furniture Galleries(cid:3)
stores. During fiscal 2016, fiscal 2015, and fiscal 2014, we acquired La-Z-Boy Furniture Galleries(cid:3)
stores in various markets. All of these acquired stores were previously independently owned and
operated (see Note 2 for more detail related to these acquisitions). The Retail segment sells
upholstered furniture, and some casegoods and other accessories, to end consumers through the retail
network.
Restructuring. During fiscal 2014, we committed to a restructuring of our casegoods business to
transition to an all-import model for our wood furniture. In fiscal 2016 and fiscal 2014, we recorded
restructuring charges of $0.6 million and $4.8 million, respectively, and restructuring income of
$0.4 million in fiscal 2015, related to continuing operations (see Note 3 for additional information). We
do not include restructuring costs in the results of our reportable segments.
The accounting policies of the operating segments are the same as those described in Note 1. We
account for intersegment revenue transactions between our segments consistent with independent third
party transactions, that is, at current market prices. As a result, the manufacturing profit related to
sales to our Retail segment is included within the appropriate Upholstery or Casegoods segment.
Operating income realized on intersegment revenue transactions is therefore generally consistent with
the operating income realized on our revenue from independent third party transactions. Segment
operating income is based on profit or loss from operations before interest expense, interest income,
income from continued dumping and subsidy offset act, other income (expense) and income taxes.
Identifiable assets are cash and equivalents, notes and accounts receivable, net inventories, net
property, plant and equipment, goodwill and other intangible assets. Our unallocated assets include
77
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 17: Segment Information (Continued)
deferred income taxes, corporate assets (including a portion of cash and equivalents), and various other
assets. Sales are attributed to countries on the basis of the customer’s location.
(Amounts in thousands)
Sales
Upholstery segment:
Year Ended
4/30/2016
4/25/2015
4/26/2014
Sales to external customers . . . . . . . . . . . . . . . . . . . . . . . .
Intersegment sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1,027,615
188,190
$
990,237
161,565
$
959,118
139,932
Upholstery segment sales . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,215,805
1,151,802
1,099,050
Casegoods segment:
Sales to external customers . . . . . . . . . . . . . . . . . . . . . . . .
Intersegment sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Casegoods segment sales . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retail segment sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate and Other:
Sales to external customers . . . . . . . . . . . . . . . . . . . . . . . .
Intersegment sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate and Other sales . . . . . . . . . . . . . . . . . . . . . . . . . .
92,601
9,939
102,540
402,479
2,703
3,720
6,423
98,886
10,827
109,713
333,978
2,294
—
2,294
97,095
9,657
106,752
298,642
2,463
—
2,463
Eliminations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(201,849)
(172,392)
(149,589)
Consolidated sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1,525,398
$ 1,425,395
$ 1,357,318
Operating Income (Loss)
Upholstery segment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Casegoods segment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retail segment
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate and Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated operating income . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from Continued Dumping and Subsidy Offset Act,
net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from continuing operations before income taxes . .
Depreciation and Amortization
Upholstery segment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Casegoods segment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retail segment
Corporate and Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
$
$
$
$
134,193
7,734
25,567
(579)
(44,526)
122,389
486
827
102
2,211
125,043
13,559
874
2,800
9,284
$
$
$
121,403
6,408
11,466
371
(36,483)
103,165
523
1,030
1,212
744
105,628
12,669
813
2,910
5,891
117,688
3,397
11,128
(4,839)
(38,078)
89,296
548
761
—
2,050
91,559
13,778
1,171
2,520
5,566
Consolidated depreciation and amortization . . . . . . . . . . .
$
26,517
$
22,283
$
23,035
78
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 17: Segment Information (Continued)
(Amounts in thousands)
Capital Expenditures
Year Ended
4/30/2016
4/25/2015
4/26/2014
Upholstery segment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Casegoods segment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retail segment
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate and Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated capital expenditures . . . . . . . . . . . . . . . . . .
Assets
Upholstery segment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Casegoods segment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retail segment
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unallocated assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated assets . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-Lived Assets by Geographic Location
Domestic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
International . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated long-lived assets . . . . . . . . . . . . . . . . . . . . .
$
$
$
$
$
$
14,744
562
3,245
6,133
24,684
323,411
51,165
146,963
278,490
800,029
211,021
7,443
218,464
$
$
$
$
$
$
14,979
1,149
2,993
51,198
70,319
317,102
48,403
126,189
282,910
774,604
187,224
8,359
195,583
$
$
$
$
$
$
6,579
149
4,379
22,623
33,730
305,814
53,299
119,816
292,366
771,295
147,538
6,805
154,343
Sales by Country
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
89%
7%
4%
100%
87%
7%
6%
100%
86%
8%
6%
100%
Note 18: Income Taxes
Income from continuing operations before income taxes consists of the following (for the fiscal years
ended):
(Amounts in thousands)
4/30/2016
4/25/2015
4/26/2014
United States . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
115,750
9,293
125,043
$
$
96,605
9,023
105,628
$
$
82,705
8,854
91,559
79
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 18: Income Taxes (Continued)
Income tax expense (benefit) applicable to continuing operations consists of the following components
(for the fiscal years ended):
(Amounts in thousands)
4/30/2016
4/25/2015
4/26/2014
Federal:
—current . . . . . . . . . . . . . . . . . . . . . . . .
—deferred . . . . . . . . . . . . . . . . . . . . . . .
$
32,403
3,559
$
28,887
406
$
24,695
1,495
State:
—current . . . . . . . . . . . . . . . . . . . . . . . .
—deferred . . . . . . . . . . . . . . . . . . . . . . .
Foreign:
—current . . . . . . . . . . . . . . . . . . . . . . . .
—deferred . . . . . . . . . . . . . . . . . . . . . . .
4,750
859
2,345
164
4,573
637
2,281
170
5,345
(2,082)
1,375
555
Total income tax expense . . . . . . . . . . . .
$
44,080
$
36,954
$
31,383
Our effective tax rate differs from the U.S. federal income tax rate for the following reasons:
(% of income from continuing operations before
income taxes)
Statutory tax rate . . . . . . . . . . . . . . . . . . . .
Increase (reduction) in income taxes
resulting from:
State income taxes, net of federal benefit . .
U.S. manufacturing benefit . . . . . . . . . . .
Change in valuation allowance . . . . . . . . .
Miscellaneous items . . . . . . . . . . . . . . . .
Year Ended
4/30/2016
4/25/2015
4/26/2014
35.0%
35.0%
35.0%
3.4
(2.5)
(0.3)
(0.3)
3.5
(2.1)
(0.4)
(1.0)
3.1
(1.0)
(1.2)
(1.6)
Effective tax rate . . . . . . . . . . . . . . . . . . . .
35.3%
35.0%
34.3%
For our foreign operating units, we permanently reinvest the earnings and consequently do not record a
deferred tax liability relative to the undistributed earnings. We have reinvested approximately
$24.7 million of the earnings. The potential deferred tax attributable to these earnings would be
approximately $3.2 million.
80
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 18: Income Taxes (Continued)
The primary components of our deferred tax assets and (liabilities) were as follows:
(Amounts in thousands)
$
Assets
Deferred and other compensation . . . . . . . . . . . . . . . . . .
Allowance for doubtful accounts
. . . . . . . . . . . . . . . . . . .
State income tax—net operating losses, credits and other . .
Pension . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Warranty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Workers’ compensation . . . . . . . . . . . . . . . . . . . . . . . . . .
Employee benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . .
Liabilities
Property, plant and equipment . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
As of
4/30/2016
4/25/2015
$
25,032
1,560
5,571
1,542
7,817
4,184
3,870
3,212
—
(3,625)
49,163
(7,089)
(391)
22,085
2,255
6,032
2,828
6,466
5,174
4,173
3,096
1,262
(4,322)
49,049
(2,722)
—
Net deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . .
$
41,683
$
46,327
The deferred tax assets associated with loss carry forwards and the related expiration dates are as
follows:
(Amounts in thousands)
Amount
Expiration
Various U.S. state net operating losses
(excluding federal tax effect) . . . . . . . . . .
Foreign net operating losses . . . . . . . . . . . .
Foreign capital losses . . . . . . . . . . . . . . . . .
$
8,909 Fiscal 2017 - 2035
Indefinite
Indefinite
100
19
We evaluate our deferred taxes to determine if a valuation allowance is required. Accounting standards
require that we assess whether a valuation allowance should be established based on the consideration
of all available evidence using a ‘‘more likely than not’’ standard with significant weight being given to
evidence that can be objectively verified.
The evaluation of the amount of net deferred tax assets expected to be realized necessarily involves
forecasting the amount of taxable income that will be generated in future years. We have forecasted
future results using estimates management believes to be reasonable. We based these estimates on
objective evidence such as expected trends resulting from certain leading economic indicators. Based
upon our net deferred tax asset position at April 30, 2016, we estimate that about $106 million of
future taxable income would need to be generated to fully recover our net deferred tax assets. The
realization of deferred income tax assets is dependent on future events. Actual results inevitably will
vary from management’s forecasts. Such variances could result in adjustments to the valuation
allowance on deferred tax assets in future periods, and such adjustments could be material to the
financial statements.
81
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 18: Income Taxes (Continued)
During fiscal 2016, we recorded a $0.7 million decrease in our valuation allowance for deferred tax
assets that are now considered more likely than not to be realized. This determination was primarily
the result of our assessment of our cumulative pre-tax income in certain jurisdictions. A summary of
the valuation allowance by jurisdiction is as follows:
Jurisdiction (Amounts in thousands)
4/25/2015
Valuation
Allowance
Change
4/30/2016
Valuation
Allowance
U.S. state . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
4,303
19
4,322
$
$
(697) $
—
(697) $
3,606
19
3,625
The remaining valuation allowance of $3.6 million primarily related to certain U.S. state and foreign
deferred tax assets. The U.S. state deferred taxes are primarily related to state net operating losses.
As of April 30, 2016, we had a gross unrecognized tax benefit of $1.8 million related to uncertain tax
positions in various jurisdictions. A reconciliation of the beginning and ending balance of these
unrecognized tax benefits is as follows:
(Amounts in thousands)
4/30/2016
4/25/2015
4/26/2014
Balance at the beginning of the period . . . .
Additions:
Positions taken during the current year . .
Reductions:
Positions taken during the prior year . . . .
Decreases related to settlements with
taxing authorities . . . . . . . . . . . . . . . . .
Reductions resulting from the lapse of the
statute of limitations . . . . . . . . . . . . . .
$
2,226
$
2,972
$
3,248
87
(321)
—
(171)
94
(702)
(25)
(113)
88
(99)
(98)
(167)
Balance at the end of the period . . . . . . . . .
$
1,821
$
2,226
$
2,972
We recognize interest and penalties associated with uncertain tax positions in income tax expense. We
had approximately $0.2 million and $0.3 million accrued for interest and penalties as of April 30, 2016,
and April 25, 2015, respectively.
If recognized, $0.4 million of the total $1.8 million of unrecognized tax benefits would decrease our
effective tax rate. We expect unrecognized tax benefits to decrease by approximately $1.3 million within
the next 12 months as a result of state tax net operating loss carryovers expiring. This expected
decrease in unrecognized tax benefits will not impact our effective tax rate. The remaining balance will
be settled or released as tax audits are effectively settled, statutes of limitation expire or other new
information becomes available.
Our U.S. federal income tax returns for fiscal years 2013 and subsequent are still subject to audit. Our
fiscal year 2012 U.S. federal income tax return audit was completed in fiscal 2016 with no changes to
reported tax. In addition, we conduct business in various states. The major states in which we conduct
business are subject to audit for fiscal years 2013 and subsequent. Our businesses in Canada and
Thailand are subject to audit for fiscal years 2007 and subsequent, and in Mexico, calendar years 2011
and subsequent.
82
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 18: Income Taxes (Continued)
Cash paid for taxes (net of refunds received) during the fiscal years ended April 30, 2016, April 25,
2015, and April 26, 2014, were $34.5 million, $34.4 million, and $25.0 million, respectively.
Note 19: Earnings per Share
Certain share-based compensation awards that entitle their holders to receive non-forfeitable dividends
prior to vesting are considered participating securities. We grant restricted stock awards that contain
non-forfeitable rights to dividends on unvested shares, and we are required to include these
participating securities in calculating our basic earnings per common share, using the two-class method.
The following is a reconciliation of the numerators and denominators we used in our computations of
basic and diluted earnings per share:
(Amounts in thousands)
4/30/2016
4/25/2015
4/26/2014
Year Ended
Numerator (basic and diluted):
Net income attributable to La-Z-Boy
Incorporated . . . . . . . . . . . . . . . . . . . .
$
79,252
$
70,773
$
55,056
Income allocated to participating
securities . . . . . . . . . . . . . . . . . . . . . .
(401)
(395)
(422)
Net income available to common
shareholders . . . . . . . . . . . . . . . . . .
$
78,851
$
70,378
$
54,634
Denominator:
Basic weighted average common shares
outstanding . . . . . . . . . . . . . . . . . . . . .
50,194
51,767
52,386
Add:
Contingent common shares . . . . . . . . . . .
Stock option dilution . . . . . . . . . . . . . . .
238
333
250
329
1,049
394
Diluted weighted average common
shares outstanding . . . . . . . . . . . . . .
50,765
52,346
53,829
The above values for contingent common shares reflect the dilutive effect of common shares that we
would have issued to employees under the terms of performance-based share awards if the relevant
performance period for the award had been the reporting period.
We had outstanding options to purchase 0.4 million shares for the year ended April 30, 2016 with a
weighted average exercise price of $26.69. We excluded the effect of these options from our diluted
share calculation since, for each period presented, the weighted average exercise price of the options
was higher than the average market price, and including the options’ effect would have been
anti-dilutive. We did not exclude any outstanding options from the diluted share calculation for the
fiscal years ended April 25, 2015 and April 26, 2014.
83
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 20: Fair Value Measurements
Accounting standards require that we put financial assets and liabilities into one of three categories
based on the inputs we use to value them:
(cid:127) Level 1—Financial assets and liabilities the values of which are based on unadjusted quoted market
prices for identical assets and liabilities in an active market that we have the ability to access.
(cid:127) Level 2—Financial assets and liabilities the values of which are based on quoted prices in markets
that are not active or on model inputs that are observable for substantially the full term of the asset
or liability.
(cid:127) Level 3—Financial assets and liabilities the values of which are based on prices or valuation
techniques that require inputs that are both unobservable and significant to the overall fair value
measurement.
Accounting standards require that in making fair value measurements, we use observable market data
when they are available. When inputs used to measure fair value fall within different levels of the
hierarchy, we categorize the fair value measurement as being in the lowest level that is significant to
the measurement. We recognize transfers between levels of the fair value hierarchy at the end of the
reporting period in which they occur.
In addition to assets and liabilities that we record at fair value on a recurring basis, we are required to
record assets and liabilities at fair value on a non-recurring basis. We measure non-financial assets such
as trade names, goodwill, and other long-lived assets at fair value when there is an indicator of
impairment, and we record them at fair value only when we recognize an impairment loss. During fiscal
2015 we recorded our American Drew trade name at fair value based upon the relief from royalty
method.
The following table presents the fair value hierarchy for those assets measured at fair value on a
recurring basis as of April 30, 2016, and April 25, 2015:
Fiscal 2016
(Amounts in thousands)
Level 1(a)
Level 2(a)
Level 3
Fair Value Measurements
Assets
Available-for-sale investments . . . . . . . . .
Held-to-maturity investments . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
1,452
1,826
3,278
$
$
43,698
—
43,698
$
$
(a) There were no transfers between Level 1 and Level 2 during fiscal 2016.
Fiscal 2015
(Amounts in thousands)
Level 1(b)
Level 2(b)
Level 3
Fair Value Measurements
Assets
Available-for-sale investments . . . . . . . . .
Trading securities . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
1,552
—
1,552
$
$
58,516
1,127
59,643
$
$
(b) There were no transfers between Level 1 and Level 2 during fiscal 2015.
—
—
—
—
—
—
84
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 20: Fair Value Measurements (Continued)
At April 30, 2016, and April 25, 2015, we held available-for-sale marketable securities intended to
enhance returns on our cash and to fund future obligations of our non-qualified defined benefit
retirement plan, as well as trading securities to fund future obligations of our executive deferred
compensation plan and our performance compensation retirement plan. The fair value measurements
for our securities are based on quoted prices in active markets, as well as through broker quotes and
independent valuation providers, multiplied by the number of shares owned exclusive of any transaction
costs.
85
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
ITEM 9A. CONTROLS AND PROCEDURES.
Disclosure Controls and Procedures. As of the end of the period covered by this report, we carried out
an evaluation, under the supervision and with the participation of our management, including our Chief
Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our
disclosure controls and procedures, as such term is defined in Rule 13a-15(e) of the Exchange Act.
Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that
such disclosure controls and procedures are effective to ensure that information required to be
disclosed in our periodic reports filed under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified by the Securities and Exchange Commission’s rules and
forms and is accumulated and communicated to our management, including our Chief Executive
Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required
disclosure.
Management’s Annual Report on Internal Control over Financial Reporting. Our management’s report on
internal control over financial reporting is included in Item 8 of this report.
Attestation Report of the Registered Public Accounting Firm. Our registered public accounting firm’s
attestation report on our internal control over financial reporting is included in Item 8 of this report.
Changes in Internal Control over Financial Reporting. We are implementing an enterprise resource
planning (‘‘ERP’’) system in our largest operating unit. We expect to finish implementing the sales
order management component of the system by the end of fiscal 2017. The implementation of an ERP
system will affect the processes that constitute our internal control over financial reporting and will
require testing for effectiveness as the implementation progresses. There were no other changes in our
internal controls over financial reporting that occurred during our fourth quarter of fiscal 2016, that
have materially affected, or are reasonably likely to materially affect, our internal control over financial
reporting.
ITEM 9B. OTHER INFORMATION.
None.
86
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE.
We have adopted a Code of Business Conduct, which applies to all of our officers, directors, and
employees. A current copy of the code is posted at our website www.la-z-boy.com.
We provide some information about our executive officers in Part I of this report, under the heading
‘‘Executive Officers of Registrant.’’ All other information required to be reported under this item will
be included in our proxy statement for our 2016 Annual Meeting of Shareholders, and all of that
information is incorporated in this item by reference.
ITEM 11. EXECUTIVE COMPENSATION.
All information required to be reported under this item will be included in our proxy statement for our
2016 Annual Meeting of Shareholders, and all of that information is incorporated in this item by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS.
The information required to be reported under Item 201(d) of Regulation S-K is contained in Item 5
of this report. All other information required to be reported under this item will be included in our
proxy statement for our 2016 Annual Meeting of Shareholders, and all of that information is
incorporated in this item by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE.
All information required to be reported under this item will be included in our proxy statement for our
2016 Annual Meeting of Shareholders, and all of that information is incorporated in this item by
reference.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.
All information required to be reported under this item will be included in our proxy statement for our
2016 Annual Meeting of Shareholders, and all of that information is incorporated in this item by
reference.
87
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.
(a) The following documents are filed as part of this report:
(1) Financial Statements:
Management’s Report to Our Shareholders
Report of Independent Registered Public Accounting Firm
Consolidated Statement of Income for each of the three fiscal years ended April 30,
2016, April 25, 2015, and April 26, 2014
Consolidated Statement of Comprehensive Income for each of the three fiscal years
ended April 30, 2016, April 25, 2015, and April 26, 2014
Consolidated Balance Sheet at April 30, 2016, and April 25, 2015
Consolidated Statement of Cash Flows for the fiscal years ended April 30, 2016,
April 25, 2015, and April 26, 2014
Consolidated Statement of Changes in Equity for the fiscal years ended April 30, 2016,
April 25, 2015, and April 26, 2014
Notes to Consolidated Financial Statements
(2) Financial Statement Schedules:
Report of Independent Registered Public Accounting Firm on Financial Statement
Schedule
Schedule II—Valuation and Qualifying Accounts for the fiscal years ended April 30,
2016, April 25, 2015, and April 26, 2014
The Report of Independent Registered Public Accounting Firm on Financial Statement
Schedule and Schedule II immediately follow this item.
All other schedules are omitted because they are not applicable or not required because
the required information is included in the financial statements or notes thereto.
Note: For all exhibits incorporated by reference, the SEC file number is 1-9656. Exhibits not
incorporated by reference are being filed or furnished with this report.
(3) Exhibits:
The following exhibits are filed or furnished as part of this report:
Exhibit
Number
(2) Not applicable
Description
(3.1)
(3.2)
(3.3)
(3.4)
La-Z-Boy Incorporated Restated Articles of Incorporation (Incorporated by reference to
an exhibit to Form 10-Q for the quarter ended October 26, 1996)
La-Z-Boy Incorporated Amendment to Restated Articles of Incorporation effective
August 21, 1998 (Incorporated by reference to an exhibit to Form 10-Q for the quarter
ended October 27, 2012)
La-Z-Boy Incorporated Amendment to Restated Articles of Incorporation effective
August 22, 2008 (Incorporated by reference to an exhibit to Form 10-Q for the quarter
ended October 27, 2012)
La-Z-Boy Incorporated Amendment to Restated Articles of Incorporation effective
August 24, 2012 (Incorporated by reference to an exhibit to Form 10-Q for the quarter
ended October 27, 2012)
88
Exhibit
Number
Description
(3.5)
La-Z-Boy Incorporated Amended and Restated Bylaws (as of May 3, 2011)
(Incorporated by reference to an exhibit to Form 8-K filed May 6, 2011)
(4.1) Amended and Restated Credit Agreement dated as of October 19, 2011, among
La-Z-Boy Incorporated, certain of its subsidiaries, the lenders named therein, and Wells
Fargo Capital Finance, LLC, as administrative agent for the lenders (Incorporated by
reference to an exhibit to Form 8-K filed October 21, 2011)
(4.2) Amendment Number One to Amended and Restated Credit Agreement, Amendment
Number One to Amended and Restated Security Agreement, Ratification and
Reaffirmation Agreement, dated as of December 30, 2014, among La-Z-Boy
Incorporated, certain of its subsidiaries, the lenders named therein, and Wells Fargo
Capital Finance, LLC, as administrative agent for the lenders (Incorporated by reference
to an exhibit to Form 8-K filed January 6, 2015)
(9) Not applicable
(10.1)* La-Z-Boy Incorporated Restricted Stock Plan for Non-Employee Directors, amended and
restated through August 12, 2003 (Incorporated by reference to an exhibit to definitive
proxy statement dated July 9, 2003)
(10.2)* La-Z-Boy Incorporated Deferred Stock Unit Plan for Non-Employee Directors
(Incorporated by reference to an exhibit to Form 10-Q for the quarter ended
October 25, 2008)
(10.3)* Form of Change in Control Agreement in effect for: Kurt L. Darrow. Similar agreements
are in effect for Louis M. Riccio Jr., Otis Sawyer and Mark S. Bacon, Sr., J. Douglas
Collier, and Darrell D. Edwards, except the severance period in those agreements is
12 months rather than 24 months (Incorporated by reference to an exhibit to Form 10-K
for the fiscal year ended April 25, 2015)
(10.4)* Form of Indemnification Agreement (covering all directors, including employee-directors)
(Incorporated by reference to an exhibit to Form 8-K, filed January 22, 2009)
(10.5)* 2005 La-Z-Boy Incorporated Executive Deferred Compensation Plan, amended and
restated as of November 18, 2008 (Incorporated by reference to an exhibit to Form 10-Q
for the quarter ended October 24, 2009)
(10.6)* Amended and Restated La-Z-Boy Incorporated 2010 Omnibus Incentive Plan
(Incorporated by reference to Annex A to definitive proxy statement for annual meeting
of shareholders held August 21, 2013)
(10.7)* La-Z-Boy Incorporated 2010 Omnibus Incentive Plan Sample Award Agreement
(Incorporated by reference to an exhibit to Form 10-Q for the quarter ended
October 23, 2010)
(10.8)* La-Z-Boy Incorporated 2010 Omnibus Incentive Plan Revised Sample Award Agreement
effective July 9, 2012 (Incorporated by reference to an exhibit to Form 8-K filed July 9,
2012)
(10.9)* La-Z-Boy Incorporated Severance Plan for Named Executive Officers (Incorporated by
reference to an exhibit to Form 10-K for the fiscal year ended April 24, 2010)
(10.10)* La-Z-Boy Incorporated Performance Compensation Retirement Plan effective April 27,
2013 (Incorporated by reference to an exhibit to Form 10-K for the fiscal year ended
April 27, 2013)
89
Exhibit
Number
Description
(10.11)* 2014 Amendment to La-Z-Boy Incorporated Performance Compensation Retirement
Plan (Incorporated by reference to an exhibit to Form 10-K for the fiscal year ended
April 26, 2014)
(10.12)* First 2014 Amendment to La-Z-Boy Incorporated Severance Plan for Named Executive
Officers (Incorporated by reference to an exhibit to Form 10-K for the fiscal year ended
April 25, 2015)
(11)
Statement regarding computation of per share earnings (See Note 19 to the Consolidated
Financial Statements included in Item 8)
(12) No statement regarding computation of ratios is included as an exhibit because the
method of computing each ratio included in this report is either obvious from the ratio’s
description or is explained in text or a footnote accompanying the ratio.
(13) Not applicable
(14) Not applicable
(16) Not applicable
(18) Not applicable
(21)
List of subsidiaries of La-Z-Boy Incorporated
(22) Not applicable
(23) Consent of PricewaterhouseCoopers LLP (EDGAR filing only)
(24) Not applicable
(31.1) Certifications of Chief Executive Officer pursuant to Rule 13a-14(a)
(31.2) Certifications of Chief Financial Officer pursuant to Rule 13a-14(a)
(32) Certifications pursuant to 18 U.S.C. Section 1350
(33) Not applicable
(34) Not applicable
(35) Not applicable
(95) Not applicable
(99) Not applicable
(100) Not applicable
(101.INS) XBRL Instance Document
(101.SCH) XBRL Taxonomy Extension Schema Document
(101.CAL) XBRL Taxonomy Extension Calculation Linkbase Document
(101.LAB) XBRL Taxonomy Extension Label Linkbase Document
(101.PRE) XBRL Taxonomy Extension Presentation Linkbase Document
(101.DEF) XBRL Taxonomy Extension Definition Linkbase Document
*
Indicates a management contract or compensatory plan or arrangement under which a director or
executive officer may receive benefits.
90
Report of Independent Registered Public Accounting Firm on Financial Statement Schedule
To the Board of Directors and Shareholders of La-Z-Boy Incorporated:
Our audits of the consolidated financial statements and of the effectiveness of internal control over
financial reporting referred to in our report dated June 21, 2016 appearing in this Form 10-K also
included an audit of the financial statement schedule listed in Item 15(a)(2) 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
Detroit, Michigan
June 21, 2016
91
LA-Z-BOY INCORPORATED
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
(Amounts in thousands)
Description
Additions
Balance at
Beginning
of Year
Charged to
Costs and
Expenses
Charged to
Other
Accounts
Deductions
Balance at
End of
Year
Allowance for doubtful accounts,
deducted from accounts receivable:
April 30, 2016 . . . . . . . . . . . . . . . . . .
April 25, 2015 . . . . . . . . . . . . . . . . . .
April 26, 2014 . . . . . . . . . . . . . . . . . .
Allowance for deferred tax assets:
April 30, 2016 . . . . . . . . . . . . . . . . . .
April 25, 2015 . . . . . . . . . . . . . . . . . .
April 26, 2014 . . . . . . . . . . . . . . . . . .
$
$
4,622
12,368
21,607
$
(664) $
(2,206)
(2,926)
—
—
—
$
(813)(a) $
(5,540)(a)
(6,313)(a)
3,145
4,622
12,368
$
4,322
4,700
6,619
— $
—
(135)
(358)(c) $
39 (c)
—
(339)(b) $
(417)(b)
(1,784)(b)
3,625
4,322
4,700
(a) Deductions represented uncollectible accounts written off less recoveries of accounts receivable
written off in prior years.
(b) Valuation allowance release.
(c) Represents impact of adjusting gross deferred tax assets.
92
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the
Registrant has duly caused this Form 10-K to be signed on its behalf by the undersigned, thereunto
duly authorized.
DATE: June 21, 2016
LA-Z-BOY INCORPORATED
BY /s/ KURT L. DARROW
Kurt L. Darrow
Chairman, President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed
below, as of June 21, 2016, by the following persons on behalf of the Registrant and in the capacities
indicated.
/s/ K.L. DARROW
/s/ R.M. GABRYS
K.L. Darrow
Chairman, President and Chief Executive Officer
R.M. Gabrys
Director
/s/ D.K. HEHL
D.K. Hehl
Director
/s/ J.E. KERR
J.E. Kerr
Director
/s/ H.G. LEVY
H.G. Levy
Director
/s/ E.J. HOLMAN
E.J. Holman
Director
/s/ M.T. LAWTON
M.T. Lawton
Director
/s/ W.A. MCCOLLOUGH
W.A. McCollough
Director
/s/ M.L. MUELLER
M.L. Mueller
Vice President, Chief Accounting Officer
/s/ N.R. QUBEIN
N.R. Qubein
Director
/s/ L.M. RICCIO JR.
L.M. Riccio Jr.
Senior Vice President, Chief Financial Officer
93
This Page Intentionally Left Blank
This Page Intentionally Left Blank
Kurt L. Darrow
Chairman, President and
Chief Executive Officer,
La‑Z‑Boy Incorporated
Richard M. Gabrys
Former Vice Chairman,
Deloitte & Touche LLP
David K. Hehl
Retired Partner, Cooley Hehl
Wohlgamuth & Carlton, PLLC
Board of Directors
Edwin J. Holman
Former Chairman,
RGIS International
Janet E. Kerr
Vice Chancellor,
Pepperdine University
Michael T. Lawton
Former Executive Vice President
and Chief Financial Officer,
Domino’s Pizza, Inc.
H. George Levy, MD
Otorhinolaryngologist
W. Alan McCollough
Former Chairman and
Chief Executive Officer,
Circuit City Stores, Inc.
Dr. Nido R. Qubein
President, High Point University
Corporate and Other Executives
Kurt L. Darrow
Chairman, President and
Chief Executive Officer
Louis M. Riccio Jr.
Senior Vice President and
Chief Financial Officer
Mark S. Bacon Sr.
Senior Vice President and President,
La‑Z‑Boy Branded Business
Otis S. Sawyer
Senior Vice President,
President, La‑Z‑Boy Casegoods
and President, England, Inc.
Lindsay A. Barnes
Vice President and
Corporate Controller
Greg A. Brinks
Vice President and Treasurer
J. Douglas Collier
Senior Vice President, Chief Marketing
Officer and President, International
Aaron T. Brown
Vice President Strategy
and Analytics
Darrell D. Edwards
Senior Vice President and
Chief Supply Chain Officer
Daniel F. Deland
Chief Information Officer
Daniel E. King
President, La‑Z‑Boy Retail Division
James P. Klarr
Secretary and Corporate Counsel
Margaret L. Mueller
Vice President Finance,
Chief Accounting Officer and
Assistant Treasurer
Barbara J. Runyon
Chief Human Resources Officer
R. Rand Tucker
Vice President and General Counsel
Dale E. Ulman
Vice President Tax
2016
Shareholder Services
Inquiries regarding the Dividend
Reinvestment Plan, dividend payments,
stock transfer requirements, address
changes and account consolidations
should be addressed to the company’s
stock transfer agent and registrar:
American Stock Transfer
& Trust Company
6201 15th Avenue
Brooklyn, NY 11219
800‑937‑5449
www.amstock.com/main
Investor Information
Stock Exchange
La‑Z‑Boy Incorporated common shares
are traded on the New York Stock
Exchange under the symbol LZB.
World Headquarters
La‑Z‑Boy Incorporated
One La‑Z‑Boy Drive
Monroe, MI 48162
734‑242‑1444
www.la‑z‑boy.com
Investor Relations
and Financial Reports
We will provide the Form 10‑K to any
shareholder who requests it. Analysts,
shareholders and investors may
request information from:
Investor Relations
La‑Z‑Boy Incorporated
One La‑Z‑Boy Drive
Monroe, MI 48162
investorrelations@la‑z‑boy.com
734‑241‑2438
©2016 La-Z-Boy Incorporated
Except as noted, all designated trademarks and service marks utilized in this
report are owned by La-Z-Boy Incorporated or its subsidiary companies.
One La-Z-Boy Drive
Monroe, Michigan 48162
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