La-Z-Boy Incorporated Annual Report 2006

← All annual reports

FY2006 Annual Report · La-Z-Boy Incorporated

Loading PDF…

1 9 2 8

LEADING THE PATH OF EVOLUTION

1 9 6 4

1 9 7 0

1 9 9 0

2 0 0 6

a n n u a l
r e p o r t

letter to our

the La-Z-Boy
shareholders’ meeting

W E D N E S D A Y , A U G U S T 1 6 , 2 0 0 6 1 1 : 0 0 A . M . E D T
L A - Z - B O Y A U D I T O R I U M , 1 2 8 4 N . T E L E G R A P H R O A D
M O N R O E , M I C H I G A N U S A

Dear Fellow Shareholders:

Since the beginning of this decade, extensive change has permeated the U.S. furniture industry with

incredible speed. Retail distribution has grown beyond traditional furniture retailers, and competition from

Asia has completely transformed the marketplace. In the 79-year history of La-Z-Boy, change and evolution

have always played signiﬁcant roles and helped to build our company into what it is today – La-Z-Boy® –

the best known brand in furniture, North America’s largest upholstery manufacturer, the world’s leading

producer of reclining chairs and the largest proprietary upholstery retailer in North America. We know that

ongoing evolution is essential as we position our company for the future.

2
0
1
2
$

4
6
0
2
$

8
4
0
2
$

2
5
9
1
$

7
1
9
1
$

4
6
9
$

1
4
6
$

Fiscal 2006 Accomplishments and Challenges
As we continued to adapt our business model, we had many accomplishments, including those

highlighted below:

1
3
3
$

9
1
$

)
0
3
$
(

• Transitioned the Casegoods Segment – We completed the shift from a domestic casegoods

manufacturer to primarily an importer, and realized a $13 million improvement in operating margin

compared with last year – a signiﬁcant turnaround;

2006 sales mix

sales

68% upholstery

22% casegoods

10% retail

amounts in millions

income (loss) from
continuing operations

amounts in millions

• Expanded the La-Z-Boy Furniture Galleries® System – The quality of our store system was improved

as we increased the number of New Generation stores by 49. At year end, with 154 new format stores out

of 337, approximately 50% of our total stores are less than ﬁve years old. These stores increase our

retail appeal to consumers, drive more trafﬁc, generate greater sales, strengthen our brand name with

“permanent billboards” and differentiate us from our competition;

shareholders

• Strengthened our Balance Sheet – We reduced our debt by $42 million and achieved

a debt-to-total-capitalization ratio of 26.5%, down from 30.0% last year;

• Increased Dividend for Shareholders – In May, we announced a 9% increase in our

quarterly dividend to 12¢, marking our 140th consecutive dividend;

• Focused on Continued Innovations – Recent product introductions demonstrated our

commitment to innovation, including:

– Kaleidoscope,™ a new color-matching technology system for customers available

at La-Z-Boy Furniture Galleries® stores;

– A new lift chair design and technology that improves aesthetics and safety;

– A state-of-the-art motion sofa mechanism with greater functionality that is more cost efﬁcient.

In addition to the successes we achieved, we also had a few disappointments, including lower-than-expected

sales growth, less-than-desired progress in improving our company-owned retail store performance and

annual ﬁnancial results well below historical and expected levels. Throughout the remainder of this report,

we will review how we are responding to the various challenges in our business and will address what we are

doing to increase the growth and proﬁtability of our company.

Above: (left) Kurt Darrow, President and Chief Executive Officer; (right) Patrick Norton, Chairman of the Board, seated on Sam Moore Annie chairs

Fiscal 2006 Financial Performance
To put our ﬁscal year into perspective, it is important to review what

improved cost structure in place, particularly in casegoods, as we

completed our transition to primarily an import model. In fact,

transpired during our ﬁrst six months, which were marked by a series

we generated upholstery and casegoods operating margins of

of unusual – and several uncontrollable – events, including:

8.1% and 5.3%, respectively, in our second half, even on lower

volume than last year, demonstrating the improving progression

• Supply Shortage – A major supply chain problem arose when

and repositioning of our strategy.

the upholstery industry faced an unprecedented shortage and

subsequent allocation of polyurethane foam resulting from

The Retail Segment, however, had signiﬁcant losses, essentially

Hurricanes Katrina and Rita. Our performance suffered as

stemming from last year’s acquisition of three major markets, which

production capacity was constrained by some 50%;

all have tremendous demographic potential. We began the lengthy

• Hurricane Damage – Hurricane activity damaged and disrupted

our Newton, Mississippi parts supply manufacturing facility and

impacted our upholstery production;

• Restructuring Charge – Because of increased efﬁciencies in

our overall upholstery operations, we aligned our capacity with

the closure of our Waterloo, Ontario facility, resulting in an

$9 million restructuring charge;

• Import Transition – Our last residential casegoods company

converted to an import model which held back margin

advancement during the ﬁrst half of the year.

We made signiﬁcant strides in ﬁscal 2006 and have some

ongoing challenges, but our momentum is clearly evident as our

performance in the second half of ﬁscal 2006 dramatically eclipsed

that of the ﬁrst half. Foam supply returned and production increased

to normal levels. While the retail environment remained below

expectations, we had respectable operating margins with an

and necessary process of achieving proﬁtable operations in these

markets by adding and remodeling stores while leveraging

advertising, warehousing and administrative expenses. Past

company-owned retail successes have proven that our target

margin range of 3% to 5% is both realistic and achievable,

although it will take time to reach these levels in our newer markets.

With that as a backdrop, in ﬁscal 2006 our sales were $1.9 billion,

down 6.4% from last year, principally as a result of the challenges

faced in the ﬁrst half. Also, this ﬁscal year had 52 weeks, one less

than the 53 in ﬁscal 2005.

We had a net loss of $3 million, or $0.06 per share, for the ﬁscal
year, including a before-tax restructuring charge of $6.6 million,
which allowed us to better align our upholstery capacity, and
a $23 million non-cash write-down of intangibles, stemming from
one of our non-branded upholstery companies, Bauhaus, which,
primarily as a result of department-store consolidation, had a
signiﬁcant decrease in sales and earnings, and impaired the
value of its intangibles.

Management Succession
Change and evolution take on many faces in the life of a company.
This year, it meant a change in our senior management team
with the retirements of our Chairman, Patrick H. Norton, and our
Chief Financial Ofﬁcer, David M. Risley.

An industry icon, Pat served our company for 25 years and, under his
stewardship and direction, our company grew from $150 million in
1981 to over $2 billion. His will to succeed has inspired the culture
of La-Z-Boy and his inﬂuence will be felt for many years to come. The
Board appointed Pat as Chairman Emeritus, a non-voting member of
the Board of Directors, upon his retirement. Even though Dave served
us for a shorter period of time, he played a pivotal role in reshaping
our ﬁnancial and operating strategies and built a strong ﬁnancial
team. We wish them both well in their retirements.

And sadly, we mourn the loss of Board member Helen Petrauskas,
who passed away in March after contributing her wisdom, sound
judgment and dedication to our company for six years.

We are focused on developing our management team to meet the
challenges and opportunities ahead and our succession planning has
us prepared for change. As such, this process provided us with an
internal candidate ready to step into the CFO position. Our Corporate
Controller, Louis M. (“Mike”) Riccio, Jr., is slated to succeed
Dave as CFO. And, in May, we promoted Otis Sawyer to the newly
created position of Senior Vice President, Corporate Operations.
Otis will oversee the key areas of Information Technology,
Transportation/Logistics and Corporate Fabric Procurement as
the coordination of these three areas is becoming more important
in today’s increasingly global sourcing environment.

Plans for 2007
As we enter ﬁscal 2007, we will continue to focus on proﬁtable

sourcing that are well underway. There is no question that these

initiatives are critical to our growth and to differentiating ourselves

growth. There is substantial opportunity as we aggressively expand

from our competitors. We are working to offer our customers

our retail distribution, provide customers with innovative and stylish

mass choice and customization with quick delivery and our entire

furniture that offers the comfort, quality and value they expect from

organization is focused on fulﬁlling that promise to the consumer.

La-Z-Boy, and use consumer research to market and make our brands

more relevant in a dynamic marketplace – one where our customer

base is expanding and consumer preferences and shopping habits are

changing – all to improve the top line.

With ongoing change in the furniture industry, our retail presence

will provide us with the strategic platform necessary to ensure a solid

future for our company. In ﬁscal 2007, we plan to open 20-25 new

La-Z-Boy Furniture Galleries® stores, and will relocate or convert

20-25 existing stores to the New Generation format, which has proven

to return higher sales-per-square-foot performance. This includes

our company-owned stores where we have an aggressive build-out

plan for ﬁscal 2007 that will not only increase our total store count,

but will increase substantially the number of company-owned stores

in the New Generation format from 28 to 46. We are conﬁdent that as

the operating performance of our company-owned stores improves, it

will substantially change our overall earnings power.

While we expect some margin improvement to result from

top-line growth, we will continue to improve the efﬁciencies of our

operations and will complete the shift to cellular manufacturing in

Looking Ahead
We are encouraged by our accomplishments as we completed

the second half of our year and are optimistic that our company

is positioned to capitalize on the extensive changes which have

occurred and continue in our industry. While we cannot predict

the future, as ﬁscal 2007 unfolds, with an environment with fewer

signiﬁcant catastrophic events and a more stable economy, we are

poised to perform well and increase shareholder value. We have the

most powerful and respected brand in the home furnishings industry,
and we are committed to improving our performance.

We thank all of our stakeholders for your continued support.

Without the guidance of our Board of Directors, the patience of

our shareholders and the dedication of our customers, suppliers

and employees, we could not have made the transition in our

business model which has been necessary since the beginning

of the decade. As you read on through this report, you will see just

a few examples of the change we have experienced thus far

in our company’s lifetime. To be sure, there will be more changes

to come … and we embrace the opportunities they will present.

our Upholstery Segment, while lowering costs in both casegoods

Kurt L. Darrow

and upholstery through numerous continuous process improvement

President and Chief Executive Ofﬁcer

projects, including initiatives in purchasing, logistics and global

camden console

AMERICAN DREW

evolution

A leading U.S. furniture company,

La-Z-Boy offers a complete line

of upholstered furniture,

complemented by a broad

selection of casegoods furniture

for bedrooms, dining rooms

and more, in styles ranging from

traditional to contemporary.

From a wood-slat chair created

in a garage, to furniture for every

room in the home … La-Z-Boy,

through its 79-year history, continues

to expand its product offering while

remaining true to the elements

of quality and innovation that

began with its recliner roots.

Pictured above: 1955 La-Z-Rocker® demonstration model

Kincaid

Colonnade dining room

La-Z-Boy Kidz
iRoom collection

La-Z-Boy Home Theater
Matinee

Pennsylvania House
Manhattan sofa and chair

C A T E G O R I E S O F P R O D U C T S

styles for every room

lamps, rugs and accessories

home theater

youth furniture

massage chairs

stationary chairs

dining room and bedroom furniture

lift chairs

occasional tables

reclining sofas

sleeper sofas

reclining chairs

Reclina-Rocker® reclining chairs

1928

1935

1945

1955

1965

1975

1985

1995

2005

Years product lines were introduced or acquired, company founded in 1927

brutus sofa ENGLAND, INC.

continuous improvement

While La-Z-Boy has grown into a company with more than

in the marketplace. And, as a result of a signiﬁcant change

seven million square feet dedicated to manufacturing, the

in the U.S. landscape for casegoods, La-Z-Boy has become

company continues to operate with the philosophy its founders

primarily a marketer, distributor and importer of wood

established 79 years ago – to manufacture quality products

furniture. Today, the company has strategically partnered

using the best techniques and facilities. By focusing on

with reliable, high-quality Asian manufacturers, and those

lean manufacturing, as it converts facilities to the cellular

relationships, coupled with the company’s three remaining

manufacturing process, and augmenting production with global

stateside casegoods manufacturing facilities, have returned

sourcing, La-Z-Boy has maintained its competitive positioning

this segment of the company to sustainable proﬁtability.

First assembly line 1950s

Pressing metal parts 1950s

Upholstery assembly 1950s

Wood frame assembly 1960s

Pictured above: A drill press from the original La-Z-Boy factory

cellular manufacturing RECLINING MECHANISM ATTACHMENT

Press stamping machine

Robotic welding

Ripsaw hardwood processing

Gerber fabric cutter

progression

1960s

1970s

1990s

The New Generation La-Z-Boy Furniture Galleries® store and all that it offers is a

Technological innovation continues to play a signiﬁcant role in attracting and

testament to innovation and evolution. After ﬁve decades of selling primarily to

servicing customers. With a wide selection of fabrics, customers can utilize the

independent dealers and department stores, in 1975 the company added its ﬁrst

La-Z-Boy Screen Test System to view any fabric on any frame, enabling them

set of dedicated La-Z-Boy Showcase Shoppes, followed in 1989 by the ﬁrst

to completely visualize how a particular piece of furniture will look. Additionally,

La-Z-Boy Furniture Galleries® store. Today’s New Generation store offers

the new state-of-the-art Kaleidoscope™ system provides customers with the

customers a vast furniture selection, decorative accessories and an in-store

opportunity to scan anything from a paint chip to a pillow to ﬁnd colors

design center coupled with a complimentary in-home design service.

that correlate and harmonize with La-Z-Boy fabrics.

La-Z-Boy Furniture Galleries® VAUGHAN, ONTARIO

011

Leather Gallery

Design Center

In-Home Design Program

Kaleidoscope™ color-matching system

change

The power of the La-Z-Boy® brand is

unparalleled in the furniture industry

and the brand has not only withstood

the test of time, but, indeed, has

evolved with it. As the most favored and

recognized furniture name across every

La-Z-Boy has continued to promote

its name and reputation through

attention-grabbing advertising that

communicates quality, style and value.

Importantly, through the years, La-Z-Boy

advertising has consistently adapted to

demographic* in the United States,

1920s

reﬂect the progression of American culture.

1951

1966

1973

1997

*InFurniture Magazine, October 2005

La-Z-Boy

Hammary

Kincaid

La-Z-Boy

blonde

brunette

redhead

current advertising LA-Z-BOY

a tribute to Patrick H. Norton

AN INDUSTRY ICON

Few individuals have contributed as much to the furniture industry as Pat Norton. With a career spanning 67 years, Pat has left his mark

both on the industry as a whole and on our company. Charged with being the “caretaker of the legacy”* left by the La-Z-Boy founders,

Pat is credited with transforming the company and propelling it to its level today. Under his stewardship, La-Z-Boy widened its product

offering and distribution system and today’s La-Z-Boy Furniture Galleries® store system was established.

There is, however, much more to Pat Norton than furniture industry accomplishments and contributions. In addition to the successes

Pat and LaVerne Norton

he enjoyed as an industry executive, he is an extraordinarily philanthropic and charitable individual, serving as a role model to so many.

Throughout his career, while working tirelessly and effortlessly, his passion for the business made it important to take time to mentor

younger executives. He has also been extremely generous to many industry, academic and civic organizations.

Career Timeline

1939 Pat begins his career in the furniture department of a local department store in St. Louis, Missouri,

near his home town.

1943 Marries LaVerne Blocker and they have three children together: Krell, Kevin and Susan.

1945 After serving in the U.S. Army Air Force during World War II, Pat returns to St. Louis and manages a number

of furniture stores, eventually becoming a partner in three.

1962 Pat joins Ethan Allen as a salesman, is named Vice President of Sales and Marketing four years later and is

credited with building Ethan Allen’s proprietary retail network.

1972 Elected to Ethan Allen’s Board of Directors.

1981 At 59 years old, Pat joins La-Z-Boy as Senior Vice President of Sales and Marketing and is elected to the Board

of Directors, with a plan to work for a short stint before retirement … that “stint” lasts 25 years.

1986 Pat receives the National Brotherhood Award from the National Conference of Christians and Jews.

1989 Elected to the Board of Directors of the American Furniture Manufacturers Association; receives the

Human Relations Award from the American Jewish Committee.

1992 Members of the La-Z-Boy “extended family,” including sales representatives and dealers, established, in his

honor, the Patrick H. Norton Scholarship Fund at High Point University.

1995 Inducted into the American Furniture Hall of Fame and receives the American Furniture Manufacturers Association

Distinguished Service Award.

1997 Elected as Chairman of the La-Z-Boy Board of Directors.

1998 Receives the City of Hope Spirit of Life Award.

2000 High Point University names its Furniture Studies Hall “Norton Hall,” and awards Pat an honorary Doctorate.

2003 Pat establishes the LaVerne B. Norton Scholarship at Monroe County Community College in memory of his wife.

2006 Pat announces that he will retire from La-Z-Boy in August and the Board names him Chairman Emeritus

upon his retirement.

In The Legend of La-Z-Boy, our book

celebrating our 75th year in business,

Pat is quoted when talking about the

company’s founders. He says, “I’ve

always said that the shadow of those

two gentlemen still stands over our

board table, and I hope it always does.

They made decisions for business

reasons. They also made them for

humane reasons, and there’s just not

that many companies that operate

that way anymore.”* Although we will

miss Pat’s wisdom and judgment,

we wish him all the best in a well-

deserved retirement, and fully expect

that his guidance and commitment

to our business will continue to

serve as a shining example for all our

employees, just as the principles of

our founders remain with us today.

Patrick H. Norton, 2006

*The Legend of La-Z-Boy; Write Stuff Enterprises, Inc.; Jeffrey L. Rodengen and Richard F. Hubbard

BOARD OF DIRECTORS
Kurt L. Darrow

President and Chief Executive Ofﬁcer,
La-Z-Boy Incorporated

John H. Foss

CORPORATE EXECUTIVES
Patrick H. Norton

Chairman of the Board

Kurt L. Darrow

President and Chief Executive Ofﬁcer

Retired Manufacturing Financial Executive

Rodney D. England

Richard M. Gabrys

Retired Vice Chairman of Deloitte & Touche LLP,
Interim Dean of the School of Business
Administration at Wayne State University

David K. Hehl

Partner, Cooley Hehl Wohlgamuth &
Carlton, PLLC
James W. Johnston
Private Investor
Dr. H. George Levy

Otorhinolaryngologist

Rocque E. Lipford

Senior Principal, Miller, Canﬁeld, Paddock and
Stone, PLC
Donald L. Mitchell

Retired Furniture Executive

Patrick H. Norton

Senior VP and President Non-Branded
Upholstery Product and President, England, Inc.

Steven M. Kincaid

Senior VP and President Casegoods
Product and President, Kincaid

David M. Risley
Senior VP

Louis M. Riccio, Jr.

Senior VP and Chief Financial Ofﬁcer

Otis S. Sawyer

Senior VP Corporate Operations

Mark A. Stegeman
VP and Treasurer

James P. Klarr

Secretary and Corporate Counsel

Roger L. Miller

VP Process Improvement

Chairman of the Board, La-Z-Boy Incorporated

Mark A. Copping

Jack L. Thompson

VP and Corporate Controller

Chairman of the Board, The Plastics Group, Inc.

Steven P. Rindskopf

VP Corporate Human Resources

DIVISIONAL EXECUTIVES

Upholstery Segment
Thomas Brown

Director, La-Z-Boy International

Mac McCall

President, Clayton Marcus

Michael C. Moldenhauer

President, Sam Moore Furniture

Steven W. Pilgrim

President, Bauhaus

Casegoods Segment
Noel L. Chitwood

President, American of Martinsville

John V. Labarowski

President, Hammary Furniture

R. Jack Richardson, Jr.

President, American Drew and Lea Industries

David M. Sowinski

President, Pennsylvania House

Retail Segment
Mark Wiltshire

President, La-Z-Boy Retail

INVESTOR INFORMATION

Shareholder Services
Inquiries regarding the Dividend Reinvestment Plan,
dividend payments, stock transfer requirements,
address changes and account consolidations should
be addressed to the company’s stock transfer agent
and registrar:

American Stock Transfer & Trust Company
59 Maiden Lane
New York, NY 10038
212-936-5100
800-937-5449
www.amstock.com

Investor Relations and
Financial Reports
We will provide the Form 10-K to any shareholder
who requests it. Security analysts, shareholders and
investors may request information from:

Investor Relations
La-Z-Boy Incorporated
1284 North Telegraph Road
Monroe, MI 48162-3390
investorrelations@lazboy.com

Stock Exchange
La-Z-Boy Incorporated common shares are
traded on the New York Stock Exchange and the
Paciﬁc Stock Exchange under the symbol LZB.

Corporate Headquarters
La-Z-Boy Incorporated
1284 North Telegraph Road
Monroe, MI 48162-3390
734-242-1444
www.lazboy.com

Helen
Petrauskas
1944 – 2006

A trusted advisor, valued

colleague and an incredible

individual, Helen will be

missed for years to come.

Management’s Discussion and Analysis

o f

F i n a n c i a l

C o n d i

i o n a n d R e s u l

t s o f

O p e r a t

i o n s

Our Management’s Discussion and Analysis is an integral part of understanding our ﬁnancial results.

from Chinese imports; (i) inventory supply price ﬂuctuations; (j) the impact of imports as it relates to

This Management’s Discussion and Analysis should be read in conjunction with the accompanying

continued domestic production; (k) changes in currency exchange rates; (l) competitive factors;

Management’s Report to our Shareholders, Report of Independent Registered Public Accounting Firm,

(m) operating factors, such as supply, labor or distribution disruptions including changes in operating

Consolidated Financial Statements and related Notes to Consolidated Financial Statements. We begin the

conditions or costs; (n) effects of restructuring actions; (o) changes in the domestic or international

Management’s Discussion and Analysis with an introduction of La-Z-Boy Incorporated’s key businesses,

regulatory environment; (p) not fully realizing cost reductions through restructurings; (q) ability to implement

strategies and signiﬁcant operational events in ﬁscal 2006. We then provide a discussion of our results of

global sourcing organization strategies; (r) the impact of new manufacturing technologies; (s) the future

operations, liquidity and capital resources, quantitative and qualitative disclosures about market risk, and

ﬁnancial performance and condition of independently operated dealers that we are required to consolidate

critical accounting policies.

into our ﬁnancial statements or changes requiring us to consolidate additional independently operated

dealers; (t) fair value changes to our intangible assets due to actual results differing from projected;

CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
We are making forward-looking statements in this item. Generally, forward-looking statements include

(u) the impact of adopting new accounting principles; (v) the impact from natural events such as hurricanes,

earthquakes and tornadoes; (w) the ability to turn around under-performing retail stores; (x) the impact

information concerning possible or assumed future actions, events or results of operations. More

of retail store relocation costs, the success of new stores or the timing of converting stores to the New

speciﬁcally, forward-looking statements include the information in this document regarding:

Generation format; (y) the ability to procure fabric rolls or cut and sewn fabric sets domestically or abroad;

and (z) factors relating to acquisitions and other factors identiﬁed from time to time in our reports ﬁled

• future income, margins and cash ﬂows

• future economic performance

with the Securities and Exchange Commission. We undertake no obligation to update or revise any

• future growth

• industry and importing trends

forward-looking statements, either to reﬂect new developments or for any other reason.

• adequacy and cost of ﬁnancial resources

• management plans

Forward-looking statements also include those preceded or followed by the words “anticipates,” “believes,”

INTRODUCTION
La-Z-Boy Incorporated is a manufacturer, marketer and retailer of upholstery products and a marketer of

“estimates,” “hopes,” “plans,” “intends” and “expects” or similar expressions. With respect to all forward-

imported or manufactured casegoods (wood) furniture products. Our La-Z-Boy brand is the top brand in

looking statements, we claim the protection of the safe harbor for forward-looking statements contained in

the furniture industry, one of the most preferred brands in the home and we are the leading global producer

the Private Securities Litigation Reform Act of 1995.

of reclining chairs. In addition, we own 63 La-Z-Boy Furniture Galleries® stores, which are retail locations

dedicated to marketing our La-Z-Boy branded product. These 63 stores are part of the larger store network

Actual results could differ materially from those anticipated or projected due to a number of factors. These

of La-Z-Boy Furniture Galleries® stores which includes a total of 337 stores, the balance of which are

factors include, but are not limited to: (a) changes in consumer conﬁdence; (b) changes in demographics;

independently owned and operated. The network is the industry’s largest single upholstered furniture

retailer in North America. These stores combine the style, comfort and quality of La-Z-Boy furniture

(f) the impact of logistics on imports; (g) the impact of interest rate changes; (h) the potential disruptions

with our in-home design service to help customers furnish certain rooms in their homes.

La-Z-Boy Incorporated Annual Report 2006

At the end of ﬁscal 2004, a new accounting pronouncement, Financial Accounting Standards Board Interpretation

market advantages of a United States manufacturing base. The Upholstery Group sells furniture mainly to

No. 46R (“FIN 46”), required us to start consolidating certain of our independent dealers who did not have

La-Z-Boy Furniture Galleries® stores, general dealers and department stores.

sufﬁcient equity to carry out their principal business activities without our ﬁnancial support. These dealers are

referred to as Variable Interest Entities (“VIE”) by this pronouncement. During the ﬁscal 2006 ﬁrst quarter, an

Our Casegoods Group today is primarily an importer, marketer and distributor of casegoods (wood) furniture and

additional independent dealer had a change in ﬁnancial structure which made us the primary beneﬁciary and

continues to make progress in year-over-year improvements in operating margin. Based on our current strategy

required consolidation. The new VIE currently has four stores.

for import versus domestic casegoods product, we have completed the planned transition of this business so

that about 72% of our residential casegoods are imported. Over the past several years, we have rationalized our

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

domestic casegoods manufacturing capacity in order to compete globally and have signiﬁcantly changed the

Below is a chart that shows the organizational structure of La-Z-Boy segments.

cost structure from ﬁxed to highly variable.

In terms of revenue, our largest segment is the Upholstery Group, which includes La-Z-Boy, our largest

The Retail Group consists of 63 company-owned La-Z-Boy Furniture Galleries® stores in nine markets

operating unit. During the second quarter of ﬁscal 2006, we initiated a restructuring plan to close our upholstery

ranging from the Midwest to the East Coast of the United States. This group includes the 21 stores acquired in

manufacturing facility in Waterloo, Ontario and shift the plant’s production to other existing facilities in order to

the fourth quarter of ﬁscal 2005. Two of those markets were previously consolidated as VIEs and were incurring

rationalize our overall capacity utilization. We also import cut and sewn fabric kits to complement our leather

signiﬁcant operating losses.

kits that allow us to take full advantage of both the cost-saving opportunities presented in Asia and the speed to

Upholstery Group
(Manufactures upholstered furniture)

Casegoods Group
(Imports and manufactures wood furniture)

Retail Group
(Company-owned La-Z-Boy Furniture Galleries®)

Bauhaus

England

La-Z-Boy

American Drew

American of
Martinsville

Hammary

Own and operate 63 La-Z-Boy
Furniture Galleries® stores

Clayton Marcus

La-Z-Boy U.K.

Sam Moore

Kincaid

Lea

Pennsylvania House

La-Z-Boy Incorporated Annual Report 2006

In ﬁscal 2007, we plan to take the following actions to grow sales and improve the operating results for the

During the 2006 ﬁscal year, the network opened 21 new stores, remodeled 20 stores, relocated eight stores and

Retail Group as well as take advantage of certain synergies between the company-owned markets:

closed 18 stores for a net store increase of three. There are now 154 stores in the more productive New Generation

store format, which represents about 50% of our total stores being less than ﬁve years old. We believe the transition

• We will continue to relocate, convert or add stores to our New Generation format which are more productive.

to the New Generation format stores, with the addition of new stores, is enhancing our position in the competitive

• We will continue to centralize certain of our advertising, marketing and warehousing functions to gain

retail marketplace. The majority of the retail operations are owned and operated by independent retailers who

better efﬁciencies.

resell to end-users, but as noted earlier, we currently own and operate 63 stores in nine markets, representing

• We will continue to consolidate information systems and eliminate duplicative processes and warehouses.

approximately one-ﬁfth of the total stores.

• We will continue to expand our in-home design service, which has increased the average sale per customer

where employed.

Our success with La-Z-Boy Furniture Galleries® stores has been expanded to our Kincaid and England operating

units. There are 22 Kincaid and nine England stand-alone stores owned and operated by independent dealers.

We believe that expanding our store network will drive top-line growth as we capitalize on the larger urban markets.

Additionally, we have an extensive La-Z-Boy in-store gallery program with 340 in-store galleries. Our other

With the further penetration in these markets we expect to gain necessary efﬁciencies in advertising, distribution and

operating units, such as Kincaid, Pennsylvania House, Clayton Marcus, England and Lea, also have in-store gallery

administration to achieve desired proﬁtability. Currently, 28 of our company-owned stores are in the New Generation

programs. One of our strategic initiatives is to grow our proprietary distribution network at an increasing pace over

format and we expect to signiﬁcantly increase this number in the next ﬁscal year. Through these actions we continue

the next few years. The chart below shows the current structure of the La-Z-Boy Furniture Galleries® store network.

to remain optimistic about the future performance of this segment and believe this segment will be proﬁtable within

18 months to two years.

According to the May 2006 Top 25 ranking by Furniture Today, an industry trade publication, the La-Z-Boy Furniture

Galleries® stores network (“the network”) is the largest retailer of upholstered single-brand furniture in the U.S.

One of our major strategic initiatives is to expand the retail opportunities of the La-Z-Boy brand name in the United

States and Canada by opening new stores, relocating stores to better locations and converting existing stores to

our New Generation store format. Slightly more than half of the 337 stores in the network – the majority of which

are independently owned – are concentrated in the top 25 markets in the U.S. We anticipate increasing our market

penetration over the next few years in the top 25 markets, allowing our dealers to create operating efﬁciencies,

particularly in the areas of advertising, logistics and administration. We anticipate obtaining the future market

penetration necessary through both our company-owned stores and independently owned dealers. In some cases, our

independent dealers lack the resources to accomplish these initiatives. In those cases, we may either acquire those

markets or transition ownership of those markets to individuals who have the resources to accomplish our goals.

L A - Z - B O Y F U R N I T U R E G A L L E R I E S ® S T O R E S Y S T E M

337 Total Stores

Company-Owned Stores
(63 Stores)

VIE Stores —
Independently Owned
(28 Stores)
(4 Dealers)

VIE Stores —
Independently Owned
(246 Stores)
(112 Dealers)

Consolidated in
La-Z-Boy Statements

La-Z-Boy Incorporated Annual Report 2006

We operate on a ﬁscal year ending on the last Saturday of April. Our most recent ﬁscal year was 52 weeks,

Sales

ended on April 29, 2006 (“ﬁscal 2006”), and the previous ﬁscal years were 53 and 52 weeks, respectively,

Consolidated sales declined 6.4% during ﬁscal 2006. Our Upholstery and Casegoods Groups’ sales were

ended on April 30, 2005 (“ﬁscal 2005”), and April 24, 2004 (“ﬁscal 2004”).

also down when compared to the prior year due in large part to a volatile retail environment attributable to weak

RESULTS OF OPERATIONS
Analysis of Operations: Year Ended April 29, 2006

(Fiscal Year 2006 compared with 2005)

(Amounts in thousands, except
per share amounts)

Upholstery sales
Casegoods sales
Retail sales
Other/eliminations
Consolidated sales
Consolidated gross proﬁt
Consolidated gross margin
Consolidated S,G&A
S,G&A as a percent of sales
Consolidated write-down of intangibles
Upholstery operating income
Casegoods operating income
Retail operating income
Corporate and other
Write-down of intangibles
Restructuring
Consolidated operating income
Upholstery operating margin
Casegoods operating margin
Retail operating margin
Consolidated operating margin
Income from continuing operations
Diluted earnings per share from

continuing operations

N/M – not meaningful

La-Z-Boy Incorporated Annual Report 2006

Year ended

4/29/06
(52 weeks)
$ 1,347,964
432,307
213,438
(76,932)
$ 1,916,777
$ 452,169
23.6%
$ 410,348
21.4%
$ 22,695
$ 85,253
18,265
(26,006)
(29,048)
(22,695)
(6,643)
$ 19,126
6.3%
4.2%
-12.2%
1.0%
$ (3,041)

4/30/05
(53 weeks)
$ 1,467,311
455,343
173,099
(47,372)
$ 2,048,381
$ 465,243
22.7%
$ 401,592
19.6%
$ —
$ 101,856
5,370
(2,859)
(30,422)
—
(10,294)
$ 63,651
6.9%
1.2%
-1.7%
3.1%
$ 33,095

consumer demand. A decline in business with rental stores and the liquidation of several large regional chains

accounted for approximately 1% of the sales decline during the year. Approximately 2% of the sales decline

was attributed to the extra week in ﬁscal 2005. Additionally, sales declined approximately 1.4% during the year

due to the polyurethane shortage that affected upholstered product shipments from October through the middle

of December. The sales declines noted above were mitigated by a 1.5% increase in sales due to sales price

increases and a 0.8% increase in sales which resulted from the retail stores acquired at the end of ﬁscal 2005.

Upholstery Group sales were down 8.1% year-over-year, 2% of which was attributable to the extra week

in ﬁscal 2005. Approximately 2% of the decrease in Upholstery Group sales for the year related to the

polyurethane supply shortage, which limited our ability to ﬁll customer orders. Sales were also down due to

the weak retail environment. Around 1% of our upholstery sales decline was related to a decline in business

with our rental customers and the liquidation of several large regional chains in the past 12 months.

The sales decline was mitigated by a 2.0% increase in sales which resulted from sales price increases.

Our Casegoods Group sales decreased 5.1% during ﬁscal 2006, of which about 2% related to the extra

week in ﬁscal 2005. The decrease in sales primarily occurred at Pennsylvania House due to market share

erosion stemming from continued disruptions as they replace domestically produced product lines with

Asian-produced furniture. Although sales decreased for the Casegoods Group as a whole during the period,

the casegoods hospitality and health care business continued to show sales growth during the year, partly

due to the economic recovery of the hospitality sector.

% Change
-8.1%
-5.1%
23.3%
-62.4%
-6.4%
-2.8%

2.2%

N/M
-16.3%
240.1%
-809.6%
4.5%
N/M
35.5%
-70.0%

Retail Group sales increased 23.3% due to the acquisition of 21 stores in the fourth quarter of ﬁscal 2005.

-109.2%

Eight of these stores were consolidated as VIEs prior to our acquiring them in the fourth quarter of ﬁscal

$ (0.06)

$ 0.63

-109.5%

2005. Excluding the 21 recently acquired stores, Retail Group sales for our previously owned markets actually

decreased during ﬁscal 2006 due to slow retail activity.

The net total of intercompany sales eliminations and sales to VIEs increased 62.4% as a result of greater sales to

Factors negatively impacting gross margin in ﬁscal 2006 include the following:

company-owned retail stores and fewer VIEs in ﬁscal 2006 versus ﬁscal 2005.

Gross Profit

• Upholstery Group production was disrupted during the period by the polyurethane shortage, which prevented

us from producing and ﬁlling customer orders that we otherwise could have completed and shipped. The

Our gross proﬁt as a percent of sales (“gross margin”) increased in ﬁscal 2006 in comparison to ﬁscal 2005 due

polyurethane shortage decreased gross margin by 0.1 percentage points in ﬁscal 2006.

to the following:

• Our company-owned La-Z-Boy Furniture Galleries® stores in the Retail Group were a larger part of our

refreshed merchandise and cleared out older inventory in ﬁscal 2006 at the newly acquired stores, which

• Following the acquisition of 21 stores in three markets by our Retail Group near the end of ﬁscal 2005, we

consolidated results in ﬁscal 2006, and since retail sales generally carry a higher gross margin than our

resulted in a lower gross margin for our Retail Group.

manufacturing units, it had a more signiﬁcant impact on our consolidated gross margins than in ﬁscal 2005

by 0.5 percentage points.

Selling, General and Administrative Expenses

• We initiated a signiﬁcant cost reduction program during the current ﬁscal year focusing on manufacturing

ﬁscal 2006 compared to the prior year. This was attributable to:

Selling, general and administrative expenses (“S,G&A”) increased in dollar amount and as a percent of sales in

cost reductions, indirect labor, distribution costs and waste reductions that have positively impacted our

gross margins.

• The increased relative size of the Retail Group increased consolidated S,G&A because the Retail Group has

a higher S,G&A structure than our Upholstery and Casegoods segments. As the Retail Group grows as an

• We experienced signiﬁcant price increases in raw materials, especially in raw steel, during ﬁscal 2005. Raw

overall percentage of our net sales, this overall S,G&A percentage will also increase as a percent of sales.

steel prices remained high but stabilized in ﬁscal 2006. During ﬁscal 2006, we experienced rising prices for

The impact on the current ﬁscal year was approximately 2.0 percentage points.

polyurethane foam, as a result of the damage inﬂicted by the hurricane season, which reduced our gross margin

approximately 1.1 percentage points. We increased our selling prices due to the high raw material costs. This

• We incurred additional expenses in the Retail Group related to the 21 acquired stores, including increased

combined with our normal price increases helped increase our margins approximately 1.2 percentage points.

advertising, higher occupancy costs and other selling expenses as well as costs involved in establishing

new warehousing for two of our locations.

• We had restructuring expense of $6.6 million in ﬁscal 2006 and $10.3 million in ﬁscal 2005. The restructuring

costs decreased gross margin by 0.4 percentage points in 2006 and 0.5 percentage points in 2005.

• Our company-owned same store sales were down, therefore we were not able to absorb our ﬁxed expenses

• At the end of ﬁscal 2005, we changed our estimate for unpaid claims for workers’ compensation to an actuarial

estimate. As a result, we recorded a charge to increase our claims liability by $5.9 million, which decreased

Somewhat offsetting these increases in S,G&A expense were gains recognized during the current year on

gross margin by 0.3 percentage points in ﬁscal 2005 that was not repeated in ﬁscal 2006.

long-lived assets that we sold, which reduced S,G&A as a percent of sales by 0.2 percentage points.

resulting in an increase in S,G&A as a percent of sales.

La-Z-Boy Incorporated Annual Report 2006

Operating Margin

we increased advertising spending, which had a negative effect on margins but was necessary to drive

Our consolidated operating margin was 1.0% for ﬁscal 2006 and included 0.4 percentage points of

retail trafﬁc. We also had an increase in occupancy costs and selling expenses. Consequently, due to

restructuring costs and 1.2 percentage points of a write-down of intangibles at Bauhaus. Bauhaus was

these acquisitions and an overall soft retail environment, our retail operating results for ﬁscal 2006 were

impacted by several large customer bankruptcies and the merger of two major department stores, which

well below our expectations. We anticipate that it will take 18 months to two years to return this group

reduced production causing the closure of several production facilities. These events impacted our annual

to proﬁtability.

valuation of intangibles resulting in an impairment loss. Operating margin for ﬁscal 2005 was 3.1% and

included 0.5 percentage points of restructuring charges.

OPERATING MARGIN BY QUARTER FOR FISCAL 2006 AND FISCAL 2005

The Upholstery Group operating margin decreased due to lower sales volume caused by the weather-

related supply chain disruptions and soft retail conditions. The Upholstery Group beneﬁted from selling price

increases since the same period last year which somewhat offset these factors.

Our Casegoods Group operating margin increased over the prior year due to the increased operating margin

in our casegoods hospitality and health care business and improvements resulting from our continuing

Upholstery

Casegoods

Retail

2006

2005

2006

2005

2006

2005

transition to our import model for residential casegoods. Although Pennsylvania House continued to operate

Consolidated 2006

below our stated operating margin objectives, the signiﬁcant changes that were made in the overhead

2005

structure as a result of transitioning to a fully imported business model limited the negative impact on the

Casegoods Group as a whole. The Casegoods Group has been on a positive trend, making steady progress

Interest Expense

First Quarter

Second Quarter

Third Quarter

Fourth Quarter

4.9%

4.2%

4.1%

0.5%

-10.3%

1.3%

1.7%

-0.9%

3.9%

7.2%

2.0%

0.1%

-12.3%

1.2%

-1.6%

2.9%

7.2%

6.2%

6.0%

1.9%

-10.4%

-0.4%

3.7%

3.9%

8.9%

9.4%

4.5%

2.1%

-15.8%

-7.5%

0.0%

5.8%

in improving year-over-year operating margins.

Interest expense for ﬁscal 2006 was higher than ﬁscal 2005 due to rising interest rates on ﬂoating rate debt

equating to an increase of about 1% in our effective interest rate. Our weighted average debt was down slightly

Our Retail Group operating margin decreased by 10.5 percentage points during ﬁscal 2006 in comparison

compared to the prior year, due to the repayment of $26 million in debt occurring near the end of the ﬁscal year.

to ﬁscal 2005. Two of the three markets acquired in ﬁscal 2005 were operating at signiﬁcant losses and were

previously reported as VIEs and contributed to operating losses during the current year. After acquiring the new

Income Taxes

locations, we refreshed merchandise at our newly acquired locations by liquidating our older inventory which

Our effective tax rate was 132% in ﬁscal 2006 compared to 38% in ﬁscal 2005. The increase in the effective

resulted in a lower operating margin. The acquired stores also incurred transitional costs during the year.

tax rate was attributable to the write-off of goodwill at Bauhaus in the fourth quarter of ﬁscal 2006, which had no

The decrease in operating margin was also due in part to the decrease in both same store sales volume

taxed at a lower rate, therefore reducing the tax beneﬁt and increasing the effective rate relating to those expenses.

tax beneﬁt, as well as the restructuring charges incurred at our Canadian upholstery operation, which is generally

and acquired store sales. Additionally, due to the acquisition of new markets and a slow retail environment,

La-Z-Boy Incorporated Annual Report 2006

RESULTS OF OPERATIONS
Analysis of Operations: Year Ended April 30, 2005

(Fiscal Year 2005 compared with 2004)

(Amounts in thousands, except
per share amounts)

Upholstery sales
Casegoods sales
Retail sales
Other/eliminations

Consolidated sales

Consolidated gross proﬁt
Consolidated gross margin

Consolidated S,G&A
S,G&A as a percent of sales

Write-down of Upholstery intangibles
Write-down of Casegoods intangibles

Year ended

4/30/05
(53 weeks)

$ 1,467,311
455,343
173,099
(47,372)

4/24/04
(52 weeks)

$ 1,439,253
456,090
128,996
(72,342)

$ 2,048,381

$ 1,951,997

$ 465,243
22.7%

$ 401,592
19.6%

$ —
—

$ 431,692
22.1%

$ 331,620
17.0%

$ 11,313
60,630

$ 71,943

$ 129,719
2,991
1,295
(23,492)
(71,943)
(10,441)

Consolidated write-down of intangibles

$ —

Upholstery operating income
Casegoods operating income
Retail operating income
Corporate and other
Write-down of intangibles
Restructuring

$ 101,856
5,370
(2,859)
(30,422)
—
(10,294)

Consolidated operating income

$ 63,651

$ 28,129

Upholstery operating margin
Casegoods operating margin
Retail operating margin

Consolidated operating margin

6.9%
1.2%
-1.7%

3.1%

9.0%
0.7%
1.0%

1.4%

Income from continuing operations

$ 33,095

$ 1,878

Diluted earnings per share from

continuing operations

N/M - not meaningful

$ 0.63

$ 0.04

% Change

1.9%
-0.2%
34.2%
34.5%

4.9%

7.8%

21.1%

N/M
N/M

N/M

-21.5%
79.5%
-320.8%
-29.5%
N/M
1.4%

126.3%

N/M

Sales

Consolidated sales increased in ﬁscal 2005 compared to ﬁscal 2004 due to increased sales in our Retail

Group and our Upholstery Group, price increases, the consolidation of VIEs and an additional week in ﬁscal

2005. Included in our Corporate and other group are the VIEs, which we began consolidating at the end of

ﬁscal 2004. The VIEs accounted for $46.0 million of the $96.4 million overall increase in sales. Additionally,

we instituted price increases that accounted for approximately 1.0% of the sales increase during the ﬁscal

year, which mitigated the rising costs of raw materials.

Upholstery Group sales increased based on the strength of the La-Z-Boy branded product sold through general

furniture dealers as well as the La-Z-Boy Furniture Galleries® store system. Although most of our La-Z-Boy

Furniture Galleries® stores are independently owned, we do track the written sales activity of the total store

system to monitor retail activity. A contributing factor to the increased Upholstery sales was an additional week

in ﬁscal 2005 (53 weeks) in comparison to ﬁscal 2004 (52 weeks). Our non La-Z-Boy branded upholstery

operating units were down slightly due in part to bankruptcies of two large customers.

Sales increases in our Retail Group were partially due to the opening of company-operated stores and a full

year of sales realized from our Baltimore retail stores acquisition, which occurred at the end of ﬁscal 2004.

We also acquired 21 stores near the end of ﬁscal 2005, of which eight were previously consolidated as VIEs.

In ﬁscal 2005, the Casegoods Group ﬁnished the ﬁscal year strong by posting two consecutive quarters of

sales growth. The second half of ﬁscal 2005 was a signiﬁcant turnaround from the last several years of

double-digit declines in sales. A trend analysis of Casegoods Group sales follows.

La-Z-Boy Incorporated Annual Report 2006

ANALYSIS OF CASEGOODS GROUP SALES BY QUARTER FOR FISCAL 2005 AND 2004

i) Steel for our recliner mechanisms, springs, fasteners and other metal parts increased our cost of

(Amounts in thousands)

Fiscal 2005

Fiscal 2004

% Change

First Quarter
Second Quarter
Third Quarter
Fourth Quarter

$ 105,714
$ 114,169
$ 111,918
$ 123,542

$ 116,508
$ 119,621
$ 107,899
$ 112,062

-9.3%
-4.6%
3.7%
10.2%

sales for ﬁscal 2005 by approximately 1.0% of net sales compared to the previous year’s costs.

Higher raw steel prices increased our raw material costs proportionately more than other companies

in the furniture industry, due to our heavier concentration of upholstery and motion upholstery as a

percentage of our overall business.

ii) The cost of plywood, which mainly impacts our upholstered products, negatively affected our gross

The casegoods hospitality and health care business led the sales turnaround by posting double-digit

proﬁt by approximately 0.3% of net sales.

growth over the prior year, which was partly due to the economic recovery of the hospitality sector. The

Casegoods Group beneﬁted from an additional week in ﬁscal 2005 (53 weeks) in comparison to ﬁscal 2004

iii) At the end of ﬁscal 2005, we changed our estimate for unpaid claims for workers’ compensation to an

(52 weeks). We also showed some improvement resulting from our transition efforts as some of our other

actuarial estimate. As a result, we recorded a charge to increase our claims liability by $5.9 million,

casegoods businesses started to experience favorable growth. However, the momentum that the Casegoods

which decreased gross margin by 0.3%.

Group gained during ﬁscal 2005 was offset by the planned transition of Pennsylvania House to a distributor

of imported ﬁnished goods. Pennsylvania House sales decreased in the transition period as we began to

iv) We had restructuring expenses of $10.3 million and $10.4 million in ﬁscal 2005 and 2004,

wind down the production at our domestic plants during the year and, as a result, there were fewer

respectively. The restructuring expense impact on the gross margin was approximately the same for

products to ship.

Gross Profit

both ﬁscal 2005 and 2004.

v) Pennsylvania House experienced signiﬁcant manufacturing inefﬁciencies relating to the scheduled

Our consolidated gross margin increased 0.6 percentage points, which was mainly due to our increased

closures of its plants, which occurred during the third quarter. There were additional costs due to the

retail operations and consolidating our VIEs beginning in ﬁscal 2005. Because the VIEs and the La-Z-Boy

transition of sourcing product from overseas manufacturers.

Furniture Galleries® stores are retailers and not manufacturers, they have a higher gross margin than our

manufacturing operations. The VIEs and our retail operations contributed a 4.7 percentage point increase

Our selling price increases during the year began to have a positive impact on the third and fourth quarter

to our gross margin. Notwithstanding the increase in our gross margins due to the VIEs and our retail

gross margins, which somewhat mitigated the negative impact of the raw material cost increases.

operations, our remaining businesses’ gross margin was lower in ﬁscal 2005 in comparison to the prior

year due to the following:

La-Z-Boy Incorporated Annual Report 2006

Selling, General and Administrative Expenses

OPERATING MARGIN BY QUARTER FOR FISCAL 2005 AND FISCAL 2004

S,G&A increased in ﬁscal 2005 compared to the prior year, both in dollars and as a percent of sales. We

increased our company-owned retail operations after the end of ﬁscal 2004 by opening new stores and

acquiring some stores. At the end of ﬁscal 2005, we had 61 company-owned stores – of which 21 were

acquired in the fourth quarter – compared to 36 in ﬁscal 2004. Additionally, we began consolidating several

independently owned stores as VIEs at the end of ﬁscal 2004 due to the adoption of FIN 46. Since retail and

our VIE operations inherently have a higher S,G&A concentration, our consolidated S,G&A as a percent of

sales increased due to the expansion of our retail operations and the VIEs that were not in our consolidated

statement of operations prior to the 2005 ﬁscal year. Our non-retail based operations’ S,G&A expense in

ﬁscal 2005 was relatively ﬂat as a percentage of sales when compared to ﬁscal 2004. Additionally, during

the fourth quarter of ﬁscal 2005, we reevaluated our allowance for doubtful accounts after our acquisition

First Quarter

Second Quarter

Third Quarter

Fourth Quarter

Upholstery

Casegoods

Retail

2005

2004

2005

2004

2005

2004

Consolidated 2005

2004

4.2%

7.3%

0.5%

0.9%

1.3%

0.9%

-0.9%

2.6%

7.2%

8.8%

0.1%

1.7%

1.2%

0.3%

2.9%

5.3%

6.2%

8.7%

1.9%

-0.3%

-0.4%

2.2%

3.9%

5.3%

9.4%

10.8%

2.1%

0.2%

-7.5%

0.6%

5.8%

-6.6%

of a major La-Z-Boy Furniture Galleries® store market and reassessment of our credit position with respect

The year-over-year decrease in the Upholstery Group operating margin was primarily due to the cost

to another signiﬁcant dealer upon obtaining additional credit-related information, and therefore we reduced

increases in certain raw materials, especially steel and plywood. We did, however, increase our Upholstery

our allowance for doubtful accounts by $5.5 million. The additional cost we incurred for complying with

Group margins throughout the year due to price increases taken during the April 2004 furniture market as

Sarbanes-Oxley was about 0.1% of net sales and was recorded in S,G&A.

well as during the summer. Some price increases took effect in the third and fourth quarters and helped

Operating Margin

mitigate raw material cost increases. In addition to the price increases, we also continued to streamline

our manufacturing processes and continued to reduce costs through product re-engineering and material

For the reasons noted above, our operating margin for both ﬁscal years was negatively impacted. Our

substitution. Some of our non La-Z-Boy branded operating margins were down due to a drop in sales

operating margin for ﬁscal 2005 was 3.1% and included 0.5 percentage points of restructuring costs.

volume, partially caused by the bankruptcies of two large customers.

Our ﬁscal 2004 operating margin was 1.4% and included 0.5 percentage points of restructuring costs.

Our operating margins did improve from the beginning of the year to the end of the year, as shown in

Although our Casegoods Group operating margins improved during ﬁscal 2005, Pennsylvania House plant

the table following.

closures and disruptions in our other businesses kept us from fully realizing our margin targets. Additionally,

our margins improved as we continued our transition of replacing domestically produced residential casegoods

with imported product. Lower priced imported product made us more competitive in the marketplace, which

fueled our sales increases in this segment. However, offsetting this momentum was the closure of our

Pennsylvania House facilities during the ﬁscal year. The manufacturing inefﬁciencies caused by the reduced

production at these facilities somewhat reduced the gains we experienced at our other casegoods businesses.

La-Z-Boy Incorporated Annual Report 2006

The decline in the Retail Group operating margins in ﬁscal 2005 was due to the costs associated with opening

The cash generated as a result of the signiﬁcant reductions in accounts receivable and inventory was used to

new stores during the year, losses after acquiring the Chicago market at the beginning of the fourth quarter of

reduce total debt by $43.1 million.

ﬁscal 2005 and a weaker retail environment in the second half of ﬁscal 2005.

Corporate and other operating proﬁt includes the consolidation of VIEs. Since some of our VIEs have either

under credit facilities. These sources have been adequate for day-to-day operations, dividends to

negative or no equity in their businesses, we are required to absorb their losses in our consolidated statement

shareholders and capital expenditures. We expect these sources of liquidity to continue to be adequate for

of operations. During ﬁscal 2005, we focused on reducing our VIEs by either acquiring them or arranging for

the foreseeable future. Capital expenditures for ﬁscal 2006 were $28.0 million compared to $34.8 million in

them to be acquired by new independent owners. Due to the application of purchase accounting relating to

ﬁscal 2005 – which included VIE capital expenditures of $4.3 million for 2006 and $5.0 million for 2005.

our acquisition of previously consolidated VIEs, we recognized extraordinary gains of $2.1 million (net of tax).

There are no material purchase commitments for capital expenditures. As of the end of the ﬁscal year 2006,

Additionally, during the year, one of the equity owners of our VIEs contributed $2.0 million of capital to the

we had unused lines of credit and commitments of $221.1 million under several credit arrangements.

Our sources of cash liquidity include cash and equivalents, cash from operations and amounts available

business. Because we consolidated this entity based on voting interests, we recorded the capital contribution

as income in that period to offset previously recorded losses. This was more than offset by $9.6 million of

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

pre-tax losses experienced by our VIEs in ﬁscal 2005.

Interest Expense

Interest expense for ﬁscal 2005 was lower than 2004 due mainly to a decrease in our effective interest rate,

offset in part by an increase in our weighted average debt outstanding.

Income Taxes

Our effective tax rate was 38% in ﬁscal 2005 and 89% in ﬁscal 2004. While our statutory rate was the same

for both years, the write-down of intangibles increased our effective tax rate by 51 percentage points in

ﬁscal 2004.

CASH FLOWS FROM (USED FOR)

(Amounts in thousands)

Operating activities
Net income (loss), depreciation and deferred taxes
Write-down of intangibles
Restructuring
Working capital and other

Cash provided from operating activities

Investing activities
Financing activities
Repurchases of common stock
Net increase (decrease) in debt
Other ﬁnancing activities and exchange rate changes

Net increase (decrease) in cash and cash equivalents

4/29/06

4/30/05

$ 22,790
22,695
6,643
37,649

89,777
(30,673)

(10,890)
(43,102)
(18,728)
$ (13,616)

$ 77,146
—
10,294
(41,475)

45,965
(23,987)

(2,476)
1,939
(17,618)
$ 3,823

LIQUIDITY AND CAPITAL RESOURCES
Our total assets at the end of ﬁscal 2006 were $55.2 million less than ﬁscal 2005. A large portion of that

Operating Activities

change related to the $41.4 million decline in inventory and trade accounts receivable and the $22.7 million

During ﬁscal 2006 and ﬁscal 2005, net cash provided by operating activities was $89.8 million and $46.0

write-down of goodwill during ﬁscal 2006, offset somewhat by a $12.3 million increase in our investments.

million, respectively. The increase in 2006 operating cash ﬂows was due mainly to a reduction of $16.3

million in trade receivables and $25.1 million in inventory. Although there are seasonal ﬂuctuations in

La-Z-Boy Incorporated Annual Report 2006

inventory and trade receivable balances, we have implemented strategies to reduce these working capital

In addition to the obligations listed below, we have guaranteed various leases of dealers with proprietary

balances over the past year and expect these balances to continue to be below historical balances.

stores. The total amount of these guarantees is $6.7 million. Of this, $2.7 million will expire within one year,

Investing Activities

$3.1 million in one to three years and $0.9 million in four to ﬁve years. In recent years, we have increased

our imports of casegoods product and leather and fabric for upholstery product. At the end of the 2006 ﬁscal

During ﬁscal 2006 and ﬁscal 2005, net cash used in investing activities was $30.7 million and $24.0

year, we had $89.3 million in open purchase orders with foreign casegoods, leather and fabric sources. Some

million, respectively. The increase in cash used for investing activities in ﬁscal 2006 was primarily reﬂected

of these open purchase orders are cancelable. We are not required to make any contributions to our deﬁned

in an increase in investments. At April 30, 2005, we had signiﬁcant cash and cash equivalents which were

beneﬁt plans; however, we may make discretionary contributions. We have entered into several interest rate

invested in longer term assets during ﬁscal 2006.

swap agreements with counter-parties that are participants in our revolving credit facility; however, we are

currently in a favorable position on this swap, which expires in August 2006, so there are no obligations.

Financing Activities

Our ﬁnancing activities included borrowings and payments on our debt facilities, dividend payments,

Continuing compliance with existing federal, state and local statutes dealing with protection of the

issuances of stock and stock repurchases. We used $73.2 million of cash in ﬁnancing activities in ﬁscal

environment is not expected to have a material effect upon our capital expenditures, earnings, competitive

2006 compared to $18.8 million of cash provided by ﬁnancing activities in ﬁscal 2005. During ﬁscal 2006

position or liquidity.

we increased cash from operating activities and were able to pay dividends of $22.9 million and repurchase

common stock in the amount of $10.9 million. Our change in net borrowing was $45.0 million less in ﬁscal

On October 28, 1987, our Board of Directors announced the authorization of the plan to repurchase company

2006 in comparison to the prior year.

stock. The plan originally authorized 1.0 million shares and, subsequent to October 1987, 22.0 million

additional shares were added to this plan for repurchase. As of April 29, 2006, 5.9 million additional shares

Our debt-to-capitalization ratio was 26.5% at April 29, 2006, 30.0% at April 30, 2005, and 30.0% at

could be purchased pursuant to this authorization. The company purchased 0.8 million shares during

April 24, 2004.

ﬁscal year 2006.

The following table summarizes our contractual obligations of the types speciﬁed:

(Amounts in thousands)

Long-term debt obligations
Capital lease obligations
Operating lease obligations
Interest obligations
Other long-term commitments not reﬂected on our balance sheet

Total contractual obligations

Payments by Period

Total

Less than 1 Year

$ 173,876
2,336
285,972
32,631
996

$ 495,811

$ 1,509
1,335
35,006
8,199
707

$ 46,756

1-3 Years

$ 37,640
991
68,283
12,265
210

$ 119,389

4-5 Years

More than 5 Years

$ 72,497
10
54,952
7,156
79

$ 134,694

$ 62,230
—
127,731
5,011
—

$ 194,972

La-Z-Boy Incorporated Annual Report 2006

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risk from changes in interest rates. Our exposure to interest rate risk results from

assumptions in order to mitigate the likelihood of material adjustments. Our critical accounting policies

and changes to critical estimates are reviewed by management with the Audit Committee of our Board of

our lines of credit and our ﬂoating rate $150 million revolving credit facility under which we had $25 million

Directors and our independent accountants.

borrowed at April 29, 2006. Management estimates that a one percentage point change in interest rates

would not have a material impact on our results of operations for ﬁscal 2007 based upon the year-end levels

of exposed liabilities.

Inventories
Inventories are stated at the lower of cost or market. Cost was determined using the last-in, ﬁrst-out (“LIFO”)

basis for approximately 67% and 70% of our inventories at April 29, 2006, and April 30, 2005, respectively.

We are exposed to market risk from changes in the value of foreign currencies. Our exposure to changes in

Cost is determined for all other inventories on a ﬁrst-in, ﬁrst-out (“FIFO”) basis.

the value of foreign currencies is reduced through our use of foreign currency forward contracts from time

to time. At April 29, 2006, we had no foreign exchange forward contracts outstanding. Substantially all of

our imports purchased outside of North America are denominated in U.S. dollars. However, a change in the

Revenue Recognition and Related Allowances
Shipping terms for third-party carriers are FOB shipping point, and revenue is recognized upon shipment

value of Chinese currency could be one of several factors that could inﬂate costs in the future. We believe

of product. For product shipped on our company-owned trucks, revenue is recognized upon delivery.

that gains or losses resulting from changes in the value of foreign currencies will not be material to our

This revenue includes amounts billed to customers for shipping. Provision is made at the time revenue

results from operations in ﬁscal year 2007.

is recognized for estimated product returns and warranties as well as other incentives that may be offered

CRITICAL ACCOUNTING POLICIES
An appreciation of our critical accounting policies is necessary to understand our ﬁnancial results. These

policies may require management to make difﬁcult and subjective judgments regarding uncertainties and,

to customers. We import certain products from foreign ports, which are shipped directly to our domestic

customers. In this case, revenue is not recognized until title is assumed by our customer, which is normally

after the goods pass through U.S. Customs.

as a result, such estimates may signiﬁcantly impact our ﬁnancial results. These policies were identiﬁed as

Other incentives offered to customers include cash discounts, advertising agreements and other sales

critical because they are broadly applicable within our operating units. The expenses and accrued liabilities

incentives. Cash discounts are recorded as a reduction of revenues when the revenue is recognized. Other

or allowances related to certain of these policies are initially based on our best estimates at the time of

sales incentives are recorded at the time of sale as a reduction to revenue. Our advertising agreements give

original entry in our accounting records. Adjustments are recorded when our actual experience differs from

our non-branded customers advertising allowances based on revenues and are recorded when the revenue

the assumptions underlying the estimates. These adjustments could be material if our experience were to

is recognized as a reduction to revenue.

change signiﬁcantly in a short period of time. We make frequent comparisons of actual experience to our

La-Z-Boy Incorporated Annual Report 2006

Goodwill and Trade Names
In accordance with SFAS No. 142, trade names are tested at least annually for impairment by comparing

In the fourth quarter of ﬁscal 2004, the annual evaluation of goodwill and trade names was performed.

Following the evaluation procedures it was determined that the carrying value of trade names exceeded their

their fair value to their carrying values. The fair value for each trade name was established based upon a

fair value, creating an impairment loss of $43.2 million, and the carrying value of goodwill exceeded its fair

royalty savings approach. Additionally, goodwill was tested for impairment by comparing the fair value of our

value, creating an impairment loss of $28.7 million. The after-tax effect of the impairment was $55.9 million.

operating units to their carrying values. The fair value for each operating unit was established based on the

The before-tax effect of $71.9 million for these impairment losses was recorded as a component of operating

discounted cash ﬂows. In situations where the fair value is less than the carrying value, indicating a potential

income. Of the total impairment losses, $11.3 million and $60.6 million were attributed to the Upholstery

impairment, a second comparison was performed using a calculation of implied fair value of goodwill to

and the Casegoods segments, respectively. One operating unit accounted for the write-down in the

determine the monetary value of impairment.

Upholstery Group. During ﬁscal 2004, this operating unit had experienced a decline in sales and operating

income, which caused a decline in the fair value of its intangibles. Prior to ﬁscal 2005, Casegoods Group

In the fourth quarter of ﬁscal 2006, the annual evaluation of goodwill and trade names was performed.

sales and operating results had been declining in the last few years. Due to continued lagging operating

Following the evaluation procedures, it was determined that our trade names were not impaired. The carrying

results and changes in facts relating to underlying assumptions, the fair value evaluation was lower in the

value of goodwill exceeded its fair value at Bauhaus, creating an impairment loss of $22.7 million which

ﬁscal 2004 fourth quarter than in the prior year fourth quarter.

was recorded as a component of operating income. In the latter half of ﬁscal 2006, Bauhaus was impacted

by several large customer bankruptcies and the merger of two major department stores, which reduced

production causing the closure of several production facilities. There was no tax beneﬁt recognized on this

impairment charge.

Other Loss Reserves
The allowance for doubtful accounts reﬂects our best estimate of probable losses inherent in the accounts

receivable balance. In ﬁscal 2006, our allowance for doubtful accounts for trade accounts receivable and

long-term notes decreased from $20.5 million to $17.4 million. The decrease in the allowance was due to

In the fourth quarter of ﬁscal 2005 and in ﬁscal 2004, we acquired several La-Z-Boy Furniture Galleries®

several write-offs during the fourth quarter of ﬁscal 2006 for previously reserved accounts for a total of

stores that were independently owned. Relating to these acquisitions, we recorded goodwill of $11.3 million

$4.0 million and due to a lower accounts receivable balance.

and $10.3 million in ﬁscal 2005 and ﬁscal 2004, respectively. Additionally, in the fourth quarter of ﬁscal

2005, we completed a valuation of the tax reserves relating to an acquisition in ﬁscal 2000. Due to the

We have other loss exposures arising from the ordinary course of business, including inventory

resolution of certain open tax items relating to the acquisition, a reduction of the tax reserves was required

obsolescence, litigation, environmental claims, health insurance, product liability, warranty, restructuring

during ﬁscal 2005, resulting in a reduction of the remaining acquired intangible assets, which consisted of

charges and the recoverability of deferred income tax beneﬁts. Establishing loss reserves requires the

trade names and totaled $6.4 million. Furthermore, in the fourth quarter of ﬁscal 2005, the annual evaluation

estimate and judgment of management with respect to risk exposure and ultimate liability. We use legal

of goodwill and trade names was performed. We determined that goodwill and trade names were not

counsel or other experts, including actuaries as appropriate, to assist in developing estimates. Due to the

impaired as of the end of ﬁscal 2005.

uncertainties and potential changes in facts and circumstances, additional charges related to these reserves

could be required in the future.

La-Z-Boy Incorporated Annual Report 2006

PENSIONS
We maintain deﬁned beneﬁt pension plans for eligible factory hourly employees at some operating units.

used for determining pension expense of our Canadian plan was 7.5% as of April 29, 2006, and 8.0% as

of April 30, 2005. The expected rate of return assumption as of April 29, 2006, will be used to determine

Our largest plan has been frozen for new participants since January 1, 2001, but active participants still earn

pension expense for plans in 2007.

service cost. Additionally, we closed our Canadian manufacturing facility during ﬁscal 2006 and terminated

the pension plan associated with that business. Annual net periodic expense and beneﬁt liabilities under our

Our long-term stated investment objective is to maximize the investment return with the least amount of risk

deﬁned beneﬁt plans are determined on an actuarial basis. Each year, we compare the actual experience to

through a combination of capital appreciation and income. The strategic asset allocation targets are 65%

the more signiﬁcant assumptions used; if warranted, we make adjustments to the assumptions.

equities and 35% ﬁxed income within a range of 5% of the target. As of April 29, 2006, our weighted average

asset allocation was 69% equity securities and 31% debt securities. As of April 30, 2005, our weighted

Our pension plan discount rate assumption is evaluated annually. The discount rate selected for our U.S.

average asset allocation was 68% equity securities and 32% debt securities.

plans is based upon a single rate developed after matching expected beneﬁt payments to a yield curve for

high-quality ﬁxed-income investments. Long-term interest rates on high-quality debt instruments, which are

As of the end of ﬁscal 2005, the qualiﬁed plans were underfunded; however, only our Canadian plan

used to determine the discount rate, were up slightly at the end of ﬁscal 2006 after declining in ﬁscal 2005.

remained underfunded at the end of ﬁscal 2006. We expect to fund our Canadian pension plan fully in ﬁscal

Accordingly, we increased the discount rate used to determine our pension beneﬁt obligation on our U.S.

2007 but expect that the funding will be less than $0.1 million U.S. dollars. In addition, our non-qualiﬁed

plans 95 basis points for ﬁscal 2006, after decreasing the rate 50 basis points for ﬁscal 2005. For our U.S.

retirement plan was not funded at April 29, 2006. We do not expect to fund our non-qualiﬁed deﬁned beneﬁt

plans, we utilized a discount rate of 6.45% at April 29, 2006, compared to a rate of 5.50% at April 30, 2005,

retirement plan as we hold funds equal to the liability of the plan in a Rabbi trust. We are not required to

and 6.00% at April 24, 2004. In addition, the discount rate utilized by our Canadian plan was 4.3% at

make any contributions to the deﬁned beneﬁt plans in ﬁscal year 2007; however, we reserve the right to

April 29, 2006, compared to a rate of 5.5% at April 30, 2005, and 6.5% at April 24, 2004.

make discretionary contributions.

Pension beneﬁts are funded through deposits with trustees and satisfy, at a minimum, the applicable funding

We had unrecognized losses related to our pension plans of $9.9 million and $24.2 million in ﬁscal 2006

regulations. The expected long-term rates of return on fund assets are based upon actual historical returns

and ﬁscal 2005, respectively. The change in the unrecognized actuarial loss for the past two years is primarily

modiﬁed for known changes in the markets and any expected changes in investment policy.

attributed to changes in the discount rate and return on plan assets. A portion of the ﬁscal 2006 unrecognized

Besides evaluating the discount rate used to determine our pension obligation, we also evaluate our

on the actual experience of the plans in ﬁscal 2007 and beyond. We expect that the ﬁscal 2007 pension

assumption relating to the expected return on plan assets annually. In selecting the expected long-term

expense after considering all relevant assumptions will be approximately $2.0 million compared to $3.4

rate of return on assets, we considered the average rate of earnings expected on the funds invested or to

million in ﬁscal 2006, which included $0.9 million of curtailment charges. We do not believe that a 25 basis

be invested to provide the beneﬁts of these plans. This included considering the trust’s asset allocation,

point change in our discount rate or our expected return on plan assets would have a material impact on our

loss will be amortized into earnings in ﬁscal 2007. The effect on years after ﬁscal 2007 will mostly depend

investment strategy and the expected returns likely to be earned over the life of the plans. The rate of return

ﬁnancial statements.

assumption for U.S. plans as of April 29, 2006, and April 30, 2005, was 8.0%. The rate of return assumption

La-Z-Boy Incorporated Annual Report 2006

Financial Guarantees
We have provided ﬁnancial guarantees relating to leases in connection with certain La-Z-Boy Furniture

La-Z-Boy Furniture Galleries® stores that are not operated by us are operated by independent dealers. These

stores sell La-Z-Boy manufactured product as well as various accessories purchased from approved La-Z-Boy

Galleries® stores, which are neither owned nor operated by the company. Lease guarantees are generally

vendors. In some cases we have extended credit beyond normal trade terms to the independent dealers, made

for real estate leases and have terms lasting up to ﬁve years. These lease guarantees enhance the credit of

direct loans and/or guaranteed certain leases. Most of these independent dealers have sufﬁcient equity to

these dealers. The dealer is required to make periodic fee payments to compensate us for our guarantees.

carry out their principal operating activities without subordinated ﬁnancial support. However, there are certain

We have recognized liabilities for the fair values of the lease agreements that we have entered into since

independent dealers that we have determined may not have sufﬁcient equity.

December 31, 2002, but they are not material to our ﬁnancial position.

Based on the criteria for consolidation of VIEs, as of April 24, 2004, we consolidated several dealers where

We would be required to perform under these agreements only if the dealer were to default on the lease. The

we were the primary beneﬁciary based on the fair value of our variable interests. All of our consolidated VIEs

maximum amount of potential future payments under lease guarantees was $6.7 million as of April 29, 2006.

were recorded at fair value on the date we became the primary beneﬁciary resulting in a cumulative effect

We have, from time to time, entered into agreements which resulted in indemnifying third parties against

as if the entities were consolidated based on voting interests, we absorb all net losses of the VIEs in excess

certain liabilities, mainly environmental. We believe that judgments, if any, against us related to such

of the equity at the dealerships. We recognize all net earnings of these VIEs to the extent of recouping the

agreements would not have a material effect on our business or ﬁnancial condition.

losses we recorded. Earnings in excess of our losses are attributed to equity owners of the dealers and are

of accounting change of $8.3 million (net of tax of $5.1 million). Because these entities are accounted for

Our accounting policy for product warranties is to accrue an estimated liability at the time the revenue is

by acquisition. At the end of the ﬁrst quarter of ﬁscal 2006, we became the primary beneﬁciary of one

recognized. This estimate is based on historical claims and adjusted for currently known warranty issues.

additional dealer due to a change in ﬁnancial structure of this dealer.

shown as minority interest on our ﬁnancial statements. During ﬁscal 2005, we eliminated two of our VIEs

Variable Interest Entities
Financial Accounting Standards Board Interpretation No. 46R, Consolidation of Variable Interest Entities

Our consolidated VIEs recognized $36.8 million and $46.0 million in sales, net of intercompany eliminations,

in ﬁscal 2006 and ﬁscal 2005, respectively. Additionally, we recognized a net loss per share of $0.09 and

(“FIN 46”), which was issued in December 2003, requires the “primary beneﬁciary” of a VIE to include the

$0.11 in ﬁscal 2006 and ﬁscal 2005, respectively, resulting from the operating results of these VIEs. The VIEs had

VIE’s assets, liabilities and operating results in its consolidated ﬁnancial statements. In general, a VIE is

$8.6 million and $10.2 million of assets net of elimination of intercompany activity at the end of ﬁscal 2006 and

a corporation, partnership, limited-liability corporation, trust or any other legal structure used to conduct

ﬁscal 2005, respectively. During the third quarter of ﬁscal 2005, one of the equity owners of our VIEs contributed

activities or hold assets that either (a) has an insufﬁcient amount of equity to carry out its principal activities

$2.0 million of capital to their business. Because we accounted for this entity as if it were consolidated based

without additional subordinated ﬁnancial support, (b) has a group of equity owners that are unable to make

on voting interests, we recorded the capital contribution as income in that period to offset previously recorded

signiﬁcant decisions about its activities, or (c) has a group of equity owners that do not have the obligation

losses. In ﬁscal 2005, the extraordinary gain of $3.4 million ($2.1 million net of income taxes) resulted from the

to absorb losses or the right to receive returns generated by its operations.

application of purchase accounting relating to the acquisition of previously consolidated VIEs.

La-Z-Boy Incorporated Annual Report 2006

Additionally, there is an independent dealer that qualiﬁes as a VIE; however, we are not the primary beneﬁciary.

Our interest in this dealer began in 1992 and is comprised of accounts and notes receivable of $21.8 million,

(Amounts in thousands)

which we evaluated periodically for collectibility. We acquired this business at fair value subsequent to year end.

This acquisition is expected to impact our consolidated sales by less than 1.0% for the full year of ﬁscal 2007.

The tables following show the impact of this standard on our consolidated balance sheet at April 29, 2006,

and April 30, 2005, and statement of operations for the years ended April 29, 2006, and April 30, 2005.

The amounts reﬂected in the tables include the elimination of related payables, receivables, sales, cost of sales

and interest, as well as proﬁt in inventory.

Sales(2)
Cost of sales(2)

Gross proﬁt

Selling, general and administrative

Operating loss
Interest expense
Other expense, net(3)

Pre-tax loss
Income tax beneﬁt

VIEs

4/29/06

$ 36,806
4,488

32,318
38,438

(6,120)
504
(1,260)

(7,884)
(2,996)

4/30/05

$ 46,019
1,224

44,795
49,825

(5,030)
427
(4,154)

(9,611)
(3,652)

(Amounts in thousands)

Assets
Cash and equivalents
Receivables, net(1)
Inventories, net
Deferred income taxes
Other current assets

Total current assets

Property, plant and equipment, net
Intangibles
Other long-term assets(1)

Total assets

Liabilities and shareholders’ equity
Current portion of long-term debt and capital leases
Accounts payable
Other current liabilities

Total current liabilities

Long-term debt and capital leases
Other long-term liabilities
Shareholders’ equity (deﬁcit)

VIEs

4/29/06

4/30/05

(2) Includes the elimination of intercompany sales and cost of sales.

(3) Includes the elimination of intercompany interest income and interest expense.

Net loss from continuing operations

$ (4,888)

$ (5,959)

$ 2,554
(20,507)
12,795
10,194
1,487

6,523

12,965
8,122
(19,000)

$ 1,699
(9,131)
7,211
7,199
1,226

8,204

8,431
7,714
(14,169)

Restructuring
In the second quarter of ﬁscal 2006, the decision was made to close our Canadian upholstery manufacturing

facility due to our overall underutilization of capacity. The plant closure occurred in the third quarter of

ﬁscal 2006 and production was absorbed in our other upholstery facilities. A total of 413 jobs were

eliminated as a result of this closure. During ﬁscal 2006, pre-tax restructuring charges for our Canadian

facility were $8.9 million, or $0.11 per diluted share, covering severance and beneﬁts, appropriate

$ 8,610

$ 10,180

adjustments to our pension liability and the write-down of certain ﬁxed assets. During ﬁscal 2006, the

$ 1,587
1,390
6,146

9,123

6,764
(1,632)
(5,645)

$ 1,934
329
3,523

5,786

6,256
(1,300)
(562)

decision was made to close a small, 90,000-square-foot upholstery manufacturing facility in Mississippi

with production absorbed by other upholstery facilities. Pre-tax restructuring charges relating to this closure

were $0.3 million, covering severance and beneﬁts and the write-down of certain ﬁxed assets. Severance

costs and other costs for our restructurings were expensed in accordance with SFAS No. 112, Employers’

Accounting for Postemployment Beneﬁts, and SFAS No. 146, Accounting for Costs Associated with Exit or

Disposal Activities. The write-downs were accounted for in accordance with SFAS No. 144, Accounting for

Total liabilities and shareholders’ equity

$ 8,610

$ 10,180

the Impairment or Disposal of Long-Lived Assets. We expect to dispose of the remaining plants by sale.

(1) Reﬂects the elimination of intercompany accounts and notes receivable.

La-Z-Boy Incorporated Annual Report 2006

Somewhat offsetting these expenses for the upholstery restructurings was a pre-tax gain of $2.5 million

Restructuring liabilities along with charges to expense, cash payments or asset write-downs were as follows:

relating to the sale of two facilities in Mississippi and one facility in Pennsylvania idled as part of

previous restructurings.

In the ﬁrst quarter of ﬁscal 2005, we announced the closing of three casegoods facilities, an upholstery plant

and an upholstery warehouse. The casegoods facilities were closed as a result of continued underutilization

of our domestic casegoods facilities due to an increase in our importing of product from overseas. The

upholstery plant was closed and production was absorbed in another upholstery facility, resulting in better

production efﬁciencies. Approximately 525 jobs were eliminated as a result of these closures. During ﬁscal

2005, pre-tax restructuring charges were $10.3 million or $0.12 per diluted share, covering the following:

write-down of certain ﬁxed assets, the write-down of certain inventories, payment of severance and beneﬁts

and other costs related to the shutdown. We expect to dispose of these plants by sale, or abandonment if

a sale is not practical. Restructuring expenses during 2005 were lower than we had originally anticipated

Fiscal 2006
(Amounts in thousands)

4/30/05
Balance

Charges to
Expense

Cash Payment or
Asset Write-Down

4/29/06
Balance

Fixed asset write-downs,

net of gains

Severance and beneﬁt-

related costs

Total

$ —

$ 38

$ (2,327)

$ 2,327

8,970

$ 6,643

(8,117)

$ (5,790)

$ —

891

$ 891

Fiscal 2005
(Amounts in thousands)

4/24/04
Balance

Charges to
Expense

Cash Payment or
Asset Write-Down

4/30/05
Balance

Fixed asset write-downs,

net of gains

Severance and beneﬁt-

related costs

Inventory write-downs
Other

$ —

329
—
174

$ 503

$ 4,619

$ (4,619)

$ —

1,700
2,450
1,525

(1,991)
(2,450)
(1,699)

38
—
—

$ 10,294

$ (10,759)

$ 38

because our charges to expense were offset by the gains on sale of assets previously written down through

Total

restructuring in the fourth quarter of ﬁscal 2005. The write-down was accounted for in accordance with

SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. Severance costs and other

costs are being expensed as incurred throughout the current ﬁscal year in accordance with SFAS No. 146,

BUSINESS OUTLOOK
While we are pleased with our progress in our Upholstery and Casegoods divisions, we are concerned

Accounting for Costs Associated with Exit or Disposal Activities.

about the macroeconomic environment as the energy markets remain volatile and interest rates continue to

increase. In particular, there has been a change in the retail environment since the ﬁrst calendar quarter

We had $4.2 million of assets held for sale included in other long-term assets on our consolidated balance

of 2006 with April and May being difﬁcult months. Due to seasonal factors, the ﬁrst ﬁscal quarter is

sheet as of April 29, 2006, primarily as a result of the above restructurings. This amount consists of

typically our weakest. With that as a backdrop, we expect our ﬁrst-quarter sales to be ﬂat against last year’s

buildings and related assets. All of these assets have been written down to their fair value less costs to sell

$451 million and reported earnings to be in the range of $0.01 to $0.05 per share, which will include up

and are currently being marketed.

to a $0.02 per share charge for stock option expense.

La-Z-Boy Incorporated Annual Report 2006

RECENT ACCOUNTING PRONOUNCEMENTS
In December 2004, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial

The FASB issued SFAS No. 153, Exchanges of Nonmonetary Assets – an amendment of APB Opinion

No. 29, in December 2004. The guidance in APB Opinion No. 29, Accounting for Nonmonetary Transactions,

Accounting Standards (“SFAS”) No. 123(R), Share-Based Payment. This statement replaces SFAS

is based on the principle that exchanges of nonmonetary assets should be measured based on the fair

No. 123, Accounting for Stock-Based Compensation, and supersedes APB Opinion No. 25, Accounting for

value of the assets exchanged. The guidance in that Opinion, however, included certain exceptions to that

Stock Issued to Employees. SFAS No. 123(R) requires companies to apply a fair-value-based measurement

principle. This statement amends Opinion 29 to eliminate the exception for nonmonetary exchanges of

method in accounting for share-based payment transactions with employees and to record compensation

similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that

cost for all stock awards granted after the required effective date and to awards modiﬁed, repurchased or

do not have commercial substance. A nonmonetary exchange has commercial substance if the future cash

canceled after that date. In addition, we are required to record compensation expense (as previous awards

ﬂows of the entity are expected to change signiﬁcantly as a result of the exchange. We do not expect this

continue to vest) for the unvested portion of previously granted awards that remain outstanding at the date

pronouncement to have a material impact on our ﬁnancial statements.

of adoption. The revised statement generally requires that an entity account for stock-based compensation

transactions using the fair-value-based method and eliminates an entity’s ability to account for those

In May 2005, the FASB issued SFAS No. 154, Accounting Changes and Error Corrections. SFAS No. 154

transactions using the intrinsic value method of accounting. SFAS No. 123(R) is effective for us beginning

is a replacement of APB Opinion No. 20 and FASB Statement No. 3. SFAS No. 154 provides guidance on

on April 30, 2006. We will adopt this statement using a modiﬁed version of prospective application on

the accounting for and reporting of accounting changes and error corrections. It establishes retrospective

April 30, 2006. Management has evaluated the impact that SFAS No. 123(R) will have on our ﬁnancial

application as the required method for reporting a change in accounting principle. SFAS No. 154 provides

position and results of operations and does not expect the impact to be materially different than the effect

guidance for determining whether retrospective application of a change in accounting principle is

shown in Note 1 under “Accounting for Stock-Based Compensation.”

impracticable and for reporting a change when retrospective application is impracticable. The reporting of a

In November 2004, the FASB issued SFAS No. 151, Inventory Costs, an amendment of ARB No. 43,

SFAS No. 154 is effective for accounting changes and corrections of errors made in ﬁscal years beginning

Chapter 4. The amendments made by SFAS No. 151 will improve ﬁnancial reporting by clarifying that

after December 15, 2005. We will be adopting this pronouncement beginning in our ﬁscal year 2007.

abnormal amounts of idle facility expense, freight, handling costs and wasted materials (spoilage) should

be recognized as current-period charges, and by requiring the allocation of ﬁxed production overheads to

In February 2006, the FASB issued SFAS No. 155, Accounting for Certain Hybrid Financial Instruments,

inventory, based on the normal capacity of the production facilities. SFAS No. 151 is effective for inventory

an amendment of FASB Statements No. 133 and 140, which permits fair value measurement for any

costs incurred during ﬁscal years beginning after June 15, 2005. We have evaluated SFAS No. 151 and do

hybrid ﬁnancial instrument that contains an embedded derivative that otherwise would require bifurcation.

not expect this pronouncement to have a material impact on our ﬁnancial statements.

Statement 155 is effective for all ﬁnancial instruments acquired or issued subsequent to the beginning of

correction of an error by restating previously issued ﬁnancial statements is also addressed by SFAS No. 154.

the ﬁrst ﬁscal year that begins after September 15, 2006. We do not expect this pronouncement to have a

material impact on our ﬁnancial statements.

La-Z-Boy Incorporated Annual Report 2006

In March 2006, the FASB issued SFAS No. 156, Accounting for Servicing of Financial Assets, an amendment

According to U.S. Customs and Border Protection, as of October 1, 2005, approximately $117 million

of FASB Statement No. 140, which provides relief for servicers that use derivatives to economically hedge

had been collected in tariffs and is potentially available for distribution under CDSOA to eligible domestic

ﬂuctuations in the fair value of their servicing rights and changes how gains and losses are computed in

manufacturers in connection with the case involving wooden bedroom furniture imported from China.

certain transfers or securitizations. Statement 156 is effective as of the beginning of the ﬁrst ﬁscal year that

These funds are subject to adjustment as the amount of the actual duties is determined retrospectively

begins after September 15, 2006. We do not expect this pronouncement to have a material impact on our

for those imports that are subject to annual administrative reviews conducted by the U.S. Department of

ﬁnancial statements.

Commerce. Further, certain importers and Chinese producers have appealed the initial ﬁndings of the

anti-dumping order to the U.S. Court of International Trade, and favorable rulings for these importers

The FASB issued Interpretation No. 47, Accounting for Conditional Asset Retirement Obligations (“FIN 47”),

and Chinese producers could reduce the amount of duties ultimately available for distribution. The tariffs

on March 30, 2005. The interpretation will result in (a) more consistent recognition of liabilities relating

attributable to importers and Chinese producers whose imports are subject to appeals and administrative

to asset retirement obligations, (b) more information about expected future cash outﬂows associated with

reviews are not available for distribution until those proceedings have been completed. Consequently,

those obligations, and (c) more information about investments in long-lived assets because additional asset

the amount ultimately available for distribution in this case during 2006 will depend on tariffs collected

retirement costs will be recognized as part of the carrying amounts of the assets. Interpretation No. 47 is

through September 30, 2006, that are not subject to administrative reviews and pending legal appeals. Also,

effective no later than the end of ﬁscal years ending after December 15, 2005. FIN 47 did not have a material

any amount we may receive will depend on our percentage allocation, which is based on our qualifying

impact on our ﬁnancial statements.

expenditures in relation to the qualifying expenditures of other domestic producers requesting distribution

for the relevant time periods under CDSOA. Our percentage allocation for payments received in calendar

REGULATORY DEVELOPMENTS
The Continued Dumping and Subsidy Offset Act (CDSOA) provides for distribution of monies collected by

2005 was approximately 20%. The payments received in calendar 2005 were immaterial in total dollars. In

view of the uncertainties associated with this program, we are unable to predict the amounts, if any, we may

U.S. Customs from anti-dumping cases to domestic producers that supported the anti-dumping petition.

receive in ﬁscal 2007 or thereafter under CDSOA. However, assuming CDSOA distributions continue, these

The Dispute Settlement Body of the World Trade Organization (WTO) ruled that such payments violate

distributions could be material depending on the results of legal appeals and administrative reviews and

the United States’ WTO obligations. In response to that ruling, on February 8, 2006, the President signed

our actual percentage allocation.

legislation passed by Congress that repeals CDSOA distributions to eligible domestic producers for tariffs

collected on imports entered into the United States after September 30, 2007.

La-Z-Boy Incorporated Annual Report 2006

CONSOLIDATED STATEMENT OF OPERATIONS

(Amounts in thousands, except per share data)

Fiscal Year Ended

Sales
Cost of sales

Cost of goods sold
Restructuring

Total cost of sales

Gross proﬁt

Selling, general and administrative
Write-down of intangibles

Operating income

Interest expense
Other income, net

Income from continuing operations before income taxes

Income tax expense

Income (loss) from continuing operations

Income from discontinued operations (net of tax of $1,223 in 2005 and $398 in 2004)
Extraordinary gains (net of tax of $1,283 in 2005)
Cumulative effect of accounting changes (net of tax of $5,101 in 2004)

Net income (loss)

Basic average shares outstanding
Basic net income (loss) per share:

Income (loss) from continuing operations
Income from discontinued operations (net of tax)
Extraordinary gains (net of tax)
Cumulative effect of accounting changes (net of tax)

Net income (loss) per basic share

Diluted weighted average shares outstanding
Diluted net income (loss) per share:

Income (loss) from continuing operations
Income from discontinued operations (net of tax)
Extraordinary gains (net of tax)
Cumulative effect of accounting changes (net of tax)

Net income (loss) per diluted share

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

La-Z-Boy Incorporated Annual Report 2006

4/29/06
(52 Weeks)

$ 1,916,777

1,457,965
6,643

1,464,608

452,169
410,348
22,695

19,126
11,540
1,847

9,433
12,474

(3,041)
—
—
—

4/30/05
(53 Weeks)

$ 2,048,381

1,572,844
10,294

1,583,138

465,243
401,592
—

63,651
10,442
170

53,379
20,284

33,095
1,996
2,094
—

4/24/04
(52 Weeks)

$ 1,951,997

1,509,864
10,441

1,520,305

431,692
331,620
71,943

28,129
11,253
4,364

21,240
19,362

1,878
650
—
(8,324)

$ (3,041)

$ 37,185

$ (5,796)

51,801

$ (0.06)
—
—
—

$ (0.06)

51,801

$ (0.06)
—
—
—

$ (0.06)

52,082

$ 0.63
0.04
0.04
—

$ 0.71

52,138

$ 0.63
0.04
0.04
—

$ 0.71

53,508

$ 0.04
0.01
—
(0.16)

$ (0.11)

53,679

$ 0.04
0.01
—
(0.16)

$ (0.11)

CONSOLIDATED BALANCE SHEET

As of

Assets
Current assets

Cash and equivalents
Receivables, less allowance of $14,164 in 2006 and $17,540 in 2005
Inventories, net
Deferred income taxes
Other current assets

Total current assets

Property, plant and equipment, net
Goodwill
Trade names
Other long-term assets, less allowance of $3,267 in 2006 and $2,949 in 2005

Total assets

Liabilities and shareholders’ equity
Current liabilities

Short-term borrowings
Current portion of long-term debt
Accounts payable
Accrued expenses and other current liabilities

Total current liabilities

Long-term debt
Deferred income taxes
Other long-term liabilities
Contingencies and commitments
Shareholders’ equity

Preferred shares – 5,000 authorized; none issued
Common shares, $1 par value – 150,000 authorized; 51,782 outstanding in 2006 and 52,225 outstanding in 2005
Capital in excess of par value
Retained earnings
Unearned compensation
Accumulated other comprehensive income (loss)

Total shareholders’ equity

Total liabilities and shareholders’ equity

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

(Amounts in thousands, except par value)

4/29/06

4/30/05

$ 24,089
270,578
238,826
27,276
23,790

584,559
209,986
56,926
18,794
100,909

$ 37,705
283,915
260,556
22,779
33,410

638,365
210,565
79,362
21,484
76,581

$ 971,174

$ 1,026,357

$ 8,000
2,844
85,561
132,005

228,410
173,368
14,548
44,503

—
51,782
210,826
246,387
(3,083)
4,433

510,345

$ 971,174

$ 9,700
3,060
82,792
133,172

228,724
213,549
5,389
51,409

—
52,225
214,087
273,143
(1,536)
(10,633)

527,286

$ 1,026,357

La-Z-Boy Incorporated Annual Report 2006

CONSOLIDATED STATEMENT OF CASH FLOWS

Fiscal Year Ended

Cash ﬂows from operating activities

Net income (loss)
Adjustments to reconcile net income (loss) to net cash provided by operating activities
Write-down of intangibles
Cumulative effect of accounting change (net of tax)
Extraordinary gains (net of tax)
Gain on sale of discontinued operations (net of tax)
Restructuring
Change in allowance for doubtful accounts
Depreciation and amortization
Change in receivables
Change in inventories
Change in payables
Change in other assets and liabilities
Change in deferred taxes

Total adjustments

Net cash provided by operating activities

Cash ﬂows from investing activities
Proceeds from disposals of assets
Proceeds from sale of discontinued operations
Capital expenditures
Purchases of investments
Proceeds from sales of investments
Acquisitions, net of cash acquired
Change in other long-term assets

Net cash used for investing activities

Cash ﬂows from ﬁnancing activities

Proceeds from debt
Payments on debt
Stock issued for stock and employee beneﬁt plans
Repurchases of common stock
Dividends paid

Net cash used for ﬁnancing activities

Effect of exchange rate changes on cash and equivalents

Change in cash and equivalents
Cash acquired from consolidation of VIEs
Cash and equivalents at beginning of the year

Cash and equivalents at end of the year

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

La-Z-Boy Incorporated Annual Report 2006

4/29/06

4/30/05

4/24/04

(Amounts in thousands)

$ (3,041)

$ 37,185

$ (5,796)

22,695
—
—
—
6,643
1,805
29,234
16,251
25,132
2,260
(7,799)
(3,403)

92,818

89,777

11,499
—
(27,991)
(25,289)
12,983
—
(1,875)

(30,673)

103,380
(146,482)
3,679
(10,890)
(22,923)

(73,236)

516

(13,616)
—
37,705

—
—
(2,094)
(668)
10,294
(3,189)
28,329
(5,935)
(10,633)
(10,032)
(8,924)
11,632

8,780

45,965

11,226
10,985
(34,771)
(14,890)
8,120
(6,806)
2,149

(23,987)

126,752
(124,813)
4,573
(2,476)
(22,868)

(18,832)

677

3,823
—
33,882

71,943
8,324
—
—
10,441
(1,201)
29,112
8,631
16,309
13,220
(6,238)
(11,843)

138,698

132,902

2,167
—
(31,593)
(5,394)
9,250
(9,189)
(403)

(35,162)

101,572
(111,657)
6,714
(72,509)
(21,514)

(97,394)

775

1,121
3,944
28,817

$ 24,089

$ 37,705

$ 33,882

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY

(Amounts in thousands)

At April 26, 2003

Repurchases of common stock
Stock issued for stock and employee beneﬁt plans
Tax beneﬁt from exercise of options
Dividends paid
Comprehensive income (loss)

Net loss
Unrealized gain on marketable securities (net of tax)
Realization of gains on marketable securities (net of tax)
Change in additional minimum pension liability (net of tax)
Translation adjustment
Change in fair value of cash ﬂow hedges (net of tax)
Total comprehensive loss

At April 24, 2004

Repurchases of common stock
Stock issued for stock and employee beneﬁt plans
Amortization of unearned compensation
Tax beneﬁt from exercise of options
Dividends paid
Comprehensive income (loss)

Net income
Unrealized gain on marketable securities (net of tax)
Realization of gains on marketable securities (net of tax)
Change in additional minimum pension liability (net of tax)
Translation adjustment
Change in fair value of cash ﬂow hedges (net of tax)
Total comprehensive income

At April 30, 2005

Repurchases of common stock
Stock issued for stock and employee beneﬁt plans
Amortization of unearned compensation
Dividends paid
Comprehensive income (loss)

Common
Shares

$ 55,027
(3,379)
383

Capital in
Excess of
Par Value

$ 216,081

(493)
568

52,031
(120)
314

216,156

(2,063)

(6)

52,225
(760)
317

214,087

(3,261)

Retained
Earnings

$ 342,628
(69,130)
6,824

(21,514)

(5,796)

253,012
(2,356)
8,170

(22,868)

37,185

273,143
(10,130)
9,338

(22,923)

(3,041)

Unearned
Compensation

Accumulated
Other
Comprehensive
Income (Loss)

$ —

$ (3,797)

—

(1,848)
312

(1,536)

(2,715)
1,168

1,884
(525)
(457)
1,870
2,154

1,129

127
(93)
(14,144)
2,359
(11)

(10,633)

1,020
(451)
13,572
988
(63)

At April 29, 2006

$ 51,782

$ 210,826

$ 246,387

$ (3,083)

$ 4,433

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

Total

$ 609,939
(72,509)
6,714
568
(21,514)

(870)

522,328
(2,476)
4,573
312
(6)
(22,868)

25,423

527,286
(10,890)
3,679
1,168
(22,923)

12,025

$ 510,345

La-Z-Boy Incorporated Annual Report 2006

Notes to Consolidated Financial Statements

NOTE 1: ACCOUNTING POLICIES
The following is a summary of signiﬁcant accounting policies followed in the preparation of these

canceled after that date. In addition, we are required to record compensation expense (as previous awards

continue to vest) for the unvested portion of previously granted awards that remain outstanding at the date

consolidated ﬁnancial statements. Our ﬁscal year ends on the last Saturday of April. Fiscal years 2006 and

of adoption. The revised statement generally requires that an entity account for stock-based compensation

2004 included 52 weeks, whereas ﬁscal year 2005 included 53 weeks.

transactions using the fair-value-based method and eliminates an entity’s ability to account for those

Principles of Consolidation

transactions using the intrinsic value method of accounting. SFAS No. 123(R) is effective for us beginning

on April 30, 2006. We will adopt this statement using a modiﬁed version of prospective application on

The consolidated ﬁnancial statements include the accounts of La-Z-Boy Incorporated and its majority-owned

April 30, 2006. Management has evaluated the impact that SFAS No. 123(R) will have on our ﬁnancial

subsidiaries (“the Company”). All signiﬁcant intercompany transactions have been eliminated. Additionally,

position and results of operations and does not expect the impact to be materially different than the effect

we adopted Financial Accounting Standards Board Interpretation No. 46R, Consolidation of Variable Interest

shown below under “Accounting for Stock-Based Compensation.”

Entities (“VIE”) (“FIN 46”), as of April 24, 2004, which resulted in the consolidation of several of our

independently owned La-Z-Boy Furniture Galleries® stores.

In November 2004, the FASB issued SFAS No. 151, Inventory Costs, an amendment of ARB No. 43,

Use of Estimates

Chapter 4. The amendments made by SFAS No. 151 will improve ﬁnancial reporting by clarifying that

abnormal amounts of idle facility expense, freight, handling costs and wasted materials (spoilage) should

The consolidated ﬁnancial statements are prepared in conformity with accounting principles generally

be recognized as current-period charges, and by requiring the allocation of ﬁxed production overheads to

accepted in the United States of America, which require management to make estimates and assumptions

inventory, based on the normal capacity of the production facilities. SFAS No. 151 is effective for inventory

that affect the reported amounts of assets, liabilities, sales and expenses for the reporting periods. Some

costs incurred during ﬁscal years beginning after June 15, 2005. We have evaluated SFAS No. 151 and

of the more signiﬁcant estimates include depreciation, valuation of inventories, valuation of intangibles,

do not expect this pronouncement to have a material impact on our ﬁnancial statements.

allowances for doubtful accounts, sales returns, legal, environmental, restructuring, product liability,

insurance reserves and warranty accruals. Actual results could differ from those estimates.

The FASB issued SFAS No. 153, Exchanges of Nonmonetary Assets – an amendment of APB Opinion

New Pronouncements

No. 29, in December 2004. The guidance in APB Opinion No. 29, Accounting for Nonmonetary Transactions,

is based on the principle that exchanges of nonmonetary assets should be measured based on the fair

In December 2004, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial

value of the assets exchanged. The guidance in that Opinion, however, included certain exceptions to that

Accounting Standards (“SFAS”) No. 123(R), Share-Based Payment. This statement replaces SFAS No. 123,

principle. This statement amends Opinion 29 to eliminate the exception for nonmonetary exchanges of

Accounting for Stock-Based Compensation, and supersedes APB Opinion No. 25, Accounting for Stock

similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that

Issued to Employees. SFAS No. 123(R) requires companies to apply a fair-value-based measurement

do not have commercial substance. A nonmonetary exchange has commercial substance if the future cash

method in accounting for share-based payment transactions with employees and to record compensation

ﬂows of the entity are expected to change signiﬁcantly as a result of the exchange. We do not expect this

cost for all stock awards granted after the required effective date and to awards modiﬁed, repurchased or

pronouncement to have a material impact on our ﬁnancial statements.

La-Z-Boy Incorporated Annual Report 2006

In May 2005, the FASB issued SFAS No. 154, Accounting Changes and Error Corrections. SFAS No. 154

those obligations, and (c) more information about investments in long-lived assets because additional asset

is a replacement of APB Opinion No. 20 and FASB Statement No. 3. SFAS No. 154 provides guidance on

retirement costs will be recognized as part of the carrying amounts of the assets. Interpretation No. 47 is

the accounting for and reporting of accounting changes and error corrections. It establishes retrospective

effective no later than the end of ﬁscal years ending after December 15, 2005. FIN 47 did not have a material

application as the required method for reporting a change in accounting principle. SFAS No. 154 provides

impact on our ﬁnancial statements.

guidance for determining whether retrospective application of a change in accounting principle is

impracticable and for reporting a change when retrospective application is impracticable. The reporting of a

Cash and Equivalents

correction of an error by restating previously issued ﬁnancial statements is also addressed by SFAS No. 154.

For purposes of the consolidated balance sheet and statement of cash ﬂows, we consider all highly liquid

SFAS No. 154 is effective for accounting changes and corrections of errors made in ﬁscal years beginning

debt instruments purchased with maturities of three months or less to be cash equivalents.

after December 15, 2005. We will be adopting this pronouncement beginning in our ﬁscal year 2007.

Inventories

In February 2006, the FASB issued SFAS No. 155, Accounting for Certain Hybrid Financial Instruments, an

Inventories are stated at the lower of cost or market. Cost is determined using the last-in, ﬁrst-out (“LIFO”)

amendment of FASB Statements No. 133 and 140, which permits fair value measurement for any hybrid

basis for approximately 67% and 70% of our inventories at April 29, 2006, and April 30, 2005, respectively.

ﬁnancial instrument that contains an embedded derivative that otherwise would require bifurcation. SFAS

Cost is determined for all other inventories on a ﬁrst-in, ﬁrst-out (“FIFO”) basis.

No. 155 is effective for all ﬁnancial instruments acquired or issued subsequent to the beginning of the ﬁrst

ﬁscal year that begins after September 15, 2006. We do not expect this pronouncement to have a material

Property, Plant and Equipment

impact on our ﬁnancial statements.

Items capitalized, including signiﬁcant betterments to existing facilities, are recorded at cost. All

maintenance and repair costs are expensed when incurred. Depreciation is computed using accelerated and

In March 2006, the FASB issued SFAS No. 156, Accounting for Servicing of Financial Assets, an amendment

straight-line methods over the estimated useful lives of the assets.

of FASB Statement No. 140, which provides relief for servicers that use derivatives to economically hedge

ﬂuctuations in the fair value of their servicing rights and changes how gains and losses are computed in

Goodwill and Trade Names

certain transfers or securitizations. SFAS No. 156 is effective as of the beginning of the ﬁrst ﬁscal year that

We adopted SFAS No. 142, Goodwill and Other Intangible Assets, which eliminated the amortization of our

begins after September 15, 2006. We do not expect this pronouncement to have a material impact on our

goodwill and trade names. Under this accounting standard, our goodwill and trade names are required to be

ﬁnancial statements.

reviewed at least annually for impairment. See Note 2 for additional information on our goodwill and trade

names and the effect of adopting and applying SFAS No. 142.

The FASB issued Interpretation No. 47, Accounting for Conditional Asset Retirement Obligations (“FIN 47”)

on March 30, 2005. The interpretation will result in (a) more consistent recognition of liabilities relating to

asset retirement obligations, (b) more information about expected future cash outﬂows associated with

La-Z-Boy Incorporated Annual Report 2006

Investments

Advertising Expenses

Trading securities are recorded at fair value with unrealized gains and losses included in income. Available-

Production costs of commercials and programming and costs of other advertising, promotion and

for-sale securities are recorded at fair value with the net unrealized gains and losses reported, net of tax, as

marketing programs are charged to income in the period incurred. Cooperative advertising agreements exist

a component of other comprehensive income. Realized gains and losses for available-for-sale securities are

with some customers to reimburse them for actual advertising expenses. The reimbursements are recorded

based on the ﬁrst-in, ﬁrst-out method.

as advertising expense when the customer substantiates the advertising. Advertising expenses were

Revenue Recognition

$58.3 million, $59.7 million and $46.4 million for the ﬁscal years ended April 29, 2006, April 30, 2005,

and April 24, 2004, respectively. Advertising costs were higher in the last two years due to our increase

Shipping terms for third-party carriers are FOB shipping point and revenue is recognized upon shipment

in company-owned retail stores and the inclusion of advertising costs of consolidated VIEs.

of product. For product shipped on our company-owned trucks, revenue is recognized upon delivery.

This revenue includes amounts billed to customers for shipping. Provision is made at the time revenue is

Income Taxes

recognized for estimated product returns and warranties, as well as other incentives that may be offered

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities

to customers. We import certain products from foreign ports, which are shipped directly to our domestic

are recognized for the estimated future tax consequences attributable to differences between the ﬁnancial

customers. In this case, revenue is not recognized until title is assumed by our customer, which is normally

statement carrying amounts of existing assets and liabilities and their respective tax bases and operating

after the goods pass through U.S. Customs.

loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates in

effect for the year in which those temporary differences are expected to be recovered or settled.

Other incentives offered to customers include cash discounts, advertising agreements and other sales

incentive programs. Cash discounts are recorded as a reduction of revenues when the revenue is recognized.

Foreign Currency Translation

Other sales incentives are recorded at the time of sale as a reduction to revenue. Our advertising agreements

The functional currency of each foreign subsidiary is the respective local currency. Assets and liabilities are

give customers advertising allowances based on revenues and are recorded when the revenue is recognized

translated at the year-end exchange rates and revenues and expenses are translated at average exchange

as a reduction to revenue.

rates for the period. Resulting translation adjustments are recorded as a component of shareholders’ equity

Research and Development Costs

in other comprehensive income.

Research and development costs are charged to expense in the periods incurred. Expenditures for research

Financial Instruments and Hedging

and development costs were $14.7 million, $16.2 million and $15.2 million for the ﬁscal years ended

We have derivative instruments consisting of interest rate swap agreements that are used to ﬁx the interest

April 29, 2006, April 30, 2005, and April 24, 2004, respectively.

rate on a portion of the variable interest rate borrowings on our revolving credit facility. These agreements

were designated and accounted for as cash ﬂow hedges. These interest rate swap agreements expire

in August 2006. The effect of marking these contracts to fair value was recorded as a component of

shareholders’ equity in other comprehensive income.

La-Z-Boy Incorporated Annual Report 2006

We also enter into forward foreign currency exchange contracts to limit our exposure from changes in

Reclassifications

foreign currency exchange rates. These foreign exchange contracts are entered into to support product

Certain prior year information has been reclassiﬁed to be comparable to the current year presentation.

sales, purchases and ﬁnancing transactions made in the normal course of business and, accordingly, are

not speculative in nature. These contracts are designed to match our currency needs and are therefore

Insurance/Self-Insurance

designated and accounted for as cash ﬂow hedges. The fair value of our foreign currency contracts is based

We use a combination of insurance and self-insurance for a number of risks, including workers’

on quoted market prices. We had no foreign exchange rate contracts outstanding at April 29, 2006.

compensation, general liability, vehicle liability and the company-funded portion of employee-related health

Accounting for Stock-Based Compensation

experience, demographic factors, severity factors and other actuarial assumptions.

We account for our stock-based compensation plans using the intrinsic value method of recognition and

measurement principles under APB Opinion No. 25, Accounting for Stock Issued to Employees, and related

In the fourth quarter of ﬁscal 2005, we changed our estimate of workers’ compensation unpaid claims.

interpretations. We adopted the disclosure-only provisions of SFAS No. 123, Accounting for Stock-Based

Previously, we established our workers’ compensation liability using historical trends as the basis for the

Compensation, and SFAS No. 148, Accounting for Stock-Based Compensation – Transition and Disclosure.

liability. The new estimate uses a third-party actuary to estimate settlement costs for incurred claims. We

Assuming that we had accounted for our stock-based compensation programs using the fair value method

recognized an additional expense of $5.9 million, or $0.07 per diluted share, in the fourth quarter of ﬁscal

promulgated by SFAS No. 123, pro forma net income and net income per share would have been as follows

2005 based on our new estimate.

care beneﬁts. Liabilities associated with these risks are estimated in part by considering historical claims

(for the ﬁscal years ended):

(Amounts in thousands,
except per share data)

Net income (loss)
Fair value of stock plan

Pro forma net income (loss)

Basic net income (loss)
per share as reported

Pro forma basic net income (loss)

per share

Diluted net income (loss)
per share as reported

Pro forma diluted net income (loss)

per share

4/29/06

$ (3,041)
(1,893)

$ (4,934)

$ (0.06)

$ (0.10)

$ (0.06)

$ (0.10)

4/30/05

$ 37,185
(2,258)

$ 34,927

$ 0.71

$ 0.67

$ 0.71

$ 0.67

4/24/04

$ (5,796)
(2,375)

$ (8,171)

$ (0.11)

$ (0.15)

$ (0.11)

$ (0.15)

Discontinued Operations

Under the provisions of SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, we

classify a business component that has been disposed of as a discontinued operation if the cash ﬂow of

the component has been eliminated from our ongoing operations and we will no longer have any signiﬁcant

continuing involvement in the component. The results of operations of our discontinued operations through

the date of sale, including any gains or losses on disposition, are aggregated and presented on one line in

the income statement. SFAS No. 144 requires the reclassiﬁcation of amounts presented for prior years as

discontinued operations. The amounts presented in the consolidated statement of operations for years prior

to ﬁscal 2005 were reclassiﬁed to comply with SFAS No. 144.

La-Z-Boy Incorporated Annual Report 2006

As a result of the disposition of our La-Z-Boy Contract operating unit in April 2005, the balance sheet as of

was recorded as a component of operating income. In the latter half of ﬁscal 2006, Bauhaus was impacted

April 30, 2005, does not include any assets or liabilities of discontinued operations. In the consolidated

by several large customer bankruptcies and the merger of two major department stores, which reduced

statement of cash ﬂows, the cash ﬂows of discontinued operations are not reclassiﬁed. See Note 14 for

production causing the closure of several production facilities. There was no tax beneﬁt recognized on this

additional information regarding our discontinued operations.

impairment charge.

Allowance for Doubtful Accounts

In the fourth quarter of ﬁscal 2005 and in ﬁscal 2004, we acquired several La-Z-Boy Furniture Galleries®

The allowance for doubtful accounts reﬂects our best estimate of probable losses inherent in the accounts

stores that were independently owned. Relating to these acquisitions, we recorded goodwill of $11.3 million

receivable balance. We determine the allowance based on known troubled accounts, historical experience

and $10.3 million in ﬁscal 2005 and ﬁscal 2004, respectively. Additionally, in the fourth quarter of ﬁscal

and other currently available evidence.

2005, we completed a valuation of the tax reserves relating to an acquisition in ﬁscal 2000. Due to the

resolution of certain open tax items relating to the acquisition, a reduction of the tax reserves was required

In ﬁscal 2005, we reevaluated our allowance for doubtful accounts after the acquisition of a major La-Z-Boy

during ﬁscal 2005. These reductions in the tax reserves were recorded as a reduction in the remaining

Furniture Galleries® store market and reassessment of our credit position of another signiﬁcant dealer

acquired intangible assets, which consisted of trade names and totaled $6.4 million. Furthermore, in the

upon obtaining additional credit-related information. Based on this valuation, we reduced the allowance for

fourth quarter of ﬁscal 2005, the annual evaluation of goodwill and trade names was performed.

doubtful accounts by $5.5 million.

We determined that goodwill and trade names were not impaired as of the end of ﬁscal 2005.

NOTE 2: GOODWILL AND OTHER INTANGIBLE ASSETS
In accordance with SFAS No. 142, trade names are tested at least annually for impairment by comparing

In the fourth quarter of ﬁscal 2004, the annual evaluation of goodwill and trade names was performed.

Following the evaluation procedures, it was determined that the carrying value of trade names exceeded

their fair value to their carrying values. The fair value for each trade name was established based upon a

their fair value, creating an impairment loss of $43.2 million, and the carrying value of goodwill exceeded

royalty savings approach. Additionally, goodwill was tested for impairment by comparing the fair value of

its fair value, creating an impairment loss of $28.7 million. The after-tax effect of the impairment was $55.9

our operating units to their carrying values. The fair value for each operating unit was established based on

million. The before-tax effect of $71.9 million for these impairment losses was recorded as a component

the discounted cash ﬂows. In situations where the fair value was less than the carrying value, indicating a

of operating income. Of the total impairment losses, $11.3 million and $60.6 million were attributed to the

potential impairment, a second comparison is performed using a calculation of implied fair value of goodwill

Upholstery and the Casegoods segments, respectively. One operating unit accounted for the write-down

to determine the monetary value of impairment

in the Upholstery Group. During ﬁscal 2004, this operating unit had experienced a decline in sales and

In the fourth quarter of ﬁscal 2006, the annual evaluation of goodwill and trade names was performed.

Group sales and operating results had been declining in the few preceding years. Due to continued lagging

Following the evaluation procedures, it was determined that our trade names were not impaired. The carrying

operating results and changes in facts relating to underlying assumptions, the fair value evaluation was lower

value of goodwill exceeded its fair value for Bauhaus creating an impairment loss of $22.7 million which

in the ﬁscal 2004 fourth quarter than in the prior year fourth quarter.

operating income, which caused a decline in the fair value of its intangibles. Prior to ﬁscal 2004, Casegoods

La-Z-Boy Incorporated Annual Report 2006

The following table summarizes changes to goodwill and trade names in ﬁscal 2006 and ﬁscal 2005:

(Amounts in thousands)

Goodwill (Fiscal 2006)
Upholstery Group
Retail Group
Corporate and other

Consolidated

Goodwill (Fiscal 2005)
Upholstery Group
Retail Group
Corporate and other

Consolidated

Trade names (Fiscal 2006)
Upholstery Group
Casegoods Group

Consolidated

Trade names (Fiscal 2005)
Upholstery Group
Casegoods Group

Consolidated

Beginning
Balance

Impairment of
Goodwill

Acquisitions,
Dispositions and
Other

Ending Balance

$ 49,654
21,994
7,714

$ 79,362

$ 49,736
10,666
7,714

$ 68,116

$ 7,165
14,319

$ 21,484

$ 8,690
19,199

$ 27,889

$ (22,695)
—
—

$ (22,695)

$ —
—
—

$ —

$ —
—

$ —

$ —
—

$ —

$ —
(149)
408

$ 259

$ (82)
11,328
—

$ 11,246

$ (2,690)
—

$ (2,690)

$ (1,525)
(4,880)

$ (6,405)

$ 26,959
21,845
8,122

$ 56,926

$ 49,654
21,994
7,714

$ 79,362

$ 4,475
14,319

$ 18,794

$ 7,165
14,319

$ 21,484

La-Z-Boy Incorporated Annual Report 2006

NOTE 3: INVENTORIES

(Amounts in thousands)

Raw materials
Work in progress
Finished goods

FIFO inventories
Excess of FIFO over LIFO

Total inventories

NOTE 4: PROPERTY, PLANT AND EQUIPMENT

(Amounts in thousands)

Buildings and building ﬁxtures
Machinery and equipment
Information systems
Land and land improvements
Transportation equipment
Other
Construction in progress

Less: accumulated depreciation

Property, plant and equipment, net

Estimated
Useful Lives

3-40 yrs.
3-30 yrs.
3-10 yrs.
3-40 yrs.
3-10 yrs.
3-20 yrs.

4/29/06

$ 61,120
50,958
147,996

260,074
(21,248)

4/30/05

$ 69,350
56,655
155,114

281,119
(20,563)

$ 238,826

$ 260,556

4/29/06

$ 211,093
171,407
48,892
29,119
17,228
11,464
9,091

498,294
288,308

4/30/05

$ 207,460
174,913
51,119
28,838
16,546
11,111
4,719

494,706
284,141

The following is a summary of available-for-sale and trading securities at April 29, 2006, and April 30, 2005:

Fiscal 2006
(Amounts in thousands)

Available-for-sale

Equity securities
Fixed income
Other

Total securities

Fiscal 2005
(Amounts in thousands)

Trading securities

Available-for-sale

Equity securities
Fixed income
Other

Total available-for-sale securities

Gross
Unrealized Gains

Gross
Unrealized Losses

$ 2,717
30
—

$ 2,747

$ (6)
(558)
—

$ (564)

Gross
Unrealized Gains

Gross
Unrealized Losses

$ 25

$ (50)

1,274
49
—

1,323

(21)
(40)
—

(61)

Total securities

$ 1,348

$ (111)

Fair Value

$ 12,573
19,400
413

$ 32,386

Fair Value

$ 9,478

8,976
4,033
183

13,192

$ 22,670

The following table summarizes sales of available-for-sale securities (for the ﬁscal years ended):

$ 209,986

$ 210,565

(Amounts in thousands)

NOTE 5: INVESTMENTS
Included in other long-term assets were $32.4 million and $13.2 million at April 29, 2006, and

Proceeds from sales
Gross realized gains
Gross realized losses

4/29/06

$ 12,983
$ 773
$ (91)

4/30/05

$ 1,672
$ 173
$ (25)

4/24/04

$ 6,638
$ 891
$ (56)

April 30, 2005, respectively, of available-for-sale marketable securities to fund future obligations of one

The fair value of ﬁxed income available-for-sale securities by contractual maturity was $4.1 million within

of our retirement plans and our captive insurance company. As of April 30, 2005, we had $9.5 million of

one year, $5.9 million within two to ﬁve years, $8.5 million within six to ten years and $0.9 million thereafter.

trading securities. These investments related to our captive insurance company.

La-Z-Boy Incorporated Annual Report 2006

NOTE 6: ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

to be excluded for purposes of covenant calculations under the agreement. On November 22, 2005, we

(Amounts in thousands)

Payroll and other compensation
Customer deposits
Accrued product warranty
Other current liabilities

Accrued expenses and other current liabilities

4/29/06

$ 56,411
19,683
17,221
38,690

$ 132,005

4/30/05

$ 64,419
13,036
12,288
43,429

$ 133,172

executed an amendment to the credit agreement to modify its ﬁxed charge coverage ratio requirements and

interest rate provisions. The revolving credit facility expires on May 1, 2009. At April 29, 2006, we were

in compliance with all of the covenants under this facility. As of April 29, 2006, we had $125.0 million

available for future borrowings under this facility.

We have short-term borrowing arrangements with several banks that allow us to borrow funds on demand.

Our availability of credit from short-term borrowing lines of credit total $104.1 million, of which we had

NOTE 7: DEBT
On March 30, 2004, we entered into an unsecured $150 million revolving credit facility agreement. The

borrowed $8.0 million at April 29, 2006.

facility has an accordion feature, enabling us to expand the facility by $50 million to $200 million with

Industrial revenue bonds were used to ﬁnance the construction of some of our manufacturing facilities.

the same terms and conditions, subject to approval by the banks that are a party to the agreement. The

The facilities constructed from the bond proceeds are mortgaged as collateral for the bonds.

agreement has a performance-based interest rate pricing grid ranging from LIBOR plus 0.475% to LIBOR

plus 0.800%, determined by our consolidated debt-to-capital ratio. The agreement also requires that

We have entered into several interest rate swap agreements with counter-parties that are participants in the

certain ﬁnancial covenants be met. On November 11, 2005, we executed a consent and waiver with the

revolving credit facility to reduce the impact of changes in interest rates on the ﬂoating rate debt. We believe

lenders under our credit agreement clarifying that the assets, liabilities and operating results of VIEs are

that the risk of potential credit loss from counter-party non-performance is minimal. The purpose of

(Amounts in thousands)

Revolving credit facility
Industrial revenue bonds
Private placement notes

Other debt
Capital leases

Total debt
Less: current portion

Long-term debt

Weighted average interest rate

Fair value of debt

Interest Rate

3.6-5.4%
3.4-7.0%
6.5%
4.6%
5.3%
5.5-13.7%
7.0-8.3%

Fiscal Year
Maturity

2010
2010-23
2008
2010
2013
2007-11
2007-11

4/29/06

$ 25,000
16,856
35,000
36,000
50,000
11,020
2,336

176,212
2,844

$ 173,368

4.8%

$ 173,415

4/30/05

$ 65,000
17,088
35,000
36,000
50,000
11,170
2,351

216,609
3,060

$ 213,549

3.9%

$ 218,785

La-Z-Boy Incorporated Annual Report 2006

these swaps is to ﬁx interest rates on a notional amount of $10 million through August 4, 2006, at 3.05%

Rental expense, rental income and contingent rentals for operating leases were as follows (for the ﬁscal

plus the applicable borrowing spread under the revolving credit facility. The fair market value of the swaps

years ended):

was an asset of less than $0.1 million.

Maturities of long-term debt, subsequent to April 29, 2006, are $2.8 million in 2007, $37.0 million in 2008,

$1.8 million in 2009, $68.0 million in 2010, $4.4 million in 2011 and $62.2 million thereafter.

(Amounts in thousands)

Rental expense
Rental income
Contingent rentals

4/29/06

$ 45,125
$ 994
$ 470

4/30/05

$ 38,771
$ 612
$ 512

4/24/04

$ 26,114
$ 1,812
$ 446

Cash paid for interest during ﬁscal years 2006, 2005 and 2004 was $11.5 million, $10.1 million and

$11.6 million, respectively.

NOTE 9: FINANCIAL GUARANTEES AND PRODUCT WARRANTIES
Prior to December 31, 2002, we provided secured and unsecured ﬁnancial guarantees relating to leases in

connection with certain La-Z-Boy Furniture Galleries® dealers whose stores are not owned by the company.

NOTE 8: OPERATING LEASES
We have operating leases for manufacturing facilities, executive and sales ofﬁces, warehouses, showrooms

The lease guarantees are generally for real estate leases and have terms lasting up to ﬁve years. These

lease guarantees enhance the credit of these dealers. The dealer is required to make periodic fee payments

and retail facilities, as well as for transportation and data processing. The operating leases expire at various

to compensate us for our guarantees. As required by FIN 45, Guarantor’s Accounting and Disclosure

dates through ﬁscal 2027. Certain transportation leases contain a provision for the payment of contingent

Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, we have recognized

rentals based on mileage in excess of stipulated amounts. We lease additional transportation, data

liabilities for the fair values of the lease agreements we have entered into since December 31, 2002, but

processing and other equipment under capital leases expiring at various dates through ﬁscal 2010.

they are not material to our ﬁnancial position.

We have certain retail facilities which we sublease to outside parties.

We would be required to perform under these agreements only if the dealer were to default on the lease.

The maximum amounts of potential future payments under lease guarantees was $6.7 million as of

The future minimum rentals for all non-cancelable leases and future rental income from subleases are as

April 29, 2006.

follows (for the ﬁscal years):

(Amounts in thousands)

2007
2008
2009
2010
2011
2012 and beyond

La-Z-Boy Incorporated Annual Report 2006

Future Minimum
Rentals

Future Minimum
Income

We have, from time to time, entered into agreements which resulted in indemnifying third parties against

certain liabilities, mainly environmental. We believe that judgments, if any, against us related to such

$ 35,006
34,989
33,294
30,493
24,459
127,731

$ 285,972

$ 1,369
1,273
1,297
1,314
1,350
10,084

$ 16,687

agreements would not have a material effect on our business or ﬁnancial condition.

Our accounting policy for product warranties is to accrue an estimated liability at the time the revenue is

recognized. This estimate is based on historical claims and adjusted for currently known warranty issues.

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

This new plan provides grants to certain employees to purchase common shares at a speciﬁed price,

(Amounts in thousands)

Balance as of the beginning of the year
Accruals during the year
Adjustment for discontinued operations
Settlements during the year

Balance as of the end of the year

4/29/06

$ 18,688
13,332
—
(12,365)

$ 19,655

4/30/05

$ 19,527
17,481
(1,265)
(17,055)

$ 18,688

NOTE 10: CONTINGENCIES AND COMMITMENTS
We have been named as a defendant in various lawsuits arising in the ordinary course of business,

including being named as a potentially responsible party at six environmental clean-up sites. Based on

a review of all currently known facts and our experience with previous legal and environmental matters,

we have recorded expense in respect of probable and reasonably estimable losses arising from legal and

environmental matters and do not believe that a material additional loss is reasonably possible for legal

or environmental matters.

NOTE 11: STOCK PLANS
In ﬁscal 2005, our shareholders approved a long-term equity award plan which replaces the former

employee incentive stock option plan, the former employee restricted share plan and the former

performance-based stock plan. The new plan allows for awards in the form of performance awards, restricted

shares and stock options. Under this new plan, the aggregate number of common shares that may be issued

through awards of any form is 5,000,000. No further grants or awards may be issued under the former plans.

which may not be less than 100% of their fair market value at the date of grant. Granted options generally

become exercisable at 25% per year, beginning one year from the date of grant for a term of ﬁve years.

Granted options outstanding under the former plan remain in effect and become exercisable at 25% per year,

beginning one year from the date of grant for a term of ﬁve or ten years.

Plan activity for stock options under the new long-term equity award plan and the former employee incentive

stock option plan is as follows:

Outstanding at April 26, 2003
Granted
Exercised
Expired or canceled

Outstanding at April 24, 2004
Granted
Exercised
Expired or canceled

Outstanding at April 30, 2005
Granted
Exercised
Expired or canceled

Outstanding at April 29, 2006

Exercisable at April 29, 2006
Exercisable at April 30, 2005
Exercisable at April 24, 2004
Shares available for grants at April 29, 2006

Number of Shares

Weighted Avg.
Exercise Price

2,206,522
734,900
(342,170)
(149,005)

2,450,247
446,900
(49,821)
(720,073)

2,127,253
696,100
(3,540)
(494,729)

2,325,084

1,103,063
1,031,983
1,096,467
3,714,275

$ 20.01
20.52
17.30
20.94

20.48
16.66
15.54
21.12

19.58
13.57
10.10
17.23

18.29

20.65
19.73
$ 20.28

La-Z-Boy Incorporated Annual Report 2006

Information regarding currently outstanding and exercisable options is as follows:

Range of exercise prices

$13.57 - $13.73
$13.74 - $17.17
$17.18 - $20.60
$20.61 - $24.03
$24.04 - $27.46

Number
Outstanding at
April 29, 2006

Weighted Avg.
Exercise Price

Weighted Avg.
Remaining
Contractual Life
In Years

Number
Exercisable at
April 29, 2006

Weighted Avg.
Exercise Price

644,800
372,820
818,939
475,545
12,980

2,325,084

$ 13.57
16.64
20.18
22.58
24.69

$ 18.29

4.3
3.3
3.7
5.4
2.0

4.2

—
105,595
614,562
369,926
12,980

1,103,063

$ —
16.57
20.10
22.58
24.69

$ 20.65

The table above includes options that were issued to replace outstanding options of a company acquired in

Our shareholders have approved a non-employee directors’ restricted share plan, under which shares were

ﬁscal 2000. The options outstanding under this plan as of April 29, 2006, were 29,500, with a weighted average

offered at 25% of the fair market value at the date of grant. The plan required that all shares be held in an escrow

exercise price of $19.88 per share. There are no shares available for future grant under this plan.

account until the participant’s service as a director ceases unless otherwise approved by the Board of Directors.

Under a second component of the new long-term equity award plan, the Compensation Subcommittee of the

to us at their cost. Common shares aggregating 16,000 and 18,000 were granted and issued to non-employee

Board of Directors is authorized to award restricted common shares to certain employees. The shares are

directors during ﬁscal years 2006 and 2005, respectively, under the restricted share plan. Common shares

offered at no cost to the employees, and the plan requires that all shares be held in an escrow account for a

remaining for future grants under this plan amounted to 199,800 at April 29, 2006.

period of three to ﬁve years. In the event of an employee’s termination during the escrow period, the shares

are returned to the company at no cost to the company. Common shares aggregating 201,875 and 122,400

Under a third component of the new long-term equity award plan, the Compensation Subcommittee of the

were awarded during ﬁscal 2006 and ﬁscal 2005, respectively, as restricted shares under the new long-term

Board of Directors is authorized to award common shares to certain employees based on the attainment of

In the event of a non-employee director’s termination during the escrow period, the shares must be sold back

equity award plan.

certain ﬁnancial goals. The shares are offered at no cost to the employees. No shares will be issued in ﬁscal

2007 and no shares were issued in ﬁscal 2006 for this component of the new long-term equity award plan.

Under our former employee restricted share plan, the Compensation Subcommittee of the Board of Directors is

This new component of the long-term equity award plan replaced the former performance-based stock plan,

authorized to offer for sale common shares to certain employees. Under the former restricted share plans, shares

which also allowed grants of shares or short-term options to purchase shares based on achievement of goals

were offered at 25% of the fair market value at the date of grant. The plans required that all shares be held in an

over a three-year performance period. No shares were issued in ﬁscal 2005 under the former performance-

escrow account for a period of three years. In the event of an employee’s termination during the escrow period,

based stock plan. The cost of performance-based awards is expensed over the performance period.

the shares must be sold back to us at their cost. No shares were issued in ﬁscal 2006 and ﬁscal 2005 under the

former employee restricted share plan.

La-Z-Boy Incorporated Annual Report 2006

Actual expense relating to the restricted shares and the performance-based stock awards was $0.6 million in

ﬁscal 2006, $(0.6) million in ﬁscal 2005 and $0.3 million in ﬁscal 2004. The performance-based metrics that

the performance-based stock plan payouts are based upon were not achieved in the three-year cycle ending in

We maintain a non-qualiﬁed deﬁned beneﬁt retirement plan for certain former salaried employees. Included

April 2004, the one-year cycle ending in April 2005 or the two-year cycle ending in April 2006. Therefore, in

in other long-term liabilities were plan obligations of $13.8 million and $15.1 million at April 29, 2006, and

ﬁscal 2006 and ﬁscal 2005, expenses of $0.5 million and $1.4 million, respectively, were reversed relating to

April 30, 2005, respectively. During ﬁscal 2006, the interest cost recognized for this plan was $0.8 million,

prior year accruals for the previously anticipated payout on this plan.

the actuarial gain recognized was $1.3 million and the beneﬁt payments during the year were $0.8 million.

This plan is excluded from the obligation charts that follow.

As permitted by SFAS No. 123, Accounting for Stock-Based Compensation, we have chosen to continue to

account for stock-based compensation using the intrinsic value method prescribed in Accounting Principles

Voluntary 401(k) retirement plans are offered to eligible employees within certain U.S. operating units. For

Board (“APB”) Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations. Refer to

most operating units, we make matching contributions based on speciﬁc formulas, and this match is made in

Note 1 for additional information.

our common shares. We also maintain deﬁned beneﬁt pension plans for eligible factory hourly employees at

some operating units. Our largest plan has been frozen for new participants since January 1, 2001, but active

The fair value of each option grant was estimated on the date of grant using the Black-Scholes model with the

participants still earn service cost. As discussed in Note 13, we closed our Canadian manufacturing facility

following assumptions (for the ﬁscal years ended):

during ﬁscal 2006 and terminated the pension plan associated with that business, which caused a curtailment

Risk-free interest rate
Dividend rate
Expected life in years
Stock price volatility

4/29/06

4.25%
3.1%
5.0
29.0%

4/30/05

3.4%
2.1%
5.5
36.0%

4/24/04

3.1%
1.9%
5.0
36.0%

loss of $0.9 million as shown in the table below.

The measurement dates for the pension plan assets and beneﬁt obligations were April 29, 2006, April 30, 2005,

and April 24, 2004, in the years presented.

Based on the above assumptions, the weighted average fair value per share of options granted under these plans

The net periodic pension cost and retirement costs for retirement plans were as follows (for the ﬁscal years ended):

was $3.21 in ﬁscal 2006, $5.02 in ﬁscal 2005 and $6.41 in ﬁscal 2004.

NOTE 12: RETIREMENT/WELFARE
Eligible salaried employees are covered under a trusteed proﬁt-sharing retirement plan. Discretionary cash

contributions to a trust are made annually based on proﬁts. We also maintain an Executive Qualiﬁed Deferred

Compensation plan for eligible highly compensated employees. An element of this plan is the Supplemental

Executive Retirement Plan (“SERP”), which allows contributions for eligible highly compensated employees.

We had life insurance contracts at April 29, 2006, and April 30, 2005, of $18.3 million and $15.1 million,

respectively, included in other long-term assets related to this plan.

(Amounts in thousands)

Service cost
Interest cost
Expected return on plan assets
Net amortization and deferral
Curtailment loss – plan termination

Net periodic pension cost
Proﬁt sharing/SERP*
401(k)*
Other*

Total retirement costs

* Not determined by an actuary.

4/29/06

$ 2,979
4,880
(6,514)
1,202
900

3,447
6,405
4,415
755

4/30/05

$ 3,065
4,695
(6,126)
(53)
—

1,581
10,970
4,973
1,130

4/24/04

$ 2,891
4,440
(6,727)
1,916
—

2,520
10,597
5,163
911

$ 15,022

$ 18,654

$ 19,191

La-Z-Boy Incorporated Annual Report 2006

The funded status of the deﬁned beneﬁt pension plans was as follows:

The weighted average actuarial assumptions were as follows (for the ﬁscal years ended):

(Amounts in thousands)

Change in beneﬁt obligation
Beneﬁt obligation at beginning of year
Service cost
Interest cost
Actuarial (gain)/loss
Beneﬁts paid

Beneﬁt obligation at year end

Change in plan assets
Fair value of plan assets at beginning of year
Actual return on plan assets
Employer contribution
Beneﬁts paid

Fair value of plan assets at year end

Funded (underfunded) status
Unrecognized actuarial loss
Unamortized prior service cost

Prepaid beneﬁt cost

Accumulated beneﬁt obligation

Amounts recognized in the balance sheet consist of the following:

(Amounts in thousands)

Prepaid beneﬁt cost
Accrued beneﬁt liability
Intangible assets
Accumulated other comprehensive loss

Net amount recognized

La-Z-Boy Incorporated Annual Report 2006

4/29/06

4/30/05

4/29/06

4/30/05

4/24/04

$ 90,222
2,979
4,880
(6,635)
(5,008)

86,438

82,842
12,404
1,230
(5,008)

91,468

5,030
9,903
27

$ 14,960

$ 84,745

4/29/06

$ 14,960
(1,291)
—
1,291

$ 14,960

$ 79,319
3,065
4,695
7,030
(3,887)

90,222

82,105
3,471
1,153
(3,887)

82,842

(7,380)
24,205
439

$ 17,264

$ 87,948

4/30/05

$ —
(5,106)
439
21,931

$ 17,264

Discount rate used to

determine beneﬁt obligations
Discount rate used to determine

net beneﬁt cost
Long-term rate of return

6.4%

5.5%
8.0%

5.5%

6.0%
8.0%

6.0%

6.5%
8.0%

Our long-term stated investment objective is to maximize the investment return with the least amount of

risk through a combination of capital appreciation and income. The strategic asset allocation targets are

65% equities and 35% ﬁxed income within a range of 5% of the target. In selecting the expected long-term

rate of return on assets, we considered the average rate of earnings expected on the funds invested or to be

invested to provide the beneﬁts of these plans. This included considering the trust’s asset allocation and the

expected returns likely to be earned over the life of the plans. This basis is consistent with the prior year.

As of the end of ﬁscal 2005, the qualiﬁed plans were underfunded; however, only our Canadian plan

remained underfunded at the end of ﬁscal 2006. We expect to fund our Canadian pension plan fully in ﬁscal

2007 but expect that the funding will be less than $0.1 million U.S. dollars. In addition, our non-qualiﬁed

retirement plan was not funded at April 29, 2006. We do not expect to fund our non-qualiﬁed deﬁned beneﬁt

retirement plan as we hold funds equal to the liability of the plan in a Rabbi trust. We are not required to

make any contributions to the deﬁned beneﬁt plans in ﬁscal year 2007; however, we reserve the right to

make discretionary contributions.

The weighted average asset allocations at year end were as follows:

Equity securities
Debt securities

4/29/06

4/30/05

69%
31%

100%

68%
32%

100%

The amounts reported in total comprehensive income (loss), net of tax, were $13.6 million and $(14.1)

the Impairment or Disposal of Long-Lived Assets. We expect to dispose of these plants by sale.

million in ﬁscal 2006 and ﬁscal 2005, respectively. Also during ﬁscal 2005, we recorded $0.4 million of

Somewhat offsetting these expenses for the upholstery restructurings was a pre-tax gain of $2.5 million

intangible assets relating to prepaid beneﬁt cost.

relating to the sale of two facilities in Mississippi and one facility in Pennsylvania, which were idled as part

The expected beneﬁt payments by our pension plans for each of the next ﬁve years and for periods thereafter

of previous restructurings.

are presented in the following table:

(Amounts in thousands)

2007
2008
2009
2010
2011
2012 and 2015

In the ﬁrst quarter of ﬁscal 2005, the decision was made to close three casegoods facilities, an upholstery

Beneﬁt Payments

plant and an upholstery warehouse. The casegoods facilities were closed as a result of continued

$ 7,851
3,512
3,720
3,934
4,118
23,701

$ 46,836

underutilization of our domestic casegoods facilities due to an increase in our importing of product

from overseas. The upholstery plant was closed and production was absorbed by another upholstery

facility, resulting in better production efﬁciencies. The casegoods plants were closed in the third quarter.

Approximately 525 jobs were eliminated as a result of these closures. During ﬁscal 2005, pre-tax

restructuring charges were $10.3 million, or $0.12 per diluted share, covering the following: write-down

of certain ﬁxed assets, write-down of certain inventories, payment of severance and beneﬁts and other

costs related to the shutdown. We expect to dispose of these plants by sale, or abandonment if a sale is not

NOTE 13: RESTRUCTURING
In the second quarter of ﬁscal 2006, the decision was made to close our Canadian upholstery manufacturing

practical. The restructuring expenses during 2005 were lower than we had originally anticipated because our

charges to expense were offset by the gains on sale of assets previously written down through restructuring.

facility due to underutilization of capacity. The plant closure occurred in the third quarter of ﬁscal 2006

The write-down was accounted for in accordance with SFAS No. 144, Accounting for the Impairment or

and production was absorbed by other upholstery facilities. Approximately 413 jobs were eliminated as

Disposal of Long-Lived Assets. Severance costs and other costs were expensed as incurred throughout ﬁscal

a result of this closure. During ﬁscal 2006, pre-tax restructuring charges for our Canadian facility were

2005 in accordance with SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities.

$8.9 million, or $0.11 per diluted share, covering severance and beneﬁts, appropriate adjustments to our

pension liability and the write-down of certain ﬁxed assets. During the third quarter of ﬁscal 2006, the

During the ﬁrst quarter of ﬁscal 2004, we announced the closing of three of our Casegoods Group

decision was made to close a small, 90,000-square-foot upholstery manufacturing facility in Mississippi,

manufacturing facilities. This action was the result of underutilization of certain manufacturing facilities

with production absorbed by other upholstery facilities. Pre-tax restructuring charges relating to this closure

as we transition to more foreign-sourced products in order to be competitive with imported furniture. The

were $0.3 million, covering severance and beneﬁts and the write-down of certain ﬁxed assets. Severance

closure of these facilities resulted in the elimination of 480 jobs. During ﬁscal 2004, pre-tax restructuring

costs and other costs for our restructurings were expensed in accordance with SFAS No. 112, Employers’

charges related to the restructuring were $10.4 million, covering the write-down of certain ﬁxed assets

Accounting for Postemployment Beneﬁts, and SFAS No. 146, Accounting for Costs Associated with Exit or

and inventories, lease costs and severance-related costs, which were recorded in cost of sales. We expect

Disposal Activities. The write-downs were accounted for in accordance with SFAS No. 144, Accounting for

to dispose of two manufacturing plants by sale, and the related write-down has been accounted for in

La-Z-Boy Incorporated Annual Report 2006

accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. Our third

plant was leased, and the lease expired in our fourth quarter of ﬁscal 2004. The plants ceased operations

NOTE 14: DISPOSITIONS/ACQUISITIONS
Discontinued Operations

during ﬁscal year 2004. The remaining liability was paid out in ﬁscal 2006.

On April 29, 2005, we completed the sale of our La-Z-Boy Contract operating unit for $11.0 million in

cash and a note for $0.7 million. The pre-tax gain recognized on the sale during the fourth quarter of ﬁscal

We have $4.2 million of assets held for sale included in other long-term assets on our consolidated

2005 was $1.1 million. This disposition qualiﬁed for discontinued operations treatment. Accordingly,

balance sheet as of April 29, 2006, primarily as a result of the above restructurings. This amount consists of

the consolidated statement of operations for all prior years has been reclassiﬁed to reﬂect the results of

buildings and related assets. All of these assets have been written down to their fair value less costs to sell

operations of this divested business as a discontinued operation. There were no assets or liabilities of

and are currently being marketed.

discontinued operations reported in the consolidated balance sheet as of April 30, 2005. In the consolidated

statement of cash ﬂows, the cash ﬂows of discontinued operations were not reclassiﬁed in all periods

Restructuring liabilities along with charges to expense, cash payments or asset write-downs were as follows:

presented. The operating results for ﬁscal 2005 and 2004 of our La-Z-Boy Contract operating unit, which

Fiscal 2006

was part of our Upholstery segment, are reported in the following table.

(Amounts in
thousands)

Fixed asset write-

downs, net of gains
Severance and beneﬁt-

related costs

Total

(Amounts in
thousands)

Fixed asset write-

downs, net of gains
Severance and beneﬁt-

related costs

Inventory write-downs
Other

Total

4/30/05
Balance

Charges to
Expense

Cash Payment or
Asset Write-Down

4/29/06
Balance

$ —

$ 38

$ (2,327)

$ 2,327

8,970

$ 6,643

(8,117)

$ (5,790)

Fiscal 2005

$ —

891

$ 891

(Amounts in thousands)

Sales

Income from operations before income taxes
Income tax expense

Income from operations

4/30/05
(53 Weeks)

$ 48,718

2,142
814

1,328

4/24/04
(52 Weeks)

$ 46,879

1,048
398

650

Gain on disposal of operating unit (net of tax)

$ 668

$ —

4/24/04
Balance

Charges to
Expense

Cash Payment or
Asset Write-Down

4/30/05
Balance

Acquisitions

$ —

329
—
174

$ 503

$ 4,619

$ (4,619)

$ —

1,700
2,450
1,525

(1,991)
(2,450)
(1,699)

38
—
—

$ 10,294

$ (10,759)

$ 38

In ﬁscal years 2005 and 2004, we acquired retail operations consisting of 21 stores (eight of which

were previously consolidated as VIEs in ﬁscal 2005), and four stores, respectively. In aggregate, these

acquisitions increased our reported net sales by less than 1.0%. Pro forma sales and results of operations

are not presented, as they are not materially different from that of our consolidated results of operations

as reported.

La-Z-Boy Incorporated Annual Report 2006

NOTE 15: INCOME TAXES
The primary components of our deferred tax assets and (liabilities) were as follows:

(Amounts in thousands)

Assets
Deferred and other compensation
Warranty
Allowance for doubtful accounts
Consolidation of variable interest entities
State income tax
Restructuring
Workers’ compensation
Pension
Employee beneﬁts
Other
Valuation reserve

Total deferred tax assets

Liabilities
Trade names
Pension
Property, plant and equipment
Inventory
Other

Total deferred tax liabilities

Net deferred tax assets

4/29/06

4/30/05

$ 13,890
7,810
7,212
5,705
11,096
2,002
929
—
4,228
1,376
(10,422)

43,826

(7,049)
(5,457)
(13,902)
(2,660)
(2,030)

(31,098)

$ 12,719
8,004
6,782
3,170
12,811
1,821
1,197
1,513
2,295
633
(12,212)

38,733

(6,484)
—
(10,245)
(1,722)
(2,892)

(21,343)

$ 12,728

$ 17,390

Our effective tax rate differs from the U.S. federal income tax rate for the following reasons:

(% of pre-tax income)

Statutory tax rate
Increase (reduction) in income taxes

resulting from:
State income taxes, net of

federal beneﬁt
Goodwill impairment
Dividend from foreign subsidiary
Non-deductible meals and

entertainment

ESOP beneﬁt
Change in valuation allowance
Foreign tax rate differential

Increase in value of life insurance
contracts

Federal income tax credits
Deduction for U.S. manufacturing
Miscellaneous items

4/29/06

35.0%

4/30/05

35.0%

4/24/04

35.0%

11.9
84.2
—

4.4
(4.8)
15.2
(0.3)

(6.6)
(3.4)
(3.6)
0.2

4.8
—
0.5

0.7
(0.7)
(1.7)
(0.6)

—
(0.2)
—
0.2

8.0
45.1
1.4

2.3
(1.8)
—
(0.1)

—
(0.5)
—
(0.7)

Effective tax rate

132.2%

38.0%

88.7%

At April 29, 2006, and April 30, 2005, we had state net operating losses and credits that, if fully utilized,

would result in a tax reduction of approximately $11.1 million and $14.7 million, respectively. Due to the

uncertainty of their actual utilization, we established a valuation reserve at the end of each year in the amounts

of $8.7 million and $11.4 million for ﬁscal 2006 and ﬁscal 2005, respectively. These state net operating

losses and credits expire between ﬁscal 2007 and ﬁscal 2026. During ﬁscal 2006, it became apparent that

some tax beneﬁts would not be used as the business operations in certain tax jurisdictions were terminated.

Consequently, both the gross amount of these tax beneﬁts and the related reserve were reduced by

$3.9 million. In addition, the valuation reserve related to tax credits was increased by $0.8 million.

Furthermore, at April 29, 2006, and April 30, 2005, our foreign subsidiaries had realized net operating

losses that, if fully utilized, would result in a tax reduction of approximately $3.6 million and $1.1 million,

respectively. Due to the uncertainty of their actual utilization, we established a valuation reserve of

$1.8 million and $0.8 million at April 29, 2006, and April 30, 2005, respectively.

La-Z-Boy Incorporated Annual Report 2006

During ﬁscal 2005 and 2004, we repatriated earnings of a Canadian subsidiary. However, due to current

during the period plus the additional common shares that would have been outstanding if the dilutive

year losses resulting from the closure of its manufacturing operations, there are no undistributed earnings

potential common shares had been issued. Our dilutive potential common shares are for employee stock-

for which a deferred tax liability is required. For our other foreign subsidiaries, we continue to assert that

related plans described in Note 11. Outstanding share information is as follows (for the ﬁscal years ended):

their earnings are permanently reinvested; consequently, no deferred tax was recorded for their undistributed

earnings. An estimate of these permanently reinvested earnings is $5.0 million at April 29, 2006. The

potential deferred tax attributable to these earnings is not currently estimable.

Income tax expense applicable to continuing operations consists of the following components (for the

(Amounts in thousands)

4/29/06

4/30/05

4/24/04

Weighted average common shares

outstanding (basic)

Effect of options and unvested

restricted stock

Weighted average common shares

outstanding (diluted)

51,801

—

51,801

52,082

52,138

53,508

171

53,679

ﬁscal years ended):

(Amounts in thousands)

Federal – current
– deferred
State – current
– deferred
Foreign – current
– deferred

Total income tax expense

4/29/06

$ 14,149
(2,849)
2,236
314
214
(1,590)

$ 12,474

4/30/05

$ 7,211
10,323
2,417
(1,199)
2,073
(541)

$ 20,284

4/24/04

$ 26,972
(12,131)
3,671
(984)
1,994
(160)

$ 19,362

The weighted average common shares outstanding (diluted) at April 29, 2006, excludes outstanding

stock options of 0.2 million because the net loss in the ﬁscal year would cause the effect of options

to be antidilutive.

The effect of options to purchase 1.7 million, 1.9 million and 0.9 million shares for the ﬁscal years ended

April 29, 2006, April 30, 2005, and April 24, 2004, with a weighted average exercise price of $20.11,

Income from continuing operations before income taxes consists of the following (for the ﬁscal years ended):

$20.10 and $22.98, respectively, were excluded from the diluted share calculation because the exercise

(Amounts in thousands)

United States
Foreign

Total

4/29/06

$ 15,853
(6,420)

$ 9,433

4/30/05

$ 47,977
5,402

$ 53,379

4/24/04

$ 15,951
5,289

$ 21,240

prices of these options were higher than the weighted average share price for the ﬁscal years and would

have been antidilutive.

NOTE 17: SEGMENTS
Our reportable operating segments are the Upholstery Group, the Casegoods Group and the Retail Group.

Cash paid for taxes during the ﬁscal years ended April 29, 2006, April 30, 2005, and April 24, 2004, was

We acquired 21 La-Z-Boy Furniture Galleries® stores in the fourth quarter of ﬁscal 2005. Combining these

$6.2 million, $23.7 million and $30.0 million, respectively.

acquisitions with existing company-owned stores, the retail operations became a signiﬁcant part of our

NOTE 16: EARNINGS PER SHARE
Basic net income per share is computed using the weighted average number of shares outstanding

during the period. Diluted net income per share uses the weighted average number of shares outstanding

La-Z-Boy Incorporated Annual Report 2006

business. Management determined, based on the signiﬁcance of the retail operations and the criteria of

segment reporting as outlined in SFAS No. 131, Disclosures about Segments of an Enterprise and Related

Information, that retail would be reported in its own segment. We changed our internal reporting structure

to the following three segments: Upholstery, Casegoods and Retail. All segment data was restated to

Information used to evaluate segments is as follows (for the ﬁscal years ended):

reﬂect this change.

(Amounts in thousands)

4/29/06

4/30/05

4/24/04

Upholstery Group. The operating units in the Upholstery Group are Bauhaus, Clayton Marcus, England,

La-Z-Boy, La-Z-Boy UK and Sam Moore. This group primarily manufactures and sells upholstered furniture

to furniture retailers. Upholstered furniture includes recliners and motion furniture, sofas, loveseats, chairs,

ottomans and sleeper sofas.

Casegoods Group. The operating units in the Casegoods Group are American Drew, American of

Martinsville, Hammary, Kincaid, Lea and Pennsylvania House. This group primarily sells manufactured or

imported wood furniture to furniture retailers and the hospitality industry. Casegoods products include tables,

chairs, entertainment centers, headboards, dressers, accent pieces and some coordinated upholstered

furniture for the residential and hospitality markets.

Retail Group. The Retail Group consists of 63 company-owned La-Z-Boy Furniture Galleries® stores

(“the retail network”) located in nine markets ranging from the Midwest to the East Coast of the United

States. The Retail Group sells mostly upholstered furniture to end consumers through the retail network.

Our largest customer represents less than 4.0% of each of our segments’ sales.

The accounting policies of the operating segments are the same as those described in Note 1. Segment

operating income is based on proﬁt or loss from operations before interest expense, other income and

income taxes. Identiﬁable assets are cash and equivalents, notes and accounts receivable, net inventories,

net property, plant and equipment, goodwill and trade names. Our unallocated assets include deferred

income taxes, corporate assets (including a portion of cash and equivalents), VIEs and various other assets.

Substantially all of our long-lived assets were located within the U.S. VIEs are included in Corporate and

other in the following table.

Sales
Upholstery Group
Casegoods Group
Retail Group
VIEs/eliminations
Consolidated

Operating income (loss)
Upholstery Group
Casegoods Group
Retail Group
Restructuring
Write-down of intangibles
Corporate and other
Consolidated

Depreciation and amortization
Upholstery Group
Casegoods Group
Retail Group
Corporate and other
Consolidated

Capital expenditures
Upholstery Group
Casegoods Group
Retail Group
Corporate and other
Consolidated

Assets
Upholstery Group
Casegoods Group
Retail Group
Unallocated assets
Consolidated
Sales by country
United States
Canada
Other

$ 1,347,964
432,307
213,438
(76,932)
1,916,777

$ 1,467,311
455,343
173,099
(47,372)
2,048,381

$ 1,439,253
456,090
128,996
(72,342)
1,951,997

85,253
18,265
(26,006)
(6,643)
(22,695)
(29,048)
19,126

14,410
6,020
3,801
5,003
29,234

15,038
2,771
4,038
6,144
27,991

101,856
5,370
(2,859)
(10,294)
—
(30,422)
63,651

15,511
6,732
2,710
3,376
28,329

13,965
2,930
7,126
10,750
34,771

129,719
2,991
1,295
(10,441)
(71,943)
(23,492)
28,129

16,274
8,968
2,240
1,630
29,112

18,252
3,617
4,236
5,488
31,593

511,733
213,061
103,611
142,769
$ 971,174

583,949
230,873
97,805
113,730
$ 1,026,357

573,868
247,816
65,720
153,510
$ 1,040,914

92%
5%
3%
100%

93%
5%
2%
100%

93%
4%
3%
100%

La-Z-Boy Incorporated Annual Report 2006

NOTE 18: SHARE REPURCHASES
We are authorized to repurchase common stock under the repurchase program approved by our Board of Directors.

At April 29, 2006, approximately 5.9 million additional shares could be repurchased pursuant to the repurchase

operating activities without subordinated ﬁnancial support. However, there are certain independent dealers that we

have determined may not have sufﬁcient equity.

program. Our repurchases were as follows (for the ﬁscal years ended):

Based on the criteria for consolidation of VIEs, as of April 24, 2004, we consolidated several dealers where we were

(Amounts in thousands)

Shares repurchased
Cash used for repurchases

4/29/06

760
$ 10,890

4/30/05

120
$ 2,476

4/24/04

3,379
$ 72,509

the primary beneﬁciary based on the fair value of our variable interests. All of our consolidated VIEs were recorded

at fair value on the date we became the primary beneﬁciary resulting in a cumulative effect of accounting change of

$8.3 million (net of tax of $5.1 million). Because these entities are accounted for as if the entities were consolidated

based on voting interests, we absorb all net losses of the VIEs in excess of the equity at the dealerships. We

NOTE 19: RELATED PARTIES
The current chairman of our Board of Directors, who has announced his intention to retire in August 2006, is a

recognize all net earnings of these VIEs to the extent of recouping the losses we recorded. Earnings in excess of our

losses are attributed to equity owners of the dealers and are shown as minority interest on our ﬁnancial statements.

member and lead director of the Board of Directors of Culp, Inc. Culp provided $33.3 million or 24.9% of the total

During ﬁscal 2005, we eliminated two of our VIEs by acquisition. At the end of the ﬁrst quarter of ﬁscal 2006, we

fabric purchased by us during the ﬁscal year. The purchases from Culp were at prices comparable to other vendors

became the primary beneﬁciary of one additional dealer due to a change in ﬁnancial structure of this dealer.

and under similar terms. Our Chairman has no involvement in our selection or purchase processes related to fabrics.

NOTE 20: VARIABLE INTEREST ENTITIES
Financial Accounting Standards Board Interpretation No. 46R, Consolidation of Variable Interest Entities

Our consolidated VIEs recognized $36.8 million and $46.0 million in sales, net of intercompany eliminations,

in ﬁscal 2006 and ﬁscal 2005, respectively. Additionally, we recognized a net loss per share of $0.09 and

$0.11 in ﬁscal 2006 and ﬁscal 2005, respectively, resulting from the operating results of these VIEs. The VIEs had

(“FIN 46”), which was issued in December 2003, requires the “primary beneﬁciary” of a VIE to include the VIE’s

$8.6 million and $10.2 million of assets net of elimination of intercompany activity at the end of ﬁscal 2006 and

assets, liabilities and operating results in its consolidated ﬁnancial statements. In general, a VIE is a corporation,

ﬁscal 2005, respectively. During the third quarter of ﬁscal 2005, one of the equity owners of our VIEs contributed

partnership, limited-liability corporation, trust or any other legal structure used to conduct activities or hold assets

$2.0 million of capital to their business. Because we consolidated this entity based on voting interests, we recorded

that either (a) has an insufﬁcient amount of equity to carry out its principal activities without additional subordinated

the capital contribution as income in that period to offset previously recorded losses. In ﬁscal 2005, the extraordinary

ﬁnancial support, (b) has a group of equity owners that are unable to make signiﬁcant decisions about its activities,

gain of $3.4 million ($2.1 million net of income taxes) is a result of the application of purchase accounting relating

or (c) has a group of equity owners that do not have the obligation to absorb losses or the right to receive returns

to the acquisition of previously consolidated VIEs.

generated by its operations.

La-Z-Boy Furniture Galleries® stores that are not operated by us are operated by independent dealers. These stores

Our interest in this dealer began in 1992 and is comprised of accounts and notes receivable of $21.8 million,

sell La-Z-Boy manufactured products as well as various accessories purchased from approved La-Z-Boy vendors.

which was evaluated periodically for collectibility. We acquired this business at fair value subsequent to year end.

In some cases we have extended credit beyond normal trade terms to the independent dealers, made direct loans

This acquisition is expected to impact our consolidated sales by less than 1.0% for the full year of ﬁscal 2007.

Additionally, there is an independent dealer that qualiﬁes as a VIE; however, we are not the primary beneﬁciary.

and/or guaranteed certain leases. Most of these independent dealers have sufﬁcient equity to carry out their principal

La-Z-Boy Incorporated Annual Report 2006

MANAGEMENT’S REPORT TO OUR SHAREHOLDERS

upon the framework in Internal Control – Integrated Framework issued by the Committee of Sponsoring

Organizations of the Treadway Commission. Based on that evaluation, our management concluded that

Management’s Responsibility for Financial Information

our internal control over ﬁnancial reporting was effective as of April 29, 2006.

Management of La-Z-Boy Incorporated is responsible for the preparation, integrity and objectivity of

La-Z-Boy Incorporated’s consolidated ﬁnancial statements and other ﬁnancial information contained in this

Management has excluded two La-Z-Boy Furniture Galleries® operations from our assessment of internal

Annual Report to Shareholders. Those consolidated ﬁnancial statements were prepared in conformity with

control over ﬁnancial reporting because we do not have the right or authority to assess the internal controls

accounting principles generally accepted in the United States of America. In preparing those consolidated

of the consolidated entity and we also lack the ability, in practice, to make that assessment. These two

ﬁnancial statements, Management was required to make certain estimates and judgments, which are based

retail furniture businesses were created prior to December 15, 2003, and were consolidated by La-Z-Boy

upon currently available information and Management’s view of current conditions and circumstances.

Incorporated on April 24, 2004, upon the adoption of Financial Accounting Standards Board Interpretation

The Audit Committee of the Board of Directors, which consists solely of independent directors, oversees

excluded businesses represent 0.7% and 1.3%, respectively, of the related consolidated ﬁnancial statement

No. 46R, Consolidation of Variable Interest Entities. The combined total assets and total revenues of the

our process of reporting ﬁnancial information and the audit of our consolidated ﬁnancial statements. The

amounts as of and for the year ended April 29, 2006.

Audit Committee stays informed of the ﬁnancial condition of La-Z-Boy Incorporated and regularly reviews

Management’s ﬁnancial policies and procedures, the independence of our independent auditors, our

PricewaterhouseCoopers LLP, the independent registered public accounting ﬁrm who audited the

internal control and the objectivity of our ﬁnancial reporting. Both the independent auditors and the internal

consolidated ﬁnancial statements included in this annual report, has also audited our management’s

auditors have free access to the Audit Committee and meet with the Audit Committee periodically, both

assessment of the effectiveness of our internal controls over ﬁnancial reporting as of April 29, 2006, and

with and without Management present.

the effectiveness of our internal control over ﬁnancial reporting as of April 29, 2006, as stated in their

opinion which is included herein.

Management’s Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over ﬁnancial

reporting, as such term is deﬁned in Rule 13a-15(f) of the Exchange Act. Under the supervision and with

the participation of our management, including our Chief Executive Ofﬁcer and Chief Financial Ofﬁcer,

Kurt L. Darrow

David M. Risley

we conducted an evaluation of the effectiveness of our internal control over ﬁnancial reporting based

President and Chief Executive Ofﬁcer

Senior VP and Chief Financial Ofﬁcer

La-Z-Boy Incorporated Annual Report 2006

REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM

statements are free of material misstatement. An audit of ﬁnancial statements

includes examining, on a test basis, evidence supporting the amounts and

disclosures in the ﬁnancial statements, assessing the accounting principles

used and signiﬁcant estimates made by management, and evaluating the overall

ﬁnancial statement presentation. We believe that our audits provide a reasonable

To the Board of Directors and Shareholders of La-Z-Boy Incorporated:

basis for our opinion.

We have completed integrated audits of La-Z-Boy Incorporated’s ﬁscal 2006

As discussed in Note 20 to the consolidated ﬁnancial statements, on April 24,

and ﬁscal 2005 consolidated ﬁnancial statements and of its internal control

2004, the company adopted Financial Accounting Standards Board Interpretation

over ﬁnancial reporting as of April 29, 2006 and an audit of its ﬁscal 2004

No. 46R, “Consolidation of Variable Interest Entities.”

consolidated ﬁnancial statements in accordance with the standards of the Public

Company Accounting Oversight Board (United States). Our opinions, based on

our audits, are presented below.

Consolidated Financial Statements
In our opinion, the accompanying consolidated ﬁnancial statements present

Internal Control Over Financial Reporting
Also, in our opinion, management’s assessment, included in the accompanying

Management’s Report on Internal Control over Financial Reporting, that the

Company maintained effective internal control over ﬁnancial reporting as of

April 29, 2006 based on criteria established in Internal Control – Integrated

fairly, in all material respects, the ﬁnancial position of La-Z-Boy Incorporated

Framework issued by the Committee of Sponsoring Organizations of the Treadway

and its subsidiaries at April 29, 2006 and April 30, 2005, and the results of their

Commission (COSO), is fairly stated, in all material respects, based on those

operations and their cash ﬂows for each of the three ﬁscal years in the period

criteria. Furthermore, in our opinion, the Company maintained, in all material

ended April 29, 2006 in conformity with accounting principles generally accepted

respects, effective internal control over ﬁnancial reporting as of April 29, 2006,

in the United States of America. These ﬁnancial statements are the responsibility

based on criteria established in Internal Control – Integrated Framework issued

of the Company’s management. Our responsibility is to express an opinion on

by the COSO. The Company’s management is responsible for maintaining

these ﬁnancial statements based on our audits. We conducted our audits of these

effective internal control over ﬁnancial reporting and for its assessment of the

statements in accordance with the standards of the Public Company Accounting

effectiveness of internal control over ﬁnancial reporting. Our responsibility is to

Oversight Board (United States). Those standards require that we plan and

express opinions on management’s assessment and on the effectiveness of the

perform the audit to obtain reasonable assurance about whether the ﬁnancial

Company’s internal control over ﬁnancial reporting based on our audit.

La-Z-Boy Incorporated Annual Report 2006

We conducted our audit of internal control over ﬁnancial reporting in accordance

Because of its inherent limitations, internal control over ﬁnancial reporting may

with the standards of the Public Company Accounting Oversight Board (United

not prevent or detect misstatements. Also, projections of any evaluation of

States). Those standards require that we plan and perform the audit to obtain

effectiveness to future periods are subject to the risk that controls may become

reasonable assurance about whether effective internal control over ﬁnancial

inadequate because of changes in conditions, or that the degree of compliance

reporting was maintained in all material respects. An audit of internal control over

with the policies or procedures may deteriorate.

ﬁnancial reporting includes obtaining an understanding of internal control over

ﬁnancial reporting, evaluating management’s assessment, testing and evaluating

As described in the accompanying Management’s Report on Internal Control over

the design and operating effectiveness of internal control, and performing such

Financial Reporting, management has excluded two La-Z-Boy Furniture Galleries®

other procedures as we consider necessary in the circumstances. We believe that

operations from its assessment of internal control over ﬁnancial reporting

our audit provides a reasonable basis for our opinions.

because the Company does not have the right or authority to assess the internal

controls of the consolidated entity and also lacks the ability, in practice, to make

A company’s internal control over ﬁnancial reporting is a process designed to

that assessment. These two retail furniture operations were created prior to

provide reasonable assurance regarding the reliability of ﬁnancial reporting and

December 15, 2003, and were consolidated by the Company on April 24, 2004

the preparation of ﬁnancial statements for external purposes in accordance with

upon the adoption of Financial Accounting Standards Board Interpretation (FIN)

generally accepted accounting principles. A company’s internal control over

No. 46R, Consolidation of Variable Interest Entities. The combined total assets and

ﬁnancial reporting includes those policies and procedures that (i) pertain to the

total revenues of the excluded businesses represent 0.7% and 1.3%, respectively,

maintenance of records that, in reasonable detail, accurately and fairly reﬂect the

of the related consolidated ﬁnancial statement amounts as of and for the year

transactions and dispositions of the assets of the company; (ii) provide reasonable

ended April 29, 2006.

assurance that transactions are recorded as necessary to permit preparation of

ﬁnancial statements in accordance with generally accepted accounting principles,

and that receipts and expenditures of the company are being made only in

accordance with authorizations of management and directors of the company;

Toledo, Ohio

and (iii) provide reasonable assurance regarding prevention or timely detection of

June 22, 2006

unauthorized acquisition, use, or disposition of the company’s assets that could

have a material effect on the ﬁnancial statements.

La-Z-Boy Incorporated Annual Report 2006

CONSOLIDATED FIVE-YEAR SUMMARY OF SELECTED FINANCIAL DATA

(Amounts in thousands, except per share data)

Fiscal Year Ended
Sales
Cost of sales

Cost of goods sold
Restructuring
Total cost of sales
Gross proﬁt

Selling, general and administrative
Write-down of intangibles
Loss on divestiture

Operating income

Interest expense
Other income, net

Income from continuing operations before income taxes

Income tax expense

Income (loss) from continuing operations
Income (loss) from discontinued operations (net of tax)
Extraordinary gains (net of tax)
Cumulative effect of accounting change (net of tax)

Net income (loss)

Diluted weighted average shares outstanding

Diluted income (loss) from continuing operations per share
Diluted net income (loss) per share
Dividends declared per share
Book value on year-end shares outstanding
Return on average shareholders’ equity*
Gross proﬁt as a percent of sales
Operating proﬁt as a percent of sales
Effective tax rate
Return on sales*

Depreciation and amortization
Capital expenditures
Property, plant and equipment, net
Working capital
Current ratio
Total assets
Long-term debt
Total debt
Shareholders’ equity
Ratio of total debt-to-equity
Ratio of total debt-to-capital
Shareholders
Employees

* Based on income from continuing operations.

La-Z-Boy Incorporated Annual Report 2006

4/29/06
(52 weeks)
$ 1,916,777

1,457,965
6,643
1,464,608
452,169

410,348
22,695
—
19,126

11,540
1,847
9,433
12,474
(3,041)
—
—
—
$ (3,041)

51,801

$ (0.06)
$ (0.06)
$ 0.44
$ 9.86
(0.6%)
23.6%
1.0%
132.2%
(0.2%)
$ 29,234
$ 27,991
$ 209,986
$ 356,149
2.6 to 1
$ 971,174
$ 173,368
$ 184,212
$ 510,345
36.1%
26.5%
31,900
13,400

4/30/05
(53 weeks)
$ 2,048,381

1,572,844
10,294
1,583,138
465,243

401,592
—
—
63,651

10,442
170
53,379
20,284
33,095
1,996
2,094
—
$ 37,185

52,138

$ 0.63
$ 0.71
$ 0.44
$ 10.10
6.3%
22.7%
3.1%
38.0%
1.6%
$ 28,329
$ 34,771
$ 210,565
$ 409,641
2.8 to 1
$ 1,026,357
$ 213,549
$ 226,309
$ 527,286
42.9%
30.0%
26,500
14,820

4/24/04
(52 weeks)
$ 1,951,997

1,509,864
10,441
1,520,305
431,692

331,620
71,943
—
28,129

11,253
4,364
21,240
19,362
1,878
650
—
(8,324)
$ (5,796)

53,679

$ 0.04
$ (0.11)
$ 0.40
$ 10.04
0.3%
22.1%
1.4%
88.7%
0.1%
$ 29,112
$ 31,593
$ 212,739
$ 363,771
2.3 to 1
$ 1,040,914
$ 181,807
$ 224,370
$ 522,328
43.0%
30.0%
28,500
16,125

4/26/03
(52 weeks)
$ 2,064,198

1,578,789
1,070
1,579,859
484,339

320,943
—
—
163,396

10,510
2,621
155,507
59,093
96,414
(316)
—
(59,782)
$ 36,316

57,435

$ 1.68
$ 0.63
$ 0.40
$ 11.08
14.6%
23.5%
7.9%
38.0%
4.7%
$ 30,695
$ 32,821
$ 209,411
$ 464,907
3.2 to 1
$ 1,123,066
$ 222,371
$ 223,990
$ 609,939
36.7%
26.9%
29,100
16,970

4/27/02
(52 weeks)
$ 2,101,741

1,624,477
22,187
1,646,664
455,077

342,819
—
11,689
100,569

10,063
2,299
92,805
28,690
64,115
(2,364)
—
—
$ 61,751

61,125

$ 1.05
$ 1.01
$ 0.36
$ 11.90
9.1%
21.7%
4.8%
30.6%
3.1%
$ 43,988
$ 32,966
$ 205,463
$ 445,850
3.0 to 1
$ 1,161,827
$ 139,386
$ 141,662
$ 713,522
19.9%
16.6%
33,000
17,850

UNAUDITED QUARTERLY FINANCIAL INFORMATION

(Amounts in thousands, except per share data)

Quarter Ended

Sales
Cost of sales

Cost of goods sold
Restructuring

Total cost of sales

Gross proﬁt

Selling, general and administrative
Write-down of intangibles

Operating income (loss)

Interest expense
Other income, net

Income (loss) from continuing operations before income taxes

Income tax expense (beneﬁt)

Income (loss) from continuing operations

Income from discontinued operations (net of tax)
Extraordinary gains (net of tax)

Net income (loss)

Diluted weighted average shares outstanding
Diluted income (loss) from continuing operations per share
Diluted net income (loss) per share

Quarter Ended

Sales
Cost of sales

Cost of goods sold
Restructuring

Total cost of sales

Gross proﬁt

Selling, general and administrative

Operating income (loss)

Interest expense
Other income (expense), net

Income (loss) from continuing operations before income taxes

Income tax expense (beneﬁt)

Income (loss) from continuing operations

Income from discontinued operations (net of tax)
Cumulative effect of accounting change (net of tax)

Net income (loss)

Diluted weighted average shares outstanding
Diluted income (loss) from continuing operations per share
Diluted net income (loss) per share

7/30/05
(13 weeks)

$ 451,487

345,018
—

345,018

106,469
98,568
—

7,901
2,741
15

5,175
1,967

3,208
—
—

$ 3,208

52,195
$ 0.06
$ 0.06

7/24/04
(13 Weeks)

$ 455,107

351,716
10,400

362,116

92,991
97,045

(4,054)
2,209
373

(5,890)
(2,238)

(3,652)
129
—

$ (3,523)

51,967
$ (0.07)
$ (0.07)

10/29/05
(13 Weeks)

$ 454,605

354,409
7,817

362,226

92,379
99,597
—

(7,218)
3,090
295

(10,013)
(3,566)

(6,447)
—
—

$ (6,447)

51,655
$ (0.12)
$ (0.12)

10/23/04
(13 Weeks)

$ 520,760

400,834
749

401,583

119,177
103,874

15,303
2,607
(354)

12,342
4,690

7,652
506
702

$ 8,860

52,101
$ 0.15
$ 0.17

1/28/06
(13 Weeks)

$ 502,323

377,937
594

378,531

123,792
105,301
—

18,491
2,965
1,395

16,921
6,453

10,468
—
—

$ 10,468

51,857
$ 0.20
$ 0.20

1/22/05
(13 Weeks)

$ 506,959

385,353
2,252

387,605

119,354
99,620

19,734
2,684
273

17,323
6,583

10,740
352
—

$ 11,092

52,193
$ 0.21
$ 0.21

4/29/06
(13 Weeks)

$ 508,362

380,601
(1,768)

378,833

129,529
106,882
22,695

(48)
2,744
142

(2,650)
7,620

(10,270)
—
—

$ (10,270)

51,747
$ (0.20)
$ (0.20)

4/30/05
(14 Weeks)

$ 565,555

434,941
(3,107)

431,834

133,721
101,053

32,668
2,942
(122)

29,604
11,249

18,355
1,009
1,392

$ 20,756

52,262
$ 0.35
$ 0.40

La-Z-Boy Incorporated Annual Report 2006

DIVIDEND AND MARKET INFORMATION

Fiscal 2006
Quarter Ended

July 30

Oct. 29

Jan. 28

April 29

Fiscal
Year

2006

2005

2004

2003

2002

Dividends
Paid

$ 0.11

0.11

$ 0.44

Dividends
Paid

$ 0.44

0.44

0.40

$ 0.36

High

$ 15.32

14.59

16.15

$ 17.25

Dividend
Yield

3.1%

2.8%

1.9%

1.7%

Market Price

Low

$ 11.59

10.13

11.51

$ 14.91

Dividend
Payout Ratio

(733.3%)*

62.0%

800.0%**

24.0%

35.6%

$ 13.37

11.66

16.10

$ 15.32

High

$ 17.04

21.97

24.75

30.25

$ 30.94

Fiscal 2005
Quarter Ended

July 24

Oct. 23

Jan. 22

April 30

Market Price

Low

$ 10.13

11.77

18.25

16.20

$ 14.70

Dividends
Paid

$ 0.11

0.11

$ 0.44

$ 15.32

11.84

21.85

18.07

$ 30.20

High

$ 21.97

17.44

15.80

$ 16.40

Fiscal Year End
Market Value
(in Millions)

$ 793

618

1,137

994

$ 1,811

Market Price

Low

$ 16.61

12.80

12.75

$ 11.77

High

(284)*

495**

P/E Ratio

$ 16.63

13.42

13.27

$ 11.84

Low

(169)*

365**

*Fiscal 2006 includes a $22.7 million after-tax write-down of intangibles which decreases the dividend payout ratio by 849.1 percentage points, the high P/E ratio by 329 and the low P/E ratio by 196.

**Fiscal 2004 includes a $55.9 million after-tax write-down of intangibles, which increases the dividend payout ratio by 736.3 percentage points, the high P/E ratio by 472 and the low P/E ratio by 348.

La-Z-Boy Incorporated common shares are traded on the NYSE and PCX (symbol LZB).

2006, 2005 and 2004 ratios are based on income before the cumulative effect of accounting change and the extraordinary item.

La-Z-Boy Incorporated Annual Report 2006

LA-Z-BOY COMPANIES ONLINE

www.lazboy.com

www.americandrew.com

www.americanofmartinsville.com

www.bauhaususa.com

www.claytonmarcus.com

www.englandfurniture.com

www.hammary.com

www.kincaidfurniture.com

www.leafurniture.com

www.lazboykidz.com

www.pennsylvaniahouse.com

www.sammoore.com

www.la-z-boy.co.uk

La-Z-Boy Incorporated, 1284 North Telegraph Road, Monroe, Michigan 48162-3390 Items shown on cover (from left): The Folding Porch Chair, Americana, Lectra-Lounger, Wendell and Carlyle chairs by La-Z-Boy.