UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549-1004


FORM
10-Q





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


FOR
QUARTERLY PERIOD ENDED OCTOBER 23, 2010


COMMISSION
FILE NUMBER 1-9656


LA-Z-BOY
INCORPORATED





(Exact
name of registrant as specified in its charter)





MICHIGAN
                  38-0751137(State
      or other jurisdiction of incorporation or organization)
                  (I.R.S.
      Employer Identification No.)1284
      North Telegraph Road, Monroe, Michigan
                  48162-3390(Address
      of principal executive offices)
                  (Zip
      Code)




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




None





(Former
name, former address and former fiscal year, if changed since last
report.)




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




Yes  þ                                                   No   ̈




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




Yes   ̈                                                  No   ̈




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




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




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




Yes ̈No    þ




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




Class
              
              Outstanding at November 17,
      2010Common
      Shares, $1.00 par value
              
              51,864,806


Table of Contents




LA-Z-BOY INCORPORATED


FORM 10-Q
SECOND 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
                    5Consolidated Statement of Cash Flows
                    6Consolidated Statement of Changes in
      Equity
                    7Notes to Consolidated Financial
    Statements
                    8Note 1. Basis of Presentation
                    8Note 2. Inventories
                    10Note 3. Pension Plans
                    11Note 4. Financial Guarantees and Product
      Warranties
                    11Note 5. Stock-Based Compensation
                    12Note 6. Total Comprehensive Income
                    13Note 7. Segment Information
                    13Note 8. Restructuring
                    14Note 9. Income Taxes
                    15Note 10. Variable Interest Entities
                    15Note 11. Earnings per Share
                    16Note 12. Fair Value Measurements
                    17Note 13. Hedging Activities
                    18Note 14. Recent Accounting
    Pronouncements
                    19Item 2.
                    Management’s Discussion and Analysis of Financial Condition
      and Results of Operations
                    20Cautionary Statement Concerning Forward-Looking
      Statements
                    20Introduction
                    20Results of Operations
                    22Restructuring
                    28Liquidity and Capital Resources
                    29Critical Accounting Policies
                    31Regulatory Developments
                    31Recent Accounting Pronouncements
                    32Business Outlook
                    32Item 3.
                    Quantitative and Qualitative Disclosures About Market
      Risk
                    32Item 4.
                    Controls and Procedures
                    32PART II  Other InformationItem 1A.
                    Risk Factors
                    33Item 6.
                    Exhibits
                    33Signature Page
                    
                    34


2
 Table of Contents


PART I


FINANCIAL
INFORMATION


Item
1. Financial Statements




LA-Z-BOY
INCORPORATED


CONSOLIDATED
STATEMENT OF OPERATIONS




Second Quarter Ended(Unaudited, amounts in thousands, except per share
      data)
                
                10/23/10
                
                
                10/24/09Sales
                
                $
                292,982
                
                
                $
                300,707Cost
      of salesCost
      of goods sold
                
                
                207,938
                
                
                
                205,602Restructuring
                
                
                (62
                )
                
                
                663Total
      cost of sales
                
                
                207,876
                
                
                
                206,265Gross
      profit
                
                
                85,106
                
                
                
                94,442Selling,
      general and administrative
                
                
                79,657
                
                
                
                84,619Restructuring
                
                
                110
                
                
                
                520Operating
      income
                
                
                5,339
                
                
                
                9,303Interest
      expense
                
                
                592
                
                
                
                831Interest
      income
                
                
                223
                
                
                
                199Other
      income (expense), net
                
                
                (418
                )
                
                
                236Earnings
      before income taxes
                
                
                4,552
                
                
                
                8,907Income
      tax expense
                
                
                1,381
                
                
                
                3,529Net
      income
                
                
                3,171
                
                
                
                5,378Net
      loss attributable to noncontrolling interests
                
                
                774
                
                
                
                588Net
      income attributable to La-Z-Boy Incorporated
                
                $
                3,945
                
                
                $
                5,966Basic
      average shares
                
                
                51,855
                
                
                
                51,527Basic
      net income attributable to La-Z-Boy Incorporated per share
                
                $
                0.07
                
                
                $
                0.11Diluted
      average shares
                
                
                52,214
                
                
                
                51,755Diluted
      net income attributable to La-Z-Boy Incorporated per share
                
                $
                0.07
                
                
                $
                0.11




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


3
 Table of Contents




LA-Z-BOY
INCORPORATED


CONSOLIDATED
STATEMENT OF OPERATIONS




Six Months Ended(Unaudited, amounts in thousands, except per share
      data)
                
                10/23/10
                
                
                10/24/09Sales
                
                $
                556,296
                
                
                $
                563,378Cost
      of salesCost
      of goods sold
                
                
                398,439
                
                
                
                387,715Restructuring
                
                
                (83
                )
                
                
                1,399Total
      cost of sales
                
                
                398,356
                
                
                
                389,114Gross
      profit
                
                
                157,940
                
                
                
                174,264Selling,
      general and administrative
                
                
                153,976
                
                
                
                162,535Restructuring
                
                
                275
                
                
                
                821Operating
      income
                
                
                3,689
                
                
                
                10,908Interest
      expense
                
                
                1,182
                
                
                
                1,811Interest
      income
                
                
                466
                
                
                
                475Other
      income (expense), net
                
                
                (69
                )
                
                
                837Earnings
      before income taxes
                
                
                2,904
                
                
                
                10,409Income
      tax expense
                
                
                675
                
                
                
                3,526Net
      income
                
                
                2,229
                
                
                
                6,883Net
      loss attributable to noncontrolling interests
                
                
                1,500
                
                
                
                660Net
      income attributable to La-Z-Boy Incorporated
                
                $
                3,729
                
                
                $
                7,543Basic
      average shares
                
                
                51,820
                
                
                
                51,503Basic
      net income attributable to La-Z-Boy Incorporated per share
                
                $
                0.07
                
                
                $
                0.14Diluted
      average shares
                
                
                52,228
                
                
                
                51,551Diluted
      net income attributable to La-Z-Boy Incorporated per share
                
                $
                0.07
                
                
                $
                0.14




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


4
 Table of Contents




LA-Z-BOY INCORPORATED


CONSOLIDATED
BALANCE SHEET





(Unaudited, amounts in
      thousands)
                    
                    10/23/10
                    
                    
                    04/24/10Current
      assetsCash
      and equivalents
                    
                    $
                    83,656
                    
                    
                    $
                    108,427Receivables,
      net of allowance of $22,596 at 10/23/10 and $20,258 at
      04/24/10
                    
                    
                    168,974
                    
                    
                    
                    165,001Inventories,
      net
                    
                    
                    140,703
                    
                    
                    
                    132,480Deferred
      income taxes – current
                    
                    
                    2,305
                    
                    
                    
                    2,305Other
      current assets
                    
                    
                    20,807
                    
                    
                    
                    18,862Total
      current assets
                    
                    
                    416,445
                    
                    
                    
                    427,075Property,
      plant and equipment, net
                    
                    
                    131,070
                    
                    
                    
                    138,857Trade
      names
                    
                    
                    3,100
                    
                    
                    
                    3,100Deferred
      income taxes – long-term
                    
                    
                    464
                    
                    
                    
                    458Other
      long-term assets
                    
                    
                    35,442
                    
                    
                    
                    38,293Total
      assets
                    
                    $
                    586,521
                    
                    
                    $
                    607,783Current
      liabilitiesCurrent
      portion of long-term debt
                    
                    $
                    5,143
                    
                    
                    $
                    1,066Accounts
      payable
                    
                    
                    46,773
                    
                    
                    
                    54,718Accrued
      expenses and other current liabilities
                    
                    
                    77,626
                    
                    
                    
                    91,523Total
      current liabilities
                    
                    
                    129,542
                    
                    
                    
                    147,307Long-term
      debt
                    
                    
                    40,522
                    
                    
                    
                    46,917Other
      long-term liabilities
                    
                    
                    69,518
                    
                    
                    
                    70,445Contingencies
      and commitments
                    
                    
                    —
                    
                    
                    
                    —EquityLa-Z-Boy
      Incorporated shareholders’ equity:Common
      shares, $1 par value
                    
                    
                    51,865
                    
                    
                    
                    51,770Capital
      in excess of par value
                    
                    
                    200,772
                    
                    
                    
                    201,873Retained
      earnings
                    
                    
                    114,213
                    
                    
                    
                    106,466Accumulated
      other comprehensive loss
                    
                    
                    (19,285
                    )
                    
                    
                    (20,284
                    )Total
      La-Z-Boy Incorporated shareholders' equity
                    
                    
                    347,565
                    
                    
                    
                    339,825Noncontrolling
      interests
                    
                    
                    (626
                    )
                    
                    
                    3,289Total
      equity
                    
                    
                    346,939
                    
                    
                    
                    343,114Total
      liabilities and equity
                    
                    $
                    586,521
                    
                    
                    $
                    607,783




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


5
 Table of Contents




LA-Z-BOY INCORPORATED


CONSOLIDATED
STATEMENT OF CASH FLOWS





Second Quarter Ended
                
                
                Six Months Ended(Unaudited, amounts in
      thousands)
                
                10/23/10
                
                
                10/24/09
                
                
                10/23/10
                
                
                10/24/09Cash
      flows from operating activitiesNet
      income
                
                $
                3,171
                
                
                $
                5,378
                
                
                $
                2,229
                
                
                $
                6,883Adjustments
      to reconcile net income to cash provided by (used for) operating
      activities(Gain)
      loss on sale of assets
                
                
                127
                
                
                
                (75
                )
                
                
                154
                
                
                
                (88
                )Restructuring
                
                
                48
                
                
                
                1,183
                
                
                
                192
                
                
                
                2,220Provision
      for doubtful accounts
                
                
                974
                
                
                
                2,152
                
                
                
                1,888
                
                
                
                4,514Depreciation
      and amortization
                
                
                5,658
                
                
                
                6,300
                
                
                
                11,464
                
                
                
                12,575Stock-based
      compensation expense
                
                
                1,329
                
                
                
                1,621
                
                
                
                2,356
                
                
                
                2,628Change
      in receivables
                
                
                (18,983
                )
                
                
                (26,460
                )
                
                
                (2,034
                )
                
                
                (17,538
                )Change
      in inventories
                
                
                (3,783
                )
                
                
                3,956
                
                
                
                (12,790
                )
                
                
                2,075Change
      in other assets
                
                
                (3,232
                )
                
                
                11,075
                
                
                
                (3,528
                )
                
                
                6,045Change
      in payables
                
                
                3,474
                
                
                
                7,073
                
                
                
                (7,193
                )
                
                
                4,747Change
      in other liabilities
                
                
                4,486
                
                
                
                10,025
                
                
                
                (11,558
                )
                
                
                11,944Change
      in deferred taxes
                
                
                (30
                )
                
                
                (8
                )
                
                
                7
                
                
                
                —Total
      adjustments
                
                
                (9,932
                )
                
                
                16,842
                
                
                
                (21,042
                )
                
                
                29,122Net
      cash provided by (used for) operating activities
                
                
                (6,761
                )
                
                
                22,220
                
                
                
                (18,813
                )
                
                
                36,005Cash
      flows from investing activitiesProceeds
      from disposals of assets
                
                
                282
                
                
                
                230
                
                
                
                304
                
                
                
                1,916Capital
      expenditures
                
                
                (2,552
                )
                
                
                (1,340
                )
                
                
                (4,987
                )
                
                
                (2,779
                )Purchases
      of investments
                
                
                (2,297
                )
                
                
                (1,338
                )
                
                
                (6,630
                )
                
                
                (2,537
                )Proceeds
      from sales of investments
                
                
                1,768
                
                
                
                1,445
                
                
                
                6,121
                
                
                
                4,109Change
      in restricted cash
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                17,007Other
                
                
                (31
                )
                
                
                29
                
                
                
                (43
                )
                
                
                14Net
      cash provided by (used for) investing activities
                
                
                (2,830
                )
                
                
                (974
                )
                
                
                (5,235
                )
                
                
                17,730Cash
      flows from financing activitiesProceeds
      from debt
                
                
                10,218
                
                
                
                10,213
                
                
                
                20,456
                
                
                
                20,673Payments
      on debt
                
                
                (10,316
                )
                
                
                (10,408
                )
                
                
                (20,882
                )
                
                
                (32,567
                )Stock
      issued from stock plans
                
                
                34
                
                
                
                —
                
                
                
                58
                
                
                
                —Net
      cash used for financing activities
                
                
                (64
                )
                
                
                (195
                )
                
                
                (368
                )
                
                
                (11,894
                )Effect
      of exchange rate changes on cash and equivalents
                
                
                310
                
                
                
                (347
                )
                
                
                277
                
                
                
                (168
                )Change
      in cash and equivalents
                
                
                (9,345
                )
                
                
                20,704
                
                
                
                (24,139
                )
                
                
                41,673Cash
      reduction upon deconsolidation of VIE
                
                
                —
                
                
                
                —
                
                
                
                (632
                )
                
                
                —Cash
      and equivalents at beginning of period
                
                
                93,001
                
                
                
                38,339
                
                
                
                108,427
                
                
                
                17,370Cash
      and equivalents at end of period
                
                $
                83,656
                
                
                $
                59,043
                
                
                $
                83,656
                
                
                $
                59,043Cash
      paid (net of refunds) during period – income taxes
                
                $
                3,395
                
                
                $
                (13,348
                )
                
                $
                5,856
                
                
                $
                (13,082
                )Cash
      paid during period – interest
                
                $
                538
                
                
                $
                563
                
                
                $
                1,075
                
                
                $
                1,288




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


6
 Table of Contents




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
                            
                            
                            $
                            65,027
                            
                            
                            $
                            (23,168
                            )
                            
                            $
                            4,138
                            
                            
                            $
                            303,420Comprehensive
      incomeNet
      income (loss)
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            32,701
                            
                            
                            
                            
                            
                            
                            
                            (1,342
                            )Unrealized
      gain on marketable securities arising during the period
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            2,685Reclassification
      adjustment for gain on marketable securities included in net
      income
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            (97
                            )Translation
      adjustment
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            (190
                            )
                            
                            
                            403Change
      in fair value of cash flow hedge
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            146Net
      pension amortization and net actuarial loss
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            340Total
      comprehensive income
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            34,646Stock
      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
                            
                            
                            
                            106,466
                            
                            
                            
                            (20,284
                            )
                            
                            
                            3,289
                            
                            
                            
                            343,114Comprehensive
      incomeNet
      income (loss)
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            3,729
                            
                            
                            
                            
                            
                            
                            
                            (1,500
                            )Unrealized
      loss on marketable securities arising during the period
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            (84
                            )Reclassification
      adjustment for gain on marketable securities included in net
      income
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            (181
                            )Translation
      adjustment
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            158
                            
                            
                            
                            362Net
      pension amortization
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            870Change
      in fair value of cash flow hedge
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            236Total
      comprehensive income
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            3,590Stock
      issued for stock and employee benefit plans, net of
      cancellations
                            
                            
                            95
                            
                            
                            
                            (3,457
                            )
                            
                            
                            3,093
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            (269
                            )Stock
      option and restricted stock expense
                            
                            
                            
                            
                            
                            
                            2,356
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            2,356Changes
      in equity and noncontrolling interest upon deconsolidation of a
      VIE
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            925
                            
                            
                            
                            
                            
                            
                            
                            (2,777
                            )
                            
                            
                            (1,852
                            )At
      October 23, 2010
                            
                            $
                            51,865
                            
                            
                            $
                            200,772
                            
                            
                            $
                            114,213
                            
                            
                            $
                            (19,285
                            )
                            
                            $
                            (626
                            )
                            
                            $
                            346,939




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


7
 Table of Contents




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.  The interim results reflected in the
accompanying financial statements are not necessarily indicative of the results
of operations which will occur for the full fiscal year ending April 30, 2011.
Fiscal 2011 is a 53 week year as compared to fiscal 2010 with the additional
week falling in the fourth quarter of fiscal 2011.




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.




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.




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 have
provided. Although these financial arrangements result in our 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 second quarter and first six months of fiscal 2010 were
$4.6 million (sales) and $0.4 million (operating income) and $8.3 million
(sales) and $1.3 million (operating income), 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 six months of fiscal
2011.


8
 Table of Contents




We
currently consolidate two variable interest entities (VIEs) in our consolidated
financial statements.  In late August 2010, we determined there were
errors relating to inventory and corresponding inter-company accounts payable
related to one of the VIEs, and also determined that the accounting for lease
expense, which requires rent expense to be recorded on a straight-line basis
over the life of the lease, was not being followed for the VIEs.
  The total
amount of the additional charge for the inventory-related items was
approximately $2.7 million ($0.6 million related to the first quarter of fiscal
2011), and the impact of the rent expense totaled about $2.0 million, affecting
years beginning in fiscal 2004.  As these adjustments related to the
VIE's for which we have no equity investment, there was no impact to net income
attributable to La-Z-Boy Incorporated on a per share basis for fiscal 2010 or
2011 related to these adjustments. Since the corrections did not materially
impact any of the previous periods affected, we concluded that these errors
are not material to our previously issued financial statements.  These
adjustments, which relate to cost of sales, SG&A expenses, inventory,
accrued rent and other accrued liabilities will be corrected through revisions
of prior-period quarterly and annual financial statements when they are next
filed. Prior period amounts included in the consolidated financial statements as
of and for the three and six month periods ended October 23, 2010 have been
revised to reflect the effect of these corrections.
  Additionally,
in the second quarter of fiscal 2011 it was determined that our tax rate for
fiscal 2010 did not reflect a deduction due to write-offs of certain inventory
when completing our tax provision for fiscal 2010, and that our tax
rate and corresponding tax expense were
therefore overstated.  This correction resulted in a $0.2 million
increase in our net income attributable to La-Z-Boy Incorporated for the second
quarter and first six months of fiscal 2010.  The cumulative result of
this correction was a $1.0 million increase to retained earnings and net income
attributable to La-Z-Boy Incorporated as of and for the year ended April 24,
2010, respectively.
  As
previously disclosed in our first quarter of fiscal 2010 filing on Form 10-Q, we
recorded a $0.6 million out-of-period reduction to cost of goods sold during
that quarter.  As a result of the above mentioned corrections, we
revised our historical financial statements to include the $0.6 million
reduction to cost of goods sold in fiscal 2009.  This change resulted
in a $0.6 million decrease in our net income attributable to La-Z-Boy
Incorporated for the first six months of fiscal 2010, however, this did not
impact our fiscal 2010 second quarter net income attributable to La-Z-Boy
Incorporated.


The
corrections mentioned above resulted in a $0.01 decrease in our diluted net
income attributable to La-Z-Boy Incorporated per share for the first six months
of fiscal 2010, but did not impact our earnings per share for the second
quarter.  These corrections did not impact our net income attributable to
La-Z-Boy Incorporated or our diluted earnings per share for the second quarter
and first six months of fiscal 2011.




We
determined that the cumulative impact of the corrections mentioned
above was material to our fiscal 2011 second quarter and first six months,
as well as to our projected full fiscal 2011 year.  However, we determined
that the corrections were not material, either individually or in the aggregate,
to any of our historical fiscal years or interim periods.  Consequently, we
will revise our historical financial statements for the prior periods when they
are presented in future filings.  Because our analysis concluded that these
corrections were immaterial to any prior period, we will not amend our previous
filings with the Securities and Exchange Commission.




The
following tables set forth the significant impacts of the corrections to our
Consolidated Statements of Operations for the quarter and six months ended
October 24, 2009, and our Consolidated Balance Sheet as of April 24,
2010:




Quarter Ended 10/24/09(Unaudited, amounts in thousands, except per share data)
                
                10/24/09
                  (as previously
                  reported)
                
                
                Adjustments
                
                
                10/24/09
                  (as adjusted)Net
      income attributable to La-Z-Boy Incorporated
                
                $
                5,907
                
                
                $
                59
                
                
                $
                5,966Diluted
      net income attributable to La-Z-Boy Incorporated per share
                
                $
                0.11
                
                
                $
                —
                
                
                $
                0.11


9
 Table of Contents





Six Months Ended 10/24/09(Unaudited, amounts in thousands, except per share data)
                  
                  10/24/09
                    (as previously
                    reported)
                  
                  
                  Adjustments
                  
                  
                  10/24/09
                    (as adjusted)Net
      income attributable to La-Z-Boy Incorporated
                  
                  $
                  7,890
                  
                  
                  $
                  (347
                  )
                  
                  $
                  7,543Diluted
      net income attributable to La-Z-Boy Incorporated per share
                  
                  $
                  0.15
                  
                  
                  $
                  (0.01
                  )
                  
                  $
                  0.14





As of 04/24/10(Unaudited, amounts in thousands)
                
                04/24/10
                  (as previously
                  reported)
                
                
                Adjustments
                
                
                04/24/10
                  (as adjusted)Inventories,
      net
                
                $
                134,187
                
                
                $
                (1,707
                )
                
                $
                132,480Other
      current assets
                
                $
                18,159
                
                
                $
                703
                
                
                $
                18,862Other
      long-term liabilities
                
                $
                68,381
                
                
                $
                2,064
                
                
                $
                70,445Retained
      earnings
                
                $
                108,707
                
                
                $
                (2,241
                )
                
                $
                106,466Noncontrolling
      interests
                
                $
                4,141
                
                
                $
                (852
                )
                
                $
                3,289




As a
result of the revisions made to our historical financial statements, our net
income attributable to La-Z-Boy Incorporated decreased by $0.6 million or $0.01
per diluted share for the fiscal year ended April 28, 2007.  Our net loss
attributable to La-Z-Boy Incorporated decreased by less than $0.1 million for
the fiscal years ended April 26, 2008, and April 25, 2009.  These revisions
did not impact our earnings per share for the fiscal years ended April 26, 2008,
or April 25, 2009.




Note 2: Inventories




A summary
of inventories is as follows:




(Unaudited, amounts in
      thousands)
                    
                    10/23/10
                    
                    
                    04/24/10Raw
      materials
                    
                    $
                    64,860
                    
                    
                    $
                    60,913Work
      in process
                    
                    
                    11,475
                    
                    
                    
                    11,018Finished
      goods
                    
                    
                    89,075
                    
                    
                    
                    85,256FIFO
      inventories
                    
                    
                    165,410
                    
                    
                    
                    157,187Excess
      of FIFO over LIFO
                    
                    
                    (24,707
                    )
                    
                    
                    (24,707
                    )Inventories,
      net
                    
                    $
                    140,703
                    
                    
                    $
                    132,480





As a
result of the corrections to one of our VIE’s accounting for inventory
transactions as discussed in Note 1, our net inventory balance as of April 24,
2010, decreased by $1.7 million.


10
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Note 3: Pension Plans





Net
periodic pension costs were as follows:


Second Quarter Ended
                  
                  
                  Six Months Ended(Unaudited, amounts in
      thousands)
                  
                  10/23/10
                  
                  
                  10/24/09
                  
                  
                  10/23/10
                  
                  
                  10/24/09Service
      cost
                  
                  $
                  291
                  
                  
                  $
                  261
                  
                  
                  $
                  582
                  
                  
                  $
                  522Interest
      cost
                  
                  
                  1,356
                  
                  
                  
                  1,400
                  
                  
                  
                  2,712
                  
                  
                  
                  2,800Expected
      return on plan assets
                  
                  
                  (1,478
                  )
                  
                  
                  (1,206
                  )
                  
                  
                  (2,956
                  )
                  
                  
                  (2,412
                  )Net
      amortization
                  
                  
                  435
                  
                  
                  
                  527
                  
                  
                  
                  870
                  
                  
                  
                  1,054Net
      periodic pension cost
                  
                  $
                  604
                  
                  
                  $
                  982
                  
                  
                  $
                  1,208
                  
                  
                  $
                  1,964




We did
not make any contributions to the plans during the first six months 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 the second half of fiscal 2011.  We also have
the discretion to make additional contributions.




Note 4: 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 guaranteed lease or note. The maximum amount of potential future payments
under these guarantees was $2.1 million as of October 23, 2010, and April 24,
2010.




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




Our
accounting policy for product warranties is to accrue an estimated liability at
the time the revenue is recognized. We estimate future warranty claims based on
claim experience and any additional anticipated future costs on previously sold
products.  Our liability estimates incorporate 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:





Second Quarter Ended
                  
                  
                  Six Months Ended(Unaudited, amounts in
      thousands)
                  
                  10/23/10
                  
                  
                  10/24/09
                  
                  
                  10/23/10
                  
                  
                  10/24/09Balance
      as of the beginning of the period
                  
                  $
                  14,715
                  
                  
                  $
                  14,297
                  
                  
                  $
                  14,773
                  
                  
                  $
                  14,394Accruals
      during the period
                  
                  
                  3,499
                  
                  
                  
                  3,367
                  
                  
                  
                  6,710
                  
                  
                  
                  6,704Settlements
      during the period
                  
                  
                  (3,355
                  )
                  
                  
                  (3,371
                  )
                  
                  
                  (6,624
                  )
                  
                  
                  (6,805
                  )Balance
      as of the end of the period
                  
                  $
                  14,859
                  
                  
                  $
                  14,293
                  
                  
                  $
                  14,859
                  
                  
                  $
                  14,293


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Note 5:  Stock-Based Compensation




During
the second quarter of fiscal 2011, our shareholders approved the La-Z-Boy
Incorporated 2010 Omnibus Incentive Plan.  This plan provides for the grant
of stock options, stock appreciation rights, restricted stock, stock units
(including deferred stock units), unrestricted stock, dividend equivalent
rights, and short-term cash incentive awards.  Under this plan, the
aggregate number of common shares that may be issued through awards of any form
is 4.6 million shares.




Stock Options.In the second
quarter of fiscal 2011, we granted 0.2 million stock options to employees. 
Compensation expense for stock options is equal to the fair value on the date
the award was approved and is recognized over the service period.  The
vesting period for our stock options ranges from one to four years.  The
fair value for the employee stock options granted was estimated at the date of
the grant using the Black-Scholes option-pricing model, which requires
management to make certain assumptions.  Expected volatility was estimated
based on the historical volatility of our common shares.  The average
expected life was based on the contractual term of the stock option and expected
employee exercise and post-vesting employment termination trends.  The
risk-free rate was based on U.S. Treasury issues with a term equal to the
expected life assumed at the date of the grant.  The turnover rate was
estimated at the date of the grant based on historical experience.  The
fair value of stock options granted during the second quarter of fiscal 2011 was
calculated using the following assumptions:




(Unaudited)
                  
                  10/23/10Risk-free
      interest rate
                  
                  
                  0.75
                  %Dividend
      rate
                  
                  
                  —Expected
      life in years
                  
                  
                  3.0Stock
      price volatility
                  
                  
                  86.6
                  %Turnover
      rate
                  
                  
                  3.0
                  %Fair
      value per share
                  
                  $
                  4.27




Restricted Shares.We granted
0.2 million restricted shares to employees during the second quarter of fiscal
2011.  Compensation expense for restricted stock is equal to the market
value of our common shares on the date the award was approved and is recognized
over the service period.  The vesting period for our restricted shares is
three years.




Performance Awards.We
granted 0.4 million performance awards in the second quarter of fiscal 2011.
These awards allow for the potential award of common shares to employees based
on the attainment of certain financial goals over a specific performance period.
The shares are offered at no cost to the employees. The cost of performance
awards is expensed over the service period based on the probability that the
performance goals will be obtained.




Restricted Stock Units.We
granted 0.1 million restricted stock units to our non-employee directors. These
awards will be paid in shares of our common stock upon exercise and,
consequently, we account for them as equity based awards. Compensation expense
for these awards is measured and recognized based on the market price of our
common shares at the date the grant was approved.




Total
compensation expense recognized in the Consolidated Statement of Operations for
all equity based compensation was $1.3 million and $2.4 million, for the second
quarter and first six months of fiscal 2011, respectively. For the second
quarter and first six months of fiscal 2010, we recorded compensation expense
for all equity based compensation of $1.6 million and $2.6 million,
respectively.


12
 Table of Contents




Previously Granted Deferred Stock
Units.Expense relating to previously granted deferred stock units, which
are accounted for as liability based awards because upon exercise these awards
will be paid in cash, was recorded in selling, general and administrative
expense as a net reduction in expense of $0.2 million and $1.1 million, for the
second quarter and first six months of fiscal 2011, respectively.  For the
second quarter and first six months of fiscal 2010, expense relating to deferred
stock units was $0.9 million and $1.3 million, respectively.




Note 6:  Total Comprehensive Income




The
components of total comprehensive income are as follows:




Second Quarter Ended
                
                
                Six Months Ended(Unaudited, amounts in
      thousands)
                
                10/23/10
                
                
                10/24/09
                
                
                10/23/10
                
                
                10/24/09Net
      income
                
                $
                3,171
                
                
                $
                5,378
                
                
                $
                2,229
                
                
                $
                6,883Other
      comprehensive income (loss):Currency
      translation adjustment
                
                
                649
                
                
                
                (105
                )
                
                
                520
                
                
                
                (98
                )Change
      in fair value of cash flow hedge
                
                
                123
                
                
                
                15
                
                
                
                236
                
                
                
                1Net
      unrealized gains (losses) on marketable securities arising during the
      period
                
                
                493
                
                
                
                692
                
                
                
                (265
                )
                
                
                1,538Net
      pension amortization
                
                
                435
                
                
                
                527
                
                
                
                870
                
                
                
                1,054Total
      other comprehensive income
                
                
                1,700
                
                
                
                1,129
                
                
                
                1,361
                
                
                
                2,495Total
      comprehensive income before allocation to noncontrolling
      interest
                
                
                4,871
                
                
                
                6,507
                
                
                
                3,590
                
                
                
                9,378Comprehensive
      loss attributable to noncontrolling interest
                
                
                408
                
                
                
                548
                
                
                
                1,138
                
                
                
                507Comprehensive
      income attributable to La-Z-Boy Incorporated
                
                $
                5,279
                
                
                $
                7,055
                
                
                $
                4,728
                
                
                $
                9,885




Note 7: 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 U.S. manufactured or imported wood furniture to furniture
retailers.  Casegoods product includes bedroom, dining room, entertainment
centers, 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 primarily sells upholstered furniture,
as well as some casegoods and other accessories, to end consumers through the
retail network.


13
 Table of Contents




Second Quarter Ended
                  
                  
                  Six Months Ended(Unaudited, amounts in
      thousands)
                  
                  10/23/10
                  
                  
                  10/24/09
                  
                  
                  10/23/10
                  
                  
                  10/24/09SalesUpholstery
      Group
                  
                  $
                  224,878
                  
                  
                  $
                  232,780
                  
                  
                  $
                  426,812
                  
                  
                  $
                  429,472Casegoods
      Group
                  
                  
                  39,509
                  
                  
                  
                  37,302
                  
                  
                  
                  76,359
                  
                  
                  
                  73,167Retail
      Group
                  
                  
                  39,246
                  
                  
                  
                  38,014
                  
                  
                  
                  74,553
                  
                  
                  
                  73,976VIEs
                  
                  
                  7,744
                  
                  
                  
                  12,248
                  
                  
                  
                  15,286
                  
                  
                  
                  23,987Corporate
      and Other
                  
                  
                  449
                  
                  
                  
                  1,679
                  
                  
                  
                  826
                  
                  
                  
                  3,540Eliminations
                  
                  
                  (18,844
                  )
                  
                  
                  (21,316
                  )
                  
                  
                  (37,540
                  )
                  
                  
                  (40,764
                  )Consolidated
      Sales
                  
                  $
                  292,982
                  
                  
                  $
                  300,707
                  
                  
                  $
                  556,296
                  
                  
                  $
                  563,378Operating
      Income (Loss)Upholstery
      Group
                  
                  $
                  17,055
                  
                  
                  $
                  25,328
                  
                  
                  $
                  27,112
                  
                  
                  $
                  41,051Casegoods
      Group
                  
                  
                  1,376
                  
                  
                  
                  (184
                  )
                  
                  
                  2,951
                  
                  
                  
                  (305
                  )Retail
      Group
                  
                  
                  (4,360
                  )
                  
                  
                  (5,301
                  )
                  
                  
                  (9,284
                  )
                  
                  
                  (10,969
                  )VIEs
                  
                  
                  (1,104
                  )
                  
                  
                  (933
                  )
                  
                  
                  (2,712
                  )
                  
                  
                  (1,126
                  )Corporate
      and Other
                  
                  
                  (7,580
                  )
                  
                  
                  (8,424
                  )
                  
                  
                  (14,186
                  )
                  
                  
                  (15,523
                  )Restructuring
                  
                  
                  (48
                  )
                  
                  
                  (1,183
                  )
                  
                  
                  (192
                  )
                  
                  
                  (2,220
                  )Consolidated
      Operating Income
                  
                  $
                  5,339
                  
                  
                  $
                  9,303
                  
                  
                  $
                  3,689
                  
                  
                  $
                  10,908




Note 8: 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 second
quarter and first six months of fiscal 2011, we had a net reduction of estimated
restructuring liabilities of $0.1 million, under this plan.  We expect to
incur additional pre-tax restructuring charges of $0.2 million during the
remainder of fiscal 2011.  During the second quarter and first six months
of fiscal 2010, we had a net reduction in estimated restructuring liabilities of
$0.4 million and $0.3 million, respectively, under this plan.





During
fiscal 2007 and 2008, several of our warehouse distribution centers were
consolidated into larger facilities and several underperforming stores were
closed. In the second quarter and first six months of fiscal 2011, we had
pre-tax restructuring charges of $0.1 million and $0.3 million, respectively,
related to contract terminations.  We expect to incur approximately $0.3
million of additional charges in the remainder of fiscal 2011.  During the
second quarter and first six months of fiscal 2010, we had pre-tax restructuring
charges of $0.5 million and $0.8 million, respectively, related to contract
terminations.





During
fiscal 2009, we committed to a restructuring plan to consolidate our casegoods
manufacturing plants and convert another facility into a distribution
center.  During the second quarter and first six months of fiscal 2010, we
had pre-tax restructuring charges of $1.1 million and $1.7 million,
respectively, covering severance and benefits and other restructuring
costs.


14
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For the current fiscal year through
October 23, 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
                
                
                10/23/10
                  BalanceSeverance
      and benefit-related costs
                
                $
                492
                
                
                $
                (83
                )
                
                $
                (222
                )
                
                $
                187Contract
      termination costs
                
                
                292
                
                
                
                275
                
                
                
                (401
                )
                
                
                166Total
      restructuring
                
                $
                784
                
                
                $
                192
                
                
                $
                (623
                )
                
                $
                353


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





Note 9: Income Taxes




Our
effective tax rates for the second quarter and first six months of fiscal
2011 were 30.3% and 23.2%, respectively, compared to 39.6% and 33.9% for
the second quarter and first six months of fiscal 2010, respectively.  The
effective tax rates for the second quarter and first six months of fiscal 2011
and fiscal 2010 were impacted by routine discrete items that resulted in a
rate reduction of 11.2% and 17.6% for the second quarter and first six months of
fiscal 2011, 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 fiscal 2012 based on,
among other factors, the level of taxable income generated in fiscal
2012.




Note 10: Variable Interest Entities




We had
two consolidated VIEs during the second quarter and first six months of fiscal
2011 representing 22 stores and three consolidated VIEs during the second
quarter and first six months of fiscal 2010 representing 31 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 second quarter and first six months of fiscal 2011 to
the second quarter and first six months of fiscal 2010.  We deconsolidated
our Toronto, Ontario, VIE based on a change to our accounting policy as
discussed in Note 1.


15
 Table of Contents





The table
below shows the amount of assets and liabilities from VIEs included in our
Consolidated Balance Sheet as of October 23, 2010, and April 24,
2010:





As of(Unaudited, amounts in
      thousands)
                  
                  10/23/10
                  
                  
                  04/24/10Cash
      and equivalents
                  
                  $
                  1,253
                  
                  
                  $
                  2,075Receivables,
      net
                  
                  
                  103
                  
                  
                  
                  114Inventories,
      net
                  
                  
                  5,565
                  
                  
                  
                  11,884Other
      current assets
                  
                  
                  612
                  
                  
                  
                  1,745Property,
      plant and equipment, net
                  
                  
                  3,410
                  
                  
                  
                  8,940Other
      long-term assets, net
                  
                  
                  163
                  
                  
                  
                  148Total
      assets
                  
                  $
                  11,106
                  
                  
                  $
                  24,906Current
      portion of long-term debt
                  
                  $
                  —
                  
                  
                  $
                  128Accounts
      payable
                  
                  
                  465
                  
                  
                  
                  1,048Accrued
      expenses and other current liabilities
                  
                  
                  4,700
                  
                  
                  
                  7,776Long-term
      debt
                  
                  
                  2
                  
                  
                  
                  1,770Other
      long-term liabilities
                  
                  
                  2,777
                  
                  
                  
                  2,852Total
      liabilities
                  
                  $
                  7,944
                  
                  
                  $
                  13,574





The
overall decrease in total assets and total liabilities of our VIEs shown in the
table above was impacted by the deconsolidation of our Toronto, Ontario,
VIE.





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 $3.5 million which consists of past due accounts receivable as well as notes
receivable, net of reserves and collateral on inventory and real estate. 
We have not provided additional financial or other support to these dealers
during the second quarter and first six months of fiscal 2011, and have no
obligations or commitments to provide further support.





Note 11: Earnings per Share




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




Second Quarter
                    Ended
                  
                  
                  Six Months
                    Ended(Unaudited, amounts in thousands)
                  
                  10/23/10
                  
                  
                  10/24/09
                  
                  
                  10/23/10
                  
                  
                  10/24/09Numerator
      (basic and diluted):Net
      income attributable to La-Z-Boy Incorporated
                  
                  $
                  3,945
                  
                  
                  $
                  5,966
                  
                  
                  $
                  3,729
                  
                  
                  $
                  7,543Income
      allocated to participating securities
                  
                  
                  (77
                  )
                  
                  
                  (123
                  )
                  
                  
                  (72
                  )
                  
                  
                  (134
                  )Net
      income available to common shareholders
                  
                  $
                  3,868
                  
                  
                  $
                  5,843
                  
                  
                  $
                  3,657
                  
                  
                  $
                  7,409


16
 Table of Contents


Second Quarter
                    Ended
                  
                  
                  Six Months
                    Ended(Unaudited, amounts in thousands)
                  
                  10/23/10
                  
                  
                  10/24/09
                  
                  
                  10/23/10
                  
                  
                  10/24/09Denominator:Basic
      common shares (based upon weighted average)
                  
                  
                  51,855
                  
                  
                  
                  51,527
                  
                  
                  
                  51,820
                  
                  
                  
                  51,503Add:Stock
      option dilution
                  
                  
                  359
                  
                  
                  
                  228
                  
                  
                  
                  408
                  
                  
                  
                  48Diluted
      common shares
                  
                  
                  52,214
                  
                  
                  
                  51,755
                  
                  
                  
                  52,228
                  
                  
                  
                  51,551





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.





The
effect of options to purchase 1.3 million and 1.9 million shares for the
quarters ended October 23, 2010, and October 24, 2009, with a weighted average
exercise price of $15.30 and $14.97, respectively, was 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 12: 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.


17
 Table of Contents





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





Fair Value Measurements(Unaudited, amounts in
      thousands)
                  
                  Level 1
                  
                  
                  Level 2
                  
                  
                  Level 3AssetsAvailable-for-sale
      securities
                  
                  $
                  8,313
                  
                  
                  $
                  2,153
                  
                  
                  $
                  —LiabilitiesInterest
      rate swap
                  
                  
                  —
                  
                  
                  
                  (341
                  )
                  
                  
                  —Total
                  
                  $
                  8,313
                  
                  
                  $
                  1,812
                  
                  
                  $
                  —





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 13:  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 October 23, 2010, was three-month LIBOR plus 1.75%.





We
executed this interest rate cash flow hedge in order to mitigate our exposure to
variability in cash flows for the future interest payments on a designated
portion of borrowings.  The gains and losses are reflected in accumulated
other comprehensive loss (with an offset to the hedged item in other 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
second quarter and first six months of fiscal 2011, we deferred gains of $0.2
million and $0.3 million, respectively, into accumulated other comprehensive
loss, compared to losses of $0.7 million in the second quarter and first six
months of fiscal 2010.  The fair value of our interest rate swap at October
23, 2010, was $0.3 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 $0.3
million of losses into earnings in the next seven months.


18
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Note 14:  Recent Accounting
Pronouncements




Recently
Adopted Accounting Pronouncements





In
June 2009 and December 2009, the Financial Accounting Standards Board
(“FASB”) issued amendments to the consolidation guidance applicable to 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 $4.6 million and $0.4 million, net of eliminations, respectively, in
the second quarter of fiscal 2010 and $8.3 million and $1.3 million, net of
eliminations, respectively, in the first six months of fiscal 2010 was
deconsolidated during fiscal 2011.





Recently
Issued Accounting Pronouncements




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




In July
2010, the Financial Accounting Standards Board issued amendments to the
disclosures about the credit quality of financing receivables and the allowances
for credit losses.  This amendment is intended to provide additional
information to assist financial statement users in assessing an entity’s credit
risk exposures and evaluating the adequacy of its allowance for credit
losses.  This amendment will expand disclosures related to credit quality
of financing receivables and the allowances for credit losses.  This
amendment will be effective for our third quarter of fiscal 2011.  The
adoption of this amendment will not have a material impact on our consolidated
financial statements as it only impacts our disclosures.




19
 Table of Contents




ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONAND
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, 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) speed of recovery from the recent 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.


20
 Table of Contents





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 305 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, which include 22 stores owned by our consolidated
VIEs.  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 305 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 October 23, 2010, there were 532 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 bedroom sets, dining room sets,
      entertainment centers, 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 primarily sells upholstered furniture, as
      well as some casegoods and other accessories, to end consumers through the
      retail network.





Financial
Highlights





In
addition to a general tightening of consumer discretionary spending as it
relates to the furniture industry and other big ticket items, our business has
been significantly impacted by the challenging global economic conditions. 
High unemployment, low consumer confidence and a declining housing market have
all resulted in negative pressure on the economy.  We have also seen a
growing consumer preference for lower-priced promotional products which has
decreased our average selling price.  Over the past few years we have made
significant changes to all of our operating segments in order to meet the
changing consumer demand.  Our Upholstery Group has had higher raw material
costs so far this year compared to fiscal 2010, though we have experienced some
improvement since the first quarter of fiscal 2011.  Our Casegoods Group
has seen improved results due to the consolidation of manufacturing facilities,
as well as the consolidation of administrative functions completed at the end of
fiscal 2010.  Our Retail Group has continued to focus on reducing costs and
increasing sales volumes through improving selling processes and improving sales
conversion rates on the consumer traffic in our stores.


21
 Table of Contents





Variable
Interest Entities





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 second
quarter and first six months of fiscal 2011 we included these two VIEs,
operating 22 La-Z-Boy Furniture Galleries® stores, in our Consolidated Statement
of Operations.  In the second quarter and first six months of fiscal 2010
we consolidated three VIEs, operating 31 stores.





Results of
Operations


Fiscal
2011 Second Quarter Compared to Fiscal 2010 Second Quarter





La-Z-Boy
Incorporated


(Unaudited, amounts in thousands,
      except  percentages)
                  
                  10/23/10
                  
                  
                  10/24/09
                  
                  
                  Percent
                    changeConsolidated
      sales
                  
                  $
                  292,982
                  
                  
                  $
                  300,707
                  
                  
                  
                  (2.6
                  )%Consolidated
      operating income
                  
                  
                  5,339
                  
                  
                  
                  9,303
                  
                  
                  
                  (42.6
                  )%Consolidated
      operating margin
                  
                  
                  1.8
                  %
                  
                  
                  3.1
                  %





Consolidated
sales decreased $7.7 million in the second quarter of fiscal 2011 compared to
the second quarter of fiscal 2010.  The deconsolidation of our Toronto,
Ontario, VIE resulted in a decrease of $4.6 million, net of eliminations, in our
consolidated sales when comparing the second quarter of fiscal 2011 to the
second quarter of fiscal 2010.  Additionally, the challenging economic
conditions continued to negatively impact our sales volume.





Our
second quarter fiscal 2011 operating margin decreased by 1.3 percentage points
compared to the second quarter of fiscal 2010.  Our Casegoods and Retail
segments’ operating margins increased during the second quarter of fiscal 2011,
but this was somewhat offset by a decrease in our Upholstery segment’s operating
margin.





·
            Our
      gross margin decreased 2.4 percentage points in the second quarter of
      fiscal 2011 compared to the second quarter of fiscal
  2010.


o
            Increases
      in raw material costs resulted in a 2.1 percentage point decrease in our
      consolidated gross margin.


o
            Decreases
      in sales pricing and changes in the product mix resulted in a 0.9
      percentage point decrease in gross
margin.


o
            Offsetting
      the raw material, sales pricing and changes in the product mix were
      ongoing cost reductions.


·
            Decreases
      in incentive compensation expenses during the second quarter of fiscal
      2011 compared to the second quarter of fiscal 2010 resulted in a 0.9
      percentage point increase in our operating
  margin.


22
 Table of Contents





Upholstery
Group


(Unaudited, amounts in thousands,
      except  percentages)
                  
                  10/23/10
                  
                  
                  10/24/09
                  
                  
                  Percent
                    ChangeSales
                  
                  $
                  224,878
                  
                  
                  $
                  232,780
                  
                  
                  
                  (3.4
                  )%Operating
      income
                  
                  
                  17,055
                  
                  
                  
                  25,328
                  
                  
                  
                  (32.7
                  )%Operating
      margin
                  
                  
                  7.6
                  %
                  
                  
                  10.9
                  %




Sales




Our
Upholstery Group’s sales decreased $7.9 million in the second quarter of fiscal
2011 compared to the second quarter of fiscal 2010.  Sales price changes
and product mix changes resulted in a 1.2 percentage point decrease in
sales.  We believe this was the result of a shift in the overall market
demand to more promotional products decreasing our average selling
price.




Operating
Margin





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





·
            The
      segment’s gross margin decreased 2.7 percentage points during the second
      quarter of fiscal 2011 compared to the second quarter of fiscal 2010 due
      to increased raw material costs.


·
            Decreases
      in sales pricing and changes in the product mix of this segment resulted
      in a 1.1 percentage point decrease in the segment’s operating
      margin.


·
            Offsetting
      the raw material, sales pricing and product mix changes mentioned above
      were ongoing cost reductions, as well as decreases in the segment’s
      employee incentive compensation
expenses.





Casegoods
Group


(Unaudited, amounts in thousands,
      except  percentages)
                  
                  10/23/10
                  
                  
                  10/24/09
                  
                  
                  Percent
                    changeSales
                  
                  $
                  39,509
                  
                  
                  $
                  37,302
                  
                  
                  
                  5.9
                  %Operating
      income (loss)
                  
                  
                  1,376
                  
                  
                  
                  (184
                  )
                  
                  
                  847.8
                  %Operating
      margin
                  
                  
                  3.5
                  %
                  
                  
                  (0.5
                  )%




Sales




Our
Casegoods Group’s sales increased $2.2 million in the second quarter of fiscal
2011 compared to the second quarter of fiscal 2010.  The majority of the
change was a result of broader placement of our various product lines at
independent dealers.




Operating
Margin




Our
Casegoods Group’s operating margin increased 4.0 percentage points in the second
quarter of fiscal 2011 compared to the second quarter of fiscal
2010.





·
            The
      segment’s gross margin increased 2.0 percentage points in the second
      quarter of fiscal 2011 compared to the second quarter of fiscal 2010
      mainly due to efficiencies realized in its manufacturing facility and
      warehousing operations as a result of the restructuring plan completed at
      the end of fiscal 2010.


23
 Table of Contents





·
            A
      decrease in employee expenses and incentive compensation expenses for this
      segment resulted in a 1.2 percentage point increase in operating
      margin.  The consolidation of our Hammary operations with our
      American Drew/Lea operations positively impacted this segment’s operating
      margin due to the reduction in headcount and elimination of duplicate
      selling, general and administrative
functions.


·
            In
      the second quarter of fiscal 2010 our Hammary operating unit recorded a
      reserve related to a product recall at that time.  A portion of this
      reserve was reversed during the second quarter of fiscal 2011, positively
      impacting this segment’s operating
margin.





Retail
Group


(Unaudited, amounts in thousands,
      except  percentages)
                  
                  10/23/10
                  
                  
                  10/24/09
                  
                  
                  Percent
                    changeSales
                  
                  $
                  39,246
                  
                  
                  $
                  38,014
                  
                  
                  
                  3.2
                  %Operating
      loss
                  
                  
                  (4,360
                  )
                  
                  
                  (5,301
                  )
                  
                  
                  17.8
                  %Operating
      margin
                  
                  
                  (11.1
                  )%
                  
                  
                  (13.9
                  )%




Sales




Our
Retail Group’s sales increased $1.2 million in the second quarter of fiscal 2011
compared to the second quarter of fiscal 2010.  The increase in sales was a
result of improved sales conversion rates on the consumer traffic in our stores
during the quarter.




Operating
Margin




Our
Retail Group’s operating margin increased 2.8 percentage points in the second
quarter of fiscal 2011 compared to the second quarter of fiscal 2010.  Our
Retail Group continues to experience negative margins due to our high lease
expense to sales volume ratio.





·
            The
      segment experienced a 0.4 percentage point improvement in gross margin
      during the second quarter of fiscal 2011 compared to the second quarter of
      fiscal 2010 due to changes in the segment’s sales initiatives and
      merchandising.


·
            A
      decrease in employee incentive compensation expenses for this segment
      resulted in a 1.0 percentage point increase in operating
      margin.


·
            The
      remainder of the improvement in our Retail Group’s operating margin was a
      result of the overall decrease in selling, general and administrative
      expenses coupled with the increase in sales for this
    segment.





VIEs





Our VIEs’
sales decreased $4.5 million in the second quarter of fiscal 2011 compared to
the second 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 second quarter of fiscal 2011, compared to 31 for the
second quarter of fiscal 2010. Our VIEs had an operating loss of $1.1 million in
the second quarter of fiscal 2011, compared to $0.9 million in the second
quarter of fiscal 2010.  The increase in operating loss was mainly due to
our Toronto, Ontario, VIE, which was a profitable VIE, no longer being
consolidated in the second quarter of fiscal 2011.


24
 Table of Contents





Interest
Expense





Interest
expense for the second quarter of fiscal 2011 was less than the second quarter
of fiscal 2010 due to a $0.8 million decrease in our average debt.  Our
weighted average interest rate decreased 0.2 percentage points in the second
quarter of fiscal 2011 compared to the second quarter of fiscal 2010. 
 Additionally, our interest expense was positively impacted by our Toronto,
Ontario, VIE no longer being consolidated in the second quarter of fiscal
2011.





Income
Taxes




Our
effective tax rate for the second quarter of fiscal 2011 was 30.3% compared to
39.6% for the second quarter of fiscal 2010.  The effective tax rate for
the second quarter of fiscal 2011 and fiscal 2010 was impacted by routine
discrete items that resulted in a rate reduction of 11.2% for the second quarter
of fiscal 2011.




Results of
Operations


Fiscal
2011 Six Months Compared to Fiscal 2010 Six Months





La-Z-Boy
Incorporated


(Unaudited, amounts in thousands,
      except  percentages)
                  
                  10/23/10
                  
                  
                  10/24/09
                  
                  
                  Percent
                    changeConsolidated
      sales
                  
                  $
                  556,296
                  
                  
                  $
                  563,378
                  
                  
                  
                  (1.3
                  )%Consolidated
      operating income
                  
                  
                  3,689
                  
                  
                  
                  10,908
                  
                  
                  
                  (66.2
                  )%Consolidated
      operating margin
                  
                  
                  0.7
                  %
                  
                  
                  1.9
                  %





Consolidated
sales decreased $7.1 million in the first six months of fiscal 2011 compared to
the first six months of fiscal 2010.  Sales volume of our operating
segments experienced a slight increase during the first six months of fiscal
2011.  However, the deconsolidation of our Toronto, Ontario, VIE resulted
in a decrease of $8.3 million, net of eliminations, in our consolidated
sales.





Our
operating margin decreased by 1.2 percentage points in the first six months of
fiscal 2011 compared to the first six months of fiscal 2010. Our Casegoods and
Retail segments’ operating margins increased during the first six months of
fiscal 2011, but this was somewhat offset by a decrease in our Upholstery
segment’s operating margin.





·
            Our
      gross margin decreased by 2.5 percentage points during the first six
      months of fiscal 2011 compared to the first six months of fiscal
      2010.


o
            Increases
      in raw material costs resulted in a 2.1 percentage point decrease in our
      consolidated gross margin.


o
            Decreases
      in sales pricing and changes in the product mix resulted in a 0.6
      percentage point decrease in gross
margin.


o
            Offsetting
      the raw material, sales pricing and product mix changes were ongoing costs
      reductions.


·
            Decreases
      in incentive compensation expenses during the first six months of fiscal
      2011 compared to the first six months of fiscal 2010 resulted in a 0.6
      percentage point improvement in our operating
  margin.


25
 Table of Contents





Upholstery
Group


(Unaudited, amounts in thousands,
      except  percentages)
                  
                  10/23/10
                  
                  
                  10/24/09
                  
                  
                  Percent
                    changeSales
                  
                  $
                  426,812
                  
                  
                  $
                  429,472
                  
                  
                  
                  (0.6
                  )%Operating
      income
                  
                  
                  27,112
                  
                  
                  
                  41,051
                  
                  
                  
                  (34.0
                  )%Operating
      margin
                  
                  
                  6.4
                  %
                  
                  
                  9.6
                  %




Sales




Our
Upholstery Group’s sales decreased $2.7 million in the first six months of
fiscal 2011 compared to the first six months of fiscal 2010.  Sales price
changes and changes in our product mix resulted in a 1.2 percentage point
decrease in sales.  We believe this was the result of a shift in the
overall market demand to more promotional products decreasing our average
selling price.




Operating
Margin





Our
Upholstery Group’s operating margin decreased 3.2 percentage points in the first
six months of fiscal 2011 compared to the first six months of fiscal
2010.





·
            The
      segment’s gross margin decreased by 3.2 percentage points during the first
      six months of fiscal 2011 compared to the first six months of fiscal 2010,
      mainly due to increased raw material costs.  Raw material price
      increases caused a 2.8 percentage point decrease in the segment’s
      operating margin.


·
            Decreases
      in sales pricing and changes in the product mix of this segment resulted
      in a 1.2 percentage point decrease in the segment’s operating
      margin.


·
            Increases
      in our warehousing expense resulted in a 0.6 percentage point decrease in
      the segment’s operating margin.  This increase was the result of the
      addition of our new regional distribution center opened at the end of
      fiscal 2010.


·
            Offsetting
      the raw material, sales pricing and product mix changes mentioned above
      were ongoing cost reductions, as well as decreases in the segment’s
      employee incentive compensation
costs.





Casegoods
Group


(Unaudited, amounts in thousands,
      except  percentages)
                  
                  10/23/10
                  
                  
                  10/24/09
                  
                  
                  Percent
                    changeSales
                  
                  $
                  76,359
                  
                  
                  $
                  73,167
                  
                  
                  
                  4.4
                  %Operating
      income (loss)
                  
                  
                  2,951
                  
                  
                  
                  (305
                  )
                  
                  
                  N/MOperating
      margin
                  
                  
                  3.9
                  %
                  
                  
                  (0.4
                  )%




Sales




Our
Casegoods Group’s sales increased $3.2 million in the first six months of fiscal
2011 compared to the first six months of fiscal 2010.  The majority of the
increase in sales volume was the result of broader placement of our various
product lines at independent dealers.  Additionally, we offered higher than
normal discounts on casegoods during the first six months of fiscal 2010 in
order to sell slow moving and obsolete inventory.  This was not continued
in the first six months of fiscal 2011.  The changes in discounting for our
Casegoods Group resulted in a 1.9 percentage point improvement in sales for the
first six months of fiscal 2011 compared to the first six months of fiscal
2010.


26
 Table of Contents




Operating
Margin




Our
Casegoods Group’s operating margin increased 4.3 percentage points in the first
six months of fiscal 2011 compared to the first six months of fiscal
2010.





·
            The
      segment’s gross margin increased 2.9 percentage points in the first six
      months of fiscal 2011 compared to the first six months of fiscal 2010
      mainly due to efficiencies realized in its manufacturing facility and
      warehousing operations as a result of the restructuring plan completed at
      the end of fiscal 2010.


·
            A
      decrease in employee expenses and incentive compensation expenses for this
      segment resulted in a 1.0 percentage point increase in operating
      margin.  The consolidation of our Hammary operations with our
      American Drew/Lea operations positively impacted this segment’s operating
      margin due to the reduction in headcount and elimination of duplicate
      selling, general and administrative
functions.


·
            In
      the first six months of fiscal 2010 our Hammary operating unit recorded a
      reserve related to a product recall at that time.  A portion of this
      reserve was reversed during the first six months of fiscal 2011,
      positively impacting this segment’s operating
  margin.





Retail
Group


(Unaudited, amounts in thousands,
      except  percentages)
                  
                  10/23/10
                  
                  
                  10/24/09
                  
                  
                  Percent
                    changeSales
                  
                  $
                  74,553
                  
                  
                  $
                  73,976
                  
                  
                  
                  0.8
                  %Operating
      loss
                  
                  
                  (9,284
                  )
                  
                  
                  (10,969
                  )
                  
                  
                  15.4
                  %Operating
      margin
                  
                  
                  (12.5
                  )%
                  
                  
                  (14.8
                  )%




Sales




Our
Retail Group’s sales increased $0.6 million in the first six months of fiscal
2011 compared to the first six months of fiscal 2010.  The increase in
sales was a result of improved sales conversion rates on the consumer traffic in
our stores during the first six months.




Operating
Margin




Our
Retail Group’s operating margin increased 2.3 percentage points in the first six
months of fiscal 2011 compared to the first six months of fiscal 2010.  Our
Retail Group continues to experience negative margins due to our high lease
expense to sales volume ratio.





·
            The
      segment experienced a 2.0 percentage point improvement in gross margin
      during the first six months of fiscal 2011 compared to the first six
      months of fiscal 2010 due to changes in the segment’s sales initiatives
      and merchandising.


·
            Increased
      advertising expense caused a 0.5 percentage point decrease in the
      segment’s operating margin as we continue to focus on driving additional
      traffic into our stores.


·
            This
      segment’s operating margin improved due to decreases in their overall
      administrative expenses as we continue to focus on reducing
      costs.


27
 Table of Contents





VIEs





Our VIEs’
sales decreased $8.7 million in the first six months of fiscal 2011 compared to
the first six months 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 six months of fiscal 2011, compared to 31 for
the first six months of fiscal 2010. Our VIEs had an operating loss of $2.7
million in the first six months of fiscal 2011, compared to $1.1 million in the
first six months of fiscal 2010.  The increase in operating loss was mainly
due to our Toronto, Ontario, VIE, which was a profitable VIE, no longer being
consolidated in the first six months of fiscal 2011.





Interest
Expense





Interest
expense for the first six months of fiscal 2011 was less than the first six
months of fiscal 2010 due to a $5.5 million decrease in our average debt. 
Our weighted average interest rate was flat in the first six months of fiscal
2011 compared to the first six months of fiscal 2010 and therefore had no impact
on the change in interest expense. Additionally, our interest expense was
positively impacted by our Toronto, Ontario, VIE no longer being consolidated in
the first six months of fiscal 2011.





Income
Taxes




Our
effective tax rate for the first six months of fiscal 2011 was 23.2% compared to
33.9% for the first six months of fiscal 2010.  The effective tax rate for
the first six months of fiscal 2011 and fiscal 2010 was impacted by routine
discrete items that resulted in a rate reduction of 17.6% for the first six
months of fiscal 2011.




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.  During the second
quarter and first six months of fiscal 2011, we had a net reduction of estimated
restructuring liabilities of $0.1 million, classified in total cost of sales,
covering severance and benefits.  During the second quarter and first six
months of fiscal 2010 we had a net reduction of estimated restructuring
liabilities of $0.4 million and $0.3 million, respectively, classified in total
cost of sales, covering severance and benefits.





During
fiscal 2007 and fiscal 2008, several of our retail warehouses were consolidated
into larger facilities and several underperforming stores were closed.  In
the second quarter and first six months of fiscal 2011 we had restructuring
charges of $0.1 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.  During the second quarter
and first six months of fiscal 2010 we had restructuring charges of $0.5 million
and $0.8 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 $1.1 million and $1.7 million during
the second quarter and first six months of fiscal 2010, respectively, classified
in total cost of sales, covering severance and benefits and other restructuring
costs.


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 Table of Contents





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 $83.7 million at October 23, 2010, compared to $108.4
million at April 24, 2010.  The decrease in cash and equivalents in the
first six months 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.





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 October 23, 2010, we had $30.0
million outstanding on our credit facility and $97.2 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 six months of fiscal 2011, our accounts
receivable and inventory increased while the amount outstanding on our credit
facility remained flat.  As a result, our capacity to borrow under the
credit facility increased during the first six months of fiscal 2011. Subsequent
to the second quarter of fiscal 2011 a reduction in the credit commitment on our
credit facility to $175.0 million became effective.  We made this reduction
because we expect our borrowing capacity to remain at or below $175.0
million.  This reduction in the credit commitment will also result in lower
commitment fees on the unused portion of the credit facility.  This
reduction had no impact on our overall availability to borrow on our credit
facility.





Capital
expenditures for the first six months of fiscal 2011 were $5.0 million compared
with $2.8 million during the first six months of fiscal 2010.  We have no
material commitments for capital expenditures.  Capital expenditures are
expected to be in the range of $12.0 million to $14.0 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 $0.6 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 $83.7 million of cash on hand as of October 23,
2010, and the $97.2 million of availability under our credit
agreement.


29
 Table of Contents


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





Cash
      Flows Provided By (Used For)
                  
                  Six Months Ended(Unaudited, amounts in
      thousands)
                  
                  10/23/10
                  
                  
                  10/24/09Operating
      activitiesNet
      income
                  
                  $
                  2,229
                  
                  
                  $
                  6,883Non-cash
      add backs and changes in deferred taxes
                  
                  
                  15,869
                  
                  
                  
                  19,629Restructuring
                  
                  
                  192
                  
                  
                  
                  2,220Working
      capital
                  
                  
                  (37,103
                  )
                  
                  
                  7,273Cash
      provided by (used for) operating activities
                  
                  
                  (18,813
                  )
                  
                  
                  36,005Investing
      activities
                  
                  
                  (5,235
                  )
                  
                  
                  17,730Financing
      activitiesNet
      decrease in debt
                  
                  
                  (426
                  )
                  
                  
                  (11,894
                  )Stock
      issued from stock plans
                  
                  
                  58
                  
                  
                  
                  —Cash
      used for financing activities
                  
                  
                  (368
                  )
                  
                  
                  (11,894
                  )Exchange
      rate changes
                  
                  
                  277
                  
                  
                  
                  (168
                  )Net
      increase (decrease) in cash and equivalents
                  
                  $
                  (24,139
                  )
                  
                  $
                  41,673





Operating
Activities





During
the first six months of fiscal 2011, net cash used for operating activities was
$18.8 million, compared with $36.0 million provided by operating activities in
the first six months of fiscal 2010.  The main reasons for our decrease in
cash flows from operating activities was the decrease in cash flow from working
capital, as well as the decrease in net income during the first six months of
fiscal 2011 compared to the first six months of fiscal 2010.  The majority
of working capital cash used for operations in the first six months of fiscal
2011 was accrued benefit payments and a decrease in accounts payable, as well as
an increase in inventory levels due to the improvement in some of our supply
chain issues.  Our net income in the first six months 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 six months of fiscal
2010.





Investing
Activities





During
the first six months of fiscal 2011, net cash used for investing activities was
$5.2 million, compared with $17.7 million of cash provided by investing
activities during the first six months of fiscal 2010.  The majority of the
net cash used for investing activities during the first six months of fiscal
2011 was $5.0 million in capital expenditures.  The net cash provided by
investing activities during the first six months of fiscal 2010 resulted
primarily from a $17.0 million change in restricted cash during the first six
months of fiscal 2010.





Financing
Activities





During
the first six months of fiscal 2011, net cash used for financing activities was
$0.4 million, compared to $11.9 million in the first six months of fiscal
2010.  The net cash used for financing activities during the first six
months of fiscal 2011 and fiscal 2010 primarily related to the repayment of
debt.


30
 Table of Contents





Other





Our
balance sheet at the end of the second quarter of fiscal 2011 reflected a $1.9
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 six months 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 fiscal 2012 based on,
among other factors, the level of taxable income generated in fiscal
2012.




Our
debt-to-capitalization ratio was 11.6% at October 23, 2010, and 12.3% 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 October
23, 2010, 5.4 million additional shares could be purchased pursuant to this
authorization. We did not purchase any shares during the first six months of
fiscal 2011.




We have
guaranteed various leases and notes of dealers with proprietary stores. The
total amount of these guarantees was $2.1 million at October 23, 2010. Of this,
$1.6 million will expire within one year and $0.5 million in one to two
years.  At the end of the second quarter of fiscal 2011, we had $34.5
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 the
second half of 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 six months 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.


31
 Table of Contents





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 14 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 macroeconomic environment with consumer confidence
and housing turnover remaining at low levels, we are making moves to position
La-Z-Boy to take full advantage of an upturn in consumer spending for furniture.
We have the strongest brand in the business and believe our new marketing
campaign, featuring Brooke Shields, and a targeted message will enhance our
market penetration and reach.  Additionally, we are making investments
across other areas of the business which will strengthen our operating platform
to fuel growth and build market share while capitalizing on our strong balance
sheet and vast network of branded distribution.





ITEM 3. QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK




During
the first six months 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 as of October 23, 2010, were not effective due to a material weakness
in our internal controls over financial reporting identified during the second
quarter of fiscal 2011, as described below.  Notwithstanding this
material weakness, based on additional procedures performed after its discovery,
management believes that the financial statements included in this report fairly
present in all material respects our financial condition, results of operations,
and cash flows for the periods presented.




Material Weakness
– Accounting Oversight of our VIEs.During the quarter we identified
deficiencies in the effectiveness of our internal control over financial
reporting related to our VIEs.  Specifically, our controls related to the
account analysis and consolidation process for the VIEs did not operate at the
same level of precision as the more rigorous controls used with respect to the
consolidation and analysis of the various company-owned businesses in order for
timely detection of any possible misstatements of the consolidated financial
statements. We discovered that these control deficiencies had resulted in errors
in some of our previously issued financial statements, none of which was
material to any of the periods presented in those financial statements, but
which will require us to revise our prior period account balances as we report
them in future filings for cost of goods sold, selling, general and
administrative expenses, inventory, accrued rent and other accrued
liabilities.  Additionally, this control deficiency could have resulted in
material misstatements to the annual or interim consolidated financial
statements that would not have been prevented or detected. Accordingly,
management has determined that these control deficiencies when aggregated
constitute a material weakness.


Our
internal controls relating to VIEs will incorporate the processes and financial
reporting controls that have been established for our various company-owned
businesses.  We believe that this material weakness will be remediated
by the end of fiscal 2011, subject to testing as part of our annual assessment
of the effectiveness of internal control over financial reporting.
 32
 Table of Contents
  Changes
in Internal Control over Financial Reporting.




There
were no changes in our internal controls over financial reporting that occurred
during the fiscal quarter ended October 23, 2010 that have materially affected,
or are reasonably likely to materially affect, our internal control over
financial reporting.




PART II — OTHER INFORMATION




ITEM 1A.  RISK FACTORS




There
have been no material changes to our risk factors during the first six months 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(3.1
                )
                La-Z-Boy
      Incorporated Restated Articles of Incorporation (Incorporated by reference
      to an exhibit to Form 10-Q for the quarter ended October 26,
      1996)(3.2
                )
                Amendment
      to Restated Articles of Incorporation (Incorporated by reference to an
      exhibit to Form 10-K/A filed September 27, 1999)(3.3
                )
                La-Z-Boy
      Incorporated Amendment to Restated Articles of Incorporation effective
      August 22, 2008 (Incorporated by reference to an exhibit to Form 10-Q for
      the quarter ended October 25, 2008)(3.4
                )
                La-Z-Boy
      Incorporated Amended and Restated Bylaws (as of January 18, 2010)
      (Incorporated by reference to an exhibit to Form 8-K filed January 20,
      2010)(4.1
                )
                Credit
      Agreement dated as of February 6, 2008, among La-Z-Boy Incorporated,
      certain of its subsidiaries, the lenders named therein, and Wachovia
      Capital Finance Corporation (Central), as administrative agent for the
      lenders (Incorporated by reference to an exhibit to Form 8-K filed
      February 12, 2008)(4.2
                )
                First
      Amendment to Credit Agreement dated April 1, 2008 among La-Z-Boy
      Incorporated, certain of its subsidiaries, the lenders named therein, and
      Wachovia Capital Finance Corporation (Central), as administrative agent
      for the lenders (Incorporated by reference to an exhibit to Form 10-Q for
      the quarter ended July 25, 2009)(4.3)
                
                Second
      Amendment to Credit Agreement dated July 13, 2009 among La-Z-Boy
      Incorporated, certain of its subsidiaries, the lenders named therein, and
      Wachovia Capital Finance Corporation (Central), as administrative agent
      for the lenders (Incorporated by reference to an exhibit to Form 10-Q for
      the quarter ended July 25, 2009)(10.1
                )
                La-Z-Boy
      Incorporated 2010 Omnibus Incentive Plan (incorporated by reference to
      Annex A to definitive proxy statement for annual meeting of shareholders
      held August 18, 2010)(10.2
                )
                La-Z-Boy
      Incorporated 2010 Omnibus Incentive Plan Sample Award
      Agreement(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)


33
 Table of Contents




SIGNATURE




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




LA-Z-BOY
      INCORPORATED(Registrant)Date:
      November 23, 2010BY: 
      /s/ Margaret L. MuellerMargaret
      L. MuellerCorporate
      ControllerOn
      behalf of the Registrant and asChief
      Accounting Officer


34