##### Table of Contents



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 1934FOR QUARTERLY PERIOD ENDED JANUARY 26, 2008
COMMISSION FILE NUMBER 1-9656
 LA-Z-BOY INCORPORATED
 
 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)
  
  þ o
  Large accelerated
filer o
    
    Accelerated
filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
  o þ
  Class
    
    Outstanding at January 26, 2008Common Shares, $1.00 par value
    
    51,417,087




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##### 



PageNumber(s)PART I Financial Information (Unaudited)Item 1.
    
    Financial StatementsConsolidated Statement of Operations
    
    3-4Consolidated Balance Sheet
    
    5Consolidated Statement of Cash Flows
    
    6Consolidated Statement of Changes in Shareholders Equity
    
    7Notes to Consolidated Financial StatementsNote 1. Basis of Presentation
    
    8Note 2. Interim Results
    
    8Note 3. Reclassification
    
    8Note 4. Inventories
    
    8Note 5. Goodwill and Other Intangible Assets
    
    8-9Note 6. Pension Plans
    
    9Note 7. Financial Guarantees and Product Warranties
    
    10Note 8. Stock-Based Compensation
    
    10-11Note 9. Segment Information
    
    11Note 10. Restructuring
    
    11-13Note 11. Uncertain Tax Positions
    
    13Note 12. Variable Interest Entities
    
    13-14Note 13. Discontinued Operations
    
    14-16Note 14. Income from Continued Dumping and Subsidy Offset
Act
    
    16Note 15. Earnings per Share
    
    16Note 16. Subsequent Event
    
    17Note 17. Recent Accounting Pronouncements
    
    18Item 2.
    
    Managements Discussion and Analysis of Financial
Condition and Results of OperationsCautionary Statement Concerning Forward-Looking Statements
    
    19Introduction
    
    19-21Results of Operations
    
    22-29Liquidity and Capital Resources
    
    30-32Critical Accounting Policies
    
    32Restructuring
    
    32-33Regulatory Developments
    
    33Recent Accounting Pronouncements
    
    34Business Outlook
    
    34Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    35Item 4.
    
    Controls and Procedures
    
    35PART II Other InformationItem 1A.
    
    Risk Factors
    
    36Item 6.
    
    Exhibits
    
    36Signature Page
    
    37Performance Awards Goals (for Performance Cycle Ending April 2010), as amendedCertification of Chief Executive Officer Pursuant to Rule 13a-14(a)Certification of Chief Financial Officer Pursuant to Rule 13a-14(a)Certifications of Executive Officers Pursuant to 18 U.S.C. Section 1350(b)Press Release dated February 19, 2008




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##### Table of Contents



Item 1. Financial Statements
 LA-Z-BOY INCORPORATED
 
 CONSOLIDATED STATEMENT OF OPERATIONS
 Third Quarter Ended% Over
    
    
    Percent of Sales(Unaudited, amounts in thousands, except per share data)
    
    01/26/08
    
    
    01/27/07
    
    
    (Under)
    
    
    01/26/08
    
    
    01/27/07Sales
    
    $
    373,081
    
    
    $
    404,845
    
    
    
    -7.8
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of salesCost of goods sold
    
    
    265,078
    
    
    
    291,322
    
    
    
    -9.0
    %
    
    
    71.1
    %
    
    
    72.0
    %Restructuring
    
    
    (632
    )
    
    
    
    
    
    
    
    
    
    
    -0.2
    %
    
    
    Total cost of sales
    
    
    264,446
    
    
    
    291,322
    
    
    
    -9.2
    %
    
    
    70.9
    %
    
    
    72.0
    %Gross profit
    
    
    108,635
    
    
    
    113,523
    
    
    
    -4.3
    %
    
    
    29.1
    %
    
    
    28.0
    %Selling, general and
administrative
    
    
    104,672
    
    
    
    101,213
    
    
    
    3.4
    %
    
    
    28.1
    %
    
    
    25.0
    %Restructuring
    
    
    877
    
    
    
    2,855
    
    
    
    -69.3
    %
    
    
    0.2
    %
    
    
    0.7
    %Operating income
    
    
    3,086
    
    
    
    9,455
    
    
    
    -67.4
    %
    
    
    0.8
    %
    
    
    2.3
    %Interest expense
    
    
    2,148
    
    
    
    2,750
    
    
    
    -21.9
    %
    
    
    0.6
    %
    
    
    0.7
    %Income from Continued Dumping
and Subsidy Offset Act, net
    
    
    7,147
    
    
    
    3,430
    
    
    
    108.4
    %
    
    
    1.9
    %
    
    
    0.8
    %Other income, net
    
    
    4,919
    
    
    
    1,633
    
    
    
    201.2
    %
    
    
    1.3
    %
    
    
    0.4
    %Income from continuing
operations before income
taxes
    
    
    13,004
    
    
    
    11,768
    
    
    
    10.5
    %
    
    
    3.5
    %
    
    
    2.9
    %Income tax expense
    
    
    3,876
    
    
    
    4,823
    
    
    
    -19.6
    %
    
    
    29.8
    %*
    
    
    41.0
    %*Income from continuing
operations
    
    
    9,128
    
    
    
    6,945
    
    
    
    31.4
    %
    
    
    2.4
    %
    
    
    1.7
    %Income (loss) from
discontinued operations (net
of tax)
    
    
    384
    
    
    
    (14,766
    )
    
    
    102.6
    %
    
    
    0.1
    %
    
    
    -3.6
    %Net income (loss)
    
    $
    9,512
    
    
    $
    (7,821
    )
    
    
    221.6
    %
    
    
    2.5
    %
    
    
    -1.9
    %Basic average shares
    
    
    51,417
    
    
    
    51,367Basic income from continuing
operations per share
    
    $
    0.18
    
    
    $
    0.14Discontinued operations per
share (net of tax)
    
    $
    0.01
    
    
    $
    (0.29
    )Basic net income (loss) per share
    
    $
    0.19
    
    
    $
    (0.15
    )Diluted average shares
    
    
    51,590
    
    
    
    51,609Diluted income from continuing
operations per share
    
    $
    0.18
    
    
    $
    0.14Discontinued operations per
share (net of tax)
    
    $
    
    
    
    $
    (0.29
    )Diluted net income (loss) per
share
    
    $
    0.18
    
    
    $
    (0.15
    )Dividends paid per share
    
    $
    0.12
    
    
    $
    0.12
 
 *
    
    As a percent of pretax income, not sales.  3




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LA-Z-BOY INCORPORATED
CONSOLIDATED STATEMENT OF OPERATIONS
 Nine Months Ended% Over
    
    
    Percent of Sales(Unaudited, amounts in thousands, except per share data)
    
    01/26/08
    
    
    01/27/07
    
    
    (Under)
    
    
    01/26/08
    
    
    01/27/07Sales
    
    $
    1,082,911
    
    
    $
    1,213,382
    
    
    
    -10.8
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of salesCost of goods sold
    
    
    790,879
    
    
    
    893,681
    
    
    
    -11.5
    %
    
    
    73.0
    %
    
    
    73.7
    %Restructuring
    
    
    2,447
    
    
    
    (400
    )
    
    
    711.8
    %
    
    
    0.2
    %
    
    
    Total cost of sales
    
    
    793,326
    
    
    
    893,281
    
    
    
    -11.2
    %
    
    
    73.3
    %
    
    
    73.6
    %Gross profit
    
    
    289,585
    
    
    
    320,101
    
    
    
    -9.5
    %
    
    
    26.7
    %
    
    
    26.4
    %Selling, general and
administrative
    
    
    297,278
    
    
    
    295,783
    
    
    
    0.5
    %
    
    
    27.5
    %
    
    
    24.4
    %Write-down of intangibles
    
    
    5,809
    
    
    
    
    
    
    
    
    
    
    
    0.5
    %
    
    
    Restructuring
    
    
    2,446
    
    
    
    5,120
    
    
    
    -52.2
    %
    
    
    0.2
    %
    
    
    0.4
    %Operating income (loss)
    
    
    (15,948
    )
    
    
    19,198
    
    
    
    -183.1
    %
    
    
    -1.5
    %
    
    
    1.6
    %Interest expense
    
    
    6,365
    
    
    
    7,890
    
    
    
    -19.3
    %
    
    
    0.6
    %
    
    
    0.7
    %Income from Continued
Dumping and Subsidy Offset
Act, net
    
    
    7,147
    
    
    
    3,430
    
    
    
    108.4
    %
    
    
    0.7
    %
    
    
    0.3
    %Other income, net
    
    
    7,740
    
    
    
    3,252
    
    
    
    138.0
    %
    
    
    0.7
    %
    
    
    0.3
    %Income (loss) from
continuing operations
before income taxes
    
    
    (7,426
    )
    
    
    17,990
    
    
    
    -141.3
    %
    
    
    -0.7
    %
    
    
    1.5
    %Income tax expense (benefit)
    
    
    (4,359
    )
    
    
    6,658
    
    
    
    -165.5
    %
    
    
    58.7
    %*
    
    
    37.0
    %*Income (loss) from
continuing operations
    
    
    (3,067
    )
    
    
    11,332
    
    
    
    -127.1
    %
    
    
    -0.3
    %
    
    
    0.9
    %Loss from discontinued
operations (net of tax)
    
    
    (6,050
    )
    
    
    (14,904
    )
    
    
    59.4
    %
    
    
    -0.6
    %
    
    
    -1.2
    %Net Loss
    
    $
    (9,117
    )
    
    $
    (3,572
    )
    
    
    -155.2
    %
    
    
    -0.8
    %
    
    
    -0.3
    %Basic average shares
    
    
    51,402
    
    
    
    51,509Basic income (loss) from
continuing operations per
share
    
    $
    (0.06
    )
    
    $
    0.22Discontinued operations per
share (net of tax)
    
    $
    (0.12
    )
    
    $
    (0.29
    )Basic net loss per share
    
    $
    (0.18
    )
    
    $
    (0.07
    )Diluted average shares
    
    
    51,402
    
    
    
    51,743Diluted income (loss) from
continuing operations per
share
    
    $
    (0.06
    )
    
    $
    0.22Discontinued operations per
share (net of tax)
    
    $
    (0.12
    )
    
    $
    (0.29
    )Diluted net loss per share
    
    $
    (0.18
    )
    
    $
    (0.07
    )Dividends paid per share
    
    $
    0.36
    
    
    $
    0.36
 
 *
    
    As a percent of pretax income, not sales.  4




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##### Table of Contents



LA-Z-BOY INCORPORATED
 
 CONSOLIDATED BALANCE SHEET
 Increase/(Decrease)(Unaudited, amounts in thousands)
    
    01/26/08
    
    
    01/27/07
    
    
    Dollars
    
    
    Percent
    
    
    4/28/07Current assetsCash and equivalents
    
    $
    63,175
    
    
    $
    17,484
    
    
    $
    45,691
    
    
    
    261.3
    %
    
    $
    51,721Receivables, net
    
    
    214,088
    
    
    
    217,103
    
    
    
    (3,015
    )
    
    
    -1.4
    %
    
    
    230,399Inventories, net
    
    
    183,935
    
    
    
    214,151
    
    
    
    (30,216
    )
    
    
    -14.1
    %
    
    
    197,790Deferred income taxescurrent
    
    
    16,696
    
    
    
    31,369
    
    
    
    (14,673
    )
    
    
    -46.8
    %
    
    
    17,283Assets of discontinued operations
    
    
    278
    
    
    
    39,354
    
    
    
    (39,076
    )
    
    
    -99.3
    %
    
    
    24,278Other current assets
    
    
    23,309
    
    
    
    24,847
    
    
    
    (1,538
    )
    
    
    -6.2
    %
    
    
    19,327Total current assets
    
    
    501,481
    
    
    
    544,308
    
    
    
    (42,827
    )
    
    
    -7.9
    %
    
    
    540,798Property, plant and equipment, net
    
    
    179,282
    
    
    
    192,382
    
    
    
    (13,100
    )
    
    
    -6.8
    %
    
    
    183,218Deferred income taxeslong term
    
    
    24,574
    
    
    
    
    
    
    
    24,574
    
    
    
    
    
    
    
    15,380Goodwill
    
    
    49,850
    
    
    
    55,409
    
    
    
    (5,559
    )
    
    
    -10.0
    %
    
    
    55,659Trade names
    
    
    9,006
    
    
    
    9,472
    
    
    
    (466
    )
    
    
    -4.9
    %
    
    
    9,472Other long-term assets
    
    
    74,585
    
    
    
    87,339
    
    
    
    (12,754
    )
    
    
    -14.6
    %
    
    
    74,164Total assets
    
    $
    838,778
    
    
    $
    888,910
    
    
    $
    (50,132
    )
    
    
    -5.6
    %
    
    $
    878,691Current liabilitiesShort-term borrowings
    
    $
    
    
    
    $
    15,702
    
    
    $
    (15,702
    )
    
    
    -100.0
    %
    
    $
    Current portion of long-term debt
    
    
    4,154
    
    
    
    3,487
    
    
    
    667
    
    
    
    19.1
    %
    
    
    38,076Accounts payable
    
    
    61,683
    
    
    
    58,405
    
    
    
    3,278
    
    
    
    5.6
    %
    
    
    66,242Liabilities of discontinued operations
    
    
    916
    
    
    
    5,681
    
    
    
    (4,765
    )
    
    
    -83.9
    %
    
    
    3,843Accrued expenses and other current
liabilities
    
    
    103,387
    
    
    
    105,636
    
    
    
    (2,249
    )
    
    
    -2.1
    %
    
    
    118,591Deferred income taxes
    
    
    669
    
    
    
    
    
    
    
    669
    
    
    
    
    
    
    
    Total current liabilities
    
    
    170,809
    
    
    
    188,911
    
    
    
    (18,102
    )
    
    
    -9.6
    %
    
    
    226,752Long-term debt
    
    
    146,415
    
    
    
    148,773
    
    
    
    (2,358
    )
    
    
    -1.6
    %
    
    
    113,172Income taxes payable  long term
    
    
    4,332
    
    
    
    9,605
    
    
    
    (5,273
    )
    
    
    -54.9
    %
    
    
    Other long-term liabilities
    
    
    61,609
    
    
    
    54,961
    
    
    
    6,648
    
    
    
    12.1
    %
    
    
    53,419Contingencies and commitments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Shareholders equityCommon shares, $1 par value
    
    
    51,417
    
    
    
    51,372
    
    
    
    45
    
    
    
    0.1
    %
    
    
    51,377Capital in excess of par value
    
    
    207,954
    
    
    
    207,184
    
    
    
    770
    
    
    
    0.4
    %
    
    
    208,283Retained earnings
    
    
    196,935
    
    
    
    222,601
    
    
    
    (25,666
    )
    
    
    -11.5
    %
    
    
    223,896Accumulated other comprehensive income (loss)
    
    
    (693
    )
    
    
    5,503
    
    
    
    (6,196
    )
    
    
    -112.6
    %
    
    
    1,792Total shareholders equity
    
    
    455,613
    
    
    
    486,660
    
    
    
    (31,047
    )
    
    
    -6.4
    %
    
    
    485,348Total liabilities and shareholders equity
    
    $
    838,778
    
    
    $
    888,910
    
    
    $
    (50,132
    )
    
    
    -5.6
    %
    
    $
    878,691
  5




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##### Table of Contents



LA-Z-BOY INCORPORATED
 
 CONSOLIDATED STATEMENT OF CASH FLOWS
 Third Quarter Ended
    
    
    Nine Months Ended(Unaudited, amounts in thousands)
    
    01/26/08
    
    
    01/27/07
    
    
    01/26/08
    
    
    01/27/07Cash flows from operating activitiesNet income (loss)
    
    $
    9,512
    
    
    $
    (7,821
    )
    
    $
    (9,117
    )
    
    $
    (3,572
    )Adjustments to reconcile net
income (loss) to cash used for
operating activitiesGain (loss) on sale of
discontinued operations (net of
tax)
    
    
    (96
    )
    
    
    
    
    
    
    3,894
    
    
    
    (1,280
    )Write-down of assets of
businesses held for sale (net of
tax)
    
    
    
    
    
    
    13,674
    
    
    
    2,159
    
    
    
    13,674Write-down of intangibles (net of
tax)
    
    
    
    
    
    
    
    
    
    
    3,689
    
    
    
    Restructuring
    
    
    245
    
    
    
    2,855
    
    
    
    4,893
    
    
    
    4,720Provision for doubtful accounts
    
    
    2,754
    
    
    
    84
    
    
    
    6,373
    
    
    
    2,891Depreciation and amortization
    
    
    6,193
    
    
    
    6,233
    
    
    
    18,506
    
    
    
    20,122Stock-based compensation expense
    
    
    1,303
    
    
    
    479
    
    
    
    3,165
    
    
    
    3,211Change in receivables
    
    
    53
    
    
    
    22,633
    
    
    
    9,241
    
    
    
    19,688Change in inventories
    
    
    8,645
    
    
    
    2,808
    
    
    
    17,897
    
    
    
    (14,309
    )Change in payables
    
    
    9,161
    
    
    
    (9,849
    )
    
    
    (5,107
    )
    
    
    (19,228
    )Change in other assets and
liabilities
    
    
    147
    
    
    
    106
    
    
    
    (16,530
    )
    
    
    (15,464
    )Change in deferred taxes
    
    
    3,676
    
    
    
    (2,270
    )
    
    
    (2,470
    )
    
    
    (9,036
    )Total adjustments
    
    
    32,081
    
    
    
    36,753
    
    
    
    45,710
    
    
    
    4,989Net cash provided by operating
activities
    
    
    41,593
    
    
    
    28,932
    
    
    
    36,593
    
    
    
    1,417Cash flows from investing activitiesProceeds from disposals of assets
    
    
    456
    
    
    
    314
    
    
    
    7,738
    
    
    
    25,276Proceeds from sale of
discontinued operations
    
    
    150
    
    
    
    
    
    
    
    4,169
    
    
    
    33,166Capital expenditures
    
    
    (5,239
    )
    
    
    (5,984
    )
    
    
    (20,838
    )
    
    
    (20,994
    )Purchases of investments
    
    
    (15,807
    )
    
    
    (5,069
    )
    
    
    (29,077
    )
    
    
    (13,461
    )Proceeds from sales of investments
    
    
    15,649
    
    
    
    3,817
    
    
    
    30,242
    
    
    
    11,834Change in other long-term assets
    
    
    1,701
    
    
    
    539
    
    
    
    2,086
    
    
    
    343Net cash provided by (used
for) investing activities
    
    
    (3,090
    )
    
    
    (6,383
    )
    
    
    (5,680
    )
    
    
    36,164Cash flows from financing activitiesProceeds from debt
    
    
    574
    
    
    
    12,577
    
    
    
    1,391
    
    
    
    91,252Payments on debt
    
    
    (974
    )
    
    
    (32,540
    )
    
    
    (2,212
    )
    
    
    (111,220
    )Stock issued for stock and
employee benefit plans
    
    
    (13
    )
    
    
    567
    
    
    
    (129
    )
    
    
    1,333Repurchases of common stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,947
    )Dividends paid
    
    
    (6,229
    )
    
    
    (6,212
    )
    
    
    (18,670
    )
    
    
    (18,674
    )Net cash used for financing
activities
    
    
    (6,642
    )
    
    
    (25,608
    )
    
    
    (19,620
    )
    
    
    (44,256
    )Effect of exchange rate changes on
cash and equivalents
    
    
    (1,378
    )
    
    
    14
    
    
    
    161
    
    
    
    70Change in cash and equivalents
    
    
    30,483
    
    
    
    (3,045
    )
    
    
    11,454
    
    
    
    (6,605
    )Cash and equivalents at beginning of
period
    
    
    32,692
    
    
    
    20,529
    
    
    
    51,721
    
    
    
    24,089Cash and equivalents at end of period
    
    $
    63,175
    
    
    $
    17,484
    
    
    $
    63,175
    
    
    $
    17,484Cash paid (net of refunds) during
period  income taxes
    
    $
    (4,336
    )
    
    $
    558
    
    
    $
    (443
    )
    
    $
    17,655Cash paid during period  interest
    
    $
    2,652
    
    
    $
    2,911
    
    
    $
    6,057
    
    
    $
    7,769
  6




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##### Table of Contents



LA-Z-BOY INCORPORATED
 
 CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS EQUITY
 AccumulatedOtherCapital in
    
    
    
    
    
    
    Unearned
    
    
    Compre-Common
    
    
    Excess of Par
    
    
    Retained
    
    
    Compen-
    
    
    hensive(Unaudited, amounts in thousands)
    
    Shares
    
    
    Value
    
    
    Earnings
    
    
    sation
    
    
    Income(Loss)
    
    
    TotalAt April 29, 2006
    
    $
    51,782
    
    
    $
    210,826
    
    
    $
    246,387
    
    
    
    ($3,083
    )
    
    $
    4,433
    
    
    $
    510,345Reclassification of unearned
compensation due to adoption of SFAS No.
123(R)
    
    
    
    
    
    
    (3,083
    )
    
    
    
    
    
    
    3,083
    
    
    
    
    
    
    
    Repurchases of common stock
    
    
    (540
    )
    
    
    
    
    
    
    (6,407
    )
    
    
    
    
    
    
    
    
    
    
    (6,947
    )Stock issued for stock and employee
benefit plans
    
    
    135
    
    
    
    (3,458
    )
    
    
    4,663
    
    
    
    
    
    
    
    
    
    
    
    1,340Stock option and restricted stock expense
    
    
    
    
    
    
    3,959
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,959Tax benefit from exercise of options
    
    
    
    
    
    
    39
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    39Dividends paid
    
    
    
    
    
    
    
    
    
    
    (24,886
    )
    
    
    
    
    
    
    
    
    
    
    (24,886
    )Comprehensive income (loss)Net income
    
    
    
    
    
    
    
    
    
    
    4,139Unrealized gain on marketable
securities (net of tax of $0.5
million)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,145Realized (gain) on marketable
securities (net of tax of $0.3
million)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (458
    )Translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,418Change in fair value of cash flow
hedges (net of tax)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (118
    )Change in additional minimum pension
liability (net of tax of $0.1
million)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    319Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,445Adjustment upon adoption of SFAS No. 158
for pension (net of tax of $3.2 million)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,947
    )
    
    
    (4,947
    )At April 28, 2007
    
    $
    51,377
    
    
    $
    208,283
    
    
    $
    223,896
    
    
    $
    
    
    
    $
    1,792
    
    
    $
    485,348Stock issued for stock and employee
benefit plans
    
    
    40
    
    
    
    (3,494
    )
    
    
    3,326
    
    
    
    
    
    
    
    
    
    
    
    (128
    )Stock option and restricted stock expense
    
    
    
    
    
    
    3,165
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,165Dividends paid
    
    
    
    
    
    
    
    
    
    
    (18,670
    )
    
    
    
    
    
    
    
    
    
    
    (18,670
    )Comprehensive income (loss)Net loss
    
    
    
    
    
    
    
    
    
    
    (9,117
    )Unrealized (loss) on marketable
securities (net of tax)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (229
    )Realized (gain) on marketable
securities (net of tax of $1.4
million )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,377
    )Translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    36Change in the fair value of cash flow
hedges (net of tax)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    85Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11,602
    )Impact of adoption of FIN 48
    
    
    
    
    
    
    
    
    
    
    (2,500
    )
    
    
    
    
    
    
    
    
    
    
    (2,500
    )At January 26, 2008
    
    $
    51,417
    
    
    $
    207,954
    
    
    $
    196,935
    
    
    $
    
    
    
    $
    (693
    )
    
    $
    455,613
  7




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 
 Note 1: Basis of Presentation
  
 Note 2: Interim Results
  
 Note 3: Reclassification
  
 Note 4: Inventories
  (Unaudited, amounts in thousands)
    
    01/26/08
    
    
    01/27/07
    
    
    4/28/07Raw materials
    
    $
    68,338
    
    
    $
    76,269
    
    
    $
    69,562Work in process
    
    
    15,688
    
    
    
    20,134
    
    
    
    19,972Finished goods
    
    
    124,332
    
    
    
    141,092
    
    
    
    132,679FIFO inventories
    
    
    208,358
    
    
    
    237,495
    
    
    
    222,213Excess of FIFO over LIFO
    
    
    (24,423
    )
    
    
    (23,344
    )
    
    
    (24,423
    )Inventories, net
    
    $
    183,935
    
    
    $
    214,151
    
    
    $
    197,790
 
 Note 5: Goodwill and Other Intangible Assets
 Goodwill and Other
Intangible Assets,
  8




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##### Table of Contents



Balance
    
    
    Acquisitions,
    
    
    Balanceas of
    
    
    Dispositions
    
    
    as of(Unaudited, amounts in thousands)
    
    4/28/07
    
    
    and Other
    
    
    01/26/08GoodwillUpholstery Group
    
    $
    19,632
    
    
    $
    
    
    
    $
    19,632Retail Group
    
    
    27,905
    
    
    
    (5,809
    )
    
    
    22,096Corporate and Other
    
    
    8,122
    
    
    
    
    
    
    
    8,122Consolidated
    
    $
    55,659
    
    
    $
    (5,809
    )
    
    $
    49,850Trade namesCasegoods Group
    
    $
    9,472
    
    
    $
    (466
    )
    
    $
    9,006
 
 Note 6: Pension Plans
  Third Quarter Ended
    
    
    Nine Months Ended(Unaudited, amounts in thousands)
    
    01/26/08
    
    
    01/27/07
    
    
    01/26/08
    
    
    01/27/07Service cost
    
    $
    441
    
    
    $
    576
    
    
    $
    1,323
    
    
    $
    1,730Interest cost
    
    
    1,346
    
    
    
    1,338
    
    
    
    4,038
    
    
    
    4,014Expected return on plan assets
    
    
    (1,839
    )
    
    
    (1,719
    )
    
    
    (5,517
    )
    
    
    (5,157
    )Net amortization and deferral
    
    
    
    
    
    
    9
    
    
    
    
    
    
    
    27Net periodic pension cost (benefit)
    
    $
    (52
    )
    
    $
    204
    
    
    $
    (156
    )
    
    $
    614
  9




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##### Table of Contents



Note 7: Financial Guarantees and Product Warranties
      Third Quarter Ended
    
    
    Nine Months Ended(Unaudited, amounts in thousands)
    
    01/26/08
    
    
    01/27/07
    
    
    01/26/08
    
    
    01/27/07Balance as of the beginning of the
period
    
    $
    14,258
    
    
    $
    16,523
    
    
    $
    14,283
    
    
    $
    19,655Accruals during the period
    
    
    4,620
    
    
    
    4,180
    
    
    
    12,999
    
    
    
    12,571Adjustments for discontinued operations
    
    
    
    
    
    
    (405
    )
    
    
    
    
    
    
    (1,361
    )Other adjustments during the period
    
    
    
    
    
    
    (1,650
    )
    
    
    
    
    
    
    (3,917
    )Settlements during the period
    
    
    (4,411
    )
    
    
    (4,260
    )
    
    
    (12,815
    )
    
    
    (12,560
    )Balance as of the end of the period
    
    $
    14,467
    
    
    $
    14,388
    
    
    $
    14,467
    
    
    $
    14,388
  
 Note 8: Stock-Based Compensation
 Share-Based Payment
 10




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##### Table of Contents



Note 9: Segment Information
  Upholstery Group
 Casegoods Group
 Retail Group
 Third Quarter Ended
    
    
    Nine Months Ended01/26/08
    
    
    01/27/07
    
    
    01/26/08
    
    
    01/27/07(Unaudited, amounts in thousands)
    
    (13 weeks)
    
    
    (13 weeks)
    
    
    (39 weeks)
    
    
    (39 weeks)SalesUpholstery Group
    
    $
    282,453
    
    
    $
    293,709
    
    
    $
    806,959
    
    
    $
    893,704Casegoods Group
    
    
    52,660
    
    
    
    63,127
    
    
    
    165,126
    
    
    
    198,317Retail Group
    
    
    49,884
    
    
    
    61,149
    
    
    
    141,278
    
    
    
    165,838VIEs/Eliminations
    
    
    (11,916
    )
    
    
    (13,140
    )
    
    
    (30,452
    )
    
    
    (44,477
    )Consolidated
    
    $
    373,081
    
    
    $
    404,845
    
    
    $
    1,082,911
    
    
    $
    1,213,382Operating income (loss)Upholstery Group
    
    $
    19,467
    
    
    $
    22,651
    
    
    $
    47,370
    
    
    $
    60,438Casegoods Group
    
    
    2,222
    
    
    
    5,721
    
    
    
    8,399
    
    
    
    15,163Retail Group
    
    
    (8,507
    )
    
    
    (6,738
    )
    
    
    (27,700
    )
    
    
    (23,222
    )Corporate and Other*
    
    
    (9,851
    )
    
    
    (9,324
    )
    
    
    (33,315
    )
    
    
    (28,461
    )Intangible write-down
    
    
    
    
    
    
    
    
    
    
    (5,809
    )
    
    
    Restructuring
    
    
    (245
    )
    
    
    (2,855
    )
    
    
    (4,893
    )
    
    
    (4,720
    )$
    3,086
    
    
    $
    9,455
    
    
    $
    (15,948
    )
    
    $
    19,198
 
 *
    
    Variable Interest Entities (VIEs) are included in corporate and other. 
 Note 10: Restructuring
  11




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Accounting for the Impairment or Disposal of Long-Lived
Assets (SFAS No. 144). Accounting for Costs Associated with Exit or Disposal
Activities (SFAS No. 146).
 . .
   Fiscal 2008CashPayments4/28/07
    
    Charges to
    
    or Asset
    
    01/26/08(Unaudited, amounts in thousands)
    
    Balance
    
    Expense
    
    Write-Offs
    
    BalanceSeverance and benefit-related costs
    
    $
    2,177
    
    
    $
    1,154
    
    
    $
    (2,508
    )
    
    $
    823Fixed asset write-downs, net of gains
    
    
    
    
    
    
    70
    
    
    
    (70
    )
    
    
    Contract termination costs
    
    
    1,257
    
    
    
    (144
    )
    
    
    (80
    )
    
    
    1,033Other
    
    
    
    
    
    
    3,813
    
    
    
    (3,813
    )
    
    
    Total restructuring
    
    $
    3,434
    
    
    $
    4,893
    
    
    $
    (6,471
    )
    
    $
    1,856
 12




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##### Table of Contents



Fiscal 2007CashPayments4/29/06
    
    Charges to
    
    or Asset
    
    4/28/07(Unaudited, amounts in thousands)
    
    Balance
    
    Expense
    
    Write-Offs
    
    BalanceSeverance and benefit-related costs
    
    $
    891
    
    
    $
    2,537
    
    
    $
    (1,251
    )
    
    $
    2,177Fixed asset write-downs, net of gains
    
    
    
    
    
    
    1,091
    
    
    
    (1,091
    )
    
    
    Contract termination costs
    
    
    
    
    
    
    3,441
    
    
    
    (2,184
    )
    
    
    1,257Other
    
    
    
    
    
    
    3,964
    
    
    
    (3,964
    )
    
    
    Total restructuring
    
    $
    891
    
    
    $
    11,033
    
    
    $
    (8,490
    )
    
    $
    3,434
 
 Note 11: Uncertain Tax Positions
 Accounting for Uncertainty in Income Taxes  an
interpretation of FASB 109
    
 Note 12: Variable Interest Entities
 Consolidation of Variable Interest
Entities
 13




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##### Table of Contents



Note 13: Discontinued Operations
   14




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##### Table of Contents



(Unaudited, amounts in thousands)
    
    01/26/08
    
    
    4/28/07Assets of discontinued operations:Receivables, net
    
    $
    238
    
    
    $
    7,140Inventories, net
    
    
    
    
    
    
    10,978Trade names
    
    
    
    
    
    
    5,740Other assets
    
    
    40
    
    
    
    420$
    278
    
    
    $
    24,278Liabilities of discontinued operations:Accounts payable
    
    $
    55
    
    
    $
    1,591Accrued expenses
    
    
    675
    
    
    
    2,057Non-current liabilities
    
    
    186
    
    
    
    195$
    916
    
    
    $
    3,843
  15




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##### Table of Contents



Third Quarter Ended
    
    Nine Months Ended(Unaudited, amounts in thousands)
    
    01/26/08
    
    01/27/07
    
    01/26/08
    
    01/27/07Net sales
    
    $
    1,563
    
    
    $
    23,137
    
    
    $
    22,622
    
    
    $
    99,445Income (loss) from discontinued
operations, net of tax
    
    
    384
    
    
    
    (14,766
    )
    
    
    (1,916
    )
    
    
    (16,184
    )Gain (loss) on sale of
discontinued operations, net of
tax
    
    
    
    
    
    
    
    
    
    
    (4,134
    )
    
    
    1,280
  
 Note 14: Income from Continued Dumping and Subsidy Offset Act
  
 Note 15: Earnings per Share
  Third Quarter
    
    Nine MonthsEnded
    
    Ended(Unaudited, amounts in thousands)
    
    01/26/08
    
    01/27/07
    
    01/26/08
    
    01/27/07Weighted average common shares outstanding (basic)
    
    
    51,417
    
    
    
    51,367
    
    
    
    51,402
    
    
    
    51,509Effect of options and unvested restricted stock
    
    
    173
    
    
    
    242
    
    
    
    
    
    
    
    234Weighted average common shares outstanding
(diluted)
    
    
    51,590
    
    
    
    51,609
    
    
    
    51,402
    
    
    
    51,743
   16




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Note 16: Subsequent Event
       17




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##### Table of Contents



Note 17: Recent Accounting Pronouncements
 FASB Statement of Financial Accounting Standards No. 157
 Fair Value Measurements
  FASB Statement of Financial Accounting Standards No. 159
 The Fair Value Option for
Financial Assets and Financial Liabilities
  FASB Statement of Financial Accounting Standards No. 160
 Noncontrolling Interests in
Consolidated Financial Statements  an amendment of ARB No. 51 ,
  FASB Statement of Financial Accounting Standards No. 141(R)
 Business
Combinations,
  18




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##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
 .
 
 Cautionary Statement Concerning Forward-Looking Statements
  future income, margins and cash flows
    
    future economic performancefuture growth
    
    industry and importing trendsadequacy and cost of financial resources
    
    management plans
   
 INTRODUCTION
 Our Business
  19




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Furniture Today
 20




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##### Table of Contents



Highlights of Our Current Quarter
   
    
    Continue to consolidate information systems and eliminate redundant processes. We are
currently in the process of consolidating our information systems into one system and
expect to complete this process by the end of this fiscal year.
    
    Expand our in-home design service, which has increased the average sale per customer
where employed, such that a higher percentage of our overall business is generated using
this service.
    
    Improve our gross margins based on better merchandising and pricing of product and
services.
    21




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Results of Operations  Analysis of Operations: Quarter Ended January 26, 2008  (Third Quarter 2008 compared with 2007)
 Quarter Ended(Amounts in thousands, except per
share amounts and percentages)
    
    01/26/08
    
    
    01/27/07
    
    
    PercentchangeUpholstery sales
    
    $
    282,453
    
    
    $
    293,709
    
    
    
    -3.8
    %Casegoods sales
    
    
    52,660
    
    
    
    63,127
    
    
    
    -16.6
    %Retail sales
    
    
    49,884
    
    
    
    61,149
    
    
    
    -18.4
    %Other/eliminations*
    
    
    (11,916
    )
    
    
    (13,140
    )
    
    
    9.3
    %Consolidated sales
    
    $
    373,081
    
    
    $
    404,845
    
    
    
    -7.8
    %Consolidated gross profit
    
    $
    108,635
    
    
    $
    113,523
    
    
    
    -4.3
    %Consolidated gross margin
    
    
    29.1
    %
    
    
    28.0
    %Consolidated S,G&A
    
    $
    104,672
    
    
    $
    101,213
    
    
    
    3.4
    %S,G&A as a percent of sales
    
    
    28.1
    %
    
    
    25.0
    %Upholstery operating income
    
    $
    19,467
    
    
    $
    22,651
    
    
    
    -14.1
    %Casegoods operating income
    
    
    2,222
    
    
    
    5,721
    
    
    
    -61.2
    %Retail operating loss
    
    
    (8,507
    )
    
    
    (6,738
    )
    
    
    -26.3
    %Corporate and other
    
    
    (9,851
    )
    
    
    (9,324
    )
    
    
    -5.7
    %Restructuring
    
    
    (245
    )
    
    
    (2,855
    )
    
    
    91.4
    %Consolidated operating income
    
    $
    3,086
    
    
    $
    9,455
    
    
    
    -67.4
    %Upholstery operating margin
    
    
    6.9
    %
    
    
    7.7
    %Casegoods operating margin
    
    
    4.2
    %
    
    
    9.1
    %Retail operating margin
    
    
    -17.1
    %
    
    
    -11.0
    %Consolidated operating margin
    
    
    0.8
    %
    
    
    2.3
    %Income from continuing operations
    
    $
    9,128
    
    
    $
    6,945
    
    
    
    31.4
    %Diluted income per share from continuing
operations
    
    $
    0.18
    
    
    $
    0.14
    
    
    
    28.6
    %Income (loss) from discontinued operations
    
    $
    384
    
    
    $
    (14,766
    )Diluted income (loss) per share from
discontinued operations
    
    $
    
    
    
    $
    (0.29
    )
 
 *
    
    Includes sales from our VIEs. 22




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##### Table of Contents



Consolidated sales
 Upholstery Group
 Casegoods Group
 Retail Group
  Gross Margin
  Selling, General and Administrative Expenses
  
    
    In the third quarter of fiscal 2007, we reduced our warranty reserve by $1.7 million due
to a trend of lower warranty costs incurred beyond one year after the sale of the product.
Our trends showed that a majority of our claims were from product sold in the past twelve
months thus reducing our liability,
 23




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along with changes in estimated amounts required for currently known warranty issues. This
adjustment was not duplicated in fiscal 2008.
    
    Advertising costs increased over the prior year by about $6.6 million due to our
national advertising campaign. This campaign is a shared advertising program with our
La-Z-Boy Furniture Galleries® stores, which are reimbursing us for about one third of the
cost of the program. Because of this shared cost arrangement, their increase in
advertising expense is reported as a component of SG&A and was partially offset by their
reimbursement of the dealers portion of the cost which is reported as a component of net
sales.
    
    Our VIEs incurred additional expenses related to the acquisition or opening of five
stores during the third quarter of fiscal 2008, which increased our SG&A by $0.7 million or
0.2 percentage points when compared with the third quarter of fiscal 2007.
    
    During the third quarter of fiscal 2008, expense for bad
debts increased by about $3.5
million when compared with the third quarter of fiscal 2007 due to the overall weakness in
the retail environment and an increase in our past due accounts.
 Restructuring
  Operating Margin
  Upholstery Group
 24




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##### Table of Contents



Casegoods Group
 Retail Group
 Corporate and Other .
 Interest Expense
  Income from Continued Dumping and Subsidy Offset Act
  Other Income, Net
  Income Tax Expense
  Discontinued Operations
  25




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##### Table of Contents



Results of Operations
Analysis of Operations: Nine Months Ended January 26, 2008
(First nine months of 2008 compared with 2007)
 Nine Months Ended
    
    Percent(Amounts in thousands, except per
share amounts and percentages)
    
    01/26/08
    
    01/27/07
    
    changeUpholstery sales
    
    $
    806,959
    
    
    $
    893,704
    
    
    
    -9.7
    %Casegoods sales
    
    
    165,126
    
    
    
    198,317
    
    
    
    -16.7
    %Retail sales
    
    
    141,278
    
    
    
    165,838
    
    
    
    -14.8
    %Other/eliminations*
    
    
    (30,452
    )
    
    
    (44,477
    )
    
    
    31.5
    %Consolidated sales
    
    $
    1,082,911
    
    
    $
    1,213,382
    
    
    
    -10.8
    %Consolidated gross profit
    
    $
    289,585
    
    
    $
    320,101
    
    
    
    -9.5
    %Consolidated gross margin
    
    
    26.7
    %
    
    
    26.4
    %Consolidated S,G&A
    
    $
    297,278
    
    
    $
    295,783
    
    
    
    0.5
    %S,G&A as a percent of sales
    
    
    27.5
    %
    
    
    24.4
    %Upholstery operating income
    
    $
    47,370
    
    
    $
    60,438
    
    
    
    -21.6
    %Casegoods operating income
    
    
    8,399
    
    
    
    15,163
    
    
    
    -44.6
    %Retail operating loss
    
    
    (27,700
    )
    
    
    (23,222
    )
    
    
    -19.3
    %Corporate and other
    
    
    (33,315
    )
    
    
    (28,461
    )
    
    
    -17.1
    %Intangible write-down
    
    
    (5,809
    )
    
    
    
    
    
    
    Restructuring
    
    
    (4,893
    )
    
    
    (4,720
    )
    
    
    -3.7
    %Consolidated operating income (loss)
    
    $
    (15,948
    )
    
    $
    19,198
    
    
    
    -183.1
    %Upholstery operating margin
    
    
    5.9
    %
    
    
    6.8
    %Casegoods operating margin
    
    
    5.1
    %
    
    
    7.6
    %Retail operating margin
    
    
    -19.6
    %
    
    
    -14.0
    %Consolidated operating margin
    
    
    -1.5
    %
    
    
    1.6
    %Income (loss) from continuing operations
    
    $
    (3,067
    )
    
    $
    11,332
    
    
    
    -127.1
    %Diluted income (loss) per share from continuing operations
    
    $
    (0.06
    )
    
    $
    0.22
    
    
    
    -127.3
    %Loss from discontinued operations
    
    $
    (6,050
    )
    
    $
    (14,904
    )Diluted loss per share from discontinued operations
    
    $
    (0.12
    )
    
    $
    (0.29
    )
 
 *
    
    Includes sales from our VIEs. 26




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##### Table of Contents



Sales
 Consolidated sales
 Upholstery Group
 Casegoods Group
 Retail Group
  Gross Margin
  Selling, General and Administrative Expenses
  
    
    In the first nine months of fiscal 2007, we reduced our warranty reserve by $3.9 million
due to a trend of lower warranty costs incurred beyond one year after the sale of the
product. Our trends showed that a majority of our claims were from product sold in the
past twelve months thus reducing our liability, along with changes in estimated amounts
required for currently known warranty issues. This adjustment was not duplicated in fiscal
2008.
    
    Our VIEs incurred additional expenses related to the acquisition or opening of five
stores, including increased advertising, higher occupancy costs and other selling expenses.
    
    Advertising costs increased over the prior year by about $4.9 million due to the
national advertising campaign which began in the fall of 2007. This campaign is a shared
advertising program with our La-Z-Boy Furniture Galleries® stores, which are reimbursing us
for about one third of the cost of the
 27




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##### Table of Contents



program. Because of this shared cost arrangement,
their increase in advertising expense was reported as
a component of SG&A and was partially offset by their reimbursement of the dealers portion of
the cost which was reported as a component of sales.
    
    During the first nine months of fiscal 2008, expense for bad debts increased by about
$4.5 million when compared with the first nine months of fiscal 2007 due to the overall
weakness in the retail environment and an increase in our past due accounts.
 Restructuring
  Operating Margin
  Upholstery Group
 Casegoods Group
 Retail Group
 Corporate and Other
 28




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##### Table of Contents



Interest Expense
  Income from Continued Dumping and Subsidy Offset Act
  Other Income, Net
  Income Tax Expense
  Discontinued Operations
  29




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##### Table of Contents



Liquidity and Capital Resources
          30




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##### Table of Contents



Cash Flows Provided From (Used For)
    
    Nine Months Ended(Amounts in thousands)
    
    1/26/08
    
    
    1/27/07Operating activitiesNet loss, depreciation and deferred taxes
    
    $
    6,919
    
    
    $
    7,514Loss/(gain) on sales of discontinued operations (net of tax)
    
    
    3,894
    
    
    
    (1,280
    )Write-down of businesses held for sale
    
    
    2,159
    
    
    
    13,674Write-down of intangibles
    
    
    3,689
    
    
    
    Restructuring
    
    
    4,893
    
    
    
    4,720Working capital and other
    
    
    15,039
    
    
    
    (23,211
    )Cash provided from operating activities
    
    
    36,593
    
    
    
    1,417Investing activities
    
    
    (5,680
    )
    
    
    36,164Financing activitiesRepurchase of common stock
    
    
    
    
    
    
    (6,947
    )Net decrease in debt
    
    
    (821
    )
    
    
    (19,968
    )Other financing activities
    
    
    (18,799
    )
    
    
    (17,341
    )Cash used for financing activities
    
    
    (19,620
    )
    
    
    (44,256
    )Exchange rate changes
    
    
    161
    
    
    
    70Net increase (decrease) in cash and equivalents
    
    $
    11,454
    
    
    $
    (6,605
    )
 Operating Activities
  Investing Activities
  31




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##### Table of Contents



Financing Activities
        
 Critical Accounting Policies
  
 Restructuring
  32




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##### Table of Contents



Accounting for the Impairment or Disposal of Long-Lived
Assets (SFAS No. 144). Accounting for Costs Associated with Exit or Disposal
Activities (SFAS No. 146).
 . .
  
 Regulatory Developments
  33




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##### Table of Contents



Recent Accounting Pronouncements
  
 Business Outlook
  34




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##### Table of Contents



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
   
 ITEM 4. CONTROLS AND PROCEDURES
   35




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##### Table of Contents



PART II  OTHER INFORMATION
 
 ITEM 1A. RISK FACTORS
  
 ITEM 6. EXHIBITS
 ExhibitNumber
    
    Description(4.1)
    
    Credit Agreement dated as of February 6, 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
(filed as Exhibit 4.1 to Current Report on Form 8-K filed February 12, 2008
and incorporated herein by reference)*(10.1)
    
    Performance Awards Goals (for Performance Cycle Ending April 2010), as amended(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)(99.1)
    
    Press Release dated February 19, 2008
 
 *
    
    Indicates a management contract or compensatory plan or arrangement under which a director or
executive officer may receive benefits. 36




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##### Table of Contents



SIGNATURE
  LA-Z-BOY INCORPORATED(Registrant)  BY:
    /s/ Louis M. Riccio, Jr.Louis M. Riccio, Jr.Chief Financial Officer
On behalf of the registrant and as
Chief Financial Officer 37