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
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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® 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® 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
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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
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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® 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.
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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
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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
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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® 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® 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
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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
|
|
$
|
4,146
|
|
Goodwill and other intangible assets
|
|
|
25,129
|
|
Property, plant, and equipment
|
|
|
202
|
|
|
|
|
|
|
Total assets acquired
|
|
|
29,477
|
|
Current liabilities
|
|
|
(3,217
|
)
|
|
|
|
|
|
Net assets acquired
|
|
$
|
26,260
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During
fiscal 2015, we acquired the assets of two independent La-Z-Boy Furniture Galleries® 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® 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® 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® 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
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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
|
|
$
|
132
|
|
$
|
(987
|
)
|
$
|
2,272
|
|
Inventory (recoveries) write-downs
|
|
|
(43
|
)
|
|
(578
|
)
|
|
2,216
|
|
Other
|
|
|
490
|
|
|
1,194
|
|
|
351
|
|
|
|
|
|
|
|
|
|
|
|
|
Total restructuringcontinuing operations
|
|
|
579
|
|
|
(371
|
)
|
|
4,839
|
|
Inventory write-downs
|
|
|
|
|
|
|
|
|
1,804
|
|
Trade name write-down
|
|
|
|
|
|
|
|
|
1,265
|
|
Other
|
|
|
|
|
|
11
|
|
|
163
|
|
|
|
|
|
|
|
|
|
|
|
|
Total restructuringdiscontinued operations
|
|
|
|
|
|
11
|
|
|
3,232
|
|
|
|
|
|
|
|
|
|
|
|
|
Total restructuring expense (income)
|
|
$
|
579
|
|
$
|
(360
|
)
|
$
|
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
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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)
|
|
4/25/2015
|
|
4/26/2014
|
|
Net sales
|
|
$
|
7,850
|
|
$
|
50,587
|
|
Operating income (loss) from discontinued operations
|
|
$
|
869
|
|
$
|
(6,032
|
)
|
Interest expense
|
|
|
8
|
|
|
|
|
Income from Continued Dumping and Subsidy Offset Act, net
|
|
|
4,211
|
|
|
|
|
Income tax benefit (expense)
|
|
|
(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
|
|
|
|
|
|
|
|
|
|
As of
|
|
(Amounts in thousands)
|
|
4/30/2016
|
|
4/25/2015
|
|
Raw materials
|
|
$
|
87,905
|
|
$
|
75,024
|
|
Work in process
|
|
|
11,591
|
|
|
14,310
|
|
Finished goods
|
|
|
97,861
|
|
|
92,295
|
|
|
|
|
|
|
|
|
|
FIFO inventories
|
|
|
197,357
|
|
|
181,629
|
|
Excess of FIFO over LIFO
|
|
|
(21,768
|
)
|
|
(24,840
|
)
|
|
|
|
|
|
|
|
|
Total inventories
|
|
$
|
175,589
|
|
$
|
156,789
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
59
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 6: Property, Plant and Equipment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
|
Estimated
Useful Lives
|
|
(Amounts in thousands)
|
|
4/30/2016
|
|
4/25/2015
|
|
Buildings and building fixtures
|
|
|
3 - 40 years
|
|
$
|
192,211
|
|
$
|
202,482
|
|
Machinery and equipment
|
|
|
3 - 15 years
|
|
|
143,561
|
|
|
142,949
|
|
Information systems and software
|
|
|
3 - 10 years
|
|
|
72,275
|
|
|
72,200
|
|
Land
|
|
|
|
|
|
14,346
|
|
|
15,409
|
|
Land improvements
|
|
|
3 - 30 years
|
|
|
15,007
|
|
|
14,747
|
|
Transportation equipment
|
|
|
3 - 10 years
|
|
|
15,728
|
|
|
17,051
|
|
Furniture and fixtures
|
|
|
3 - 15 years
|
|
|
19,397
|
|
|
20,996
|
|
Construction in progress
|
|
|
|
|
|
10,465
|
|
|
14,195
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
482,990
|
|
|
500,029
|
|
Accumulated depreciation
|
|
|
|
|
|
(311,400
|
)
|
|
(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® 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)
|
|
Goodwill
|
|
Balance at April 26, 2014
|
|
$
|
13,923
|
|
Acquisitions
|
|
|
1,241
|
|
|
|
|
|
|
Balance at April 25, 2015
|
|
|
15,164
|
|
Acquisitions
|
|
|
22,029
|
|
|
|
|
|
|
Balance at April 30, 2016
|
|
$
|
37,193
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
60
Table of Contents
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
|
|
$
|
1,306
|
|
$
|
3,238
|
|
$
|
4,544
|
|
Acquisitions
|
|
|
|
|
|
1,025
|
|
|
1,025
|
|
Impairment charges
|
|
|
(111
|
)
|
|
|
|
|
(111
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Balance at April 25, 2015
|
|
|
1,195
|
|
|
4,263
|
|
|
5,458
|
|
Acquisitions
|
|
|
|
|
|
3,100
|
|
|
3,100
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at April 30, 2016
|
|
$
|
1,195
|
|
$
|
7,363
|
|
$
|
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
|
|
$
|
13,491
|
|
$
|
16,763
|
|
Trading securities
|
|
|
|
|
|
1,127
|
|
Held-to-maturity investments
|
|
|
1,826
|
|
|
|
|
|
|
|
|
|
|
|
|
Total short-term investments
|
|
|
15,317
|
|
|
17,890
|
|
Long-term investments:
|
|
|
|
|
|
|
|
Available-for-sale investments
|
|
|
31,659
|
|
|
43,305
|
|
|
|
|
|
|
|
|
|
Total available-for-sale and trading investments
|
|
$
|
46,976
|
|
$
|
61,195
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments to enhance returns on cash
|
|
$
|
33,583
|
|
$
|
45,490
|
|
Investments to fund compensation/retirement plans
|
|
$
|
13,393
|
|
$
|
15,705
|
|
61
Table of Contents
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
|
|
$
|
1,231
|
|
$
|
(135
|
)
|
$
|
8,150
|
|
Fixed income
|
|
|
176
|
|
|
(9
|
)
|
|
36,527
|
|
Mutual funds
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
1
|
|
|
(21
|
)
|
|
2,299
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities
|
|
$
|
1,408
|
|
$
|
(165
|
)
|
$
|
46,976
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2015
|
|
|
|
|
|
|
|
|
|
|
(Amounts in thousands)
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Fair
Value
|
|
Equity securities
|
|
$
|
2,014
|
|
$
|
(78
|
)
|
$
|
9,251
|
|
Fixed income
|
|
|
224
|
|
|
(14
|
)
|
|
50,358
|
|
Mutual funds
|
|
|
|
|
|
|
|
|
1,127
|
|
Other
|
|
|
1
|
|
|
(22
|
)
|
|
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
|
|
$
|
28,721
|
|
$
|
33,750
|
|
$
|
34,557
|
|
Gross realized gains
|
|
|
997
|
|
|
285
|
|
|
857
|
|
Gross realized losses
|
|
|
(561
|
)
|
|
(74
|
)
|
|
(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
|
|
|
|
|
|
|
|
|
|
As of
|
|
(Amounts in thousands)
|
|
4/30/2016
|
|
4/25/2015
|
|
Payroll and other compensation
|
|
$
|
45,611
|
|
$
|
40,711
|
|
Accrued product warranty, current portion
|
|
|
12,381
|
|
|
10,182
|
|
Customer deposits
|
|
|
20,961
|
|
|
23,722
|
|
Other current liabilities
|
|
|
33,523
|
|
|
33,711
|
|
|
|
|
|
|
|
|
|
Accrued expenses and other current liabilities
|
|
$
|
112,476
|
|
$
|
108,326
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
62
Table of Contents
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
|
|
|
|
|
|
|
|
|
|
As of
|
|
(Amounts in thousands)
|
|
4/30/2016
|
|
4/25/2015
|
|
Capital leases
|
|
$
|
803
|
|
$
|
830
|
|
Less: current portion
|
|
|
(290
|
)
|
|
(397
|
)
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
$
|
513
|
|
$
|
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
Table of Contents
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
|
|
$
|
63,256
|
|
$
|
3,969
|
|
2018
|
|
|
60,817
|
|
|
3,906
|
|
2019
|
|
|
54,574
|
|
|
3,906
|
|
2020
|
|
|
48,032
|
|
|
3,934
|
|
2021
|
|
|
44,238
|
|
|
3,309
|
|
2022 and beyond
|
|
|
105,461
|
|
|
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
|
|
$
|
62,953
|
|
$
|
55,808
|
|
$
|
51,132
|
|
Rental income
|
|
|
4,650
|
|
|
4,966
|
|
|
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
Table of Contents
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
|
|
$
|
37,602
|
|
$
|
39,425
|
|
Net current year actuarial loss
|
|
|
2,249
|
|
|
836
|
|
Amortization of actuarial loss
|
|
|
(3,001
|
)
|
|
(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
|
|
$
|
1,358
|
|
$
|
1,114
|
|
$
|
1,241
|
|
Interest cost
|
|
|
4,938
|
|
|
5,070
|
|
|
4,822
|
|
Expected return on plan assets
|
|
|
(4,997
|
)
|
|
(5,077
|
)
|
|
(6,800
|
)
|
Net amortization and deferral
|
|
|
3,001
|
|
|
2,658
|
|
|
3,388
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic pension cost (hourly plan)
|
|
|
4,300
|
|
|
3,765
|
|
|
2,651
|
|
401(k)*
|
|
|
6,657
|
|
|
6,270
|
|
|
5,802
|
|
PCRP*
|
|
|
3,088
|
|
|
1,377
|
|
|
2,513
|
|
Other*
|
|
|
318
|
|
|
124
|
|
|
223
|
|
|
|
|
|
|
|
|
|
|
|
|
Total retirement costs (excluding non-qualified defined benefit retirement plan)
|
|
$
|
14,363
|
|
$
|
11,536
|
|
$
|
11,189
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
*
-
Not
determined by an actuary
65
Table of Contents
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
|
|
$
|
121,080
|
|
$
|
116,870
|
|
Service cost
|
|
|
1,358
|
|
|
1,114
|
|
Interest cost
|
|
|
4,938
|
|
|
5,070
|
|
Actuarial loss
|
|
|
221
|
|
|
3,664
|
|
Benefits paid
|
|
|
(10,808
|
)
|
|
(5,638
|
)
|
Administrative expenses
|
|
|
(418
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at end of year
|
|
|
116,371
|
|
|
121,080
|
|
Change in plan assets
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year
|
|
|
113,742
|
|
|
111,474
|
|
Actual return on plan assets
|
|
|
2,968
|
|
|
7,906
|
|
Employer contributions
|
|
|
7,000
|
|
|
|
|
Benefits paid
|
|
|
(10,808
|
)
|
|
(5,638
|
)
|
Administrative expenses
|
|
|
(418
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at end of year
|
|
|
112,484
|
|
|
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
|
|
|
4.1
|
%
|
|
4.2
|
%
|
|
4.4
|
%
|
Discount rate used to determine net benefit cost
|
|
|
4.2
|
%
|
|
4.4
|
%
|
|
4.0
|
%
|
Long-term rate of return
|
|
|
4.3
|
%
|
|
4.7
|
%
|
|
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
Table of Contents
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
|
|
$
|
3,239
|
|
$
|
15,440
|
|
$
|
|
|
Equity funds
|
|
|
19,505
|
|
|
42
|
|
|
|
|
Debt funds
|
|
|
|
|
|
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
|
|
$
|
149
|
|
$
|
3,685
|
|
$
|
|
|
Equity funds
|
|
|
23,120
|
|
|
7,702
|
|
|
|
|
Debt funds
|
|
|
|
|
|
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
Table of Contents
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
|
|
$
|
6,311
|
|
2018
|
|
|
6,451
|
|
2019
|
|
|
6,608
|
|
2020
|
|
|
6,752
|
|
2021
|
|
|
6,874
|
|
2022 to 2026
|
|
|
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
Table of Contents
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
|
|
$
|
16,870
|
|
$
|
16,013
|
|
Accruals during the year
|
|
|
23,592
|
|
|
19,017
|
|
Accrual adjustments
|
|
|
|
|
|
(953
|
)
|
Settlements during the year
|
|
|
(19,951
|
)
|
|
(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
Table of Contents
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)
|
|
4/30/2016
|
|
4/25/2015
|
|
4/26/2014
|
|
Equity-based awards expense
|
|
$
|
8,292
|
|
$
|
6,780
|
|
$
|
8,739
|
|
Liability-based awards expense
|
|
|
1,355
|
|
|
4,597
|
|
|
5,736
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stock-based compensation expense
|
|
$
|
9,647
|
|
$
|
11,377
|
|
$
|
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
|
|
Weighted
Average
Remaining
Contractual
Term (Years)
|
|
Aggregate
Intrinsic
Value
(In Thousands)
|
|
Outstanding at April 25, 2015
|
|
|
1,039
|
|
$
|
16.15
|
|
|
7.6
|
|
$
|
11,773
|
|
Granted
|
|
|
427
|
|
|
26.69
|
|
|
|
|
|
|
|
Canceled
|
|
|
(16
|
)
|
|
25.71
|
|
|
|
|
|
|
|
Exercised
|
|
|
(39
|
)
|
|
10.75
|
|
|
|
|
|
622
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at April 30, 2016
|
|
|
1,411
|
|
$
|
19.39
|
|
|
7.4
|
|
$
|
9,489
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at April 30, 2016
|
|
|
597
|
|
$
|
13.26
|
|
|
6.0
|
|
$
|
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
Table of Contents
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
|
|
|
1.54
|
%
|
|
1.59
|
%
|
|
0.84
|
%
|
Dividend rate
|
|
|
1.20
|
%
|
|
1.00
|
%
|
|
0.84
|
%
|
Expected life in years
|
|
|
5.0
|
|
|
5.0
|
|
|
5.0
|
|
Stock price volatility
|
|
|
44.37
|
%
|
|
54.40
|
%
|
|
81.27
|
%
|
Fair value per share
|
|
$
|
9.69
|
|
$
|
10.45
|
|
$
|
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:
|
|
|
|
|
|
|
|
|
|
Fiscal 2014
Grant
|
|
Fiscal 2013
Grant
|
|
Risk-free interest rate
|
|
|
0.88
|
%
|
|
0.66
|
%
|
Dividend rate
|
|
|
1.55
|
%
|
|
1.55
|
%
|
Expected life in years
|
|
|
2.1
|
|
|
1.2
|
|
Stock price volatility
|
|
|
30.77
|
%
|
|
30.56
|
%
|
Fair value per share
|
|
$
|
7.82
|
|
$
|
13.54
|
|
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
Table of Contents
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
|
|
|
142
|
|
$
|
20.50
|
|
Granted
|
|
|
102
|
|
|
26.46
|
|
Vested
|
|
|
(57
|
)
|
|
16.07
|
|
Canceled
|
|
|
(18
|
)
|
|
24.07
|
|
|
|
|
|
|
|
|
|
Non-vested shares at April 30, 2016
|
|
|
169
|
|
$
|
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
Table of Contents
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
|
|
|
146
|
|
$
|
16.12
|
|
Vested
|
|
|
(58
|
)
|
|
15.40
|
|
Canceled
|
|
|
(11
|
)
|
|
16.55
|
|
|
|
|
|
|
|
|
|
Non-vested units at April 30, 2016
|
|
|
77
|
|
$
|
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
|
|
|
35
|
|
|
191
|
|
Fiscal 2015 grant
|
|
|
|
|
|
192
|
|
Fiscal 2016 grant
|
|
|
|
|
|
182
|
|
73
Table of Contents
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
|
|
|
159
|
|
Fiscal 2014 performance-based units
|
|
|
24
|
|
Fiscal 2015 performance-based shares
|
|
|
64
|
|
Fiscal 2016 performance-based shares
|
|
|
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
|
|
$
|
|
|
$
|
|
|
$
|
3,603
|
|
Fiscal 2013 grant
|
|
|
|
|
|
568
|
|
|
849
|
|
Fiscal 2014 grant
|
|
|
926
|
|
|
769
|
|
|
1,006
|
|
Fiscal 2015 grant
|
|
|
840
|
|
|
908
|
|
|
|
|
Fiscal 2016 grant
|
|
|
1,610
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expense
|
|
$
|
3,376
|
|
$
|
2,245
|
|
$
|
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
Table of Contents
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
Table of Contents
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
|
|
$
|
4,779
|
|
$
|
231
|
|
$
|
474
|
|
$
|
(40,980
|
)
|
$
|
(35,496
|
)
|
Changes before reclassifications
|
|
|
(2,324
|
)
|
|
(780
|
)
|
|
1,308
|
|
|
6,286
|
|
|
4,490
|
|
Amounts reclassified to net income
|
|
|
|
|
|
321
|
|
|
(300
|
)
|
|
3,566
|
|
|
3,587
|
|
Tax effect
|
|
|
|
|
|
175
|
|
|
(384
|
)
|
|
(3,752
|
)
|
|
(3,961
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss) attributable to La-Z-Boy Incorporated
|
|
|
(2,324
|
)
|
|
(284
|
)
|
|
624
|
|
|
6,100
|
|
|
4,116
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at April 26, 2014
|
|
|
2,455
|
|
|
(53
|
)
|
|
1,098
|
|
|
(34,880
|
)
|
|
(31,380
|
)
|
Changes before reclassifications
|
|
|
(938
|
)
|
|
(1,857
|
)
|
|
1,033
|
|
|
(2,517
|
)
|
|
(4,279
|
)
|
Amounts reclassified to net income
|
|
|
|
|
|
1,038
|
|
|
(214
|
)
|
|
2,806
|
|
|
3,630
|
|
Tax effect
|
|
|
|
|
|
312
|
|
|
(312
|
)
|
|
(110
|
)
|
|
(110
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss) attributable to La-Z-Boy Incorporated
|
|
|
(938
|
)
|
|
(507
|
)
|
|
507
|
|
|
179
|
|
|
(759
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at April 25, 2015
|
|
|
1,517
|
|
|
(560
|
)
|
|
1,605
|
|
|
(34,701
|
)
|
|
(32,139
|
)
|
Changes before reclassifications
|
|
|
(1,962
|
)
|
|
(1,711
|
)
|
|
(447
|
)
|
|
(2,612
|
)
|
|
(6,732
|
)
|
Amounts reclassified to net income
|
|
|
|
|
|
2,154
|
|
|
(436
|
)
|
|
3,216
|
|
|
4,934
|
|
Tax effect
|
|
|
|
|
|
(169
|
)
|
|
336
|
|
|
(230
|
)
|
|
(63
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss) attributable to La-Z-Boy Incorporated
|
|
|
(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
|
|
$
|
8,954
|
|
$
|
7,832
|
|
$
|
7,140
|
|
Net income
|
|
|
1,711
|
|
|
1,198
|
|
|
1,324
|
|
Other comprehensive income
|
|
|
(595
|
)
|
|
(76
|
)
|
|
(730
|
)
|
Change in non-controlling interest
|
|
|
|
|
|
|
|
|
98
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of the end of the year
|
|
$
|
10,070
|
|
$
|
8,954
|
|
$
|
7,832
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
76
Table of Contents
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® stores, operators of La-Z-Boy Comfort Studio® 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® 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® stores. During fiscal 2016, fiscal 2015, and fiscal
2014, we acquired La-Z-Boy Furniture Galleries® 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
Table of Contents
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
(Amounts in thousands)
|
|
4/30/2016
|
|
4/25/2015
|
|
4/26/2014
|
|
Sales
|
|
|
|
|
|
|
|
|
|
|
Upholstery segment:
|
|
|
|
|
|
|
|
|
|
|
Sales to external customers
|
|
$
|
1,027,615
|
|
$
|
990,237
|
|
$
|
959,118
|
|
Intersegment sales
|
|
|
188,190
|
|
|
161,565
|
|
|
139,932
|
|
|
|
|
|
|
|
|
|
|
|
|
Upholstery segment sales
|
|
|
1,215,805
|
|
|
1,151,802
|
|
|
1,099,050
|
|
|
|
|
|
|
|
|
|
|
|
|
Casegoods segment:
|
|
|
|
|
|
|
|
|
|
|
Sales to external customers
|
|
|
92,601
|
|
|
98,886
|
|
|
97,095
|
|
Intersegment sales
|
|
|
9,939
|
|
|
10,827
|
|
|
9,657
|
|
|
|
|
|
|
|
|
|
|
|
|
Casegoods segment sales
|
|
|
102,540
|
|
|
109,713
|
|
|
106,752
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail segment sales
|
|
|
402,479
|
|
|
333,978
|
|
|
298,642
|
|
Corporate and Other:
|
|
|
|
|
|
|
|
|
|
|
Sales to external customers
|
|
|
2,703
|
|
|
2,294
|
|
|
2,463
|
|
Intersegment sales
|
|
|
3,720
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate and Other sales
|
|
|
6,423
|
|
|
2,294
|
|
|
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
|
|
$
|
134,193
|
|
$
|
121,403
|
|
$
|
117,688
|
|
Casegoods segment
|
|
|
7,734
|
|
|
6,408
|
|
|
3,397
|
|
Retail segment
|
|
|
25,567
|
|
|
11,466
|
|
|
11,128
|
|
Restructuring
|
|
|
(579
|
)
|
|
371
|
|
|
(4,839
|
)
|
Corporate and Other
|
|
|
(44,526
|
)
|
|
(36,483
|
)
|
|
(38,078
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated operating income
|
|
|
122,389
|
|
|
103,165
|
|
|
89,296
|
|
Interest expense
|
|
|
486
|
|
|
523
|
|
|
548
|
|
Interest income
|
|
|
827
|
|
|
1,030
|
|
|
761
|
|
Income from Continued Dumping and Subsidy Offset Act, net
|
|
|
102
|
|
|
1,212
|
|
|
|
|
Other income, net
|
|
|
2,211
|
|
|
744
|
|
|
2,050
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income
taxes
|
|
$
|
125,043
|
|
$
|
105,628
|
|
$
|
91,559
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and Amortization
|
|
|
|
|
|
|
|
|
|
|
Upholstery segment
|
|
$
|
13,559
|
|
$
|
12,669
|
|
$
|
13,778
|
|
Casegoods segment
|
|
|
874
|
|
|
813
|
|
|
1,171
|
|
Retail segment
|
|
|
2,800
|
|
|
2,910
|
|
|
2,520
|
|
Corporate and Other
|
|
|
9,284
|
|
|
5,891
|
|
|
5,566
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated depreciation and amortization
|
|
$
|
26,517
|
|
$
|
22,283
|
|
$
|
23,035
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
78
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 17: Segment Information (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
(Amounts in thousands)
|
|
4/30/2016
|
|
4/25/2015
|
|
4/26/2014
|
|
Capital Expenditures
|
|
|
|
|
|
|
|
|
|
|
Upholstery segment
|
|
$
|
14,744
|
|
$
|
14,979
|
|
$
|
6,579
|
|
Casegoods segment
|
|
|
562
|
|
|
1,149
|
|
|
149
|
|
Retail segment
|
|
|
3,245
|
|
|
2,993
|
|
|
4,379
|
|
Corporate and Other
|
|
|
6,133
|
|
|
51,198
|
|
|
22,623
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated capital expenditures
|
|
$
|
24,684
|
|
$
|
70,319
|
|
$
|
33,730
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
Upholstery segment
|
|
$
|
323,411
|
|
$
|
317,102
|
|
$
|
305,814
|
|
Casegoods segment
|
|
|
51,165
|
|
|
48,403
|
|
|
53,299
|
|
Retail segment
|
|
|
146,963
|
|
|
126,189
|
|
|
119,816
|
|
Unallocated assets
|
|
|
278,490
|
|
|
282,910
|
|
|
292,366
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated assets
|
|
$
|
800,029
|
|
$
|
774,604
|
|
$
|
771,295
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-Lived Assets by Geographic Location
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
$
|
211,021
|
|
$
|
187,224
|
|
$
|
147,538
|
|
International
|
|
|
7,443
|
|
|
8,359
|
|
|
6,805
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated long-lived assets
|
|
$
|
218,464
|
|
$
|
195,583
|
|
$
|
154,343
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales by Country
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
|
89
|
%
|
|
87
|
%
|
|
86
|
%
|
Canada
|
|
|
7
|
%
|
|
7
|
%
|
|
8
|
%
|
Other
|
|
|
4
|
%
|
|
6
|
%
|
|
6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
100
|
%
|
|
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
|
|
$
|
115,750
|
|
$
|
96,605
|
|
$
|
82,705
|
|
Foreign
|
|
|
9,293
|
|
|
9,023
|
|
|
8,854
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
125,043
|
|
$
|
105,628
|
|
$
|
91,559
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
79
Table of Contents
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
|
|
$
|
32,403
|
|
$
|
28,887
|
|
$
|
24,695
|
|
deferred
|
|
|
3,559
|
|
|
406
|
|
|
1,495
|
|
State:
|
|
|
|
|
|
|
|
|
|
|
current
|
|
|
4,750
|
|
|
4,573
|
|
|
5,345
|
|
deferred
|
|
|
859
|
|
|
637
|
|
|
(2,082
|
)
|
Foreign:
|
|
|
|
|
|
|
|
|
|
|
current
|
|
|
2,345
|
|
|
2,281
|
|
|
1,375
|
|
deferred
|
|
|
164
|
|
|
170
|
|
|
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
(% of income from continuing operations before income taxes)
|
|
|
4/30/2016
|
|
4/25/2015
|
|
4/26/2014
|
|
Statutory tax rate
|
|
|
35.0
|
%
|
|
35.0
|
%
|
|
35.0
|
%
|
Increase (reduction) in income taxes resulting from:
|
|
|
|
|
|
|
|
|
|
|
State income taxes, net of federal benefit
|
|
|
3.4
|
|
|
3.5
|
|
|
3.1
|
|
U.S. manufacturing benefit
|
|
|
(2.5
|
)
|
|
(2.1
|
)
|
|
(1.0
|
)
|
Change in valuation allowance
|
|
|
(0.3
|
)
|
|
(0.4
|
)
|
|
(1.2
|
)
|
Miscellaneous items
|
|
|
(0.3
|
)
|
|
(1.0
|
)
|
|
(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
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 18: Income Taxes (Continued)
The
primary components of our deferred tax assets and (liabilities) were as follows:
|
|
|
|
|
|
|
|
|
|
As of
|
|
(Amounts in thousands)
|
|
4/30/2016
|
|
4/25/2015
|
|
Assets
|
|
|
|
|
|
|
|
Deferred and other compensation
|
|
$
|
25,032
|
|
$
|
22,085
|
|
Allowance for doubtful accounts
|
|
|
1,560
|
|
|
2,255
|
|
State income taxnet operating losses, credits and other
|
|
|
5,571
|
|
|
6,032
|
|
Pension
|
|
|
1,542
|
|
|
2,828
|
|
Warranty
|
|
|
7,817
|
|
|
6,466
|
|
Rent
|
|
|
4,184
|
|
|
5,174
|
|
Workers' compensation
|
|
|
3,870
|
|
|
4,173
|
|
Employee benefits
|
|
|
3,212
|
|
|
3,096
|
|
Other
|
|
|
|
|
|
1,262
|
|
Valuation allowance
|
|
|
(3,625
|
)
|
|
(4,322
|
)
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
49,163
|
|
|
49,049
|
|
Liabilities
|
|
|
|
|
|
|
|
Property, plant and equipment
|
|
|
(7,089
|
)
|
|
(2,722
|
)
|
Other
|
|
|
(391
|
)
|
|
|
|
|
|
|
|
|
|
|
|
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)
|
|
$
|
8,909
|
|
|
Fiscal 2017 - 2035
|
|
Foreign net operating losses
|
|
|
100
|
|
|
Indefinite
|
|
Foreign capital losses
|
|
|
19
|
|
|
Indefinite
|
|
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
Table of Contents
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
|
|
$
|
4,303
|
|
$
|
(697
|
)
|
$
|
3,606
|
|
Foreign
|
|
|
19
|
|
|
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
4,322
|
|
$
|
(697
|
)
|
$
|
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
|
|
$
|
2,226
|
|
$
|
2,972
|
|
$
|
3,248
|
|
Additions:
|
|
|
|
|
|
|
|
|
|
|
Positions taken during the current year
|
|
|
87
|
|
|
94
|
|
|
88
|
|
Reductions:
|
|
|
|
|
|
|
|
|
|
|
Positions taken during the prior year
|
|
|
(321
|
)
|
|
(702
|
)
|
|
(99
|
)
|
Decreases related to settlements with taxing
authorities
|
|
|
|
|
|
(25
|
)
|
|
(98
|
)
|
Reductions resulting from the lapse of the statute of limitations
|
|
|
(171
|
)
|
|
(113
|
)
|
|
(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
Table of Contents
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
(Amounts in thousands)
|
|
4/30/2016
|
|
4/25/2015
|
|
4/26/2014
|
|
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
|
|
|
238
|
|
|
250
|
|
|
1,049
|
|
Stock option dilution
|
|
|
333
|
|
|
329
|
|
|
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
Table of Contents
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:
-
-
Level 1Financial 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.
-
-
Level 2Financial 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.
-
-
Level 3Financial 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
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements
|
|
(Amounts in thousands)
|
|
Level 1(a)
|
|
Level 2(a)
|
|
Level 3
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale investments
|
|
$
|
1,452
|
|
$
|
43,698
|
|
$
|
|
|
Held-to-maturity investments
|
|
|
1,826
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,278
|
|
$
|
43,698
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(a)
-
There
were no transfers between Level 1 and Level 2 during fiscal 2016.
Fiscal 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements
|
|
(Amounts in thousands)
|
|
Level 1(b)
|
|
Level 2(b)
|
|
Level 3
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale investments
|
|
$
|
1,552
|
|
$
|
58,516
|
|
$
|
|
|
Trading securities
|
|
|
|
|
|
1,127
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,552
|
|
$
|
59,643
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(b)
-
There
were no transfers between Level 1 and Level 2 during fiscal 2015.
84
Table of Contents
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
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