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 JULY 25, 2009


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  R
                    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 R
            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
      R




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




Class
              
              Outstanding at July 25,
  2009Common
      Shares, $1.00 par value
              
              51,479,970





LA-Z-BOY
INCORPORATED


FORM 10-Q
FIRST QUARTER OF FISCAL 2010




TABLE OF
CONTENTS


Page
                                                                                                        Number(s)PART
      I Financial Information (Unaudited)Item
      1.
                                                                                                      Financial
      StatementsConsolidated
      Statement of Operations
                                                                                                      3Consolidated
      Balance Sheet
                                                                                                      4Consolidated
      Statement of Cash Flows
                                                                                                      5Consolidated
      Statement of Changes in Equity
                                                                                                      6Notes
      to Consolidated Financial StatementsNote
      1. Basis of Presentation
                                                                                                      7Note
      2. Interim Results
                                                                                                      7Note
      3. Reclassification
                                                                                                      7Note
      4. Restricted Cash
                                                                                                      8Note
      5. Inventories
                                                                                                      8Note
      6. Pension Plans
                                                                                                      8Note
      7. Financial Guarantees and Product Warranties
                                                                                                      8-9Note
      8. Stock-Based Compensation
                                                                                                      9Note
      9. Total Comprehensive Income (Loss)
                                                                                                      10Note
      10. Segment Information
                                                                                                      10-11Note
      11. Restructuring
                                                                                                      11-13Note
      12. Income Taxes
                                                                                                      13Note
      13. Variable Interest Entities
                                                                                                      13-14Note
      14. Earnings per Share
                                                                                                      15Note
      15. Fair Value Measurements
                                                                                                      15-16Note
      16. Hedging Activities
                                                                                                      17Note
      17. Recent Accounting Pronouncements
                                                                                                      17-18Item
      2.
                                                                                                      Management’s
      Discussion and Analysis of Financial Condition and Results of
      OperationsCautionary
      Statement Concerning Forward-Looking Statements
                                                                                                      19Introduction
                                                                                                      19-21Results
      of Operations
                                                                                                      22-25Liquidity
      and Capital Resources
                                                                                                      25-28Restructuring
                                                                                                      28-30Critical
      Accounting Policies
                                                                                                      30Regulatory
      Developments
                                                                                                      30Recent
      Accounting Pronouncements
                                                                                                      30Business
      Outlook
                                                                                                      30Item
      3.
                                                                                                      Quantitative
      and Qualitative Disclosures About Market Risk
                                                                                                      31Item
      4.
                                                                                                      Controls
      and Procedures
                                                                                                      31PART
      II Other InformationItem
      1A.
                                                                                                      Risk
      Factors
                                                                                                      32Item
      6.
                                                                                                      Exhibits
                                                                                                      32Signature
      Page
                                                                                                      
                                                                                                      33


2


PART
I


FINANCIAL
INFORMATION


Item
1. Financial Statements




LA-Z-BOY
INCORPORATED


CONSOLIDATED
STATEMENT OF OPERATIONS




First Quarter Ended(Unaudited, amounts in thousands, except per share data)
                
                7/25/09
                
                
                7/26/08Sales
                
                $
                262,671
                
                
                $
                321,652Cost
      of salesCost
      of goods sold
                
                
                181,549
                
                
                
                235,596Restructuring
                
                
                736
                
                
                
                5,795Total
      cost of sales
                
                
                182,285
                
                
                
                241,391Gross
      profit
                
                
                80,386
                
                
                
                80,261Selling,
      general and administrative
                
                
                77,456
                
                
                
                91,270Write-down
      of intangibles
                
                
                —
                
                
                
                1,292Restructuring
                
                
                301
                
                
                
                781Operating
      income (loss)
                
                
                2,629
                
                
                
                (13,082
                )Interest
      expense
                
                
                980
                
                
                
                1,495Interest
      income
                
                
                276
                
                
                
                932Other
      income, net
                
                
                711
                
                
                
                143Earnings
      (loss) before income taxes
                
                
                2,636
                
                
                
                (13,502
                )Income
      tax expense (benefit)
                
                
                439
                
                
                
                (5,044
                )Net
      income (loss)
                
                
                2,197
                
                
                
                (8,458
                )Less
      net income attributable to noncontrolling interests
                
                
                214
                
                
                
                86Net
      income (loss) attributable to La-Z-Boy Incorporated
                
                $
                1,983
                
                
                $
                (8,544
                )Basic
      average shares
                
                
                51,479
                
                
                
                51,428Basic
      net income (loss) attributable to La-Z-Boy Incorporated per
      share
                
                $
                0.04
                
                
                $
                (0.17
                )Diluted
      average shares
                
                
                51,479
                
                
                
                51,428Diluted
      net income (loss) attributable to La-Z-Boy Incorporated per
      share
                
                $
                0.04
                
                
                $
                (0.17
                )Dividends
      paid per share
                
                $
                —
                
                
                $
                0.04




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


3





LA-Z-BOY
INCORPORATED


CONSOLIDATED
BALANCE SHEET





(Unaudited, amounts in thousands)
                
                7/25/09
                
                
                4/25/09Current
      assetsCash
      and equivalents
                
                $
                38,333
                
                
                $
                17,364Restricted
      cash
                
                
                500
                
                
                
                18,713Receivables,
      net of allowance of $24,408 at 7/25/09 and $28,385 at
    4/25/09
                
                
                137,552
                
                
                
                147,858Inventories,
      net
                
                
                142,276
                
                
                
                140,178Deferred
      income taxes—current
                
                
                795
                
                
                
                795Other
      current assets
                
                
                28,074
                
                
                
                22,872Total
      current assets
                
                
                347,530
                
                
                
                347,780Property,
      plant and equipment, net
                
                
                146,593
                
                
                
                150,234Trade
      names
                
                
                3,100
                
                
                
                3,100Other
      long-term assets, net of allowance of $1,492 at 7/25/09 and $4,309 at
      4/25/09
                
                
                48,359
                
                
                
                51,431Total
      assets
                
                $
                545,582
                
                
                $
                552,545Current
      liabilitiesCurrent
      portion of long-term debt
                
                $
                2,121
                
                
                $
                8,724Accounts
      payable
                
                
                39,245
                
                
                
                41,571Accrued
      expenses and other current liabilities
                
                
                77,037
                
                
                
                75,733Total
      current liabilities
                
                
                118,403
                
                
                
                126,028Long-term
      debt
                
                
                47,052
                
                
                
                52,148Deferred
      income taxes
                
                
                732
                
                
                
                724Other
      long-term liabilities
                
                
                65,657
                
                
                
                63,875Contingencies
      and commitments
                
                
                —
                
                
                
                —EquityLa-Z-Boy
      Incorporated shareholders’ equity:Common
      shares, $1 par value
                
                
                51,480
                
                
                
                51,478Capital
      in excess of par value
                
                
                198,361
                
                
                
                205,945Retained
      earnings
                
                
                81,352
                
                
                
                70,769Accumulated
      other comprehensive loss
                
                
                (22,059
                )
                
                
                (22,698
                )Total
      La-Z-Boy Incorporated shareholders' equity
                
                
                309,134
                
                
                
                305,494Noncontrolling
      interests
                
                
                4,604
                
                
                
                4,276Total
      equity
                
                
                313,738
                
                
                
                309,770Total
      liabilities and equity
                
                $
                545,582
                
                
                $
                552,545




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


4


LA-Z-BOY
INCORPORATED


CONSOLIDATED
STATEMENT OF CASH FLOWS


First Quarter Ended(Unaudited, amounts in thousands)
                    
                    7/25/09
                    
                    
                    7/26/08Cash
      flows from operating activitiesNet
      income (loss)
                    
                    $
                    2,197
                    
                    
                    $
                    (8,458
                    )Adjustments
      to reconcile net income (loss) to cash provided by operating
      activitiesGain
      on sale of assets
                    
                    
                    (13
                    )
                    
                    
                    (2,066
                    )Write-down
      of intangibles
                    
                    
                    —
                    
                    
                    
                    1,292Restructuring
                    
                    
                    1,037
                    
                    
                    
                    6,576Provision
      for doubtful accounts
                    
                    
                    2,362
                    
                    
                    
                    4,203Depreciation
      and amortization
                    
                    
                    6,109
                    
                    
                    
                    5,954Stock-based
      compensation expense
                    
                    
                    1,007
                    
                    
                    
                    869Change
      in receivables
                    
                    
                    8,898
                    
                    
                    
                    14,170Change
      in inventories
                    
                    
                    (2,098
                    )
                    
                    
                    10,906Change
      in payables
                    
                    
                    (2,326
                    )
                    
                    
                    (6,448
                    )Change
      in other assets and liabilities
                    
                    
                    (3,396
                    )
                    
                    
                    (23,718
                    )Change
      in deferred taxes
                    
                    
                    8
                    
                    
                    
                    1,161Total
      adjustments
                    
                    
                    11,588
                    
                    
                    
                    12,899Net
      cash provided by operating activities
                    
                    
                    13,785
                    
                    
                    
                    4,441Cash
      flows from investing activitiesProceeds
      from disposals of assets
                    
                    
                    1,686
                    
                    
                    
                    4,981Capital
      expenditures
                    
                    
                    (1,439
                    )
                    
                    
                    (7,372
                    )Purchases
      of investments
                    
                    
                    (1,199
                    )
                    
                    
                    (5,449
                    )Proceeds
      from sales of investments
                    
                    
                    2,664
                    
                    
                    
                    5,794Change
      in restricted cash
                    
                    
                    17,007
                    
                    
                    
                    (288
                    )Change
      in other long-term assets
                    
                    
                    (15
                    )
                    
                    
                    71Net
      cash provided by (used for) investing activities
                    
                    
                    18,704
                    
                    
                    
                    (2,263
                    )Cash
      flows from financing activitiesProceeds
      from debt
                    
                    
                    10,460
                    
                    
                    
                    14,635Payments
      on debt
                    
                    
                    (22,159
                    )
                    
                    
                    (18,857
                    )Dividends
      paid
                    
                    
                    —
                    
                    
                    
                    (2,077
                    )Net
      cash used for financing activities
                    
                    
                    (11,699
                    )
                    
                    
                    (6,299
                    )Effect
      of exchange rate changes on cash and equivalents
                    
                    
                    179
                    
                    
                    
                    (39
                    )Change
      in cash and equivalents
                    
                    
                    20,969
                    
                    
                    
                    (4,160
                    )Cash
      and equivalents at beginning of period
                    
                    
                    17,364
                    
                    
                    
                    14,477Cash
      and equivalents at end of period
                    
                    $
                    38,333
                    
                    
                    $
                    10,317Cash
      paid (net of refunds) during period – income taxes
                    
                    $
                    266
                    
                    
                    $
                    923Cash
      paid during period - interest
                    
                    $
                    725
                    
                    
                    $
                    1,126




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


5


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
                      
                      
                      Noncontrolling
                        Interests
                      
                      
                      TotalAt
      April 26, 2008
                      
                      $
                      51,428
                      
                      
                      $
                      209,388
                      
                      
                      $
                      190,215
                      
                      
                      $
                      (227
                      )
                      
                      $
                      2,582
                      
                      
                      $
                      453,386Comprehensive
      lossNet
      income (loss)
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      (121,347
                      )
                      
                      
                      
                      
                      
                      
                      121Unrealized
      loss on marketable securities arising during the period (net of tax of
      $0.4 million)
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      (4,332
                      )Reclassification
      adjustment for loss on marketable securities included in net
      loss
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      5,180Translation
      adjustment
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      (622
                      )
                      
                      
                      447Change
      in fair value of cash flow hedge
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      (723
                      )Net
      actuarial (loss)
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      (21,974
                      )Total
      comprehensive loss
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      (143,250
                      )Stock
      issued for stock and employee benefit plans, net of
      cancellations
                      
                      
                      50
                      
                      
                      
                      (7,262
                      )
                      
                      
                      7,078
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      (134
                      )Stock
      option, restricted stock and performance based stock
    expense
                      
                      
                      
                      
                      
                      
                      3,819
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      3,819Change
      in noncontrolling interest upon consolidation of VIE and other changes in
      noncontrolling interests
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      1,126
                      
                      
                      
                      1,126Dividends
      paid
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      (5,177
                      )
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      (5,177
                      )At
      April 25, 2009
                      
                      
                      51,478
                      
                      
                      
                      205,945
                      
                      
                      
                      70,769
                      
                      
                      
                      (22,698
                      )
                      
                      
                      4,276
                      
                      
                      
                      309,770Comprehensive
      incomeNet
      income
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      1,983
                      
                      
                      
                      
                      
                      
                      
                      214Unrealized
      gain on marketable securities arising during the period
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      867Reclassification
      adjustment for gain on marketable securities included in net
      income
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      (21
                      )Translation
      adjustment
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      (720
                      )
                      
                      
                      114Net
      pension amortization
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      527Change
      in fair value of cash flow hedge
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      (14
                      )Total
      comprehensive income
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      2,950Stock
      issued for stock and employee benefit plans, net of
      cancellations
                      
                      
                      2
                      
                      
                      
                      (8,591
                      )
                      
                      
                      8,600
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      11Stock
      option, restricted stock and performance based stock
    expense
                      
                      
                      
                      
                      
                      
                      1,007
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      1,007At
      July 25, 2009
                      
                      $
                      51,480
                      
                      
                      $
                      198,361
                      
                      
                      $
                      81,352
                      
                      
                      $
                      (22,059
                      )
                      
                      $
                      4,604
                      
                      
                      $
                      313,738





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





6




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 25, 2009
balance sheet was derived from audited financial statements, adjusted for the
adoption of Statement of Financial Accounting Standards No. 160,Noncontrolling Interests in
Consolidated Financial Statements-an amendment of ARB No. 51(“SFAS
No. 160”).




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 2009 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. During the quarter ended July 25, 2009, we recorded
income of approximately $0.6 million, primarily as a reduction of cost of goods
sold, related to a correction of amounts recorded in fiscal 2009 as a foreign
currency translation adjustment in shareholders’ equity. We determined that the
impact of this adjustment is not material to fiscal 2009 or the projected fiscal
2010 year.




In
December 2007, the FASB issued SFAS No. 160, which amends the accounting
and reporting standards for a parent’s noncontrolling interest in a subsidiary
and the accounting for future ownership changes with respect to the
subsidiary.  This standard defines a noncontrolling interest, previously
called a minority interest, as the portion of equity in a subsidiary that is not
attributable, directly or indirectly, to a parent.  SFAS No. 160 requires,
among other things, that a noncontrolling interest be clearly identified,
labeled and presented in the consolidated balance sheet as equity, but separate
from the parent’s equity; and that the amount of consolidated net income
attributable to the parent and to the noncontrolling interest be clearly
identified and presented on the face of the consolidated statement of
operations.




Effective
April 26, 2009, we adopted SFAS No. 160 and applied it retrospectively
which affected only presentation and disclosure.  As a result, we
reclassified noncontrolling interests in the amount of $4.3 million from other
long-term liabilities and accumulated other comprehensive loss to equity in the
April 25, 2009 Consolidated Balance Sheet.  Certain reclassifications to
the Consolidated Statement of Operations have been made to prior period amounts
to conform to the presentation of the current period under SFAS No. 160. 
Recorded amounts for prior periods previously presented as Net income (loss),
which are now presented as Net income (loss) attributable to La-Z-Boy
Incorporated, have not changed as a result of the adoption of SFAS No.
160.




Note
2: Interim Results




The
foregoing interim results are not necessarily indicative of the results of
operations which will occur for the full fiscal year ending April 24,
2010.




Note
3: Reclassification




Certain
prior year information has been reclassified to be comparable with the current
year presentation.




7




Note
4: Restricted Cash




At July
25, 2009 and April 25, 2009, we had short-term restricted cash of $0.5 million
and $18.7 million, respectively, related to our captive insurance company. Prior
to April 25, 2009, restricted cash was primarily used to support our liability
for workers’ compensation claims and premiums. In the first quarter of fiscal
2010 La-Z-Boy Incorporated assumed the obligations related to workers’
compensation and obtained regulatory approval to transfer substantially all of
the assets from our captive insurance company to La-Z-Boy Incorporated. As a
result of these changes, restricted cash was reduced to $0.5 million at July 25,
2009 representing the remaining invested capital in our captive insurance
company.




Note
5: Inventories




A summary
of inventories is as follows:




(Unaudited,amountsinthousands)
                  
                  7/25/09
                  
                  
                  4/25/09Raw
      materials
                  
                  $
                  58,268
                  
                  
                  $
                  53,498Work
      in process
                  
                  
                  11,322
                  
                  
                  
                  11,281Finished
      goods
                  
                  
                  98,434
                  
                  
                  
                  101,147FIFO
      inventories
                  
                  
                  168,024
                  
                  
                  
                  165,926Excess
      of FIFO over LIFO
                  
                  
                  (25,748
                  )
                  
                  
                  (25,748
                  )Inventories,
      net
                  
                  $
                  142,276
                  
                  
                  $
                  140,178





Note
6: Pension Plans





Net
periodic pension costs were as follows:





First Quarter Ended(Unaudited, amounts in thousands)
                  
                  7/25/09
                  
                  
                  7/26/08Service
      cost
                  
                  $
                  261
                  
                  
                  $
                  328Interest
      cost
                  
                  
                  1,400
                  
                  
                  
                  1,359Expected
      asset return
                  
                  
                  (1,206
                  )
                  
                  
                  (1,728
                  )Net
      amortization
                  
                  
                  527
                  
                  
                  
                  —Net
      periodic pension cost (benefit)
                  
                  $
                  982
                  
                  
                  $
                  (41
                  )




We did
not make any contributions to the plans during the first quarter of fiscal
2010.  We are not required to make any contributions to the defined benefit
plan in fiscal year 2010; however we have the discretion to make
contributions.




Note
7: 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 three years. These guarantees enhance the credit of
these dealers. The dealer is required to make periodic fee payments to
compensate us for our guarantees. We have recognized liabilities for the fair
values of these agreements that we have entered into, but they are not material
to our financial position.





8




We would
be required to perform under these agreements only if the dealer were to default
on the lease or note. The maximum amount of potential future payments under
these guarantees was $2.8 million as of July 25, 2009.




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. This estimate is based on historical claims
and adjusted for currently known warranty issues.




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




First Quarter Ended(Unaudited, amounts in thousands)
                  
                  7/25/09
                  
                  
                  7/26/08Balance
      as of the beginning of the period
                  
                  $
                  14,394
                  
                  
                  $
                  14,334Accruals
      during the period
                  
                  
                  3,337
                  
                  
                  
                  4,104Settlements
      during the period
                  
                  
                  (3,434
                  )
                  
                  
                  (3,793
                  )Balance
      as of the end of the period
                  
                  $
                  14,297
                  
                  
                  $
                  14,645




Note
8:  Stock-Based Compensation




In the
first quarter of fiscal 2010, we granted 1.4 million stock options to employees.
Compensation expense for stock options is equal to the fair value on the date of
the award and is recognized over the service period. The vesting period for our
stock options ranges from one to four years. The fair value for the employee
stock options granted was estimated at the date of grant using the Black-Scholes
option-pricing model, which requires management to make certain assumptions.
Expected volatility was estimated based on the historical volatility of our
common shares. The average expected life was based on the contractual term of
the stock option and expected employee exercise and post-vesting employment
termination trends. The risk-free rate was based on U.S. Treasury issues with a
term equal to the expected life assumed at the date of grant. The turnover rate
was estimated at the date of grant based on historical experience. The fair
value of stock options granted during the first quarter of fiscal 2010 was
calculated using the following assumptions:




7/25/09Risk-free
      interest rate
                  
                  
                  1.5
                  %Dividend
      rate
                  
                  
                  —Expected
      life in years
                  
                  
                  4.0Stock
      price volatility
                  
                  
                  80.7
                  %Turnover
      rate
                  
                  
                  3.0
                  %Fair
      value per share
                  
                  
                  $2.59





Additionally,
we granted 0.5 million restricted shares to employees during the first quarter
of fiscal 2010. Compensation expense for restricted stock is equal to the market
value of our common shares on the date of the award and is recognized over the
service period. The vesting period for our restricted shares ranges from one to
five years.





Total
compensation expense recognized in the Consolidated Statement of Operations for
all equity based compensation for the first quarter of fiscal 2010 and the first
quarter of fiscal 2009 was $1.0 and $0.9 million, respectively.


9




Note
9:  Total Comprehensive Income (Loss)




The
components of total comprehensive income (loss) are as follows:





First Quarter Ended7/25/09
                
                
                7/26/08(Unaudited, amounts in thousands)
                
                Attributable
                  to La-Z-Boy
                  Incorporated
                
                
                Non-
                  controlling
                  Interest
                
                
                Attributable
                  to La-Z-Boy
                  Incorporated
                
                
                Non-
                  controlling
                  InterestNet
      income (loss)
                
                $
                1,983
                
                
                $
                214
                
                
                $
                (8,544
                )
                
                $
                86Other
      comprehensive income (loss):Translation
      adjustment
                
                
                (720
                )
                
                
                114
                
                
                
                (173
                )
                
                
                (159
                )Change
      in fair value of cash flow hedge
                
                
                (14
                )
                
                
                —
                
                
                
                278
                
                
                
                —Net
      pension amortization
                
                
                527
                
                
                
                —
                
                
                
                —
                
                
                
                —Unrealized
      gains/(losses) on marketable securities arising during the
      period
                
                
                846
                
                
                
                —
                
                
                
                (746
                )
                
                
                —Total
      comprehensive income (loss)
                
                $
                2,622
                
                
                $
                328
                
                
                $
                (9,185
                )
                
                $
                (73
                )




Note
10: 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 Bauhaus, England, and La-Z-Boy. 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 are American Drew/Lea, Hammary and
Kincaid. This group primarily sells manufactured or imported wood furniture to
furniture retailers.  Casegoods product includes tables, chairs,
entertainment centers, headboards, dressers, accent pieces and some 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 sells upholstered furniture to end
consumers, as well as casegoods and other accessories.


10




First Quarter Ended(Unaudited, amounts in thousands)
                  
                  7/25/09
                  
                  
                  7/26/08SalesUpholstery
      Group
                  
                  $
                  196,692
                  
                  
                  $
                  237,118Casegoods
      Group
                  
                  
                  35,865
                  
                  
                  
                  48,121Retail
      Group
                  
                  
                  35,961
                  
                  
                  
                  42,427VIEs/Eliminations
                  
                  
                  (5,847
                  )
                  
                  
                  (6,014
                  )Consolidated
                  
                  $
                  262,671
                  
                  
                  $
                  321,652Operating
      income (loss)Upholstery
      Group
                  
                  $
                  16,290
                  
                  
                  $
                  9,857Casegoods
      Group
                  
                  
                  (121
                  )
                  
                  
                  1,377Retail
      Group
                  
                  
                  (5,668
                  )
                  
                  
                  (10,010
                  )Corporate
      and Other*
                  
                  
                  (6,835
                  )
                  
                  
                  (6,438
                  )Restructuring
                  
                  
                  (1,037
                  )
                  
                  
                  (6,576
                  )Intangible
      Write-down
                  
                  
                  —
                  
                  
                  
                  (1,292
                  )$
                  2,629
                  
                  
                  $
                  (13,082
                  )





*Variable
Interest Entities ("VIEs") are included in corporate and other.




Note
11: Restructuring




During
the past several years, we have entered into 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 which were accounted for in
accordance with SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. Additionally, we recorded charges for
severance and benefits, contract terminations and other transition costs related
to relocating and closing facilities, in accordance with SFAS No. 146, Accounting for Costs Associated with
Exit or Disposal Activities.





In the
fourth quarter of 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 another facility into a
distribution center. The consolidation of these plants occurred in the first
quarter of fiscal 2010. The conversion of the distribution center is expected to
be completed by the end of the fourth quarter of fiscal 2010. In connection with
these activities, we have incurred $0.8 million in restructuring charges since
the inception of this plan for severance and benefits, write-down of fixed
assets and other restructuring charges. In the first quarter of fiscal 2010 we
recorded pre-tax restructuring charges of $0.6 million, covering severance and
benefits and other restructuring costs. We expect to incur approximately $1.5
million in additional charges in fiscal 2010 related to severance and benefits
and other restructuring costs. During fiscal 2009, we had restructuring charges
of $0.2 million, covering severance and benefits and the write-down of fixed
assets. We expect these changes to result in annual cost savings of
approximately $5 to $6 million.


11


During
fiscal 2008, we committed to a restructuring plan to consolidate all of our
North American cutting and sewing operations in Mexico and 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 and production was shifted to our remaining
manufacturing facilities. At the end of the first quarter of fiscal 2010, we had
about 620 employees at our Mexican facility and approximately 21% of our
domestic cutting and sewing operations have been transferred to our Mexican
facility. By the end of fiscal 2010 we expect 100% of our domestic fabric and
75% to 80% of our domestic leather cutting and sewing operations to be shifted
to our Mexican facility. We plan to shift the remaining leather cutting and
sewing operations in the first quarter of fiscal 2011. In connection with these
activities, we have incurred $10.4 million in restructuring charges since the
inception of this plan for severance and benefits, write-down of certain fixed
assets, and other restructuring costs. We expect to incur additional pre-tax
restructuring charges of $1 to $2 million. During the first quarter of fiscal
2010, we had restructuring charges of $0.1 million, covering severance and
benefits. During fiscal 2009, we had restructuring charges of $7.7 million,
covering severance and benefits ($3.1 million) and other restructuring costs
($4.6 million). Other restructuring costs include transportation, freight
surcharges and other transition costs as we moved production to other plants. We
anticipate these changes will result in annual cost savings of approximately $20
million.


During
fiscal 2007 and 2008, several of our warehouse distribution centers were
consolidated into larger facilities and several underperforming stores were
closed. In the first quarter of fiscal 2010, we had restructuring charges of
$0.3 million related to contract terminations. We expect to incur approximately
$0.2 million of additional charges in the remainder of fiscal 2010. During
fiscal 2009, we had restructuring charges of $1.6 million related to contract
terminations.





During
fiscal 2009, we committed to restructuring plans to close a plant in Sherman,
Mississippi related to our Bauhaus operations, to reduce our company-wide
employment to be more in line with sales volume, and to close the operations of
our La-Z-Boy U.K. subsidiary. The closure of the plant in Sherman, Mississippi
was completed in the fourth quarter of fiscal 2009. The closure of our La-Z-Boy
U.K. subsidiary occurred in the second quarter of fiscal 2009. In connection
with these plans, we recorded pre-tax restructuring charges of $3.5 million in
fiscal 2009, covering severance and benefits ($1.2 million), the write-down of
inventory ($1.2 million) and the write-down of fixed assets and other
restructuring charges ($1.1 million). Additionally, during fiscal 2009 we had
reversals of $0.5 million relating to our restructuring plans in fiscal
2007.




As of July 25, 2009, we had a remaining
restructuring liability of $2.2 million which is expected to be settled as
follows: $1.6 million in the remainder of fiscal 2010 and $0.6 million
thereafter.




Restructuring liabilities along with
charges to expense, cash payments or asset write-downs for all of our
restructuring actions were as follows:




Fiscal 2010(Unaudited, amounts in thousands)
                
                4/25/09
                  Balance
                
                
                Charges to
                  Expense *
                
                
                Cash
                  Payments
                  or Asset
                  Write-Offs
                
                
                7/25/09
                  BalanceSeverance
      and benefit-related costs
                
                $
                2,022
                
                
                $
                343
                
                
                $
                (553
                )
                
                $
                1,812Contract
      termination costs
                
                
                530
                
                
                
                301
                
                
                
                (412
                )
                
                
                419Other
                
                
                —
                
                
                
                393
                
                
                
                (393
                )
                
                
                —Total
      restructuring
                
                $
                2,552
                
                
                $
                1,037
                
                
                $
                (1,358
                )
                
                $
                2,231


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


12




Fiscal 2009(Unaudited, amounts in thousands)
                          
                          4/26/08
                            Balance
                          
                          
                          Charges to
                            Expense **
                          
                          
                          Cash
                            Payments
                            or Asset
                            Write-Offs
                          
                          
                          4/25/09
                            BalanceSeverance
      and benefit-related costs
                          
                          $
                          2,842
                          
                          
                          $
                          4,149
                          
                          
                          $
                          (4,969
                          )
                          
                          $
                          2,022Fixed
      asset write-downs, net of gains
                          
                          
                          —
                          
                          
                          
                          512
                          
                          
                          
                          (512
                          )
                          
                          
                          —Contract
      termination costs
                          
                          
                          939
                          
                          
                          
                          1,528
                          
                          
                          
                          (1,937
                          )
                          
                          
                          530Other
                          
                          
                          —
                          
                          
                          
                          6,271
                          
                          
                          
                          (6,271
                          )
                          
                          
                          —Total
      restructuring
                          
                          $
                          3,781
                          
                          
                          $
                          12,460
                          
                          
                          $
                          (13,689
                          )
                          
                          $
                          2,552


**
Charges to expense include $1.8 million of non-cash charges for contract
termination costs, fixed asset and inventory write-downs.





Note
12: Income Taxes




Our 16.7%
effective tax rate for the first quarter of fiscal 2010 resulted primarily from
an increase in estimated federal income tax benefits of approximately $0.9
million associated with the completion of our fiscal 2009 federal income tax
return, offset in part by the effect of a higher expected full year effective
tax rate related to the valuation allowance on our deferred tax assets. Our
effective tax rate was also impacted by the relatively low level of pre-tax
income reported for the quarter ended July 25, 2009.




Note
13: Variable Interest Entities




Financial
Accounting Standards Board Interpretation No. 46R, Consolidation of Variable Interest
Entities (“FIN 46”), requires the “primary beneficiary” of a VIE to
include the VIE’s assets, liabilities and operating results in its consolidated
financial statements. In general, a VIE is a corporation, partnership,
limited-liability company, trust or any other legal structure used to conduct
activities or hold assets that either (a) has an insufficient amount of equity
to carry out its principal activities without additional subordinated financial
support, (b) has a group of equity owners that are unable to make significant
decisions about its activities, or (c) has a group of equity owners that do not
have the obligation to absorb losses or the right to receive returns generated
by its operations.




La-Z-Boy
Furniture Galleries® stores that are not operated by us are operated by
independent dealers. These stores sell La-Z-Boy manufactured products as well as
various accessories purchased from approved La-Z-Boy vendors. Most of these
independent dealers have sufficient equity to carry out their principal
operating activities without subordinated financial support. However, there
are certain independent dealers that we have determined may not have sufficient
equity. In some cases we have extended credit beyond normal trade terms to
the independent dealers, made direct loans, entered into leases and/or
guaranteed certain loans or leases.




We
evaluate our transactions and relationships with our La-Z-Boy Furniture
Galleries® dealers on a quarterly basis to determine if any of our independent
dealers qualify as a variable interest entity and additionally whether we are
the primary beneficiary for any of the dealers who do qualify as a variable
interest entity. We also evaluate our current VIEs on a quarterly basis to
determine if they no longer qualify as a variable interest
entity.


13


Based on
the criteria for consolidation of VIEs, we have consolidated several dealers
where we were the primary beneficiary based on the fair value of our variable
interests. All of our consolidated VIEs were recorded at fair value on the
date we became the primary beneficiary. Due to the adoption of SFAS No. 160, all
earnings and losses attributed to these VIEs are recorded as Net income (loss)
attributable to noncontrolling interests. Previously, all losses of the VIEs in
excess of their equity were recorded as Net income (loss) and all earnings of
these VIEs to the extent of recouping the losses were recorded as Net income
(loss). Earnings in excess of losses were attributed to equity owners of the
dealers and were recorded as minority interest.





We had
three consolidated VIEs during the first quarter of fiscal 2010 representing 30
stores and four consolidated VIEs during the first quarter of fiscal 2009
representing 34 stores.




The table
below shows information concerning our consolidated VIEs during fiscal 2010 and
fiscal 2009:





As of(Unaudited, amounts in thousands)
                  
                  7/25/09
                  
                  
                  4/25/09Current
      assets
                  
                  $
                  16,204
                  
                  
                  $
                  16,220Other
      long-term assets
                  
                  
                  13,403
                  
                  
                  
                  13,132Total
      assets
                  
                  $
                  29,607
                  
                  
                  $
                  29,352Current
      liabilities
                  
                  $
                  7,374
                  
                  
                  $
                  5,983Other
      long-term liabilities
                  
                  
                  2,973
                  
                  
                  
                  3,770Total
      liabilities
                  
                  $
                  10,347
                  
                  
                  $
                  9,753





First Quarter Ended(Unaudited, amounts in thousands )
                  
                  7/25/09
                  
                  
                  7/26/08Net
      sales, net of inter-company eliminations
                  
                  $
                  11,739
                  
                  
                  $
                  14,077Net
      income (loss)
                  
                  $
                  103
                  
                  
                  $
                  (1,060
                  )




As of the
end of the first quarter of fiscal 2010, we had significant interests in three
independent La-Z-Boy Furniture Galleries® dealers for which we were not the
primary beneficiary. Our total exposure to losses related to these dealers was
$2.7 million which consists of past due accounts receivable as well as notes
receivable, net of reserves and collateral on inventory and real estate. We do
not have any obligations or commitments to provide additional financial support
to these dealers for the remainder of fiscal 2010.




14




Note
14: Earnings per Share




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




First Quarter Ended(Unaudited, amounts in thousands)
                  
                  7/25/09
                  
                  
                  7/26/08Numerator
      (basic and diluted):Net
      income (loss) attributable to La-Z-Boy Incorporated
                  
                  $
                  1,983
                  
                  
                  $
                  (8,544
                  )Income
      allocated to participating securities
                  
                  
                  (30
                  )
                  
                  
                  —Dividends
      on participating securities
                  
                  
                  —
                  
                  
                  
                  (21
                  )Net
      income (loss) available to common shareholders
                  
                  $
                  1,953
                  
                  
                  $
                  (8,565
                  )





First Quarter Ended(Unaudited, amounts in thousands)
                  
                  7/25/09
                  
                  
                  7/26/08Denominator:Basic
      common shares (based upon weighted average)
                  
                  
                  51,479
                  
                  
                  
                  51,428Add:Stock
      option dilution
                  
                  
                  —
                  
                  
                  
                  —Diluted
      common shares
                  
                  
                  51,479
                  
                  
                  
                  51,428





Effective
April 26, 2009 we adopted FASB Staff Position EITF 03-6-1, Determining Whether Instruments
Granted in Share-Based Payment Transactions are Participating Securities,
(“FSP EITF 03-6-1”). FSP EITF 03-6-1 clarifies that share-based payment awards
that entitle their holders to receive non-forfeitable dividends prior to vesting
should be 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 under FSP EITF 03-6-1. 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. Unvested restricted stock awards
were previously included in our diluted share calculation using the treasury
stock method. At July 26, 2008, we did not allocate any loss to the unvested
stock awards (participating securities), due to their anti-dilutive
effect.





Note
15: Fair Value Measurements


We
adopted FASB Statement of Financial Accounting Standards No. 157
(“SFAS No. 157”), FairValue
Measurements, for our financial assets and liabilities effective
April 27, 2008. We adopted SFAS No. 157 for non-financial assets and liabilities
effective April 26, 2009. Adoption of SFAS No. 157 did not have a material
effect on our financial position, results of operations or cash
flows.





In
February 2008, the Financial Accounting Standards Board issued FASB Staff
Position FAS 157-1, Application of FASB Statement No.
157 to FASB Statement No. 13 and Other Accounting Pronouncements That Address
Fair Value Measurements for Purposes of Lease Classification or Measurement
under Statement 13 (“FSP 157-1”). FSP FAS 157-1 amended SFAS No. 157 to
exclude from its scope SFAS No. 13, Accounting for Leases, and
its related interpretive accounting pronouncements that address leasing
transactions. Also in February 2008, the FASB issued FASB Staff Position FAS
157-2, Effective Date of FASB
Statement No. 157 (“FSP 157-2”). FSP 157-2amended
SFAS No. 157 to defer the effective date of SFAS No. 157 until fiscal years
beginning after November 15, 2008 for non-financial assets and non-financial
liabilities, except for items that are recognized or disclosed at fair value in
the financial statements on a recurring basis, at least annually.
 
 15


SFAS No.
157 requires the categorization of financial assets and liabilities, based on
the inputs to the valuation technique, into a three-level fair value hierarchy.
The fair value hierarchy gives the highest priority to the quoted prices in
active markets for identical assets and liabilities and lowest priority to
unobservable inputs. The various levels of the SFAS No. 157 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 the Company has 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.





SFAS No.
157 requires 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.





The
following table presents the fair value hierarchy for those assets measured at
fair value on a recurring basis as of July 25, 2009:




Fair Value Measurements(Unaudited, amounts in thousands)
                  
                  Level 1
                  
                  
                  Level 2
                  
                  
                  Level 3AssetsAvailable-for-sale
      securities
                  
                  $
                  7,454
                  
                  
                  $
                  2,481
                  
                  
                  $
                  —LiabilitiesInterest
      rate swap
                  
                  
                  —
                  
                  
                  
                  (737
                  )
                  
                  
                  —Total
                  
                  $
                  7,454
                  
                  
                  $
                  1,744
                  
                  
                  $
                  —





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.


16





Note
16: Hedging Activities





During
the first quarter of 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 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 under $20 million of floating rate debt. Interest under
this debt as of July 25, 2009 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 deferred into accumulated other
comprehensive loss (with an offset to the hedged item in other long-term
liabilities) until the hedged transaction impacts our earnings. Our
interest rate swap agreement was tested for ineffectiveness during the first
quarter of fiscal 2009 and was determined to be effective. Our agreement also
qualified for the “short cut” method of accounting and therefore we believe that
our agreement continues to be effective and therefore, no gains or losses have
been recorded in our earnings.





During
the first quarter ended July 25, 2009, we deferred losses of $0.7 million into
accumulated other comprehensive loss. The fair value of our interest rate swap
at July 25, 2009 was $0.7 million, which was included in other long-term
liabilities.




Note
17: Recent Accounting Pronouncements




FASB
Staff Position FAS 132R-1: Employers’ Disclosures about Postretirement Benefit
Plan Assets





In
December 2008, the FASB issued FASB Staff Position (“FSP”) FAS 132R-1, Employers’ Disclosures about
Postretirement Benefit Plan Assets.This document expands the disclosures
related to postretirement benefit plan assets to include disclosures concerning
a company’s investment policies for benefit plan assets and categories of plan
assets. This document further expands the disclosure requirements to include
fair value of plan assets, including the levels within the fair value hierarchy
and other related disclosures under SFAS No. 157, Application of FASB Statement No.
157 to FASB Statement No. 13 and Other Accounting Pronouncements That Address
Fair Value Measurements for Purposes of Lease Classification or Measurement
under Statement 13, and any concentrations of risk related to the plan
assets.




This
statement will be effective for our fiscal 2010 year end and will require
expanded disclosures. The adoption of this FSP will not have a material impact
on our consolidated financial statements.




FASB
Statement of Financial Accounting Standards No.165





In
May 2009, the FASB issued SFAS No. 165, Subsequent Events(“SFAS No.
165”). SFAS No. 165
establishes general standards of accounting for and disclosure of events that
occur after the balance sheet date but before financial statements are issued.
SFAS No. 165 is effective for interim or annual periods ending after June 15,
2009.




We
adopted SFAS No. 165 in the first quarter of fiscal 2010 and it had no impact on
our consolidated financial statements. SFAS No. 165 also requires that we
disclose the date through which we have evaluated subsequent events, which was
August 18, 2009, the date of issuance for our interim consolidated financial
statements as of and for the fiscal quarter ended July 25,
2009.


17





FASB
Statement of Financial Accounting Standards No.166





In
May 2009, the FASB issued SFAS No. 166,Accounting for Transfers of
Financial Assets—an amendment of FASB Statement No. 140(“SFAS No.
166”). SFAS No. 166 amends the accounting and disclosure guidance relating
to SFAS No. 140. SFAS No. 166 eliminates the exemption from consolidation for
qualifying special-purpose entities (“QSPEs”) and it also requires a transferor
to evaluate all existing QSPEs to determine whether it must be consolidated in
accordance with SFAS No. 167. SFAS No. 166 is effective for fiscal years
beginning after November 15, 2009 and interim periods within those
years.





We are
currently evaluating the impact SFAS No. 166 will have on our consolidated
financial statements and disclosures. This statement will be effective for
interim periods beginning in fiscal 2011.





FASB
Statement of Financial Accounting Standards No.167





In
May 2009, the FASB issued SFAS No. 167,Amendments to FASB Interpretation
No. 46(R) (“SFAS No. 167”).SFAS No. 167 amends the
consolidation guidance applicable to variable interest entities (“VIEs”). The
amendments to the consolidation guidance affect all entities currently within
the scope of FIN 46(R), as well as qualifying special-purpose entities (“QSPEs”)
that are currently excluded from the scope of FIN 46(R). SFAS No. 167 is
effective for fiscal years beginning after November 15, 2009 and interim periods
within those years.





We are
currently evaluating the impact SFAS No. 167 will have on our consolidated
financial statements and disclosures. This statement will be effective for
interim periods beginning in fiscal 2011.





FASB
Statement of Financial Accounting Standards No.168





In
May 2009, the FASB issued SFAS No. 168, TheFASB Accounting Standards
CodificationTMand the Hierarchy of Generally
Accepted Accounting Principles—a replacement of FASB Statement No. 162(“SFAS No. 168”). SFAS No. 168
establishes the Codification as the single source of authoritative generally
accepted accounting principles (GAAP) in the United States, other than rules and
interpretive releases issued by the Securities and Exchange Commission (SEC).
The Codification is a reorganization of current GAAP into a topical format that
eliminates the current GAAP hierarchy and instead establishes two levels of
guidance – authoritative and non-authoritative. All non-grandfathered, non-SEC
accounting literature that is not included in the Codification will become
non-authoritative. The FASB’s primary goal in developing the Codification is to
simplify user access to all authoritative GAAP by providing all the
authoritative literature related to a particular accounting topic in one place.
The Codification will be effective for interim and annual periods ending after
September 15, 2009.




As the
Codification is not intended to change or alter existing GAAP, it will not have
a material impact on our consolidated financial statements.


18




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




Our
Management’s Discussion and Analysis is an integral part of understanding our
financial results.This
Management’s Discussion and
Analysis should be read in conjunction with the accompanying Consolidated
Financial Statements and related Notes to Consolidated Financial Statements. We
begin the Management’s Discussion and Analysis with an introduction to La-Z-Boy
Incorporated’s key businesses and strategies. We then provide a discussion of
our results of operations, liquidity and capital resources, quantitative and
qualitative disclosures about market risk, and critical accounting
policies.




Cautionary
Statement Concerning Forward-Looking Statements




We are
making forward-looking statements in this report. Generally, forward-looking
statements include information concerning possible or assumed future actions,
events or results of operations. More specifically, forward-looking statements
include the information in this document 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 anticipated or projected due to a
number of factors. These factors include, but are not limited to: (a) changes in
consumer confidence and demographics; (b) continued economic recession and
fluctuations in our stock price; (c) changes in the real estate and credit
markets and the potential impacts on our customers and suppliers; (d) the impact
of terrorism or war; (e) continued energy and other commodity price changes; (f)
the impact of logistics on imports; (g) the impact of interest rate and currency
exchange rate changes; (h) supply, labor or distribution disruptions; (i)
effects of restructuring actions; (j) changes in the domestic or international
regulatory environment; (k) the impact of adopting new accounting principles;
(l) the impact from natural events such as hurricanes, earthquakes and
tornadoes; (m) the ability to procure fabric rolls and leather hides or cut and
sewn fabric and leather sets domestically or abroad; (n) unanticipated
labor/industrial actions; (o) those matters discussed in Item 1A of our fiscal
2009 Annual Report and factors relating to acquisitions and other factors
identified from time-to-time in our reports filed with the Securities and
Exchange Commission. We undertake no obligation to update or revise any
forward-looking statements, either to reflect new developments or for any other
reason.





Introduction





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. We own 68 La-Z-Boy Furniture Galleries® stores,
which are retail locations dedicated to marketing our La-Z-Boy branded product.
These 68 stores are part of the larger store network of La-Z-Boy Furniture
Galleries® stores which includes a total of 317 stores, the balance of which are
independently owned and operated. The network constitutes the industry’s largest
single-branded upholstered furniture retailer in North America. These stores
combine the style, comfort and quality of La-Z-Boy furniture with our in-home
design service to help consumers furnish their homes.


19


In
addition to our company-owned stores, we consolidate certain of our independent
dealers who did not have sufficient equity to carry out their principal business
activities without our financial support. These dealers are referred to as
Variable Interest Entities (“VIEs”). During the first quarter of fiscal 2010 we
had three VIEs, operating 30 stores, included in our Consolidated Statement of
Operations.   During the first quarter of fiscal 2009 we had four
VIEs, operating 34 stores, included in our Consolidated Statement of
Operations.





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. Also included in the Upholstery Group are
the operating units Bauhaus and England.  This group primarily
manufactures and sells upholstered furniture to proprietary
stores.  Upholstered furniture includes recliners and motion
furniture, sofas, loveseats, chairs, ottomans and sleeper sofas.





Casegoods Group.  Our
Casegoods Group today is primarily an importer, marketer and distributor of
casegoods (wood) furniture.  During fiscal 2010, our remaining two
casegoods manufacturing facilities are being consolidated.  The
operating units in the Casegoods Group are American Drew/Lea, Hammary and
Kincaid.  Casegoods product includes tables, chairs, entertainment centers,
headboards, dressers, accent pieces and some coordinated upholstered
furniture.





Retail Group.  The
Retail Group consists of 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
sells upholstered furniture, as well as casegoods and other accessories to end
consumers through the retail network.





The chart
below shows the current structure of the La-Z-Boy Furniture Galleries® store
network.











In
addition to our La-Z-Boy Furniture Galleries® store network, we also have a
distribution model known as ComfortStudios®.  ComfortStudios® are
defined spaces within a larger retailer that are dedicated to displaying
La-Z-Boy branded furniture with the average size of the space being about 5,000
square feet.  As of July 25, 2009, we had 475
ComfortStudios®.  We expect to open approximately 45 new
ComfortStudios® during the remainder of fiscal 2010.  Kincaid, England
and Lea also have in-store gallery programs.


20


During
the first quarter of fiscal 2010, we implemented SFAS No. 160, the new
accounting standard which changes how companies account for noncontrolling
interests.  In the past, income attributable to noncontrolling interests
(formerly referred to as minority interests) was recorded as a reduction to
operating income.  Under the new accounting standard, net income
attributable to noncontrolling interests is now presented as a separate line
item on our Consolidated Statement of Operations.  Additionally, in the
past, we absorbed any losses incurred by VIEs in excess of their equity. 
Under the new accounting method, these losses are included in the net income
attributable to noncontrolling interests and, as a result, are not included in
the net income attributable to La-Z-Boy Incorporated.  Prior-year
reclassifications were made to be consistent with current year
presentation.  However, as required by the accounting standard, net
income attributable to La-Z-Boy Incorporated was not restated to exclude the VIE
losses.


21


Results
of Operations


Analysis of Operations: Quarter Ended
July 25, 2009


(First Quarter 2010 compared with
2009)





Quarter
      Ended(Unaudited,
      amounts in thousands, except per share amounts and
      percentages)
                  
                  7/25/09
                  
                  
                  7/26/08
                  
                  
                  Percent
                    changeUpholstery
      sales
                  
                  $
                  196,692
                  
                  
                  $
                  237,118
                  
                  
                  
                  (17.0
                  )%Casegoods
      sales
                  
                  
                  35,865
                  
                  
                  
                  48,121
                  
                  
                  
                  (25.5
                  )%Retail
      sales
                  
                  
                  35,961
                  
                  
                  
                  42,427
                  
                  
                  
                  (15.2
                  )%Other/eliminations*
                  
                  
                  (5,847
                  )
                  
                  
                  (6,014
                  )
                  
                  
                  2.8
                  %Consolidated
      sales
                  
                  $
                  262,671
                  
                  
                  $
                  321,652
                  
                  
                  
                  (18.3
                  )%Consolidated
      gross profit
                  
                  $
                  80,386
                  
                  
                  $
                  80,261
                  
                  
                  
                  0.2
                  %Consolidated
      gross margin
                  
                  
                  30.6
                  %
                  
                  
                  25.0
                  %Consolidated
      S,G&A
                  
                  $
                  77,456
                  
                  
                  $
                  91,270
                  
                  
                  
                  (15.1
                  )%S,G&A
      as a percent of sales
                  
                  
                  29.5
                  %
                  
                  
                  28.4
                  %Upholstery
      operating income
                  
                  $
                  16,290
                  
                  
                  $
                  9,857
                  
                  
                  
                  65.3
                  %Casegoods
      operating income (loss)
                  
                  
                  (121
                  )
                  
                  
                  1,377
                  
                  
                  
                  (108.8
                  )%Retail
      operating loss
                  
                  
                  (5,668
                  )
                  
                  
                  (10,010
                  )
                  
                  
                  43.4
                  %Corporate
      and other
                  
                  
                  (6,835
                  )
                  
                  
                  (6,438
                  )
                  
                  
                  (6.2
                  )%Intangible
      write-down
                  
                  
                  —
                  
                  
                  
                  (1,292
                  )
                  
                  
                  N/ARestructuring
                  
                  
                  (1,037
                  )
                  
                  
                  (6,576
                  )
                  
                  
                  84.2
                  %Consolidated
      operating income (loss)
                  
                  $
                  2,629
                  
                  
                  $
                  (13,082
                  )
                  
                  
                  120.1
                  %Upholstery
      operating margin
                  
                  
                  8.3
                  %
                  
                  
                  4.2
                  %Casegoods
      operating margin
                  
                  
                  (0.3
                  )%
                  
                  
                  2.9
                  %Retail
      operating margin
                  
                  
                  (15.8
                  )%
                  
                  
                  (23.6
                  )%Consolidated
      operating margin
                  
                  
                  1.0
                  %
                  
                  
                  (4.1
                  )%Net
      income (loss) attributable to La-Z-Boy Incorporated
                  
                  $
                  1,983
                  
                  
                  $
                  (8,544
                  )Net
      income (loss) per share attributable to La-Z-Boy
    Incorporated
                  
                  $
                  0.04
                  
                  
                  $
                  (0.17
                  )


*
Includes sales from our VIEs.




22


Sales




Consolidated saleswere down
18.3% when compared with the first quarter of fiscal 2009 due in large part to
the challenging economic conditions including the weak retail environment, low
consumer confidence, an uncertain housing market and a poor credit
environment.  The challenging conditions coupled with our decision to
limit our exposure and credit support to certain independent dealers was
reflected in our overall decrease in sales.




Upholstery Group sales were
down 17.0% compared with the first quarter of fiscal 2009. Sales price increases
resulted in a 1.2% increase in sales; however this was offset by the overall
decrease in sales volume due to the challenging economic
conditions.  Additionally in the first quarter of fiscal 2009, our
upholstery group sales were affected by the change in contractual relationships
with our third party carriers and resulted in an increase in sales for that
period.





Casegoods Groupsales
decreased 25.5% compared with the first quarter of fiscal 2009. The decrease in
sales volume occurred across all of our Casegoods operating units due to weak
consumer demand and the challenging economic
conditions.  Additionally, casegoods product tends to be a higher
ticket purchase compared to upholstered furniture, therefore we believe the
consumer is postponing these purchases to a greater extent than they are
upholstery.





Retail Group sales decreased
15.2% when compared with the first quarter of fiscal 2009.  The
decrease in sales was related to the challenging economic conditions including
the weak retail environment, which continued to negatively affect the home
furnishings market.





Included
in Other/eliminations
were the sales by our VIEs and the elimination of sales from our Upholstery and
Casegoods Groups to our Retail Group.  The change in
Other/eliminations was attributable to a slight decrease in intercompany sales
eliminations for the first quarter of fiscal 2010 compared to the first quarter
of fiscal 2009. Offsetting this was a decrease in sales of our VIEs in the first
quarter fiscal 2010 when compared to the first quarter of fiscal 2009, due to
business conditions, as well as having four less stores.





Gross
Margin





Gross
margin increased 5.6 percentage points in the first quarter of fiscal 2010 in
comparison to the first quarter of fiscal 2009.   Compared with
the prior year’s first quarter, we had some favorable impact due to lower raw
material costs and benefited slightly from selling price increases taken early
in fiscal 2009.  However, the main cause for the increase in our gross
margin was realizing efficiencies in our manufacturing facilities as a result of
the many changes we made in our conversion to cellular manufacturing and more
efficient capacity utilization due to the various restructurings we completed in
recent years.  These restructurings eliminated redundant costs by
closing plants and reducing our workforce to enable our operations to run
efficiently.





Selling,
General and Administrative Expenses





Selling,
general and administrative expenses (S,G&A)decreased by about $13.8
million when compared to the prior year’s first quarter,  however as a
percent of sales, S,G&A increased by about 1.1 percentage
points.  The percentage increase was mainly the result of the decline
in sales volume.  During the first quarter of fiscal 2009, we realized
gains on property sales of $2.1 million compared to an insignificant gain in the
first quarter of fiscal 2010 which lowered S,G&A in the prior year first
quarter.  Advertising costs, bad debt expense and commissions expense
decreased 25.6% in the first quarter of fiscal 2010, compared to the first
quarter of fiscal 2009.  While advertising costs decreased,
advertising as a percent of sales increased from 4.2% in the first quarter of
fiscal 2009 to 4.5% in the first quarter of fiscal 2010.  Although we
have focused on cost containment, we have maintained a strong advertising
presence in the marketplace.  The remainder of the decrease in
selling, general and administrative expenses was a result of our overall
reduction in operating expenses to be more in alignment with the current sales
volumes.


23





Intangible
Write-Down





The
intangible write-down of $1.3 million in the first quarter of fiscal 2009 was
the result of committing to a plan to close the operations of our La-Z-Boy U.K.
subsidiary.





Restructuring





Restructuring
costs totaled $1.0 million for the first quarter of fiscal 2010 as compared with
$6.6 million in the first quarter of fiscal 2009. The restructuring costs in the
first quarter of fiscal 2010 related to the consolidation of our casegoods
manufacturing plant, in addition to ongoing severance as we transition our
domestic cut and sew operations to our Mexico facility and the ongoing costs for
our closed retail facilities.  The restructuring costs in fiscal 2009
related to the closure of our Tremonton, Utah facility, the closure of our
Sherman, Mississippi facility, the restructuring of our La-Z-Boy U.K. facility
and the ongoing costs for the closure of retail facilities.  These
costs were comprised mainly of severance and benefits, fixed asset and inventory
impairments, transition costs for the Utah plant closure and the ongoing lease
cost for our closed retail facilities.





Operating
Margin





Our
consolidated operating margin was 1.0% for the first quarter of fiscal 2010 and
included 0.4 percentage points of restructuring charges.  Operating
margin for the first quarter of fiscal 2009 was (4.1)% and included 2.0
percentage points of restructuring and 0.4 percentage points for the write-down
of intangibles.





The Upholstery Group operating
margin increased 4.1 percentage points when compared with the first quarter of
fiscal 2009.  Our upholstery group operating margin was positively
impacted by efficiencies we gained through our change to a cellular
manufacturing footprint.  Additionally, selling price increases
positively impacted our operating margin.





Our Casegoods Group operating
margin decreased by 3.2 percentage points in the first quarter of fiscal 2010
when compared with the first quarter of fiscal 2009.  In the first
quarter of fiscal 2010 our casegoods group continued to offer deep discounts in
order to sell slow moving and obsolete inventory.  This decision,
coupled with the challenging market for casegoods furniture causing a 25.5%
decrease in sales volume, resulted in our lower operating margin.





Our Retail Group operating margin
improved significantly during the first quarter of fiscal 2010 in comparison to
the first quarter of fiscal 2009.  The 7.8 percentage point
improvement was a direct result of our focus on reducing costs throughout the
second half of fiscal 2009.  These changes had a favorable impact on
our operating margin even on the large decrease in sales volume.





Corporate and Otheroperating
loss in the first quarter of fiscal 2010 increased $0.4 million when compared to
the first quarter of fiscal 2009.  Realized gains on property sales
for the first quarter of fiscal 2010 were $2.1 million lower than the first
quarter of fiscal 2009.  This was offset by our overall reduction in
operating expenses.


24





Interest
Expense





Interest
expense for the first quarter of fiscal 2010 was less than the first quarter of
fiscal 2009 due to a $53.3 million decrease in our average debt.  Our
weighted average interest rate increased 0.2 percentage points in the first
quarter of fiscal 2010 compared to the first quarter of fiscal
2009.





Income
Taxes




Our 16.7%
effective tax rate for the first quarter of fiscal 2010 resulted primarily from
an increase in estimated federal income tax benefits of approximately $0.9
million associated with the completion of our fiscal 2009 federal income tax
return, offset in part by the effect of a higher expected full year effective
tax rate related to the valuation allowance on our deferred tax
assets.  Our effective tax rate was also impacted by the relatively
low level of pre-tax income reported for the quarter ended July 25,
2009.




Liquidity
and Capital Resources





Our total
assets at the end of the first quarter of fiscal 2010 decreased $7.0 million
compared with the end of fiscal 2009.





Our
sources of cash liquidity include cash and equivalents, cash from operations and
amounts available under our credit facility. These sources have been adequate
for day-to-day operations and capital expenditures.  We had cash and
equivalents of $38.3 million at July 25, 2009, compared to $17.4 million at
April 25, 2009.  In the first quarter of fiscal 2010, restricted cash
decreased by $18.2 million and became available to be used for operations due to
a change in our captive insurance company.  Additionally, we expect to
receive approximately $14 million in fiscal 2010 in the form of tax refunds
based on net operating loss carryovers generated on our various income tax
returns filed during the first quarter of fiscal 2010.




Under our
credit agreement we have certain covenants and restrictions, including a fixed
charge coverage ratio requirement which would become effective if 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 thresholds in the next twelve months.  As of July 25,
2009 we had $30.0 million outstanding on our credit facility and $70.5 million
of excess availability, compared to $35.0 million outstanding and $65.0 million
of excess availability as of April 25, 2009.  As of July 25, 2009, we
met our 1.05 to 1.00 fixed charge coverage ratio requirement.





Our
borrowing capacity is based on eligible trade accounts receivables and inventory
of the company.  While our inventory levels increased slightly, our
accounts receivable and the amount outstanding on our credit facility decreased
during the first quarter of fiscal 2010. As a result, the capacity to borrow on
the line remained somewhat flat during the first quarter of fiscal
2010.  However, further deterioration of the overall economic
conditions could impact the credit worthiness of our customers and could have a
negative impact on our availability.




Further
deterioration of market conditions could reduce our sales volume further and
have a negative impact on our results of operations, cash flows and financial
position including, but not limited to, significant operating
losses.  Volatile and disrupted global capital markets could continue
to adversely affect the cost and availability of funding.  Some
lenders have reduced or ceased to provide funding to
borrowers.  However, our lenders have not indicated to us that they
would stop providing funding or not honor their obligations in our credit
agreement.


25




In the
fourth quarter of fiscal 2009 we made the decision to suspend our quarterly
dividend because of the deteriorating economic conditions.  At that
time we found it more prudent to conserve cash and redirect those funds back
into the company.




Capital
expenditures for the first quarter of fiscal 2010 were $1.4 million compared
with $7.4 million during the first quarter of fiscal 2009.  There are
no material purchase commitments for capital expenditures, which are expected to
be in the range of $12 million to $14 million in fiscal 2010.  We
expect restructuring costs from our plan to consolidate the cutting and sewing
operations in Mexico and our plan to consolidate our North Carolina casegoods
manufacturing plants to impact cash by $2.7 million during the remainder of
fiscal 2010 and $0.4 million in fiscal 2011.




We expect
to pay our contractual obligations due in the remainder of fiscal 2010 using our
cash flow from operations, our $38.3 million of cash on hand as of July 25, 2009
and the $70.5 million of availability under our credit facility.  We
believe our present cash balance, cash flows from operations and current
availability under our credit agreement will be sufficient to fund our business
needs.  In order to manage our liquidity during the remainder of
fiscal 2010 we plan to review all planned capital expenditures and proceed with
only those necessary to sustain or improve productivity and manage inventory
levels and operating expenses based on current sales
volumes.


26


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





Cash
      Flows Provided By (Used For)
                    
                    First
      Quarter Ended(Unaudited,
      amounts in thousands)
                    
                    7/25/09
                    
                    
                    7/26/08Operating
      activitiesNet
      income (loss)
                    
                    $
                    2,197
                    
                    
                    $
                    (8,458
                    )Non-cash
      add backs and changes in deferred taxes
                    
                    
                    9,473
                    
                    
                    
                    11,413Restructuring
                    
                    
                    1,037
                    
                    
                    
                    6,576Working
      capital
                    
                    
                    1,078
                    
                    
                    
                    (5,090
                    )Cash
      provided by operating activities
                    
                    
                    13,785
                    
                    
                    
                    4,441Investing
      activities
                    
                    
                    18,704
                    
                    
                    
                    (2,263
                    )Financing
      activitiesNet
      decrease in debt
                    
                    
                    (11,699
                    )
                    
                    
                    (4,222
                    )Other
      financing activities, mainly dividends
                    
                    
                    —
                    
                    
                    
                    (2,077
                    )Cash
      used for financing activities
                    
                    
                    (11,699
                    )
                    
                    
                    (6,299
                    )Exchange
      rate changes
                    
                    
                    179
                    
                    
                    
                    (39
                    )Net
      increase (decrease) in cash and equivalents
                    
                    $
                    20,969
                    
                    
                    $
                    (4,160
                    )





Operating
Activities





During
the first quarter of fiscal 2010, net cash provided by operating activities was
$13.8 million, compared with $4.4 million provided by operating activities in
the first quarter of fiscal 2009.  Our net income in the first quarter
of fiscal 2010 versus our net loss in the first quarter of fiscal 2009, as well
as positive cash flow from working capital were the main reasons for the
increase.  The working capital cash used for operations in the first
quarter of fiscal 2009 was a result of a decrease in our payroll and benefit
liabilities and a decrease in our customer deposits during the first quarter of
fiscal 2009.





Investing
Activities





During
the first quarter of fiscal 2010, net cash provided by investing activities was
$18.7 million, whereas $2.3 million was used for investing activities during
fiscal 2009.  The increase in net cash provided by investing
activities resulted primarily from the change in restricted cash during the
quarter.





Financing
Activities





We used
$11.7 million of cash for financing activities in the first quarter of fiscal
2010 compared with $6.3 million of cash used for financing activities during the
first quarter of fiscal 2009.  Our financing activities in the first
quarter of fiscal 2010 included a net pay down of debt of $11.7 million,
compared to a $4.2 million net pay down of debt in the first quarter of fiscal
2009.  In addition to these financing activities, our first quarter of
fiscal 2009 also included dividend payments of $2.1 million.





In the
first quarter of fiscal 2008, we adopted FIN 48 and as a consequence, the
balance sheet at the end of the first quarter of fiscal 2010 reflected a $6.0
million liability for uncertain income tax positions.  Of this amount
only a nominal amount 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.   There were no material changes to our
contractual obligations table during the quarter.


27




Our
debt-to-capitalization ratio was 13.5% at July 25, 2009 and 16.4% at April 25,
2009.  Capital is defined as total debt and capital lease obligations plus
total equity.




Our Board
of Directors has authorized the repurchase of company stock.  As of
July 25, 2009, 5.4 million additional shares could be purchased pursuant to this
authorization. We did not purchase any shares during the first quarter of fiscal
2010.




We have
guaranteed various leases and notes of dealers with proprietary stores. The
total amount of these guarantees was $2.8 million at July 25, 2009. Of this,
$1.6 million will expire within one year and $1.2 million in one to three years.
In recent years, we have increased our imports of casegoods product and leather
and fabric for upholstery product. At the end of the first quarter of fiscal
2010, we had $31.4 million in open purchase orders with foreign casegoods,
leather and fabric sources. Our open purchase orders that have not begun
production are cancelable.




We are
not required to make any contributions to our defined benefit plans; however, we
may make discretionary contributions.




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.




Restructuring




In the
fourth quarter of 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 another facility into a
distribution center. The consolidation of these plants occurred in the first
quarter of fiscal 2010.  The conversion of the distribution center is
expected to be completed by the end of the fourth quarter of fiscal 2010. In
connection with these activities, we have incurred $0.8 million in restructuring
charges since the inception of this plan for severance and benefits, write-down
of fixed assets and other restructuring charges.  In the first quarter
of fiscal 2010 we recorded pre-tax restructuring charges of $0.6 million,
covering severance and benefits and other restructuring costs. We expect to
incur approximately $1.5 million in additional charges in fiscal 2010 related to
severance and benefits and other restructuring costs. During fiscal 2009, we had
restructuring charges of $0.2 million, covering severance and benefits and the
write-down of fixed assets.  We expect these changes to result in
annual cost savings of approximately $5 to $6 million.





During
fiscal 2008, we committed to a restructuring plan to consolidate all of our
North American cutting and sewing operations in Mexico and 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 and production was shifted to our remaining
manufacturing facilities. At the end of the first quarter of fiscal 2010, we had
about 620 employees at our Mexican facility and approximately 21% of our
domestic cutting and sewing operations have been transferred to our Mexican
facility. By the end of fiscal 2010 we expect 100% of our domestic fabric and
75% to 80% of our domestic leather cutting and sewing operations to be shifted
to our Mexican facility. We plan to shift the remaining leather cutting and
sewing operations in the first quarter of fiscal 2011. In connection with these
activities, we have incurred $10.4 million in restructuring charges since the
inception of this plan for severance and benefits, write-down of certain fixed
assets, and other restructuring costs. We expect to incur additional pre-tax
restructuring charges of $1 to $2 million. During the first quarter of fiscal
2010, we had restructuring charges of $0.1 million, covering severance and
benefits.  During fiscal 2009, we had restructuring charges of $7.7
million, covering severance and benefits ($3.1 million) and other restructuring
costs ($4.6 million).  Other restructuring costs include
transportation, freight surcharges and other transition costs as we moved
production to other plants. We anticipate these changes will result in annual
cost savings of approximately $20 million.


28


During
fiscal 2007 and 2008, several of our warehouse distribution centers were
consolidated into larger facilities and several underperforming stores were
closed. In the first quarter of fiscal 2010, we had restructuring charges of
$0.3 million related to contract terminations.  We expect to incur
approximately $0.2 million of additional charges in the remainder of fiscal
2010.  During fiscal 2009, we had restructuring charges of $1.6
million related to contract terminations.





During
fiscal 2009, we committed to restructuring plans to close a plant in Sherman,
Mississippi related to our Bauhaus operations, to reduce our company-wide
employment to be more in line with sales volume, and to close the operations of
our La-Z-Boy U.K. subsidiary. The closure of the plant in Sherman, Mississippi
was completed in the fourth quarter of fiscal 2009.  The closure of
our La-Z-Boy U.K. subsidiary occurred in the second quarter of fiscal
2009.  In connection with these plans, we recorded pre-tax
restructuring charges of $3.5 million in fiscal 2009, covering severance and
benefits ($1.2 million), the write-down of inventory ($1.2 million) and the
write-down of fixed assets and other restructuring charges ($1.1
million).  Additionally, during fiscal 2009 we had reversals of $0.5
million relating to our restructuring plans in fiscal 2007.




As of
July 25, 2009, we had a remaining restructuring liability of $2.2 million
which is expected to be settled as follows: $1.6 million in the remainder
of fiscal 2010 and $0.6 million thereafter.




Restructuring liabilities along with
charges to expense, cash payments or asset write-downs for all of our
restructuring actions were as follows:




Fiscal
      2010(Unaudited,
      amounts in thousands)
                
                4/25/09
                  Balance
                
                
                Charges
      to
                  Expense
      *
                
                
                Cash
                  Payments
                  or
      Asset
                  Write-Offs
                
                
                7/25/09
                  BalanceSeverance
      and benefit-related costs
                
                $
                2,022
                
                
                $
                343
                
                
                $
                (553
                )
                
                $
                1,812Contract
      termination costs
                
                
                530
                
                
                
                301
                
                
                
                (412
                )
                
                
                419Other
                
                
                —
                
                
                
                393
                
                
                
                (393
                )
                
                
                —Total
      restructuring
                
                $
                2,552
                
                
                $
                1,037
                
                
                $
                (1,358
                )
                
                $
                2,231


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


29




Fiscal
      2009(Unaudited,
      amounts in thousands)
                
                4/26/08
                  Balance
                
                
                Charges
      to
                  Expense
      **
                
                
                Cash
                  Payments
                  or
      Asset
                  Write-Offs
                
                
                4/25/09
                  BalanceSeverance
      and benefit-related costs
                
                $
                2,842
                
                
                $
                4,149
                
                
                $
                (4,969
                )
                
                $
                2,022Fixed
      asset write-downs, net of gains
                
                
                —
                
                
                
                512
                
                
                
                (512
                )
                
                
                —Contract
      termination costs
                
                
                939
                
                
                
                1,528
                
                
                
                (1,937
                )
                
                
                530Other
                
                
                —
                
                
                
                6,271
                
                
                
                (6,271
                )
                
                
                —Total
      restructuring
                
                $
                3,781
                
                
                $
                12,460
                
                
                $
                (13,689
                )
                
                $
                2,552


**
Charges to expense include $1.8 million of non-cash charges for contract
termination costs, fixed asset and inventory write-downs.




Critical
Accounting Policies




Our
critical accounting policies are disclosed in our Form 10-K for the year ended
April 25, 2009.




Regulatory
Developments





The
Continued Dumping and Subsidy Offset Act of 2000 (“CDSOA”) provides for
distribution of monies collected by U.S. Customs and Border Protection (“CBP”)
from anti-dumping cases to domestic producers that supported the anti-dumping
petition. The Dispute Settlement Body of the World Trade Organization (“WTO”)
ruled that such payments violate the United States’ WTO obligations. In response
to that ruling, on February 8, 2006, the President signed legislation passed by
Congress that repeals CDSOA distributions to eligible domestic producers for
duties collected on imports entered into the United States after September 30,
2007.  The government is withholding a portion of the CDSOA funds as a
result of two lower court cases involving the CDSOA that were decided against
the government on constitutional grounds and that have been
appealed.  Although the U.S. Court of Appeals for the Federal Circuit
has subsequently reversed one of those lower court cases, that decision still
may be subject to further judicial review.  The resolution of these
legal appeals 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 $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 antidumping order on wooden bedroom
furniture from China.





Recent
Accounting Pronouncements




Refer to
Note 17 for updates on recent accounting pronouncements since the filing of our
Form 10-K for the year ended April 25, 2009.





Business
Outlook





Although
our year-over-year sales decline was lower than in the past two quarters, we
believe the operating environment will remain challenging for the remainder of
the year.  Against that backdrop, we will continue to manage our
business aggressively and make any necessary adjustments that volume trends may
dictate while having a disciplined focus on running our operations as
efficiently as possible.


30


ITEM 3. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK




We are
exposed to market risk from changes in interest rates. Our exposure to interest
rate risk results from our variable rate debt under which we had $25.4 million
of borrowings at July 25, 2009.  In May 2008, we entered into an
interest rate swap agreement to mitigate the impact of changes in interest rates
on $20.0 million of our floating rate debt.  Management estimates that
a one percentage point change in interest rates would not have a material impact
on our results of operations for fiscal 2010 based upon the current levels
of exposed liabilities.




We are
exposed to market risk from changes in the value of foreign currencies.
Substantially all of our imports purchased outside of North America are
denominated in U.S. dollars. Therefore, we believe that gains or losses
resulting from changes in the value of foreign currencies will not be material
to our results from operations in fiscal year 2010.




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 are effective to ensure that information required to be disclosed in
our periodic reports filed under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified by the Securities and
Exchange Commission's rules and forms and is accumulated and communicated to our
management, including our Chief Executive Officer and Chief Financial Officer,
as appropriate to allow timely decisions regarding required
disclosure.





Changes in
Internal Control over Financial Reporting.There were no changes in
our internal controls over financial reporting that occurred during our first
quarter of fiscal 2010 that have materially affected, or are reasonably likely
to materially affect, our internal control over financial
reporting.


31




PART
II — OTHER INFORMATION




ITEM
1A.  RISK FACTORS




There
have been no material changes to our risk factors during the first quarter of
fiscal 2010.  Our risk factors are disclosed in our Form 10-K for the year
ended April 25, 2009.




ITEM
6. EXHIBITS




Exhibit
                Number
              
              Description(4.2)
              
              First
      Amendment to Credit Agreement dated April 1, 2008 among La-Z-Boy
      Incorporated, certain of its subsidiaries, the lenders named therein, and
      Wachovia Capital Finance Corporation (Central), as administrative agent
      for the lenders.(4.3)
              
              Second
      Amendment to Credit Agreement dated July 13, 2009 among La-Z-Boy
      Incorporated, certain of its subsidiaries, the lenders named therein, and
      Wachovia Capital Finance Corporation (Central), as administrative agent
      for the lenders.(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)


32


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:
August 18, 2009




BY: 
      /s/ Margaret L. MuellerMargaret
      L. MuellerCorporate
      ControllerOn
      behalf of the registrant and asChief
      Accounting
Officer


33