La-Z-Boy DEF 14A 2005
Documents found in this filing:
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
SCHEDULE 14A INFORMATION
Filed by the Registrant x
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To our shareholders:
We invite you to attend our 2005 annual meeting of shareholders at the time and place shown above. The purposes of the meeting are:
We are mailing this notice and the accompanying proxy statement and proxy card to our shareholders on or about July 15, 2005. We also are enclosing a copy of our 2005 Annual Report, which contains financial statements for the fiscal year ended April 30, 2005. Only shareholders of record at the close of business on June 30, 2005 will be entitled to vote at the meeting.
Whether you plan to attend the meeting in person or not, please date, sign, and return the enclosed proxy card in the accompanying envelope. You may also vote by telephone or on the Internet (see the instructions attached to the proxy card). Even though you vote by one of these methods prior to the meeting, you may still vote your shares in person at the meeting, which will revoke your previous vote.
July 15, 2005
2005 PROXY STATEMENT OF LA-Z-BOY INCORPORATED
Questions and Answers
PROPOSAL NO. 1: ELECTION OF DIRECTORS
Our board of directors is divided into three classes, one consisting of four directors and two consisting of three directors each. Directors in each class serve for three-year, staggered terms. The terms of the four directors in one of the classes expire at this years annual meeting, so four directors will be elected at the meeting. The four directors elected will serve until our annual meeting of shareholders in 2008.
Under the applicable Michigan corporate law, directors will be elected at the meeting by a plurality of votes cast from among those persons duly nominated. Thus, the nominees who receive the highest through fourth highest numbers of votes will be elected, regardless of the number of votes that for any reason, including abstention or withholding of authority, are not cast for the election of those nominees.
The boards director nominees are the four current directors whose terms are scheduled to expire at the meeting. In the absence of other instruction, the persons named in the accompanying form of proxy will vote in favor of these nominees. If any nominee becomes unable or unwilling to serve, which we do not expect, the proxy holders will vote for a substitute nominee designated by the board.
Information about each nominee for election at the meeting and each director continuing in office is given below. Unless otherwise indicated, the principal occupation of each director or director nominee has been the same for at least five years. All of the nominees have consented to serve if elected.
Director Nominees for Terms to Expire In 2008
We believe it is important to disclose a summary of our major corporate governance practices. Some of these practices have been in place for many years. Others have been adopted in response to recent regulatory and legislative changes. We will continue to assess and refine our corporate governance practices and share them with shareholders.
A majority of our directors must be independent directors under the NYSE Listed Company rules. The NYSE rules provide that no director can qualify as independent unless the board affirmatively determines that the director has no material relationship with the listed company. The board has adopted the following standards for determining whether or not a director has a material relationship with the Company:
Applying these standards, the board of directors has determined that each of the following directors, comprising seven of the non-management directors, meets the criteria for independent directors set forth in the listing standards of the NYSE and is an independent director under those standards: Messrs. Foss, Hehl, Johnston, Lipford, and Thompson, Ms. Petrauskas, and Dr. Levy. As noted below under Executive CompensationRelated Party Transactions, Rocque E. Lipford is a principal in the law firm of Miller, Canfield, Paddock and Stone, P.L.C., which provides us with legal services, a relationship that is not material under the categorical standards adopted by the board. In addition, the board has determined that this relationship has never interfered with Mr. Lipfords demonstrated independence from our management and has therefore concluded that Mr. Lipford is in fact an independent director within the meaning of the NYSE standards.
Corporate Governance Guidelines
We have adopted Corporate Governance Guidelines, which we have published on our website (www.la-z-boy.com). These guidelines include: a limitation on the number of boards on which a director may serve, qualifications for directors, director orientation, continuing education, and a requirement that the board and each of its committees perform an annual self-evaluation.
Committee Charters and Codes of Business Conduct
We have published on our website (www.la-z-boy.com) the charter of each of the Audit, Compensation, and Nominating and Governance Committees of the board, as well as our Code of Business Conduct, which apply to all directors, officers, and employees. Any waiver of the Code of Business Conduct for directors or executive officers may be made only by the Audit Committee, and any such waivers or amendments will be disclosed promptly by posting on our website. Copies of each of the committee charters and the Code of Business Conduct are also available by writing to our Office of the Secretary, La-Z-Boy Incorporated, 1284 North Telegraph Road, Monroe, Michigan 48162.
Executive Sessions of Non-Employee Directors
Non-employee directors meet in executive session without management present no less than four times annually. The sessions are chaired by the Chairman of the Nominating and Corporate Governance Committee. Any non-employee director can request that an executive session be scheduled or place an item on the agenda.
The lead partner of our independent registered public accounting firm is rotated at least every five years.
Only independent directors serve on the Audit, Compensation, and Nominating and Governance Committees, in accordance with the independence standards of the NYSE rules and our corporate governance guidelines. The board, and each committee of the board, has the authority to engage independent consultants and advisors at our expense.
Communications with the Board; Annual Meeting Attendance
We have established a process by which you may send communications to the board. For a description of the manner in which you can send communications to the board, please visit our website (www.la-z-boy.com). All members of the board are expected to attend the annual meeting unless prevented by doing so by unusual circumstances. Ten of the eleven directors who held office at that time attended last years meeting.
DIRECTORS MEETINGS AND STANDING COMMITTEES
During fiscal 2005, our board of directors held eleven meetings of the full board. The non-employee directors met in executive session on four of those occasions. Each incumbent director attended at least 75% of the total number of all fiscal 2005 board meetings and meetings of board committees on which the director served that were held during his or her period of service.
The standing committees of the board include the Audit Committee, the Compensation Committee, a subcommittee of the Compensation Committee informally referred to as the Compensation Subcommittee, the Nominating and Corporate Governance Committee, and the Investment Performance Review Committee. We provide more information about each of them below.
Audit Committee - Members: David K. Hehl (Chairman), John H. Foss, and James W. Johnston
Compensation Committee - Members: Jack L. Thompson (Chairman), David K. Hehl, Dr. H. George Levy, Rocque E. Lipford, and Helen O. Petrauskas
Compensation Subcommittee - Members: Helen O. Petrauskas (Chairman), David K. Hehl, Dr. H. George Levy, Jack L. Thompson
Nominating and Corporate Governance Committee- Members: James W. Johnston (Chairman), Dr. H. George Levy, Rocque E. Lipford
Investment Performance Review Committee - Members: Helen O. Petrauskas (Chairman), John H. Foss, Jack L. Thompson, Donald L. Mitchell
Directors who also are our employees receive no additional compensation for serving on the board. For fiscal 2006, Directors who are not our employees will receive:
We also reimburse our directors for travel, lodging and related expenses they incur in attending Board and committee meetings.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires our executive officers and directors to file reports of ownership and changes in ownership with the SEC and the NYSE and furnish us with a copy of each report filed. Based solely on our review of copies of the reports filed by some of those persons and written representations from others that no reports were required, we believe that during fiscal 2005 all Section 16(a) filing requirements were complied with in a timely fashion.
SHARE OWNERSHIP INFORMATION
The tables below provide information about beneficial owners of our common shares. Under applicable SEC rules, anyone that has or shares the right to vote any of our common shares or has or shares dispositive power over any of them is a beneficial owner of those shares. The settlor of a trust with a right to revoke the trust and regain the shares or a person who can acquire shares by exercising an option or a conversion right sometimes also is considered a beneficial owner under these rules. Consequently, more than one person can be considered the beneficial owner of the same common shares. Unless otherwise indicated below, each owner named in a table has sole voting and sole dispositive power over the shares reported for that person, and this information is as of the record date for the annual meeting.
Security Ownership of Known Over 5% Beneficial Owners
The following table shows the share ownership of each of our named executive officers, each of our current directors and director nominees, and all current executive officers and directors as a group.
Security Ownership of
The following table sets forth the compensation for fiscal 2005 and, as relevant, the preceding two fiscal years of our Chief Executive Officer during fiscal 2005 and of our four other most highly compensated current executive officers. In the rest of this proxy statement, we sometimes call these individuals named executives.
Summary Compensation Table
The table below reports on stock options granted to named executives during fiscal 2005 and the potential realizable value of those grants, assuming stock price appreciation rates of 5% and 10% annually over the term of the options. The 5% and 10% rates of appreciation used in the table are not intended to forecast possible future actual appreciation, if any, in our stock price.
Option Grants in Last Fiscal Year
All options reported in the table are non-qualified stock options on common shares granted under our long-term equity award plan. Options become exercisable in 25% increments on the first through fourth anniversaries of grant, and once exercisable, remain exercisable through the fifth anniversary of grant.
However, in the event of a grantees death or retirement at age 65 (or earlier with the consent of the board), each of the grantees options would become immediately exercisable in full and continue to be exercisable for three years or, if earlier, until the options scheduled expiration date.
In addition, all options will become immediately exercisable in full in the event of a sale, exchange, or other disposition of all or substantially all of the total assets of the Company or all or substantially all of the outstanding shares. Termination of an executives employment under any circumstances other than those described above would cause all of his options to terminate immediately.
Options Exercised and Held
The following table contains information concerning exercise of stock options during the last completed fiscal year by each of the named executive officers, and the fiscal year-end value of unexercised stock options held by such executive officers:
Aggregated Option Exercises in Last Fiscal Year
Long-Term Incentive Compensation Target Awards
Shareholders approved our 2004 Long-term Equity Award Plan in August 2004. This plan authorizes the Compensation Subcommittee to grant contingent target awards to key employees, the potential pay-outs on which (performance awards) are linked to achievement over a performance cycle of three fiscal years of goals established by the Subcommittee at or near the beginning of the cycle. (The plan also authorized one-time transition awards for the one- and two-year periods ending at the ends of the fiscal 2005 and 2006, respectively.) All performance awards under the plan are structured as outright grants of our common shares.
The plan requires the Subcommittee to establish a single objectively determinable and uniform performance goal for all target awards it grants for a given performance cycle and to establish the maximum number of shares a grantee may be granted as a performance award if the performance goal is achieved during the cycle. The plan also authorizes the Subcommittee to establish any number of subordinate goals, the non-achievement of which may reduce (but never increase) the performance award a grantee may receive after the end of the cycle.
Normally, the Subcommittee grants target awards at or about the same time it establishes the goals for a performance cycle, but it also has discretion to grant a mid-cycle target award to a newly-hired or newly-eligible employee, as long as there are at least twelve months remaining in the cycle. If a mid-cycle target award is granted, the pre-established performance goal for the cycle would apply to that award, as would any subordinate goals the Subcommittee elects to establish. The potential pay-out on the mid-cycle award would be the same as the grantee would have received had he been eligible to receive a target award when the initial target awards for the cycle were granted, reduced proportionately based on the number of months in the cycle that already had occurred before grant of the mid-cycle award.
Early in fiscal 2005, the Compensation Subcommittee granted target awards, contingent on shareholder approval which was subsequently received in August 2004, under the plan for the performance cycles ending April 30, 2005, April 29, 2006 and April 28, 2007. For each of the three cycles, the Subcommittee set as the performance goal achieving at least a specified level of cumulative diluted earnings per share, and it established three weighted subordinate goals relating to sales growth, operating margin and cash flow and a target payout for each subordinate goal. Each subordinate goal has a sliding scale that provides a payout from 50 to 200 percent of the related target payout. The subordinate goals are not evenly weighted. We provide more information about the target awards granted to named executives in the table below.
Long-Term Incentive Plan - Awards in Last Fiscal Year
The maximum performance award potential for any target award, which would be awarded after the end of the relevant cycle if the performance goal is achieved and all subordinate goals are fully achieved, is an outright grant of the Maximum number of shares established for that target award, as shown on the table. The minimum potential performance award (Threshold on the table shown above), for achievement of the performance goal and meeting the threshold for just one subordinate goal, is an outright grant of 25% of the maximum number of shares under the target award. The final award will be determined after the end of each relevant fiscal year by first determining whether the performance goal was achieved and, if it was, then determining the degree to which each (if any) of the subordinate goals were met. If the performance goal is not achieved, or if that goal is achieved but no subordinate goal is achieved, there will be no payout on the target award. The performance goal for the one-year cycle ended April 30, 2005 was not achieved and no performance award will be paid for the one-year cycle.
Change in Control Agreements
We have change in control agreements currently in effect with Messrs. Darrow, England, Kincaid, Norton, and Risley. These agreements are designed primarily to aid in ensuring continued management in the event of an actual or threatened change in control of the Company (as defined in the agreements). The agreements provide that in the event the covered employee is terminated other than upon his death, disability or for cause (as defined in the agreements) within three years after a change in control of La-Z-Boy Incorporated, that person will be entitled to receive a lump sum severance payment equal to three times his annualized salary and three times the average bonus amount paid to him in the previous three years. The covered employee also would be entitled to continuation of employee welfare benefit payments and reimbursement of certain legal fees and expenses incurred by the employee in enforcing the agreement following a change in control.
In consideration of these obligations, each covered employee has agreed to remain in our employ pending the resolution of any proposal for change in control. Each agreement expires December 31, 2005, but automatically renews for an additional one-year period unless either party gives the other 90 days prior notice of non-extension. If a change in control occurs, the agreements automatically extend for 36 months.
Deferred Compensation Plan
Under the terms of our amended and restated La-Z-Boy Executive Deferred Compensation Plan, senior executive employees of La-Z-Boy and its subsidiaries (including our named executives) may elect to defer the payment of from 5% to 100% of their base salary and/or from 5% to 100% of their cash bonus under the Management Incentive Plan for each fiscal year.
In addition, any company match and/or profit sharing contributions that cannot be credited to executives accounts under the qualified retirement plans, due to Internal Revenue Code limitations, may be credited to their accounts maintained in this plan.
All executives deferrals and any non-qualified company match or profit sharing amounts are added to a recordkeeping account and credited with earnings or losses, depending upon performance of the mutual-fund-type options the participant has chosen for the deemed investment of their account. Earnings included in the Summary Compensation Table relate to amounts credited under our former La-Z-Boy Supplemental Executive Retirement Plan, which was replaced by our current deferred compensation plan, because under the former plan a participants account was credited with interest at a fixed, stated rate.
Payment of a participants account balance will be deferred until a date designated by the participant upon making the deferral election. The deferral amounts are paid either in one lump sum or in annual installments for up to 15 years, also as designated in the participants deferral election. Upon the death of the participant, any remaining balance in the participants account will be paid to the participants designated beneficiary.
Related Party Transactions
Culp, Inc. Patrick Norton is a member, and lead director, of the Board of Directors of Culp, Inc. Culp provided 28.4% of the total fabric purchased by us during the fiscal year. The purchases from Culp were at prices comparable to other vendors and under similar terms. Mr. Norton has no involvement in our selection or purchase processes related to fabrics.
Miller, Canfield, Paddock and Stone. The law firm of Miller, Canfield, Paddock and Stone, P.L.C., in which Rocque E. Lipford is a senior principal, provides us with legal services and has done so for many years. Miller, Canfield has advised us that the revenues paid to Miller, Canfield during the past fiscal year were less than 0.5% of their total revenues for the same period. We believe that the transactions with the firm are on terms no less favorable than those that could be obtained from unrelated third parties.
Kevin Norton. Kevin Norton, the son of Patrick Norton, is an independent sales representative for La-Z-Boy residential products under an agreement providing for the payment of commissions at various rates. The terms of his agreement, including the commission rates, are identical to those of our agreements with all of our approximately 90 other La-Z-Boy U.S. residential sales representatives.
Stefanie (England) Tull. Stephanie Tull, the daughter of Rodney England, is the Vice President of Store Development for our England, Inc. operations and received salary and bonus for fiscal 2005 totaling $98,726.
Tim Tull. Tim Tull, the son-in-law of Rodney England, is the Vice President of Sales for our England, Inc. operations and received salary and bonus for fiscal 2005 totaling $169,411.
Rodney England and Stefanie (England) Tull. In fiscal 2005, we paid Rodney England $42,895 to reimburse him for our business use of his personal airplane, and we paid Mr. England and Stefanie (England) Tull, his daughter, $2,261 for the rental of another airplane owned by them. We are continuing to make payments to them under similar arrangements this year. The amounts we pay are no more than the amounts we would pay to unrelated third parties for similar services and rentals.
Kincaid Galleries Inc. Kincaid Galleries Inc. was a retail furniture outlet owned by Rebecca Adderholdt and Kathy McAteer, both of whom are sisters of Steven Kincaid. During fiscal 2005, Kincaid Galleries Inc liquidated its inventories and went out of business. Kincaid Galleries Inc remains indebted to us in the amount of $556,214. While we have properly established a reserve against the debt remaining, we continue to pursue and anticipate a recovery of the debt over time.
The graph below shows the return for our last five fiscal years that would have been realized (assuming reinvestment of dividends) by an investor who invested $100 on April 29, 2000 in our common shares, in the S&P 500 Composite Index, in a peer group comprised of the following publicly traded furniture industry companies: Bassett Furniture, Chromcraft Revington, Inc., Ethan Allen Interiors, Flexsteel Industries, Furniture Brands International, Hooker Furniture Company, Rowe Companies, and Stanley Furniture and in the same peer group excluding Hooker Furniture Company. In previous years, we included Bush Industries in our peer group, however, it has gone into bankruptcy and is no longer publicly reported so we have excluded it from all the peer group information shown below and are replacing it in the peer group with Hooker Furniture Company, which only began trading on the NASDAQ Small Cap market in June 2002. For this transition year, we are presenting the peer group information both including and excluding Hooker Furniture Company. The stock performance of each company in the peer group has been weighted according to its relative stock market capitalization for purposes of arriving at group averages.
AUDIT COMMITTEE REPORT
La-Z-Boys Board is responsible for the governance of the Company, which includes the oversight, counseling and direction of La-Z-Boys management to foster the long-term interests of the Company and its stakeholders. The Audit Committee assists the Board in its oversight of financial reporting, internal controls and the audit of the Companys financial statements. Management is primarily responsible for the consolidated financial statements and for La-Z-Boys internal controls, financial reporting process and compliance with laws, regulations and ethical business standards.
The Audit Committee consists of three directors, all of whom meet the independence and financial experience requirements of the New York Stock Exchange. The board of directors has designated Mr. Foss as the audit committee financial expert, as defined and required in the SECs rules. The board of directors has determined that all of the committee members are independent, as independence is defined in the applicable SEC rules. The Audit Committee operates under a written charter, attached as Exhibit A,
which requires an annual review of the charter and evaluation of the committees performance. The Audit Committee evaluates, selects, agrees to the fees, and, if appropriate, replaces the independent registered public accounting firm. The Audit Committee also has the authority to engage its own professional advisors, at the Companys expense. The Audit Committee selected PricewaterhouseCoopers LLP as La-Z-Boys independent registered public accounting firm for fiscal year 2006.
The Audit Committee met seven times during fiscal 2005. At least quarterly, the Audit Committee meets to review the financial results and statements; internal controls over financial reporting; and significant accounting, environmental and legal issues. In addition to monitoring managements efforts related to the assessment and effectiveness of the Companys internal controls, the Audit Committee reviews and discusses with PricewaterhouseCoopers LLP its attestation report on managements assessment and its report on the Companys internal controls over financial reporting. The Audit Committee also reviews the procedures for receiving and handling complaints regarding the Companys accounting, internal controls or audit matters. The Audit Committee meets regularly in separate private sessions with the independent auditors, the head of the internal audit department and various members of management.
The Audit Committee, as required by its charter, pre-approves all services provided by PricewaterhouseCoopers LLP, including audit, audit related, tax, and other services. The Audit Committee may provide approval of such service for the coming year when appropriate. The Audit Committee has also authorized the Chairman of the Audit Committee to pre-approve some service in limited circumstances. The Chairman reports such pre-approval to the full Audit Committee at a subsequent meeting. The Audit Committee continues to reduce the scope of non-audit services provided by PricewaterhouseCoopers LLP.
PricewaterhouseCoopers LLP is responsible for performing an independent audit of the consolidated financial statements in accordance with auditing standards of the Public Company Accounting Oversight Board and expressing opinions on managements assessment of the effectiveness of the Companys internal controls over financial reporting and the effectiveness of La-Z-Boys internal controls over financial reporting. The Audit Committee discussed with PricewaterhouseCoopers LLP those matters required to be discussed by Statement on Auditing Standards No. 61 (Communication with Audit Committees). As part of the Audit Committees independence review, PricewaterhouseCoopers LLP provided to the Audit Committee the written disclosures and the letter required by Independence Standards Board Standard No. 1 (Independence Discussions with Audit Committees). In discussions with PricewaterhouseCoopers LLP about their independence, the Audit Committee also reviewed the non-audit services provided by PricewaterhouseCoopers LLP (see Proposal 2, under the caption Audit Fees).
The Audit committee has reviewed and discussed the fiscal year 2005 financial statements with management and PricewaterhouseCoopers LLP. The review and discussions included the acceptability and quality of the accounting principles utilized, the reasonableness of the significant accounting estimates and judgments, and the clarity of disclosures. Based upon the discussions with, representations of, and reports from, management and PricewaterhouseCoopers LLP, the Audit Committee recommended to the Board to accept the audited consolidated financial statements for inclusion in the Corporations Annual Report on Form 10-K for the year ended April 30, 2005 filed with the Securities and Exchange Commission.
JOINT REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the board and its Compensation Subcommittee determine the compensation of executive officers and review the compensation program for other employees. The Subcommittee is charged with administering the stock-related employee plans in which executive officers may participate. The Compensation Committee determines all executive officer compensation not assigned to the Subcommittee.
This is a joint report by the Subcommittee and the Committee on the policies they followed and the decisions they made for fiscal 2005. The Subcommittee provides information about decisions made by the Subcommittee only. The Committee provides all other information.
La-Z-Boy strives to create value for shareholders through superior growth and profitability. The executive compensation program supports this goal by linking the major components of base pay, and short and long-term incentives to superior results in business performance and profitability.
Our compensation program is intended to attract and retain highly qualified individuals by providing executives the opportunity to earn market median compensation while creating value to the shareholders. We will reward individual executives, at market median compensation levels, for attaining targeted performance, with a substantial portion of the executives total compensation opportunity payable in the form of Company shares. Superior performance exceeding pre-established targets will be appropriately rewarded in both cash and equity payouts. Sub-par performance will result in reduced cash and equity compensation.
Compensation Plan Overview
We intend to pay for performance and will place more of the executives compensation at risk as their levels of responsibility increase. An executives compensation opportunity is dependent on improving the Companys long-term performance or potential.
We retained the services of outside consultants to conduct a competitive review of our executive compensation programs and develop a long-term incentive strategy which was completed at the beginning of fiscal year 2005. Based on the consultants recommendations, we proposed, and shareholders approved, an employee equity compensation plan to replace three existing equity compensation plans. The new Long-term Equity Award Plan provides for specified percentages (based on value) of performance-based awards, stock options, and restricted share awards.
The base salaries of our named executive officers are established at the beginning of the fiscal year after evaluating competitive salary information, the contributions of each named executive officer over the prior year, the companys performance and the most recent recommendations of our compensation consultants. At the beginning of the fiscal year 2005, Mr. Darrow had only been in the position of president and chief executive officer for seven months. His salary was adjusted commensurate with his new role so no adjustment was made to his base salary for fiscal year 2005. Similarly, several other named executives had served less than six months in their new positions prior to the beginning of fiscal year 2005, and they also received salary adjustments at the time of promotion but none at the beginning of fiscal year 2005. The salary increases for the named executives ranged between 0% and 4%.
Short-Term Incentive Awards
La-Z-Boys Management Incentive Plan is a cash-based plan that rewards annual performance measured against pre-established targets. At the start of the fiscal year, we establish short-term performance criteria and the weightings for the various criteria. The award paid at the end of the fiscal year is based on actual results compared to the established performance targets.
For fiscal 2005, the maximum award opportunity was 160% of salary for Mr. Darrow while the maximum award opportunity for the other named executives, ranged between 100% and 130% of salary. We structured the awards based 80% on the attainment of business unit financial goals and 20% on individual performance goals. The business unit financial goals were further weighted one-third on an increase in sales revenue and two-thirds on operating income. The business unit financial goals were either on a consolidated basis or on the basis of combined specific business units depending on the executives responsibilities. The business unit financial goal and the individual performance goal were independent so that achievement of the individual performance goal could be rewarded regardless of the results related to the business unit financial goal and vice versa. Actual performance yielded payouts shown as bonus in the Summary Compensation Table.
To maximize shareholder value, we believe that stock-based awards are an important component of executive compensation because they particularly link executive and shareholders financial interests. For fiscal 2005, we granted awards under the Long-term Equity Award Plan contingent upon shareholders approval which was received at the 2004 shareholders meeting. These awards consisted of non-qualified stock options, performance-based stock awards and restricted shares with a fixed allocation which varies by grade. In addition, the restriction period for the restricted shares lapse over different periods ranging from 3 to 5 years depending upon salary grades, the higher salary grades having longer restriction periods.
Under the Long-term Equity Award Plan, the Subcommittee, after considering the recommendation of the outside consultants, granted to Mr. Darrow non-qualified stock options on 44,800 shares, 12,400 restricted shares and a target performance-based stock award of 24,700 shares for the three-year cycle ending in April 2007. In addition, as presented to the shareholders at the time of approval, the Subcommittee also granted Mr. Darrow target performance-based stock awards of 3,505 shares for the one-year cycle ended in April 2005 and 6,965 shares for the two-year cycle ending in April 2006. The short-cycle awards for cycles ending in 2005 and 2006 were awarded as substitutes for awards under the 1993 performance-based award plan that was replaced by the Long-term Equity Award Plan. Participants terminated their rights under the prior plan to receive the grants under the Long-term Equity Award Plan.
The other named executives received non-qualified stock options covering a total of 74,800 shares, 20,700 restricted shares and target performance-based stock awards of 41,100 shares for the cycle ending in April 2007. The other named executives also received target performance-based stock awards of 10,970 shares for the one-year cycle ended in April 2005 and 21,785 shares for the two-year cycle ending in April 2006.
As reported in the Summary Compensation Table, there were no payouts to the named executives under Long-term Equity Award Plan for the performance cycle that concluded at the end of fiscal 2005. In accordance with the plan, at the beginning of the cycle, we had established a performance goal and three subordinate goals and granted target awards relating to those goals to all named executives. After the end of the cycle, the Companys actual performance, when measured against the predetermined goal, resulted in no payouts.
Federal Income Tax Considerations
Section 162(m) of the Internal Revenue Code generally precludes La-Z-Boy and other public companies from taking a tax deduction for compensation over $1 million which is not performance-based and is paid, or otherwise taxable, to a named executive officer. The 1997 Incentive Stock Option Plan and the Long-term Equity Award Plan contain provisions designed to permit certain awards to qualify as performance-based compensation and so to exempt such awards from the deduction limitation.
We intend to continue to monitor the executive compensation programs with respect to the present federal tax law to maximize the deductibility of compensation paid to named executives, but we may pay compensation in excess of the Section 162 (m) limitation if we determine that doing so would be in the best interest of La-Z-Boy and its shareholders.
COMPENSATION COMMITTEE INTERLOCKS AND
Each current member of the Compensation Committee and the Compensation Subcommittee served throughout fiscal 2005, and no one other than the current members served on either the Compensation Committee or the Compensation Subcommittee at any time during fiscal 2005.
The law firm of Miller, Canfield, Paddock and Stone, P.L.C., in which Rocque E. Lipford is a principal, provides us with legal services and has done so for many years.
PROPOSAL NO. 2: TO RATIFY THE SELECTION OF
The Audit Committee selects and hires our independent registered public accounting firm, and it has selected PricewaterhouseCoopers LLP as our independent registered public accounting firm for fiscal 2006. PricewaterhouseCoopers LLP acted as our independent registered public accounting firm for fiscal 2005, and we believe it is well qualified to act in that capacity again this year. Representatives of PricewaterhouseCoopers LLP will be present at the meeting with the opportunity to make a statement and to answer questions.
We are asking you to ratify the selection of PricewaterhouseCoopers LLP as our independent registered public accounting firm. Although ratification is not required by our bylaws or otherwise, the board is submitting the selection of PricewaterhouseCoopers LLP to you for ratification as a matter of good corporate practice. If the Audit Committees selection is not ratified, it will reconsider the selection. Even if the selection is ratified, the Audit Committee in its discretion may select a different independent registered public accounting firm at any time during the year if it determines that such a change would be in the best interests of La-Z-Boy and our shareholders.
For professional services rendered to us for fiscal years 2005 and 2004, PricewaterhouseCoopers LLP has billed us as follows:
Audit fees shown in the table are the amounts billed for services related to our financial statements for those fiscal years, while amounts shown for audit related fees, tax fees, and all other fees are the amounts billed during those fiscal years.
Audit fees represent fees for audit work performed on our annual financial statements, our internal controls over financial reporting, managements assessment of our internal controls over financial reporting, and reviews of the quarterly financial statements included in our quarterly reports on Form 10-Q, as well as audit services that are normally provided in connection with our statutory and regulatory filings.
Audit-related fees relate to audits of our employee benefit plans, retail store acquisitions audit procedures, as well as Sarbanes-Oxley Section 404 controls project assistance.
Tax fees include fees for domestic and foreign tax compliance and advisory services.
All other fees represent accounting research software subscription fees.
The Audit Committees current policy requires pre-approval of all audit and non-audit services provided by the independent auditors before the engagement of the independent auditors to perform them. A limited amount of tax services have been pre-approved. Services, including tax services not covered by the general pre-approval, require specific pre-approval by the committee.
Our management will present the following resolution to the meeting:
The Board of Directors recommends a vote FOR Proposal No. 2.
Director Nominations and Shareholder Proposals for Next Annual Meeting
If you would like to recommend a director candidate for consideration by the Nominating and Corporate Governance Committee, you should send your recommendation to the Secretary, who will forward it to the Committee. If you would like your recommendation to be considered for director nominations at the annual meeting of shareholders to be held in calendar 2006, you should submit it no later than March 17, 2006. Your recommendation should include a description of your candidates qualifications for board service, your candidates consent to be considered for nomination and to serve if nominated and elected, and addresses and telephone numbers for contacting you and the candidate for more information.
If you would prefer to nominate a director candidate at the meeting yourself, our bylaws require that you notify us of your intention to do so no later than May 25, 2006. Your notice must include your nominees name, age, residence and business addresses, and principal occupation, the number of common shares beneficially owned by the nominee, and all other information about the nominee that would be required by SEC rules in a proxy statement soliciting proxies for election of the nominee.
If you would like to submit a proposal for inclusion in our proxy materials for the calendar 2006 annual meeting, you must submit it to us no later than March 17, 2006. Even if a proposal is submitted by that date, we will have the right to omit it if it does not satisfy the requirements for inclusion under SEC Rule 14a-8.
Any shareholder proposal for the calendar 2006 annual meeting that is submitted outside the processes of Rule 14a-8 will be considered untimely for purposes of SEC Rule 14a-4(c)(1) if it is not submitted to us on or before May 31, 2006. Proxies for that meeting may confer discretionary authority to vote on any untimely proposal without express direction from the shareholders giving the proxies.
Any shareholder proposal or nomination should be sent to our principal offices in Monroe, Michigan, addressed to the attention of the Secretary.
Costs of Proxy Solicitation
We will pay the expense of soliciting proxies pursuant to this proxy statement. That expense is expected to be limited to the cost of preparing and mailing this proxy statement and accompanying documents.
This year you may vote by mail, by telephone or on the Internet. Your vote is important. Even if you plan to attend the meeting, please vote by proxy card, telephone or computer as soon as possible.
We will send you a copy of our Form 10-K Annual Report for the fiscal year ended April 30, 2005 without charge if you send a written request to: Office of the Secretary, La-Z-Boy Incorporated, 1284 North Telegraph Road, Monroe, Michigan 48162. You also can obtain copies of our Form 10-K and the other reports we file with the SEC on our Web site at www.la-z-boy.com or through the SECs Web site at www.sec.gov.
AUDIT COMMITTEE CHARTER
Purpose of the Audit Committee
The Audit Committee assists the Board of Directors in its oversight of (a) the integrity and quality of the processes and practices of the company with respect to financial reporting, (b) management of business and financial risk, (c) compliance with significant legal, regulatory and ethical requirements, (d) the qualifications and independence of the independent registered public accounting firm (the independent auditors), and (e) the effectiveness of the Companys independent auditors and internal audit function.
The Committee is directly responsible for the appointment, termination, compensation and oversight of the Companys independent auditors (including resolution of any disagreements between management and the independent auditors regarding financial reporting). The independent auditors shall report directly to the Committee. With respect to all other matters, the role of the Audit Committee is one of oversight and as such the Committee relies on the expertise and knowledge of management, internal auditors, the independent auditor and other experts. Management of the Company is responsible for determining that the Companys financial statements are fairly presented in accordance with generally accepted accounting principles. The independent auditor is responsible for auditing and reporting on the Companys financial statements. It is not the responsibility of the Committee to plan or conduct audits, to determine the fairness or accuracy of financial statements, to provide assurance of compliance with laws and regulations, or to provide assurance with respect to the adequacy of internal policies, practices, procedures or controls.
The Committee shall consist of at least three Directors who have no relationship with the Company that might interfere with the exercise of their independent judgment. The Committee members shall satisfy the independence, financial literacy and expertise requirements of the New York Stock Exchange as interpreted by the Board of Directors and any rules adopted by the Securities and Exchange Committee pursuant to Section 10A(m)(3) of the Securities Exchange Act of 1934. The Committee members, including the Chairman, shall be appointed by the Board of Directors.
Authority and Funding
The Committee has the authority to engage independent counsel and other advisers, as it determines necessary to carry out its duties. In discharging its oversight role, the Committee is empowered to investigate any matter brought to its attention with full access to all Company books, records, facilities and personnel.
The Company will provide appropriate funding for the Committee, as determined by the Committee, in its capacity as a committee of the board of directors, for payment of:
The Committees specific duties are set forth in the following table:
(Continued and TO BE SIGNED on other side)