UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549-1004


FORM
10-Q





Quarterly
Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934


FOR
QUARTERLY PERIOD ENDED JANUARY 22, 2011


COMMISSION
FILE NUMBER 1-9656


LA-Z-BOY
INCORPORATED





(Exact
name of registrant as specified in its charter)





MICHIGAN
                  
                  38-0751137(State
      or other jurisdiction of incorporation or organization)
                  
                  (I.R.S.
      Employer Identification No.)1284
      North Telegraph Road, Monroe, Michigan
                  
                  48162-3390(Address
      of principal executive offices)
                  
                  (Zip
      Code)




Registrant's
telephone number, including area code (734) 242-1444




None


(Former
name, former address and former fiscal year, if changed since last
report.)




Indicate
by check mark whether the Registrant (1) has filed all reports required to be
filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Registrant was required
to file such reports) and (2) has been subject to such filing requirements for
the past 90 days.




Yes  þ                    
                      
       No   ̈




Indicate
by check mark whether the Registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of
this chapter) during the preceding 12 months (or for such shorter period that
the Registrant was required to submit and post such files).




Yes   ̈                    
                      
       No   ̈




Indicate
by check mark whether the Registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company. 
See the definitions of “large accelerated filer,” “accelerated filer,” and
“smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check
one):




Large
accelerated filer   ̈       
 Accelerated filer  þ           
Non-accelerated filer    ̈            Smaller
Reporting Company   ̈




Indicate
by check mark whether the Registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).




Yes   ̈                    
                      
       No  þ




The
number of shares outstanding of each of the issuer’s classes of common stock, as
of the latest practicable date:




Class
                
                Outstanding at February 8,
    2011Common
      Shares, $1.00 par value
                
                51,864,806







LA-Z-BOY
INCORPORATED


FORM 10-Q
THIRD QUARTER OF FISCAL 2011




TABLE OF
CONTENTS


Page
                            Number(s)PART I  Financial Information
      (Unaudited)Item 1.
                          Consolidated Financial StatementsConsolidated Statement of Income
                          
                          3Consolidated Balance Sheet
                          
                          5Consolidated Statement of Cash Flows
                          
                          6Consolidated Statement of Changes in
    Equity
                          
                          7Notes to Consolidated Financial
StatementsNote 1. Basis of Presentation
                          
                          8Note 2. Allowance for Credit Losses
                          
                          10Note 3. Inventories
                          
                          10Note 4. Pension Plans
                          
                          11Note 5. Financial Guarantees and Product
      Warranties
                          
                          11Note 6. Stock-Based Compensation
                          
                          12Note 7. Total Comprehensive Income
                          
                          12Note 8. Segment Information
                          
                          12Note 9. Restructuring
                          
                          13Note 10. Income Taxes
                          
                          14Note 11. Variable Interest Entities
                          
                          14Note 12. Earnings per Share
                          
                          15Note 13. Fair Value Measurements
                          
                          16Note 14. Hedging Activities
                          
                          17Note 15. Recent Accounting
    Pronouncements
                          
                          18Note 16. Subsequent Event
                          
                          18Item 2.
                          Management’s Discussion and Analysis of Financial Condition
      and Results of Operations
                          
                          19Cautionary Statement Concerning Forward-Looking
      Statements
                          
                          19Introduction
                          
                          19Results of Operations
                          
                          21Restructuring
                          
                          28Liquidity and Capital Resources
                          
                          29Critical Accounting Policies
                          
                          32Regulatory Developments
                          
                          32Recent Accounting Pronouncements
                          
                          32Business Outlook
                          
                          32Item 3.
                          Quantitative and Qualitative Disclosures About Market
      Risk
                          
                          32Item 4.
                          Controls and Procedures
                          
                          33PART II  Other Information
                          
                          33Item 1A.
                          Risk Factors
                          
                          33Item 6.
                          Exhibits
                          
                          34Signature Page
                          
                          34


2


PART I


FINANCIAL
INFORMATION


Item 1. Consolidated Financial Statements




LA-Z-BOY
INCORPORATED


CONSOLIDATED STATEMENT OF INCOME




ThirdQuarterEnded(Unaudited, amounts in thousands, except per share
      data)
                
                01/22/11
                
                
                01/23/10Sales
                
                $
                291,943
                
                
                $
                305,094Cost
      of salesCost
      of goods sold
                
                
                203,662
                
                
                
                206,930Restructuring
                
                
                (65
                )
                
                
                392Total
      cost of sales
                
                
                203,597
                
                
                
                207,322Gross
      profit
                
                
                88,346
                
                
                
                97,772Selling,
      general and administrative
                
                
                78,057
                
                
                
                83,811Restructuring
                
                
                297
                
                
                
                201Operating
      income
                
                
                9,992
                
                
                
                13,760Interest
      expense
                
                
                561
                
                
                
                577Interest
      income
                
                
                250
                
                
                
                140Income
      from Continued Dumping and Subsidy Offset Act, net
                
                
                903
                
                
                
                4,436Other
      income (expense), net
                
                
                251
                
                
                
                (593
                )Earnings
      before income taxes
                
                
                10,835
                
                
                
                17,166Income
      tax expense
                
                
                2,451
                
                
                
                6,502Net
      income
                
                
                8,384
                
                
                
                10,664Net
      loss attributable to noncontrolling interests
                
                
                1,626
                
                
                
                489Net
      income attributable to La-Z-Boy Incorporated
                
                $
                10,010
                
                
                $
                11,153Basic
      average shares
                
                
                51,865
                
                
                
                51,546Basic
      net income attributable to La-Z-Boy Incorporated per share
                
                $
                0.19
                
                
                $
                0.21Diluted
      average shares
                
                
                52,270
                
                
                
                51,845Diluted
      net income attributable to La-Z-Boy Incorporated per share
                
                $
                0.19
                
                
                $
                0.21




The
accompanying Notes to Consolidated Financial Statements are an integral part of
these statements.


3




LA-Z-BOY
INCORPORATED


CONSOLIDATED
STATEMENT OF INCOME




Nine Months Ended(Unaudited, amounts in thousands, except per share
      data)
                
                01/22/11
                
                
                01/23/10Sales
                
                $
                848,239
                
                
                $
                868,472Cost
      of salesCost
      of goods sold
                
                
                602,101
                
                
                
                594,645Restructuring
                
                
                (148
                )
                
                
                1,791Total
      cost of sales
                
                
                601,953
                
                
                
                596,436Gross
      profit
                
                
                246,286
                
                
                
                272,036Selling,
      general and administrative
                
                
                232,033
                
                
                
                246,346Restructuring
                
                
                572
                
                
                
                1,022Operating
      income
                
                
                13,681
                
                
                
                24,668Interest
      expense
                
                
                1,743
                
                
                
                2,387Interest
      income
                
                
                716
                
                
                
                615Income
      from Continued Dumping and Subsidy Offset Act, net
                
                
                903
                
                
                
                4,436Other
      income (expense), net
                
                
                182
                
                
                
                242Earnings
      before income taxes
                
                
                13,739
                
                
                
                27,574Income
      tax expense
                
                
                3,126
                
                
                
                10,027Net
      income
                
                
                10,613
                
                
                
                17,547Net
      loss attributable to noncontrolling interests
                
                
                3,126
                
                
                
                1,149Net
      income attributable to La-Z-Boy Incorporated
                
                $
                13,739
                
                
                $
                18,696Basic
      average shares
                
                
                51,835
                
                
                
                51,517Basic
      net income attributable to La-Z-Boy Incorporated per share
                
                $
                0.26
                
                
                $
                0.36Diluted
      average shares
                
                
                52,242
                
                
                
                51,595Diluted
      net income attributable to La-Z-Boy Incorporated per share
                
                $
                0.26
                
                
                $
                0.36




The
accompanying Notes to Consolidated Financial Statements are an integral part of
these statements.


4





LA-Z-BOY
INCORPORATED


CONSOLIDATED BALANCE SHEET





(Unaudited, amounts in
      thousands)
                
                01/22/11
                
                
                04/24/10Current
      assetsCash
      and equivalents
                
                $
                109,632
                
                
                $
                108,427Receivables,
      net of allowance of $23,318 at 01/22/11 and $20,258 at
      04/24/10
                
                
                154,277
                
                
                
                165,001Inventories,
      net
                
                
                142,051
                
                
                
                132,480Deferred
      income taxes – current
                
                
                2,314
                
                
                
                2,305Other
      current assets
                
                
                19,443
                
                
                
                18,862Total
      current assets
                
                
                427,717
                
                
                
                427,075Property,
      plant and equipment, net
                
                
                128,310
                
                
                
                138,857Trade
      names
                
                
                3,100
                
                
                
                3,100Deferred
      income taxes – long-term
                
                
                458
                
                
                
                458Other
      long-term assets
                
                
                36,357
                
                
                
                38,293Total
      assets
                
                $
                595,942
                
                
                $
                607,783Current
      liabilitiesCurrent
      portion of long-term debt
                
                $
                5,099
                
                
                $
                1,066Accounts
      payable
                
                
                50,734
                
                
                
                54,718Accrued
      expenses and other current liabilities
                
                
                77,061
                
                
                
                91,523Total
      current liabilities
                
                
                132,894
                
                
                
                147,307Long-term
      debt
                
                
                40,030
                
                
                
                46,917Other
      long-term liabilities
                
                
                66,557
                
                
                
                70,445Contingencies
      and commitments
                
                
                —
                
                
                
                —EquityLa-Z-Boy
      Incorporated shareholders’ equity:Common
      shares, $1 par value
                
                
                51,865
                
                
                
                51,770Capital
      in excess of par value
                
                
                201,544
                
                
                
                201,873Retained
      earnings
                
                
                124,138
                
                
                
                106,466Accumulated
      other comprehensive loss
                
                
                (18,753
                )
                
                
                (20,284
                )Total
      La-Z-Boy Incorporated shareholders' equity
                
                
                358,794
                
                
                
                339,825Noncontrolling
      interests
                
                
                (2,333
                )
                
                
                3,289Total
      equity
                
                
                356,461
                
                
                
                343,114Total
      liabilities and equity
                
                $
                595,942
                
                
                $
                607,783




The
accompanying Notes to Consolidated Financial Statements are an integral part of
these statements.


5




LA-Z-BOY
INCORPORATED


CONSOLIDATED STATEMENT OF CASH FLOWS





Nine Months Ended(Unaudited, amounts in
      thousands)
                
                01/22/11
                
                
                01/23/10Cash
      flows from operating activitiesNet
      income
                
                $
                10,613
                
                
                $
                17,547Adjustments
      to reconcile net income to cash provided by operating
      activities(Gain)
      loss on sale of assets
                
                
                112
                
                
                
                (50
                )Restructuring
                
                
                424
                
                
                
                2,813Provision
      for doubtful accounts
                
                
                3,739
                
                
                
                5,593Depreciation
      and amortization
                
                
                17,745
                
                
                
                19,186Stock-based
      compensation expense
                
                
                3,043
                
                
                
                4,082Pension
      plan contributions
                
                
                (2,500
                )
                
                
                —Change
      in receivables
                
                
                10,995
                
                
                
                (14,101
                )Change
      in inventories
                
                
                (14,138
                )
                
                
                (4,192
                )Change
      in other assets
                
                
                (3,120
                )
                
                
                6,224Change
      in payables
                
                
                (3,232
                )
                
                
                6,676Change
      in other liabilities
                
                
                (12,976
                )
                
                
                15,222Change
      in deferred taxes
                
                
                11
                
                
                
                (301
                )Total
      adjustments
                
                
                103
                
                
                
                41,152Net
      cash provided by operating activities
                
                
                10,716
                
                
                
                58,699Cash
      flows from investing activitiesProceeds
      from disposals of assets
                
                
                423
                
                
                
                1,925Capital
      expenditures
                
                
                (8,169
                )
                
                
                (5,708
                )Purchases
      of investments
                
                
                (8,290
                )
                
                
                (3,934
                )Proceeds
      from sales of investments
                
                
                8,013
                
                
                
                5,793Change
      in restricted cash
                
                
                —
                
                
                
                17,507Other
                
                
                (51
                )
                
                
                129Net
      cash provided by (used for) investing activities
                
                
                (8,074
                )
                
                
                15,712Cash
      flows from financing activitiesProceeds
      from debt
                
                
                30,488
                
                
                
                31,391Payments
      on debt
                
                
                (31,450
                )
                
                
                (43,736
                )Stock
      issued from stock plans
                
                
                58
                
                
                
                —Net
      cash used for financing activities
                
                
                (904
                )
                
                
                (12,345
                )Effect
      of exchange rate changes on cash and equivalents
                
                
                99
                
                
                
                81Change
      in cash and equivalents
                
                
                1,837
                
                
                
                62,147Cash
      reduction upon deconsolidation of VIE
                
                
                (632
                )
                
                
                —Cash
      and equivalents at beginning of period
                
                
                108,427
                
                
                
                17,370Cash
      and equivalents at end of period
                
                $
                109,632
                
                
                $
                79,517




The
accompanying Notes to Consolidated Financial Statements are an integral part of
these statements.


6





LA-Z-BOY
INCORPORATED


CONSOLIDATED STATEMENT OF CHANGES IN EQUITY





(Unaudited, amounts in thousands)
                      
                      Common
                        Shares
                      
                      
                      Capital in
                        Excess of Par
                        Value
                      
                      
                      Retained
                        Earnings
                      
                      
                      Accumulated
                        Other
                        Compre-
                        hensive Loss
                      
                      
                      Non-
                        Controlling
                        Interests
                      
                      
                      TotalAt
      April 25, 2009 (previously reported)
                      
                      $
                      51,478
                      
                      
                      $
                      205,945
                      
                      
                      $
                      67,431
                      
                      
                      $
                      (22,559
                      )
                      
                      $
                      4,137
                      
                      
                      $
                      306,432Cumulative
      effect of accounting corrections
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      (2,404
                      )
                      
                      
                      (609
                      )
                      
                      
                      
                      
                      
                      
                      (3,013
                      )Comprehensive
      incomeNet
      income (loss)
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      32,701
                      
                      
                      
                      
                      
                      
                      
                      (1,341
                      )Unrealized
      gain on marketable securities arising during the period
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      2,685Reclassification
      adjustment for gain on marketable securities included in net
      income
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      (97
                      )Translation
      adjustment
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      (190
                      )
                      
                      
                      403Change
      in fair value of cash flow hedge
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      146Net
      pension amortization and net actuarial loss
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      340Total
      comprehensive income
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      34,647Stock
      issued for stock and employee benefit plans, net of
      cancellations
                      
                      
                      292
                      
                      
                      
                      (9,294
                      )
                      
                      
                      8,738
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      (264
                      )Stock
      option, restricted stock and performance based stock
    expense
                      
                      
                      
                      
                      
                      
                      5,222
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      5,222Change
      in noncontrolling interest
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      90
                      
                      
                      
                      90At
      April 24, 2010
                      
                      
                      51,770
                      
                      
                      
                      201,873
                      
                      
                      
                      106,466
                      
                      
                      
                      (20,284
                      )
                      
                      
                      3,289
                      
                      
                      
                      343,114Comprehensive
      incomeNet
      income (loss)
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      13,739
                      
                      
                      
                      
                      
                      
                      
                      (3,126
                      )Unrealized
      loss on marketable securities arising during the period
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      499Reclassification
      adjustment for gain on marketable securities included in net
      income
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      (471
                      )Translation
      adjustment
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      (186
                      )
                      
                      
                      221Net
      pension amortization
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      1,305Change
      in fair value of cash flow hedge
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      384Total
      comprehensive income
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      12,365Stock
      issued for stock and employee benefit plans, net of
      cancellations
                      
                      
                      95
                      
                      
                      
                      (3,372
                      )
                      
                      
                      3,008
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      (269
                      )Stock
      option and restricted stock expense
                      
                      
                      
                      
                      
                      
                      3,043
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      3,043Cumulative
      effect of change in accounting for equity and noncontrolling
      interest
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      925
                      
                      
                      
                      
                      
                      
                      
                      (2,717
                      )
                      
                      
                      (1,792
                      )At
      January 22, 2011
                      
                      $
                      51,865
                      
                      
                      $
                      201,544
                      
                      
                      $
                      124,138
                      
                      
                      $
                      (18,753
                      )
                      
                      $
                      (2,333
                      )
                      
                      $
                      356,461




The
accompanying Notes to Consolidated Financial Statements are an integral part of
these statements.


7




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)




Note 1: Basis of Presentation




The
accompanying financial statements include the consolidated accounts of La-Z-Boy
Incorporated, our wholly-owned subsidiaries, and the Variable Interest Entities
(“VIEs”) in which we are the primary beneficiary.  The April 24, 2010
balance sheet was derived from audited financial statements.  The
interim financial information is prepared in conformity with generally accepted
accounting principles, and such principles are applied on a basis consistent
with those reflected in our fiscal 2010 Annual Report on Form 10-K, filed with
the Securities and Exchange Commission, but does not include all the disclosures
required by generally accepted accounting principles. In the opinion of
management, the interim financial information includes all adjustments and
accruals, consisting only of normal recurring adjustments (except as otherwise
disclosed), which are necessary for a fair presentation of results for the
respective interim period.The
interim results reflected in the accompanying financial statements are not
necessarily indicative of the results of operations which will occur for the
full fiscal year ending April 30, 2011. Fiscal 2011 is a 53 week year as
compared to fiscal 2010 which was 52 weeks.  The additional week
occurs in the fourth quarter of fiscal 2011.




In June
2009, the Financial Accounting Standards Board amended its guidance on
accounting for VIEs. The new accounting guidance resulted in a change in our
accounting policy effective April 25, 2010. Among other things, the new guidance
requires more qualitative than quantitative analyses to determine the primary
beneficiary of a VIE and requires continuous assessments of whether an
enterprise is the primary beneficiary of a VIE. Under the new guidance, a VIE
must be consolidated if the enterprise has both (a) the power to direct the
activities of the VIE that most significantly impact the entity's economic
performance, and (b) the obligation to absorb losses or the right to
receive benefits from the VIE that could potentially be significant to the VIE.
We adopted this new accounting guidance and it was effective for us on April 25,
2010, the first day of our current fiscal year.  This guidance is
being applied prospectively.




We
consolidate entities that are VIEs when we are deemed to be the primary
beneficiary of the VIE.  We will continuously evaluate our VIEs’
primary beneficiaries as facts and circumstances change to determine if such
changes warrant a change in our status as primary beneficiary.




On April
25, 2010, we deconsolidated our Toronto, Ontario, VIE as a result of the above
mentioned change in accounting policy. This entity is an independent La-Z-Boy
Furniture Galleries® dealer operating eight stores and had previously been
consolidated due to certain lease guarantees and other financial support we have
provided. Although these financial arrangements result in our holding a majority
of the variable interests in this VIE, they do not empower us to direct the
activities of the VIE that most significantly impact the VIE’s economic
performance. Consequently, subsequent to this change in accounting policy, we
deconsolidated this VIE.




The
impact of the deconsolidation on our Consolidated Statements of Income was
minimal.  Sales and operating income, net of eliminations, for our Toronto,
Ontario, VIE for the third quarter and first nine months of fiscal 2010 were
$6.6 million (sales) and $1.1 million (operating income) and $14.9 million
(sales) and $2.4 million (operating income), respectively.  The most
significant impacts on our Consolidated Balance Sheet were a decrease to current
assets of $6.9 million, a decrease to long-term assets of $5.0 million, and a
decrease to noncontrolling interest by $2.8 million. We recognized a non-cash
gain of $0.9 million at April 25, 2010. This gain is categorized as a cumulative
effect to retained earnings during the first nine months of fiscal
2011.  There was no impact on earnings per share as a result of the
deconsolidation.


8




During
the second quarter of fiscal 2011, we corrected our historical financial
statements for errors primarily related to inventory, inter-company accounts
payable and lease expense related to our VIEs.  These corrections did
not impact our net income attributable to La-Z-Boy Incorporated on a per share
basis for the third quarter or first nine months of fiscal 2011 or fiscal
2010.  Certain of these corrections related to periods prior to fiscal
2010 and as such have been reflected in the accompanying financial statements as
an adjustment to our opening retained earnings account.




As a
result of above mentioned corrections, during the second quarter of fiscal 2011,
we also revised our historical financial statements to correct a previously
disclosed out-of-period reduction to cost of goods sold, with a corresponding
adjustment to accumulated other comprehensive income.  This revision
resulted in an after-tax $0.6 million decrease in our net income attributable to
La-Z-Boy Incorporated for the first nine months of fiscal 2010 but did not
impact our fiscal 2010 third quarter net income attributable to La-Z-Boy
Incorporated.




Additionally,
we corrected our fiscal 2010 tax provision which, resulted in a $0.2 million and
$0.4 million increase for the fiscal 2010 third quarter and first nine months,
respectively, to our net income attributable to La-Z-Boy
Incorporated.




We
determined that the cumulative impact of recording the corrections mentioned
above in fiscal 2011 would be material to our projected fiscal 2011 full year
results.  However, we determined that the corrections were not
material, either individually or in the aggregate, to any of our prior fiscal
years or interim periods.  Consequently, we revised and will revise
our historical financial statements for the related prior periods when they are
presented in future filings.  Because our analysis concluded that
these corrections were immaterial to any prior period, we have not amended any
of our previous filings with the Securities and Exchange
Commission.




The
following tables set forth the significant impacts of the corrections to our
Consolidated Statements of Income for the quarter and nine months ended January
23, 2010, and our Consolidated Balance Sheet as of April 24, 2010:




Quarter Ended 01/23/10(Unaudited, amounts in thousands, except per share data)
                
                01/23/10
                  (as previously
                  reported)
                
                
                Adjustments
                
                
                01/23/10
                  (as adjusted)Net
      income attributable to La-Z-Boy Incorporated
                
                $
                10,976
                
                
                $
                177
                
                
                $
                11,153Diluted
      net income attributable to La-Z-Boy Incorporated per share
                
                $
                0.21
                
                
                $
                —
                
                
                $
                0.21





Nine Months Ended 01/23/10(Unaudited, amounts in thousands, except per share data)
                
                01/23/10
                  (as previously
                  reported)
                
                
                Adjustments
                
                
                01/23/10
                  (as adjusted)Net
      income attributable to La-Z-Boy Incorporated
                
                $
                18,866
                
                
                $
                (170
                )
                
                $
                18,696Diluted
      net income attributable to La-Z-Boy Incorporated per share
                
                $
                0.36
                
                
                $
                —
                
                
                $
                0.36


9





As of 04/24/10(Unaudited, amounts in thousands)
                
                04/24/10
                  (as previously
                  reported)
                
                
                Adjustments
                
                
                04/24/10
                  (as adjusted)Inventories,
      net
                
                $
                134,187
                
                
                $
                (1,707
                )
                
                $
                132,480Other
      current assets
                
                $
                18,159
                
                
                $
                703
                
                
                $
                18,862Other
      long-term liabilities
                
                $
                68,381
                
                
                $
                2,064
                
                
                $
                70,445Retained
      earnings
                
                $
                108,707
                
                
                $
                (2,241
                )
                
                $
                106,466Accumulated
      other comprehensive income
                
                $
                (20,251
                )
                
                $
                (33
                )
                
                $
                (20,284
                )Noncontrolling
      interests
                
                $
                4,141
                
                
                $
                (852
                )
                
                $
                3,289




Note 2: Allowance for Credit Losses




Effective
for our fiscal third quarter, we have adopted the Financial Accounting Standards
Board new disclosure requirements about the credit quality of financing
receivables and the allowance for credit losses.  We have notes
receivable balances due to us from various customers.   These
notes receivable generally relate to past due accounts receivable which were
transferred to a note receivable in order to secure further collateral from the
customer.  The collateral from our customers is generally in the form
of inventory or real estate.  Additionally, we have personal
guarantees from the customer on these notes receivable.  In cases where we
do not have sufficient collateral to support the carrying value of the note
receivable, our policy is to recognize an allowance for credit losses for this
difference.  As of the end of our third quarter of fiscal 2011, we had
notes receivable of $10.5 million from 17 customers, with a corresponding
allowance for credit losses on these notes receivable of $1.1 million, which is
consistent with historical periods.  Our policy is not to accrue
interest income on these notes receivable, but rather we record interest income,
if any, when received.  Of the $10.5 million in notes
receivable, $1.2 million is scheduled to be repaid within the next twelve
months and therefore included as a component of current assets.




Note 3: Inventories




A summary
of inventories is as follows:





04/24/10(Unaudited, amounts in thousands)
                  
                  01/22/11
                  
                  
                  (as adjusted)Raw
      materials
                  
                  $
                  66,661
                  
                  
                  $
                  60,913Work
      in process
                  
                  
                  12,026
                  
                  
                  
                  11,018Finished
      goods
                  
                  
                  88,071
                  
                  
                  
                  85,256FIFO
      inventories
                  
                  
                  166,758
                  
                  
                  
                  157,187Excess
      of FIFO over LIFO
                  
                  
                  (24,707
                  )
                  
                  
                  (24,707
                  )Inventories,
      net
                  
                  $
                  142,051
                  
                  
                  $
                  132,480





The April
24, 2010, inventory balances are as adjusted for the matters discussed in Note
1.


10





Note 4: Pension Plans





Net
periodic pension costs were as follows:


Third Quarter Ended
                  
                  
                  Nine Months Ended(Unaudited, amounts in thousands)
                  
                  01/22/11
                  
                  
                  01/23/10
                  
                  
                  01/22/11
                  
                  
                  01/23/10Service
      cost
                  
                  $
                  291
                  
                  
                  $
                  261
                  
                  
                  $
                  873
                  
                  
                  $
                  783Interest
      cost
                  
                  
                  1,356
                  
                  
                  
                  1,400
                  
                  
                  
                  4,068
                  
                  
                  
                  4,200Expected
      return on plan assets
                  
                  
                  (1,478
                  )
                  
                  
                  (1,206
                  )
                  
                  
                  (4,434
                  )
                  
                  
                  (3,618
                  )Net
      amortization
                  
                  
                  435
                  
                  
                  
                  527
                  
                  
                  
                  1,305
                  
                  
                  
                  1,581Net
      periodic pension cost
                  
                  $
                  604
                  
                  
                  $
                  982
                  
                  
                  $
                  1,812
                  
                  
                  $
                  2,946




During
the third quarter of fiscal 2011, we made a $2.5 million discretionary
contribution to our defined benefit pension plan.




Note 5: Financial Guarantees and Product Warranties




We have
provided financial guarantees relating to notes and leases in connection with
certain La-Z-Boy Furniture Galleries® stores which are not operated by the
company.  The guarantees are generally for real estate leases and have
remaining terms of one to two years. These guarantees enhance the credit of
these dealers.




We would
be required to perform under these agreements only if the dealer were to default
on the guaranteed lease or note. The maximum amount of potential future payments
under these guarantees was $1.6 million and $2.1 million as of January 22, 2011,
and April 24, 2010, respectively.




We have,
from time to time, entered into agreements which resulted in indemnifying third
parties against certain liabilities, mainly environmental obligations. We
believe that judgments, if any, against us related to such agreements would not
have a material effect on our business or financial condition.




Our
accounting policy for product warranties is to accrue an estimated liability at
the time the revenue is recognized. We estimate future warranty claims based on
claim experience and any additional anticipated future costs on previously sold
products.  Our liability estimates incorporate the cost of repairs
including materials consumed, labor and overhead amounts necessary to perform
the repair and any costs associated with delivery of the repaired product to the
customer.  Over 90% of our warranty liability relates to our
Upholstery Group where we generally warrant our products against defects from
one to five years for fabric and padding and up to a lifetime on certain
mechanisms and frames.  Considerable judgment is used in the
determination of our estimate.  If actual costs were to differ
significantly from our estimates, we would record the impact of these unforeseen
costs in subsequent periods.





A
reconciliation of the changes in our product warranty liability is as
follows:





Third Quarter Ended
                
                
                Nine Months Ended(Unaudited, amounts in
      thousands)
                
                01/22/11
                
                
                01/23/10
                
                
                01/22/11
                
                
                01/23/10Balance
      as of the beginning of the period
                
                $
                14,859
                
                
                $
                14,293
                
                
                $
                14,773
                
                
                $
                14,394Accruals
      during the period
                
                
                3,436
                
                
                
                3,658
                
                
                
                10,146
                
                
                
                10,378Accrual
      adjustments
                
                
                (1,115
                )
                
                
                —
                
                
                
                (1,115
                )
                
                
                —Settlements
      during the period
                
                
                (3,372
                )
                
                
                (3,479
                )
                
                
                (9,996
                )
                
                
                (10,300
                )Balance
      as of the end of the period
                
                $
                13,808
                
                
                $
                14,472
                
                
                $
                13,808
                
                
                $
                14,472


11




During
the third quarter of fiscal 2011, we reduced our accruals for warranty by $1.1
million.  This reduction was the result of the redesign of a mechanism
that had historically experienced high claims activity.




Note 6:  Stock-Based Compensation




Total
compensation expense recognized in the Consolidated Statement of Income for all
equity based compensation was $0.6 million and $3.0 million, for the third
quarter and first nine months of fiscal 2011, respectively.  For the
third quarter and first nine months of fiscal 2010, we recorded compensation
expense for all equity based compensation of $1.5 million and $4.1 million,
respectively.




Note 7:  Total Comprehensive Income




The
components of total comprehensive income are as follows:




Third Quarter Ended
                
                
                Nine Months Ended(Unaudited, amounts in thousands)
                
                01/22/11
                
                
                01/23/10
                
                
                01/22/11
                
                
                01/23/10Net
      income
                
                $
                8,384
                
                
                $
                10,664
                
                
                $
                10,613
                
                
                $
                17,547Other
      comprehensive income (loss):Currency
      translation adjustment
                
                
                (484
                )
                
                
                50
                
                
                
                35
                
                
                
                (48
                )Change
      in fair value of cash flow hedge
                
                
                148
                
                
                
                11
                
                
                
                384
                
                
                
                13Net
      unrealized gains (losses) on marketable securities arising during the
      period
                
                
                293
                
                
                
                598
                
                
                
                28
                
                
                
                2,136Net
      pension amortization
                
                
                435
                
                
                
                527
                
                
                
                1,305
                
                
                
                1,582Total
      other comprehensive income
                
                
                392
                
                
                
                1,186
                
                
                
                1,752
                
                
                
                3,683Total
      comprehensive income before allocation to noncontrolling
      interest
                
                
                8,776
                
                
                
                11,850
                
                
                
                12,365
                
                
                
                21,230Comprehensive
      loss attributable to noncontrolling interest
                
                
                1,767
                
                
                
                449
                
                
                
                2,905
                
                
                
                956Comprehensive
      income attributable to La-Z-Boy Incorporated
                
                $
                10,543
                
                
                $
                12,299
                
                
                $
                15,270
                
                
                $
                22,186




Note 8: Segment Information




Our
reportable operating segments are the Upholstery Group, the Casegoods Group and
the Retail Group.




Upholstery Group.  The
operating units in the Upholstery Group are La-Z-Boy, England, and Bauhaus. This
group primarily manufactures and sells upholstered furniture to furniture
retailers. Upholstered furniture includes recliners and motion furniture, sofas,
loveseats, chairs, ottomans and sleeper sofas.




Casegoods Group. The
operating units in the Casegoods Group consist of two groups, one including
American Drew, Lea, and Hammary, the second being Kincaid. These groups
primarily sell U.S. manufactured or imported wood furniture to furniture
retailers.  Casegoods product includes bedroom, dining room, entertainment
centers, accent pieces and some coordinated upholstered
furniture.




Retail Group. The Retail
Group consists of 68 company-owned La-Z-Boy Furniture Galleries® stores in eight
primary markets.  The Retail Group primarily sells upholstered furniture,
as well as some casegoods and other accessories, to end consumers through the
retail network.


12




Third Quarter Ended
                
                
                Nine Months Ended(Unaudited, amounts in thousands)
                
                01/22/11
                
                
                01/23/10
                
                
                01/22/11
                
                
                01/23/10SalesUpholstery
      Group
                
                $
                225,213
                
                
                $
                234,262
                
                
                $
                652,025
                
                
                $
                663,734Casegoods
      Group
                
                
                35,426
                
                
                
                36,029
                
                
                
                111,785
                
                
                
                109,196Retail
      Group
                
                
                44,146
                
                
                
                40,411
                
                
                
                118,699
                
                
                
                114,387VIEs
                
                
                10,173
                
                
                
                15,629
                
                
                
                25,459
                
                
                
                39,616Corporate
      and Other
                
                
                612
                
                
                
                603
                
                
                
                1,438
                
                
                
                4,143Eliminations
                
                
                (23,627
                )
                
                
                (21,840
                )
                
                
                (61,167
                )
                
                
                (62,604
                )Consolidated
      Sales
                
                $
                291,943
                
                
                $
                305,094
                
                
                $
                848,239
                
                
                $
                868,472Operating
      Income (Loss)Upholstery
      Group
                
                $
                18,468
                
                
                $
                26,071
                
                
                $
                45,580
                
                
                $
                67,122Casegoods
      Group
                
                
                1,648
                
                
                
                292
                
                
                
                4,599
                
                
                
                (13
                )Retail
      Group
                
                
                (2,759
                )
                
                
                (4,135
                )
                
                
                (12,043
                )
                
                
                (15,104
                )VIEs
                
                
                (1,130
                )
                
                
                62
                
                
                
                (3,842
                )
                
                
                (1,063
                )Corporate
      and Other
                
                
                (6,003
                )
                
                
                (7,937
                )
                
                
                (20,189
                )
                
                
                (23,461
                )Restructuring
                
                
                (232
                )
                
                
                (593
                )
                
                
                (424
                )
                
                
                (2,813
                )Consolidated
      Operating Income
                
                $
                9,992
                
                
                $
                13,760
                
                
                $
                13,681
                
                
                $
                24,668




Note 9: Restructuring




During
the past several years, we have committed to various restructuring plans to
rationalize our manufacturing facilities, consolidate warehouse distribution
centers and close underperforming retail facilities. With these restructuring
plans, we have written-down various fixed assets, as well as recorded charges
for severance and benefits, contract terminations and other transition costs
related to relocating and closing facilities.





During
fiscal 2008, we committed to a restructuring plan to consolidate all of our
North American cutting and sewing operations in Mexico. During the third quarter
and first nine months of fiscal 2011, we had a net reduction of estimated
restructuring liabilities of $0.1 million and $0.2 million, respectively, under
this plan.  We expect to incur additional pre-tax restructuring
charges of $0.2 million during the remainder of fiscal 2011.  During
the third quarter and first nine months of fiscal 2010, we had a net reduction
in estimated restructuring liabilities of $0.2 million and $0.5 million,
respectively, under this plan.





During
fiscal 2007 and 2008, several of our warehouse distribution centers were
consolidated into larger facilities and several underperforming stores were
closed. In the third quarter and first nine months of fiscal 2011, we had
pre-tax restructuring charges of $0.3 million and $0.6 million, respectively,
related to contract terminations.  We expect to incur less than $0.1
million of additional charges in the remainder of fiscal 2011.  During
the third quarter and first nine months of fiscal 2010, we had pre-tax
restructuring charges of $0.2 million and $1.0 million, respectively, related to
contract terminations.





During
fiscal 2009, we committed to a restructuring plan to consolidate our casegoods
manufacturing plants and convert another facility into a distribution
center.  During the third quarter and first nine months of fiscal
2010, we had pre-tax restructuring charges of $0.6 million and $2.3 million,
respectively, covering severance and benefits and other restructuring
costs.


13





For the current fiscal year through
January 22, 2011, restructuring liabilities along with pre-tax charges to
expense, cash payments or asset write-downs were as follows:





Fiscal 2011(Unaudited, amounts in thousands)
                
                04/24/10
                  Balance
                
                
                Charges to
                  Expense *
                
                
                Cash
                  Payments
                  or Asset
                  Write-Downs
                
                
                01/22/11
                  BalanceSeverance
      and benefit-related costs
                
                $
                492
                
                
                $
                (148
                )
                
                $
                (249
                )
                
                $
                95Contract
      termination costs
                
                
                292
                
                
                
                572
                
                
                
                (710
                )
                
                
                154Total
      restructuring
                
                $
                784
                
                
                $
                424
                
                
                $
                (959
                )
                
                $
                249


* Charges
to expense include $0.1 million of non-cash charges for contract termination
costs.





Note 10: Income Taxes




Our
effective tax rates for the third quarter and first nine months of fiscal 2011
were 22.6% and 22.8%, respectively, compared to 37.8% and 36.4% for the third
quarter and first nine months of fiscal 2010, respectively.  The
effective tax rates for the third quarter and first nine months of fiscal 2011
were impacted by changes in the valuation allowance for deferred taxes due to
current year temporary timing differences that resulted in a rate reduction of
16.2 percentage points for both the third quarter and first nine months of
fiscal 2011.  Of particular significance is the valuation allowance
attributable to the tax benefits associated with our southern California VIE,
which resulted in a rate reduction of 21.2 percentage points for both the
third quarter and first nine months of fiscal 2011.  See Note 16 for
further information.




Realization
of our deferred tax assets is dependent on generating sufficient future taxable
income.  Valuation allowances of $45.1 million associated with certain
U.S. federal and state deferred tax assets could be reduced in fiscal 2012 based
on, among other factors, the level of estimated taxable income generated in
fiscal 2012 and beyond.




Note 11: Variable Interest Entities




We had
two consolidated VIEs during the third quarter and first nine months of fiscal
2011 representing 23 stores (one new store was opened by a VIE during the third
quarter of fiscal 2011) and three consolidated VIEs during the third quarter and
first nine months of fiscal 2010 representing 31 stores.  As of April
25, 2010, the first day of our current fiscal year, we deconsolidated our
Toronto, Ontario, VIE.  This resulted in a decrease of eight stores
for our VIEs when comparing the third quarter and first nine months of fiscal
2011 to the third quarter and first nine months of fiscal 2010.  We
deconsolidated our Toronto, Ontario, VIE based on a change to our accounting
policy as discussed in Note 1.





The table
below shows the amount of assets and liabilities from VIEs included in our
Consolidated Balance Sheet as of January 22, 2011, and April 24, 2010 (and also
reflects the adjustments described in Note 1):


14





As of(Unaudited, amounts in thousands)
                  
                  01/22/11
                  
                  
                  04/24/10
                    (as adjusted)Cash
      and equivalents
                  
                  $
                  1,140
                  
                  
                  $
                  2,075Receivables,
      net
                  
                  
                  226
                  
                  
                  
                  114Inventories,
      net
                  
                  
                  5,379
                  
                  
                  
                  11,884Other
      current assets
                  
                  
                  996
                  
                  
                  
                  1,745Property,
      plant and equipment, net
                  
                  
                  3,193
                  
                  
                  
                  8,940Other
      long-term assets, net
                  
                  
                  382
                  
                  
                  
                  148Total
      assets
                  
                  $
                  11,316
                  
                  
                  $
                  24,906Current
      portion of long-term debt
                  
                  $
                  —
                  
                  
                  $
                  128Accounts
      payable
                  
                  
                  333
                  
                  
                  
                  1,048Accrued
      expenses and other current liabilities
                  
                  
                  5,107
                  
                  
                  
                  7,776Long-term
      debt
                  
                  
                  —
                  
                  
                  
                  1,770Other
      long-term liabilities
                  
                  
                  2,729
                  
                  
                  
                  2,852Total
      liabilities
                  
                  $
                  8,169
                  
                  
                  $
                  13,574





The
overall decrease in total assets and total liabilities of our VIEs shown in the
table above was impacted by the deconsolidation of our Toronto, Ontario,
VIE.





In
addition to our consolidated VIEs, we had significant interests in three
independent La-Z-Boy Furniture Galleries® dealers for which we are not the
primary beneficiary.  Our total exposure to losses related to these
dealers is $3.4 million, which consists primarily of past due accounts
receivable as well as notes receivable, net of reserves and collateral on
inventory and real estate.  We have not provided additional financial
or other support to these dealers during fiscal 2011 and have no obligations or
commitments to provide further support.





Note 12: Earnings per Share




A
reconciliation of the numerators and denominators used in the computations of
basic and diluted earnings per share is as follows:




Third Quarter Ended
                
                
                Nine Months Ended(Unaudited, amounts in thousands)
                
                01/22/11
                
                
                01/23/10
                
                
                01/22/11
                
                
                01/23/10Numerator
      (basic and diluted):Net
      income attributable to La-Z-Boy Incorporated
                
                $
                10,010
                
                
                $
                11,153
                
                
                $
                13,739
                
                
                $
                18,696Income
      allocated to participating securities
                
                
                (200
                )
                
                
                (226
                )
                
                
                (269
                )
                
                
                (348
                )Net
      income available to common shareholders
                
                $
                9,810
                
                
                $
                10,927
                
                
                $
                13,470
                
                
                $
                18,348


15





Third Quarter Ended
                
                
                Nine Months Ended(Unaudited, amounts in thousands)
                
                01/22/11
                
                
                01/23/10
                
                
                01/22/11
                
                
                01/23/10Denominator:Basic
      common shares (based upon weighted average)
                
                
                51,865
                
                
                
                51,546
                
                
                
                51,835
                
                
                
                51,517Add:Stock
      option dilution
                
                
                405
                
                
                
                299
                
                
                
                407
                
                
                
                78Diluted
      common shares
                
                
                52,270
                
                
                
                51,845
                
                
                
                52,242
                
                
                
                51,595





Share-based
payment awards that entitle their holders to receive non-forfeitable dividends
prior to vesting are considered participating securities.  We granted
restricted stock awards that contain non-forfeitable rights to dividends on
unvested shares; such stock awards are considered participating
securities.  As participating securities, the unvested shares are
required to be included in the calculation of our basic earnings per common
share, using the “two-class method.”  The two-class method of
computing earnings per common share is an allocation method that calculates
earnings per share for each class of common stock and participating security
according to dividends declared and participation rights in undistributed
earnings.





The
effect of options to purchase 1.3 million and 1.8 million shares for the
quarters ended January 22, 2011, and January 23, 2010, with a weighted average
exercise price of $15.32 and $14.99, respectively, was excluded from the diluted
share calculation as the exercise prices of these options were higher than the
average share price for the quarters and including them would have been
anti-dilutive.





Note 13: Fair Value Measurements





Accounting
standards require the categorization of financial assets and liabilities, based
on the inputs to the valuation technique, into a three-level fair value
hierarchy. The various levels of the fair value hierarchy are described as
follows:





·
            Level 1 —
      Financial assets and liabilities whose values are based on unadjusted
      quoted market prices for identical assets and liabilities in an active
      market that we have the ability to
access.




·
              Level 2 —
      Financial assets and liabilities whose values are based on quoted prices
      in markets that are not active or model inputs that are observable for
      substantially the full term of the asset or
  liability.


·
            Level 3 —
      Financial assets and liabilities whose values 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 the use of observable market data, when available, in making
fair value measurements. When inputs used to measure fair value fall within
different levels of the hierarchy, the level within which the fair value
measurement is categorized is based on the lowest level input that is
significant to the fair value measurement.





In
addition to assets and liabilities that are recorded at fair value on a
recurring basis, we are required to record assets and liabilities at fair value
on a non-recurring basis.  Non-financial assets such as trade names
and long-lived assets are measured at fair value when there is an indicator of
impairment and recorded at fair value only when an impairment is
recognized.  We did not measure any material assets or liabilities at
fair value on a non-recurring basis during fiscal 2011 or fiscal
2010.





The
following table presents the fair value hierarchy for those assets measured at
fair value on a recurring basis as of January 22, 2011:


16





Fair Value Measurements(Unaudited, amounts in thousands)
                  
                  Level 1
                  
                  
                  Level 2
                  
                  
                  Level 3AssetsAvailable-for-sale
      securities
                  
                  $
                  8,287
                  
                  
                  $
                  2,542
                  
                  
                  $
                  —LiabilitiesInterest
      rate swap
                  
                  
                  —
                  
                  
                  
                  (193
                  )
                  
                  
                  —Total
                  
                  $
                  8,287
                  
                  
                  $
                  2,349
                  
                  
                  $
                  —





We hold
available-for-sale marketable securities to fund future obligations of one of
our non-qualified retirement plans.  The fair value measurements for
our available-for-sale securities are based upon 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 and
without any adjustments to reflect discounts that may be applied to selling a
large block of the securities at one time.





We
entered into a three year interest rate swap agreement in order to fix a portion
of our floating rate debt. The fair value of the swap
agreement was measured as the present value of all expected future cash flows
based on the LIBOR-based swap yield curve as of the date of the valuation and
considered counterparty non-performance risk. These assumptions can be derived
from observable data or are supported by observable levels at which transactions
are executed in the marketplace.





Note 14:  Hedging Activities





During
fiscal 2009, we entered into an interest rate swap agreement which we accounted
for as a cash flow hedge.  This swap hedges the interest on $20.0
million of floating rate debt.  Under the swap, we are required to pay
3.33% through May 16, 2011, and we receive three-month LIBOR from the
counterparty. This offsets the three-month LIBOR component of interest which we
are required to pay on $20.0 million of floating rate debt. The interest rate on
this debt as of January 22, 2011, was three-month LIBOR plus 1.75%.





We
executed this interest rate cash flow hedge in order to mitigate our exposure to
variability in cash flows for the future interest payments on a designated
portion of borrowings.  The gains and losses are reflected in
accumulated other comprehensive loss (with an offset to the hedged item in other
current liabilities) until the hedged transaction impacts our
earnings.  Our interest rate swap agreement was tested for
ineffectiveness during fiscal 2009 and was determined to be
effective.  Our agreement also qualified for the “short cut” method of
accounting. We believe that our agreement continues to be effective and
therefore no gains or losses have been recorded in our earnings.




For the
third quarter and first nine months of fiscal 2011, we deferred gains of $0.1
million and $0.4 million, respectively, into accumulated other comprehensive
loss, compared to gains of less than $0.1 million in the third quarter and first
nine months of fiscal 2010.  The fair value of our interest rate swap
at January 22, 2011, was $0.2 million, which was included in other current
liabilities. The fair value of our interest rate swap at April 24, 2010, was
$0.6 million, which was included in other long-term
liabilities.


17




Note 15:  Recent Accounting
Pronouncements




In
October 2009, the FASB issued amendments to the criteria for separating
consideration in multiple-deliverable arrangements.  These amendments
will establish a selling price hierarchy for determining the selling price of a
deliverable.  The amendments will require that a vendor determine its
best estimate of selling price in a manner that is consistent with that used to
determine the price to sell the deliverable on a standalone
basis.  These amendments will eliminate the residual method of
allocation and require that arrangement consideration be allocated at the
inception of the arrangement to all deliverables using the relative selling
price method.  These amendments will expand disclosures related to
vendor’s multiple-deliverable revenue arrangements.  These amendments
will be effective for our fiscal 2012 year end.  We are currently
evaluating the impact these amendments will have on our consolidated financial
statements and disclosures.




In
December 2010, the FASB issued an amendment to the disclosure requirements for
business combinations.  This amendment requires disclosures to include
pro forma information for business combinations that occurred in the current
reporting period.  The disclosures include pro forma revenue and
earnings of the combined entity for the current reporting period, and comparable
prior periods if presented, as though the acquisition date for all business
combinations that occurred during the year had been as of the beginning of the
annual reporting period.  This amendment will be effective for our
fiscal 2012 year end.  We are currently evaluating the impact this
amendment will have on our consolidated financial statements and
disclosures.




Note 16:  Subsequent Event




Effective
February 1, 2011, we executed an agreement to acquire one of our independent
dealers which was previously consolidated as a VIE.  The acquisition
of this VIE will be accounted for as an equity transaction, therefore no gain or
loss as a result of this ac quisition
will be recognized in our Consolidated Statement of
Income.  Noncontrolling interests in the accumulated deficit of this
VIE as of January 22, 2011, in the amount of approximately $6.1 million will be
reclassified to retained earnings during the fourth quarter of fiscal
2011.  The operating results of the 15 stores for this VIE will be
included in our Retail Group effective in our fourth fiscal
quarter.




In
addition, we will realize a tax benefit related to the amount of accounts
receivable written off  in excess of the fair value of the assets
received from this VIE.  This tax benefit will reduce our annual
effective tax rate and as such, a $2.9 million ($0.06 per share) benefit has
been reflected in the tax provision computed for our third quarter of fiscal
2011.




18




ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONAND
RESULTS OF OPERATIONS




We have
prepared this Management’s Discussion and Analysis to help you better understand
our financial results.
You should read it in conjunction with the accompanying Consolidated Financial
Statements and related Notes to Consolidated Financial Statements. After a
cautionary note about forward-looking statements, we begin with an introduction
to our key businesses and strategies. We then provide discussions of our results
of operations, liquidity and capital resources, and critical accounting
policies.




Cautionary Statement Concerning Forward-Looking
Statements




We are
making forward-looking statements in this report, and our representatives may
make oral forward-looking statements from time to time. Generally,
forward-looking statements include information concerning possible or assumed
future actions, events or results of operations. More specifically,
forward-looking statements may include information regarding:





future
      income, margins and cash flows
                
                future
      economic performancefuture
      growth
                
                industry
      and importing trendsadequacy
      and cost of financial resources
                
                management
      plans





Forward-looking
statements also include those preceded or followed by the words "anticipates,"
"believes," "estimates," "hopes," "plans," "intends" and "expects" or similar
expressions. With respect to all forward-looking statements, we claim the
protection of the safe harbor for forward-looking statements contained in the
Private Securities Litigation Reform Act of 1995.





Actual
results could differ materially from those we anticipate or project due to a
number of factors, including: (a) changes in consumer confidence and
demographics; (b) speed of recovery from the recent economic recession; (c)
changes in the real estate and credit markets and their effects on our customers
and suppliers; (d) international political unrest, terrorism or war; (e)
continued energy and other commodity price changes; (f) the impact of logistics
on imports; (g) interest rate and currency exchange rate changes; (h) operating
factors, such as supply, labor or distribution disruptions, product recalls or
costs; (i) restructuring actions; (j) changes in the domestic or international
regulatory environment; (k) adopting new accounting principles; (l) severe
weather or other natural events such as hurricanes, earthquakes and tornadoes;
(m) our ability to procure fabric rolls and leather hides or cut and sewn fabric
and leather sets domestically or abroad; (n) fluctuations in our stock price;
(o) information technology system failures; and (p) the matters discussed in
Item 1A of our fiscal 2010 Annual Report on Form 10-K and other factors
identified from time-to-time in our reports filed with the Securities and
Exchange Commission. We undertake no obligation to, and expressly disclaim any
such obligation to, update or revise any forward-looking statements, whether to
reflect new information or new developments or for any other
reason.





Introduction





Our
Business





La-Z-Boy
Incorporated manufactures, markets, imports, distributes and retails upholstery
products and casegoods (wood) furniture products. Our La-Z-Boy brand is the most
recognized brand in the furniture industry, and we are the leading global
producer of reclining chairs.


19





We sell
our products, primarily in the United States and Canada, to furniture retailers
and directly to consumers through company-owned stores.  The
centerpiece of our retail distribution strategy is our network of 305 La-Z-Boy
Furniture Galleries® stores, each dedicated to marketing our La-Z-Boy branded
products.   We own 68 of those stores. The rest are independently
owned and operated, including 23 stores owned by our consolidated
VIEs.  La-Z-Boy Furniture Galleries® stores help consumers furnish
their homes by combining the style, comfort and quality of La-Z-Boy furniture
with our in-home design service.  Taken together, the 305 stores in
our La-Z-Boy Furniture Galleries® network make up the largest single-branded
upholstered furniture retailer in North America.





We also
distribute our products through Comfort Studios®, defined spaces within larger
independent retailers that are dedicated to displaying La-Z-Boy branded
products.  On average, these independent retailers dedicate
approximately 5,000 square feet of floor space to the Comfort Studios® located
within their stores.  As of January 22, 2011, there were 536 Comfort
Studios®.  In addition to the Comfort Studios® dedicated to La-Z-Boy
branded products, our Kincaid, England and Lea operating units have their own
dedicated in-store gallery programs.





Our
reportable operating segments are the Upholstery Group, the Casegoods Group and
the Retail Group.





·
            Upholstery Group. 
      In terms of revenue, our largest segment is the Upholstery Group, which
      includes La-Z-Boy, our largest operating unit, as well as the Bauhaus and
      England operating units.  The Upholstery Group primarily
      manufactures and sells upholstered furniture such as recliners and motion
      furniture, sofas, loveseats, chairs, ottomans and sleeper sofas to
      furniture retailers and proprietary stores.  It sells mainly to
      La-Z-Boy Furniture Galleries® stores, operators of Comfort Studios®,
      general dealers and department
stores.





·
            Casegoods Group. 
      Our Casegoods Group is primarily an importer, marketer and distributor of
      casegoods (wood) furniture such as bedroom sets, dining room sets,
      entertainment centers, and accent pieces, as well as some coordinated
      upholstered furniture.  The operating units in the Casegoods Group
      consist of two subgroups: one consisting of American Drew, Lea, and
      Hammary, and the second being
Kincaid.





·
            Retail Group.  Our
      Retail Group consists of the 68 company-owned La-Z-Boy Furniture
      Galleries® stores located in eight markets ranging from the Midwest to the
      east coast of the United States and also including southeastern
      Florida.  The Retail Group primarily sells upholstered furniture, as
      well as some casegoods and other accessories, to end consumers through the
      retail network.





Financial
Highlights





High
unemployment, low consumer confidence and a declining housing market have all
resulted in negative pressure on the home furnishing industry and our
company.  In such difficult times we believe consumers will go back to
brands they recognize.  We believe the operating changes we have made
over the past few years has been successful as our Retail and Casegoods Groups
continued to make significant progress in both sales and operating
performance.  While our Upholstery Group’s operating results have been
positively impacted by the operational changes, the segment continues to be
negatively affected by higher raw material costs compared to fiscal 2010, though
we have experienced some improvement since the first half of fiscal
2011.


20





Variable
Interest Entities





We have
special operating agreements in place with two independent dealers that are VIEs
which cause us to be considered their primary beneficiary.  For the
third quarter and first nine months of fiscal 2011 we included these two VIEs,
operating 23 (one store was opened during the third quarter of fiscal 2011)
La-Z-Boy Furniture Galleries®stores, in our
Consolidated Statement of Income.  In the third quarter and first nine
months of fiscal 2010 we consolidated three VIEs, operating 31
stores.  After the end of the third quarter of fiscal 2011, we
executed an agreement with one of our VIEs to acquire the assets of its
operations.  As a result, the number of stores related to our
consolidated VIEs will decrease by 15 and the number of stores in our Retail
Group will increase by 15 in the fourth quarter of fiscal 2011.





Results of
Operations


Fiscal
2011 Third Quarter Compared to Fiscal 2010 Third Quarter





La-Z-Boy
Incorporated


(Unaudited, amounts in thousands, except  percentages)
                
                01/22/11
                
                
                01/23/10
                
                
                Percent
                  changeConsolidated
      sales
                
                $
                291,943
                
                
                $
                305,094
                
                
                
                (4.3
                )%Consolidated
      operating income
                
                
                9,992
                
                
                
                13,760
                
                
                
                (27.4
                )%Consolidated
      operating margin
                
                
                3.4
                %
                
                
                4.5
                %





Sales





Consolidated
sales decreased $13.2 million in the third quarter of fiscal 2011 compared to
the third quarter of fiscal 2010.  The deconsolidation of our Toronto,
Ontario, VIE resulted in a decrease of $6.6 million, net of eliminations, in our
consolidated sales when comparing the third quarter of fiscal 2011 to the third
quarter of fiscal 2010.  Additionally, our consolidated sales were
negatively impacted by weaker demand in our Upholstery and Casegoods segments
and a shift to more promotional products in our Upholstery Group, decreasing our
average selling price.





Operating
Margin





Our third
quarter fiscal 2011 operating margin decreased by 1.1 percentage points compared
to the third quarter of fiscal 2010.  Our Casegoods and Retail
segments’ operating margins increased significantly during the third quarter of
fiscal 2011, but this was offset by a decrease in our Upholstery segment’s and VIEs’
operating margins.





·
            Our
      gross margin decreased 1.7 percentage points in the third quarter of
      fiscal 2011 compared to the third quarter of fiscal
  2010.


o
            Increases
      in raw material costs resulted in a 1.3 percentage point decrease in our
      consolidated gross margin.


o
            Changes
      in our product mix resulted in a 0.9 percentage point decrease in gross
      margin as demand shifted to more promotional products and impacted our
      average selling price.


o
            Offsetting
      the raw material and changes in the product mix were benefits from ongoing
      cost reductions.


·
            Increases
      in advertising expense, as a result of the focus on our brand platform
      resulted in a 0.5 percentage point decrease in our operating
      margin.


21





·
            Decreases
      in occupancy related expenses as a percent of sales, mainly as a result of
      our Retail Group’s increased sales resulted in a 0.6 percentage point
      increase in our operating margin.


·
            Decreases
      in warranty expense as a result of our reduction in warranty accruals due
      to redesigning a mechanism that had historically experienced high claims
      activity resulted in a 0.3 percentage point increase in our operating
      margin.





Upholstery
Group


(Unaudited, amounts in thousands, except  percentages)
                
                01/22/11
                
                
                01/23/10
                
                
                Percent
                  changeSales
                
                $
                225,213
                
                
                $
                234,262
                
                
                
                (3.9
                )%Operating
      income
                
                
                18,468
                
                
                
                26,071
                
                
                
                (29.2
                )%Operating
      margin
                
                
                8.2
                %
                
                
                11.1
                %




Sales




Our
Upholstery Group’s sales decreased $9.0 million in the third quarter of fiscal
2011 compared to the third quarter of fiscal 2010.  Sales price
changes and product mix changes resulted in a 1.1 percentage point decrease in
sales.  We believe this was the result of a shift in the overall
market demand to more promotional products decreasing our average selling
price.




Operating
Margin





Our
Upholstery Group’s operating margin decreased 2.9 percentage points in the third
quarter of fiscal 2011 compared to the third quarter of fiscal
2010.





·
            The
      segment’s gross margin decreased 1.7 percentage points during the third
      quarter of fiscal 2011 compared to the third quarter of fiscal 2010 due to
      increased raw material costs and the decrease in sales volume which
      impacted our absorption of overhead
costs.


·
            Decreases
      in sales pricing and changes in the product mix of this segment resulted
      in a 1.1 percentage point decrease in the segment’s operating
      margin.


·
            Increased
      advertising expense as a result of the focus on our brand platform
      resulted in a 0.9 percentage point decrease in the segment’s operating
      margin.


·
            Increases
      in our warehousing expense resulted in a 0.4 percentage point decrease in
      the segment’s operating margin.  This increase was the result of
      the addition of our new regional distribution center opened at the end of
      fiscal 2010.


·
            An
      increase in bad debt resulted in a 0.4 percentage point decrease in the
      segment’s operating margin due to one significant bankruptcy during the
      quarter.


·
              Somewhat offsetting the negative impacts to this
      segment’s operating margin mentioned above were ongoing cost reductions
      and a decrease in warranty expense, which resulted in 1.3 and 0.5
      percentage point increases, respectively, in the segment’s operating
      margin.





Casegoods
Group


(Unaudited, amounts in thousands, except  percentages)
                
                01/22/11
                
                
                01/23/10
                
                
                Percent
                  changeSales
                
                $
                35,426
                
                
                $
                36,029
                
                
                
                (1.7
                )%Operating
      income (loss)
                
                
                1,648
                
                
                
                292
                
                
                
                464.4
                %Operating
      margin
                
                
                4.7
                %
                
                
                0.8
                %


22




Sales




Our
Casegoods Group’s sales decreased $0.6 million in the third quarter of fiscal
2011 compared to the third quarter of fiscal 2010.  The slight
decrease in sales level for our Casegoods Group was a result of a decrease in
overall order levels during the third quarter of fiscal 2011.




Operating
Margin




Our
Casegoods Group’s operating margin increased 3.9 percentage points in the third
quarter of fiscal 2011 compared to the third quarter of fiscal
2010.





·
            The
      segment’s gross margin increased 1.9 percentage points in the third
      quarter of fiscal 2011 compared to the third quarter of fiscal 2010 mainly
      due to our decision to vacate a leased warehouse and convert an owned
      facility to a warehouse, as well as efficiencies realized from the
      consolidation of our manufacturing plants completed at the end of fiscal
      2010.





·
            A
      decrease in employee expenses for this segment resulted in a 1.2
      percentage point increase in operating margin.  The combining of
      our Hammary operations with our American Drew/Lea operations resulted in a
      reduction in headcount and elimination of duplicate selling, general and
      administrative functions.





Retail
Group


(Unaudited, amounts in thousands, except  percentages)
                
                01/22/11
                
                
                01/23/10
                
                
                Percent
                  changeSales
                
                $
                44,146
                
                
                $
                40,411
                
                
                
                9.2
                %Operating
      loss
                
                
                (2,759
                )
                
                
                (4,135
                )
                
                
                33.3
                %Operating
      margin
                
                
                (6.2
                )%
                
                
                (10.2
                )%




Sales




Our
Retail Group’s sales increased $3.7 million in the third quarter of fiscal 2011
compared to the third quarter of fiscal 2010.  The increase in sales
was a result of an effective promotional plan, which led to improved conversion
on essentially flat customer traffic.




Operating
Margin




Our
Retail Group’s operating margin improved 4.0 percentage points in the third
quarter of fiscal 2011 compared to the third quarter of fiscal
2010.  While our Retail Group continued to improve its operating
margin, the segment continued to experience negative margins due to its high
lease expense to sales volume ratio.





·
            The
      segment’s gross margin during the third quarter of fiscal 2011 decreased
      0.4 percentage points compared to the third quarter of fiscal 2010 due to
      an increase in wholesale prices which more than offset a slight increase
      in selling price.


·
            The
      improved operating margin for this segment was primarily a result of the
      increased sales volume on essentially no change in operating
      expenses.


23





VIEs/Other





Our VIEs’
sales decreased $5.5 million in the third quarter of fiscal 2011 compared to the
third quarter of fiscal 2010.  This was mainly the result of
deconsolidating our Toronto, Ontario, VIE, which reduced the number of stores
for our VIEs to 23 for the third quarter of fiscal 2011 (one store was opened
during the third quarter of fiscal 2011), compared to 31 for the third quarter
of fiscal 2010. Our VIEs had an operating loss of $1.1 million in the third
quarter of fiscal 2011, compared to operating income of $0.1 million in the
third quarter of fiscal 2010.  The change in operating performance was
mainly due to our Toronto, Ontario, VIE, which was a profitable VIE, no longer
being consolidated in the third quarter of fiscal 2011.





Our
Corporate and Other operating loss decreased by $1.9 million in the third
quarter of fiscal 2011 compared to the third quarter of fiscal
2010.  The decrease in operating loss was primarily a result of a
decrease in employee incentive compensation expenses as a result of our lower
operating performance in the third quarter of fiscal 2011 compared to the third
quarter of fiscal 2010.





Interest
Expense





Interest
expense for the third quarter of fiscal 2011 was flat compared to the third
quarter of fiscal 2010.  Our average debt decreased by $0.8 million in
the third quarter of fiscal 2011 compared to the third quarter of fiscal
2010.  Our weighted average interest rate decreased 0.5 percentage
points in the third quarter of fiscal 2011 compared to the third quarter of
fiscal 2010.





Income
from Continued Dumping and Subsidy Offset Act





The
Continued Dumping and Subsidy Offset Act (“CDSOA”) provides for distribution of
monies collected by U.S. Customs and Border Protection from anti-dumping cases
to domestic producers that supported the anti-dumping petition.  We
received $0.9 million and $4.4 million in payments and funds related to the
anti-dumping order on wooden bedroom furniture from China during the third
quarters of fiscal 2011 and fiscal 2010, respectively, for duties collected on
imports entered into the United States before October 1, 2007.  The
decrease in CDSOA funds we received was a result of the smaller total amount
available for distribution, coupled with not receiving funds from a previously
sold company.  The percentage of total distributions allocated to our
divisions that supported the petition was similar to prior years.





Income
Taxes




Our
effective tax rate for the third quarter of fiscal 2011 was 22.6% compared to
37.8% for the third quarter of fiscal 2010.  The effective tax rate
for the third quarter of fiscal 2011 was impacted by changes in the valuation
allowance for deferred taxes due to temporary differences that resulted in a
rate reduction of 16.2 percentage points. Of particular significance is the
valuation allowance attributable to the tax benefits associated with our
southern California VIE, that resulted in a rate reduction of 21.2 percentage
points.  This tax benefit relates to the amount of accounts receivable
written off in excess of the fair value of the assets received from this
VIE.


24


Results of
Operations


Fiscal
2011 Nine Months Compared to Fiscal 2010 Nine Months





La-Z-Boy
Incorporated


(Unaudited, amounts in thousands, except  percentages)
                
                01/22/11
                
                
                01/23/10
                
                
                Percent
                  changeConsolidated
      sales
                
                $
                848,239
                
                
                $
                868,472
                
                
                
                (2.3
                )%Consolidated
      operating income
                
                
                13,681
                
                
                
                24,668
                
                
                
                (44.5
                )%Consolidated
      operating margin
                
                
                1.6
                %
                
                
                2.8
                %





Sales





Consolidated
sales decreased $20.2 million in the first nine months of fiscal 2011 compared
to the first nine months of fiscal 2010.  Our Casegoods and Retail
Groups experienced slight increases in sales volume, however this was offset by
the decrease in sales volume for our Upholstery Group.  Our Upholstery
segment sales were negatively impacted by a shift in the overall market demand
to more promotional goods decreasing our average selling
price.  Additionally, the deconsolidation of our Toronto, Ontario, VIE
resulted in a decrease of $14.9 million, net of eliminations, in our
consolidated sales.





Operating
Margin





Our
operating margin decreased by 1.2 percentage points in the first nine months of
fiscal 2011 compared to the first nine months of fiscal 2010. Our Casegoods and
Retail segments’ operating margins increased during the first nine months of
fiscal 2011, but this was offset by a decrease in our Upholstery segment’s and
VIEs’
operating margins.





·
            Our
      gross margin decreased by 2.3 percentage points during the first nine
      months of fiscal 2011 compared to the first nine months of fiscal
      2010.


o
            Increases
      in raw material costs resulted in a 1.8 percentage point decrease in our
      consolidated gross margin.


o
            Changes
      in our product mix resulted in a 0.8 percentage point decrease in gross
      margin.


o
            Cost
      reductions partially offset the raw material and product mix
      changes.


·
            Decreases
      in employee incentive compensation expenses as a result of our lower
      operating performance during the first nine months of fiscal 2011 compared
      to the first nine months of fiscal 2010 resulted in a 0.6 percentage point
      improvement in our operating
margin.


·
            Decreases
      in occupancy related expenses as percent of sales, mainly a result of our
      Retail Group’s increased sales, resulted in a 0.5 percentage point
      increase in our operating margin.





Upholstery
Group


(Unaudited, amounts in thousands, except  percentages)
                
                01/22/11
                
                
                01/23/10
                
                
                Percent
                  changeSales
                
                $
                652,025
                
                
                $
                663,734
                
                
                
                (1.8
                )%Operating
      income
                
                
                45,580
                
                
                
                67,122
                
                
                
                (32.1
                )%Operating
      margin
                
                
                7.0
                %
                
                
                10.1
                %


25




Sales




Our
Upholstery Group’s sales decreased $11.7 million in the first nine months of
fiscal 2011 compared to the first nine months of fiscal 2010.  Sales
price changes and product mix changes resulted in a 1.2 percentage point
decrease in sales.  We believe this was the result of a shift in the
overall market demand to more promotional products decreasing our average
selling price.




Operating
Margin





Our
Upholstery Group’s operating margin decreased 3.1 percentage points in the first
nine months of fiscal 2011 compared to the first nine months of fiscal
2010.





·
            The
      segment’s gross margin decreased by 2.7 percentage points during the first
      nine months of fiscal 2011 compared to the first nine months of fiscal
      2010 due to increased raw material costs, decreasing our margin by 2.4
      percentage points, and the decrease in sales volume which impacted our
      absorption of overhead costs.


·
            Decreases
      in selling prices and changes in the product mix of this segment resulted
      in a 1.2 percentage point decrease in the segment’s operating
      margin.


·
            Increases
      in our warehousing expense resulted in a 0.5 percentage point decrease in
      the segment’s operating margin.  This increase was the result of
      the addition of our new regional distribution center opened at the end of
      fiscal 2010.


·
            Increased
      advertising expense as a result of the focus on our brand platform
      resulted in a 0.3 percentage point decrease in the segment’s operating
      margin.


·
            Somewhat
      offsetting the negative impacts to this segment’s operating margin
      mentioned above were ongoing cost reductions, as well as a decrease in the
      segment’s bad debt expense which resulted in 1.3 and 0.5 percentage point
      increases in the segment’s operating
margin.





Casegoods
Group


(Unaudited,
      amounts in thousands, except  percentages)
                
                01/22/11
                
                
                01/23/10
                
                
                Percent
                  changeSales
                
                $
                111,785
                
                
                $
                109,196
                
                
                
                2.4
                %Operating
      income (loss)
                
                
                4,599
                
                
                
                (13
                )
                
                
                N/MOperating
      margin
                
                
                4.1
                %
                
                
                0.0
                %N/M
      – not meaningful




Sales




Our
Casegoods Group’s sales increased $2.6 million in the first nine months of
fiscal 2011 compared to the first nine months of fiscal 2010.  The
majority of the increase in sales volume was the result of broader placement of
our various product lines at independent dealers.  Additionally, we
offered higher than normal discounts on casegoods during the first nine months
of fiscal 2010 in order to sell slow moving and obsolete
inventory.  This was not continued in the first nine months of fiscal
2011.  The changes in discounting for our Casegoods Group resulted in
a 1.5 percentage point improvement in sales for the first nine months of fiscal
2011 compared to the first nine months of fiscal 2010.


26




Operating
Margin




Our
Casegoods Group’s operating margin increased 4.1 percentage points in the first
nine months of fiscal 2011 compared to the first nine months of fiscal
2010.





·
            The
      segment’s gross margin increased 2.6 percentage points in the first nine
      months of fiscal 2011 compared to the first nine months of fiscal 2010
      mainly due to our decision to vacate a leased warehouse and convert an
      owned facility to a warehouse, as well as efficiencies realized in its
      manufacturing facility due to the changes completed at the end of fiscal
      2010.





·
            A
      decrease in employee expenses for this segment resulted in a 1.1
      percentage point increase in operating margin.  The combining of
      our Hammary operations with our American Drew/Lea operations resulted in a
      reduction in headcount and elimination of duplicate selling, general and
      administrative functions.





Retail
Group


(Unaudited, amounts in thousands, except  percentages)
                
                01/22/11
                
                
                01/23/10
                
                
                Percent
                  changeSales
                
                $
                118,699
                
                
                $
                114,387
                
                
                
                3.8
                %Operating
      loss
                
                
                (12,043
                )
                
                
                (15,104
                )
                
                
                20.3
                %Operating
      margin
                
                
                (10.1
                )%
                
                
                (13.2
                )%




Sales




Our
Retail Group’s sales increased $4.3 million in the first nine months of fiscal
2011 compared to the first nine months of fiscal 2010.  The increase
in sales was a result of an effective promotional plan, which led to
improved conversion on lower customer traffic.




Operating
Margin




Our
Retail Group’s operating margin increased 3.1 percentage points in the first
nine months of fiscal 2011 compared to the first nine months of fiscal
2010.  While our Retail Group continued to improve its operating
margin, the segment continued to experience negative margins due to its high
lease expense to sales volume ratio.





·
            The
      segment experienced a 1.2 percentage point improvement in gross margin
      during the first nine months of fiscal 2011 compared to the first nine
      months of fiscal 2010 due to changes in the segment’s sales initiatives
      and merchandising.


·
            The
      improved operating margin for this segment was primarily a result of the
      increased sales volume on essentially no change in operating
      expenses.


27





VIEs/Other





Our VIEs’
sales decreased $14.2 million in the first nine months of fiscal 2011 compared
to the first nine months of fiscal 2010.  This was mainly the result
of deconsolidating our Toronto, Ontario, VIE, which reduced the number of stores
for our VIEs to 23 (one store opened during the third quarter of fiscal 2011)
for the first nine months of fiscal 2011, compared to 31 for the first nine
months of fiscal 2010. Our VIEs had an operating loss of $3.8 million in the
first nine months of fiscal 2011, compared to an operating loss of $1.1 million
in the first nine months of fiscal 2010.  The increase in operating
loss was mainly due to our Toronto, Ontario, VIE, which was a profitable VIE, no
longer being consolidated in the first nine months of fiscal 2011.





Our
Corporate and Other operating loss decreased by $3.3 million in the first nine
months of fiscal 2011 compared to the first nine months of fiscal
2010.  The decrease in operating loss was primarily a result of a
decrease in employee incentive compensation expenses as a result of our lower
operating performance in the first nine months of fiscal 2011 compared to the
first nine months of fiscal 2010.





Interest
Expense





Interest
expense for the first nine months of fiscal 2011 was less than the first nine
months of fiscal 2010 due to a $3.9 million decrease in our average
debt.  Our weighted average interest rate was flat in the first nine
months of fiscal 2011 compared to the first nine months of fiscal 2010 and
therefore had no impact on the change in interest expense. Additionally, our
interest expense was positively impacted by our Toronto, Ontario, VIE no longer
being consolidated in the first nine months of fiscal 2011.





Income
from Continued Dumping and Subsidy Offset Act





The
Continued Dumping and Subsidy Offset Act (“CDSOA”) provides for distribution of
monies collected by U.S. Customs and Border Protection from anti-dumping cases
to domestic producers that supported the anti-dumping petition.  We
received $0.9 million and $4.4 million in payments and funds related to the
anti-dumping order on wooden bedroom furniture from China during the first nine
months of fiscal 2011 and fiscal 2010, respectively, for duties collected on
imports entered into the United States before October 1, 2007.  The
decrease in CDSOA funds we received was a result of the smaller total amount
available for distribution, coupled with not receiving funds from a previously
sold company.  The percentage of total distributions allocated to our
divisions that supported the petition was similar to prior years.





Income
Taxes




Our
effective tax rate for the first nine months of fiscal 2011 was 22.8% compared
to 36.4% for the first nine months of fiscal 2010.  The effective tax
rate for the first nine months of fiscal 2011 was impacted by anticipated
changes in the valuation reserve for deferred taxes due to current year book/tax
timing differences that resulted in a rate reduction of 16.2 percentage points.
Of particular significance is the timing difference attributable to the tax
benefits associated with our southern California VIE, that resulted in a rate
reduction of 21.2 percentage points.  This tax benefit relates to the
amount of accounts receivable written off in excess of the fair value of the
assets received from this VIE.




Restructuring





During
fiscal 2008, we committed to a restructuring plan to consolidate all of our
North American cutting and sewing operations in Mexico and to transfer
production from our Tremonton, Utah, plant to our five remaining La-Z-Boy
branded upholstery manufacturing facilities.  Our Utah facility ceased
operations during the first quarter of fiscal 2009.  During the third
quarter and first nine months of fiscal 2011, we had a net reduction of
estimated restructuring liabilities of $0.1 million and $0.2 million,
respectively, classified in total cost of sales, covering severance and
benefits.  During the third quarter and first nine months of fiscal
2010 we had a net reduction of estimated restructuring liabilities of $0.2
million and $0.5 million, respectively, classified in total cost of sales,
covering severance and benefits.


28





During
fiscal 2007 and fiscal 2008, several of our retail warehouses were consolidated
into larger facilities and several underperforming stores were
closed.  In the third quarter and first nine months of fiscal 2011 we
had restructuring charges of $0.3 million and $0.6 million, respectively,
classified as an operating expense line item below selling, general and
administrative, due to contract terminations relating to these
actions.  During the third quarter and first nine months of fiscal
2010 we had restructuring charges of $0.2 million and $1.0 million,
respectively, classified as an operating expense line item below selling,
general and administrative, due to contract terminations relating to these
actions.





In fiscal
2009, we committed to a restructuring plan to consolidate our casegoods
manufacturing plants in North Carolina related to our Kincaid and American
Drew/Lea operations and to convert one of the facilities into a distribution
center.  The consolidation of these plants was completed in the first
quarter of fiscal 2010, and the conversion of the distribution center was
completed in the fourth quarter of fiscal 2010.  In connection with
this plan, we recorded restructuring charges of $0.6 million and $2.3 million
during the third quarter and first nine months of fiscal 2010, respectively,
classified in total cost of sales, covering severance and benefits and other
restructuring costs.





Liquidity and Capital Resources





Our
sources of cash liquidity include cash and equivalents, cash from operations and
amounts available under our credit facility. We believe these sources remain
adequate to meet our short-term and long-term liquidity requirements, finance
our long-term growth plans, meet debt service, and fulfill other cash
requirements for day-to-day operations and capital expenditures.  We
had cash and equivalents of $109.6 million at January 22, 2011, compared to
$108.4 million at April 24, 2010.





Under our
credit agreement we have certain covenants and restrictions, including a 1.05 to
1.00 fixed charge coverage ratio requirement which would become effective if our
excess availability fell below $30.0 million.  Excess availability is
the difference between our eligible accounts receivable and inventory less the
total of our outstanding letters of credit, other reserves as denoted in our
credit agreement and our outstanding borrowings on our revolving credit
agreement.  We do not expect to fall below the required excess
availability threshold in the next twelve months.  As of January 22,
2011, we had $30.0 million outstanding on our credit facility and $89.4 million
of excess availability, compared to $30.0 million outstanding on our credit
facility and $90.6 million of excess availability as of April 24,
2010.





Our
borrowing capacity is based on eligible trade accounts receivable and
inventory.  During the third quarter of fiscal 2011 we reduced the
total commitment under our credit facility to $175.0 million.  We made
this reduction because we expect our borrowing capacity to remain at or below
$175.0 million, and the reduction will result in lower commitment fees on the
unused portion of the credit facility.  This reduction had no impact
on our overall availability to borrow on our credit facility.





Capital
expenditures for the first nine months of fiscal 2011 were $8.2 million compared
with $5.7 million during the first nine months of fiscal 2010.  We
have no material commitments for capital expenditures.  Capital
expenditures are expected to be in the range of $10.0 million to $12.0 million
in fiscal 2011.


29




We expect
that paying restructuring costs from transitioning our domestic cutting and
sewing operations to Mexico and our ongoing costs for closed retail facilities
will require approximately $0.2 million of cash during the remainder of fiscal
2011.




We expect
to pay our contractual obligations due in the remainder of fiscal 2011 using our
cash flow from operations, our $109.6 million of cash on hand as of January 22,
2011, and the $89.4 million of availability under our credit
agreement.





The
following table illustrates the main components of our cash flows:





Cash Flows Provided By (Used For)
                  
                  Nine Months Ended(Unaudited, amounts in
      thousands)
                  
                  01/22/11
                  
                  
                  01/23/10Operating
      activitiesNet
      income
                  
                  $
                  10,613
                  
                  
                  $
                  17,547Non-cash
      add backs and changes in deferred taxes
                  
                  
                  24,650
                  
                  
                  
                  28,510Restructuring
                  
                  
                  424
                  
                  
                  
                  2,813Working
      capital
                  
                  
                  (24,971
                  )
                  
                  
                  9,829Cash
      provided by operating activities
                  
                  
                  10,716
                  
                  
                  
                  58,699Cash
      provided by (used for) investing activities
                  
                  
                  (8,074
                  )
                  
                  
                  15,712Financing
      activitiesNet
      decrease in debt
                  
                  
                  (962
                  )
                  
                  
                  (12,345
                  )Stock
      issued from stock plans
                  
                  
                  58
                  
                  
                  
                  —Cash
      used for financing activities
                  
                  
                  (904
                  )
                  
                  
                  (12,345
                  )Exchange
      rate changes
                  
                  
                  99
                  
                  
                  
                  81Net
      increase in cash and equivalents
                  
                  $
                  1,837
                  
                  
                  $
                  62,147





Operating
Activities





During
the first nine months of fiscal 2011, net cash provided by operating activities
was $10.7 million. Our net income and depreciation and amortization were $28.4
million and our working capital primarily consisted of the
following:





·
            Decrease
      in accounts receivable of $11.0
million.


·
            Increase
      in inventory levels of $14.1 million due to our focus on being in a better
      service position for our customers.


·
            Decrease
      in other liabilities of $13.0 million due to payments of accrued benefits
      and decreases in our estimated income tax
  liability.





During
the first nine months of fiscal 2010, net cash provided by operating activities
was $58.7 million.  Our net income and depreciation and amortization
were $36.7 million and our working capital primarily consisted of the
following:





·
            Increase
      in accounts receivable of $14.1 million due to our improved sales
      volume.


·
            Increase
      in inventory levels of $4.2 million due to our expected increase in sales
      volume.


30





·
            Decrease
      in other assets of $6.2 million primarily due to a refund of income
      taxes.


·
            Increase
      in accounts payable of $6.7
million.


·
            Increase
      in other liabilities of $15.2 million primarily due to an increase in
      accrued benefit payments and customer
deposits.





Investing
Activities





During
the first nine months of fiscal 2011, net cash used for investing activities was
$8.1 million, compared with $15.7 million of cash provided by investing
activities during the first nine months of fiscal 2010.  The majority
of the net cash used for investing activities during the first nine months of
fiscal 2011 was $8.2 million in capital expenditures.  The net cash
provided by investing activities during the first nine months of fiscal 2010
resulted primarily from a $17.5 million change in restricted cash.





Financing
Activities





During
the first nine months of fiscal 2011, net cash used for financing activities was
$0.9 million, compared to $12.3 million in the first nine months of fiscal
2010.  The net cash used for financing activities during the first
nine months of fiscal 2011 and fiscal 2010 primarily related to the repayment of
debt.





Other





Our
balance sheet at the end of the third quarter of fiscal 2011 reflected a $1.9
million liability for uncertain income tax positions.  We expect that
a portion of this liability will be settled within the next 12
months.  The remaining balance, to the extent it is ever paid, will be
paid as tax audits are completed or settled.





During
the first nine months of fiscal 2011 there were no material changes to the
information about our contractual obligations shown in the table contained in
our fiscal 2010 Annual Report on Form 10-K.




Realization
of our deferred tax assets is dependent on generating sufficient future taxable
income.  Valuation allowances of $45.1 million associated with certain
U.S. federal and state deferred tax assets could be reduced in fiscal 2012 based
on, among other factors, the level of taxable income generated in fiscal
2012.




Our
debt-to-capitalization ratio was 11.2% at January 22, 2011, and 12.3% at April
24, 2010.  Capitalization is defined as total debt plus total
equity.




Our board
of directors has authorized the repurchase of company stock.  As of
January 22, 2011, 5.4 million additional shares could be purchased pursuant to
this authorization. We did not purchase any shares during the first nine months
of fiscal 2011.




We have
guaranteed various leases and notes of dealers with proprietary stores. The
total amount of these guarantees was $1.6 million at January 22, 2011. Of this,
$1.4 million will expire within one year and $0.2 million in one to two
years.  At the end of the third quarter of fiscal 2011, we had $49.5
million in open purchase orders with foreign casegoods, leather and fabric
sources. Our open purchase orders that have not begun production are
cancelable.




Continuing
compliance with existing federal, state and local statutes dealing with
protection of the environment is not expected to have a material effect upon our
capital expenditures, earnings, competitive position or
liquidity.


31




Critical Accounting Policies




Our
critical accounting policies are disclosed in our Form 10-K for the year ended
April 24, 2010.  There were no material changes, except as described
in Note 1, to our critical accounting policies during the first nine months of
fiscal 2011.




Regulatory Developments





Continued
Dumping and Subsidy Offset Act of 2000





The
Continued Dumping and Subsidy Offset Act of 2000 (“CDSOA”) provides for
distribution of monies collected by U.S. Customs and Border Protection from
anti-dumping cases to domestic producers that supported the anti-dumping
petition. There have been numerous cases before the U.S. Court of International
Trade and the Federal Circuit that have been stayed.  The resolution
of these cases will have a significant impact on the amount of additional CDSOA
funds we receive.





In view
of the uncertainties associated with this program, we are unable to predict the
amounts, if any, we may receive in the future under CDSOA.  However,
assuming CDSOA distributions continue, these distributions could be material
depending on the results of legal appeals and administrative reviews and our
actual percentage allocation.  We received $0.9 million during the
first nine months of fiscal 2011, $4.4 million during fiscal 2010, $8.1 million
during fiscal 2009, $7.1 million during fiscal 2008 and $3.4 million during
fiscal 2007 in CDSOA payments and funds related to the anti-dumping order on
wooden bedroom furniture from China.





Recent Accounting Pronouncements




Refer to
Note 15 for updates on recent accounting pronouncements since the filing of our
Form 10-K for the year ended April 24, 2010.





Business Outlook





With a
rebound in same-store sales for the quarter, it appears the consumer is more
comfortable making larger ticket furniture purchases.  However, until
the housing sector strengthens and we see a steady improvement in the overall
consumer confidence level, we are guardedly optimistic that we are experiencing
a turnaround in the marketplace for furniture.  We believe La-Z-Boy is
well positioned to capitalize on an increase in furniture spending based on our
industry-leading brand and strong network of branded distribution
outlets.  We believe our new marketing campaign will continue to drive
additional traffic to our dealer network and the changes we have made and
continue to make to our cost structure across all business segments are
positioning the company for growth and profitability.





Note:  The
2011 fiscal fourth quarter will be comprised of 14 weeks rather than
13.





ITEM 3. QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK




During
the first nine months of fiscal 2011 there were no material changes from the
information contained in Item 7A of our Annual Report on Form 10-K for fiscal
2010.


32




ITEM 4. CONTROLS AND PROCEDURES




Disclosure
Controls and Procedures.As of the end of the period covered by this
report, we carried out an evaluation, under the supervision and with the
participation of our management, including our Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and operation of our
disclosure controls and procedures, as such term is defined in Rule 13a-15(e) of
the Exchange Act. Based upon that evaluation, our Chief Executive Officer and
Chief Financial Officer concluded that such disclosure controls and procedures
as of January 22, 2011, were not effective due to a material weakness in our
internal controls over financial reporting identified during the second quarter
of fiscal 2011, as described below. Notwithstanding this material weakness,
based on additional procedures performed after its discovery, management
believes that the financial statements included in this report fairly present in
all material respects our financial condition, results of operations, and cash
flows for the periods presented.




Material Weakness
– Accounting Oversight of our VIEs.During the second quarter we
identified deficiencies in the effectiveness of our internal control over
financial reporting related to our VIEs. Specifically, our controls related to
the account analysis and consolidation process for the VIEs did not operate at
the same level of precision as the more rigorous controls used with respect to
the consolidation and analysis of the various company-owned businesses in order
for timely detection of any possible misstatements of the consolidated financial
statements. We discovered that these control deficiencies had resulted in errors
in certain of our previously issued financial statements, none of which was
material to any of the periods presented in those financial statements, but
which required us to revise certain of our prior period account balances as we
report them in future filings for cost of goods sold, selling, general and
administrative expenses, inventory, accrued rent and other accrued liabilities.
We began making these revisions in our Form 10-Q for the second quarter of
fiscal 2011. Additionally, these control deficiencies could have resulted in
material misstatements to the annual or interim consolidated financial
statements that would not have been prevented or detected. Accordingly,
management has determined that these control deficiencies when aggregated
constitute a material weakness.





Starting
at the beginning of the third quarter of fiscal 2011, our internal controls
related to VIEs were enhanced in order to better align with the processes and
financial reporting controls that have been established for our
various company-owned businesses.  We believe that this material weakness
will be remediated by the end of fiscal 2011 subject to testing as part of our
annual assessment of the effectiveness of internal control over financial
reporting.





Changes
in Internal Control over Financial Reporting.


Other
than the changes mentioned above, there were no changes in our internal controls
over financial reporting that occurred during the fiscal quarter ended January
22, 2011, that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.





PART II — OTHER INFORMATION




ITEM 1A.  RISK FACTORS




There
have been no material changes to our risk factors during the first nine months
of fiscal 2011.  Our risk factors are disclosed in our Form 10-K for the
year ended April 24, 2010.


33




ITEM 6. EXHIBITS




Exhibit
                    Number
                  
                  Description(31.1
                  )
                  Certifications
      of Chief Executive Officer pursuant to Rule 13a-14(a)(31.2
                  )
                  Certifications
      of Chief Financial Officer pursuant to Rule 13a-14(a)(32
                  )
                  Certifications
      of Executive Officers pursuant to 18 U.S.C. Section
  1350(b)




SIGNATURE




Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.




LA-Z-BOY
      INCORPORATED(Registrant)Date:
      February 15, 2011BY:  /s/ Margaret L.
      MuellerMargaret
      L. MuellerCorporate
      ControllerOn
      behalf of the Registrant and asChief
      Accounting Officer


34