UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549-1004


FORM
10-Q





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


FOR
QUARTERLY PERIOD ENDED JANUARY 23, 2010


COMMISSION
FILE NUMBER 1-9656


LA-Z-BOY
      INCORPORATED(Exact
      name of registrant as specified in its
charter)





MICHIGAN
                  38-0751137(State
      or other jurisdiction of incorporation or organization)
                  (I.R.S.
      Employer Identification
No.)





1284
      North Telegraph Road, Monroe, Michigan
                    48162-3390(Address
      of principal executive offices)
                    (Zip
      Code)




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




None(Former
      name, former address and former fiscal year, if changed since last
      report.)




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




Yes  þ                                                       No
 ̈




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




Yes  ̈                   
     
                      
       No  ̈




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




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




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




Yes  ̈        
                 
                      
       No þ




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




Class
              
              Outstanding at February 9,
    2010Common
      Shares, $1.00 par value
              
              51,546,239












LA-Z-BOY
INCORPORATED


FORM 10-Q
THIRD 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
                      
                      8-9Note
      2. Interim Results
                      
                      9Note
      3. Reclassification
                      
                      9Note
      4. Restricted Cash
                      
                      9Note
      5. Inventories
                      
                      9Note
      6. Pension Plans
                      
                      10Note
      7. Financial Guarantees and Product Warranties
                      
                      10-11Note
      8. Stock-Based Compensation
                      
                      11Note
      9. Total Comprehensive Income (Loss)
                      
                      11Note
      10. Segment Information
                      
                      11-12Note
      11. Restructuring
                      
                      13-14Note
      12. Income Taxes
                      
                      14-15Note
      13. Variable Interest Entities
                      
                      15-16Note
      14. Income from Continued Dumping and Subsidy Offset Act
                      
                      16Note
      15. Earnings per Share
                      
                      16-17Note
      16. Fair Value Measurements
                      
                      17-18Note
      17. Hedging Activities
                      
                      18Note
      18. Recent Accounting Pronouncements
                      
                      19-20Item
      2.
                      Management’s
      Discussion and Analysis of Financial Condition and Results of
      OperationsCautionary
      Statement Concerning Forward-Looking Statements
                      
                      21Introduction
                      
                      21-22Results
      of Operations
                      
                      23-34Liquidity
      and Capital Resources
                      
                      34-36Restructuring
                      
                      37-38Critical
      Accounting Policies
                      
                      38Regulatory
      Developments
                      
                      39Recent
      Accounting Pronouncements
                      
                      39Business
      Outlook
                      
                      39Item
      3.
                      Quantitative
      and Qualitative Disclosures About Market Risk
                      
                      39Item
      4.
                      Controls
      and Procedures
                      
                      40PART
      II Other InformationItem 1A.
                      Risk
      Factors
                      
                      40Item
      6.
                      Exhibits
                      
                      40Signature
      Page
                      
                      41




2







PART
I


FINANCIAL
INFORMATION


Item
1. Financial Statements




LA-Z-BOY
INCORPORATED


CONSOLIDATED
STATEMENT OF OPERATIONS




Third Quarter Ended(Unaudited, amounts in thousands, except per share data)
                    
                    01/23/10
                    
                    
                    01/24/09Sales
                    
                    $
                    305,094
                    
                    
                    $
                    288,576Cost
      of salesCost
      of goods sold
                    
                    
                    206,895
                    
                    
                    
                    207,809Restructuring
                    
                    
                    392
                    
                    
                    
                    1,664Total
      cost of sales
                    
                    
                    207,287
                    
                    
                    
                    209,473Gross
      profit
                    
                    
                    97,807
                    
                    
                    
                    79,103Selling,
      general and administrative
                    
                    
                    83,527
                    
                    
                    
                    93,501Restructuring
                    
                    
                    201
                    
                    
                    
                    741Write-down
      of long-lived assets
                    
                    
                    —
                    
                    
                    
                    7,036Write-down
      of trade names
                    
                    
                    —
                    
                    
                    
                    5,541Write-down
      of goodwill
                    
                    
                    —
                    
                    
                    
                    40,436Operating
      income (loss)
                    
                    
                    14,079
                    
                    
                    
                    (68,152
                    )Interest
      expense
                    
                    
                    577
                    
                    
                    
                    1,386Interest
      income
                    
                    
                    140
                    
                    
                    
                    323Income
      from Continued Dumping and Subsidy Offset Act, net
                    
                    
                    4,436
                    
                    
                    
                    8,124Other
      income (expense), net
                    
                    
                    (593
                    )
                    
                    
                    (7,433
                    )Earnings
      (loss) before income taxes
                    
                    
                    17,485
                    
                    
                    
                    (68,524
                    )Income
      tax (benefit) expense
                    
                    
                    6,547
                    
                    
                    
                    (4,263
                    )Net
      income (loss)
                    
                    
                    10,938
                    
                    
                    
                    (64,261
                    )Net
      (income) loss attributable to noncontrolling interests
                    
                    
                    38
                    
                    
                    
                    (287
                    )Net
      income (loss) attributable to La-Z-Boy Incorporated
                    
                    $
                    10,976
                    
                    
                    $
                    (64,548
                    )Basic
      average shares
                    
                    
                    51,546
                    
                    
                    
                    51,475Basic
      net income (loss) attributable to La-Z-Boy Incorporated per
      share
                    
                    $
                    0.21
                    
                    
                    $
                    (1.25
                    )Diluted
      average shares
                    
                    
                    51,845
                    
                    
                    
                    51,475Diluted
      net income (loss) attributable to La-Z-Boy Incorporated per
      share
                    
                    $
                    0.21
                    
                    
                    $
                    (1.25
                    )Dividends
      paid per share
                    
                    $
                    —
                    
                    
                    $
                    0.02




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






3







LA-Z-BOY
INCORPORATED


CONSOLIDATED
STATEMENT OF OPERATIONS





Nine Months Ended(Unaudited, amounts in thousands, except per share data)
                    
                    01/23/10
                    
                    
                    01/24/09Sales
                    
                    $
                    868,472
                    
                    
                    $
                    942,176Cost
      of salesCost
      of goods sold
                    
                    
                    593,406
                    
                    
                    
                    686,494Restructuring
                    
                    
                    1,791
                    
                    
                    
                    9,696Total
      cost of sales
                    
                    
                    595,197
                    
                    
                    
                    696,190Gross
      profit
                    
                    
                    273,275
                    
                    
                    
                    245,986Selling,
      general and administrative
                    
                    
                    246,011
                    
                    
                    
                    286,603Restructuring
                    
                    
                    1,022
                    
                    
                    
                    2,208Write-down
      of long-lived assets
                    
                    
                    —
                    
                    
                    
                    7,036Write-down
      of trade names
                    
                    
                    —
                    
                    
                    
                    5,541Write-down
      of goodwill
                    
                    
                    —
                    
                    
                    
                    42,136Operating
      income (loss)
                    
                    
                    26,242
                    
                    
                    
                    (97,538
                    )Interest
      expense
                    
                    
                    2,387
                    
                    
                    
                    4,532Interest
      income
                    
                    
                    615
                    
                    
                    
                    1,885Income
      from Continued Dumping and Subsidy Offset Act, net
                    
                    
                    4,436
                    
                    
                    
                    8,124Other
      income (expense), net
                    
                    
                    352
                    
                    
                    
                    (7,974
                    )Earnings
      (loss) before income taxes
                    
                    
                    29,258
                    
                    
                    
                    (100,035
                    )Income
      tax expense
                    
                    
                    10,747
                    
                    
                    
                    27,388Net
      income (loss)
                    
                    
                    18,511
                    
                    
                    
                    (127,423
                    )Net
      (income) loss attributable to noncontrolling interests
                    
                    
                    355
                    
                    
                    
                    (407
                    )Net
      income (loss) attributable to La-Z-Boy Incorporated
                    
                    $
                    18,866
                    
                    
                    $
                    (127,830
                    )Basic
      average shares
                    
                    
                    51,517
                    
                    
                    
                    51,454Basic
      net income (loss) attributable to La-Z-Boy Incorporated per
      share
                    
                    $
                    0.36
                    
                    
                    $
                    (2.49
                    )Diluted
      average shares
                    
                    
                    51,595
                    
                    
                    
                    51,454Diluted
      net income (loss) attributable to La-Z-Boy Incorporated per
      share
                    
                    $
                    0.36
                    
                    
                    $
                    (2.49
                    )Dividends
      paid per share
                    
                    $
                    —
                    
                    
                    $
                    0.10




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






4






LA-Z-BOY
INCORPORATED


CONSOLIDATED
BALANCE SHEET




(Unaudited, amounts in thousands)
                    
                    01/23/10
                    
                    
                    04/25/09Current
      assetsCash
      and equivalents
                    
                    $
                    79,511
                    
                    
                    $
                    17,364Restricted
      cash
                    
                    
                    —
                    
                    
                    
                    18,713Receivables,
      net of allowance of $25,547 at 01/23/10 and $28,385 at
      04/25/09
                    
                    
                    158,656
                    
                    
                    
                    147,858Inventories,
      net
                    
                    
                    145,045
                    
                    
                    
                    140,178Deferred
      income taxes—current
                    
                    
                    795
                    
                    
                    
                    795Other
      current assets
                    
                    
                    16,435
                    
                    
                    
                    22,872Total
      current assets
                    
                    
                    400,442
                    
                    
                    
                    347,780Property,
      plant and equipment, net
                    
                    
                    135,928
                    
                    
                    
                    146,896Trade
      names
                    
                    
                    3,100
                    
                    
                    
                    3,100Other
      long-term assets
                    
                    
                    47,595
                    
                    
                    
                    51,431Total
      assets
                    
                    $
                    587,065
                    
                    
                    $
                    549,207Current
      liabilitiesCurrent
      portion of long-term debt
                    
                    $
                    1,848
                    
                    
                    $
                    8,724Accounts
      payable
                    
                    
                    48,247
                    
                    
                    
                    41,571Accrued
      expenses and other current liabilities
                    
                    
                    88,635
                    
                    
                    
                    75,733Total
      current liabilities
                    
                    
                    138,730
                    
                    
                    
                    126,028Long-term
      debt
                    
                    
                    46,679
                    
                    
                    
                    52,148Deferred
      income taxes
                    
                    
                    736
                    
                    
                    
                    724Other
      long-term liabilities
                    
                    
                    68,958
                    
                    
                    
                    63,875Contingencies
      and commitments
                    
                    
                    —
                    
                    
                    
                    —EquityLa-Z-Boy
      Incorporated shareholders’ equity:Common
      shares, $1 par value
                    
                    
                    51,546
                    
                    
                    
                    51,478Capital
      in excess of par value
                    
                    
                    201,093
                    
                    
                    
                    205,945Retained
      earnings
                    
                    
                    94,925
                    
                    
                    
                    67,431Accumulated
      other comprehensive loss
                    
                    
                    (19,807
                    )
                    
                    
                    (22,698
                    )Total
      La-Z-Boy Incorporated shareholders' equity
                    
                    
                    327,757
                    
                    
                    
                    302,156Noncontrolling
      interests
                    
                    
                    4,205
                    
                    
                    
                    4,276Total
      equity
                    
                    
                    331,962
                    
                    
                    
                    306,432Total
      liabilities and equity
                    
                    $
                    587,065
                    
                    
                    $
                    549,207




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






5




LA-Z-BOY
INCORPORATED


CONSOLIDATED
STATEMENT OF CASH FLOWS




Third Quarter Ended
                      
                      
                      Nine Months Ended(Unaudited, amounts in thousands)
                      
                      01/23/10
                      
                      
                      01/24/09
                      
                      
                      01/23/10
                      
                      
                      01/24/09Cash
      flows from operating activitiesNet
      income (loss)
                      
                      $
                      10,938
                      
                      
                      $
                      (64,261
                      )
                      
                      $
                      18,511
                      
                      
                      $
                      (127,423
                      )Adjustments
      to reconcile net income (loss) to cash provided by operating
      activities(Gain) loss
      on sale of assets
                      
                      
                      38
                      
                      
                      
                      (37
                      )
                      
                      
                      (50
                      )
                      
                      
                      (2,707
                      )Write-down
      of long-lived assets
                      
                      
                      —
                      
                      
                      
                      7,036
                      
                      
                      
                      —
                      
                      
                      
                      7,036Write-down
      of trade names
                      
                      
                      —
                      
                      
                      
                      5,541
                      
                      
                      
                      —
                      
                      
                      
                      5,541Write-down
      of goodwill
                      
                      
                      —
                      
                      
                      
                      40,436
                      
                      
                      
                      —
                      
                      
                      
                      42,136Write-down
      of investments
                      
                      
                      —
                      
                      
                      
                      5,140
                      
                      
                      
                      —
                      
                      
                      
                      5,140Restructuring
                      
                      
                      593
                      
                      
                      
                      2,405
                      
                      
                      
                      2,813
                      
                      
                      
                      11,904Provision
      for doubtful accounts
                      
                      
                      1,079
                      
                      
                      
                      9,439
                      
                      
                      
                      5,593
                      
                      
                      
                      18,439Depreciation
      and amortization
                      
                      
                      6,611
                      
                      
                      
                      5,993
                      
                      
                      
                      19,186
                      
                      
                      
                      18,267Stock-based
      compensation expense
                      
                      
                      1,454
                      
                      
                      
                      1,012
                      
                      
                      
                      4,082
                      
                      
                      
                      2,867Change
      in receivables
                      
                      
                      3,413
                      
                      
                      
                      31,405
                      
                      
                      
                      (14,173
                      )
                      
                      
                      23,314Change
      in inventories
                      
                      
                      (6,098
                      )
                      
                      
                      (3,463
                      )
                      
                      
                      (4,867
                      )
                      
                      
                      7,380Change
      in other assets
                      
                      
                      332
                      
                      
                      
                      2,865
                      
                      
                      
                      6,971
                      
                      
                      
                      1,954Change
      in payables
                      
                      
                      1,929
                      
                      
                      
                      (8,351
                      )
                      
                      
                      6,676
                      
                      
                      
                      (6,424
                      )Change
      in other liabilities
                      
                      
                      2,707
                      
                      
                      
                      (2,512
                      )
                      
                      
                      14,258
                      
                      
                      
                      (28,245
                      )Change
      in deferred taxes
                      
                      
                      (301
                      )
                      
                      
                      (4,658
                      )
                      
                      
                      (301
                      )
                      
                      
                      38,842Total
      adjustments
                      
                      
                      11,757
                      
                      
                      
                      92,251
                      
                      
                      
                      40,188
                      
                      
                      
                      145,444Net
      cash provided by operating activities
                      
                      
                      22,695
                      
                      
                      
                      27,990
                      
                      
                      
                      58,699
                      
                      
                      
                      18,021Cash
      flows from investing activitiesProceeds
      from disposals of assets
                      
                      
                      9
                      
                      
                      
                      45
                      
                      
                      
                      1,925
                      
                      
                      
                      7,831Capital
      expenditures
                      
                      
                      (2,929
                      )
                      
                      
                      (4,089
                      )
                      
                      
                      (5,708
                      )
                      
                      
                      (14,079
                      )Purchases
      of investments
                      
                      
                      (1,397
                      )
                      
                      
                      (1,630
                      )
                      
                      
                      (3,934
                      )
                      
                      
                      (10,595
                      )Proceeds
      from sales of investments
                      
                      
                      1,684
                      
                      
                      
                      10,854
                      
                      
                      
                      5,793
                      
                      
                      
                      21,881Change
      in restricted cash
                      
                      
                      500
                      
                      
                      
                      (4,709
                      )
                      
                      
                      17,507
                      
                      
                      
                      (7,664
                      )Change
      in other long-term assets
                      
                      
                      115
                      
                      
                      
                      (575
                      )
                      
                      
                      129
                      
                      
                      
                      (346
                      )Net
      cash provided by (used for) investing activities
                      
                      
                      (2,018
                      )
                      
                      
                      (104
                      )
                      
                      
                      15,712
                      
                      
                      
                      (2,972
                      )Cash
      flows from financing activitiesProceeds
      from debt
                      
                      
                      10,718
                      
                      
                      
                      15,992
                      
                      
                      
                      31,391
                      
                      
                      
                      55,458Payments
      on debt
                      
                      
                      (11,169
                      )
                      
                      
                      (43,752
                      )
                      
                      
                      (43,736
                      )
                      
                      
                      (69,039
                      )Dividends
      paid
                      
                      
                      —
                      
                      
                      
                      (1,037
                      )
                      
                      
                      —
                      
                      
                      
                      (5,188
                      )Net
      cash used for financing activities
                      
                      
                      (451
                      )
                      
                      
                      (28,797
                      )
                      
                      
                      (12,345
                      )
                      
                      
                      (18,769
                      )Effect
      of exchange rate changes on cash and equivalents
                      
                      
                      248
                      
                      
                      
                      (228
                      )
                      
                      
                      81
                      
                      
                      
                      (871
                      )Change
      in cash and equivalents
                      
                      
                      20,474
                      
                      
                      
                      (1,139
                      )
                      
                      
                      62,147
                      
                      
                      
                      (4,591
                      )Cash
      acquired from consolidation of VIEs
                      
                      
                      —
                      
                      
                      
                      631
                      
                      
                      
                      —
                      
                      
                      
                      631Cash
      and equivalents at beginning of period
                      
                      
                      59,037
                      
                      
                      
                      11,024
                      
                      
                      
                      17,364
                      
                      
                      
                      14,476Cash
      and equivalents at end of period
                      
                      $
                      79,511
                      
                      
                      $
                      10,516
                      
                      
                      $
                      79,511
                      
                      
                      $
                      10,516Cash
      paid (net of refunds) during period – income taxes
                      
                      $
                      5,429
                      
                      
                      $
                      (660
                      )
                      
                      $
                      (7,653
                      )
                      
                      $
                      (456
                      )Cash
      paid during period - interest
                      
                      $
                      557
                      
                      
                      $
                      1,337
                      
                      
                      $
                      1,845
                      
                      
                      $
                      3,750




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






6




LA-Z-BOY
INCORPORATED


CONSOLIDATED
STATEMENT OF CHANGES IN EQUITY




(Unaudited, amounts in thousands)
                        
                        Common
                          Shares
                        
                        
                        Capital in
                          Excess of Par
                          Value
                        
                        
                        Retained
                          Earnings
                        
                        
                        Accumulated
                          Other
                          Compre-
                          hensive Loss
                        
                        
                        Non-
                          Controlling
                          Interests
                        
                        
                        TotalAt
      April 26, 2008
                        
                        $
                        51,428
                        
                        
                        $
                        209,388
                        
                        
                        $
                        188,203
                        
                        
                        $
                        (227
                        )
                        
                        $
                        2,582
                        
                        
                        $
                        451,374Comprehensive
      lossNet
      income (loss)
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        (122,673
                        )
                        
                        
                        
                        
                        
                        
                        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
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        (144,576
                        )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
                        
                        
                        
                        67,431
                        
                        
                        
                        (22,698
                        )
                        
                        
                        4,276
                        
                        
                        
                        306,432Comprehensive
      incomeNet
      income (loss)
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        18,866
                        
                        
                        
                        
                        
                        
                        
                        (355
                        )Unrealized
      gain on marketable securities arising during the period
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        1,832Reclassification
      adjustment for gain on marketable securities included in net
      income
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        304Translation
      adjustment
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        (840
                        )
                        
                        
                        194Net
      pension amortization
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        1,582Change
      in fair value of cash flow hedge
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        13Total
      comprehensive income
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        21,596Change
      in noncontrolling interest
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        90
                        
                        
                        
                        90Stock
      issued for stock and employee benefit plans, net of
      cancellations
                        
                        
                        68
                        
                        
                        
                        (8,922
                        )
                        
                        
                        8,628
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        (226
                        )Stock
      option, restricted stock and performance based stock
    expense
                        
                        
                        
                        
                        
                        
                        4,070
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        4,070At
      January 23, 2010
                        
                        $
                        51,546
                        
                        
                        $
                        201,093
                        
                        
                        $
                        94,925
                        
                        
                        $
                        (19,807
                        )
                        
                        $
                        4,205
                        
                        
                        $
                        331,962




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 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.




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, as well as the adjustments relating to one of our VIEs described
below.




The new
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.




During
the third quarter of fiscal 2010, we corrected our historical financial
statements related to one of our VIEs. This VIE previously amortized
leasehold improvements over a period that exceeded the appropriate useful life
in accordance with our accounting policy. The cumulative effect was a $3.3
million reduction to fixed assets and retained earnings as of April 25,
2009 to record the previously unrecognized amortization. The
correction resulted in an increase in our net loss for the fiscal years ended
April 29, 2006, April 26, 2008 and April 25, 2009 of $0.2 million, $0.4 million
and $1.3 million, respectively, as well as a decrease in our net income for the
fiscal year ended April 28, 2007 of $0.3 million.We determined that the
cumulative impact of this correction was material to our projected fiscal 2010
year. However, we determined that the corrections were not material, either
individually or in the aggregate, to any of our historical fiscal years or
interim periods. Consequently, we will revise our historical financial
statements for the prior periods when they are presented in future filings.
Because our analysis concluded that these corrections were immaterial to any
prior period, we will not amend our previous filings with the Securities and
Exchange Commission.




The
correction resulted an increase of $0.3 million to selling, general and
administrative expense for the first nine months of fiscal 2010. The correction
resulted in an overall increase to our net loss of $0.2 million and $1.2
million, respectively, for the third quarter and first nine months of fiscal
2009. The $1.2 million or $0.03 per share impact for the first nine months
of fiscal 2009 includes $0.7 million of tax expense for the valuation allowance
on the cumulative increase in deferred tax assets. There was no impact to our
earnings per share for the third quarter of fiscal 2009.




The
following tables set forth the impact of the immaterial corrections to our
consolidated statements of operations for the quarter and nine months ended
January 24, 2009 and our consolidated balance sheet as of April 25,
2009:




Quarter
      Ended 01/24/09(Unaudited, amounts in thousands, except
      per share data)
                  
                  01/24/09
                    (as
      previously reported)
                  
                  
                  Adjustments
                  
                  
                  01/24/09
                    (as
      adjusted)Net
      loss attributable to La-Z-Boy Incorporated
                  
                  $
                  (64,382
                  )
                  
                  $
                  (166
                  )
                  
                  $
                  (64,548
                  )Diluted
      net loss attributable to La-Z-Boy Incorporated per share
                  
                  $
                  (1.25
                  )
                  
                  $
                  —
                  
                  
                  $
                  (1.25
                  )
 
 
 Nine
      Months Ended 01/24/09(Unaudited, amounts in thousands, except
      per share data)
                  
                  01/24/09
                    (as
      previously reported)
                  
                  
                  Adjustments
                  
                  
                  01/24/09
                    (as
      adjusted)Net
      loss attributable to La-Z-Boy Incorporated
                  
                  $
                  (126,670
                  )
                  
                  $
                  (1,160
                  )
                  
                  $
                  (127,830
                  )Diluted
      net loss attributable to La-Z-Boy Incorporated per share
                  
                  $
                  (2.46
                  )
                  
                  $
                  (0.03
                  )
                  
                  $
                  (2.49
                  )
 
 
 As
      of 04/25/09(Unaudited, amounts in
      thousands)
                  
                  04/25/09
                    (as
      previously reported)
                  
                  
                  Adjustments
                  
                  
                  04/25/09
                    (as
      adjusted)Property,
      plant and equipment, net
                  
                  $
                  150,234
                  
                  
                  $
                  (3,338
                  )
                  
                  $
                  146,896Retained
      earnings
                  
                  $
                  70,769
                  
                  
                  $
                  (3,338
                  )
                  
                  $
                  67,431




8




We
evaluated subsequent events through February 16, 2010, 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.




Note
4: Restricted Cash




At
January 23, 2010 we had no short-term restricted cash, compared to $18.7 million
at April 25, 2009, 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.
During the third quarter of fiscal 2010, the liability for the remaining
insurance policy of our wholly-owned insurance company was transferred to
La-Z-Boy Incorporated. As a result of these changes, our restricted cash was
eliminated.




Note
5: Inventories




A summary
of inventories is as follows:




(Unaudited, amounts in thousands)
                  
                  01/23/10
                  
                  
                  04/25/09Raw
      materials
                  
                  $
                  67,122
                  
                  
                  $
                  53,498Work
      in process
                  
                  
                  12,129
                  
                  
                  
                  11,281Finished
      goods
                  
                  
                  91,542
                  
                  
                  
                  101,147FIFO
      inventories
                  
                  
                  170,793
                  
                  
                  
                  165,926Excess
      of FIFO over LIFO
                  
                  
                  (25,748
                  )
                  
                  
                  (25,748
                  )Inventories,
      net
                  
                  $
                  145,045
                  
                  
                  $
                  140,178





9





Note
6: Pension Plans




Net
periodic pension costs were as follows:


Third Quarter Ended
                      
                      
                      Nine Months Ended(Unaudited, amounts in thousands)
                      
                      01/23/10
                      
                      
                      01/24/09
                      
                      
                      01/23/10
                      
                      
                      01/24/09Service
      cost
                      
                      $
                      261
                      
                      
                      $
                      328
                      
                      
                      $
                      783
                      
                      
                      $
                      984Interest
      cost
                      
                      
                      1,400
                      
                      
                      
                      1,359
                      
                      
                      
                      4,200
                      
                      
                      
                      4,077Expected
      return on plan assets
                      
                      
                      (1,206
                      )
                      
                      
                      (1,728
                      )
                      
                      
                      (3,618
                      )
                      
                      
                      (5,184
                      )Net
      amortization
                      
                      
                      527
                      
                      
                      
                      —
                      
                      
                      
                      1,581
                      
                      
                      
                      —Net
      periodic pension cost (benefit)
                      
                      $
                      982
                      
                      
                      $
                      (41
                      )
                      
                      $
                      2,946
                      
                      
                      $
                      (123
                      )






We did
not make any contributions to the plans during the third 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.




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 $2.0 million as of January 23, 2010.




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




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





During
fiscal 2010, our warranty liability remained flat compared to fiscal 2009 in a
period of declining sales due to changes in our claims experience indicating
that the span in which we receive warranty requests is
lengthening.  While the volume of claims has decreased in the past
year resulting in a decrease in material costs, this decrease has been partially
offset by higher shipping costs as we have modified how we ship parts to our
customers in order to increase customer satisfaction.  In addition,
the closure of our Tremonton, Utah plant and service center now requires us to
ship warranty items across the country from other plants.






10




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




Third Quarter Ended
                        
                        
                        Nine Months Ended(Unaudited, amounts in thousands)
                        
                        01/23/10
                        
                        
                        01/24/09
                        
                        
                        01/23/10
                        
                        
                        01/24/09Balance
      as of the beginning of the period
                        
                        $
                        14,293
                        
                        
                        $
                        14,437
                        
                        
                        $
                        14,394
                        
                        
                        $
                        14,334Accruals
      during the period
                        
                        
                        3,663
                        
                        
                        
                        3,491
                        
                        
                        
                        10,383
                        
                        
                        
                        11,588Settlements
      during the period
                        
                        
                        (3,484
                        )
                        
                        
                        (3,496
                        )
                        
                        
                        (10,305
                        )
                        
                        
                        (11,490
                        )Balance
      as of the end of the period
                        
                        $
                        14,472
                        
                        
                        $
                        14,432
                        
                        
                        $
                        14,472
                        
                        
                        $
                        14,432







Note
8:  Stock-Based Compensation




Total
compensation expense recognized in the Consolidated Statement of Operations for
all equity based compensation was $1.5 million and $4.1 million, for the third
quarter and first nine months of fiscal 2010, respectively.  For the
third quarter and first nine months of fiscal 2009, we recorded compensation
expense for all equity based compensation of $1.0 million and $2.9 million,
respectively.




Note
9:  Total Comprehensive Income (Loss)




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




Third Quarter Ended
                  
                  
                  Nine Months Ended(Unaudited, amounts in thousands)
                  
                  01/23/10
                  
                  
                  01/24/09
                  
                  
                  01/23/10
                  
                  
                  01/24/09Net
      income (loss)
                  
                  $
                  10,938
                  
                  
                  $
                  (64,261
                  )
                  
                  $
                  18,511
                  
                  
                  $
                  (127,423
                  )Other
      comprehensive income (loss):Currency
      translation adjustment
                  
                  
                  49
                  
                  
                  
                  (265
                  )
                  
                  
                  (646
                  )
                  
                  
                  (356
                  )Change
      in fair value of cash flow hedge
                  
                  
                  12
                  
                  
                  
                  (583
                  )
                  
                  
                  13
                  
                  
                  
                  (807
                  )Net
      unrealized gains on marketable securities arising during the
      period
                  
                  
                  598
                  
                  
                  
                  4,840
                  
                  
                  
                  2,136
                  
                  
                  
                  60Net
      pension amortization
                  
                  
                  528
                  
                  
                  
                  —
                  
                  
                  
                  1,582
                  
                  
                  
                  —Total
      other comprehensive income (loss)
                  
                  
                  1,187
                  
                  
                  
                  3,992
                  
                  
                  
                  3,085
                  
                  
                  
                  (1,103
                  )Total
      comprehensive income (loss) before allocation to noncontrolling
      interest
                  
                  
                  12,125
                  
                  
                  
                  (60,269
                  )
                  
                  
                  21,596
                  
                  
                  
                  (128,526
                  )Comprehensive
      (income) loss attributable to noncontrolling interest
                  
                  
                  (1
                  )
                  
                  
                  297
                  
                  
                  
                  161
                  
                  
                  
                  (1,034
                  )Comprehensive
      income (loss) attributable to La-Z-Boy Incorporated
                  
                  $
                  12,124
                  
                  
                  $
                  (59,972
                  )
                  
                  $
                  21,757
                  
                  
                  $
                  (129,560
                  )







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.




11




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.




Third Quarter Ended
                  
                  
                  Nine Months Ended(Unaudited, amounts in thousands)
                  
                  01/23/10
                    (13 weeks)
                  
                  
                  01/24/09
                    (13 weeks)
                  
                  
                  01/23/10
                    (39 weeks)
                  
                  
                  01/24/09
                    (39 weeks)SalesUpholstery
      Group
                  
                  $
                  234,262
                  
                  
                  $
                  199,200
                  
                  
                  $
                  663,734
                  
                  
                  $
                  684,252Casegoods
      Group
                  
                  
                  36,029
                  
                  
                  
                  42,116
                  
                  
                  
                  109,196
                  
                  
                  
                  138,710Retail
      Group
                  
                  
                  40,411
                  
                  
                  
                  40,497
                  
                  
                  
                  114,387
                  
                  
                  
                  122,408VIEs
                  
                  
                  15,629
                  
                  
                  
                  13,430
                  
                  
                  
                  39,616
                  
                  
                  
                  39,301Corporate
      and Other
                  
                  
                  603
                  
                  
                  
                  1,084
                  
                  
                  
                  4,143
                  
                  
                  
                  3,362Eliminations
                  
                  
                  (21,840
                  )
                  
                  
                  (7,751
                  )
                  
                  
                  (62,604
                  )
                  
                  
                  (45,857
                  )Consolidated
                  
                  $
                  305,094
                  
                  
                  $
                  288,576
                  
                  
                  $
                  868,472
                  
                  
                  $
                  942,176Operating
      income (loss)Upholstery
      Group
                  
                  $
                  26,102
                  
                  
                  $
                  (1,652
                  )
                  
                  $
                  67,751
                  
                  
                  $
                  16,542Casegoods
      Group
                  
                  
                  292
                  
                  
                  
                  (313
                  )
                  
                  
                  (13
                  )
                  
                  
                  1,819Retail
      Group
                  
                  
                  (4,135
                  )
                  
                  
                  (7,108
                  )
                  
                  
                  (15,104
                  )
                  
                  
                  (27,509
                  )VIEs
                  
                  
                  350
                  
                  
                  
                  (1,381
                  )
                  
                  
                  (118
                  )
                  
                  
                  (5,422
                  )Corporate
      and Other
                  
                  
                  (7,937
                  )
                  
                  
                  (2,280
                  )
                  
                  
                  (23,461
                  )
                  
                  
                  (16,351
                  )Long-lived
      asset write-down
                  
                  
                  —
                  
                  
                  
                  (7,036
                  )
                  
                  
                  —
                  
                  
                  
                  (7,036
                  )Goodwill
      write-down
                  
                  
                  —
                  
                  
                  
                  (40,436
                  )
                  
                  
                  —
                  
                  
                  
                  (42,136
                  )Trade
      name write-down
                  
                  
                  —
                  
                  
                  
                  (5,541
                  )
                  
                  
                  —
                  
                  
                  
                  (5,541
                  )Restructuring
                  
                  
                  (593
                  )
                  
                  
                  (2,405
                  )
                  
                  
                  (2,813
                  )
                  
                  
                  (11,904
                  )Consolidated
                  
                  $
                  14,079
                  
                  
                  $
                  (68,152
                  )
                  
                  $
                  26,242
                  
                  
                  $
                  (97,538
                  )




During
the third quarter of fiscal 2009, the reporting of the retail warehouse
operations was changed to the Upholstery Group from the Retail
Group.  Since the warehouse operations were expanded to incorporate
the warehousing, staging and delivery of independent La-Z-Boy Furniture
Galleries® dealers’ products as well as for our Retail Group, the reporting of
those warehouses was more appropriately included in our La-Z-Boy wholesale
operating unit which is a part of our Upholstery Group.  As a result
of this change, sales and operating profit that were previously recorded within
our Upholstery Group for product sold to our Retail Group and still in inventory
were reversed.  A one-time adjustment was recorded in the third
quarter of fiscal 2009 that reduced inter-company sales for the Upholstery Group
by $12.1 million and reduced inter-company profit by $3.3 million for the third
quarter and first nine months of fiscal 2009. A corresponding offset was
recorded in our Elimination sales line and our Corporate and Other operating
loss line, relating to the one-time adjustment, during the third quarter and
first nine months of fiscal 2009.  The adjustment did not affect our
consolidated operating results.






12




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 $2.5 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 third quarter
and first nine months of fiscal 2010 we recorded pre-tax restructuring charges
of $0.6 million and $2.3 million, respectively, covering severance and benefits
and other restructuring costs in connection with this plan. We expect to incur
approximately $0.3 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 $5.0 million based on current
volume.





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 third quarter of fiscal 2010, we had
about 1,050 employees at our Mexican facility. Because our Mexican facility is
still in the beginning stages of production, about 65% 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. In connection with these
activities, we have recorded $9.8 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 $0.8 million during the next
twelve months. During the third quarter and first nine months of fiscal 2010, we
had net restructuring reversals of $0.2 million and $0.5 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 are expected to result in annual
cost savings of approximately $20 million, once fully completed.





During
fiscal 2007 and 2008, several of our warehouse distribution centers were
consolidated into larger facilities and several underperforming stores were
closed. In the third quarter and first nine months of fiscal 2010, we had
restructuring charges of $0.2 million and $1.0 million, respectively, related to
contract terminations.  We expect to incur approximately $0.3 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.




13




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.  The reversal of restructuring
charges relate to a decrease in our estimated healthcare costs for this
plan.




As of
January 23, 2010, we had a remaining restructuring liability of
$1.4 million which is expected to be settled as follows: $0.8 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)
                  
                  04/25/09
                    Balance
                  
                  
                  Charges to
                    Expense *
                  
                  
                  Cash
                    Payments
                    or Asset
                    Write-Offs
                  
                  
                  01/23/10
                    BalanceSeverance
      and benefit-related costs
                  
                  $
                  2,022
                  
                  
                  $
                  (202
                  )
                  
                  $
                  (816
                  )
                  
                  $
                  1,004Contract
      termination costs
                  
                  
                  530
                  
                  
                  
                  1,022
                  
                  
                  
                  (1,175
                  )
                  
                  
                  377Other
                  
                  
                  —
                  
                  
                  
                  1,993
                  
                  
                  
                  (1,993
                  )
                  
                  
                  —Total
      restructuring
                  
                  $
                  2,552
                  
                  
                  $
                  2,813
                  
                  
                  $
                  (3,984
                  )
                  
                  $
                  1,381*
      Charges to expense include $0.2 million of non-cash charges for contract
      termination costs.




Fiscal 2009(Unaudited, amounts in thousands)
                  
                  04/26/08
                    Balance
                  
                  
                  Charges to
                    Expense **
                  
                  
                  Cash
                    Payments
                    or Asset
                    Write-Offs
                  
                  
                  04/25/09
                    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 nine months of fiscal 2010 and fiscal 2009
were 36.7% and 27.4%, respectively.  For fiscal 2010, a higher
estimated effective tax rate was offset by an additional federal tax
refund.  The effective tax rate for the first nine months of fiscal
2009 resulted primarily from the recording of a $52.8 million valuation
allowance against our deferred tax assets.






14




On
November 6, 2009 the federal government signed into law the Work, Home Ownership
and Business Assistance Act of 2009 (H.R.3548).  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. We are still in the
process of evaluating our options relating to this new law. Regardless of
whether we elect to utilize the extended carry back opportunity or not the net
impact on our tax provision is expected to be relatively nominal.




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.





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 third quarter and first nine months of fiscal
2010 representing 31 stores and four consolidated VIEs during the third quarter
and first nine months of fiscal 2009 representing 37
stores.  Beginning in the fourth quarter of fiscal 2009, we stopped
consolidating our Cleveland VIE.  This, along with the addition of one
store by our California VIE resulted in a decrease of six stores for VIEs when
comparing the third quarter and first nine months of fiscal 2010 to fiscal
2009.






15




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




As of(Unaudited, amounts in thousands)
                                                                
                                                                01/23/10
                                                                
                                                                
                                                                04/25/09Current
      assets
                                                                
                                                                $
                                                                18,447
                                                                
                                                                
                                                                $
                                                                16,220Other
      long-term assets
                                                                
                                                                
                                                                9,040
                                                                
                                                                
                                                                
                                                                9,794Total
      assets
                                                                
                                                                $
                                                                27,487
                                                                
                                                                
                                                                $
                                                                26,014Current
      liabilities
                                                                
                                                                $
                                                                8,180
                                                                
                                                                
                                                                $
                                                                5,983Other
      long-term liabilities
                                                                
                                                                
                                                                3,012
                                                                
                                                                
                                                                
                                                                3,085Total
      liabilities
                                                                
                                                                $
                                                                11,192
                                                                
                                                                
                                                                $
                                                                9,068
  Third Quarter Ended
                                                              
                                                              
                                                              Nine Months Ended(Unaudited, amounts in thousands )
                                                              
                                                              01/23/10
                                                              
                                                              
                                                              01/24/09
                                                              
                                                              
                                                              01/23/10
                                                              
                                                              
                                                              01/24/09Net
      sales, net of inter-company eliminations
                                                              
                                                              $
                                                              15,629
                                                              
                                                              
                                                              $
                                                              13,430
                                                              
                                                              
                                                              $
                                                              39,616
                                                              
                                                              
                                                              $
                                                              39,301Net
      loss
                                                              
                                                              $
                                                              (381
                                                              )
                                                              
                                                              $
                                                              (4,098
                                                              )
                                                              
                                                              $
                                                              (1,122
                                                              )
                                                              
                                                              $
                                                              (8,594
                                                              )




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 $2.5 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.





Note
14: Income from Continued Dumping and Subsidy Offset Act





We
recorded $4.4 million and $8.1 million as Income from the Continued Dumping and
Subsidy Offset Act, net of legal expenses, during the third quarter of fiscal
2010 and fiscal 2009, respectively, from the receipt of funds under the
Continued Dumping and Subsidy Offset Act (“CDSOA”) of 2000 in connection with
the case involving wooden bedroom furniture from China.  The CDSOA
provides for distribution of monies collected by U.S. Customs and Border
Protection from anti-dumping cases to domestic producers that supported the
anti-dumping petition.





Note
15: Earnings per Share




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




Third Quarter Ended
                  
                  
                  Nine Months Ended(Unaudited, amounts in thousands)
                  
                  01/23/10
                  
                  
                  01/24/09
                  
                  
                  01/23/10
                  
                  
                  01/24/09Numerator
      (basic and diluted):Net
      income (loss) attributable to La-Z-Boy Incorporated
                  
                  $
                  10,976
                  
                  
                  $
                  (64,548
                  )
                  
                  $
                  18,866
                  
                  
                  $
                  (127,830
                  )Income
      allocated to participating securities
                  
                  
                  (222
                  )
                  
                  
                  —
                  
                  
                  
                  (351
                  )
                  
                  
                  —Dividends
      on participating securities
                  
                  
                  —
                  
                  
                  
                  (15
                  )
                  
                  
                  —
                  
                  
                  
                  (69
                  )Net
      income (loss) available to common shareholders
                  
                  $
                  10,754
                  
                  
                  $
                  (64,563
                  )
                  
                  $
                  18,515
                  
                  
                  $
                  (127,899
                  )




16




Third Quarter Ended
                
                
                Nine Months Ended(Unaudited, amounts in thousands)
                
                01/23/10
                
                
                01/24/09
                
                
                01/23/10
                
                
                01/24/09Denominator:Basic
      common shares (based upon weighted average)
                
                
                51,546
                
                
                
                51,475
                
                
                
                51,517
                
                
                
                51,454Add:Stock
      option dilution
                
                
                299
                
                
                
                —
                
                
                
                78
                
                
                
                —Diluted
      common shares
                
                
                51,845
                
                
                
                51,475
                
                
                
                51,595
                
                
                
                51,454




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.  Due
to their anti-dilutive effect, we did not allocate any loss to the unvested
stock awards (participating securities) for the third quarter and first nine
months ended January 24, 2009.





The
effect of options to purchase 1.8 million and 2.5 million shares for the
quarters ended January 23, 2010 and January 24, 2009 with a weighted average
exercise price of $14.99 and $15.46 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
16: Fair Value Measurements





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





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




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


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




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





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


17
  The
following table presents the fair value hierarchy for those assets measured at
fair value on a recurring basis as of January 23, 2010:




Fair Value Measurements(Unaudited, amounts in thousands)
                    
                    Level 1
                    
                    
                    Level 2
                    
                    
                    Level 3AssetsAvailable-for-sale
      securities
                    
                    $
                    7,935
                    
                    
                    $
                    2,394
                    
                    
                    $
                    —LiabilitiesInterest
      rate swap
                    
                    
                    —
                    
                    
                    
                    (710
                    )
                    
                    
                    —Total
                    
                    $
                    7,935
                    
                    
                    $
                    1,684
                    
                    
                    $
                    —




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
17:  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 January 23, 2010 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.





For the
third quarter and first nine months of fiscal 2010, we deferred gains of
less than $0.1 million into accumulated other comprehensive loss.  For
the third quarter and first nine months of fiscal 2009, we deferred losses of
$0.6 million and $0.8 million, respectively, into accumulated other
comprehensive loss.  The fair value of our interest rate swap at
January 23, 2010 and at April 25, 2009 was $0.7 million, which was included in
other long-term liabilities.






18




Note
18:  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 and December 2009, the FASB issued amendments 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.  We are currently evaluating the
impact this amendment will have on our consolidated financial statements and
disclosures.





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.  We adopted these amendments in
our third quarter of fiscal 2010.  These amendments did 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.





In
January 2010, the FASB issued amendments to the accounting and reporting for
decreases in ownership of a subsidiary.  This amendment provides
guidance in regards to how an entity is required to account for a decrease in
its ownership interest of a subsidiary that does not result in a change of
control of the subsidiary as an equity transaction.  This amendment
also requires expanded disclosures about the deconsolidation of a
subsidiary.  This amendment was effective for and we adopted in our
third quarter of fiscal 2010.  This amendment did not have a material
impact on our consolidated financial statements and disclosures.




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 in
certain parts of the country 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 on Form 10-K 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 308 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 Comfort Studios®.  Comfort Studios® 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 January 23, 2010, we had 502 Comfort
Studios®.  We expect to open approximately 12 new Comfort Studios®
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
third quarter and first nine months of fiscal 2010 we had three VIEs, operating
31 stores, included in our Consolidated Statement of
Operations.   During the third quarter and first nine months of
fiscal 2009 we had four VIEs, operating 37 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.  The operating units in the Casegoods Group are
American Drew/Lea, Hammary and Kincaid.  Casegoods product includes tables,
chairs, entertainment centers, headboards, dressers, accent pieces and some
coordinated upholstered furniture.





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





The
furniture industry and our business in particular were negatively impacted by
the challenging economic conditions during our fiscal 2009 year and the first
nine months of our fiscal 2010 year.  As a result we have experienced
year-over-year sales declines when comparing the first nine months of fiscal
2009 to the first nine months of fiscal 2010, although, we have seen an increase
in our consolidated sales when comparing the third quarter of fiscal 2010 to the
third quarter of fiscal 2009.  Additionally, with the sudden decline
in the economic climate during the third quarter of fiscal 2009 we also
experienced increased net operating losses and a steep decline in our stock
price resulting in a lower market capitalization.  As a result, during
the second and third quarter of fiscal 2009 we recorded impairment charges
against our intangible assets and long-lived assets and valuation allowances
against our deferred tax assets.





We made
significant changes to our business model during the second half of fiscal 2009
in order to offset the impact of the challenging economic
conditions.  During the first nine months 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.  Additionally, we continued to focus on increasing our sales
volume through various initiatives.  As a result, we have had positive
earnings for the first nine months of fiscal 2010, as well as an increase in
sales volume for the third quarter of fiscal 2010 compared to the third quarter
of fiscal 2009.  In particular each of our operating units within our
Upholstery Group recorded an increase in sales volume and net operating income
during the third quarter of fiscal 2010 compared to the third quarter of fiscal
2009.  Our Retail Group experienced minimal decreases in sales volume
in the second and third quarter and decreases in net operating losses during the
first three quarters of fiscal 2010 compared to fiscal 2009 due to changes made
in the second half of fiscal 2009.  Offsetting these positive trends
was the continued decline in the sales volume of our Casegoods Group, which we
believe is a result of consumers continuing to postpone or forego purchases of
casegoods products to a greater extent than upholstered furniture because
casegoods product is typically priced higher than upholstered
furniture.






22




Results
of Operations


Analysis of Operations: Quarter Ended
January 23, 2010


(Third Quarter 2010 compared with
2009)




Quarter Ended(Unaudited, amounts in thousands, except per share amounts and percentages)
                  
                  01/23/10
                  
                  
                  01/24/09
                  
                  
                  Percent
                    changeUpholstery
      sales
                  
                  $
                  234,262
                  
                  
                  $
                  199,200
                  
                  
                  
                  17.6
                  %Casegoods
      sales
                  
                  
                  36,029
                  
                  
                  
                  42,116
                  
                  
                  
                  (14.5
                  )%Retail
      sales
                  
                  
                  40,411
                  
                  
                  
                  40,497
                  
                  
                  
                  (0.2
                  )%VIE
      sales
                  
                  
                  15,629
                  
                  
                  
                  13,430
                  
                  
                  
                  16.4
                  %Corporate
      and Other sales
                  
                  
                  603
                  
                  
                  
                  1,084
                  
                  
                  
                  (44.4
                  )%Eliminations
                  
                  
                  (21,840
                  )
                  
                  
                  (7,751
                  )
                  
                  
                  (181.8
                  )%Consolidated
      sales
                  
                  $
                  305,094
                  
                  
                  $
                  288,576
                  
                  
                  
                  5.7
                  %Consolidated
      gross profit
                  
                  $
                  97,807
                  
                  
                  $
                  79,103
                  
                  
                  
                  23.6
                  %Consolidated
      gross margin
                  
                  
                  32.1
                  %
                  
                  
                  27.4
                  %Consolidated
      S,G&A
                  
                  $
                  83,527
                  
                  
                  $
                  93,501
                  
                  
                  
                  (10.7
                  )%S,G&A
      as a percent of sales
                  
                  
                  27.4
                  %
                  
                  
                  32.4
                  %Upholstery
      operating income (loss)
                  
                  $
                  26,102
                  
                  
                  $
                  (1,652
                  )
                  
                  
                  N/MCasegoods
      operating income (loss)
                  
                  
                  292
                  
                  
                  
                  (313
                  )
                  
                  
                  193.3
                  %Retail
      operating loss
                  
                  
                  (4,135
                  )
                  
                  
                  (7,108
                  )
                  
                  
                  41.8
                  %VIE
      operating income (loss)
                  
                  
                  350
                  
                  
                  
                  (1,381
                  )
                  
                  
                  125.3
                  %Corporate
      and other
                  
                  
                  (7,937
                  )
                  
                  
                  (2,280
                  )
                  
                  
                  (248.1
                  )%Restructuring
                  
                  
                  (593
                  )
                  
                  
                  (2,405
                  )
                  
                  
                  75.3
                  %Long-lived
      asset write-down
                  
                  
                  —
                  
                  
                  
                  (7,036
                  )
                  
                  
                  100.0
                  %Trade
      name write-down
                  
                  
                  —
                  
                  
                  
                  (5,541
                  )
                  
                  
                  100.0
                  %Goodwill
      write-down
                  
                  
                  —
                  
                  
                  
                  (40,436
                  )
                  
                  
                  100.0
                  %Consolidated
      operating income (loss)
                  
                  $
                  14,079
                  
                  
                  $
                  (68,152
                  )
                  
                  
                  120.7
                  %Upholstery
      operating margin
                  
                  
                  11.1
                  %
                  
                  
                  (0.8
                  )%Casegoods
      operating margin
                  
                  
                  0.8
                  %
                  
                  
                  (0.7
                  )%Retail
      operating margin
                  
                  
                  (10.2
                  )%
                  
                  
                  (17.6
                  )%Consolidated
      operating margin
                  
                  
                  4.6
                  %
                  
                  
                  (23.6
                  )%Net
      income (loss) attributable to La-Z-Boy Incorporated
                  
                  $
                  10,976
                  
                  
                  $
                  (64,548
                  )Net
      income (loss) per share attributable to La-Z-Boy
    Incorporated
                  
                  $
                  0.21
                  
                  
                  $
                  (1.25
                  )N/M
      – not meaningful




23





Sales




Consolidated salesincreased
5.7% when compared with the third quarter of fiscal 2009.  We believe
the strength of the La-Z-Boy brand and the inherent quality associated
with the brand have allowed us to gain market share in this
challenging economic climate.  We have continued to focus on various
sales initiatives and maintained a strong advertising presence throughout this
period.




Upholstery Group sales
increased 17.6% compared with the third quarter of fiscal 2009. In the third
quarter of fiscal 2009, the reporting of the retail warehouse operations was
changed from the Retail Group to the Upholstery Group.  Since the
warehouse operations were expanded to incorporate the warehousing, staging and
delivery of independent La-Z-Boy Furniture Galleries® dealers’ products as well
as for our Retail Group, the reporting of those warehouses was more
appropriately included in our La-Z-Boy wholesale operating unit which is a part
of our Upholstery Group.  As a result of this change, sales and
operating profit that were previously recorded within our Upholstery Group for
product sold to our Retail Group and still in inventory were
reversed.  A one-time adjustment was recorded in the third quarter of
fiscal 2009 that reduced inter-company sales for the Upholstery Group by $12.1
million during that period, with a corresponding offset recorded in our
eliminations line.  Somewhat offsetting the effect the change in
reporting of the retail warehouse operations had on inter-company sales was a
decrease in sales prices resulting in a 0.8 percentage point decrease in sales
when comparing the third quarter of fiscal 2010 to the third quarter of fiscal
2009.  As we mentioned above, we believe the strength of the La-Z-Boy
brand and the inherent quality associated with the brand have allowed us to gain
market share in this challenging economic climate.





Casegoods Groupsales
decreased 14.5% compared with the third quarter of fiscal 2009. The decrease in
sales volume occurred due to weak consumer demand related to casegoods
product.  The challenging economic climate has had a negative impact
on consumers’ discretionary spending.  We believe that consumers are
postponing purchases of casegoods product to a greater extent than upholstered
furniture because casegoods product tends to be a higher ticket purchase
compared to upholstered furniture.





Retail Group sales were flat
when compared with the third quarter of fiscal 2009, even with a decrease of one
store compared to the third quarter of fiscal 2009.  We believe this
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 16.4% when
compared with the third quarter of fiscal 2009.  The increase in sales
was a result of changes we made to our Toronto VIE, which included allowing
another 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. Additionally, sales for our California VIE were positively
impacted by the addition of one store in the second quarter of fiscal
2010.  Beginning in the fourth quarter of fiscal 2009 we stopped
consolidating our Cleveland VIE, which somewhat offset the overall increase in
sales by our VIEs during the third quarter of fiscal 2010.





Gross
Margin





Gross
margin increased 4.7 percentage points in the third quarter of fiscal 2010 in
comparison to the third quarter of fiscal 2009. Our gross margin was positively
impacted by the following factors:





·
            Efficiencies
      realized in our domestic upholstery manufacturing facilities resulted in
      an increase in our gross margin of 2.6 percentage points. Our conversion
      to cellular manufacturing and our various restructurings completed in
      recent years resulted in more efficient capacity
      utilization.  These restructurings eliminated redundant costs by
      closing plants and reducing our workforce to enable our operations to run
      more efficiently.


24


·
            Raw
      material costs decreases resulted in a 2.1 percentage point increase in
      our gross margin.


·
            Restructuring
      charges included in gross profit decreased by $1.3 million resulting in a
      0.5 percentage point increase in our gross
  margin.





Selling,
General and Administrative Expenses





Selling,
general and administrative expenses (S,G&A)decreased by $10.0
million or 5.0 percentage points when compared to the prior year’s third
quarter.  Bad debt expense decreased $8.4 million or 2.9
percentage points in the third quarter of fiscal 2010 compared to the third
quarter of fiscal 2009.  The deteriorating economic conditions in the
third quarter of fiscal 2009 affected the ability of some of our customers to
pay outstanding past due amounts which resulted in a significant charge to bad
debts.  Advertising costs as a percent of sales decreased 0.7
percentage points or $1.3 million in the third quarter of fiscal 2010 compared
to the third quarter of fiscal 2009.  Our decrease in advertising
costs was mainly a result of a shift in the timing of our advertising spend to
specific promotional time periods.  Additionally, the overall decline
in the economic climate has decreased the cost of purchasing
advertising.  We believe these changes have allowed us to maintain a
strong presence in the marketplace, while decreasing our costs.





Restructuring





Restructuring
costs, net of reversals totaled $0.6 million for the third quarter of fiscal
2010 as compared with $2.4 million in the third quarter of fiscal 2009. The
restructuring costs in the third quarter of fiscal 2010 related to the
consolidation of our casegoods manufacturing plants and conversion to a
distribution center, 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.  These costs were offset by the reversal
of restructuring charges due to a decrease in our estimated healthcare costs for
these plans.  The restructuring costs in the third quarter of fiscal
2009 related to the closure of our Tremonton, Utah facility, the closure of our
Sherman, Mississippi facility, the restructuring of our La-Z-Boy U.K. facility,
the restructuring of our company-wide employment 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.





Long-lived
Asset Write-down





During
the third quarter of fiscal 2009, we evaluated the recoverability of our
long-lived assets of our key asset groups.  Based on the results of
the review it was determined that the expected future undiscounted cash flows of
the assets of our Upholstery Group and Casegoods Group substantially exceeded
their carrying value in fiscal 2009 and therefore no impairment
existed.  Based on the assessment of undiscounted projected future
operating cash flows of our retail stores, the undiscounted cash flows did not
exceed the net book value of leasehold improvements, furniture, fixtures, and
office equipment at some stores, indicating that a permanent impairment had
occurred.





As of the
end of the third quarter of fiscal 2009, we had $39.9 million in long-lived
assets for our Retail Group.  Of this $39.9 million, fair value
exceeded carrying value for $20.4 million of these assets.  For the
remaining $19.5 million, we recorded an impairment charge of $7.0
million.


25


For the
seven retail facilities that we owned, which accounted for $17.9 million in
value as of the end of fiscal 2009, third party appraisals were utilized to
determine the fair value of the stores.  For the remaining retail
facilities we utilized a discounted cash flow model over the remaining life of
the lease, as well as comparable market data, to determine fair
value.  Our cash flow model assumed an economic recovery in our fiscal
2011 and used a 16% discount rate based on the market participant’s view of our
industry’s weighted average cost of capital.  The impairment charge
recorded in the third quarter of fiscal 2009 was based on current market
conditions and the current fair value of those assets.  Changes in
economic conditions could result in a need to evaluate whether the fair value of
the long-lived assets of our retail stores has deteriorated further which could
result in additional impairment charges. The net book value of our retail fixed
assets was $29.3 million as of January 23, 2010.





Trade
Name and Goodwill Write-Down





During
the third quarter of fiscal 2009, we evaluated the goodwill of our Upholstery
Group and Retail Group and the trade names of our Casegoods
Group.  Due to the steep decline in our stock price during the third
quarter of fiscal 2009 and its negative impact on our market capitalization at
that time, we recognized a $40.4 million non-cash impairment charge relating to
the goodwill in our Upholstery Group and Retail Group and a $5.5 million
non-cash impairment charge relating to the trade names in our Casegoods
Group.





Operating
Margin





Our
consolidated operating margin increased 28.2 percentage points to 4.6% for the
third quarter of fiscal 2010 compared to the third quarter of fiscal
2009.  Our third quarter of fiscal 2010 operating margin included 0.2
percentage points of restructuring charges.  Operating margin for the
third quarter of fiscal 2009 was (23.6)% and included 15.9 percentage points for
the goodwill and trade name write-down, 2.4 percentage points for the long-lived
asset write-down and 0.8 percentage points for restructuring
charges.





The Upholstery Group operating
margin increased 11.9 percentage points when compared with the third quarter of
fiscal 2009.  Our Upholstery Group operating margin was positively
impacted by the following factors:





·
            A
      decrease in bad debt expense for our Upholstery Group resulted in a 4.2
      percentage point improvement in our operating
  margin.


·
            Efficiencies realized in our domestic upholstery
      manufacturing facilities resulted in an increase in our operating margin
      of 2.9 percentage points. Our conversion to cellular manufacturing and our
      various restructurings completed in recent years resulted in more
      efficient capacity utilization.  These restructurings eliminated
      redundant costs by closing plants and reducing our workforce to enable our
      operations to run more efficiently.


·
            A
      decrease in raw material costs for our Upholstery Group resulted in a 2.7
      percentage point improvement in our operating
  margin.


·
            Our
      Upholstery Group operating income was reduced by $3.3 million in the third
      quarter of fiscal 2009 due to the one-time adjustment for the
      inter-company profit as a result of the previously mentioned change in
      reporting of the retail warehouse operations from the Retail Group to the
      Upholstery Group.  This adjustment did not affect our
      consolidated operating results.





Our Casegoods Group operating
margin increased by 1.5 percentage points in the third quarter of fiscal 2010
when compared with the third quarter of fiscal 2009.  Our Casegoods
Group operating margin was positively impacted by the following
factors:





·
            An
      increase in our Casegoods Group gross margin resulted in a 1.7 percentage
      point increase in our Casegoods Group operating
  margin.


·
            A decrease in bad debt expense for our Casegoods Group
      resulted in a 1.0 percentage point improvement in our operating
      margin.


26





Offsetting
these positive trends was a 1.0 percentage point increase in advertising expense
for our Casegoods Group.





Our Retail Group operating margin
improved significantly during the third quarter of fiscal 2010 in comparison to
the third quarter of fiscal 2009.  The 7.4 percentage point
improvement was a result of our focus on increasing our gross margin and
reducing selling and administrative costs throughout the second half of fiscal
2009.





·
            A
      decrease in commissions and salaries and benefits expense resulted in a
      5.3 percentage point increase in our Retail Group’s operating
      margin.  This decrease was a result of changes made to our
      selling structure, as well as a decrease in
  commissions.


·
            A
      decrease in occupancy costs for our Retail Group resulted in a 2.7
      percentage point improvement in our Retail Group’s operating
      margin.  This was a result of energy savings and decreases in
      common area and store maintenance
charges.


·
            An
      increase in our Retail Group’s gross margin resulted in a 2.1 percentage
      point increase in our Retail Group’s operating
  margin.





Offsetting
these positive trends was a 0.6 percentage point increase in advertising expense
for our Retail Group.





VIE operating profit was $0.4
million in the third quarter of fiscal 2010, compared to an operating loss of
$1.4 million in the third quarter of fiscal 2009.  This positive
improvement was mainly the result of changes we made to our Toronto VIE, which
included terminating our relationship with one dealer in our Toronto market at
the end of 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 third quarter of fiscal 2010 increased $5.7 million when compared to
the third quarter of fiscal 2009.  Our Corporate and Other segment
includes general and administrative expenses related to our corporate
functions.  Our Corporate and Other operating loss was reduced by $3.3
million in the third quarter of fiscal 2009 due to the one-time adjustment for
the inter-company profit as a result of the previously mentioned change in
reporting of the retail warehouse operations from the Retail Group to the
Upholstery Group.  This adjustment did not affect our consolidated
operating results.  The remainder of the change mainly relates to an
increase in bonus and stock incentive costs due to the improved performance of
the company, as well as increases in our stock price.





Interest
Expense





Interest
expense for the third quarter of fiscal 2010 was $0.8 million less than the
third quarter of fiscal 2009 due to a $68.7 million decrease in our average
debt.  Our weighted average interest rate increased 1.3 percentage
points in the third quarter of fiscal 2010 compared to the third quarter of
fiscal 2009.





Other
Income/(Expense)





Other
income/(expense) was expense of $0.6 million for the third quarter of fiscal
2010, compared to expense of $7.4 million for the third quarter of fiscal
2009.  In the third quarter of fiscal 2009 we recognized $5.1 million
of losses related to available-for-sale marketable securities to fund future
obligations of one of our non-qualified retirement plans due to the losses being
considered other than temporary.  The remainder of the change in the
third quarter of fiscal 2010 compared to the third quarter of fiscal 2009 was
mainly the result of currency exchange rate gains we experienced through foreign
operations.


27





Income
Taxes




Our
effective tax rate for the third quarter of fiscal 2010 was 37.4% compared to
6.2% for the third quarter of fiscal 2009.  The effective tax rate for
fiscal 2009 reflected an increase in the valuation allowance on our deferred tax
assets of $14.6 million.


28


Results
of Operations


Analysis of Operations: Nine Months
Ended January 23, 2010


(First Nine Months of 2010 compared
with 2009)





Nine Months Ended(Unaudited,
      amounts in thousands, except per share amounts and percentages)
                      
                      01/23/10
                      
                      
                      01/24/09
                      
                      
                      Percent
                        changeUpholstery
      sales
                      
                      $
                      663,734
                      
                      
                      $
                      684,252
                      
                      
                      
                      (3.0
                      )%Casegoods
      sales
                      
                      
                      109,196
                      
                      
                      
                      138,710
                      
                      
                      
                      (21.3
                      )%Retail
      sales
                      
                      
                      114,387
                      
                      
                      
                      122,408
                      
                      
                      
                      (6.6
                      )%VIE
      sales
                      
                      
                      39,616
                      
                      
                      
                      39,301
                      
                      
                      
                      0.8
                      %Corporate
      and Other sales
                      
                      
                      4,143
                      
                      
                      
                      3,362
                      
                      
                      
                      23.2
                      %Eliminations
                      
                      
                      (62,604
                      )
                      
                      
                      (45,857
                      )
                      
                      
                      (36.5
                      )%Consolidated
      sales
                      
                      $
                      868,472
                      
                      
                      $
                      942,176
                      
                      
                      
                      (7.8
                      )%Consolidated
      gross profit
                      
                      $
                      273,275
                      
                      
                      $
                      245,986
                      
                      
                      
                      11.1
                      %Consolidated
      gross margin
                      
                      
                      31.5
                      %
                      
                      
                      26.1
                      %Consolidated
      S,G&A
                      
                      $
                      246,011
                      
                      
                      $
                      286,603
                      
                      
                      
                      (14.2
                      )%S,G&A
      as a percent of sales
                      
                      
                      28.3
                      %
                      
                      
                      30.4
                      %Upholstery
      operating income
                      
                      $
                      67,751
                      
                      
                      $
                      16,542
                      
                      
                      
                      309.6
                      %Casegoods
      operating income (loss)
                      
                      
                      (13
                      )
                      
                      
                      1,819
                      
                      
                      
                      (100.7
                      )%Retail
      operating loss
                      
                      
                      (15,104
                      )
                      
                      
                      (27,509
                      )
                      
                      
                      45.1
                      %VIEs
      operating loss
                      
                      
                      (118
                      )
                      
                      
                      (5,422
                      )
                      
                      
                      97.8
                      %Corporate
      and other
                      
                      
                      (23,461
                      )
                      
                      
                      (16,351
                      )
                      
                      
                      (43.5
                      )%Restructuring
                      
                      
                      (2,813
                      )
                      
                      
                      (11,904
                      )
                      
                      
                      76.4
                      %Long-lived
      asset write-down
                      
                      
                      —
                      
                      
                      
                      (7,036
                      )
                      
                      
                      100.0
                      %Trade
      name write-down
                      
                      
                      —
                      
                      
                      
                      (5,541
                      )
                      
                      
                      100.0
                      %Goodwill
      write-down
                      
                      
                      —
                      
                      
                      
                      (42,136
                      )
                      
                      
                      100.0
                      %Consolidated
      operating income (loss)
                      
                      $
                      26,242
                      
                      
                      $
                      (97,538
                      )
                      
                      
                      126.9
                      %Upholstery
      operating margin
                      
                      
                      10.2
                      %
                      
                      
                      2.4
                      %Casegoods
      operating margin
                      
                      
                      0.0
                      %
                      
                      
                      1.3
                      %Retail
      operating margin
                      
                      
                      (13.2
                      )%
                      
                      
                      (22.5
                      )%Consolidated
      operating margin
                      
                      
                      3.0
                      %
                      
                      
                      (10.4
                      )%Net
      income (loss) attributable to La-Z-Boy Incorporated
                      
                      $
                      18,866
                      
                      
                      $
                      (127,830
                      )Net
      income (loss) per share attributable to La-Z-Boy
    Incorporated
                      
                      $
                      0.36
                      
                      
                      $
                      (2.49
                      )


29





Sales




Consolidatedsaleswere down 7.8% compared
with the first nine months of fiscal 2009 due to the continued challenging
economic climate.  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 for the first nine months of
fiscal 2010 compared to fiscal 2009.




Upholstery Group sales were
down 3.0% compared with the first nine months of fiscal 2009 due to the
continued challenging economic climate.  Additionally, in the first
nine months of fiscal 2009, the timing of our Upholstery Group sales was
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 nine months of
fiscal 2009.  This was offset by the previously mentioned change in
reporting of the retail warehouse operations from the Retail Group to the
Upholstery Group.  Since the warehouse operations were expanded to
incorporate the warehousing, staging and delivery of independent La-Z-Boy
Furniture Galleries® dealers’ products as well as for our Retail Group, the
reporting of those warehouses was more appropriately included in our La-Z-Boy
wholesale operating unit which is a part of our Upholstery Group.  As
a result of this change, sales and operating profit that were previously
recorded within our Upholstery Group for product sold to our Retail Group and
still in inventory were reversed.  A one-time adjustment was recorded
in the first nine months of fiscal 2009 that reduced inter-company sales for the
Upholstery Group by $12.1 million during that period, with a corresponding
offset recorded in our eliminations line.





Casegoods Groupsales
decreased 21.3% compared with the first nine months 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 had a negative
impact on consumers’ discretionary spending.  We believe that
consumers are postponing purchases of casegoods product to a greater extent than
upholstered furniture because casegoods product tends to be a higher ticket
purchase compared to upholstered furniture.





Retail Group sales decreased
6.6% compared with the first nine months of fiscal 2009.  The overall
decrease in sales of our Retail Group for the first nine months of fiscal 2010
was mostly the result of a 15.2% decrease in sales in the first quarter of
fiscal 2010 compared to the first quarter of fiscal 2009.  There was
only a slight decrease in sales for the second and third quarter of fiscal 2010
compared to the second and third quarter of fiscal 2009.  We attribute
the overall decrease in sales to the challenging economic conditions, which
continue to negatively affect the home furnishings market.





VIE sales increased 0.8%
compared with the first nine months of fiscal 2009.  Our VIE sales
were positively impacted by changes we made to our Toronto VIE, as well as the
addition of one store in the second quarter of fiscal 2010 by our California
VIE.  Beginning in the fourth quarter of fiscal 2009 we stopped
consolidating our Cleveland VIE, which somewhat offsets the overall increase in
sales by our VIEs during the first nine months of fiscal 2010.  These
changes resulted in a decrease of six stores for our VIEs during the first nine
months of fiscal 2010 compared to the first nine months of fiscal
2009.





Gross
Margin





Gross
margin increased 5.4 percentage points in the first nine months of fiscal 2010
in comparison to the first nine months of fiscal 2009.   Our
gross margin was positively impacted by the following factors:





·
            Efficiencies realized in our domestic upholstery
      manufacturing facilities resulted in an increase in our gross margin of
      2.8 percentage points. Our conversion to cellular manufacturing and our
      various restructurings completed in recent years resulted in more
      efficient capacity utilization.  These restructurings eliminated
      redundant costs by closing plants and reducing our workforce to enable our
      operations to run more efficiently.


30


·
            Raw
      material cost decreases resulted in a 2.3 percentage point increase in our
      gross margin.


·
            Restructuring
      charges included in gross profit decreased by $7.9 million resulting in a
      0.8 percentage point increase in our gross
  margin.





Selling,
General and Administrative Expenses





Selling,
general and administrative expenses (S,G&A)decreased by $40.6
million or 2.1 percentage points when compared to the prior year’s first nine
months.  Bad debt expense decreased $12.8 million or 1.4 percentage
points in the first nine months of fiscal 2010 compared to the first nine months
of fiscal 2009.  The deteriorating economic conditions in the third
quarter of fiscal 2009 affected the ability of some of our customers to pay
outstanding past due amounts which resulted in a significant charge to bad debts
in the first nine months of fiscal 2009.  Advertising costs as a
percent of sales decreased 0.7 percentage points or $9.4 million in the first
nine months of fiscal 2010 compared to the first nine months of fiscal
2009.  Our decrease in advertising costs was a result of a shift in
the timing of our advertising spend to specific promotional time
periods.  Additionally, the overall decline in the economic climate
has decreased the cost of purchasing advertising.  These changes have
allowed us to maintain a strong presence in the marketplace, while decreasing
our costs. Offsetting these positive trends was a $3.1 million or 0.3 percentage
point decrease in gain on sale of assets for the first nine months of fiscal
2010 compared to the first nine months of fiscal 2009.  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 current
sales volume.





Restructuring





Restructuring
costs, net of reversals totaled $2.8 million for the first nine months of fiscal
2010, compared with $11.9 million in the first nine months of fiscal
2009.  The restructuring costs in fiscal 2010 related to the
consolidation of our casegoods manufacturing plant and conversion to a
distribution center, 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.  These costs were
offset by the reversal of restructuring charges due 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
closure of our Sherman, Mississippi facility, the restructuring of our La-Z-Boy
U.K. subsidiary, the restructuring of our company-wide employment 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.





Long-lived
Asset Write-down





During
the first nine months of fiscal 2009, we evaluated the recoverability of our
long-lived assets of our key asset groups.  Based on the results of
the review it was determined that the expected future undiscounted cash flows of
the assets of our Upholstery Group and Casegoods Group substantially exceeded
their carrying value in fiscal 2009 and therefore no impairment
existed.  Based on the assessment of undiscounted projected future
operating cash flows of our retail stores, the undiscounted cash flows did not
exceed the net book value of leasehold improvements, furniture, fixtures, and
office equipment at some stores, indicating that a permanent impairment had
occurred.





As of the
end of the third quarter of fiscal 2009, we had $39.9 million in long-lived
assets for our Retail Group.  Of this $39.9 million, fair value
exceeded carrying value for $20.4 million of these assets.  For the
remaining $19.5 million, we recorded an impairment charge of $7.0
million.


31





For the
seven retail facilities that we owned, which accounted for $17.9 million in
value as of the end of fiscal 2009, third party appraisals were utilized to
determine the fair value of the stores.  For the remaining retail
facilities we utilized a discounted cash flow model over the remaining life of
the lease, as well as comparable market data, to determine fair
value.  Our cash flow model assumed an economic recovery in our fiscal
2011 and used a 16% discount rate based on the market participant’s view of our
industry’s weighted average cost of capital.  The impairment charge
recorded in the third quarter of fiscal 2009 was based on current market
conditions and the current fair value of those assets.  Changes in
economic conditions could result in a need to evaluate whether the fair value of
the long-lived assets of our retail stores has deteriorated further which could
result in additional impairment charges. The net book value of our retail
fixed assets was $29.3 million as of January 23, 2010.





Trade
Name and Goodwill Write-down





During
the first nine months of fiscal 2009, we evaluated the goodwill of our
Upholstery Group and Retail Group and the trade names of our Casegoods
Group.  Due to the steep decline in our stock price in the third
quarter of fiscal 2009 and its negative impact on our market capitalization at
that time, we recognized a $40.4 million non-cash impairment charge relating to
the goodwill of our Upholstery Group and Retail Group and a $5.5 million
non-cash impairment charge relating to the trade names of our Casegoods
Group.





Additionally
in the first nine months of fiscal 2009, the goodwill write-down included $1.7
million as a 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).





Operating
Margin





Our
consolidated operating margin increased 13.4 percentage points to 3.0% for the
first nine months of fiscal 2010. Our consolidated operating margin for the
first nine months of fiscal 2010 included 0.3 percentage points for
restructuring charges.  Operating margin for the first nine months of
fiscal 2009 was (10.4)% and included 5.1 percentage points for the goodwill and
trade name write-down, 1.3 percentage points for restructuring charges and 0.7
percentage points for the long-lived asset write-down.





The Upholstery Group operating
margin increased 7.8 percentage points when compared with the first nine months
of fiscal 2009.  Our Upholstery Group operating margin was positively
impacted by the following factors:





·
            Efficiencies
      realized in our domestic upholstery manufacturing facilities resulted in
      an increase in our operating margin of 3.3 percentage points. Our
      conversion to cellular manufacturing and our various restructurings
      completed in recent years resulted in more efficient capacity
      utilization.  These restructurings eliminated redundant costs by
      closing plants and reducing our workforce to enable our operations to run
      more efficiently.


·
            A decrease in raw material costs for our Upholstery Group
      resulted in a 3.1 percentage point improvement in our operating
      margin.


·
            A
      decrease in bad debt expense for our Upholstery Group resulted in a 1.7
      percentage point improvement in our operating
  margin.


·
            Our
      Upholstery Group’s operating profit increased by $1.5 million as a result
      of the change in third party freight carrier contracts as noted previously
      in our sales discussion.





These
positive improvements to our operating margin were somewhat offset by the
previously mentioned change in reporting of the retail warehouse operations from
the Retail Group to the Upholstery Group.  Our Upholstery Group
operating income was reduced by $3.3 million due to the one-time adjustment for
inter-company profit.  This adjustment did not affect our consolidated
operating results.


32





Our Casegoods Group operating
margin decreased 1.3 percentage points when compared with the first nine months
of fiscal 2009.  The decrease in operating margin was a result of the
overall decrease in sales volume of our casegoods operating
units.  Sales decreased 21.3% which outpaced our reduction in
operating costs.





Our Retail Group operating margin
improved significantly in the first nine months of fiscal 2010, compared to the
first nine months of fiscal 2009.  The 9.3 percentage point increase
was a result of our focus on reducing selling and administrative costs
throughout the second half of fiscal 2009.





·
            A
      decrease in commissions and salaries and benefits expense resulted in a
      5.5 percentage point improvement in our Retail Group’s operating
      margin.  This decrease was a result of changes made to our
      selling structure, as well as a decrease in
  commissions.


·
            A
      decrease in advertising expense for our Retail Group resulted in a 1.0
      percentage point improvement in our Retail Group’s operating margin, as we
      continued to focus on cost effectiveness of our advertising
      expenses.





VIE operating loss decreased
$5.3 million in the first nine months of fiscal 2010, compared to the first nine
months of fiscal 2009.  The decrease in the operating loss of our VIEs
was mainly the result of changes we made to our Toronto VIE, which included
allowing another 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 $7.1 million during the first nine months of fiscal 2010 when
compared with the first nine months of fiscal 2009.  Our Corporate and
Other segment includes the general and administrative expenses related to our
corporate functions.  Our Corporate and Other operating loss was
reduced by $3.3 million in the first nine months of fiscal 2009 due to the
one-time adjustment for the inter-company profit as a result of the previously
mentioned change in reporting of the retail warehouse operations from the Retail
Group to the Upholstery Group.  This adjustment did not affect our
consolidated operating results. During the first nine months of fiscal 2010 we
had a $0.4 million loss on property sales, compared to a realized gain on
property sales of $2.7 million during the first nine months of fiscal
2009.   The remainder of the change mainly relates to an increase
in bonus and stock incentive costs due to the improved performance of the
company, as well as increases in our stock price.





Interest
Expense





Interest
expense for the first nine months of fiscal 2010 was $2.1 million less than the
first nine months of fiscal 2009 due to a $62.5 million decrease in our average
debt. Our weighted average interest rate increased 0.5 percentage points in the
first nine months of fiscal 2010 compared to the first nine months of fiscal
2009.





Other
Income/(Expense)





Other
income/(expense) was income of $0.4 million for the first nine months of fiscal
2010, compared to expense of $8.0 million for the first nine months of fiscal
2009.  During the first nine months of fiscal 2009, we recognized $5.1
million of losses related to available-for-sale marketable securities to fund
future obligations of one our non-qualified retirement plans due to the losses
being considered other than temporary.  The remainder of the change in
the first nine months of fiscal 2010 compared to the first nine months of fiscal
2009 was mainly the result of currency exchange rate gains we experienced
through foreign operations.


33





Income
Taxes




Our
effective tax rates for the first nine months of fiscal 2010 and fiscal 2009
were 36.7% and 27.4%, respectively.  For fiscal 2010, a higher
estimated effective tax rate was offset by an additional federal tax
refund.  The effective tax rate for the first nine months of fiscal
2009 resulted primarily from the recording of a $52.8 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 $79.5 million at January 23, 2010, compared to $17.4 million at
April 25, 2009.  In the first nine months of fiscal 2010, restricted
cash decreased by $18.7 million and became available to be used for
operations.  The transfer of obligations of our wholly-owned insurance
company to our parent company released the restriction on $18.7 million in cash,
which positively impacted our liquidity during the first nine months of fiscal
2010.  During the first nine months of fiscal 2010 we received $7.7
million, net of tax payments, 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 receive a return of
income tax paid for those fiscal years.  Additionally, during the
first nine months of fiscal 2010 we received $4.4 million in Continued Dumping
Subsidy Offset Act payments and funds related to the anti-dumping order on
wooden bedroom furniture from China which positively impacted our
liquidity.





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 threshold in the next twelve months.  As of January 23,
2010 we had $30.0 million outstanding on our credit facility and $84.4 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 January 23, 2010, 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 nine months, our inventory levels
increased slightly and our accounts receivable increased, while the amount
outstanding on our credit facility decreased.  As a result, the
capacity to borrow on our credit facility increased during the first nine 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.





The
global economic climate continues to be unsettled.  This may continue
to negatively affect credit markets.  Some lenders have reduced or
ceased to provide funding to borrowers.  However, our lenders have not
indicated to us that they would not honor their obligations under our credit
facility.  Our access to the credit facility could be negatively
affected by decreases in our operating results or decreases in those assets that
our borrowing capacity is based on.  We believe that we will continue
to have positive access to our credit facility.





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.  Under our credit agreement, dividend
restrictions would become effective if our excess availability fell below $30.0
million.  We do not expect to fall below the required excess
availability threshold in the next twelve months.


34




Capital
expenditures for the first nine months of fiscal 2010 were $5.7 million compared
with $14.1 million during the first nine months of fiscal 2009.  There
are no material purchase commitments for capital expenditures, which are
expected to be in the range of $13 million to $15 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 and convert another to a distribution center to
impact cash by $0.8 million during the remainder of fiscal 2010 and $0.6 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 $79.5 million of cash on hand as of January 23,
2010 and the $84.4 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.





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





Cash Flows Provided By (Used For)
                                    
                                    Nine Months Ended(Unaudited, amounts in thousands)
                                    
                                    01/23/10
                                    
                                    
                                    01/24/09Operating
      activitiesNet
      income (loss)
                                    
                                    $
                                    18,511
                                    
                                    
                                    $
                                    (127,423
                                    )Non-cash
      add backs and changes in deferred taxes
                                    
                                    
                                    28,510
                                    
                                    
                                    
                                    135,561Restructuring
                                    
                                    
                                    2,813
                                    
                                    
                                    
                                    11,904Working
      capital
                                    
                                    
                                    8,865
                                    
                                    
                                    
                                    (2,021
                                    )Cash
      provided by operating activities
                                    
                                    
                                    58,699
                                    
                                    
                                    
                                    18,021Investing
      activities
                                    
                                    
                                    15,712
                                    
                                    
                                    
                                    (2,972
                                    )Financing
      activitiesNet
      decrease in debt
                                    
                                    
                                    (12,345
                                    )
                                    
                                    
                                    (13,581
                                    )Other
      financing activities, mainly dividends
                                    
                                    
                                    —
                                    
                                    
                                    
                                    (5,188
                                    )Cash
      used for financing activities
                                    
                                    
                                    (12,345
                                    )
                                    
                                    
                                    (18,769
                                    )Exchange
      rate changes
                                    
                                    
                                    81
                                    
                                    
                                    
                                    (871
                                    )Net
      increase (decrease) in cash and equivalents
                                    
                                    $
                                    62,147
                                    
                                    
                                    $
                                    (4,591
                                    )





Operating
Activities





During
the first nine months of fiscal 2010, net cash provided by operating activities
was $58.7 million, compared with $18.0 million in the first nine months of
fiscal 2009.  Our net income in the first nine months of fiscal 2010
versus our net loss in the first nine months of fiscal 2009, as well as positive
cash flow from working capital were the main reasons for the increase in cash
flows from operating activities.  The majority of working capital cash
provided by operations in the first nine months of fiscal 2010 resulted from the
tax refund we received.  Additionally, a decrease in our bonus
accruals during the first nine months of fiscal 2009, due to payments for
bonuses accrued in fiscal 2008, compared to an increase in bonus accruals during
the first nine months of fiscal 2010 positively impacted our cash provided by
working capital.  Also, a decrease in our customer deposits during the
first nine months of fiscal 2009, compared to an increase in our customer
deposits during the first nine months of fiscal 2010 positively impacted our
cash provided by working capital.  This was offset by an increase in
our accounts receivable and inventory during the first nine months of fiscal
2010.  The change in cash provided by accounts receivable and
inventory was the result of the positive sales trend occurring in the third
quarter of fiscal 2010, as opposed to the negative sales trends occurring in the
third quarter of fiscal 2009.


35





Investing
Activities





During
the first nine months of fiscal 2010, net cash provided by investing activities
was $15.7 million, compared with $3.0 million cash used for investing activities
during fiscal 2009.  The increase in net cash provided by investing
activities resulted primarily from the $17.5 million change in restricted cash
during the first nine months of fiscal 2010.  In the first nine months
of fiscal 2009, $7.8 million in proceeds were received from the sale of several
properties, offset by $14.1 million of capital
expenditures.  Additionally, in the first nine months of fiscal 2009,
$21.9 million in proceeds were received from the sale of investments, offset by
investment purchases of $10.6 million.





Financing
Activities





We used
$12.3 million of cash for financing activities in the first nine months of
fiscal 2010 compared to $18.8 million during the first nine months of fiscal
2009.  Our financing activities in the first nine months of fiscal
2010 included a net pay down of debt of $12.3 million, compared to a net pay
down of debt of $13.6 million in the first nine months of fiscal
2009.  In addition to these financing activities, our first nine
months of fiscal 2009 also included dividend payments of $5.2
million.





Other





The
balance sheet at the end of the third 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 nine months of fiscal
2010.




Our
debt-to-capitalization ratio was 12.8% at January 23, 2010 and 16.6% 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
January 23, 2010, 5.4 million additional shares could be purchased pursuant to
this authorization. We did not purchase any shares during the first nine months
of fiscal 2010.




We have
guaranteed various leases and notes of dealers with proprietary stores. The
total amount of these guarantees was $2.0 million at January 23, 2010. Of this,
$1.5 million will expire within one year and $0.5 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 third quarter of fiscal
2010, we had $31.8 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.


36




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 $2.5 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 third quarter
and first nine months of fiscal 2010 we recorded pre-tax restructuring charges
of $0.6 million and $2.3 million, respectively, covering severance and benefits
and other restructuring costs in connection with this plan. We expect to incur
approximately $0.3 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 $5.0 million based on current
volume.





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 third quarter of fiscal 2010, we had
about 1,050 employees at our Mexican facility. Because our Mexican facility is
still in the beginning stages of production, about 65% 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. In connection with these
activities, we have recorded $9.8 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 $0.8 million during the next
twelve months. During the third quarter and first nine months of fiscal 2010, we
had net restructuring reversals of $0.2 million and $0.5 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 are expected to result in annual
cost savings of approximately $20 million, once fully completed.





During
fiscal 2007 and 2008, several of our warehouse distribution centers were
consolidated into larger facilities and several underperforming stores were
closed. In the third quarter and first nine months of fiscal 2010, we had
restructuring charges of $0.2 million and $1.0 million, respectively, related to
contract terminations.  We expect to incur approximately $0.3 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.


37


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
January 23, 2010, we had a remaining restructuring liability of
$1.4 million which is expected to be settled as follows: $0.8 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)
                  
                  04/25/09
                    Balance
                  
                  
                  Charges to
                    Expense *
                  
                  
                  Cash
                    Payments
                    or Asset
                    Write-Offs
                  
                  
                  01/23/10
                    BalanceSeverance
      and benefit-related costs
                  
                  $
                  2,022
                  
                  
                  $
                  (202
                  )
                  
                  $
                  (816
                  )
                  
                  $
                  1,004Contract
      termination costs
                  
                  
                  530
                  
                  
                  
                  1,022
                  
                  
                  
                  (1,175
                  )
                  
                  
                  377Other
                  
                  
                  —
                  
                  
                  
                  1,993
                  
                  
                  
                  (1,993
                  )
                  
                  
                  —Total
      restructuring
                  
                  $
                  2,552
                  
                  
                  $
                  2,813
                  
                  
                  $
                  (3,984
                  )
                  
                  $
                  1,381*
      Charges to expense include $0.2 million of non-cash charges for contract
      termination costs.




Fiscal 2009(Unaudited, amounts in thousands)
                  
                  04/26/08
                    Balance
                  
                  
                  Charges to
                    Expense **
                  
                  
                  Cash
                    Payments
                    or Asset
                    Write-Offs
                  
                  
                  04/25/09
                    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.”






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 nine months of fiscal 2010.




38




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, pursuant to a petition for writ of
certiorari that has been filed with the United States Supreme
Court.  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 $4.4 million during fiscal
2010, $8.1 million during fiscal 2009, $7.1 million during fiscal 2008 and $3.4
million during fiscal 2007 in CDSOA payments and funds related to the
antidumping order on wooden bedroom furniture from China.





Recent
Accounting Pronouncements




Refer to
Note 18 for updates on recent accounting pronouncements since the filing of our
Form 10-K for the year ended April 25, 2009.





Business
Outlook




While we
remain concerned about various economic factors, particularly unemployment and
credit availability, we note some positive signs with respect to La-Z-Boy
Furniture Galleries® same-store-sales figures, the strength of our upholstery
sales performance this quarter as well as continued progress in our retail
segment.  While we will remain mindful of cost containment and
controls, our entire organization is focused on driving sales throughout all
three segments of our business as we continue to pursue market share gains to
ensure La-Z-Boy Incorporated maintains a leadership position in the
industry.  At the same time, we continue to ensure that our balance
sheet remains strong to allow for the greatest operating flexibility going
forward.





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 January 23, 2010.  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 $3.6
million at January 23, 2010.  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.


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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 January 23, 2010 that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.




PART
II — OTHER INFORMATION




ITEM
1A.  RISK FACTORS




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




ITEM
6. EXHIBITS




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


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SIGNATURE




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




LA-Z-BOY
      INCORPORATED(Registrant)




Date:
February 16, 2010




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


41