UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549-1004


FORM
10-Q





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


FOR
QUARTERLY PERIOD ENDED JULY 24, 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 August 10,
    2010Common
      Shares, $1.00 par value
                  
                  51,830,174







LA-Z-BOY
INCORPORATED


FORM 10-Q
FIRST QUARTER OF FISCAL 2011




TABLE OF
CONTENTS


Page
                    Number(s)PART
      I  Financial Information (Unaudited)Item
      1.
                  Financial
      StatementsConsolidated
      Statement of Operations
                  3Consolidated
      Balance Sheet
                  4Consolidated
      Statement of Cash Flows
                  5Consolidated
      Statement of Changes in Equity
                  6Notes
      to Consolidated Financial Statements
                  7Note
      1. Basis of Presentation
                  7Note
      2. Interim Results
                  8Note
      3. Inventories
                  8Note
      4. Pension Plans
                  8Note
      5. Financial Guarantees and Product Warranties
                  8Note
      6. Stock-Based Compensation
                  9Note
      7. Total Comprehensive Income (Loss)
                  9Note
      8. Segment Information
                  10Note
      9. Restructuring
                  10Note
      10. Income Taxes
                  11Note
      11. Variable Interest Entities
                  11Note
      12. Earnings per Share
                  12Note
      13. Fair Value Measurements
                  13Note
      14. Hedging Activities
                  14Note
      15. Recent Accounting Pronouncements
                  15Item
      2.
                  Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                  16Cautionary
      Statement Concerning Forward-Looking Statements
                  16Introduction
                  16Results
      of Operations
                  18Restructuring
                  20Liquidity
      and Capital Resources
                  21Critical
      Accounting Policies
                  23Regulatory
      Developments
                  23Recent
      Accounting Pronouncements
                  24Business
      Outlook
                  24Item
      3.
                  Quantitative
      and Qualitative Disclosures About Market Risk
                  24Item
      4.
                  Controls
      and Procedures
                  24PART
      II  Other InformationItem
      1A.
                  Risk
      Factors
                  25Item
      6.
                  Exhibits
                  25Signature
      Page
                  26




2


PART
I


FINANCIAL
INFORMATION


Item
1. Financial Statements




LA-Z-BOY
INCORPORATED


CONSOLIDATED
STATEMENT OF OPERATIONS




FirstQuarterEnded(Unaudited, amounts in thousands, except per share
      data)
                  
                  07/24/10
                  
                  
                  07/25/09Sales
                  
                  $
                  263,313
                  
                  
                  $
                  262,671Cost
      of salesCost
      of goods sold
                  
                  
                  190,175
                  
                  
                  
                  181,559Restructuring
                  
                  
                  (21
                  )
                  
                  
                  736Total
      cost of sales
                  
                  
                  190,154
                  
                  
                  
                  182,295Gross
      profit
                  
                  
                  73,159
                  
                  
                  
                  80,376Selling,
      general and administrative
                  
                  
                  74,045
                  
                  
                  
                  77,612Restructuring
                  
                  
                  165
                  
                  
                  
                  301Operating
      income (loss)
                  
                  
                  (1,051
                  )
                  
                  
                  2,463Interest
      expense
                  
                  
                  590
                  
                  
                  
                  980Interest
      income
                  
                  
                  243
                  
                  
                  
                  276Other
      income, net
                  
                  
                  351
                  
                  
                  
                  711Earnings
      (loss) before income taxes
                  
                  
                  (1,047
                  )
                  
                  
                  2,470Income
      tax (benefit) expense
                  
                  
                  (468
                  )
                  
                  
                  439Net
      income (loss)
                  
                  
                  (579
                  )
                  
                  
                  2,031Net
      (income) loss attributable to noncontrolling interests
                  
                  
                  384
                  
                  
                  
                  (48
                  )Net
      income (loss) attributable to La-Z-Boy Incorporated
                  
                  $
                  (195
                  )
                  
                  $
                  1,983Basic
      average shares
                  
                  
                  51,785
                  
                  
                  
                  51,479Basic
      net income (loss) attributable to La-Z-Boy Incorporated per
      share
                  
                  $
                  —
                  
                  
                  $
                  0.04Diluted
      average shares
                  
                  
                  51,785
                  
                  
                  
                  51,479Diluted
      net income (loss) attributable to La-Z-Boy Incorporated per
      share
                  
                  $
                  —
                  
                  
                  $
                  0.04




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


3


LA-Z-BOY
INCORPORATED


CONSOLIDATED
BALANCE SHEET





(Unaudited, amounts in
      thousands)
                
                07/24/10
                
                
                04/24/10Current
      assetsCash
      and equivalents
                
                $
                93,133
                
                
                $
                108,421Receivables,
      net of allowance of $21,414 at 07/24/10 and $20,258 at
      04/24/10
                
                
                150,302
                
                
                
                165,038Inventories,
      net
                
                
                138,952
                
                
                
                134,187Deferred
      income taxes – current
                
                
                2,305
                
                
                
                2,305Other
      current assets
                
                
                17,403
                
                
                
                18,159Total
      current assets
                
                
                402,095
                
                
                
                428,110Property,
      plant and equipment, net
                
                
                133,482
                
                
                
                138,857Trade
      names
                
                
                3,100
                
                
                
                3,100Deferred
      income taxes – long-term
                
                
                442
                
                
                
                458Other
      long-term assets
                
                
                34,923
                
                
                
                38,293Total
      assets
                
                $
                574,042
                
                
                $
                608,818Current
      liabilitiesCurrent
      portion of long-term debt
                
                $
                5,223
                
                
                $
                1,066Accounts
      payable
                
                
                43,299
                
                
                
                54,718Accrued
      expenses and other current liabilities
                
                
                73,805
                
                
                
                91,496Total
      current liabilities
                
                
                122,327
                
                
                
                147,280Long-term
      debt
                
                
                40,540
                
                
                
                46,917Other
      long-term liabilities
                
                
                66,887
                
                
                
                68,381Contingencies
      and commitments
                
                
                —
                
                
                
                —EquityLa-Z-Boy
      Incorporated shareholders’ equity:Common
      shares, $1 par value
                
                
                51,823
                
                
                
                51,770Capital
      in excess of par value
                
                
                202,937
                
                
                
                201,873Retained
      earnings
                
                
                109,155
                
                
                
                108,707Accumulated
      other comprehensive loss
                
                
                (20,606
                )
                
                
                (20,251
                )Total
      La-Z-Boy Incorporated shareholders' equity
                
                
                343,309
                
                
                
                342,099Noncontrolling
      interests
                
                
                979
                
                
                
                4,141Total equity
                
                
                344,288
                
                
                
                346,240Total liabilities and equity
                
                $
                574,042
                
                
                $
                608,818




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


4


LA-Z-BOY
INCORPORATED


CONSOLIDATED
STATEMENT OF CASH FLOWS





First Quarter Ended(Unaudited, amounts in
      thousands)
                
                07/24/10
                
                
                07/25/09Cash
      flows from operating activitiesNet
      income (loss)
                
                $
                (579
                )
                
                $
                2,031Adjustments
      to reconcile net income (loss) to cash provided by (used for) operating
      activities(Gain)
      loss on sale of assets
                
                
                27
                
                
                
                (13
                )Restructuring
                
                
                144
                
                
                
                1,037Provision
      for doubtful accounts
                
                
                914
                
                
                
                2,362Depreciation
      and amortization
                
                
                5,806
                
                
                
                6,275Stock-based
      compensation expense
                
                
                1,027
                
                
                
                1,007Change
      in receivables
                
                
                16,985
                
                
                
                8,898Change
      in inventories
                
                
                (9,332
                )
                
                
                (2,098
                )Change
      in other assets
                
                
                (19
                )
                
                
                (4,665
                )Change
      in payables
                
                
                (10,667
                )
                
                
                (2,326
                )Change
      in other liabilities
                
                
                (16,259
                )
                
                
                1,269Change
      in deferred taxes
                
                
                37
                
                
                
                8Total
      adjustments
                
                
                (11,337
                )
                
                
                11,754Net
      cash provided by (used for) operating activities
                
                
                (11,916
                )
                
                
                13,785Cash
      flows from investing activitiesProceeds
      from disposals of assets
                
                
                22
                
                
                
                1,686Capital
      expenditures
                
                
                (2,436
                )
                
                
                (1,439
                )Purchases
      of investments
                
                
                (4,333
                )
                
                
                (1,199
                )Proceeds
      from sales of investments
                
                
                4,353
                
                
                
                2,664Change
      in restricted cash
                
                
                —
                
                
                
                17,007Change
      in other long-term assets
                
                
                (13
                )
                
                
                (15
                )Net
      cash provided by (used for) investing activities
                
                
                (2,407
                )
                
                
                18,704Cash
      flows from financing activitiesProceeds
      from debt
                
                
                10,238
                
                
                
                10,460Payments
      on debt
                
                
                (10,566
                )
                
                
                (22,159
                )Stock
      issued from stock plans
                
                
                24
                
                
                
                —Net
      cash used for financing activities
                
                
                (304
                )
                
                
                (11,699
                )Effect
      of exchange rate changes on cash and equivalents
                
                
                (29
                )
                
                
                179Change
      in cash and equivalents
                
                
                (14,656
                )
                
                
                20,969Cash
      reduction upon deconsolidation of VIE
                
                
                (632
                )
                
                
                —Cash
      and equivalents at beginning of period
                
                
                108,421
                
                
                
                17,364Cash
      and equivalents at end of period
                
                $
                93,133
                
                
                $
                38,333Cash
      paid (net of refunds) during period – income taxes
                
                $
                2,461
                
                
                $
                266Cash
      paid during period – interest
                
                $
                537
                
                
                $
                725




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


5




LA-Z-BOY
INCORPORATED


CONSOLIDATED
STATEMENT OF CHANGES IN EQUITY





(Unaudited, amounts in thousands)
                            
                            Common
                              Shares
                            
                            
                            Capital in
                              Excess of Par
                              Value
                            
                            
                            Retained
                              Earnings
                            
                            
                            Accumulated
                              Other
                              Compre-
                              hensive Loss
                            
                            
                            Non-
                              Controlling
                              Interests
                            
                            
                            TotalAt
      April 25, 2009
                            
                            $
                            51,478
                            
                            
                            $
                            205,945
                            
                            
                            $
                            67,431
                            
                            
                            $
                            (22,559
                            )
                            
                            $
                            4,137
                            
                            
                            $
                            306,432Comprehensive
      incomeNet
      income (loss)
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            32,538
                            
                            
                            
                            
                            
                            
                            
                            (487
                            )Unrealized
      gain on marketable securities arising during the period
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            2,685Reclassification
      adjustment for gain on marketable securities included in net
      income
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            (97
                            )Translation
      adjustment
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            (766
                            )
                            
                            
                            401Change
      in fair value of cash flow hedge
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            146Net
      pension amortization and net actuarial loss
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            340Total
      comprehensive income
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            34,760Stock
      issued for stock and employee benefit plans, net of
      cancellations
                            
                            
                            292
                            
                            
                            
                            (9,294
                            )
                            
                            
                            8,738
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            (264
                            )Stock
      option, restricted stock and performance based stock
    expense
                            
                            
                            
                            
                            
                            
                            5,222
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            5,222Change
      in noncontrolling interest
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            90
                            
                            
                            
                            90At
      April 24, 2010
                            
                            
                            51,770
                            
                            
                            
                            201,873
                            
                            
                            
                            108,707
                            
                            
                            
                            (20,251
                            )
                            
                            
                            4,141
                            
                            
                            
                            346,240Comprehensive
      lossNet
      loss
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            (195
                            )
                            
                            
                            
                            
                            
                            
                            (384
                            )Unrealized
      loss on marketable securities arising during the period
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            (646
                            )Reclassification
      adjustment for gain on marketable securities included in net
      loss
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            (112
                            )Translation
      adjustment
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            (145
                            )
                            
                            
                            (1
                            )Net
      pension amortization
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            435Change
      in fair value of cash flow hedge
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            113Total
      comprehensive loss
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            (935
                            )Stock
      issued for stock and employee benefit plans, net of
      cancellations
                            
                            
                            53
                            
                            
                            
                            37
                            
                            
                            
                            (282
                            )
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            (192
                            )Stock
      option and restricted stock expense
                            
                            
                            
                            
                            
                            
                            1,027
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            1,027Changes
      in equity and noncontrolling interest upon deconsolidation of a
      VIE
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            925
                            
                            
                            
                            
                            
                            
                            
                            (2,777
                            )
                            
                            
                            (1,852
                            )At
      July 24, 2010
                            
                            $
                            51,823
                            
                            
                            $
                            202,937
                            
                            
                            $
                            109,155
                            
                            
                            $
                            (20,606
                            )
                            
                            $
                            979
                            
                            
                            $
                            344,288




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


6




NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)




Note
1: Basis of Presentation




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




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




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




The
impact of the deconsolidation on our Consolidated Statements of Operations was
minimal.  Sales and operating income, net of eliminations, for our Toronto,
Ontario, VIE for the first quarter of fiscal 2010 were $3.8 million and $0.9
million, respectively.  The most significant impacts on our
Consolidated Balance Sheet were a decrease to current assets of $6.9 million, a
decrease to long-term assets of $5.0 million, and a decrease to noncontrolling
interest by $2.8 million. We recognized a non-cash gain of $0.9 million at April
25, 2010. This gain is categorized as a cumulative effect to retained earnings
during the first quarter of 2011.




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




As
reported in our Form 10-K for the fiscal year ended April 24, 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
estimated useful life in accordance with our accounting policy.  The
correction resulted in a $0.2 million decrease in our net income for the first
quarter of fiscal 2010.  This correction did not impact our net income
attributable to La-Z-Boy Incorporated for the first quarter of fiscal
2010.




7




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 30, 2011,
which is a 53 week year.  The additional week as compared to the prior
year will be in the fourth quarter of fiscal 2011.




Note
3: Inventories




A summary
of inventories is as follows:




(Unaudited,amountsinthousands)
                  
                  07/24/10
                  
                  
                  04/24/10Raw
      materials
                  
                  $
                  63,750
                  
                  
                  $
                  60,913Work
      in process
                  
                  
                  11,458
                  
                  
                  
                  11,018Finished
      goods
                  
                  
                  88,451
                  
                  
                  
                  86,963FIFO
      inventories
                  
                  
                  163,659
                  
                  
                  
                  158,894Excess
      of FIFO over LIFO
                  
                  
                  (24,707
                  )
                  
                  
                  (24,707
                  )Inventories,
      net
                  
                  $
                  138,952
                  
                  
                  $
                  134,187





Note
4: Pension Plans





Net
periodic pension costs were as follows:


First Quarter Ended(Unaudited, amounts in
      thousands)
                    
                    07/24/10
                    
                    
                    07/25/09Service
      cost
                    
                    $
                    291
                    
                    
                    $
                    261Interest
      cost
                    
                    
                    1,356
                    
                    
                    
                    1,400Expected
      return on plan assets
                    
                    
                    (1,478
                    )
                    
                    
                    (1,206
                    )Net
      amortization
                    
                    
                    435
                    
                    
                    
                    527Net
      periodic pension cost
                    
                    $
                    604
                    
                    
                    $
                    982




We did
not make any contributions to the plans during the first quarter of fiscal
2011.  We are not statutorily required to make any contributions to the
defined benefit plan in fiscal year 2011; however, we expect to make a $2.5
million contribution during fiscal 2011.  We also have the discretion
to make additional contributions.




Note
5: Financial Guarantees and Product Warranties




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




We would
be required to perform under these agreements only if the dealer were to default
on the lease or note. The maximum amount of potential future payments under
these guarantees was $2.5 million as of July 24, 2010, compared to $2.1 million
as of April 24, 2010.




8




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.





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




First Quarter Ended(Unaudited, amounts in
      thousands)
                  
                  07/24/10
                  
                  
                  07/25/09Balance
      as of the beginning of the period
                  
                  $
                  14,773
                  
                  
                  $
                  14,394Accruals
      during the period
                  
                  
                  3,211
                  
                  
                  
                  3,337Settlements
      during the period
                  
                  
                  (3,269
                  )
                  
                  
                  (3,434
                  )Balance
      as of the end of the period
                  
                  $
                  14,715
                  
                  
                  $
                  14,297




Note
6:  Stock-Based Compensation




Total
compensation expense recognized in the Consolidated Statement of Operations for
all equity based compensation for the first quarter of fiscal 2011 and the first
quarter of fiscal 2010 was $1.0 million.




Note
7:  Total Comprehensive Income (Loss)




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




FirstQuarterEnded(Unaudited, amounts in
      thousands)
                    
                    07/24/10
                    
                    
                    07/25/09Net
      income (loss)
                    
                    $
                    (579
                    )
                    
                    $
                    2,031Other
      comprehensive income (loss):Currency
      translation adjustment
                    
                    
                    (146
                    )
                    
                    
                    (606
                    )Change
      in fair value of cash flow hedge
                    
                    
                    113
                    
                    
                    
                    (14
                    )Net
      unrealized gains (losses) on marketable securities arising during the
      period
                    
                    
                    (758
                    )
                    
                    
                    846Net
      pension amortization
                    
                    
                    435
                    
                    
                    
                    527Total
      other comprehensive income (loss)
                    
                    
                    (356
                    )
                    
                    
                    753Total
      comprehensive income (loss) before allocation to noncontrolling
      interest
                    
                    
                    (935
                    )
                    
                    
                    2,784Comprehensive
      (income) loss attributable to noncontrolling interest
                    
                    
                    385
                    
                    
                    
                    (162
                    )Comprehensive
      income (loss) attributable to La-Z-Boy Incorporated
                    
                    $
                    (550
                    )
                    
                    $
                    2,622




9




Note
8: Segment Information




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




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




Casegoods Group. The
operating units in the Casegoods Group consist of two groups, one including
American Drew, Lea, and Hammary, the second being Kincaid. These groups
primarily sell manufactured or imported wood furniture to furniture
retailers.  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 in eight
primary markets.  The Retail Group sells upholstered furniture to end
consumers, as well as casegoods and other accessories.




First Quarter Ended(Unaudited, amounts in
      thousands)
                  
                  07/24/10
                  
                  
                  07/25/09SalesUpholstery
      Group
                  
                  $
                  201,934
                  
                  
                  $
                  196,692Casegoods
      Group
                  
                  
                  36,850
                  
                  
                  
                  35,865Retail
      Group
                  
                  
                  35,307
                  
                  
                  
                  35,961VIEs
                  
                  
                  7,542
                  
                  
                  
                  11,739Corporate
      and Other
                  
                  
                  376
                  
                  
                  
                  1,862Eliminations
                  
                  
                  (18,696
                  )
                  
                  
                  (19,448
                  )Consolidated
      Sales
                  
                  $
                  263,313
                  
                  
                  $
                  262,671Operating
      Income (Loss)Upholstery
      Group
                  
                  $
                  10,088
                  
                  
                  $
                  16,290Casegoods
      Group
                  
                  
                  1,575
                  
                  
                  
                  (121
                  )Retail
      Group
                  
                  
                  (4,924
                  )
                  
                  
                  (5,668
                  )VIEs
                  
                  
                  (1,040
                  )
                  
                  
                  99Corporate
      and Other
                  
                  
                  (6,606
                  )
                  
                  
                  (7,100
                  )Restructuring
                  
                  
                  (144
                  )
                  
                  
                  (1,037
                  )Consolidated
      Operating Income (Loss)
                  
                  $
                  (1,051
                  )
                  
                  $
                  2,463




Note
9: Restructuring




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





During
fiscal 2008, we committed to a restructuring plan to consolidate all of our
North American cutting and sewing operations in Mexico. During the first quarter
of fiscal 2011, we had a net reduction of estimated restructuring liabilities of
less than $0.1 million under this plan.  We expect to incur additional
pre-tax restructuring charges of $0.3 million during the remainder of fiscal
2011.  During the first quarter of fiscal 2010, we had pre-tax
restructuring charges of $0.1 million covering severance and benefits under this
plan.


10





During
fiscal 2007 and 2008, several of our warehouse distribution centers were
consolidated into larger facilities and several underperforming stores were
closed. In the first quarter of fiscal 2011, we had pre-tax restructuring
charges of $0.2 million related to contract terminations.  We expect
to incur approximately $0.4 million of additional charges in the remainder of
fiscal 2011.  During the first quarter of fiscal 2010, we had pre-tax
restructuring charges of $0.3 million related to contract
terminations.








For the current fiscal year through
July 24, 2010, restructuring liabilities along with pre-tax charges to expense,
cash payments or asset write-downs were as follows:





Fiscal 2011(Unaudited, amounts in thousands)
                
                04/24/10
                  Balance
                
                
                Charges to
                  Expense *
                
                
                Cash
                  Payments
                  or Asset
                  Write-Downs
                
                
                07/24/10
                  BalanceSeverance
      and benefit-related costs
                
                $
                492
                
                
                $
                (21
                )
                
                $
                (147
                )
                
                $
                324Contract
      termination costs
                
                
                292
                
                
                
                165
                
                
                
                (253
                )
                
                
                204Total
      restructuring
                
                $
                784
                
                
                $
                144
                
                
                $
                (400
                )
                
                $
                528*
      Charges to expense include $0.1 million of non-cash charges for contract
      termination costs.





Note
10: Income Taxes




Our
effective tax rate for the first quarter of fiscal 2011 was 44.7% compared to
17.8% for the first quarter of fiscal 2010.  The effective tax rate
for the first quarter of fiscal 2011 and fiscal 2010 was impacted by routine
discrete items that had a significant impact on the effective tax rate due to
our near break-even results.  Absent these discrete items, our
effective tax rate for the first quarter of fiscal 2011 and fiscal 2010 was
39.8% and 49.1%, respectively.




Realization
of our deferred tax assets is dependent on generating sufficient future taxable
income.  Valuation allowances of $46.5 million associated with certain
U.S. federal and state deferred tax assets could be reduced in the latter part
of fiscal 2011 based on, among other factors, the level of taxable income
generated in fiscal 2011.




Note
11: Variable Interest Entities




We had
two consolidated VIEs during the first quarter of fiscal 2011 representing 22
stores and three consolidated VIEs during the first quarter of fiscal 2010
representing 30 stores.  As of April 25, 2010, the first day of our
current fiscal year, we deconsolidated our Toronto, Ontario VIE.  This
resulted in a decrease of eight stores for our VIEs when comparing the first
quarter of fiscal 2011 to the first quarter of fiscal 2010.  We
deconsolidated our Toronto, Ontario VIE because we are no longer considered the
primary beneficiary.


11


The table
below shows the amount of assets and liabilities from VIEs included in our
Consolidated Balance Sheet as of July 24, 2010, and April 24, 2010:





As of(Unaudited, amounts in
      thousands)
                  
                  07/24/10
                  
                  
                  04/24/10Cash
      and equivalents
                  
                  $
                  1,291
                  
                  
                  $
                  2,069Receivables,
      net
                  
                  
                  162
                  
                  
                  
                  152Inventories,
      net
                  
                  
                  8,355
                  
                  
                  
                  13,591Other
      current assets
                  
                  
                  407
                  
                  
                  
                  2,061Property,
      plant and equipment, net
                  
                  
                  3,713
                  
                  
                  
                  8,940Other
      long-term assets, net
                  
                  
                  160
                  
                  
                  
                  148Total
      assets
                  
                  $
                  14,088
                  
                  
                  $
                  26,961Current
      portion of long-term debt
                  
                  $
                  —
                  
                  
                  $
                  128Accounts
      payable
                  
                  
                  279
                  
                  
                  
                  1,048Accrued
      expenses and other current liabilities
                  
                  
                  4,020
                  
                  
                  
                  7,749Long-term
      debt
                  
                  
                  4
                  
                  
                  
                  1,770Other
      long-term liabilities
                  
                  
                  1,206
                  
                  
                  
                  1,270Total
      liabilities
                  
                  $
                  5,509
                  
                  
                  $
                  11,965




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 $2.4 million which consists of past due accounts receivable as well
as notes receivable, net of reserves and collateral on inventory and real
estate.  We have not provided additional financial or other support to
these dealers during the first quarter of fiscal 2011, and have no obligations
or commitments to provide further support.




Note
12: Earnings per Share




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




FirstQuarterEnded(Unaudited, amounts in
      thousands)
                  
                  07/24/10
                  
                  
                  07/25/09Numerator
      (basic and diluted):Net
      income (loss) attributable to La-Z-Boy Incorporated
                  
                  $
                  (195
                  )
                  
                  $
                  1,983Income
      allocated to participating securities
                  
                  
                  —
                  
                  
                  
                  (30
                  )Net
      income (loss) available to common shareholders
                  
                  $
                  (195
                  )
                  
                  $
                  1,953





First Quarter Ended(Unaudited, amounts in
      thousands)
                  
                  07/24/10
                  
                  
                  07/25/09Denominator:Basic
      common shares (based upon weighted average)
                  
                  
                  51,785
                  
                  
                  
                  51,479Add:Stock
      option dilution
                  
                  
                  —
                  
                  
                  
                  —Diluted
      common shares
                  
                  
                  51,785
                  
                  
                  
                  51,479




12


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.  For the first quarter ended July 24, 2010, we did not
allocate any loss to the unvested stock awards (participating securities), due
to their anti-dilutive effect.





The
effect of options to purchase 1.7 million and 2.3 million shares for the
quarters ended July 24, 2010, and July 25, 2009, with a weighted average
exercise price of $14.95 and $15.52, respectively, were excluded from the
diluted share calculation as the exercise prices of these options were higher
than the weighted average share price for the quarters and including them would
have been anti-dilutive.





Note
13: Fair Value Measurements





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





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




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


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




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





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


13


The
following table presents the fair value hierarchy for those assets measured at
fair value on a recurring basis as of July 24, 2010:





Fair Value Measurements(Unaudited, amounts in thousands)
                  
                  Level 1
                  
                  
                  Level 2
                  
                  
                  Level 3AssetsAvailable-for-sale
      securities
                  
                  $
                  7,813
                  
                  
                  $
                  2,323
                  
                  
                  $
                  —LiabilitiesInterest
      rate swap
                  
                  
                  —
                  
                  
                  
                  (464
                  )
                  
                  
                  —Total
                  
                  $
                  7,813
                  
                  
                  $
                  1,859
                  
                  
                  $
                  —





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





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





Note
14:  Hedging Activities





During
fiscal 2009, we entered into an interest rate swap agreement which we accounted
for as a cash flow hedge.  This swap hedges the interest on $20.0
million of floating rate debt.  Under the swap, we are required to pay
3.33% through May 16, 2011, and we receive three-month LIBOR from the
counterparty. This offsets the three-month LIBOR component of interest which we
are required to pay on $20.0 million of floating rate debt. The interest rate on
this debt as of July 24, 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
current liabilities) until the hedged transaction impacts our
earnings.  Our interest rate swap agreement was tested for
ineffectiveness during fiscal 2009 and was determined to be
effective.  Our agreement also qualified for the “short cut” method of
accounting. We believe that our agreement continues to be effective and
therefore no gains or losses have been recorded in our earnings.




For the
first quarter of fiscal 2011, we deferred gains of $0.1 million into accumulated
other comprehensive loss, compared to losses of $0.7 million in the first
quarter of fiscal 2010.  The fair value of our interest rate swap at
July 24, 2010, was $0.5 million, which was included in other current
liabilities. The fair value of our interest rate swap at April 24, 2010, was
$0.6 million, which was included in other long-term liabilities.  We
expect to reclassify $0.5 million of losses into earnings in the next twelve
months.




14




Note
15:  Recent Accounting Pronouncements




Recently
Adopted Accounting Pronouncements





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. We adopted
these amendments as of April 25, 2010, the first day of our fiscal year. As a
result of the adoption of these amendments, one of our VIEs, with assets of
$11.9 million as of April 24, 2010, and sales and operating income of $3.8
million and $0.9 million, net of eliminations, respectively, in the first
quarter of fiscal 2010 was deconsolidated during the first quarter of fiscal
2011.





Recently
Issued Accounting Pronouncements




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




15




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




We have
prepared this Management’s Discussion and Analysis to help you better understand
our financial results.
You should read it in conjunction with the accompanying Consolidated Financial
Statements and related Notes to Consolidated Financial Statements. After a
cautionary note about forward-looking statements, we begin with an introduction
to our key businesses and strategies. We then provide discussions of our results
of operations, liquidity and capital resources, 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, and our representatives may
make oral forward-looking statements from time to time. Generally,
forward-looking statements include information concerning possible or assumed
future actions, events or results of operations. More specifically,
forward-looking statements may include information regarding:





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





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





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





Introduction





Our
Business





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


16





We sell
our products, primarily in the United States and Canada, to furniture retailers
and directly to consumers through company-owned stores.  The
centerpiece of our retail distribution strategy is our network of 304 La-Z-Boy
Furniture Galleries® stores, each dedicated to marketing our La-Z-Boy branded
products.   We own 68 of those stores and the rest are
independently owned and operated.  La-Z-Boy Furniture Galleries®
stores help consumers furnish their homes by combining the style, comfort and
quality of La-Z-Boy furniture with our in-home design service.  Taken
together, the 304 stores in our La-Z-Boy Furniture Galleries® network make up
the largest single-branded upholstered furniture retailer in North
America.





We also
distribute our products through Comfort Studios®, defined spaces within larger
independent retailers that are dedicated to displaying La-Z-Boy branded
products.  On average, these independent retailers dedicate
approximately 5,000 square feet of floor space to the Comfort Studios® located
within their stores.  As of July 24, 2010, there were 519 Comfort
Studios®.  In addition to the Comfort Studios® dedicated to La-Z-Boy
branded products, our Kincaid, England and Lea operating units have their own
dedicated in-store gallery programs.





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





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





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





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





Financial
Highlights





Our sales
volume during the first quarter of fiscal 2011 compared to the first quarter of
fiscal 2010 was flat and we were not able to maintain our operating margin,
primarily due to higher raw material costs.  Supply chain disruptions
and delays and Hurricane Alex also negatively affected our
margins.  The hurricane in Mexico washed out roads, delaying the
transport of cut-and-sewn kits to our U.S.-based facilities and delaying
production of approximately $10.0 million of orders to the second quarter of
fiscal 2011.  Partially offsetting the negative factors we faced
during the first quarter, our Retail Group’s operating loss decreased despite a
sales decline and our Casegoods Group’s sales and operating margin increased due
to the completion of restructuring plans at the end of fiscal 2010.




17


Variable
Interest Entities (“VIEs”)





We have
special operating agreements in place with two independent dealers that are VIEs
which cause us to be considered their primary beneficiary.  For the
first quarter of fiscal 2011 we included these two VIEs, operating 22 La-Z-Boy
Furniture Galleries® stores, in our consolidated statement of
operations.  In the first quarter of fiscal 2010 we consolidated three
VIEs, operating 30 stores.





Results of
Operations


Fiscal
2011 First Quarter Compared to Fiscal 2010 First Quarter





La-Z-Boy
Incorporated


(Unaudited, amounts in thousands, except  percentages)
                
                07/24/2010
                
                
                07/25/2009
                
                
                Percent
                  changeConsolidated
      sales
                
                $
                263,313
                
                
                $
                262,671
                
                
                
                0.2
                %Consolidated
      operating income (loss)
                
                
                (1,051
                )
                
                
                2,463
                
                
                
                (142.7
                )%Consolidated
      operating margin
                
                
                (0.4
                )%
                
                
                0.9
                %





Consolidated
sales were flat in the first quarter of fiscal 2011 compared to the first
quarter of fiscal 2010.  The deconsolidation of our Toronto, Ontario,
VIE resulted in a decrease of $3.8 million, net of eliminations, in our
consolidated sales when comparing the first quarter of fiscal 2011 to the first
quarter of fiscal 2010.  This decrease was offset by a slight increase
in sales volume.





Our first
quarter fiscal 2011 gross margin decreased by 2.8 percentage points mainly due
to raw material price increases during the first quarter of fiscal 2011 compared
to the first quarter of fiscal 2010.  Our operating margin in the
first quarter of fiscal 2011 decreased by 1.3 percentage points in the first
quarter of fiscal 2011 compared to the first quarter of fiscal 2010 mainly due
to the decrease in gross margin.  The decrease in gross margin was
partially offset by the following:





·
            A
      decrease in our bad debt expense resulted in a 0.6 percentage point
      improvement in our operating margin.  The decrease in bad debt
      expense was a result of the stabilization of our dealers’ financial
      performance during fiscal 2010.


·
            Our
      first quarter of fiscal 2011 included 0.1 percentage points of
      restructuring charges, whereas our first quarter fiscal 2010 operating
      margin included 0.4 percentage points of restructuring
      charges.





Upholstery
Group


(Unaudited, amounts in thousands, except  percentages)
                
                07/24/2010
                
                
                07/25/2009
                
                
                Percent
                  changeSales
                
                $
                201,934
                
                
                $
                196,692
                
                
                
                2.7
                %Operating
      income
                
                
                10,088
                
                
                
                16,290
                
                
                
                (38.1
                )%Operating
      margin
                
                
                5.0
                %
                
                
                8.3
                %




Sales




Our
Upholstery Group’s sale increased $5.2 million in the first quarter of fiscal
2011 compared to the first quarter of fiscal year 2010 primarily due to an
increase in sales volume, offset by a 0.7 percentage point decrease resulting
from sales price changes, net of changes in discounting. In addition, our
Upholstery Group sales decreased as a result of consumers shifting their
purchases to our lower price point products.




18




Operating
Margin





Our
Upholstery Group’s operating margin decreased 3.3 percentage points in the first
quarter of fiscal 2011 compared to the first quarter of fiscal
2010.





·
            The
      segment’s gross margin decreased by 3.9 percentage points during the first
      quarter of fiscal 2011 compared to the first quarter of fiscal 2010,
      mainly due to increased raw material costs.  Raw material price
      increases caused a 2.9 percentage point decrease in the segment’s
      operating margin.


·
            A
      decrease in bad debt expense for this segment resulted in a 0.6 percentage
      point improvement in operating margin.  The decrease in bad debt
      expense was a result of the stabilization of our dealers’ financial
      performance during fiscal 2010.





Casegoods
Group


(Unaudited, amounts in thousands, except  percentages)
                
                07/24/2010
                
                
                07/25/2009
                
                
                Percent
                  changeSales
                
                $
                36,850
                
                
                $
                35,865
                
                
                
                2.7
                %Operating
      income (loss)
                
                
                1,575
                
                
                
                (121
                )
                
                
                N/MOperating
      margin
                
                
                4.3
                %
                
                
                (0.3
                )%




Sales




Our
Casegoods Group’s sales increased $1.0 million in the first quarter of fiscal
2011 compared to the first quarter of fiscal 2010.  We offered higher
than normal discounts on casegoods during the first quarter of fiscal 2010 in
order to sell slow moving and obsolete inventory.  This was not
continued in the first quarter of fiscal 2011.  The changes in
discounting for our Casegoods Group resulted in a 3.4 percentage point
improvement in sales for the first quarter of fiscal 2011 compared to the first
quarter of fiscal 2010.




Operating
Margin




Our
Casegoods Group’s operating margin increased 4.6 percentage points in the first
quarter of fiscal 2011 compared to the first quarter of fiscal
2010.  The segment’s gross margin increased 3.8 percentage points in
the first quarter of fiscal 2011 compared to the first quarter of fiscal 2010
mainly due to less discounting and efficiencies realized in its manufacturing
facility and warehousing operations as a result of the restructuring plan
completed at the end of fiscal 2010.




Retail
Group




(Unaudited, amounts in thousands, except  percentages)
                
                07/24/2010
                
                
                07/25/2009
                
                
                Percent
                  changeSales
                
                $
                35,307
                
                
                $
                35,961
                
                
                
                (1.8
                )%Operating
      loss
                
                
                (4,924
                )
                
                
                (5,668
                )
                
                
                13.1
                %Operating
      margin
                
                
                (13.9
                )%
                
                
                (15.8
                )%




Sales




Our
Retail Group’s sales decreased $0.7 million in the first quarter of fiscal 2011
compared to the first quarter of fiscal 2010.  The slight decrease in
sales volume was related to the weak retail environment that continued to
depress the home furnishings market.


19




Operating
Margin




Our
Retail Group’s operating margin increased 1.9 percentage points in the first
quarter of fiscal 2011 compared to the first quarter of fiscal
2010.





·
            The
      segment experienced a 3.8 percentage point improvement in
      gross margin during the first quarter of fiscal 2011 compared to the
      first quarter of fiscal 2010 due to changes in the segment’s sales
      initiatives and merchandising.


·
            Increased
      advertising expense caused a 1.0 percentage point decrease in the
      segment’s operating margin as key promotions performed below
      expectations.





VIEs





Our VIEs’
sales decreased $4.2 million in the first quarter of fiscal 2011 compared to the
first quarter of fiscal 2010.  This was mainly the result of
deconsolidating our Toronto, Ontario, VIE, which reduced the number of stores
for our VIEs to 22 for the first quarter of fiscal 2011, compared to 30 for the
first quarter of fiscal 2010. Our VIEs had an operating loss of $1.0 million in
the first quarter of fiscal 2011, compared to operating income of $0.1 million
in the first quarter of fiscal 2010.  The reduction in operating
income was mainly due to our Toronto, Ontario, VIE, which was a profitable
VIE,  no longer being consolidated in the first quarter of fiscal
2011.





Interest
Expense





Interest
expense for the first quarter of fiscal 2011 was less than the first quarter of
fiscal 2010 due to a $10.1 million decrease in our average debt.  Our
weighted average interest rate increased 0.3 percentage points in the first
quarter of fiscal 2011 compared to the first quarter of fiscal
2010.





Income
Taxes




Our
effective tax rate for the first quarter of fiscal 2011 was 44.7% compared to
17.8% for the first quarter of fiscal 2010.  The effective tax rate
for the first quarter of fiscal 2011 and fiscal 2010 was impacted by routine
discrete items that had a significant impact on the effective tax rate due to
our near break-even results.  Absent these discrete items, our
effective tax rate for the first quarter of fiscal 2011 and fiscal 2010 was
39.8% and 49.1%, respectively.




Restructuring





During
fiscal 2008, we committed to a restructuring plan to consolidate all of our
North American cutting and sewing operations in Mexico and to transfer
production from our Tremonton, Utah, plant, to our five remaining La-Z-Boy
branded upholstery manufacturing facilities.  Our Utah facility ceased
operations during the first quarter of fiscal 2009 and production was shifted to
our remaining manufacturing facilities.  As of the end of the first
quarter of fiscal 2011, almost 90% of our fabric cutting and sewing operations
were coming from our Mexican facility, compared to 21% at the end of the first
quarter of fiscal 2010.  During the first quarter of fiscal 2011, we
had a net reduction of estimated restructuring liabilities of less than $0.1
million, classified in total cost of sales, covering severance and benefits.
During the first quarter of fiscal 2010 we had restructuring charges of $0.1
million, classified in total cost of sales, covering severance and
benefits.


20


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





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





Liquidity
and Capital Resources





Our
sources of cash liquidity include cash and equivalents, cash from operations and
amounts available under our credit facility. We believe these sources remain
adequate to meet our short-term and long-term liquidity requirements, finance
our long-term growth plans, meet debt service, and fulfill other cash
requirements for day-to-day operations and capital expenditures.  We
had cash and equivalents of $93.1 million at July 24, 2010, compared to $108.4
million at April 24, 2010.  The decrease in cash and equivalents in
the first quarter of fiscal 2011 was primarily a result of accrued benefit
payments and a decrease in accounts payable, as well as an increase in our
inventory levels.  This was somewhat offset by cash generated from our
decrease in accounts receivable during the first quarter of fiscal
2011.





Under our
credit agreement we have certain covenants and restrictions, including a 1.05 to
1.00 fixed charge coverage ratio requirement which would become effective if our
excess availability fell below $30.0 million.  Excess availability is
the difference between our eligible accounts receivable and inventory less the
total of our outstanding letters of credit, other reserves as denoted in our
credit agreement and our outstanding borrowings on our revolving credit
agreement.  We do not expect to fall below the required excess
availability threshold in the next twelve months.  As of July 24,
2010, we had $30.0 million outstanding on our credit facility and $79.1 million
of excess availability, compared to $30.0 million outstanding on our credit
facility and $90.6 million of excess availability as of April 24,
2010.





Our
borrowing capacity is based on eligible trade accounts receivables and
inventory.  During the first quarter of fiscal 2011, our accounts
receivable decreased while the amount outstanding on our credit facility
remained flat.  As a result, our capacity to borrow under the credit
facility decreased during the quarter.





Capital
expenditures for the first quarter of fiscal 2011 were $2.4 million compared
with $1.4 million during the first quarter of fiscal 2010.  We have no
material commitments for capital expenditures, which are expected to be in the
range of $14.0 million to $16.0 million in fiscal 2011.  We expect
that paying restructuring costs from transitioning our domestic cutting and
sewing operations to Mexico and our ongoing costs for closed retail facilities
will require approximately $0.8 million of cash during the remainder of fiscal
2011.




We expect
to pay our contractual obligations due in the remainder of fiscal 2011 using our
cash flow from operations, our $93.1 million of cash on hand as of July 24,
2010, and the $79.1 million of availability under our credit
agreement.


21


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





Cash Flows Provided By (Used For)
                  
                  FirstQuarterEnded(Unaudited, amounts in
      thousands)
                  
                  07/24/10
                  
                  
                  07/25/09Operating
      activitiesNet
      income (loss)
                  
                  $
                  (579
                  )
                  
                  $
                  2,031Non-cash
      add backs and changes in deferred taxes
                  
                  
                  7,811
                  
                  
                  
                  9,639Restructuring
                  
                  
                  144
                  
                  
                  
                  1,037Working
      capital
                  
                  
                  (19,292
                  )
                  
                  
                  1,078Cash
      provided by (used for) operating activities
                  
                  
                  (11,916
                  )
                  
                  
                  13,785Investing
      activities
                  
                  
                  (2,407
                  )
                  
                  
                  18,704Financing
      activitiesNet
      decrease in debt
                  
                  
                  (328
                  )
                  
                  
                  (11,699
                  )Stock
      issued from stock plans
                  
                  
                  24
                  
                  
                  
                  —Cash
      used for financing activities
                  
                  
                  (304
                  )
                  
                  
                  (11,699
                  )Exchange
      rate changes
                  
                  
                  (29
                  )
                  
                  
                  179Net
      increase (decrease) in cash and equivalents
                  
                  $
                  (14,656
                  )
                  
                  $
                  20,969





Operating
Activities





During
the first quarter of fiscal 2011, net cash used for operating activities was
$11.9 million, compared with $13.8 million provided by operating activities in
the first quarter of fiscal 2010.  The main reason for our decrease in
cash flows from operating activities was the decrease in cash flow from working
capital.  The majority of working capital cash used for operations in
the first quarter of fiscal 2011 resulted from accrued benefit payments and a
decrease in accounts payable, as well as an increase in inventory levels,
somewhat offset by a decrease in accounts receivable.  Our net income
in the first quarter of fiscal 2010, as well as positive cash flow from working
capital, were the main reasons for the positive cash flow from operating
activities in the first quarter of fiscal 2010.





Investing
Activities





During
the first quarter of fiscal 2011, net cash used for investing activities was
$2.4 million, compared with $18.7 million of cash provided by investing
activities during the first quarter of fiscal 2010.  The net cash
provided by investing activities during the first quarter of fiscal 2010
resulted primarily from a $17.0 million change in restricted cash during the
first quarter of fiscal 2010.





Financing
Activities





During
the first quarter of fiscal 2011, net cash used for financing activities was
$0.3 million, compared to $11.7 million in the first quarter of fiscal
2010.  The net cash used for financing activities primarily related to
the repayment of debt.


22





Other





Our
balance sheet at the end of the first quarter of fiscal 2011 reflected a $2.2
million liability for uncertain income tax positions.  We expect that
a portion of this liability will be settled within the next 12
months.  The remaining balance, to the extent it is ever paid, will be
paid as tax audits are completed or settled.  During the first quarter
of fiscal 2011 there were no material changes to the information about our
contractual obligations shown in the table contained in our fiscal 2010 Annual
Report on Form 10-K.




Realization
of our deferred tax assets is dependent on generating sufficient future taxable
income.  Valuation allowances of $46.5 million associated with certain
U.S. federal and state deferred tax assets could be reduced in the latter part
of fiscal 2011 based on, among other factors, the level of taxable income
generated in fiscal 2011.




Our
debt-to-capitalization ratio was 11.7% at July 24, 2010, and 12.2% at April 24,
2010.  Capitalization is defined as total debt plus total
equity.




Our board
of directors has authorized the repurchase of company stock.  As of
July 24, 2010, 5.4 million additional shares could be purchased pursuant to this
authorization. We did not purchase any shares during the first quarter of fiscal
2011.




We have
guaranteed various leases and notes of dealers with proprietary stores. The
total amount of these guarantees was $2.5 million at July 24, 2010. Of this,
$1.9 million will expire within one year and $0.6 million in one to two
years.  At the end of the first quarter of fiscal 2011, we had $36.7
million in open purchase orders with foreign casegoods, leather and fabric
sources. Our open purchase orders that have not begun production are
cancelable.




During
fiscal 2011, we are not statutorily required to make any contributions to our
defined benefit plan.  However, in order to receive tax benefits we
expect to make a $2.5 million contribution to our defined benefit plan during
fiscal 2011, although this contribution is not required until fiscal
2012.




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.




Critical
Accounting Policies




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




Regulatory
Developments





Continued
Dumping and Subsidy Offset Act of 2000





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


23


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





Business
Outlook





Although
we remain concerned about the overall macroeconomic climate, with consumer
confidence remaining at low levels and persistent high unemployment rates, we
believe we can make progress this year as a result of the changes we have made
to our operating structure.  Our lean,
efficient operations and, strong network of branded distribution position us
well in the current business environment. Going forward, we will continue
to manage costs relative to volume levels and are focused on improving the
performance of all three business segments, particularly as cost-savings
initiatives, including efficiencies from the Mexico cut-and-sew center,
accelerate throughout the year.  Our first quarter is historically our
lowest level of sales and operating profit and is therefore not indicative of
the potential for full-year results.





ITEM 3. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK




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




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 July 24, 2010, that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.


24




PART
II — OTHER INFORMATION




ITEM
1A.  RISK FACTORS




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




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)


25




SIGNATURE




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




LA-Z-BOY INCORPORATED(Registrant)




Date:
August 17, 2010




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


26