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 OCTOBER 24, 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 þ                                                   No
 ̈




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




Yes  ̈                    
                      
       No  ̈




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




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




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




Yes  ̈                    
                      
       No þ




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




Class
              
              Outstanding at November 10,
      2009Common
      Shares, $1.00 par value
              
              51,546,055







LA-Z-BOY
INCORPORATED


FORM 10-Q
SECOND QUARTER OF FISCAL 2010




TABLE OF
CONTENTS





Page
                              Number(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
    Equity
                            7Notes to Consolidated Financial
StatementsNote 1. Basis of Presentation
                            8Note 2. Interim Results
                            8Note 3. Reclassification
                            8Note 4. Restricted Cash
                            9Note 5. Inventories
                            9Note 6. Pension Plans
                            9Note 7. Financial Guarantees and Product
      Warranties
                            9-10Note 8. Stock-Based Compensation
                            10Note 9. Total Comprehensive Income
(Loss)
                            11-12Note 10. Segment Information
                            12-13Note 11. Restructuring
                            13-15Note 12. Income Taxes
                            15Note 13. Variable Interest Entities
                            15-16Note 14. Earnings per Share
                            17Note 15. Fair Value Measurements
                            17-18Note 16. Hedging Activities
                            18-19Note 17. Recent Accounting
    Pronouncements
                            19-20Note 18. Subsequent Event
                            20Item 2.
                            Management’s Discussion and Analysis of Financial Condition
      and Results of OperationsCautionary Statement Concerning Forward-Looking
      Statements
                            21Introduction
                            21-22Results of Operations
                            23-30Liquidity and Capital Resources
                            30-33Restructuring
                            33-35Critical Accounting Policies
                            35Regulatory Developments
                            35Recent Accounting Pronouncements
                            35Business Outlook
                            36Item 3.
                            Quantitative and Qualitative Disclosures About Market
      Risk
                            36Item 4.
                            Controls and Procedures
                            36PART II Other InformationItem 1A.
                            Risk Factors
                            37Item 4.
                            Submission of Matters to a Vote of Security
      Holders
                            37Item 6.
                            Exhibits
                            38Signature Page
                            39


2


PART I


FINANCIAL
INFORMATION


Item 1. Financial Statements




LA-Z-BOY
INCORPORATED


CONSOLIDATED STATEMENT OF OPERATIONS




Second Quarter Ended(Unaudited, amounts in thousands, except per share
      data)
                
                10/24/09
                
                
                10/25/08Sales
                
                $
                300,707
                
                
                $
                331,948Cost
      of salesCost
      of goods sold
                
                
                204,962
                
                
                
                243,090Restructuring
                
                
                663
                
                
                
                2,236Total
      cost of sales
                
                
                205,625
                
                
                
                245,326Gross
      profit
                
                
                95,082
                
                
                
                86,622Selling,
      general and administrative
                
                
                84,697
                
                
                
                101,499Write-down
      of goodwill
                
                
                —
                
                
                
                408Restructuring
                
                
                520
                
                
                
                687Operating
      income (loss)
                
                
                9,865
                
                
                
                (15,972
                )Interest
      expense
                
                
                831
                
                
                
                1,651Interest
      income
                
                
                199
                
                
                
                630Other
      income (expense), net
                
                
                236
                
                
                
                (685
                )Earnings
      (loss) before income taxes
                
                
                9,469
                
                
                
                (17,678
                )Income
      tax expense
                
                
                3,762
                
                
                
                36,032Net
      income (loss)
                
                
                5,707
                
                
                
                (53,710
                )Net
      (income) loss attributable to noncontrolling interests
                
                
                200
                
                
                
                (34
                )Net
      income (loss) attributable to La-Z-Boy Incorporated
                
                $
                5,907
                
                
                $
                (53,744
                )Basic
      average shares
                
                
                51,527
                
                
                
                51,458Basic
      net income (loss) attributable to La-Z-Boy Incorporated per
      share
                
                $
                0.11
                
                
                $
                (1.05
                )Diluted
      average shares
                
                
                51,755
                
                
                
                51,458Diluted
      net income (loss) attributable to La-Z-Boy Incorporated per
      share
                
                $
                0.11
                
                
                $
                (1.05
                )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
STATEMENT OF OPERATIONS




Six Months Ended(Unaudited, amounts in thousands, except per share
      data)
                
                10/24/09
                
                
                10/25/08Sales
                
                $
                563,378
                
                
                $
                653,600Cost
      of salesCost
      of goods sold
                
                
                386,511
                
                
                
                478,685Restructuring
                
                
                1,399
                
                
                
                8,032Total
      cost of sales
                
                
                387,910
                
                
                
                486,717Gross
      profit
                
                
                175,468
                
                
                
                166,883Selling,
      general and administrative
                
                
                162,153
                
                
                
                192,770Write-down
      of goodwill
                
                
                —
                
                
                
                1,700Restructuring
                
                
                821
                
                
                
                1,467Operating
      income (loss)
                
                
                12,494
                
                
                
                (29,054
                )Interest
      expense
                
                
                1,810
                
                
                
                3,146Interest
      income
                
                
                475
                
                
                
                1,562Other
      income (expense), net
                
                
                945
                
                
                
                (541
                )Earnings
      (loss) before income taxes
                
                
                12,104
                
                
                
                (31,179
                )Income
      tax expense
                
                
                4,201
                
                
                
                30,988Net
      income (loss)
                
                
                7,903
                
                
                
                (62,167
                )Net
      (income) attributable to noncontrolling interests
                
                
                (13
                )
                
                
                (121
                )Net
      income (loss) attributable to La-Z-Boy Incorporated
                
                $
                7,890
                
                
                $
                (62,288
                )Basic
      average shares
                
                
                51,503
                
                
                
                51,443Basic
      net income (loss) attributable to La-Z-Boy Incorporated per
      share
                
                $
                0.15
                
                
                $
                (1.21
                )Diluted
      average shares
                
                
                51,551
                
                
                
                51,443Diluted
      net income (loss) attributable to La-Z-Boy Incorporated per
      share
                
                $
                0.15
                
                
                $
                (1.21
                )Dividends
      paid per share
                
                $
                —
                
                
                $
                0.08




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


4




LA-Z-BOY
INCORPORATED


CONSOLIDATED BALANCE SHEET





(Unaudited, amounts in
      thousands)
                    
                    10/24/09
                    
                    
                    4/25/09Current
      assetsCash
      and equivalents
                    
                    $
                    59,037
                    
                    
                    $
                    17,364Restricted
      cash
                    
                    
                    500
                    
                    
                    
                    18,713Receivables,
      net of allowance of $25,195 at 10/24/09 and $28,385 at
    4/25/09
                    
                    
                    162,878
                    
                    
                    
                    147,858Inventories,
      net
                    
                    
                    138,946
                    
                    
                    
                    140,178Deferred
      income taxes—current
                    
                    
                    795
                    
                    
                    
                    795Other
      current assets
                    
                    
                    15,956
                    
                    
                    
                    22,872Total
      current assets
                    
                    
                    378,112
                    
                    
                    
                    347,780Property,
      plant and equipment, net
                    
                    
                    142,704
                    
                    
                    
                    150,234Trade
      names
                    
                    
                    3,100
                    
                    
                    
                    3,100Other
      long-term assets
                    
                    
                    48,183
                    
                    
                    
                    51,431Total
      assets
                    
                    $
                    572,099
                    
                    
                    $
                    552,545Current
      liabilitiesCurrent
      portion of long-term debt
                    
                    $
                    2,067
                    
                    
                    $
                    8,724Accounts
      payable
                    
                    
                    46,318
                    
                    
                    
                    41,571Accrued
      expenses and other current liabilities
                    
                    
                    86,167
                    
                    
                    
                    75,733Total
      current liabilities
                    
                    
                    134,552
                    
                    
                    
                    126,028Long-term
      debt
                    
                    
                    46,911
                    
                    
                    
                    52,148Deferred
      income taxes
                    
                    
                    724
                    
                    
                    
                    724Other
      long-term liabilities
                    
                    
                    67,950
                    
                    
                    
                    63,875Contingencies
      and commitments
                    
                    
                    —
                    
                    
                    
                    —EquityLa-Z-Boy
      Incorporated shareholders’ equity:Common
      shares, $1 par value
                    
                    
                    51,546
                    
                    
                    
                    51,478Capital
      in excess of par value
                    
                    
                    199,585
                    
                    
                    
                    205,945Retained
      earnings
                    
                    
                    87,342
                    
                    
                    
                    70,769Accumulated
      other comprehensive loss
                    
                    
                    (20,955
                    )
                    
                    
                    (22,698
                    )Total
      La-Z-Boy Incorporated shareholders' equity
                    
                    
                    317,518
                    
                    
                    
                    305,494Noncontrolling
      interests
                    
                    
                    4,444
                    
                    
                    
                    4,276Total
      equity
                    
                    
                    321,962
                    
                    
                    
                    309,770Total
      liabilities and equity
                    
                    $
                    572,099
                    
                    
                    $
                    552,545




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


5


LA-Z-BOY
INCORPORATED


CONSOLIDATED STATEMENT OF CASH FLOWS





Second Quarter Ended
                  
                  
                  Six Months Ended(Unaudited, amounts in thousands)
                  
                  10/24/09
                  
                  
                  10/25/08
                  
                  
                  10/24/09
                  
                  
                  10/25/08Cash
      flows from operating activitiesNet
      income (loss)
                  
                  $
                  5,707
                  
                  
                  $
                  (53,710
                  )
                  
                  $
                  7,903
                  
                  
                  $
                  (62,167
                  )Adjustments
      to reconcile net income (loss) to cash provided by (used for) operating
      activitiesGain
      on sale of assets
                  
                  
                  (75
                  )
                  
                  
                  (604
                  )
                  
                  
                  (88
                  )
                  
                  
                  (2,670
                  )Write-down
      of long-lived assets
                  
                  
                  200
                  
                  
                  
                  —
                  
                  
                  
                  200
                  
                  
                  
                  —Write-down
      of goodwill
                  
                  
                  —
                  
                  
                  
                  408
                  
                  
                  
                  —
                  
                  
                  
                  1,700Restructuring
                  
                  
                  1,183
                  
                  
                  
                  2,923
                  
                  
                  
                  2,220
                  
                  
                  
                  9,499Provision
      for doubtful accounts
                  
                  
                  2,152
                  
                  
                  
                  4,797
                  
                  
                  
                  4,514
                  
                  
                  
                  9,000Depreciation
      and amortization
                  
                  
                  6,135
                  
                  
                  
                  5,989
                  
                  
                  
                  12,244
                  
                  
                  
                  11,943Stock-based
      compensation expense
                  
                  
                  1,621
                  
                  
                  
                  986
                  
                  
                  
                  2,628
                  
                  
                  
                  1,855Change
      in receivables
                  
                  
                  (26,484
                  )
                  
                  
                  (22,261
                  )
                  
                  
                  (17,586
                  )
                  
                  
                  (8,091
                  )Change
      in inventories
                  
                  
                  3,329
                  
                  
                  
                  (63
                  )
                  
                  
                  1,231
                  
                  
                  
                  10,843Change
      in other assets
                  
                  
                  11,106
                  
                  
                  
                  2,272
                  
                  
                  
                  6,439
                  
                  
                  
                  (529
                  )Change
      in payables
                  
                  
                  7,073
                  
                  
                  
                  8,375
                  
                  
                  
                  4,747
                  
                  
                  
                  1,927Change
      in other liabilities
                  
                  
                  10,282
                  
                  
                  
                  (5,199
                  )
                  
                  
                  11,553
                  
                  
                  
                  (26,117
                  )Change
      in deferred taxes
                  
                  
                  (8
                  )
                  
                  
                  41,677
                  
                  
                  
                  —
                  
                  
                  
                  42,838Total
      adjustments
                  
                  
                  16,514
                  
                  
                  
                  39,300
                  
                  
                  
                  28,102
                  
                  
                  
                  52,198Net
      cash provided by (used for) operating activities
                  
                  
                  22,221
                  
                  
                  
                  (14,410
                  )
                  
                  
                  36,005
                  
                  
                  
                  (9,969
                  )Cash
      flows from investing activitiesProceeds
      from disposals of assets
                  
                  
                  230
                  
                  
                  
                  2,805
                  
                  
                  
                  1,916
                  
                  
                  
                  7,786Capital
      expenditures
                  
                  
                  (1,340
                  )
                  
                  
                  (2,618
                  )
                  
                  
                  (2,779
                  )
                  
                  
                  (9,990
                  )Purchases
      of investments
                  
                  
                  (1,338
                  )
                  
                  
                  (3,516
                  )
                  
                  
                  (2,537
                  )
                  
                  
                  (8,965
                  )Proceeds
      from sales of investments
                  
                  
                  1,445
                  
                  
                  
                  5,233
                  
                  
                  
                  4,109
                  
                  
                  
                  11,027Change
      in restricted cash
                  
                  
                  —
                  
                  
                  
                  (2,668
                  )
                  
                  
                  17,007
                  
                  
                  
                  (2,956
                  )Change
      in other long-term assets
                  
                  
                  29
                  
                  
                  
                  158
                  
                  
                  
                  14
                  
                  
                  
                  229Net
      cash provided by (used for) investing activities
                  
                  
                  (974
                  )
                  
                  
                  (606
                  )
                  
                  
                  17,730
                  
                  
                  
                  (2,869
                  )Cash
      flows from financing activitiesProceeds
      from debt
                  
                  
                  10,213
                  
                  
                  
                  24,831
                  
                  
                  
                  20,673
                  
                  
                  
                  39,466Payments
      on debt
                  
                  
                  (10,408
                  )
                  
                  
                  (6,430
                  )
                  
                  
                  (32,567
                  )
                  
                  
                  (25,287
                  )Dividends
      paid
                  
                  
                  —
                  
                  
                  
                  (2,074
                  )
                  
                  
                  —
                  
                  
                  
                  (4,151
                  )Net
      cash provided by (used for) financing activities
                  
                  
                  (195
                  )
                  
                  
                  16,327
                  
                  
                  
                  (11,894
                  )
                  
                  
                  10,028Effect
      of exchange rate changes on cash and equivalents
                  
                  
                  (348
                  )
                  
                  
                  (604
                  )
                  
                  
                  (168
                  )
                  
                  
                  (643
                  )Change
      in cash and equivalents
                  
                  
                  20,704
                  
                  
                  
                  707
                  
                  
                  
                  41,673
                  
                  
                  
                  (3,453
                  )Cash
      and equivalents at beginning of period
                  
                  
                  38,333
                  
                  
                  
                  10,317
                  
                  
                  
                  17,364
                  
                  
                  
                  14,477Cash
      and equivalents at end of period
                  
                  $
                  59,037
                  
                  
                  $
                  11,024
                  
                  
                  $
                  59,037
                  
                  
                  $
                  11,024Cash
      paid (net of refunds) during period – income taxes
                  
                  $
                  (13,348
                  )
                  
                  $
                  (719
                  )
                  
                  $
                  (13,082
                  )
                  
                  $
                  204Cash
      paid during period - interest
                  
                  $
                  563
                  
                  
                  $
                  1,287
                  
                  
                  $
                  1,288
                  
                  
                  $
                  2,413




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


6


LA-Z-BOY
INCORPORATED


CONSOLIDATED STATEMENT OF CHANGES IN EQUITY





(Unaudited, amounts in thousands)
                        
                        Common
                          Shares
                        
                        
                        Capital in
                          Excess of Par
                          Value
                        
                        
                        Retained
                          Earnings
                        
                        
                        Accumulated
                          Other
                          Comprehensive
                          Loss
                        
                        
                        Non-
                          Controlling
                          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
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        7,890
                        
                        
                        
                        
                        
                        
                        
                        13Unrealized
      gain on marketable securities arising during the period
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        1,626Reclassification
      adjustment for gain on marketable securities included in net
      income
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        (88
                        )Translation
      adjustment
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        (850
                        )
                        
                        
                        155Net
      pension amortization
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        1,054Change
      in fair value of cash flow hedge
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        1Total
      comprehensive income
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        9,801Stock
      issued for stock and employee benefit plans, net of
      cancellations
                        
                        
                        68
                        
                        
                        
                        (8,976
                        )
                        
                        
                        8,683
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        (225
                        )Stock
      option, restricted stock and performance based stock
    expense
                        
                        
                        
                        
                        
                        
                        2,616
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        2,616At
      October 24, 2009
                        
                        $
                        51,546
                        
                        
                        $
                        199,585
                        
                        
                        $
                        87,342
                        
                        
                        $
                        (20,955
                        )
                        
                        $
                        4,444
                        
                        
                        $
                        321,962




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


7




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)




Note 1: Basis of Presentation




The
accompanying financial statements include the consolidated accounts of La-Z-Boy
Incorporated, our wholly-owned subsidiaries, and the Variable Interest Entities
(“VIEs”) in which we are the primary beneficiary.  The April 25, 2009
balance sheet was derived from audited financial statements, adjusted for the
amendment of 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.  This standard 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 this standard 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 this standard. 
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 this adoption.




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 first quarter of fiscal 2010,
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 was not
material to fiscal 2009 or the projected fiscal 2010 year.




We
evaluated subsequent events through November 17, 2009, the date on which this
Quarterly Report on Form 10-Q was filed with the Securities and Exchange
Commission.




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.


8




Note 4: Restricted Cash




At
October 24, 2009 and April 25, 2009, we had short-term restricted cash of $0.5
million and $18.7 million, respectively, related to our wholly-owned 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 our workers’ compensation and obtained
regulatory approval to transfer substantially all of the assets from our
wholly-owned insurance company, to La-Z-Boy Incorporated.  As a result
of these changes, restricted cash was reduced to $0.5 million, representing the
remaining invested capital in our wholly-owned insurance company.




Note 5: Inventories




A
      summary of inventories is as
follows:




(Unaudited, amounts in
      thousands)
                  
                  10/24/09
                  
                  
                  4/25/09Raw
      materials
                  
                  $
                  60,804
                  
                  
                  $
                  53,498Work
      in process
                  
                  
                  11,702
                  
                  
                  
                  11,281Finished
      goods
                  
                  
                  92,188
                  
                  
                  
                  101,147FIFO
      inventories
                  
                  
                  164,694
                  
                  
                  
                  165,926Excess
      of FIFO over LIFO
                  
                  
                  (25,748
                  )
                  
                  
                  (25,748
                  )Inventories,
      net
                  
                  $
                  138,946
                  
                  
                  $
                  140,178





Note 6: Pension Plans





Net
periodic pension costs were as follows:


Second Quarter Ended
                    
                    
                    Six Months Ended(Unaudited, amounts in thousands)
                    
                    10/24/09
                    
                    
                    10/25/08
                    
                    
                    10/24/09
                    
                    
                    10/25/08Service
      cost
                    
                    $
                    261
                    
                    
                    $
                    328
                    
                    
                    $
                    522
                    
                    
                    $
                    656Interest
      cost
                    
                    
                    1,400
                    
                    
                    
                    1,359
                    
                    
                    
                    2,800
                    
                    
                    
                    2,718Expected
      return on plan assets
                    
                    
                    (1,206
                    )
                    
                    
                    (1,728
                    )
                    
                    
                    (2,412
                    )
                    
                    
                    (3,456
                    )Net
      amortization
                    
                    
                    527
                    
                    
                    
                    —
                    
                    
                    
                    1,054
                    
                    
                    
                    —Net
      periodic pension cost (benefit)
                    
                    $
                    982
                    
                    
                    $
                    (41
                    )
                    
                    $
                    1,964
                    
                    
                    $
                    (82
                    )




We did
not make any contributions to the plans during the second 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 consolidated financial statements.


9




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 $2.3 million as of October 24, 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.  While our claims in
fiscal 2010 declined, our experience indicated that the time from when the
products shipped until a claim was settled has increased, so we did not see a
corresponding decrease in our outstanding liability.




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




Second Quarter Ended
                  
                  
                  Six Months Ended(Unaudited, amounts in thousands)
                  
                  10/24/09
                  
                  
                  10/25/08
                  
                  
                  10/24/09
                  
                  
                  10/25/08Balance
      as of the beginning of the period
                  
                  $
                  14,297
                  
                  
                  $
                  14,645
                  
                  
                  $
                  14,394
                  
                  
                  $
                  14,334Accruals
      during the period
                  
                  
                  3,383
                  
                  
                  
                  3,993
                  
                  
                  
                  6,720
                  
                  
                  
                  8,097Settlements
      during the period
                  
                  
                  (3,387
                  )
                  
                  
                  (4,201
                  )
                  
                  
                  (6,821
                  )
                  
                  
                  (7,994
                  )Balance
      as of the end of the period
                  
                  $
                  14,293
                  
                  
                  $
                  14,437
                  
                  
                  $
                  14,293
                  
                  
                  $
                  14,437




Note 8:  Stock-Based Compensation




Total
compensation expense recognized in the Consolidated Statement of Operations for
all equity based compensation was $1.6 million and $2.6 million, for the second
quarter and first six months of fiscal 2010, respectively.  For the
second quarter and first six months of fiscal 2009, we recorded compensation
expense for all equity based compensation of $1.0 million and $1.9 million,
respectively.





In the
second quarter of fiscal 2010 we granted 0.1 million deferred stock units to our
non-employee directors.  We account for deferred stock units as
liability-based awards; the compensation expense is initially measured and
recognized based on the market price of our common stock at the grant
date.  The liability is re-measured and adjusted based on our stock
price at the end of each reporting period until paid.  Expense
relating to the deferred stock units recorded in Selling, General and
Administrative expense was $0.9 million and $1.3 million, for the second quarter
and first six months of fiscal 2010, respectively.  For the second
quarter and first six months of fiscal 2009, expense relating to deferred stock
units was $0.4 million.


10




Note 9:  Total Comprehensive Income (Loss)




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




Second Quarter Ended10/24/09
                      
                      
                      10/25/08(Unaudited, amounts inthousands)
                      
                      Attributable
                        to La-Z-Boy
                        Incorporated
                      
                      
                      Non-
                        controlling
                        Interest
                      
                      
                      Total
                      
                      
                      Attributable
                        to La-Z-Boy
                        Incorporated
                      
                      
                      Non-
                        controlling
                        Interest
                      
                      
                      TotalNet
      income (loss)
                      
                      $
                      5,907
                      
                      
                      $
                      (200
                      )
                      
                      $
                      5,707
                      
                      
                      $
                      (53,744
                      )
                      
                      $
                      34
                      
                      
                      $
                      (53,710
                      )Other
      comprehensive income (loss):Translation
      adjustment
                      
                      
                      (130
                      )
                      
                      
                      41
                      
                      
                      
                      (89
                      )
                      
                      
                      (1,129
                      )
                      
                      
                      1,370
                      
                      
                      
                      241Change
      in fair value of cash flow hedge
                      
                      
                      15
                      
                      
                      
                      —
                      
                      
                      
                      15
                      
                      
                      
                      (502
                      )
                      
                      
                      —
                      
                      
                      
                      (502
                      )Net
      pension amortization
                      
                      
                      527
                      
                      
                      
                      —
                      
                      
                      
                      527
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —Unrealized
      gains/(losses) on marketable securities arising during the
      period
                      
                      
                      692
                      
                      
                      
                      —
                      
                      
                      
                      692
                      
                      
                      
                      (4,034
                      )
                      
                      
                      —
                      
                      
                      
                      (4,034
                      )Total
      comprehensive income (loss)
                      
                      $
                      7,011
                      
                      
                      $
                      (159
                      )
                      
                      $
                      6,852
                      
                      
                      $
                      (59,409
                      )
                      
                      $
                      1,404
                      
                      
                      $
                      (58,005
                      )


11





Six Months Ended10/24/09
                      
                      
                      10/25/08(Unaudited, amounts inthousands)
                      
                      Attributable
                        to La-Z-Boy
                        Incorporated
                      
                      
                      Non-
                        controlling
                        Interest
                      
                      
                      Total
                      
                      
                      Attributable
                        to La-Z-Boy
                        Incorporated
                      
                      
                      Non-
                        controlling
                        Interest
                      
                      
                      TotalNet
      income (loss)
                      
                      $
                      7,890
                      
                      
                      $
                      13
                      
                      
                      $
                      7,903
                      
                      
                      $
                      (62,288
                      )
                      
                      $
                      121
                      
                      
                      $
                      (62,167
                      )Other
      comprehensive income (loss):Translation
      adjustment
                      
                      
                      (850
                      )
                      
                      
                      155
                      
                      
                      
                      (695
                      )
                      
                      
                      (1,302
                      )
                      
                      
                      1,211
                      
                      
                      
                      (91
                      )Change
      in fair value of cash flow hedge
                      
                      
                      1
                      
                      
                      
                      —
                      
                      
                      
                      1
                      
                      
                      
                      (224
                      )
                      
                      
                      —
                      
                      
                      
                      (224
                      )Net
      pension amortization
                      
                      
                      1,054
                      
                      
                      
                      —
                      
                      
                      
                      1,054
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —Unrealized
      gains/(losses) on marketable securities arising during the
      period
                      
                      
                      1,538
                      
                      
                      
                      —
                      
                      
                      
                      1,538
                      
                      
                      
                      (4,780
                      )
                      
                      
                      —
                      
                      
                      
                      (4,780
                      )Total
      comprehensive income (loss)
                      
                      $
                      9,633
                      
                      
                      $
                      168
                      
                      
                      $
                      9,801
                      
                      
                      $
                      (68,594
                      )
                      
                      $
                      1,332
                      
                      
                      $
                      (67,262
                      )




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 La-Z-Boy, England, and Bauhaus. This
group primarily manufactures and sells upholstered furniture to furniture
retailers. Upholstered furniture includes recliners and motion furniture, sofas,
loveseats, chairs, ottomans and sleeper sofas.




Casegoods Group. The
operating units in the Casegoods Group are American Drew/Lea, Kincaid, and
Hammary. 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.


12




Second Quarter Ended
                      
                      
                      Six Months Ended(Unaudited, amounts in thousands)
                      
                      10/24/09
                        (13 weeks)
                      
                      
                      10/25/08
                        (13 weeks)
                      
                      
                      10/24/09
                        (26 weeks)
                      
                      
                      10/25/08
                        (26 weeks)SalesUpholstery
      Group
                      
                      $
                      232,780
                      
                      
                      $
                      247,934
                      
                      
                      $
                      429,472
                      
                      
                      $
                      485,052Casegoods
      Group
                      
                      
                      37,302
                      
                      
                      
                      48,473
                      
                      
                      
                      73,167
                      
                      
                      
                      96,594Retail
      Group
                      
                      
                      38,014
                      
                      
                      
                      39,484
                      
                      
                      
                      73,976
                      
                      
                      
                      81,911VIEs
                      
                      
                      12,248
                      
                      
                      
                      11,793
                      
                      
                      
                      23,987
                      
                      
                      
                      25,871Other/eliminations
                      
                      
                      (19,637
                      )
                      
                      
                      (15,736
                      )
                      
                      
                      (37,224
                      )
                      
                      
                      (35,828
                      )Consolidated
                      
                      $
                      300,707
                      
                      
                      $
                      331,948
                      
                      
                      $
                      563,378
                      
                      
                      $
                      653,600Operating
      income (loss)Upholstery
      Group
                      
                      $
                      25,359
                      
                      
                      $
                      8,338
                      
                      
                      $
                      41,649
                      
                      
                      $
                      18,194Casegoods
      Group
                      
                      
                      (184
                      )
                      
                      
                      755
                      
                      
                      
                      (305
                      )
                      
                      
                      2,132Retail
      Group
                      
                      
                      (5,301
                      )
                      
                      
                      (10,391
                      )
                      
                      
                      (10,969
                      )
                      
                      
                      (20,401
                      )VIEs
                      
                      
                      (402
                      )
                      
                      
                      (2,621
                      )
                      
                      
                      (137
                      )
                      
                      
                      (3,709
                      )Corporate
      and Other
                      
                      
                      (8,424
                      )
                      
                      
                      (8,722
                      )
                      
                      
                      (15,524
                      )
                      
                      
                      (14,071
                      )Goodwill
      write-down
                      
                      
                      —
                      
                      
                      
                      (408
                      )
                      
                      
                      —
                      
                      
                      
                      (1,700
                      )Restructuring
                      
                      
                      (1,183
                      )
                      
                      
                      (2,923
                      )
                      
                      
                      (2,220
                      )
                      
                      
                      (9,499
                      )$
                      9,865
                      
                      
                      $
                      (15,972
                      )
                      
                      $
                      12,494
                      
                      
                      $
                      (29,054
                      )




Note 11: Restructuring




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





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 $1.9 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 second
quarter and first six months of fiscal 2010, we recorded pre-tax restructuring
charges of $1.1 million and $1.7 million, respectively, covering severance and
benefits and other restructuring costs in connection with this plan. We expect
to incur approximately $0.7 million in additional charges in fiscal 2010 related
to severance and benefits and other restructuring costs under this plan. During
fiscal 2009, the plan resulted in restructuring charges of $0.2 million,
covering severance and benefits and the write-down of fixed
assets.  These changes, once fully completed, are expected to result
in annual cost savings of approximately $5 to $6 million based on current
volume.


13


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 second quarter of fiscal 2010, we
had about 840 employees at our Mexican facility. Because our Mexican facility is
still in the beginning stages of production, only about 33% 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 cutting and sewing
operations to be shifted to our Mexican facility. We plan to begin shifting the
domestic leather cutting and sewing operations in the second quarter of fiscal
2011. In connection with these activities, we have recorded $10.0 million in
restructuring charges, net of reversals 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 $1.0 million to $1.5 million during the next twelve months. During the second
quarter and first six months of fiscal 2010, we had restructuring charges, net
of reversals of $(0.4) million and $(0.3) million, respectively, covering
severance and benefits under this plan.  The reversal of restructuring
charges relate to a decrease in our estimated healthcare costs for this
plan.  During fiscal 2009, the plan resulted in 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. These changes, once fully completed are expected to
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 second quarter and first six months of fiscal 2010, we had
restructuring charges of $0.5 million and $0.8 million, respectively, related to
contract terminations.  We expect to incur approximately $0.5 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 our 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).  We do not expect to incur any additional charges related to
these restructuring plans.





Additionally,
during fiscal 2009 we had reversals of $0.5 million relating to our
restructuring plans in fiscal 2007.




As of
October 24, 2009, we had a remaining restructuring liability of
$1.9 million which is expected to be settled as follows: $1.3 million
in the remainder of fiscal 2010 and $0.6 million thereafter.




For the current fiscal year to date,
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
                          
                          
                          10/24/09
                            BalanceSeverance and benefit-related costs
                          
                          $
                          2,022
                          
                          
                          $
                          (30
                          )
                          
                          $
                          (777
                          )
                          
                          $
                          1,215Contract
      termination costs
                          
                          
                          530
                          
                          
                          
                          821
                          
                          
                          
                          (669
                          )
                          
                          
                          682Other
                          
                          
                          —
                          
                          
                          
                          1,429
                          
                          
                          
                          (1,429
                          )
                          
                          
                          —Total
      restructuring
                          
                          $
                          2,552
                          
                          
                          $
                          2,220
                          
                          
                          $
                          (2,875
                          )
                          
                          $
                          1,897
 *
                          Charges
      to expense include $0.1 million of non-cash charges for contract
      termination
costs.


14




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.  Inventory write-downs of $1.2 million are included
      in “Other.”




Note 12: Income Taxes




Our
effective tax rates for the first six months of fiscal 2010 and fiscal 2009 were
34.7% and 99.0%, respectively.  For fiscal 2010, a higher estimated
effective tax rate was offset by an additional federal tax
refund.  The significantly higher rate for the first six months of
fiscal 2009 resulted primarily from the recording of a $38.2 million valuation
allowance against our deferred tax assets.




Note 13: Variable Interest Entities




Financial
accounting standards require 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.


15


Based on
the criteria for consolidation of VIEs, we have consolidated 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.  In fiscal 2010, all
earnings and losses attributed to these VIEs are recorded as Net income (loss)
attributable to noncontrolling interests.  Prior to fiscal 2010, 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 second quarter and first six months of fiscal
2010 representing 31 stores and four consolidated VIEs during the second quarter
and first six months of fiscal 2009 representing 34 stores.  The
decrease was the result of our Cleveland VIE no longer being consolidated during
fiscal 2010 which resulted in a decrease of 7 stores.  This was offset
by an increase of 4 stores relating to the changes we made with our Toronto VIE
during the second half of fiscal 2009.





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





As of(Unaudited, amounts in
      thousands)
                              
                              10/24/09
                              
                              
                              4/25/09Current
      assets
                              
                              $
                              17,967
                              
                              
                              $
                              16,220Other
      long-term assets
                              
                              
                              13,427
                              
                              
                              
                              13,132Total
      assets
                              
                              $
                              31,394
                              
                              
                              $
                              29,352Current
      liabilities
                              
                              $
                              7,898
                              
                              
                              $
                              5,983Other
      long-term liabilities
                              
                              
                              2,969
                              
                              
                              
                              3,085Total
      liabilities
                              
                              $
                              10,867
                              
                              
                              $
                              9,068Second Quarter Ended
                              
                              
                              Six Months Ended(Unaudited, amounts in thousands
      )
                              
                              10/24/09
                              
                              
                              10/25/08
                              
                              
                              10/24/09
                              
                              
                              10/25/08Net
      sales, net of inter-company eliminations
                              
                              $
                              12,248
                              
                              
                              $
                              11,793
                              
                              
                              $
                              23,987
                              
                              
                              $
                              25,871Net
      loss
                              
                              $
                              (514
                              )
                              
                              $
                              (2,444
                              )
                              
                              $
                              (411
                              )
                              
                              $
                              (3,503
                              )





In
addition to our consolidated VIEs, 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 $2.2 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.


16





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:




Second Quarter
                  Ended
                
                
                Six Months
                  Ended(Unaudited, amounts in thousands)
                
                10/24/09
                
                
                10/25/08
                
                
                10/24/09
                
                
                10/25/08Numerator (basic and diluted):Net
      income (loss) attributable to La-Z-Boy Incorporated
                
                $
                5,907
                
                
                $
                (53,744
                )
                
                $
                7,890
                
                
                $
                (62,288
                )Income
      allocated to participating securities
                
                
                (122
                )
                
                
                —
                
                
                
                (141
                )
                
                
                —Dividends
      on participating securities
                
                
                —
                
                
                
                (32
                )
                
                
                —
                
                
                
                (53
                )Net
      income (loss) available to common shareholders
                
                $
                5,785
                
                
                $
                (53,776
                )
                
                $
                7,749
                
                
                $
                (62,341
                )





Second Quarter
                  Ended
                
                
                Six Months
                  Ended(Unaudited, amounts in thousands)
                
                10/24/09
                
                
                10/25/08
                
                
                10/24/09
                
                
                10/25/08Denominator:Basic
      common shares (based upon weighted average)
                
                
                51,527
                
                
                
                51,458
                
                
                
                51,503
                
                
                
                51,443Add:Stock
      option dilution
                
                
                228
                
                
                
                —
                
                
                
                48
                
                
                
                —Diluted
      common shares
                
                
                51,755
                
                
                
                51,458
                
                
                
                51,551
                
                
                
                51,443





Share-based
payment awards that entitle their holders to receive non-forfeitable dividends
prior to vesting are considered participating securities.  We granted
restricted stock awards that contain non-forfeitable rights to dividends on
unvested shares; such stock awards are considered participating
securities.  As participating securities, the unvested shares are
required to be included in the calculation of our basic earnings per common
share, using the “two-class method.”  The two-class method of
computing earnings per common share is an allocation method that calculates
earnings per share for each class of common stock and participating security
according to dividends declared and participation rights in undistributed
earnings.  Unvested restricted stock awards were previously included
in our diluted share calculation using the treasury stock method.  For
the second quarter and first six months ended October 25, 2008, we did not
allocate any loss to the unvested stock awards (participating securities), due
to their anti-dilutive effect.




The
effect of options to purchase 1.9 million and 2.6 million shares for the
quarters ended October 24, 2009 and October 25, 2008 with a weighted average
exercise price of $14.97 and $15.44 respectively, were excluded from the diluted
share calculation because the exercise prices of these options were higher than
the weighted average share price for the quarters and would have been
anti-dilutive.




Note 15: Fair Value Measurements


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





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




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


17





·
            Level 3 —
      Financial assets and liabilities whose values are based on prices or
      valuation techniques that require inputs that are both unobservable and
      significant to the overall fair value
  measurement.


Accounting
standards require the use of observable market data, when available, in making
fair value measurements. When inputs used to measure fair value fall within
different levels of the hierarchy, the level within which the fair value
measurement is categorized is based on the lowest level input that is
significant to the fair value measurement.





The
following table presents the fair value hierarchy for those assets measured at
fair value on a recurring basis as of October 24, 2009:





Fair Value Measurements(Unaudited, amounts in thousands)
                  
                  Level 1
                  
                  
                  Level 2
                  
                  
                  Level 3AssetsAvailable-for-sale
      securities
                  
                  $
                  8,230
                  
                  
                  $
                  2,266
                  
                  
                  $
                  —LiabilitiesInterest
      rate swap
                  
                  
                  —
                  
                  
                  
                  (721
                  )
                  
                  
                  —Total
                  
                  $
                  8,230
                  
                  
                  $
                  1,545
                  
                  
                  $
                  —





We hold
available-for-sale marketable securities to fund future obligations of one of
our non-qualified retirement plans.  The fair value measurements for
our available-for-sale securities are based upon quoted prices in active
markets, as well as through broker quotes and independent valuation providers,
multiplied by the number of shares owned exclusive of any transaction costs and
without any adjustments to reflect discounts that may be applied to selling a
large block of the securities at one time.





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





Note 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 October 24, 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 reflected in
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. We believe that our agreement continues to be effective and
therefore no gains or losses have been recorded in our
earnings.


18


For the
second quarter and first six months of fiscal 2010, we deferred losses of
$0.7 million into accumulated other comprehensive loss.  For the
second quarter and first six months of fiscal 2009, we deferred gains of less
than $0.1 million into accumulated other comprehensive loss.  The fair
value of our interest rate swap at October 24, 2009 and at April 25, 2009 was
$0.7 million, which was included in other long-term liabilities.




Note 17:  Recent Accounting
Pronouncements




In
December 2008, the Financial Accounting Standards Board (FASB) issued
authoritative guidance for employers’ disclosures about postretirement benefit
plan assets.  This guidance 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 guidance further expands the disclosure requirements to
include the fair value of plan assets, including the levels within the fair
value hierarchy and any concentrations of risk related to the plan
assets.  This guidance will be effective for our fiscal 2010 year end
and will require expanded disclosures.  The adoption of this guidance
will not have a material impact on our consolidated financial
statements.





In
June 2009, the FASB issued an amendment to the accounting and disclosure
requirements for transfers of financial assets.  This amendment
requires greater transparency and additional disclosures for transfers of
financial assets and the entity's continuing involvement with them and changes
the requirements for derecognizing financial assets.  In addition,
this amendment eliminates the concept of a qualifying special-purpose entity
(“QSPE”). This amendment is effective for our fiscal 2011 year end and interim
periods within that year.  We are currently evaluating the impact this
amendment will have on our consolidated financial statements and
disclosures.





In
June 2009, the FASB issued an amendment to the consolidation guidance
applicable to variable interest entities (“VIEs”). The guidance affects all
entities currently within the scope of FASB ASC 810, Consolidation, as well as
qualifying special-purpose entities (“QSPEs”) that are currently excluded from
the scope of FASB ASC 810, Consolidation.  Accordingly,
we will need to reconsider our previous FASB ASC 810, Consolidation, conclusions,
including (1) whether an entity is a VIE, (2) whether we are the VIE’s primary
beneficiary, and (3) what type of financial statement disclosures are
required.  This amendment is effective for our fiscal 2011 year end
and interim periods within that year.





In July
2009, the FASB issued the Accounting Standards Codification (“Codification”),
which became 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.  All references to
authoritative accounting literature in our financial statements beginning in the
second quarter of fiscal 2010 are referenced in accordance with the
Codification.  There were no changes to the content of our financial
statements or disclosures as a result of implementing the
Codification.





In August
2009, the FASB issued amendments for the fair value measurement of
liabilities.  This amendment provides clarification that in
circumstances in which a quoted price in an active market for the identical
liability is not available, an entity is required to measure fair value using
specified techniques.  This amendment also clarifies that when
estimating the fair value of a liability, a reporting entity is not required to
include a separate input or adjustment to other inputs relating to the existence
of a restriction that prevents the transfer of the
liability.  Additionally, this amendment clarifies that both a quoted
price in an active market for the identical liability at the measurement date
and the quoted price for the identical liability when traded as an asset in an
active market when no adjustments to the quoted price of the asset are required
are Level 1 fair value measurements.  These amendments are effective
for our third quarter of fiscal 2010.  These amendments will not have
a material impact on our consolidated financial statements and
disclosures.


19





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




Note 18:  Subsequent Event




On
November 6, 2009, the Work, Home Ownership and Business Assistance Act of 2009
(H.R. 3548) federal law was enacted.  The law includes provisions
allowing businesses with federal net operating losses in tax years 2008 and 2009
to carry back those losses for a period of five years and receive refunds of
income taxes paid in those years.  Previously, federal net operating
losses could only be carried back for a period of two years.  This new
law is likely to impact our effective tax rate in the third quarter of fiscal
2010; however as of November 17, 2009, we are still in the process of evaluating
the effect of this new law on our income tax position.


20




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) operating factors, such as supply, labor or
distribution disruptions including changes in operating conditions, product
recalls or costs; (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) 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 311 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.  In addition to
our La-Z-Boy Furniture Galleries® store network, the La-Z-Boy brand also has a
distribution model known as ComfortStudios®.  ComfortStudios® are
defined spaces within a larger independent 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 October 24, 2009, we had 487
ComfortStudios®.  We expect to open approximately 10 new
ComfortStudios® during the remainder of fiscal 2010.  Kincaid, England
and Lea also have in-store gallery programs.


21


We
consolidate certain of our independent dealers who do 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
second quarter and first six months of fiscal 2010 we had three VIEs, operating
31 stores, included in our Consolidated Statement of
Operations.   During the second quarter and first six months 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 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.





Challenging
economic conditions have continued to have a negative impact on consumers’
discretionary spending.  As a result we have continued to experience a
decline in our sales volume during the second quarter and first six months of
fiscal 2010.  During the second half of fiscal 2009, we made
significant changes to our business in order to offset the impact of these
challenging economic conditions and the anticipated corresponding decline in
sales volume.  We reduced employment across all levels of the company,
closed a plant related to our Bauhaus operations, continued to transition our
cut and sew operations to our new facility in Mexico and removed costs by
suspending certain employee benefits and made changes to our overall operating
expenses to be more in line with our sales volume.  During the first
half of fiscal 2010 we have continued to reduce costs by consolidating our
casegoods manufacturing facilities and continuing the transition of our cut and
sew operations to Mexico.  As a result of the changes we made during
the second half of fiscal 2009 and the first half of fiscal 2010, we were able
to produce positive net income for three consecutive quarters on declining sales
volumes.





While we
believe that these cost savings measures will positively impact our earnings, we
remain cautious about future economic conditions, and as a result we will
continue to focus on controlling our costs and managing our operating expenses
based on current sales trends.




22




Results of Operations


Analysis of Operations: Quarter Ended
October 24, 2009


(Second Quarter 2010 compared with
2009)





Quarter Ended(Unaudited, amounts in thousands, except per
      share amounts and percentages)
                    
                    10/24/09
                    
                    
                    10/25/08
                    
                    
                    Percent
                      changeUpholstery
      sales
                    
                    $
                    232,780
                    
                    
                    $
                    247,934
                    
                    
                    
                    (6.1
                    )%Casegoods
      sales
                    
                    
                    37,302
                    
                    
                    
                    48,473
                    
                    
                    
                    (23.0
                    )%Retail
      sales
                    
                    
                    38,014
                    
                    
                    
                    39,484
                    
                    
                    
                    (3.7
                    )%VIE
      sales
                    
                    
                    12,248
                    
                    
                    
                    11,793
                    
                    
                    
                    3.9
                    %Other/eliminations
                    
                    
                    (19,637
                    )
                    
                    
                    (15,736
                    )
                    
                    
                    (24.8
                    )%Consolidated
      sales
                    
                    $
                    300,707
                    
                    
                    $
                    331,948
                    
                    
                    
                    (9.4
                    )%Consolidated
      gross profit
                    
                    $
                    95,082
                    
                    
                    $
                    86,622
                    
                    
                    
                    9.8
                    %Consolidated
      gross margin
                    
                    
                    31.6
                    %
                    
                    
                    26.1
                    %Consolidated
      S,G&A
                    
                    $
                    84,697
                    
                    
                    $
                    101,499
                    
                    
                    
                    (16.6
                    )%S,G&A
      as a percent of sales
                    
                    
                    28.2
                    %
                    
                    
                    30.6
                    %Upholstery
      operating income
                    
                    $
                    25,359
                    
                    
                    $
                    8,338
                    
                    
                    
                    204.1
                    %Casegoods
      operating income (loss)
                    
                    
                    (184
                    )
                    
                    
                    755
                    
                    
                    
                    (124.4
                    )%Retail
      operating loss
                    
                    
                    (5,301
                    )
                    
                    
                    (10,391
                    )
                    
                    
                    49.0
                    %VIE
      operating loss
                    
                    
                    (402
                    )
                    
                    
                    (2,621
                    )
                    
                    
                    84.7
                    %Corporate
      and other
                    
                    
                    (8,424
                    )
                    
                    
                    (8,722
                    )
                    
                    
                    3.4
                    %Goodwill
      write-down
                    
                    
                    —
                    
                    
                    
                    (408
                    )
                    
                    
                    100.0
                    %Restructuring
                    
                    
                    (1,183
                    )
                    
                    
                    (2,923
                    )
                    
                    
                    59.5
                    %Consolidated
      operating income (loss)
                    
                    $
                    9,865
                    
                    
                    $
                    (15,972
                    )
                    
                    
                    161.8
                    %Upholstery
      operating margin
                    
                    
                    10.9
                    %
                    
                    
                    3.4
                    %Casegoods
      operating margin
                    
                    
                    (0.5
                    )%
                    
                    
                    1.6
                    %Retail
      operating margin
                    
                    
                    (13.9
                    )%
                    
                    
                    (26.3
                    )%Consolidated
      operating margin
                    
                    
                    3.3
                    %
                    
                    
                    (4.8
                    )%Net
      income (loss) attributable to La-Z-Boy Incorporated
                    
                    $
                    5,907
                    
                    
                    $
                    (53,744
                    )Net
      income (loss) per share attributable to La-Z-Boy
    Incorporated
                    
                    $
                    0.11
                    
                    
                    $
                    (1.05
                    )


23


Sales




Consolidated saleswere down
9.4% when compared with the second quarter of fiscal 2009 due to the continued
challenging economic climate which included a 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 6.1% compared with the second quarter of fiscal 2009. Sales price increases
resulted in a 1.8% increase in sales; however this was offset by the overall
decrease in sales volume due to the continued challenging economic
conditions.





Casegoods Groupsales
decreased 23.0% compared with the second quarter of fiscal 2009. The decrease in
sales volume occurred across all of our casegoods operating units due to weak
consumer demand.  The challenging economic climate has had a negative
impact on consumers’ discretionary spending. Because casegoods product tends to
be a higher ticket purchase compared to upholstered furniture, we believe
consumers are postponing these purchases to a greater extent than they are
upholstery.





Retail Group sales decreased
3.7% when compared with the second quarter of fiscal 2009.  We believe
the minimal decrease in sales was a result of our decision to maintain a strong
advertising presence in the marketplace during these challenging economic
conditions. Additionally, our Retail Group focused on various sales model
changes implemented in the second half of fiscal 2009 to drive
sales.





VIE sales increased 3.9% when
compared with the second quarter of fiscal 2009.  The slight increase
in sales was result of changes we made to our Toronto
VIE.  Additionally, sales for our California VIE were positively
impacted by the addition of one store in the second quarter of fiscal
2010.  This was somewhat offset by a decrease in sales as a result of
our Cleveland VIE no longer being consolidated during the second quarter of
fiscal 2010.





Gross
Margin





Gross
margin increased 5.5 percentage points in the second quarter of fiscal 2010 in
comparison to the second quarter of fiscal 2009.   Selling price
increases in early fiscal 2009, including changes in our discounts resulted in a
1.0 percentage point increase in our gross margin and raw material costs
decreases resulted in a 3.0 percentage point increase in our gross
margin.  Additionally, our gross margin increased 2.3 percentage
points due to efficiencies realized in our domestic upholstery 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 more efficiently.  Restructuring charges
included in gross profit decreased by $1.6 million or 0.5 percentage points in
the second quarter of fiscal 2010, when compared to the second quarter of fiscal
2009.  Somewhat offsetting the positive trend mentioned above was a
2.4 percentage point decrease in our gross margin due to a change in the product
mix of our sales shifting to lower margin products.


24


Selling,
General and Administrative Expenses





Selling,
general and administrative expenses (S,G&A)decreased by $16.8
million when compared to the prior year’s second quarter, or 2.4 percentage
points.  Advertising costs, bad debt expense and commissions expense
decreased $11.6 million or 35.5% in the second quarter of fiscal 2010, compared
to the second quarter of fiscal 2009.  Advertising costs as a percent
of sales decreased 1.6 percentage points or $6.4 million in the second quarter
of fiscal 2010 compared to the second quarter of fiscal 2009.  Our
decrease in advertising costs was mainly a result of a shift in the timing of
our advertising spend as a result of an increased focus on specific promotional
time periods.  Additionally, the overall decline in the economic
climate has decreased the cost of purchasing advertising.  We believe
these changes, along with some purchasing strategy shifts, have allowed us to
maintain a strong presence in the marketplace, while decreasing our
costs.  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.





Goodwill
Write-Down





The
goodwill write-down of $0.4 million in the second quarter of fiscal 2009 was the
result of our plan to reorganize the Toronto, Ontario retail market which we
consolidated as a VIE.





Restructuring





Restructuring
costs, net of reversals totaled $1.2 million for the second quarter of fiscal
2010 as compared with $2.9 million in the second quarter of fiscal 2009. The
restructuring costs, net of reversals in the second quarter of fiscal 2010
related to the consolidation of our casegoods manufacturing plants, 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 reversal of restructuring charges relate to a
decrease in our estimated healthcare costs for these plans.  The
restructuring costs in the second quarter of fiscal 2009 related to the closure
of our Tremonton, Utah 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 increased 8.1 percentage points to 3.3% for the
second quarter of fiscal 2010 compared to the second quarter of fiscal
2009.  Our second quarter of fiscal 2010 operating margin included 0.4
percentage points of restructuring charges.  Operating margin for the
second quarter of fiscal 2009 was (4.8)% and included 0.9 percentage points of
restructuring charges and 0.1 percentage points for the write-down of
goodwill.





The Upholstery Group operating
margin increased 7.5 percentage points when compared with the second quarter of
fiscal 2009.  Our Upholstery Group operating margin was positively
impacted by efficiencies we gained through our change to a cellular
manufacturing footprint, which enable us to be more productive with less
employees, and more efficient capacity utilization due to the various
restructurings we completed in recent years.  Additionally, our
Upholstery Group’s operating margin was positively impacted by a decrease in raw
material costs and decreases in bad debt and advertising
expenses.  Net advertising, after considering reimbursements for our
shared advertising program, decreased $4.0 million in the second quarter of
fiscal 2010 compared to the second quarter of fiscal 2009. Bad debt expense for
our Upholstery Group decreased $2.1 million in the second quarter of fiscal 2010
compared to the second quarter of fiscal 2009.





Our Casegoods Group operating
margin decreased by 2.1 percentage points in the second quarter of fiscal 2010
when compared with the second quarter of fiscal 2009.  The decrease in
operating margin was a direct result of the overall decrease in sales volume of
our casegoods operating units.  With a 23.0% decrease in sales volume,
we were unable to reduce our costs quickly enough to maintain our operating
margin.


25


Our Retail Group operating margin
improved significantly during the second quarter of fiscal 2010 in comparison to
the second quarter of fiscal 2009.  The 12.4 percentage point
improvement was a direct result of our focus on reducing selling and
administrative costs throughout the second half of fiscal 2009.  These
changes, along with only a slight decrease in our Retail Group’s sales volume,
had a favorable impact on our operating margin.





VIE operating loss decreased
$2.2 million in the second quarter of fiscal 2010 when compared to the second
quarter of fiscal 2009.  The decrease in operating loss of our VIEs
was mainly the result of changes we made to our Toronto VIE, which included
terminating our relationship with one dealer in our Toronto market during the
third quarter of fiscal 2009 and allowing our other Toronto dealer to assume the
operations of these four stores, which added to the four that they were already
operating.  These changes resulted in an increase in the number of
stores included by our VIE for the Toronto market and more efficient operations
for the market as a whole.





Corporate and Otheroperating
loss in the second quarter of fiscal 2010 decreased $0.3 million when compared
to the second quarter of fiscal 2009.  During the second quarter of
fiscal 2010 we had a realized loss on property sales of $0.1 million, compared
to a realized gain on property sales of $0.6 million.  This was offset
by our overall focus on cost reductions.





Interest
Expense





Interest
expense for the second quarter of fiscal 2010 was $0.8 million less than the
second quarter of fiscal 2009 due to a $65.5 million decrease in our average
debt.  Our weighted average interest rate increased 0.2 percentage
points in the second quarter of fiscal 2010 compared to the second quarter of
fiscal 2009.





Other
Income/(Expense)





Other
income/(expense) was income of $0.2 million for the second quarter of fiscal
2010, compared to expense of $0.7 million for the second quarter of fiscal
2009.  The change in the second quarter of fiscal 2010 was mainly the
result of currency exchange rate gains we experienced through our foreign
operations.





Income
Taxes




Our
effective tax rate for the second quarter of fiscal 2010 was 39.7% compared to
203.4% for the second quarter of fiscal 2009.  The rates for both
fiscal 2010 and fiscal 2009 reflect an increase in the valuation allowance on
our deferred tax assets of $0.4 million and $38.2 million,
respectively.


26


Results
of Operations


Analysis of Operations: Six Months
Ended October 24, 2009


(First Six Months of 2010 compared
with 2009)





Six Months Ended(Amounts in thousands, except per share amounts
      and percentages)
                    
                    10/24/09
                    
                    
                    10/25/08
                    
                    
                    Percent
                      changeUpholstery
      sales
                    
                    $
                    429,472
                    
                    
                    $
                    485,052
                    
                    
                    
                    (11.5
                    )%Casegoods
      sales
                    
                    
                    73,167
                    
                    
                    
                    96,594
                    
                    
                    
                    (24.3
                    )%Retail
      sales
                    
                    
                    73,976
                    
                    
                    
                    81,911
                    
                    
                    
                    (9.7
                    )%VIE
      sales
                    
                    
                    23,987
                    
                    
                    
                    25,871
                    
                    
                    
                    (7.3
                    )%Other/eliminations
                    
                    
                    (37,224
                    )
                    
                    
                    (35,828
                    )
                    
                    
                    (3.9
                    )%Consolidated
      sales
                    
                    $
                    563,378
                    
                    
                    $
                    653,600
                    
                    
                    
                    (13.8
                    )%Consolidated
      gross profit
                    
                    $
                    175,468
                    
                    
                    $
                    166,883
                    
                    
                    
                    5.1
                    %Consolidated
      gross margin
                    
                    
                    31.1
                    %
                    
                    
                    25.5
                    %Consolidated
      S,G&A
                    
                    $
                    162,153
                    
                    
                    $
                    192,770
                    
                    
                    
                    (15.9
                    )%S,G&A
      as a percent of sales
                    
                    
                    28.8
                    %
                    
                    
                    29.5
                    %Upholstery
      operating income
                    
                    $
                    41,649
                    
                    
                    $
                    18,194
                    
                    
                    
                    128.9
                    %Casegoods
      operating income (loss)
                    
                    
                    (305
                    )
                    
                    
                    2,132
                    
                    
                    
                    (114.3
                    )%Retail
      operating loss
                    
                    
                    (10,969
                    )
                    
                    
                    (20,401
                    )
                    
                    
                    46.2
                    %VIEs
      operating loss
                    
                    
                    (137
                    )
                    
                    
                    (3,709
                    )
                    
                    
                    96.3
                    %Corporate
      and other
                    
                    
                    (15,524
                    )
                    
                    
                    (14,071
                    )
                    
                    
                    (10.3
                    )%Goodwill
      write-down
                    
                    
                    —
                    
                    
                    
                    (1,700
                    )
                    
                    
                    100.0
                    %Restructuring
                    
                    
                    (2,220
                    )
                    
                    
                    (9,499
                    )
                    
                    
                    76.6
                    %Consolidated
      operating income (loss)
                    
                    $
                    12,494
                    
                    
                    $
                    (29,054
                    )
                    
                    
                    143.0
                    %Upholstery
      operating margin
                    
                    
                    9.7
                    %
                    
                    
                    3.8
                    %Casegoods
      operating margin
                    
                    
                    (0.4
                    )%
                    
                    
                    2.2
                    %Retail
      operating margin
                    
                    
                    (14.8
                    )%
                    
                    
                    (24.9
                    )%Consolidated
      operating margin
                    
                    
                    2.2
                    %
                    
                    
                    (4.4
                    )%Net
      income (loss) attributable to La-Z-Boy Incorporated
                    
                    $
                    7,890
                    
                    
                    $
                    (62,288
                    )Net
      income (loss) per share attributable to La-Z-Boy
    Incorporated
                    
                    $
                    0.15
                    
                    
                    $
                    (1.21
                    )


27


Sales




Consolidatedsaleswere down 13.8% compared
with the first six months of fiscal 2009 due to the continued challenging
economic climate during the first half of our fiscal year.  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 11.5% compared with the first six months of fiscal 2009. Sales price
increases resulted in a 1.5% increase in sales; however this was offset by a
decrease in sales volume due to an overall weak consumer demand, which we
associate with the challenging economic conditions.  Additionally, in
the first six months of fiscal 2009, our Upholstery Group sales were affected by
the change in contractual relationships with our third party carriers that
resulted in increased sales for that period as reported in our Form 10-K for the
fiscal year ended April 28, 2008.  This change resulted in an increase
of $11.0 million of sales in the first six months of fiscal 2009.





Casegoods Groupsales
decreased 24.3% compared with the first six months of fiscal 2009. The decrease
in sales volume occurred across all of our casegoods operating units and
directly related to the overall weakness at retail, which we attribute to the
challenging economic conditions.  Additionally, with the casegoods
product typically priced higher than upholstered furniture, we believe consumers
are continuing to postpone or forego these purchases to a greater extent than
they are upholstery products.





Retail Group sales decreased
9.7% compared with the first six months of fiscal 2009.  While our
Retail Group’s sales decreased only slightly in the second quarter of fiscal
2010 compared to the second quarter of fiscal 2009, sales for the first six
months overall decreased.  We attribute the overall decrease in sales
to the challenging economic conditions, which continue to negatively affect the
home furnishings market.





VIE sales decreased 7.3%
compared with the first six months of fiscal 2009.  The decrease was a
direct result of the challenging economic climate that continues to affect the
furniture industry, as well as our VIEs having three less stores during the
first six months of fiscal 2010 compared to the first six months of fiscal
2009.





Gross
Margin





Gross
margin increased 5.6 percentage points in the first six months of fiscal 2010 in
comparison to the first six months of fiscal 2009.   Selling
price increases in early fiscal 2009, including changes in our discounts
resulted in a 0.8 percentage point increase in our gross margin and raw material
cost decreases resulted in a 2.2 percentage point increase in our gross
margin.  Additionally, our gross margin increased 2.6 percentage
points due to efficiencies realized in our domestic upholstery 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 more efficiently.  Restructuring charges
included in gross profit decreased by $6.6 million or 1.0 percentage points
during the first six months of fiscal 2010, compared to the first six months of
fiscal 2009.  Somewhat offsetting the positive trend mentioned above
was a 1.6 percentage point decrease in our gross margin due to a change in the
product mix of our sales shifting to lower margin products.


28


Selling,
General and Administrative Expenses





Selling,
general and administrative expenses (S,G&A)decreased by $30.6
million when compared to the prior year’s first six
months,  decreasing by 0.7 percentage points.  Advertising
costs, bad debt expense and commissions expense decreased $19.0 million or 30.8%
in the first six months of fiscal 2010, compared to the first six months of
fiscal 2009.  Advertising costs as a percent of sales decreased 0.7
percentage points or $8.1 million in the first six months of fiscal 2010
compared to the first six months of fiscal 2009.  Our decrease in
advertising costs was a result of a shift in the timing of our advertising spend
as a result of an increased focus on specific promotional time
periods.  Additionally, the overall decline in the economic climate
has decreased the cost of purchasing advertising.  These changes,
along with some purchasing strategy shifts, have allowed us to maintain a strong
presence in the marketplace, while decreasing our costs.  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.





Goodwill
Write-down





The
goodwill write-down of $1.7 million in the first six months of fiscal 2009 was
the result of our plan to reorganize the Toronto, Ontario retail market which we
consolidated as a VIE ($0.4 million) and the result of our plan to close the
operations of our La-Z-Boy U.K. subsidiary ($1.3 million).





Restructuring





Restructuring
costs, net of reversals totaled $2.2 million for the first six months of fiscal
2010, compared with $9.5 million in the first six months of fiscal
2009.  The restructuring costs, net of reversals in fiscal 2010
related to the consolidation of our casegoods manufacturing plant, in addition
to ongoing severance and benefits as we transition our domestic cut and sew
operations to our Mexico facility and the ongoing costs for our closed retail
facilities.  Restructuring reversals relate to a decrease in our
estimated healthcare costs for these plans.  The restructuring costs
in fiscal 2009 related to the closure of our Tremonton, Utah 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 increased 6.6 percentage points to 2.2% for the
first six months of fiscal 2010. Our consolidated operating margin for the first
six months of fiscal 2010 included 0.4 percentage points for restructuring
charges.  Operating margin for the first six months of fiscal 2009 was
(4.4)% and included 0.3 percentage points for the goodwill write-down and 1.5
percentage points for restructuring charges.





The Upholstery Group operating
margin increased 5.9 percentage points when compared with the first six months
of fiscal 2009.  Our Upholstery Group operating margin was positively
impacted by efficiencies we gained through our change to a cellular
manufacturing footprint, which enables us to be more productive with less
employees, and more efficient capacity utilization due to the various
restructurings we completed in recent years.  Additionally, our
Upholstery Group’s operating margin was positively impacted by a decrease in raw
material costs and decreases in bad debt and advertising
expenses.  Net advertising, after considering reimbursements for our
shared advertising program, decreased $3.9 million in the first six months of
fiscal 2010 compared to the first six months of fiscal 2009.  Bad debt
expense for our Upholstery Group decreased $3.6 million in the first six months
of fiscal 2010 compared to the first six months of fiscal 2009.





Our Casegoods Group operating
margin decreased 2.6 percentage points when compared with the first six months
of fiscal 2009.  The decrease in operating margin was a direct result
of the overall decrease in sales volume of our casegoods operating
units.  With a 24.3% decrease in sales volume, we were unable to
reduce our costs quickly enough to maintain our operating
margin.


29


Our Retail Group operating margin
improved significantly in the first six months of fiscal 2010, compared to the
first six months of fiscal 2009.  The 10.1 percentage point increase
was a direct result of our focus on reducing selling and administrative costs
throughout the second half of fiscal 2009.  These changes had a
favorable impact on our operating margin even on the decrease in sales
volume.





VIE operating loss decreased
$3.6 million in the first six months of fiscal 2010, compared to the first six
months of fiscal 2009.  The decrease in operating loss of our VIEs was
mainly the result of changes we made to our Toronto VIE, which included
terminating our relationship with one dealer in our Toronto market during the
third quarter of fiscal 2009 and allowing our other Toronto dealer to assume the
operations of these four stores which added to the four that they were already
operating.  These changes resulted in an increase in the number of
stores included by our VIE for the Toronto market and more efficient operations
for the market as a whole.





Corporate and Otheroperating
loss increased $1.5 million during the first six months of fiscal 2010 when
compared with the first six months of fiscal 2009.  During the first
six months of fiscal 2010 we had a $0.1 million loss on property sales, compared
to a realized gain on property sales of $2.7 million during the first six months
of fiscal 2009.   This was offset by our overall reduction in
operating expenses.





Interest
Expense





Interest
expense for the first half of fiscal 2010 was $1.3 million less than the first
half of fiscal 2009 due to a $59.4 million decrease in our average debt and a
0.2 percentage point decrease in our weighted average interest
rate.





Other
Income/(Expense)





Other
income/(expense) was income of $0.9 million for the first six months of fiscal
2010, compared to expense of $0.5 million for the first six months of fiscal
2009.  The change in the first half of fiscal 2010 was mainly the
result of currency exchange rate gains we experienced through our foreign
operations.





Income
Taxes




Our
effective tax rates for the first six months of fiscal 2010 and fiscal 2009 were
34.7% and 99.0%, respectively.  For fiscal 2010, a higher estimated
effective tax rate was offset by an additional federal tax
refund.  The significantly higher rate for the first six months of
fiscal 2009 resulted primarily from the recording of a $38.2 million valuation
allowance against our deferred tax assets.




Liquidity and Capital Resources





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 $59.0 million at October 24, 2009, compared to $17.4 million at
April 25, 2009.  In the first six months of fiscal 2010, restricted
cash decreased by $18.2 million and became available to be used for operations
due to a change in our wholly-owned insurance company in the first quarter of
fiscal 2010.  During the first six months of fiscal 2010 we received
$13.1 million, net, in income tax refunds.  The majority of these
refunds were the result of carrying our fiscal 2009 loss back to prior fiscal
years in which we had taxable income in order to get a return of income tax paid
for those fiscal years.


30


Under our
credit agreement we have certain covenants and restrictions, including a 1.05 to
1.00 fixed charge coverage ratio requirement which would become effective if
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 October 24,
2009, we had $30.0 million outstanding on our credit facility and $87.0 million
of excess availability, compared to $35.0 million outstanding on our credit
facility and $65.0 million of excess availability as of April 25,
2009.  As of October 24, 2009, we would have been in compliance with
the fixed charge coverage ratio requirement had it been in effect.





Our
borrowing capacity is based on eligible trade accounts receivables and inventory
of the company.  During the first six months, our inventory levels
decreased slightly, the amount outstanding on our credit facility decreased,
while our accounts receivable increased.  As a result, the capacity to
borrow on our credit facility increased during the first six months of fiscal
2010.  Periodically, our lenders have the option to change the advance
rates on inventory and accounts receivable and to adjust reserves, which could
have a negative impact on our availability.




A
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.  This could adversely affect the cost and availability of
funding, the credit worthiness of our customers and could have a negative impact
on our availability.




In the
fourth quarter of fiscal 2009 we suspended our quarterly dividend because of the
deteriorating economic conditions.  We continue to believe it to be
more prudent to conserve cash and redirect those funds back into the
company.  Under our credit agreement, dividend restrictions would
become effective if our excess availability fell below $30.0
million.




Capital
expenditures for the first six months of fiscal 2010 were $2.8 million compared
with $10.0 million during the first six months 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 transition our
domestic cutting and sewing operations to Mexico, our ongoing costs for our
closed retail facilities and our plan to consolidate our North Carolina
casegoods manufacturing plants to impact cash by $1.6 million during the
remainder of fiscal 2010 and $0.3 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 $59.0 million of cash on hand as of October 24,
2009 and the $87.0 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.  We will continue to manage our
credit exposure to our independent dealers.


31


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





CashFlowsProvidedBy(UsedFor)
                            
                            SixMonthsEnded(Unaudited, amounts in
      thousands)
                            
                            10/24/09
                            
                            
                            10/25/08Operating
      activitiesNet
      income (loss)
                            
                            $
                            7,903
                            
                            
                            $
                            (62,167
                            )Non-cash
      add backs and changes in deferred taxes
                            
                            
                            19,498
                            
                            
                            
                            64,666Restructuring
                            
                            
                            2,220
                            
                            
                            
                            9,499Working
      capital
                            
                            
                            6,384
                            
                            
                            
                            (21,967
                            )Cash
      provided by (used for) operating activities
                            
                            
                            36,005
                            
                            
                            
                            (9,969
                            )Investing
      activities
                            
                            
                            17,730
                            
                            
                            
                            (2,869
                            )Financing
      activitiesNet
      increase (decrease) in debt
                            
                            
                            (11,894
                            )
                            
                            
                            14,179Other
      financing activities, mainly dividends
                            
                            
                            —
                            
                            
                            
                            (4,151
                            )Cash
      provided by (used for) financing activities
                            
                            
                            (11,894
                            )
                            
                            
                            10,028Exchange
      rate changes
                            
                            
                            (168
                            )
                            
                            
                            (643
                            )Net
      increase (decrease) in cash and equivalents
                            
                            $
                            41,673
                            
                            
                            $
                            (3,453
                            )





Operating
Activities





During
the first six months of fiscal 2010, net cash provided by operating activities
was $36.0 million, compared with $10.0 million used for operating activities in
the first six months of fiscal 2009.  Our net income in the first six
months of fiscal 2010 versus our net loss in the first six months of fiscal
2009, as well as positive cash flow from working capital was the main reason for
the increase in cash flows from operating activities.  The working
capital cash provided by operations in the first six months of fiscal 2010
was mainly attributable to a decrease in our prepaid income taxes and
an increase in our income tax payables and customer deposits during the
first six months of fiscal 2010.  This was offset by an increase in
our accounts receivable during the first six months of fiscal
2010.  The working capital cash used for operations in the first six
months 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 six months
of fiscal 2009.





Investing
Activities





During
the first six months of fiscal 2010, net cash provided by investing activities
was $17.7 million, whereas $2.9 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
first six months of fiscal 2010.





Financing
Activities





We used
$11.9 million of cash for financing activities in the first six months of fiscal
2010 compared with $10.0 million of cash provided by financing activities during
the first six months of fiscal 2009.  Our financing activities in the
first six months of fiscal 2010 included a net pay down of debt of $11.9
million, compared to a $14.2 million net increase in debt in the first six
months of fiscal 2009.  In addition to these financing activities, our
first six months of fiscal 2009 also included dividend payments of $4.2
million.


32


The
balance sheet at the end of the second quarter of fiscal 2010 reflected a $3.2
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 first six months of fiscal
2010.




Our
debt-to-capitalization ratio was 13.2% at October 24, 2009 and 16.4% at April
25, 2009.  Capital is defined as total debt plus total
equity.




Our Board
of Directors has authorized the repurchase of company stock.  As of
October 24, 2009, 5.4 million additional shares could be purchased pursuant to
this authorization. We did not purchase any shares during the first half of
fiscal 2010.




We have
guaranteed various leases and notes of dealers with proprietary stores. The
total amount of these guarantees was $2.3 million at October 24, 2009. Of this,
$1.5 million will expire within one year and $0.8 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 second quarter of fiscal
2010, we had $32.8 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 $1.9 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 second
quarter and first six months of fiscal 2010, we recorded pre-tax restructuring
charges of $1.1 million and $1.7 million, respectively, covering severance and
benefits and other restructuring costs in connection with this plan. We expect
to incur approximately $0.7 million in additional charges in fiscal 2010 related
to severance and benefits and other restructuring costs under this plan. During
fiscal 2009, the plan resulted in restructuring charges of $0.2 million,
covering severance and benefits and the write-down of fixed
assets.  These changes, once fully completed, are expected to result
in annual cost savings of approximately $5 to $6 million based on current
volume.


33


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 second quarter of fiscal 2010, we
had about 840 employees at our Mexican facility. Because our Mexican facility is
still in the beginning stages of production, only about 33% 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 cutting and sewing
operations to be shifted to our Mexican facility. We plan to begin shifting the
domestic leather cutting and sewing operations in the second quarter of fiscal
2011. In connection with these activities, we have recorded $10.0 million in
restructuring charges, net of reversals 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 $1.0 million to $1.5 million during the next twelve months. During the second
quarter and first six months of fiscal 2010, we had restructuring charges, net
of reversals of $(0.4) million and $(0.3) million, respectively, covering
severance and benefits under this plan.  The reversal of restructuring
charges relate to a decrease in our estimated healthcare costs for this
plan.  During fiscal 2009, the plan resulted in 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. These changes, once fully completed are expected to
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 second quarter and first six months of fiscal 2010, we had
restructuring charges of $0.5 million and $0.8 million, respectively, related to
contract terminations.  We expect to incur approximately $0.5 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).  We do not expect to incur any additional charges related to
these restructuring plans.





Additionally,
during fiscal 2009 we had reversals of $0.5 million relating to our
restructuring plans in fiscal 2007.




As of
October 24, 2009, we had a remaining restructuring liability of
$1.9 million which is expected to be settled as follows: $1.3 million
in the remainder of fiscal 2010 and $0.6 million thereafter.




For the current fiscal year to date,
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
                    
                    
                    10/24/09
                      BalanceSeverance
      and benefit-related costs
                    
                    $
                    2,022
                    
                    
                    $
                    (30
                    )
                    
                    $
                    (777
                    )
                    
                    $
                    1,215Contract
      termination costs
                    
                    
                    530
                    
                    
                    
                    821
                    
                    
                    
                    (669
                    )
                    
                    
                    682Other
                    
                    
                    —
                    
                    
                    
                    1,429
                    
                    
                    
                    (1,429
                    )
                    
                    
                    —Total
      restructuring
                    
                    $
                    2,552
                    
                    
                    $
                    2,220
                    
                    
                    $
                    (2,875
                    )
                    
                    $
                    1,897


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


34




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.  Inventory
write-downs of $1.2 million are included “Other.”




Critical Accounting Policies




Our
critical accounting policies are disclosed in our Form 10-K for the year ended
April 25, 2009.  There were no material changes to our critical
accounting policies during the first six months of fiscal 2010.




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 anti-dumping 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.


35


Business Outlook





Although
the magnitude of volume declines is not as great as we experienced over the last
several quarters, we remain concerned about the overall macroeconomic
environment and it is too early to predict a recovery for our
industry.  We will continue to look for ways to drive sales and
operate our business in the most efficient manner possible while continuing to
make whatever changes are necessary to our business model.  We will
also maintain a clear focus on our balance sheet to ensure our company has the
greatest operating flexibility in the challenging environment.





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 October 24, 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. Our exposure to changes in the value of foreign
currencies results from the assets of our Mexico subsidiary, which totaled $2.0
million at October 24, 2009.  Management estimates that a 10% change
in the value of the peso would not have a material impact on our results of
operations for fiscal 2010 based upon the current asset levels.




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
the fiscal quarter ended October 24, 2009 that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.


36




PART II — OTHER INFORMATION




ITEM 1A.  RISK FACTORS




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




ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS




The
Annual Meeting of Shareholders of La-Z-Boy Incorporated was held on August 19,
2009. The shareholders voted to elect three directors for three-year terms
expiring in 2012, to elect one director for a term expiring in 2010 and to
ratify the selection of the independent registered public accounting firm for
fiscal year 2010.




Proposal
                        Election of Directors for terms expiring
                        in 2012:
                      
                      Shares
                        Voted
                        In Favor
                      
                      
                      Percent
                        Shares
                        In Favor
                      
                      
                      Shares
                        WithheldJohn
      H. Foss
                      
                      
                      43,251,478
                      
                      
                      
                      97.4
                      %
                      
                      
                      1,141,859Janet
      E. Kerr
                      
                      
                      43,316,124
                      
                      
                      
                      97.6
                      %
                      
                      
                      1,077,213Nido
      R. Qubein
                      
                      
                      42,858,074
                      
                      
                      
                      96.6
                      %
                      
                      
                      1,535,263





Proposal
                              Election of a Director for a term
                              expiring in 2010:
                            
                            Shares
                              Voted
                              In Favor
                            
                            
                            Percent
                              Shares
                              In Favor
                            
                            
                            Shares
                              WithheldRichard
      M. Gabrys
                            
                            
                            39,894,714
                            
                            
                            
                            89.9
                            %
                            
                            
                            4,498,623Directors whose term in office continued after the
      annual meeting:Kurt
      L. DarrowDavid
      K. HehlJames
      W. JohnstonH.
      George Levy, M.D.Rocque
      E. LipfordW.
      Alan McColloughJack
      L. Thompson




Proposal
                        
                        Shares
                          Voted
                          In Favor
                        
                        
                        Shares
                          Voted
                          Against
                        
                        
                        Shares
                          Abstained
                        
                        
                        Broker
                          Non-VotesRatify
      the selection of the independent registered public accounting firm for FYE
      2010 (1)
                        
                        
                        43,807,956
                        
                        
                        
                        405,799
                        
                        
                        
                        179,582
                        
                        
                        
                        —




(1)
            Approval
      required affirmative votes of majority of shares voted on
      proposal.




37




ITEM 6. EXHIBITS




Exhibit
                Number
              
              Description(10.1)*
              
              2005
      La-Z-Boy Incorporated Executive Deferred Compensation Plan as amended and
      restated effective November 18, 2008(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)


*
              Indicates
      a management contract or compensatory plan or arrangement under which a
      director or executive officer may receive
  benefits.


38




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:
November 17, 2009




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


39