La-Z-Boy

Accounting 2200 Project One

Matthew Markham and Jimmy Van Gelder

October 11, 2010

Table of Contents
Introduction ..........................................................................................................................3 Balance Sheet .......................................................................................................................4 Assets ................................................................................................................... 4-6 Liabilities

Introduction and Background

Balance Sheet
The balance sheet acts as a snapshot of a companys financial condition. It displays: assets, liabilities, and shareholder equity broken down into select constituent accounts that together describe the companys financial outlook. Assets Current Assets:
(Amounts in thousands, except par value) 4/24/2010 4/25/2009

Current assets Cash and equivalents Restricted cash Receivables, net of allowance of $20,258 in 2010 and $28,385 in 2009 Inventories, net Deferred income taxes current Other current assets Total current assets $ 108,421 165,038 134,187 2,305 18,159 428,110 $ 17,364 18,713 147,858 140,178 795 22,872 347,780

Cash and cash equivalents: have increase to a total of $108,4211 for FY ending April 24, 2010 from $17,364 for FY ending on April 25, 2009. This account by far changed the most of any of the current asset accounts. Restricted cash: has zeroed out from FY 09 to FY 10. This was due to a transfer from La-Z-Boys fully owned insurance subsidiary to La-Z-Boy Incorporated and La-Z-Boy Inc. assumed all obligations of liability.2 Net receivables: increased from $147,858 to $165,038 from 2009 to 2010. The allowance for receivables did not change significantly over the last fiscal year. Net inventories: decreased from $140,178 to $134,187 as a result of a decrease in finished goods inventory despite an increase in raw materials inventory.3 One positive change, albeit small, was the decrease in excess FIFO over LIFO inventories.
1 2

Unless otherwise noted, all monetary values are in the thousands Note 2: Restricted Cash, pg. 50 3 Note 3: Inventories, pg, 50 4

Note 3: Inventories
(Amounts in thousands) 4/24/2010 4/25/2009

Raw materials Work in process Finished goods FIFO inventories Excess of FIFO over LIFO Total inventories

60,913 11,018 86,963 158,894 (24,707 )

53,498 11,281 101,147 165,926 (25,748 )

134,187

140,178

Deferred income tax: more than tripled from 2009 to 2010 from $795 to $2,305. Deferred tax assets are estimated future taxes credited to differences between the financial statement and their tax base.4 Other current assets: fell $4,713 for a year-end total of $18,159. While the financial statement does not elaborate on what these other assets are a common example that falls under this category are prepaid expenses. When all the current asset accounts are totals, there is an increase from $347,780 for FY 2009 to $428,110 in FY 2010. This primarily was due to a large increase in cash and equivalents with other minor increases across the board and few decreases. Property, Plant and Equipment: Year to year net property, plant and equipment assets decreased 4.54% to $138,857. This decrease was due to an increased accumulated depreciation expense of $287,269 over $270,705 for 2009. An interesting line item is that the construction in progress asset has almost doubled from 2009.5
Note 4: Property, Plant and Equipment
Estimated (Amounts in thousands) 4/24/2010 Useful Lives 4/25/2009

Buildings and building fixtures Machinery and equipment

3 40 years 3 30 years

169,307 143,553

164,394 142,735

4 5

Note 1: Accounting Policies, Income Taxes, pg. 49 Note 5: Property, Plant and Equipment, pg. 51 5

Information systems Land and land improvements Transportation equipment Other Construction in progress Accumulate d depreciation Net property, plant and equipment

3 10 years 3 40 years 3 10 years 3 20 years

42,250 24,593 17,695 24,002 4,726 426,126 (287,269 $ 138,857 ) $

44,399 23,689 16,220 23,658 2,506 417,601 (270,705 146,896 )

Trade names: There was no change in the value of the trade names and goodwill asset as it held steady at $3,100 as there were no acquisitions, dispositions, nor intangible write-downs to affect the balance.6 Deferred income taxes long term Increasing from $0 to $458, the long term deferred income taxes. . Deferred tax assets are estimated future taxes credited to differences between the financial statement and their tax base.7 Other long-term assets There was a significant decrease in long-term assets from FY 2009 to FY 2010 decreasing by $13,138 to $38,293. There is no explanation of what these other aspects are or why they decreased so dramatically year-to-year. Assets Conclusion: In total, assets grew from $549,207 in FY 2009 to $608,818 in FY 2010. This increase was primarily due to the large jump in cash and equivalents. Property, plant and equipment assets were the primary accounts that detracted from the increase in cash equivalents. Liabilities Current Liabilities:

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Note 5: Trade Names and Goodwill (continued), pg. 52 Note 1: Accounting Policies, Income Taxes, pg. 49 6

Current portion of long-term debt: was a far smaller liability in FY 2010 than FY 2009 accounting for only $1,066 versus $8,724. Accounts payable: surged $13,517 to $54,718 over a years time. This, while not the largest liability account for a large portion of it. Accrued expenses and other current liabilities: is the largest portion of liabilities at $91,496. This was a large increase from $75,733 in FY 2009. The majority of this jump is from payroll and other compensation for employees.8
Note 7: Accrued Expenses and Other Current Liabilities
4/24/2010 4/25/2009

(Amounts in thousands)

Payroll and other compensation Accrued product warranty, current portion Customer deposits Other current liabilities Accrued expenses and other current liabilities

42,978 8,564 11,912 28,042

32,632 9,179 9,277 24,645

91,496

75,733

Total Current Liabilities: Total current liabilities increased from $126,028 to $147,280. This large jump is attributed to significant jumps in the accounts payable and accrued expenses and other liabilities accounts. It was lessened somewhat by the decrease in the current portion of long-term debt liability. Long-term debt: There was a decrease in long-term debt from FY 2009 to 2010. It dropped from $52,148 to $46,917 as a result of less revolving credit facility, industrial revenue bonds, and other debt. Captial leases increased but not as a large portion of overall debt. The main thing that prevented the difference from being larger was that a smaller amount of current debt was paid in 2010 versus 2009.
Note 8: Debt
(Amounts in thousands) 4/24/2010 4/25/2009

Revolving credit facility

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30,000

35,000

Note 7: Accrued Expenses and Other Current Liabilities, pg. 53 7

Industrial revenue bonds Other debt Capital leases Total debt Less: current portion Longterm debt $

11,486 5,761 736 47,983 (1,066 46,917 ) $

16,841 8,456 575 60,872 (8,724 52,148 )

Deferred income taxes: Deferred income taxes liabilities account was zeroed out over the course of FY 2010 after it starting at $724 at the end of FY 2009. Contingencies and commitments: For the last two fiscal years this account has had a balance of zero. Liabilities Conclusion: Total liabilities for La-Z-Boy are $262,578 in FY 2010 from $242,755 in FY 2009. Despite long-term debt decreasing, it was offset by large increase in current liabilities. Stockholders Equity Common shares: There was a very small increase in common shares as a portion of stockholder equity, going from $51,478 to $51,770. This mirrored the increase from 51,478 outstanding shares in 2009 to 51,770 in 2010. Capital in excess of par value Despite the increase in shares of common stock, the capital in excess of par value decreased $4,073. Retained earnings Almost doubling to $108,707 from $67,431 retained earnings grew significantly. With such a large amount of retained earnings and no dividends paid, some reinvestment into the company would not be a surprise. Accumulated other comprehensive loss: Comprehensive loss was slightly less in FY 2010 than in 2010 at $-20,251 versus $22,559 in FY 2009. While not a large decrease it prevents as much of a decrease in shareholders equity. Total La-Z-Boy Incorporated shareholders equity Shareholder equity saw an increase of $39,804 to $342,099, an increase of almost 10%. 8

Noncontrolling interests: There was only a slight change in noncontrolling interests increasing from $4,137 to $4,141, a mere increase of $4. Therefore, this has little impact on the total Total equity The total equity for La-Z-Boy for FY 2010 is $342,099, an increase from $302,295. A majority of this gain is solely due to the increase in retained earnings with there only being slight variations in the changes in the other stockholder equity accounts. Total liabilities and equity: The final total comes out at $608,818 which matches with the total assets. The majority of the difference between FY 2010 and FY 2009 in the total comes from the change in shareholder equity which was a result of the increase in retained earnings.

Income Statement
Sales The sales income has progressively gone down from FY 2008 until FY 2010, from $1,450,941 in FY 2008 to $1,179,212 in FY 2010. The MD&A reflected on the sales decrease as being a victim of tough economic times. The furniture industry as a

whole faced challenging economic conditions during fiscal 2010 and fiscal 2009 which affected sales volumes. In fiscal 2010, we recorded net sales of $1.2 billion, a 3.9% decrease compared to fiscal 2009. The majority of our decrease in sales volume came from our Casegoods Group, which continues to be more negatively impacted by the economic climate. We believe consumers are continuing to postpone purchases of casegoods product because these products tend to be a higher ticket purchase than upholstered furniture. (Page 20)
Cost of Sales While the sales income has progressively gone down, the company has made up for this loss by reducing the cost of sales. The MD&A reflected on this operating margin improvement by discussing improvements in their Retail Groups operating margin by decreasing selling and administrative costs. Improvements in Upholstery Groups operating margins have been credited to a conversion to cellular manufacturing and various restructurings. (Page 21) Cost of Goods Sold The cost of goods sold has progressively been decreasing since FYE 2008. It went from $1,053,785 thousand in FYE 2008, to $879,889 thousand in FYE 2009, and finally to only $802,344 thousand in FYE 2010. During fiscal 2010, inventory quantities in

total were reduced. This reduction resulted in a liquidation of LIFO inventory quantities carried at lower costs in prior years as compared to the cost of fiscal
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2010 purchases, the effect of which decreased cost of goods sold by approximately $1.5 million.(Page 50)
Restructuring Restructuring costs were the highest in FY 2009 with $9,818 thousand, and the lowest in FY 2010 with $2,141 thousand. In FY 2008 the cost for restructuring totaled $5,057 thousand. Total Cost of Sales / Gross Profit Cost of goods sold and restructuring costs went down progressively. Because of these cost reductions the gross profit in 2010 was higher at $374,727 than 2009 at $336,967, but still not as high as 2008 with $392,099. If they can boost sales a little bit then they can go above the 2008 gross profit, because they are currently only $17,372 away from the 2008 gross profit which isnt much comparing they were down in sales by $271,729. Selling, General and Administrative

SG&A expenses include the costs of selling our products and other general and administrative costs. Selling expenses are primarily comprised of commissions, advertising, warranty, bad debt expense and compensation and benefits of employees performing various sales functions. The selling costs have repeatedly been
reduced since 2008. It went from $397,713 thousand in 2008, to $373,502 thousand in 2009, and finally $331,491 thousand in 2010. Our Corporate and Other operating

loss decreased $14.7 million due in part to a $3.1 million increase in realized gains on property sales. Additionally, during the first six months of fiscal 2008, we continued a retail test market program, which increased our fiscal 2008 expenses by $2.4 million. This program was not repeated in fiscal 2009. The remaining decrease was a result of our overall reduction in selling, general and administrative expenses, in particular professional fees, which decreased $3.0 million during fiscal 2009 compared to fiscal 2008. (page 27) Write-down of long-lived assets The only write-down between 2008-2010 in this category occurred in 2009, which totaled $7,503 thousand. In 2009 La-Z-Boy totaled 0.6 percentage points for the write-down of long-lived assets. (page 21). Write-down of trade names The only expense for this category occurred in 2009 and totaled $5,541 thousand. Write-down of goodwill There was no write-down of goodwill in 2010, but in 2009 the write-down totaled 42,136 thousand (3.9 percentage points), and in 2008 only $8,426 thousand. Operating income

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Due to having no write-down expenses, reducing restructuring and selling (general and administrative) expenses, the year-end in 2010 produced a positive operating income. The year-end in 2008 and 2009 both had negative operating incomes. The year-end 2009 had a lot of expenses in restructuring and write-downs, which caused it to have an operating income of negative 97,308 thousand dollars. The year-end 2008 had heavy restructuring costs ($3,078 thousand) and a write-down of goodwill for $8,426 thousand, caused it to have an operating income of negative 17,118 thousand dollars. Interest Expense Interest expense has been steadily reducing from year-end 2008 to 2010. It went from $13,899 thousand in 2008, to $5,581 in 2009, and finally to only $2,972 thousand in 2010. Interest expense for fiscal 2010 was $2.6 million less than fiscal 2009 due to a $56.8 million decrease in our average debt. Our weighted average interest rate increased 1.5 percentage points in fiscal 2010 compared to fiscal 2009 due to fees associated with the unused portion of our credit facility weighting the overall effective. (page 24) Interest Income
The interest income for La-Z-Boy has been reducing since 2008. Interest income totaled $3,614 thousand in 2008 and $2,504 thousand in 2009, and finally only $724 thousand in 2010.

Income from Continued Dumping and Subsidy Offset Act, net This income has reduced in FY 2010 to $4,436 thousand. This income in the FY 2009 was $8,124 thousand and in FY 2008 $7,147 thousand. Other income, net Both the FY 2010 and FY 2008 experienced incomes of $590 thousand and $5,393 thousand respectively. In 2009 however La-Z-Boy experienced a net expense of $7,998 thousand. Income from continuing operations before income taxes Due to starting with a high operating income, the income in this category was very high in FY 2010 ($44,727 thousand) compared to FY 2009 (negative $97,308 thousand) and FY 2008 (negative $14,863 thousand). Income tax expense La-Z-Boy did very well in this category in FY 2008 by coming out with a positive benefit of $7,214 thousand. The company did the worst in FY 2009 having to pay a tax of $25,112 thousand, and better in FY 2010 with only a tax of $12,670 thousand.
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Income from continuing operations The greatest benefit for the corporation from continuing operations occurred in FY 2008, because the corporation reduced its operation income loss by $7,214 thousand with a tax benefit, causing it to end with only a loss of $7,649 thousand. The FY 2010 experienced a mild loss from taxes causing its income to be reduced to $32,051 thousand. The FY 2009 keeps accumulating income loss causing it to have a total loss of $122,420 thousand after taxes. Loss from discontinued operations This affected FY 2008 by adding an expense of $6,000 thousand. Net income FY 2010 was the only year to come out with positive net income ($32,051 thousand). FY 2008 and 2009 both had losses $13,649 thousand and $122,420 thousand respectively. Net loss attributable to non-controlling interests Both FY 2008 and 2009 came out with income in this category of $277 thousand and $252 thousand respectively. FY 2010 came out with a net loss of $487 thousand. While 2010 came out with a net loss, it isnt a very big number so it did not have a very big effect on the net income for the year. Net income attributable to La-Z-Boy Incorporated The FY 2010 came out with the best net income with a positive $32,538 thousand. This was a big turn around considering FY 2009 came out with a terrible negative $122,672 thousand net income for the year. FY 2008 did not do to bad, but did not come out positive, ending with a net income of negative $13,926 thousand. As depicted below, the fluctuations of La-Z-Boy net income have a very strong correlation to the graph of its stock for the past 3 years.

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Basic Average Shares The average amount of shares has steadily increased with 51,408 shares in FYE 2008, and 51,460 in FYE 2009, and finally 21,533 shares in FYE 2010. Basic income from continuing operations per share The income per share went down in 2008 and 2009 by $0.27 and $2.39 respectively. However, the income per share went up by $0.63 in FYE 2010. Discontinued operations per share (net of tax) This only affected FYE 2008, and reduced each share by $0.11. Basic net income attributable to La-Z-Boy Incorporated per share La-Z-Boy inc. has improved greatly since its fall in 2009 and has come out with a positive $0.63 net income in 2010 attributable per share. Diluted average shares The diluted average shares quickly went up from the 51,460 and 51,408 in 2009 and 2008 respectively, to 51,732 in 2010. This is a 272 difference from the past, which had only a 60 increase in FYE 2009. Diluted income from continuing operations per share The income from continuing operations per share was both negative in 2009 and 2008 with -$2.39 and -$0.16 respectively. However, FYE 2010 the income was positive with $0.62 income per share. Discontinued operations per share This only affected FYE 2008, and reduced each share by $0.11. Diluted net income attributable to La-Z-Boy Incorporated per share

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The diluted net income attributable to La-Z-Boy inc. per share was both negative in 2009 and 2008 with a -$2.39 and -$0.27 net loss respectively. However, FYE 2010 the income was positive with $0.62 income per share. Dividends declared per share In the past La-Z-Boy has paid out dividends to its shareholders but in FYE 2010, the corporation has ceased to pay out dividends and is instead investing the money in the company. However, this was not a bad thing for shareholders because the stock of the company went up dramatically in 2010 so they gained more money than they would have in 2009 when dividends were at 0.10 a share but the stock was trading around 2 dollars.

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Statement of Stockholders Equity

Common Shares The common shares have increased steadily from FYE 2007-2009. With $51,377 in FYE 2007, $51,428 in FYE 2008, and $51,478 in FYE 2009, the common shares were steadily increasing by around 50 each year. However, FYE 2010 the common shares skyrocketed to $51,770. The 292 common shares difference between FYE 2009 were stocks issued for stock and employee benefit plans. Capital in Excess of Par Value This category went up in fiscal 2007 to fiscal 2008 then back down in fiscal 2009 to fiscal 2010. It went from $208,283 thousand in fiscal 2007 to $209,388 thousand in fiscal 2008. Then it went from $205,945 in fiscal 2009 to $201,873 thousand in fiscal 2010. Retained Earnings The retained earnings account for La-Z-Boy has been decreasing from FYE 2007-2009. It went from $222,273 thousand in 2007, to $188,203 thousand in 2008, and finally down to only $67,431 thousand in 2009. In 2010 however, La-Z-Boys retained earnings went up to $108,707 thousand. A major cause for this change in trend in FYE 2010 was that net income was a positive $32,538 thousand; where-as it had been negative in FYE 2007 through FYE 2009. Accumulated Other Comprehensive Income FYE 2007 experienced a positive $1,376 thousand increase in income for this category. Then it went negative in 2008 because of a reclassification adjustment for gain on marketable securities, which cost La-Z-Boy $2,420 thousand and reduced the accumulated income to negative 943 thousand FYE 2008. FY 2009 the corporation experienced the largest loss of 21,974 thousand because of net actuarial loss, and increased the accumulated loss to $22,559 thousand in FYE 2009. During fiscal 2010 the loss was reduced to $20,251 thousand. This was substantially due to an unrealized gain on marketable securities of 2,685 thousand arising during the period.

During fiscal 2010, we recognized $2.2 million principally for pension amortization in Accumulated Other Comprehensive Income (Loss) decreasing net actuarial losses in Accumulated Other Comprehensive Income to $28.3 million pre-tax ($25.3 million after tax). During fiscal 2009, we recognized $22.5 million for net actuarial losses in Other Comprehensive Income (Loss) increasing net actuarial losses in Accumulated Other Comprehensive Income to $30.5 million pre-tax ($27.4 million after tax). In fiscal 2011, we expect to amortize $1.8 million of unrecognized actuarial losses as a component of pension expense. (Page 56) Non-Controlling Interests Non-Controlling interests have continually gone up from fiscal 2007. NonControlling Interests amounted to $2,789 thousand in fiscal 2007, $3,298 thousand in fiscal 2008, $4,137 thousand in fiscal 2009, and finally $4,141 thousand in
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fiscal 2010.
Total The total changes in equity have continually decreased from fiscal 2007 to fiscal 2009, going from $486,098 thousand FYE 2007, to $451,374 thousand FYE 2008, and finally to $306,432 thousand FYE 2009. In fiscal 2010 however, the total equity went up $39,808 thousand to a total of $346,240 thousand. This was primarily accredited to a $34,760 thousand total comprehensive income. This income had been a comprehensive loss in 2008 and 2009 totaling $15,876 and $144,444 respectively.

Stock buy-back program According to our research La-Z-Boy does not currently have a stock buy-back program in place. Trend in common dividends declared The trend of common dividends declared has been steady around $0.45 in the fiscal years of 2006-2008, but then reduced to only $0.10 in fiscal 2009 and finally went to zero in fiscal 2010. The common dividends were $0.44 in fiscal 2006, $0.48 in fiscal 2007, $0.40 in fiscal 2008, $0.10 in fiscal 2009, and zero in fiscal 2010.
Change in history with respect to issuing stock options

In fiscal 2005, our shareholders approved a long-term equity award plan. This plan allows for awards in the form of performance awards, restricted shares and non-qualified stock options. Under this plan, the aggregate number of common shares that may be issued through awards of any form is 5.0 million. Under this plan, 0.8 million shares remain available to be granted. (Page 60) Main Reasons for diluted earnings per share The corporation adopted a new guidance that required unvested share-based payment awards containing non-forfeitable rights to dividends be included in the computation of earnings per share. We adopted this guidance on April 26, 2009. The adoption of this guidance resulted in a reduction of $0.01 per share for both basic and diluted earnings per share on net income (loss) attributable to La-Z-Boy Incorporated for the year ended April 24, 2010. (Page 45) Stock rights plan Note 1: These options were issued under our 2004 Long-Term Equity Award Plan and our 1997 Incentive Stock Option Plan. No additional options can be awarded under the 1997 plan, but 466,770 are still outstanding under the 1997 plan. Note 2: This amount is the aggregate number of shares available for future issuance under our 2004 Long-Term Equity Award Plan, which has a stock option
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component, a restricted stock component and a performance award component, and our Restricted Stock Plan for Non-Employee Directors. The long-term equity award plan provides for awards of stock options, restricted stock, and performance awards (awards of our common stock based on achievement of pre-set goals over a performance period) to selected key employees. The non-employee directors plan provides for grants of 30-day options on our common shares. The total shown above consists of: (a) a maximum of 823,540 shares that may be granted under the long-term equity award plan; and (b) 150,800 shares available for future issuance under the non-employee directors plan. We discontinued awards under the nonemployee directors plan in fiscal 2009. (Page 14) Stock dividend Yes, the company has had a stock dividend, but stopped paying dividends after fiscal 2009. In the past dividends had been around $0.40 a share.

Statement of Cash Flow Net cash provided by and used in operations Net income accounted for an increase of $32,051 in cash flow from operating activities. This was the largest contributor to the grand total of $89,659 along with $25,246 from depreciation and amortization. A -$17,287 change in receivables was the main account detracting from the net cash. Major types of investing cash flows After negative net cash used for investing in FY 2008 and 2009, there was a positive cash flow of $14,009 in 2010. Change in restricted cash was a large positive number compared to previous years as well as capital expenditures and purchases of investments both decreasing. Major types of financing cash flows Financing cash flows, while still negative, were not as large as the past two years at $11,855. The major cause of this was there was far less payment on debt in 2010. Net change in cash balances The net change for FY 2008 and 2009 were $14,479 and $17,364 respectively. In FY 2010 this exploded to $108,421. The giant increase in cash on hand results in the ability for La-Z-Boy to invest and expand easily since cash is so liquid. Noncash investing and financing activities The financial statements did not reference any noncash investing or financing activities. 17

Dividends/Share buy-back program In the past La-Z-Boy has paid dividends to its investors however in FY 2010, no dividends were paid out. Similarly, the company did not institute a share buy-back program and has not for at least the past three years.

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Audit Report/Management Report Auditor PricewaterhouseCoopers LLP is the name of the accounting firm that audited La-Z-Boy. It is an independent, registered public accounting firm that does not have any clear relationship with La-Z-Boy outside of auditing it. Type of audit opinion Managements report

Internal controls

Introduction

La-Z-Boy Incorporated was founded in 1927, in Monroe, Michigan and manufactures and markets a wide variety of furniture for use in every room of the home. These include: upholstered sofas, recliners, sleeper sofas, and stationary chairs. They operate hundreds of stand-alone stores as well as supplying thousands of other furniture retail outlets. La-Z-Boy Inc. is an international company, distributing their furniture across many countries. This project will analyze information from La-Z-Boys FYE 2010 ending on April 24, 2010, 10-K report filed with the U.S. Securities and Exchange Commission (SEC). The specific portions of the financial report that will be analyzed include the: balance sheet, income statement, statement of stockholder equity, statement of cash flow, and the audit and management reports.

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Conclusion After analyzing La-Z-Boy Incorporated, we believe the company is starting to adapt to tough economic times and become a company that will continue to be successful. Being apart of the service industry the corporations success is largely tied to the health of the economy, but after weathering such severe lacerations from tough times in fiscal 2009 we believe the company has become experienced and less susceptible to a weak economy. La-Z-Boy is taking advantage of the past by being smart with its expenses (cutting sales costs, cost of goods, restructuring costs, eliminating dividends) so that it can be more successful with almost a third less sales than it had in the past. Regardless of what the economy throws, we believe the future is bright for La-Z-Boy incorporated.

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